As filed with the Securities and Exchange Commission on May 31, 1996
Securities Act of 1933 Registration No. 33-2697
Investment Company Act of 1940 File No. 811-4559
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Pre-Effective Amendment No. ____ |_|
Post-Effective Amendment No. 16 |X|
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 17 |X|
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--------------------
STATE STREET RESEARCH INCOME TRUST
-------------------------------------
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
--------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 357-1200
Francis J. McNamara, III
Senior Vice President, Secretary & General Counsel
State Street Research & Management Company
One Financial Center
Boston, Massachusetts 02111
--------------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
Donald J. Evans, P.C.
Edward T. O'Dell, P.C.
Goodwin, Procter & Hoar
Exchange Place, Boston, Massachusetts 02109
It is proposed that this filing will become effective under Rule 485:
|_| Immediately upon filing pursuant to paragraph (b).
|_| On ______________ pursuant to paragraph (b).
|_| 60 days after filing pursuant to paragraph (a)(1).
|X| On August 1, 1996 pursuant to paragraph (a)(1).
|_| 75 days after filing pursuant to paragraph (a)(2).
|_| On ____________ pursuant to paragraph (a)(2).
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
--------------------
<PAGE>
The Registrant hereby declares that, pursuant to Rule 24f-2 promulgated
under the Investment Company Act of 1940, as amended, it has registered an
indefinite number of shares of beneficial interest, par value $.001 per share,
in each of the State Street Research High Income Fund series and the State
Street Research Managed Assets series of the Registrant, which shares are
designated as Class A shares, Class B shares, Class C shares and Class D shares
of beneficial interest in each such series.
A Rule 24f-2 Notice for the most recent fiscal year ended March 31, 1996,
was filed by the Registrant on or about May 30, 1996 with respect to such
shares.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Part A
------
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN CAPTION OR LOCATION
PROSPECTUS FOR STATE IN PROSPECTUS FOR
STREET RESEARCH HIGH STATE STREET RESEARCH
FORM N-1A ITEM NO. INCOME FUND MANAGED ASSETS
- ------------------------------ ---------------------------------- ---------------------------------
<S> <C> <C>
1. Cover Page ............... Same Same
2. Synopsis ................. Table of Expenses Table of Expenses
3. Condensed Financial Financial Highlights; Financial Highlights;
Information .............. Calculation of Performance Calculation of Performance
Data Data
4. General Description The Fund's Investments; Other The Fund's Asset Allocation
of Registrant ............ Investment Policies; The Fund and Investments; Other
and Its Shares; Appendix Investment Policies and
Considerations; The Fund
and Its Shares; Appendix
5. Management of the Management of the Fund; Management of the Fund;
Fund ..................... Purchase of Shares Purchase of Shares
5A. Management's [To be included [To be included
Discussion in Financial in Financial
of Fund Performance ...... Statements] Statements]
6. Capital Stock and Shareholder Services; The Shareholder Services; The
Other Securities ......... Fund and Its Shares; Fund and Its Shares;
Management of the Management of the
Fund; Dividends Fund; Dividends and
and Distributions; Taxes Distributions; Taxes
7. Purchase of
Securities Being Purchase of Shares; Purchase of Shares;
Offered .................. Shareholder Services Shareholder Services
8. Redemption or Redemption of Shares; Redemption of Shares;
Repurchase ............... Shareholder Services Shareholder Services
9. Legal Proceedings ........ Not Applicable Not Applicable
</TABLE>
i
<PAGE>
Part B
------
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN CAPTION OR LOCATION
STATEMENT OF ADDITIONAL IN STATEMENT OF
INFORMATION FOR STATE ADDITIONAL INFORMATION FOR
STREET RESEARCH HIGH STATE STREET RESEARCH
FORM N-1A ITEM NO. INCOME FUND MANAGED ASSETS
- ------------------------------ ---------------------------------- ---------------------------------
<S> <C> <C>
10. Cover Page ............... Same Same
11. Table of Contents ........ Same Same
12. General Information
and History .............. Not Applicable Not Applicable
13. Investment Additional Investment Additional Investment
Objectives Policies and Restrictions; Policies and Restrictions;
and Policies ............. Additional Information Additional Information
Concerning Certain Concerning Certain
Investment Techniques; Investment Techniques;
Debt Instruments Additional Information
and Permitted Cash Investments; Concerning Investment
Portfolio Transactions Sectors; Portfolio
Transactions
14. Management of the
Registrant ............... Trustees and Officers Trustees and Officers
15. Control Persons and
Principal Holders of
Securities ............... Trustees and Officers Trustees and Officers
16. Investment Investment Advisory Services; Investment Advisory
Advisory and Custodian; Independent Services; Custodian;
Other Services ........... Accountants; Distribution of Independent Accountants;
Shares of the Fund Distribution of Shares of the
Fund
17. Brokerage
Allocation ............... Portfolio Transactions Portfolio Transactions
18. Capital Stock and Not Applicable (Description in Not Applicable (Description
Other Securities ......... Prospectus) in Prospectus)
19. Purchase, Redemption
and Pricing of
Securities Being Purchase and Redemption of Shares; Purchase and Redemption
Offered .................. Net Asset Value of Shares; Net Asset Value
20. Tax Status ............... Certain Tax Matters Certain Tax Matters
21. Underwriters ............. Distribution of Shares of the Distribution of Shares of the
Fund Fund
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN CAPTION OR LOCATION
STATEMENT OF ADDITIONAL IN STATEMENT OF
INFORMATION FOR STATE ADDITIONAL INFORMATION FOR
STREET RESEARCH HIGH STATE STREET RESEARCH
FORM N-1A ITEM NO. INCOME FUND MANAGED ASSETS
- ------------------------------ ---------------------------------- ---------------------------------
<S> <C> <C>
22. Calculation of
Performance
Data ..................... Calculation of Performance Data Calculation of Performance Data
23. Financial Financial Financial
Statements ............... Statements Statements
</TABLE>
iii
<PAGE>
State Street Research
High Income Fund
Prospectus - August 1, 1996
STATE STREET RESEARCH HIGH INCOME FUND (the "Fund") seeks primarily, high
current income and, secondarily, capital appreciation, from investments in
fixed income securities. In selecting investments for the Fund, the
investment manager seeks to identify those fixed income securities which it
believes will not involve undue risk. Certain of the Fund's investments,
however, may be considered predominantly speculative.
State Street Research & Management Company serves as investment adviser
for the Fund (the "Investment Manager"). As of June 30, 1996, the Investment
Manager had assets of approximately $ 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, 1996 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 State Street Research 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 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 FUND'S
INVESTMENTS," PAGES 7 AND 8 AND "APPENDIX--DESCRIPTION OF DEBT/BOND RATINGS,"
PAGES 29 TO 30.
Table of Contents Page
-----------------------------------------------------------------------------
Table of Expenses 2
Financial Highlights 4
The Fund's Investments 6
Other Investment Policies 7
Purchase of Shares 10
Redemption of Shares 18
Shareholder Services 20
The Fund and Its Shares 24
Management of the Fund 25
Dividends and Distributions; Taxes 26
Calculation of Performance Data 27
Appendix--Description of Debt/Bond Ratings 30
-----------------------------------------------------------------------------
<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 offered only 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>
<CAPTION>
Table of Expenses 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 Fee 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
thereafter 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 0.65% 0.65% 0.65% 0.65%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.27% 0.27% 0.27% 0.27%
------ ------ ------ --------
Total Fund Operating Expenses 1.17% 1.92% 0.92% 1.92%
====== ====== ====== ========
</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>
1 Year 3 Years 5 Years 10 Years
------- -------- -------- -----------
<S> <C> <C> <C> <C>
Class A shares $56 $80 $106 $181
Class B shares (1) $69 $90 $124 $205
Class C shares $ 9 $29 $ 51 $113
Class D shares $29 $60 $104 $224
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------- -------- -------- -----------
<S> <C> <C> <C> <C>
Class B shares (1) $19 $60 $104 $205
Class D shares $19 $60 $104 $224
</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, 1996;
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."
3
<PAGE>
Financial Highlights
The data set forth below has been audited by Price Waterhouse LLP,
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 "Financial Statements" in
the Statement of Additional Information. 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."
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------
Year ended March 31
----------------------------------------------------------
1996*** 1995*** 1994 1993 1992
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $5.80 $6.43 $6.32 $5.95 $5.21
Net investment
income* .52 .61 .66 .67 .71
Net realized and
unrealized gain
(loss) on
investments and
foreign currency .20 (.58) .22 .37 .72
Dividends from net
investment income (.56) (.60) (.62) (.67) (.69)
Distributions from
net realized gains (.01) (.06) (.15) -- --
------ ------ ------ ------ --------
Net asset value, end
of year $5.95 $5.80 $6.43 $6.32 $5.95
====== ====== ====== ====== ========
Total return 12.85%+ 1.80%+ 14.58%+ 18.70%+ 28.99%+
Net assets at end of
year (000s) $646,473 $618,462 $650,755 $496,352 $308,921
Ratio of operating
expenses to
average net
assets* 1.17% 1.23% 1.16% 1.15% 1.17%
Ratio of net
investment income
to average net
assets* 8.88% 10.19% 10.41% 11.25% 12.71%
Portfolio turnover
rate 56.47% 31.55% 24.36% 79.39% 72.62%
*Reflects voluntary
assumption of fees
or expenses per
share in each year -- $0.00 -- --
</TABLE>
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------
August 25, 1986
Year ended March 31 (Commencement
-------------------------------------------- of Operations) to
1991 1990 1989 1988 March 31, 1987
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of year $5.88 $7.20 $7.22 $7.73 $7.40
Net investment
income* .75 .88 .84 .85 .48
Net realized and
unrealized gain
(loss) on
investments and
foreign currency (.67) (1.31) (.01) (.52) .33
Dividends from net
investment income (.75) (.89) (.85) (.83) (.48)
Distributions from
net realized gains -- -- -- (.01) --
------ ------ ------ ------ ----------------
Net asset value, end
of year $5.21 $5.88 $7.20 $7.22 $7.73
====== ====== ====== ====== ================
Total return 2.18%+ (6.72%)+ 12.32%+ 4.79%+ 11.34%+++
Net assets at end of
year (000s) $195,739 $157,987 $88,681 $41,637 $25,809
Ratio of operating
expenses to
average net
assets* 1.21% 1.24% 1.25% 1.25% 1.25%++
Ratio of net
investment income
to average net
assets* 14.21% 13.46% 11.85% 11.90% 10.62%++
Portfolio turnover
rate 58.15% 52.46% 110.92% 126.68% 39.75%
*Reflects voluntary
assumption of fees
or expenses per
share in each year -- $0.00 $0.01 $0.02 $0.01
</TABLE>
***Per-share figures have been calculated using the average shares method.
++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 charges.
-----------------------------------------------------------------------------
4
<PAGE>
<TABLE>
<CAPTION>
Class B Class C
---------------------------------- -----------------------------
Year ended March 31 Year ended March 31
---------------------------------- -----------------------------
1996*** 1995*** 1994** 1996*** 1995*** 1994**
--------- --------- -------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $5.79 $6.42 $6.34 $5.78 $6.42 $6.34
Net investment income* .46 .57 .51 .53 .64 .57
Net realized and unrealized
gain (loss) on investments
and foreign currency .21 (.58) .15 .20 (.60) .14
Dividends from net
investment income (.52) (.56) (.48) (.58) (.62) (.53)
Distributions from net
realized gains (.01) (.06) (.10) (.01) (.06) (.10)
------- ------- ------ ---- ---- -------
Net asset value, end of year $5.93 $5.79 $6.42 $5.92 $5.78 $6.42
======= ======= ====== ==== ==== =======
Total return 12.06%+ 0.89%+ 10.76%+++ 13.19%+ 1.73%+ 11.67%+++
Net assets at end of year
(000s) $185,735 $117,767 $67,337 $3,840 $2,579 $851
Ratio of operating expenses
to average net assets* 1.92% 1.98% 1.93%++ 0.92% 0.98% 0.93%++
Ratio of net investment
income to average net
assets* 7.95% 9.65% 10.32%++ 8.97% 10.85% 11.32%++
Portfolio turnover rate 56.47% 31.55% 24.36% 56.47% 31.55% 24.36%
*Reflects voluntary
assumption of fees or
expenses per share in each
year -- $0.00 -- $0.00
</TABLE>
<TABLE>
<CAPTION>
Class D
------------------------------------
Year ended March 31
------------------------------------
1996*** 1995*** 1994**
--------- --------- ----------
<S> <C> <C> <C>
Net asset value, beginning
of year $5.79 $6.42 $6.34
Net investment income* .46 .58 .51
Net realized and unrealized
gain (loss) on investments
and foreign currency .21 (.59) .15
Dividends from net
investment income (.52) (.56) (.48)
Distributions from net
realized gains (.01) (.06) (.10)
------- ------- --------
Net asset value, end of year $5.93 $5.79 $6.42
======= ======= ========
Total return 12.05%+ 0.88%+ 10.74%+++
Net assets at end of year
(000s) $15,262 $6,766 $2,661
Ratio of operating expenses
to average net assets* 1.92% 1.98% 1.93%++
Ratio of net investment
income to average net
assets* 7.91% 9.81% 10.32%++
Portfolio turnover rate 56.47% 31.55% 24.36%
*Reflects voluntary
assumption of fees or
expenses per share in each
year -- $0.00
</TABLE>
**June 1, 1993 (commencement of share class designations) to March 31,
1994.
***Per-share figures have been calculated using the average shares method.
++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.
5
<PAGE>
The Fund's Investments
The investment objective of the Fund is to seek, primarily, high current
income and, secondarily, capital appreciation, from investments in fixed
income securities. The investment objective is a fundamental policy and may
not be changed without approval of the shareholders of the Fund.
There are risks in any investment program, and there is no assurance that
the 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 Fund 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.
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. Where an investment is split rated, the Fund may invest on the basis
of the higher rating. Where an investment is only rated by one rating agency,
the Fund may invest on the basis of a higher rating derived from its own
analysis. 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 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, 1996, 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: 4% BB, 65% B, 15% CCC and 1% D, on a
dollar weighted basis, comprising 85% of total investments. Of these bonds,
79% were rated by a nationally recognized statistical rating organization and
21% 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 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 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.
The Fund may invest up to 15% of its net assets in illiquid securities,
including repurchase agreements
6
<PAGE>
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 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.
Portfolio Maturity and Turnover
The Fund's holdings may include issues across the maturity spectrum.
Ordinarily the 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.
The 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 Fund and may result in an increase in the
realization of short-term capital gains.
Other Investment Policies
Fixed income securities in which the 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
7
<PAGE>
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. The Fund will be required to
distribute all or substantially all of such amounts annually to its
shareholders. These distributions may cause the Fund to liquidate portfolio
assets in order to make such distributions at a time when the Fund may have
otherwise chosen not to sell such securities. The amount of the discount
fluctuates with the market value of such securities, which may be more
volatile than that of securities which pay interest at regular intervals.
The Fund may invest up to 20% 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 (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 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 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 order to protect against the effect of uncertain future exchange rates
on securities denominated in foreign currencies, the Fund may engage in
currency exchange transactions either on a spot (i.e., cash) basis at the
rate prevailing in the currency exchange market or by entering into forward
contracts to purchase or sell currencies. Although such contracts tend to
minimize the risk of loss resulting from a correctly predicted decline in
value of hedged currency, they tend to limit any potential gain that might
result should the value of such currency increase. In entering a forward
currency transaction, the Fund is dependent upon the creditworthiness and
good faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by the counterparty by dealing only with established, large
institutions with which the Investment Manager has done substantial business
in the past. For further information, see the Statement of Additional
Information.
In seeking to lessen investment risk, the Fund operates under certain
fundamental and nonfundamental investment restrictions.
Under pending changes to the fundamental investment restrictions, the Fund
may not (a)
8
<PAGE>
purchase a security of any one issuer (other than securities issued or
guaranteed as to principal or interest by the U.S. Government or its agencies
or instrumentalities or mixed-ownership Government corporations) if such
purchase would, with respect to 75% of the Fund's total assets, cause more
than 5% of the Fund's total assets to be invested in the securities of such
issuer or cause more than 10% of the voting securities of such issuer to be
held by the Fund or (b) invest more than 25% of the Fund's total assets in
securities of issuers principally engaged in any one industry. The foregoing
fundamental investment restrictions may not be changed except by vote of the
holders of a majority of the outstanding voting securities of the Fund.
Under the nonfundamental investment restrictions, the Fund may not invest
more than 15% of its total assets in illiquid securities including repurchase
agreements extending for more than seven days and may not invest more than 5%
of its total assets in restricted securities excluding securities eligible
for resale under Rule 144A under the Securities Act of 1933. Although many
illiquid securities may also be restricted, and vice versa, compliance with
each of these policies will be determined independently. The foregoing
nonfundamental investment restrictions may be changed without a shareholder
vote.
For further information on the above and other fundamental and
nonfundamental investment restrictions, see the Statement of Additional
Information.
Under a pending change in policy, the Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. The Fund will receive cash
or cash equivalents (e.g., U.S. Government obligations) as collateral in an
amount equal to at least 100% of the current market value of the loaned
securities plus accrued interest. Collateral received by the Fund will
generally be held in the form tendered, although cash may be invested in
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, irrevocable stand-by letters of credit issued by a bank,
or any combination thereof. The investing of cash collateral received from
loaning portfolio securities involves leverage which magnifies the potential
for gain or loss on monies invested and, therefore, results in an increase in
the volatility of the Fund's outstanding securities. Such loans may be
terminated at any time.
The Fund will retain most rights of ownership including rights to
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending, although the Fund may call loans to vote
proxies if desired. Should the borrower of the securities fail financially,
there is a risk of delay in recovery of the securities or loss of rights in
the collateral. Loans are made only to borrowers which are deemed by the
Investment Manager to be of good financial standing.
The Fund may buy and sell options, futures contracts and options on
futures contracts on securities, securities indices and currencies, and enter
into closing transactions with respect thereto. The Fund may not establish a
position in a commodity futures contract or purchase or sell a commodity
option contract for other than bona fide hedging purposes if immediately
thereafter the sum of the amount of initial margin deposits and premiums
required to establish such positions for such nonhedging purposes would
exceed 5% of the market value of the Fund's net assets; similar policies
apply to options which are not commodities. 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 purchase securities on a "when- issued," forward commitment
or delayed delivery basis and invest up to 30% of its total assets in
repurchase agreements, subject to certain limitations. 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.
9
<PAGE>
The Fund may hold up to 100% of its assets in cash or short-term
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against adverse market
conditions than adherence to the Fund's other investment policies. The types
of short-term instruments in which the Fund 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.
-----------------------------------------------------------------------------
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 10 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.
10
<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 = State Street Research High Income 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.
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. The Fund reserves
the right to suspend the sale of shares, or to reject any purchase order,
including orders in connection with exchanges, for any reason.
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 (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
</TABLE>
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments 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 for reinvestment of dividends and distributions or for
periodic investments (e.g., Investamatic Check Program).
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 commissions and other compensation depending on which
class of shares they sell.
11
<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>
12
<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 that
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 Distributor may also compensate brokers
for maintaining investments over a period of years. The incentives may
include merchandise and trips to and attendance at sales seminars at 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
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%
---------------------------------------------------------------
$1 million and See
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 based on the aggregate of such sales as follows:
13
<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 other redemptions 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 described
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. 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. Information on
such arrangements and further conditions and limitations is available from
the Distributor.
14
<PAGE>
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, Distributor, or any affiliated entities, including any
direct or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated
Companies, any relatives of any such individuals whose relationship is
directly verified by such individuals to the Distributor, or any beneficial
account for such relatives or individuals; 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 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 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.
15
<PAGE>
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) 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 at any time; for example, the Fund may limit the
application of multiple waivers.
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.
In general, Class C shares are only available for new investments by
certain large institutions, and large employee benefit plans which acquire
shares through programs or products sponsored by the Metropolitan Life
Insurance Company and/or its affiliates, for which Class C shares have been
designated. 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 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 other
redemptions as described under "Contingent Deferred
16
<PAGE>
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 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. The 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 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 pay or reimburse securities
dealers (including securities dealers that are affiliates of the Distributor)
or others for personal services and/or the maintenance or servicing 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 or
servicing 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
17
<PAGE>
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 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 the Fund may pay for such distribution costs to 6.25%
of gross share sales of a class since the inception of any asset-based sales
charge plus interest at the prime rate plus 1% on unpaid amounts thereof
(less any contingent deferred sales charges). Such limitation does not apply
to shareholder service fees. Payments to the Distributor or to dealers funded
under the Distribution Plan may be discontinued at any time 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 from the Fund are normally remitted within seven
days after receipt of the redemption request by the Fund 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 risks associated with Telephone Privileges.
Request By Check (Class A Shares Only)
Shareholders of Class A shares of the Fund may redeem shares by checks drawn
on State Street Bank and Trust Company. Checks may be made payable to the
order of any person or organization designated by the shareholder and must be
for amounts of at least $500 but not more than $100,000. Shareholders will
continue to earn dividends on the shares to be
18
<PAGE>
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 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, the Fund has authorized the Distributor
as its agent to accept orders from dealers by wire or telephone for the
repurchase of shares by the Distributor from the dealer. The Fund may revoke
or suspend this authorization at any time. The repurchase price is the net
asset value for the applicable shares next determined following the time at
which the shares are offered for repurchase by the dealer to the Distributor.
The dealer is responsible for promptly transmitting a shareholder's order to
the Distributor. 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 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 to the affected shareholder at the
address of record. Currently, the maintenance fee is $18 annually, which is
paid to the Transfer
19
<PAGE>
Agent. The fee does not apply to certain retirement accounts or if the
shareholder has more than an aggregate $50,000 invested in the Fund and other
Eligible Funds combined. Imposition of a maintenance fee on a small account
could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment
of redemption proceeds: (1) during any period that the NYSE is closed (other
than customary weekend and holiday closings) or trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the Fund's net asset 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 otherwise provided under "Redemption
of Shares" herein.
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 help the Transfer
Agent to determine that the person who has authorized a redemption from the
account is, in fact, the shareholder. Signature guarantees are required for,
among other things: (1) written requests for redemptions for more than
$50,000; (2) written requests for redemptions for any amount if the proceeds
are transmitted to other than the current address of record (unchanged in the
past 30 days); (3) written requests for redemptions for any amount submitted
by corporations and certain fiduciaries and other intermediaries; (4)
requests to transfer the registration of shares to another owner; and (5)
authorizations to establish the checkwriting privilege. Signatures must be
guaranteed by a bank, a member firm of a national stock exchange, or other
eligible guarantor institution. The Transfer Agent will not accept guarantees
(or notarizations) from notaries public. The above requirements may be waived
in certain instances. Please contact Shareholder Services at 1-800-562-0032
for specific requirements relating to your account.
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, 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 Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through dealers,
by wire or by mailing a check, payable to 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.
20
<PAGE>
(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
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 any of the other Eligible Funds at any time
on the basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws.
Shareholders of any other Eligible Fund may similarly exchange their shares
for Fund shares with corresponding characteristics. Prior to making an
exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class 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. The State Street Research Money Market Fund issues Class E shares
which are sold without any sales charge. Exchanges of State Street Research
Money Market Fund Class E shares into Class A shares of the Fund or any other
Eligible Fund are subject to the initial sales charge or contingent deferred
sales charge applicable to an initial investment in such Class A shares,
unless a prior Class A sales charge has been paid directly or indirectly with
respect to the shares redeemed. 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.
Shares of the Fund may also be acquired or redeemed in exchange for shares
of the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers of
Merrill Lynch, Pierce, Fenner & Smith Incorporated (subject to completion of
steps necessary to implement the program). The Fund and Summit Cash Reserves
are related mutual funds for purposes of investment and investor services.
Upon the acquisition of shares of Summit Cash Reserves by exchange for
redeemed shares of the Fund, (a) no sales charge is imposed by Summit Cash
Reserves, (b) no contingent deferred sales charge is imposed by the Fund on
the Fund shares redeemed, and (c) any applicable holding period of the Fund
shares redeemed is "tolled," that is, the holding period clock stops running
pending further transactions. Upon the acquisition of shares of the Fund by
exchange for redeemed shares of Summit Cash Reserves, (a) the acquisition of
Class A shares shall be subject to the initial sales charges or contingent
deferred sales charges applicable to an initial investment in such Class A
shares, unless a prior Class A sales charge has been paid indirectly, and (b)
the acquisition of Class B or Class D shares of the Fund shall restart any
holding period previously tolled, or shall be subject to the contingent
deferred sales charge applicable to an initial investment in such shares.
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
21
<PAGE>
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.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, may be aggregated for purposes of the six exchange
limit. Notwithstanding the six exchange limit, the Fund reserves the right to
refuse exchanges by any person or group if, in the Investment Manager's
judgment, the Fund would be unable to invest effectively in accordance with
its investment objective and policies, or would otherwise potentially be
adversely affected. Exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincides with
a "market timing" strategy may be disruptive to the Fund. The Fund may impose
these restrictions at any time. The exchange limit may be modified for
accounts in certain institutional retirement plans because of plan exchange
limits, Department of Labor regulations or administrative and other
considerations. Subject to the foregoing, 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 all or any portion of the proceeds (plus
that amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and
without subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 120 calendar days after a redemption or
repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal income tax
purposes, a sale on which the shareholder may realize a gain or loss. If a
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by 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 per 12-month period 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 Investamatic Check Program is available to Class A, Class B and Class D
shareholders. Under this Program, shareholders may make regular
22
<PAGE>
investments by authorizing withdrawals from their bank accounts each month or
quarter on the Application 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 certain minimums, depending on the class of shares held. The
Plan provides that all income dividends and capital gains distributions of
the Fund shall be credited to participating shareholders in additional shares
of the Fund. Thus, the withdrawal amounts paid can only be realized by
redeeming shares of the Fund under the Plan. To the extent such amounts paid
exceed dividends and distributions from the Fund, a shareholder's investment
will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually
of either (a) the value, at the time the 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.
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, provided the account into which the investment
is made is initially funded with the requisite minimum amount. 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 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;
23
<PAGE>
(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; and
(4) the privilege allowing the shareholder to make telephone purchases or
redemptions, transmitted via the Automated Clearing House system,
into or from the shareholder's predesignated bank account, is
available upon completion of the requisite initial documentation. For
details and forms, call 1-800-562-0032. The documentation 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 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 Fund and Its Shares
The Fund was organized in 1985 as series of State Street Research Income
Trust, a Massachusetts business trust. The Trustees have authorized shares of
the Fund to be issued in four classes: Class A, Class B, Class C
24
<PAGE>
and Class D shares. 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.
Except for those differences between the classes of shares described below
and elsewhere in the Prospectus, each share of the Fund has equal dividend,
redemption and liquidation rights with other shares of the Fund and when
issued is fully paid and nonassessable. 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 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. Under a pending change to the Master Trust
Agreement, the Trustees may reorganize, merge or liquidate the Fund without
shareholder approval and subject to compliance with applicable law. 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 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, shareholders will be assisted in
shareholder communications to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations 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.
25
<PAGE>
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 Research Investment Trust,
which they had formed in 1924. Their investment management philosophy
emphasized comprehensive fundamental research and analysis, including
meetings with the management of companies under consideration for investment.
The Investment Manager's portfolio management group has extensive investment
industry experience managing equity and debt securities. In managing debt
securities, if any, for a portfolio, the Investment Manager may consider
yield curve positioning, sector rotation and duration, among other factors.
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 0.65% (on an annual
basis) of the average daily value of the net assets of the Fund. 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, 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 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.
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.
The Investment Manager has a Code of Ethics governing personal securities
transactions of certain of its employees; see the Statement of Additional
Information.
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 fiscal years, although
it cannot give complete assurance that it will do so. As long as the 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, 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).
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
26
<PAGE>
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 Fund at net asset
value (except in the case of shareholders who elect a different available
distribution method).
The 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.
The Fund has adopted distribution procedures which differ from those which
have been customary for investment companies in general. The 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 the 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 the 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 the Fund
shares.
Dividends paid by the 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 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 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. 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 such as
those compiled by Lipper Analytical Services, Inc., Morningstar, Inc., Money
Magazine, Business Week, Forbes Magazine, Fortune Magazine, The Wall Street
Journal, Investor's Daily, or Wiesenberger Mutual Fund Investment Report. For
example, the performance of the Fund might be compared to the Lipper High
Current Yield Fund
27
<PAGE>
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.
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 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.
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 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.
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 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 the Fund's performance for any future period.
In evaluating the 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 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 the Fund will fluctuate,
with the result that shares of the Fund,
28
<PAGE>
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 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. Performance data or rankings for a given class of shares should be
interpreted carefully by investors who hold or may invest in a different
class of shares.
In reviewing performance for the 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.
29
<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.
30
<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.
31
<PAGE>
[Logo} State Street Research
State Street Research
High Income Fund
August 1, 1996
P R O S P E C T U S
STATE STREET RESEARCH
HIGH INCOME 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, MA02266-8408
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
HI-612D-896IBS CONTROL NUMBER: 3201-960729(0897)SSR-LD
<PAGE>
State Street Research
Managed Assets
Prospectus
August 1, 1996
The investment objective of 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 June 30, 1996, the Investment
Manager had assets of approximately $ 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, 1996, 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 State Street Research 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 of Contents Page
Table of Expenses 2
Financial Highlights 4
The Fund's Asset Allocation and Investments 5
Other Investment Policies and Considerations 8
Purchase of Shares 11
Redemption of Shares 20
Shareholder Services 22
The Fund and its Shares 26
Management of the Fund 27
Dividends and Distributions; Taxes 28
Calculation of Performance Data 28
Appendix--Description of Debt/Bond Ratings 30
<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 offered only 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 Fee 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
thereafter 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>
Class A Class B Class C Class D
-------- -------- -------- ----------
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 0.43% 0.43% 0.43% 0.43%
Less Voluntary Reduction (0.18%) (0.18%) (0.18%) (0.18%)
------ ------ ------ -------
Total Fund Operating Expenses
(after voluntary reduction) 1.25% 2.00% 1.00% 2.00%
====== ====== ====== =======
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, 1996;
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, 1996,
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
1.43%, 2.18%, 1.18% and 2.18% 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 0.18%,
0.18%, 0.18% and 0.18% for each class of shares of the Fund. 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 LLP,
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 "Financial Statements" in
the Statement of Additional Information.
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------
Year ended March 31
-----------------------------------------------------------------------
1996*** 1995 1994 1993 1992 1991 1990
------- ------- ------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $8.76 $8.94 $8.94 $8.22 $7.61 $7.81 $7.60
Net investment income* .23 .27 .22 .27 .37 .44 .46
Net realized and unrealized gain
(loss) on investments and forward
contracts 1.72 (.14) .72 1.01 .62 (.14) .36
Dividends from net investment income (.26) (.17) (.22) (.25) (.38) (.41) (.47)
Distributions from net realized gains (.16) (.14) (.72) (.31) -- (.09) (.14)
----- ----- ----- ---- ---- ---- ------
Net asset value, end of year $10.29 $8.76 $8.94 $8.94 $8.22 $7.61 $7.81
====== ===== ===== ===== ===== ===== =====
Total return 22.55%+ 1.52%+ 10.96%+ 16.54%+ 13.29%+ 4.06%+ 10.78%+
Net assets at end of year (000s) $207,713 $181,358 $166,011 $93,537 $78,483 $64,139 $56,267
Ratio of operating expenses to
average net assets* 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to
average net assets* 2.34% 3.11% 2.75% 3.26% 4.60% 5.78% 6.29%
Portfolio turnover rate 109.20% 89.58% 105.17% 142.86% 97.76% 68.08% 71.88%
*Reflects voluntary assumption of
fees or expenses per share in each
year $0.02 $0.03 $0.02 $0.02 $0.02 $0.02 $0.02
</TABLE>
<TABLE>
<CAPTION>
Class A
--------------------
December 29, 1988
(Commencement of
Operations) to
March 31, 1989
--------------------
<S> <C>
Net asset value, beginning of year $7.40
Net investment income* .13
Net realized and unrealized gain
(loss) on investments and forward
contracts .19
Dividends from net investment income (.12)
Distributions from net realized gains --
------------------
Net asset value, end of year $7.60
==================
Total return 4.26%+++
Net assets at end of year (000s) $27,762
Ratio of operating expenses to
average net assets* 1.25%++
Ratio of net investment income to
average net assets* 7.37%++
Portfolio turnover rate 34.57%
*Reflects voluntary assumption of
fees or expenses per share in each
year $0.01
</TABLE>
<TABLE>
<CAPTION>
Class B Class C
----------------------------------- ---------------------------------
Year ended March 31 Year ended March 31
1996*** 1995 1994** 1996*** 1995 1994**
--------- --------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $8.74 $8.92 $8.78 $8.77 $8.95 $8.78
Net investment income* .15 .20 .16 .25 .29 .21
Net realized and unrealized gain
(loss) on investments and
forward contracts 1.71 (.13) .39 1.71 (.14) .43
Dividends from net investment
income (.19) (.11) (.18) (.28) (.19) (.24)
Distributions from net realized
gains (.16) (.14) (.23) (.16) (.14) (.23)
------- ------- ------- ------ ------ --------
Net asset value, end of year $10.25 $8.74 $8.92 $10.29 $8.77 $8.95
====== ===== ===== ====== ===== =====
Total return 21.48%+ 0.82%+ 6.26%+++ 22.70%+ 1.77%+ 7.27%+++
Net assets at end of year (000s) $193,272 $152,251 $83,244 $19,548 $25,803 $21,434
Ratio of operating expenses to
average net assets* 2.00% 2.00% 2.00%++ 1.00% 1.00% 1.00%++
Ratio of net investment income to
average net assets* 1.59% 2.38% 2.03%++ 2.59% 3.37% 3.03%++
Portfolio turnover rate 109.20% 89.58% 105.17% 109.20% 89.58% 105.17%
*Reflects voluntary assumption of
fees or expenses per share in
each year $0.02 $0.03 $0.03 $0.02 $0.03 $0.02
</TABLE>
Class D
-----------------------------------
Year ended March 31
1996*** 1995 1994**
--------- --------- ----------
Net asset value, beginning of
year $8.75 $8.93 $8.78
Net investment income* .15 .20 .16
Net realized and unrealized gain
(loss) on investments and
forward contracts 1.72 (.13) .40
Dividends from net investment
income (.19) (.11) (.18)
Distributions from net realized
gains (.16) (.14) (.23)
------- ------- --------
Net asset value, end of year $10.27 $8.75 $8.93
====== ===== =====
Total return 21.54%+ 0.82%+ 6.31%+++
Net assets at end of year (000s) $13,061 $12,772 $7,117
Ratio of operating expenses to
average net assets* 2.00% 2.00% 2.00%++
Ratio of net investment income to
average net assets* 1.60% 2.39% 2.03%++
Portfolio turnover rate 109.20% 89.58% 105.17%
*Reflects voluntary assumption of
fees or expenses per share in
each year $0.02 $0.03 $0.03
++ Annualized.
** June 1, 1993 (commencement of share class designations) to March 31,
1994.
*** Per-share figures have been calculated using the average shares method.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++ Represents aggregate return for the period without annualization and
does not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the Distributor and its affiliates had
not voluntarily assumed a portion of the Fund's expenses.
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 securities (i.e., rated at the time of purchase AAA, AA, A
or
5
<PAGE>
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. Where an
investment is split rated, the Fund may invest on the basis of the higher
rating. Where an investment is only rated by one rating agency, the Fund may
invest on the basis of a higher rating derived from its own analysis. 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, 1996, 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: 24% AAA, 1% AA, 2% A, 1% BBB, 1% BB, and 3% B
as determined on a dollar weighted basis, comprising 32% of total
investments. Of these bonds, 95% were rated by a nationally recognized
statistical rating organization and 5% 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
6
<PAGE>
Equity Securities of a broad spectrum of both large and small capitalization
companies. These 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."
7
<PAGE>
Other Investment Policies and Considerations
Other Investment Practices
The Fund may buy and sell options, futures contracts and options on futures
contracts 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. The Fund may not establish a position in a commodity
futures contract or purchase or sell a commodity option contract for other
than bona fide hedging purposes if immediately thereafter the sum of the
amount of initial margin deposits and premiums required to establish such
positions for such nonhedging purposes would exceed 5% of the market value of
the Fund's net assets; similar policies apply to options which are not
commodities. 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 enter into repurchase agreements and purchase
securities on a "when-issued," forward commitment or delayed delivery basis.
The Fund may lend portfolio securities with a value of up to 33-1/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of
the current market value of the loaned securities plus accrued interest.
Collateral received by the Fund will generally be held in the form tendered,
although cash may be invested in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, irrevocable stand-by letters
of credit issued by a bank, or any combination thereof. The investing of cash
collateral received from loaning portfolio securities involves leverage,
which magnifies the potential for gain or loss on monies invested and,
therefore, results in an increase in the volatility of the Fund's outstanding
securities. Such loans may be terminated at any time.
The Fund will retain most rights of ownership including rights to
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending, although the Fund may call loans to vote
proxies if desired. Should the borrower of the securities fail financially,
there is a risk of delay in recovery of the securities or loss of rights in
the collateral. Loans are made only to borrowers which are deemed by the
Investment Manager to be of good financial standing.
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.
8
<PAGE>
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.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the
foreign issuer is not involved, and the ADR holders pay the fees of the
depository. Sponsored ADRs are generally more advantageous to the ADR holders
and the issuer than are unsponsored ADRs. More and higher fees are generally
charged in an unsponsored program compared to a sponsored facility. Only
sponsored ADRs may be listed on the New York or American Stock Exchanges.
Unsponsored ADRs may prove to be more risky due to (a) the additional costs
involved to the Fund; (b) the relative illiquidity of the issue in U.S.
markets; and (c) the possibility of higher trading costs in the
over-the-counter market as opposed to exchange-based trading. The Fund will
take these and other risk considerations into account before making an
investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks
of nationalization or expropriation, the possible imposition of currency
exchange blockages, higher operating expenses, foreign withholding and other
taxes which may reduce investment return, reduced availability of public
information concerning issuers, the difficulties in obtaining and enforcing a
judgment against a foreign issuer and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to
those applicable to domestic issuers. Moreover, securities of many foreign
issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers. Investments in foreign securities
also involve the additional cost of converting the foreign currency into U.S.
dollars. 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
In order to protect against the effects of uncertain future exchange rates on
securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, or by entering into forward
contracts to purchase or sell currencies. The Fund's dealings in forward
currency exchange contracts will be limited to hedging involving either spe-
9
<PAGE>
cific transactions or aggregate portfolio positions. A forward currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are not commodities and are entered into in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. In entering a forward currency
contract, the Fund is dependent upon the creditworthiness and good faith of
the counterparty. The Fund attempts to reduce the risks of nonperformance by
the counterparty by dealing only with established, large institutions, with
whom the Investment Manager has done substantial business in the past.
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 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.
10
<PAGE>
Investment Limitations and Practices
In seeking to lessen investment risk, the Fund operates under certain
fundamental and nonfundamental investment restrictions.
Under pending changes to the fundamental investment restrictions, the Fund
may not (a) purchase a security of any one issuer (other than securities
issued or guaranteed as to principal or interest by the U.S. Government or
its agencies or instrumentalities or mixed- ownership Government
corporations) if such purchase would, with respect to 75% of the Fund's total
assets, cause more than 5% of the Fund's total assets to be invested in the
securities of such issuer or cause more than 10% of the voting securities of
such issuer to be held by the Fund or (b) invest more than 25% of the Fund's
total assets in securities of issuers principally engaged in any one
industry. The foregoing fundamental investment restrictions may not be
changed except by vote of the holders of a majority of the outstanding voting
securities of the Fund.
Under a pending change in nonfundamental investment restrictions, the Fund
may not invest more than 15% of its total assets in illiquid securities
including repurchase agreements extending for more than seven days and may
not invest more than 5% of its total assets in restricted securities
excluding securities eligible for resale under Rule 144A under the Securities
Act of 1933. Although many illiquid securities may also be restricted, and
vice versa, compliance with each of these policies will be determined
independently. The foregoing nonfundamental investment restrictions may be
changed without a shareholder vote.
For further information on the above and other fundamental and
nonfundamental investment restrictions, 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 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 26 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.
-----------------------------------------------------------------------------
11
<PAGE>
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.
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 = 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. The Fund reserves
the right to suspend the sale of shares, or to reject any purchase order,
including orders in connection with exchanges, for any reason.
12
<PAGE>
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 (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
</TABLE>
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments 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 for reinvestment of dividends and distributions or for
periodic investments (e.g., Investamatic Check Program).
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.
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 charge Contingent deferred None Contingent
at time of investment sales charge of 5% deferred sales
of up to 4.5% to 2% applies to any charge of 1%
depending on amount shares redeemed applies to any
of investment within first five shares redeemed
years following within one year
their purchase; no following their
contingent deferred purchase
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
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 4% None 1%
Commission initial sales charge
Received by less 0.25% to 0.50%
Selling retained by
Securities Distributor
Dealer On investments of $1
million or more,
0.25% to 1% 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 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 that
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 Distributor may also compensate brokers
for maintaining investments over a period of years. The incentives may
include merchandise and trips to and attendance at sales seminars at 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 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%
----------------------------------------------------------------
$1 million and See following
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
15
<PAGE>
will pay the authorized securities dealer a commission based on the aggregate
of such sales 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 other redemptions 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 described
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. 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. Information on
such arrangements and further conditions and limitations is available from
the Distributor.
16
<PAGE>
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, 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:
Contingent Deferred Sales
Charge As A Percentage Of
Redemption During Net Asset Value At Redemption
- -------------------------- --------------------------------
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
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
17
<PAGE>
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 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 at any time;
for example, the Fund may limit the application of multiple waivers.
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.
In general, Class C shares are only available for new investments by
certain large institutions, and large employee benefit plans which acquire
shares through programs or products sponsored by the Metropolitan Life
Insurance Company and/or its affiliates, for which Class C shares have been
designated. 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 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 other
redemptions 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
The 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. 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:
Class Service Fee Distribution Fee
- -------- ------------ -------------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to pay or reimburse securities
dealers (including securities dealers that are affiliates of the Distributor)
or others for personal service and/or the maintenance or servicing 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 or
servicing 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
19
<PAGE>
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 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 from the Fund are normally remitted within seven
days after receipt of the redemption request by the Fund 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
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orders from dealers by wire or telephone for the repurchase of shares by the
Distributor from the dealer. The Fund may revoke or suspend this
authorization at any time. The repurchase price is the net asset value for
the applicable shares next determined following the time at which the shares
are offered for repurchase by the dealer to the Distributor. The dealer is
responsible for promptly transmitting a shareholder's order to the
Distributor. 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 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 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 of $50,000 invested
in the Fund and other Eligible Funds combined. Imposition of a maintenance
fee on a small account could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment
of redemption proceeds: (1) during any period that the NYSE is closed (other
than customary weekend and holiday closings) or trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the Fund's net asset 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 otherwise provided under "Redemption
of Shares" herein.
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 help the Transfer
Agent to determine that the person who has authorized a redemption from the
account is, in fact, the shareholder. Signature guarantees are required for,
among other things: (1) written requests for redemptions for more than
$50,000; (2) written requests for redemptions for any amount if the proceeds
are transmitted to other than the current address of record (unchanged in the
past 30 days); (3) written requests for redemptions for any amount submitted
by corporations and certain fiduciaries and other intermediaries; and (4)
requests to transfer the registration of shares to another owner. Signatures
must be guaranteed by a bank, a member firm of a national stock exchange, or
other eligible guarantor institution. The Transfer Agent will not accept
guarantees (or notarizations) from notaries public. The above requirements
may be waived in certain instances. Please contact Shareholder Services at
1-800-562-0032 for specific requirements relating to your account.
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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 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. The State Street Research Money Market Fund issues Class E shares
which are sold without any sales charge. Exchanges of State Street Research
Money Market Fund Class E shares into Class A shares of the Fund or any other
Eligible Fund are subject to the initial sales charge or contingent deferred
sales charge applicable to an initial investment in such Class A shares,
unless a prior Class A sales charge has been paid directly or indirectly with
respect to the shares redeemed. 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.
Shares of the Fund may also be acquired or redeemed in exchange for shares
of the Summit Cash
22
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Reserves Fund ("Summit Cash Reserves") by customers of Merrill Lynch, Pierce,
Fenner & Smith Incorporated (subject to completion of steps necessary to
implement the program). The Fund and Summit Cash Reserves are related mutual
funds for purposes of investment and investor services. Upon the acquisition
of shares of Summit Cash Reserves by exchange for redeemed shares of the
Fund, (a) no sales charge is imposed by Summit Cash Reserves, (b) no
contingent deferred sales charge is imposed by the Fund on the Fund shares
redeemed, and (c) any applicable holding period of the Fund shares redeemed
is "tolled," that is, the holding period clock stops running pending further
transactions. Upon the acquisition of shares of the Fund by exchange for
redeemed shares of Summit Cash Reserves, (a) the acquisition of Class A
shares shall be subject to the initial sales charges or contingent deferred
sales charges applicable to an initial investment in such Class A shares,
unless a prior Class A sales charge has been paid indirectly, and (b) the
acquisition of Class B or Class D shares of the Fund shall restart any
holding period previously tolled, or shall be subject to the contingent
deferred sales charge applicable to an initial investment in such shares.
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 adopted with regard to a series of exchanges,
street name accounts, sponsored arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, may be aggregated for purposes of the six exchange
limit. Notwithstanding the six exchange limit, the Fund reserves the right to
refuse exchanges by any person or group if, in the Investment Manager's
judgment, the Fund would be unable to invest effectively in accordance with
its investment objective and policies, or would otherwise potentially be
adversely affected. Exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincides with
a "market timing" strategy may be disruptive to the Fund. The Fund may impose
these restrictions at any time. The exchange limit may be modified for
accounts in certain institutional retirement plans because of plan exchange
limits, Department of Labor regulations or administrative and other
considerations. Subject to the foregoing, 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
23
<PAGE>
value and without subjecting the reinvestment to an initial sales charge,
provided such reinvestment is made within 120 calendar days after a
redemption or repurchase. Upon such reinvestment, the shareholder will be
credited with any contingent deferred sales charge previously charged with
respect to the amount reinvested. The redemption of shares is, for federal
income tax purposes, a sale on which the shareholder may realize a gain or
loss. If a redemption at a loss is followed by a reinvestment within 30 days,
the transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by 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 per 12-month period 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 Investamatic Check Program is available to Class A, Class B and Class D
shareholders. Under this Program, shareholders may make regular investments
by authorizing withdrawals from their bank accounts each month or quarter on
the Application 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.
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.
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, provided the account into which the investment
is made is initially funded with the requisite minimum amount. 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 poli-
24
<PAGE>
cies, 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;
(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; and
(4) the privilege allowing the shareholder to make telephone purchases or
redemptions, transmitted via the Automated Clearing House system, into
or from the shareholder's predesignated bank account, is available
upon completion of the requisite initial documentation. For details
and forms, call 1-800-562-0032. The documentation 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 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.
25
<PAGE>
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 each
transaction will be provided.
The Fund and its Shares
The Fund was organized in 1988 as an additional series of State Street
Research Income Trust, a Massachusetts business trust. The Trustees have
authorized shares of the Fund to be issued in four classes: Class A, Class B,
Class C and Class D shares. 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.
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. 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. Under a pending change to the Master Trust
Agreement, the Trustees may reorganize, merge or liquidate the Fund without
prior shareholder approval and subject to compliance with applicable law. 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 paid and nonassessable by the Trust. Each share has
one vote (with proportionate voting for fractional shares) irrespective of
net asset value.
Under the 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
26
<PAGE>
such were elected by shareholders of the Trust, a meeting of shareholders
will be called to elect Trustees. Under the Master Trust Agreement, any
Trustee may be removed by vote of two-thirds of the outstanding Trust shares;
holders of 10% or more of the outstanding shares of the Trust can require
that the Trustees call a meeting of shareholders for purposes of voting on
the removal of one or more Trustees. In connection with such meetings called
by shareholders, shareholders will be assisted in shareholder communications
to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations 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 Research Investment Trust,
which they had formed in 1924. Their investment management philosophy
emphasized comprehensive fundamental research and analysis, including
meetings with the management of companies under consideration for investment.
The Investment Manager's portfolio management group has extensive investment
industry experience managing equity and debt securities. In managing debt
securities, if any, for a portfolio, the Investment Manager may consider
yield curve positioning, sector rotation and duration, among other factors.
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, 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.
Michael R. Yogg is primarily responsible for the day- to-day management of
the Fund's portfolio. Mr. Yogg
27
<PAGE>
has investment discretion over the entire portfolio of the Fund, makes
investment decisions as to specific securities holdings, allocates and
continually adjusts such allocations of investments among equities and fixed
income securities, and among different industry or other sectors, and may
delegate purchase and sale authority for defined portions of the portfolio to
others. Mr. Yogg has managed the Fund since April 1991 and is a Vice
President of the Trust. His 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.
The Investment Manager has a Code of Ethics governing personal securities
transactions of certain of its employees; see the Statement of Additional
Information.
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
28
<PAGE>
certificates of deposit, to other financial alternatives and/or to
appropriate indices, rankings or averages 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, Investor's Daily or Wiesenberger Mutual
Funds Investment Report.
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. Performance
data or rankings for a given class of shares should be interpreted carefully
by investors who hold or may invest in a different class of shares.
29
<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.
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
30
<PAGE>
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
State Street Research
Managed Assets
August 1, 1996
P R O S P E C T U S
STATE STREET RESEARCH
MANAGED ASSETS
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, MA02266
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
MA-613D-8961BS CONTROL NUMBER: 3200-960729(0897)SSR-LD
<PAGE>
State Street Research High Income Fund
a series of
State Street Research Income Trust
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS..............................2
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES.......................................5
DEBT INSTRUMENTS AND
PERMITTED CASH INVESTMENTS.........................................13
TRUSTEES AND OFFICERS.......................................................17
INVESTMENT ADVISORY SERVICES................................................22
PURCHASE AND REDEMPTION OF SHARES...........................................23
NET ASSET VALUE.............................................................25
PORTFOLIO TRANSACTIONS......................................................26
CERTAIN TAX MATTERS.........................................................29
DISTRIBUTION OF SHARES OF THE FUND..........................................32
CALCULATION OF PERFORMANCE DATA.............................................35
CUSTODIAN...................................................................40
INDEPENDENT ACCOUNTANTS.....................................................40
FINANCIAL STATEMENTS........................................................40
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
High Income Fund (the "Fund") dated August 1, 1996, which may be obtained
without charge from the offices of State Street Research Income Trust ("the
Trust") or State Street Research Investment Services, Inc. (the "Distributor"),
One Financial Center, Boston, Massachusetts 02111-2690.
CONTROL NUMBER:
<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Fund's Investments" and "Other Investment
Policies" in the Fund's Prospectus, the Fund has adopted certain investment
restrictions.
All of the Fund's fundamental investment restrictions are set forth
below. These fundamental restrictions may not be changed by the Fund except by
the affirmative vote of a majority of the outstanding voting securities of the
Fund as defined in the Investment Company Act of 1940, as amended (the "1940
Act"). (Under the 1940 Act, a "vote of the majority of the outstanding voting
securities" means the vote, at the annual or a special meeting of security
holders duly called, (i) of 67% or more of the voting securities present at a
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy or (ii) of more than 50% of the outstanding
voting securities, whichever is less.) Under these restrictions, it is, except
as noted, the Fund's policy:
(1) not to purchase a security of any one issuer (other than
securities issued or guaranteed as to principal or interest by
the U.S. Government or its agencies or instrumentalities or
mixed-ownership Government corporations) if such purchase
would, with respect to 75% of the Fund's total assets, cause
more than 5% of the Fund's total assets to be invested in the
securities of such issuer or cause more than 10% of the voting
securities of such issuer to be held by the Fund;
(2) not to issue senior securities;
(3) not to underwrite or participate in the marketing of
securities of other issuers, except (a) the Fund may, acting
alone or in a syndicate or group, purchase or otherwise
acquire securities of other issuers for investment, either
from the issuers or from persons in a control relationship
with the issuers or from underwriters of such securities; and
(b) to the extent that, in connection with the disposition of
the Fund's securities, the Fund may be a selling shareholder
in an offering or deemed to be an underwriter under certain
federal securities laws;
(4) not to purchase or sell real estate in fee simple;
(5) not to lend money; however, the Fund may lend portfolio
securities and purchase bonds, debentures, notes, bills and
any other debt-related instruments or interests (and enter
into repurchase agreements with respect thereto);
(6) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Fund's total
assets, except that investments in essentially financial items
or arrangements such as, but not limited to, swap
arrangements, hybrids, currencies, currency and other forward
contracts, delayed delivery and when-issued contracts, futures
contracts and
2
<PAGE>
options on futures contracts on securities, securities
indices, interest rates and currencies, shall not be deemed
investments in commodities or commodities contracts;
(7) not to invest in oil, gas or other mineral exploration
programs (provided that the Fund may invest in securities
which are based, directly or indirectly, on the credit of
companies which invest in or sponsor such programs);
(8) not to make any investment which would cause more than 25% of
the value of the Fund's total assets to be invested in
securities of nongovernment-related issuers principally
engaged in any one industry, as described in the Fund's
Prospectus or Statement of Additional Information, as amended
from time to time; and
(9) not to borrow money (through reverse repurchase agreements or
otherwise) except for extraordinary and emergency purposes,
such as permitting redemption requests to be honored, and then
not in an amount in excess of 10% of the value of its total
assets, provided that reverse repurchase agreements shall not
exceed 5% of its total assets, and provided further that
additional investments will be suspended during any period
when borrowing exceeds 5% of total assets. Reverse repurchase
agreements occur when the Fund sells money market securities
and agrees to repurchase such securities at an agreed-upon
price, date and interest payment. The Fund would use the
proceeds from the transaction to buy other money market
securities, which are either maturing or under the terms of a
resale agreement, on the same day as (or day prior to) the
expiration of the reverse repurchase agreement, and would
employ a reverse repurchase agreement when interest income
from investing the proceeds of the transaction is greater than
the interest expense of the reverse repurchase transaction.
The following investment restrictions may be changed with respect to
the Fund by a vote of a majority of the Trustees. Under these restrictions, it
is, except as noted, the Fund's policy:
(1) not to purchase any security or enter into a repurchase
agreement if as a result more than 15% or its net assets would
be invested in securities that are illiquid (including
repurchase agreements not entitling the holder to payment of
principal and interest within seven days);
(2) not to invest more than 15% of its net assets in restricted
securities of all types (including not more than 5% of its net
assets in restricted securities which are not eligible for
resale pursuant to Rule 144A, Regulation S or other exemptive
provisions under the Securities Act of 1933);
3
<PAGE>
(3) not to invest more than 5% of its total assets in securities
of private companies including predecessors with less than
three years' continuous operations except (a) securities
guaranteed or backed by an affiliate of the issuer with three
years of continuous operations, (b) securities issued or
guaranteed as to principal or interest by the U.S. Government,
or its agencies or instrumentalities, or a mixed-ownership
Government corporation, (c) securities of issuers with debt
securities rated at least "BBB" by Standard & Poor's
Corporation or "Baa" by Moody's Investor's Service, Inc. (or
their equivalent by any other nationally recognized
statistical rating organization) or securities of issuers
considered by the Investment Manager to be equivalent, (d)
securities issued by a holding company with at least 50% of
its assets invested in companies with three years of
continuous operations including predecessors, and (e)
securities which generate income which is exempt from local,
state or federal taxes; provided that the Fund may invest up
to 15% in such issuers so long as such investments plus
investments in restricted securities (other than those which
are eligible for resale under Rule 144A, Regulation S or other
exemptive provisions) do not exceed 15% of the Fund's total
assets;
(4) not to make an investment in warrants, valued at the lower of
cost or market, which causes the Fund to own, at the time of
such investment, warrants in excess of 5% of the Fund's net
assets, provided that warrants not listed on the New York or
American Stock Exchange shall be further limited to 2% of the
Fund's net assets (warrants initially attached to securities
and acquired by the Fund upon original issuance thereof shall
be deemed to be without value);
(5) not to purchase securities on margin, make a short sale of any
securities or purchase or deal in puts, calls, straddles or
spreads with respect to any security, except in connection
with the purchase or writing of options, including options on
financial futures, and futures contracts to the extent set
forth in the Trust's Prospectus and Statement of Additional
Information;
(6) not to hypothecate, mortgage or pledge any of its assets
except as may be necessary in connection with permitted
borrowings and then not in excess of 15% of the Fund's total
assets, taken at cost (for the purpose of this restriction
financial futures, options on financial futures and forward
currency exchange contracts are not deemed to involve a pledge
of assets);
(7) not to purchase a security issued by another investment
company if, immediately after such purchase, the Fund would
own, in the aggregate, (i) more than 3% of the total
outstanding voting stock of such other investment company;
(ii) securities issued by such other investment company having
an aggregate value in excess of 5% of the value of the Fund's
total assets; or (iii) securities issued by such other
investment company and all other investment
4
<PAGE>
companies (other than treasury stock of the Fund) having an
aggregate value in excess of 10% of the value of the Fund's
total assets; provided, however, that the Fund may purchase
investment company securities without limit for the purpose of
completing a merger, consolidation or other acquisition of
assets;
(8) not to purchase for or retain any security of an issuer if, to
the knowledge of the Trust, those of its officers and Trustees
and officers and directors of its investment advisers who
individually own more than 1/2 of 1% of the securities of such
issuer, when combined, own more than 5% of the securities of
such issuer taken at market;
(9) not to invest in companies for the purpose of exercising
control over their management, although the Trust may from
time to time present its views on various matters to the
management of issuers in which it holds investments;
(10) not to purchase any security or enter into a repurchase
agreement if as a result more than 15% of its net assets would
be invested in securities that are illiquid (including
repurchase agreements not entitling the holder to payment of
principal and interest within seven days); and
(11) not to invest more than 15% of its net assets in restricted
securities of all types (including not more than 5% of its net
assets in restricted securities which are not eligible for
resale pursuant to Rule 144A, Regulation S or other exemptive
provisions under the Securities Act of 1933).
Compliance with the above nonfundamental investment restrictions (6)
and (7) will be determined independently.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Among other investments described below, the Fund may buy and sell
options, futures contracts, and options on futures contracts with respect to
securities and securities indices and may enter into closing transactions with
respect to each of the foregoing under circumstances in which such instruments
and techniques are expected by State Street Research & Management Company (the
"Investment Manager") to aid in achieving the investment objective of the Fund.
The Fund on occasion may also purchase instruments with characteristics of both
futures and securities (e.g., debt instruments with interest and principal
payments determined by reference to the value of a commodity at a future time)
and which, therefore, possess the risks of both futures and securities
investments.
5
<PAGE>
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell
underlying assets, such as certain securities or an index of securities, at a
future time at a specified price. A contract to buy establishes a "long"
position while a contract to sell establishes a "short" position.
The purchase of a futures contract on securities or an index of
securities normally enables a buyer to participate in the market movement of the
underlying asset or index after paying a transaction charge and posting margin
in an amount equal to a small percentage of the value of the underlying asset or
index. The Fund will initially be required to deposit with the Trust's custodian
or the broker effecting the futures transaction an amount of "initial margin" in
cash or U.S. Treasury obligations.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when the Fund has taken a long
position in a futures contract and the value of the underlying asset has risen,
that position will have increased in value and the Fund will receive from the
broker a maintenance margin payment equal to that increase in value of the
underlying asset. Conversely, when the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position would be less valuable, and the Fund would be required to make a
maintenance margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will terminate
the Fund's position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain. While futures
contracts with respect to securities do provide for the delivery and acceptance
of securities, such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus to protect the Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and thus to participate
in an unexpected rise in market value of securities which the Fund intends to
purchase. In transactions establishing a long position in a futures contract,
money market instruments equal to the face value of the futures contract will be
identified by the Fund to the Trust's custodian for maintenance in a separate
account to insure that the use of such futures contracts is unleveraged.
Similarly, a representative portfolio of securities having a value equal to the
aggregate face value of the futures contract will be identified with respect to
each short position. The Fund will employ any other appropriate method of cover
which is consistent with applicable regulatory and exchange requirements.
6
<PAGE>
Options on Securities
The Fund may use options on securities to implement its investment
strategy. A call option on a security, for example, gives the purchaser of the
option the right to buy, and the writer the obligation to sell, the underlying
asset at the exercise price during the option period. Conversely, a put option
on a debt security gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying asset at the exercise price during the option
period.
Purchased options have defined risk, i.e., the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset.
Written options have varying degrees of risk. An uncovered written call
option theoretically carries unlimited risk, as the market price of the
underlying asset could rise far above the exercise price before its expiration.
This risk is tempered when the call option is covered, i.e., when the option
writer owns the underlying asset. In this case, the writer runs the risk of the
lost opportunity to participate in the appreciation in value of the asset rather
than the risk of an out-of-pocket loss. A written put option has defined risk,
i.e., the difference between the agreed upon price that the Fund must pay to the
buyer upon exercise of the put and the value, which could be zero, of the asset
at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
his obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Options on Securities Indices
The Fund may engage in transactions in call and put options on
securities indices. For example, the Fund may purchase put options on indices of
securities in anticipation of or during a market decline to attempt to offset
the decrease in market value of its securities that might otherwise result.
Put options on indices of securities are similar to put options on the
securities themselves except that the delivery requirements are different.
Instead of giving the right to make delivery of a security at a specified price,
a put option on an index of securities gives the holder the right to receive an
amount of cash upon exercise of the option if the value of the underlying index
has fallen below the exercise price. The amount of cash received will be equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple. As with options
on securities or future contracts, the Fund may offset its position in index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
7
<PAGE>
A securities index assigns relative values to the securities included
in the index and the index options are based on a broad market index. Although
there are at present few available options on indices of fixed income
securities, other than tax-exempt securities, or futures and related options
based on such indices, such instruments may become available in the future. In
connection with the use of such options, the Fund may cover its position by
identifying a representative portfolio of securities having a value equal to the
aggregate face value of the option position taken. However, the Fund may employ
any appropriate method to cover its position that is consistent with applicable
regulatory and exchange requirements.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Options Strategy
A basic option strategy for protecting the Fund against a decline in
securities prices could involve (a) the purchase of a put -- thus "locking in"
the selling price of the underlying securities or securities indices -- or (b)
the writing of a call on securities or securities indices held by the Fund --
thereby generating income (the premium paid by the buyer) by giving the holder
of such call the option to buy the underlying asset at a fixed price. The
premium will offset, in whole or in part, a decline in portfolio value; however,
if prices of the relevant securities or securities indices rose instead of
falling, the call might be exercised, thereby resulting in a potential loss of
appreciation in the underlying securities or securities indices.
A basic option strategy when a rise in securities prices is anticipated
is the purchase of a call -- thus "locking in" the purchase price of the
underlying security or other asset. In transactions involving the purchase of
call options by the Fund, money market instruments equal to the aggregate
exercise price of the options will be identified by the Fund to the Trust's
custodian to insure that the use of such investments is unleveraged.
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security and concurrently write a
call option against that security. If the call option is exercised in such a
transaction, the Fund's maximum gain will be the premium received by it for
writing the option, adjusted upward or downward by the difference between the
Fund's purchase price of the security and the exercise price of the option. If
the option is not exercised and the price of the underlying security declines,
the amount of such decline will be offset in part, or entirely, by the premium
received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or
8
<PAGE>
otherwise is below the exercise price, the Fund's return will be the premium
received from writing the put option minus the amount by which the market price
of the security is below the exercise price.
Limitations and Risks of Options and Futures Activity
The Fund will engage in transactions in futures contracts or options
only as a hedge against changes resulting from market conditions which produce
changes in the values of their securities or the securities which they intend to
purchase (e.g., to replace portfolio securities which will mature in the near
future) and, subject to the limitations described below, to enhance return. The
Fund will not purchase any futures contract or purchase any call option if,
immediately thereafter, more than one third of the Fund's net assets would be
represented by long futures contracts or call options. The Fund will not write a
covered call or put option if, immediately thereafter, the aggregate value of
the assets (securities in the case of written calls and cash or cash equivalents
in the case of written puts) underlying all such options, determined as of the
dates such options were written, would exceed 25% of the Fund's net assets. In
addition, the Fund may not establish a position in a commodity futures contract
or purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of the Fund's net assets.
Although effective hedging can generally capture the bulk of a desired
risk adjustment, no hedge is completely effective. The Fund's ability to hedge
effectively through transactions in futures and options depends on the degree to
which price movements in its holdings correlate with price movements of the
futures and options.
Some positions in financial futures and options may be closed out only
on an exchange which provides a secondary market therefor. There can be no
assurance that a liquid secondary market will exist for any particular futures
contract or option at any specific time. Thus, it may not be possible to close
such an option or futures position prior to maturity. The inability to close
options and futures positions also could have an adverse impact on the Fund's
ability effectively to hedge its securities and might, in some cases, require
the Fund to deposit cash to meet applicable margin requirements. The Fund will
enter into an option or futures position only if it appears to be a liquid
investment.
Repurchase Agreements
The Fund may enter into repurchase agreements. Repurchase agreements
occur when a Fund acquires a security and the seller, which may be either (i) a
primary dealer in U.S. Government securities or (ii) an FDIC-insured bank having
gross assets in excess of $500 million, simultaneously commits to repurchase it
at an agreed-upon price on an agreed-upon date within a specified number of days
(usually not more than seven) from the date of purchase. The repurchase price
reflects the purchase price plus an agreed-upon market rate of interest which is
unrelated to the coupon rate or maturity of the acquired security. The Fund
9
<PAGE>
will only enter into repurchase agreements involving U.S. Government securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. Repurchase
agreements will be limited to 30% of the Fund's total assets, except that
repurchase agreements extending for more than seven days when combined with any
other illiquid securities held by the Fund will be limited to 10% of the Fund's
total assets.
When-Issued Securities
The Fund may purchase "when-issued" securities, which are traded on a
price or yield basis prior to actual issuance. Such purchases will be made only
to achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs in the U.S. Treasury
market when dealers begin to trade a new issue of bonds or notes shortly after a
Treasury financing is announced, but prior to the actual sale of the securities.
Similarly, securities to be created by a merger of companies may also be traded
prior to the actual consummation of the merger. Such transactions may involve a
risk of loss if the value of the securities falls below the price committed to
prior to actual issuance. The Trust's custodian will establish a segregated
account when the Fund purchases securities on a when-issued basis consisting of
cash or liquid securities equal to the amount of the when-issued commitments.
Securities transactions involving delayed deliveries or forward commitments are
frequently characterized as when-issued transactions and are similarly treated
by the Fund.
Swap Arrangements
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap, the Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap, the Fund would agree with the other party to exchange cash flows based on
the relative differences in values of a notional amount of two (or more)
currencies; in an index swap, the Fund would agree to exchange cash flows on a
notional amount based on changes in the values of the selected indices. Purchase
of a cap entitles the purchaser to receive payments from the seller on a
notional amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an
agreed-upon interest rate or amount. A collar combines a cap and a floor.
Most swaps entered into by the Fund will be on a net basis; for
example, in an interest rate swap, amounts generated by application of the fixed
rate and the floating rate to the notional principal amount would right offset
one another, with a fund either receiving or
10
<PAGE>
paying the difference between such amounts. In order to be in a position to meet
any obligations resulting from swaps, the Fund will set up a segregated
custodial account to hold appropriate liquid assets, including cash; for swaps
entered into on a net basis, assets will be segregated having a daily net asset
value equal to any excess of the Fund's accrued obligations over the accrued
obligations of the other party, while for swaps on other than a net basis assets
will be segregated having a value equal to the total amount of the Fund's
obligations.
These arrangements will be made primarily for hedging purposes, to
preserve the return on an investment or on a part of the Fund's portfolio.
However, the Fund may enter into such arrangements for income purposes to the
extent permitted by the CFTC for entities which are not commodity pool
operators, such as the Fund. In entering a swap arrangement, the Fund is
dependent upon the creditworthiness and good faith for the counterparty. The
Fund attempts to reduce the risks of nonperformance by the counterparty by
dealing only with the established, reputable institutions. The swap market is
still relatively new and emerging; positions in swap arrangements may become
illiquid to the extent that nonstandard arrangements with one counterparty are
not readily transferable to another counterparty of if a market for the transfer
of swap positions does not develop. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
Investment Manager is incorrect in its forecasts of market values, interest
rates and other applicable factors, the investment performance of the Fund would
diminish compared with what it would have been if these investment techniques
were not used. Moreover, even if the Investment Manager is correct in its
forecasts, there is a risk that the swap position may correlate imperfectly with
the price of the asset or liability being hedged.
Rule 144A Securities
Subject to the limitations on illiquid and restricted securities noted
above, the Fund may buy or sell restricted securities in accordance with Rule
144A under the Securities Act of 1933 ("Rule 144A Securities"). Securities may
be resold pursuant to Rule 144A under certain circumstances only to qualified
institutional buyers as defined in the rule, and the markets and trading
practices for such securities are relatively new and still developing; depending
on the development of such markets, such Rule 144A Securities may be deemed to
be liquid as determined by or in accordance with methods adopted by the
Trustees. Under such methods the following factors are considered, among others:
the frequency of trades and quotes for the security, the number of dealers and
potential purchasers in the market, marketmaking activity, and the nature of the
security and marketplace trades. Investments in Rule 144A Securities could have
the effect of increasing the level of the Fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. Also, the Fund may be adversely impacted by the possible
illiquidity and subjective valuation of such securities in the absence of a
market for them.
11
<PAGE>
Foreign Investments
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 the local markets.
Currency Transactions
The Fund's dealings in forward currency exchange contracts will be
limited to hedging involving either specific transactions or aggregate portfolio
positions. A forward currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are not commodities and are entered into
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. Although spot and forward contracts
will be used primarily to protect the Fund from adverse currency movements, they
also involve the risk that anticipated currency movements will not be accurately
predicted, which may result in losses to the Fund. This method of protecting the
value of the Fund's portfolio securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange that can be achieved at
some future point in time. Although such contracts tend to minimize the risk of
loss due to a decline in the value of hedged currency, they tend to limit any
potential gain that might result should the value of such currency increase.
Industry Classifications
In determining how much of the Fund's portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S.
Government securities to the extent excludable under relevant regulatory
interpretations) are excluded. Companies engaged in the business of financing
will be
12
<PAGE>
classified according to the industries of their parent companies or industries
that otherwise most affect such financing companies. Issuers of asset backed
pools will be classified as separate industries based on the nature of the
underlying assets, such as mortgages, credit card receivables, etc.
13
<PAGE>
Aerospace
Airline
Automotive
Automotive Parts
Bank
Building
Business Service
Cable
Capital Goods & Equipment
Chemical
Computer Software & Service
Conglomerate
Consumer Goods & Services
Container
Cosmetics
Diversified
Drug
Electric
Electrical Equipment
Electronic Components
Electronic Equipment
Entertainment
Financial Service
Food & Beverage
Forest Products
Gaming & Lodging
Gas
Gas Transmission
Grocery
Healthcare & Hospital
Management
Hospital Supply
Hotel & Restaurant
Insurance
Machinery
Media
Metal & Mining
Office Equipment
Oil Production
Oil Refining + Marketing
Oil Service
Paper Products
Personal Care
Photography
Plastics
Printing & Publishing
Railroad
Real Estate & Building
Recreation
Retail Trade
Savings & Loan
Shipping & Transportation
Technology & Communications
Telephone
Textile & Apparel
Tobacco
Truckers
DEBT INSTRUMENTS AND
PERMITTED CASH INVESTMENTS
As indicated in the Fund's Prospectus, the Fund may invest in cash and
short-term securities for temporary defensive purposes when, in the opinion of
the Investment Manager, such a position is more likely to provide protection
against unfavorable market conditions than adherence to other investment
policies. Certain debt securities and money market instruments in which the Fund
may invest are described below.
U.S. Government and Related Securities. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury
bills, notes, certificates and bonds;
o obligations of U.S. Government agencies or instrumentalities
such as the Federal Home Loan Banks, the Federal Farm Credit
Banks, the Federal National Mortgage Association, the
Government National Mortgage Association and the Federal Home
Loan Mortgage Corporation; and
14
<PAGE>
o obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a
variety of ways by the U.S. Government, its agencies or instrumentalities. Some
of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full faith and credit of the U.S.
Treasury. Other obligations, such as those of the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase certain obligations of agencies or instrumentalities, although the U.S.
Government has no legal obligation to do so. Obligations such as those of the
Federal Home Loan Banks, the Federal Farm Credit Banks, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation are backed
by the credit of the agency or instrumentality issuing the obligations. Certain
obligations of Resolution Funding Corporation, a mixed-ownership Government
corporation, are backed with respect to interest payments by the U.S. Treasury,
and with respect to principal payments by U.S. Treasury obligations held in a
segregated account with a Federal Reserve Bank. Except for certain
mortgage-related securities, the Fund will only invest in obligations issued by
mixed-ownership Government corporations where such securities are guaranteed as
to payment of principal or interest by the U.S. Government or a U.S. Government
agency or instrumentality, and any unguaranteed principal or interest is
otherwise supported by U.S. Government obligations held in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and may
not be deemed U.S. Government securities.
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.
15
<PAGE>
Bank Money Investments. Bank money investments include but are not
limited to certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are generally short-term (i.e., less than one year),
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). A banker's acceptance may be
obtained from a domestic or foreign bank, including a U.S. branch or agency of a
foreign bank. The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. Time deposits are nonnegotiable deposits
for a fixed period of time at a stated interest rate. The Fund will not invest
in any such bank money investment unless the investment is issued by a U.S. bank
that is a member of the Federal Deposit Insurance Corporation ("FDIC"),
including any foreign branch thereof, a U.S. branch or agency of a foreign bank,
a foreign branch of a foreign bank, or a savings bank or savings and loan
association that is a member of the FDIC and which at the date of investment has
capital, surplus and undivided profits (as of the date of its most recently
published financial statements) in excess of $50 million. The Fund will not
invest in time deposits maturing in more than seven days and will not invest
more than 10% of its total assets in time deposits maturing in two to seven
days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective status or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
Short-Term Corporate Debt Instruments. Short-term corporate debt
instruments include commercial paper to finance short-term credit needs (i.e.,
short-term, unsecured promissory notes) issued by corporations including but not
limited to (a) domestic or foreign bank holding companies or (b) their
subsidiaries or affiliates where the debt instrument is guaranteed by the bank
holding company or an affiliated bank or where the bank holding company or the
affiliated bank is unconditionally liable for the debt instrument. Commercial
paper is usually sold on a discounted basis and has a maturity at the time of
issuance not exceeding nine months.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated A by S&P or Prime by Moody's, or, if not rated, issued by
companies having an outstanding long-term unsecured debt issue rated at least A
by S&P or by Moody's. The
16
<PAGE>
money market investments in corporate bonds and debentures (which must have
maturities at the date of settlement of one year or less) must be rated at the
time of purchase at least A by S&P or by Moody's.
Commercial paper rated A (highest quality) by S&P is issued by entities
which have liquidity ratios which are adequate to meet cash requirements.
Long-term senior debt is rated A or better, although in some cases BBB credits
may be allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1, A-2
or A-3. (Those A-1 issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
Information concerning corporate bond and debenture ratings of S&P and
Moody's appears in the Appendix to the Fund's Prospectus. In the event
applicable rating agencies lower the ratings of debt instruments held by the
Fund, resulting in a material decline in the overall quality of the Fund's
portfolio, the situation will be reviewed and necessary action, if any, will be
taken, including changes in the composition of the portfolio.
17
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their addresses, and
their principal occupations and positions with certain affiliates of the
Investment Manager are set forth below.
*+Bartlett R. Geer, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 40. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 55. Mr. Kallis's principal occupation is
Senior Vice President of State Street Research & Management Company. During the
past five years he has also served as portfolio manager for State Street
Research & Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 69. He is engaged principally in private
investments and civic affairs, and is an author of business history. Previously,
he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109 serves as Trustee of the Trust. He is 69. His principal occupation during
the past five years has been Partner, Saltonstall & Co., a private investment
firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 45. His principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer and Director of State Street
Research & Management Company. During the past five years he has also served as
Executive Vice President and Chief Financial Officer of New England Investment
Companies and Senior Vice President and Vice President of New England Mutual
Life Insurance Company. Mr. Maus's other principal business affiliations include
Executive Vice President, Treasurer, Chief Financial Officer and Director of
State Street Research Investment Services, Inc.
*+Francis J. McNamara, III has served as Secretary and General Counsel
of the Trust since May, 1995. He is 40. His principal occupation is Senior Vice
President, Secretary and General Counsel of State Street Research & Management
Company. During the past five years he has also served as Senior Vice President,
General Counsel and Assistant Secretary of The Boston Company, Inc., Boston Safe
Deposit and Trust Company and The Boston Company Advisors, Inc. Mr. McNamara's
other principal business affiliations include Senior Vice President, Clerk and
General Counsel of State Street Research Investment Services, Inc.
- -----------------
18
<PAGE>
* or + See footnotes on page 19.
19
<PAGE>
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 64. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173 serves as
Trustee of the Trust. He is 71. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 57. His principal occupations during the past
five years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
58. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. He is 53. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and Chief Investment
Officer and Director of New England Mutual Life Insurance Company. Mr. Verni's
other principal business affiliations include Chairman of the Board and Director
of State Street Research Investment Services, Inc.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 71. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
20
<PAGE>
*+Michael R. Yogg, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 49. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President, State Street Research & Management
Company.
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations
with the Fund's investment adviser.
+ Serves as a Trustee and/or officer of one or more of the following
investment companies, each of which has an advisory relationship with
the Investment Manager or its affiliates: State Street Research Equity
Trust, State Street Research Financial Trust, State Street Research
Income Trust, State Street Research Money Market Trust, State Street
Research Tax-Exempt Trust, State Street Research Capital Trust, State
Street Research Exchange Trust, State Street Research Growth Trust,
State Street Research Master Investment Trust, State Street Research
Securities Trust, State Street Research Portfolios, Inc. and
Metropolitan Series Fund, Inc.
21
<PAGE>
As of April 30, 1996, the following persons or entities were the record
and/or beneficial owners of the approximate amounts of each class of shares of
the Fund as set forth beside their names:
Shareholder %
Class B Merrill Lynch 9.9
Class C State Street Bank and Trust Company 17.5
Chase Manhattan Bank 13.3
C.P.R. Parvata, Trustee 6.8
Class D Merrill Lynch 20.7
R. Duffield & C.R. Player, Jr., Co-Trustees 21.6
The full name and address of each of the above persons or entities are
as follows:
R. Duffield & C.R. Player, Jr., Co-Trustees (a)
State Street Bank and Trust Company (b)
225 Franklin Street
Boston, Massachusetts 02110
Chase Manhattan Bank, N.A. (b)(c)
770 Broadway
New York, New York 10003
Merrill Lynch, Pierce, Fenner & Smith, Inc. (b)
One Liberty Plaza
165 Broadway
New York, New York 10080
- --------------------
(a) The address for each of the above persons is:
c/o State Street Research Shareholder Services
One Financial Center
Boston, Massachusetts 02111
(b) The Fund believes that such entity does not have beneficial ownership
of such shares.
(c) Chase Manhattan Bank holds such shares as trustee under certain
employee benefit plans serviced by Metropolitan Life Insurance Company.
As of April 30, 1996, the Trustees and officers of the Fund as a group
owned less than 1% of the Fund's outstanding Class A shares, and owned no shares
of the Fund's outstanding Class B, Class C or Class D shares.
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
22
<PAGE>
be in control of such class of shares for purposes of voting on certain matters
submitted to a vote of shareholders, such as any Distribution Plan for a given
class.
The Trustees have been compensated as follows:
- -------------------------------------------------------------------------------
Total
Compensation
Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Trust(a) to Trustees(b)
- -------------------------------------------------------------------------------
Edward M. Lamont $ 4,300 $ 63,510
Robert A. Lawrence $ 4,300 $ 91,685
Dean O. Morton $ 4,700 $ 103,085
Thomas L. Phillips $ 4,000 $ 67,185
Toby Rosenblatt $ 4,300 $ 63,510
Michael S. Scott Morton $ 5,100 $ 109,035
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $ 4,400 $ 76,285
(a) Includes compensation from multiple Series of the Trust for the fiscal
year ended March 31, 1996. See "Distribution of Shares" for a listing
of series.
(b) Includes compensation from 30 series, including Metropolitan Series
Fund, Inc., for which the Investment Manager serves as sub-investment
adviser, State Street Research Portfolios, Inc., for which State Street
Research Investment Services, Inc. serves as distributor, and all
investment companies for which the Investment Manager serves as primary
investment adviser. Total Compensation from Trust and Fund Complex is
for 12 months ended December 31, 1995. The Trust does not provide any
pension or retirement benefits for the Trustees.
23
<PAGE>
INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Advisory
Agreement provides that the Investment Manager shall furnish the Fund with an
investment program, office facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of the
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly-owned subsidiary of Metropolitan
Life Insurance Company.
The advisory fee payable monthly by the Fund to the Investment Manager
is computed as a percentage of the average of the value of the net assets of the
Fund as determined at the close of the New York Stock Exchange (the "NYSE") on
each day said Exchange is open for trading, at the annual rate of 0.65% of the
net assets of the Fund. The Distributor and its affiliates have from time to
time and in varying amounts voluntarily assumed some portion of fees or expenses
relating to the Fund. For the fiscal years ended March 31, 1994, 1995 and 1996,
the investment advisory fee for the Fund was $4,022,674, $4,696,647 and
$5,199,204, respectively. For the same periods, the voluntary reduction of fees
or assumption of expenses amounted to $218,726, $0 and $0, respectively.
Further, to the extent required under applicable state regulatory
requirements, the Investment Manager will reduce its management fee for the Fund
up to the amount of any expenses (excluding permissible items, such as Rule
12b-1 Distribution Plan payments, brokerage commissions, interest, taxes and
litigation expenses) paid or incurred by the Fund in any fiscal year which
exceed specified percentages of the average daily net assets of such Fund for
such fiscal year. The most restrictive of such percentage limitations is
currently 2.5% of the first $30 million of average net assets, 2.0% of the next
$70 million of average net assets and 1.5% of the remaining average net assets.
These commitments may be amended or rescinded in response to changes in the
requirements of the various states by the Trustees without shareholder approval.
The Advisory Agreement provides that it will continue in effect with
respect to the Fund from year to year as long as it is approved at least
annually both (i) by a vote of a majority of the outstanding voting securities
of the Fund (as defined in the 1940 Act) or by the Trustees of the Trust, and
(ii) in either event by a vote of a majority of the Trustees who are not parties
to the Advisory Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated on 60 days' written notice by either party
and will terminate automatically in the event of its assignment, as defined
under the 1940 Act and regulations thereunder. Such regulations provide that a
transaction which does not result in a change of actual control or management of
an adviser is not deemed an assignment.
24
<PAGE>
Under a Funds Administration Agreement between the Investment Manager
and the Distributor, the Distributor provides assistance to the Investment
Manager in performing certain fund administration services for the Trust, such
as assistance in determining the daily net asset value of shares of series of
the Trust and in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the
Trust and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Fund, and is entitled to
reimbursements of its costs for providing such services. Under certain
arrangements for Metropolitan to provide subadministration services,
Metropolitan may receive a fee for the maintenance of certain share ownership
records for participants in sponsored arrangements, such as employee benefit
plans, through or under which Fund shares may be purchased.
Under the Code of Ethics of the Investment Manager, its employees in
Boston, where investment management operations are conducted, are only permitted
to engage in personal securities transactions in accordance with certain
conditions relating to an employee's position, the identity of the security, the
timing of the transaction and similar factors. Such employees must report their
personal securities transactions quarterly and supply broker confirmations of
such transactions to the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by the Distributor. 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). General information on how to buy shares of the Funds, as well as
sales charges involved, are set forth under "Purchase of Shares" in the
Prospectus. The following supplements that information.
Public Offering Price - The public offering price for each class of
shares is based on their net asset value determined as of the close of the NYSE
on the day the purchase order is received by State Street Research Shareholder
Services provided that the order is received prior to the close of the NYSE on
that day; otherwise the net asset value used is that determined as of the close
of the NYSE on the next day it is open for unrestricted trading. When a purchase
order is placed through a dealer, that dealer is responsible for transmitting
the order promptly to State Street Research Shareholder Services in order to
permit the investor to obtain the current price. Any loss suffered by an
investor which results from a dealer's failure to transmit an order promptly is
a matter for settlement between the investor and the dealer.
25
<PAGE>
Reduced Sales Charges - For purposes of determining whether a purchase
of Class A shares qualifies for reduced sales charges, the term "person"
includes: (i) an individual, or an individual combining with his or her spouse
and their children and purchasing for his, her or their own account; (ii) a
"company" as defined in Section 2(a)(8) of the 1940 Act; (iii) a trustee or
other fiduciary purchasing for a single trust estate or single fiduciary account
(including a pension, profit sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code);
(iv) a tax-exempt organization under Section 501(c)(3) or (13) of the Internal
Revenue Code; and (v) an employee benefit plan of a single employer or of
affiliated employers.
Investors may purchase Class A shares of the Fund at reduced sales
charges by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds" as
designated by the Distributor within a 13-month period. The sales charge
applicable to each purchase made pursuant to a Letter of Intent will be that
which would apply if the total dollar amount set forth in the Letter of Intent
were being bought in a single transaction. Purchases made within a 90-day period
prior to the execution of a Letter of Intent may be included therein; in such
case the date of the earliest of such purchases marks the commencement of the
13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Fund and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class D shares may also be included under certain
circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
26
<PAGE>
Class C Shares - Class C shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants (currently a minimum of 100 employees),
service arrangements, or similar factors; insurance companies; investment
companies; endowment funds of nonprofit organizations with substantial minimum
assets (currently a minimum of $10,000,000); and other similar institutional
investors.
Reorganizations - In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined in the 1940 Act, the Fund may issue its shares at net asset value (or
more) to such entities or to their security holders.
Redemptions - The Fund reserves the right to pay redemptions in kind
with portfolio securities in lieu of cash. In accordance with its election
pursuant to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of
redemption proceeds paid in cash. Although it has no present intention to do so,
the Fund may, under unusual circumstances, limit redemptions in cash with
respect to each shareholder during any ninety-day period to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of the Fund at the beginning of such
period. In connection with any redemptions paid in kind with portfolio
securities, brokerage and other costs may be incurred by the redeeming
shareholder in the sale of the securities received.
NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily
as of the close of the NYSE, ordinarily 4 P.M. New York City time, Monday
through Friday, on each day during which the NYSE is open for unrestricted
trading. The NYSE is currently closed on New Year's Day, Presidents Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The net asset value per share of the Fund is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets minus all liabilities by the total number of outstanding shares of the
Fund at such time. Any expenses, except for extraordinary or nonrecurring
expenses, borne by the Fund, including the investment management fee payable to
the Investment Manager, are accrued daily.
In determining the values of portfolio assets, the Trustees may utilize
one or more pricing services in lieu of market quotations for certain securities
which are not readily available on a daily basis. Such services may provide
prices determined as of times prior to the close of the NYSE.
In general, securities are valued as follows. Securities which are
listed or traded on the New York or American Stock Exchange are valued at the
price of the last quoted sale on the respective exchange for that day.
Securities which are listed or traded on a national securities exchange or
exchanges, but not on the New York or American Stock Exchange, are valued at
27
<PAGE>
the price of the last quoted sale on the exchange for that day prior to the
close of the NYSE. Securities not listed on any national securities exchange and
for which quotations are available on the National Association of Securities
Dealers' NASDAQ System, or other system, are valued at the closing price
supplied through such system for that day at the close of the NYSE. Other
securities are, in general, valued at the mean of the bid and asked quotations
last quoted prior to the close of the NYSE if there are market quotations
readily available, or in the absence of such market quotations, then at the fair
value thereof as determined by or under authority of the Trustees of the Trust
utilizing such pricing services as may be deemed appropriate as described above.
Securities deemed restricted as to resale are valued at the fair value thereof
as determined by or in accordance with methods adopted by the Trustees of the
Trust.
Short-term debt instruments issued with a maturity of one year or less
which have a remaining maturity of 60 days or less are valued using the
amortized cost method, provided that during any period in which more than 25% of
the Fund's total assets is invested in short-term debt securities the current
market value of such securities will be used in calculating net asset value per
share in lieu of the amortized cost method. The amortized cost method is used
when the value obtained reflects fair value. Under the amortized cost method of
valuation, the security is initially valued at cost on the date of purchase (or
in the case of short-term debt instruments purchased with more than 60 days
remaining to maturity, the market value on the 61st day prior to maturity), and
thereafter a constant amortization to maturity of any discount or premium is
assumed regardless of the impact of fluctuating interest rates on the market
value of the security.
PORTFOLIO TRANSACTIONS
Portfolio Turnover
The Fund's portfolio turnover rate is determined by dividing the lesser
of securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The portfolio turnover rates for the fiscal years ended March 31,
1995 and 1996 were 31.55% and 56.47%, respectively. The Investment Manager
believes the portfolio turnover rate for the fiscal year ended March 31, 1996
was significantly higher because of the liquidation of investments through calls
on debt holdings by issuers of the debt, through sales of investments based on
the Investment Manager's assessment of the changing market valuation and
creditworthiness of certain issuers, and through strategic selling in light of
changes in interest rates. The Fund reserves full freedom with respect to
portfolio turnover, as described in the Prospectus.
28
<PAGE>
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Fund occur. Against this background, the Investment Manager
evaluates the reasonableness of a commission or a net price with respect to a
particular transaction by considering such factors as difficulty of execution or
security positioning by the executing firm. The Investment Manager may or may
not solicit competitive bids based on its judgment of the expected benefit or
harm to the execution process for that transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given to services other than execution services which certain of such firms have
provided in the past or may provide in the future. Negotiated commission rates
and prices, however, are based upon the Investment Manager's judgment of the
rate which reflects the execution requirements of the transaction without regard
to whether the broker provides services in addition to execution. Among such
other services are the supplying of supplemental investment research; general
economic, political and business information; analytical and statistical data;
relevant market information, quotation equipment and services; reports and
information about specific companies, industries and securities; purchase and
sale recommendations for stocks and bonds; portfolio strategy services;
historical statistical information; market data services providing information
on specific issues and prices; financial publications; proxy voting data and
analysis services; technical analysis of various aspects of the securities
markets, including technical charts; computer hardware used for brokerage and
research purposes; computer software and databases, including those used for
portfolio analysis and modelling; and portfolio evaluation services and relative
performance of accounts.
Certain nonexecution services provided by broker-dealers may in turn be
obtained by the broker-dealers from third parties who are paid for such services
by the
29
<PAGE>
broker-dealers. The Investment Manager has an investment of less than ten
percent of the outstanding equity of one such third party which provides
portfolio analysis and modelling and other research and investment
decision-making services integrated into a trading system developed and licensed
by the third party to others. The Investment Manager could be said to benefit
indirectly if in the future it allocates brokerage to a broker-dealer who in
turn pays this third party for services to be provided to the Investment
Manager.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Some services may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and is
therefore paid directly by the Investment Manager. Some research and execution
services may benefit the Investment Manager's clients as a whole, while others
may benefit a specific segment of clients. Not all such services will
necessarily be used exclusively in connection with the accounts which pay the
commissions to the broker-dealer producing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which that firm may
expect to receive for services supplied to the Investment Manager or otherwise.
There may be, however, understandings with certain firms that in order for such
firms to be able to continuously supply certain services, they need to receive
allocation of a specified amount of brokerage business. These understandings are
honored to the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, relies on the provisions of Section 28(e) of the
Securities Exchange Act of 1934, to the extent applicable. Brokerage commissions
paid by the Fund in secondary trading during the fiscal years ended March 31,
1994, 1995 and 1996, amounted to $50,536, $56,055 and $131,397, respectively.
The Investment Manager believes the amount of brokerage commissions paid by the
Fund during the fiscal year ended March 31, 1996 was significantly higher than
during the previous year because of increased selling based on the Investment
Manager's assessment of market valuations, credit qualities and interest rates.
During and at the end of its most recent fiscal year, the Fund held in its
portfolio no securities of any entity that might be deemed to be a regular
broker-dealer of the Fund as defined under the 1940 Act.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling concessions and
designations to brokers or
30
<PAGE>
dealers which provide the client with research, performance evaluation, master
trustee and other services. In the absence of instructions from the client, the
Investment Manager may make such allocations to broker-dealers which have
provided the Investment Manager with research and brokerage services.
When more than one client of the Investment Manager is seeking to buy
or sell the same security, the sale or purchase is carried out in a manner which
is considered fair and equitable to all accounts. In allocating investments
among various clients (including in what sequence orders for trades are placed),
the Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the amount already committed for each client
to a specific investment and the relative risks of the investments, all in order
to provide on balance a fair and equitable result to each client over time.
Although sharing in large transactions may sometimes affect price or volume of
shares acquired or sold, overall it is believed there may be an advantage in
execution. The Investment Manager may follow the practice of grouping orders of
various clients for execution to get the benefit of lower prices or commission
rates. In certain cases where the aggregate order may be executed in a series of
transactions at various prices, the transactions are allocated as to amount and
price in a manner considered equitable to each so that each receives, to the
extent practicable, the average price of such transactions. Exceptions may be
made based on such factors as the size of the account and the size of the trade.
For example, the Investment Manager may not aggregate trades where it believes
that it is in the best interests of clients not to do so, including situations
where aggregation might result in a large number of small transactions with
consequent increased custodial and other transactional costs which may
disproportionately impact smaller accounts. Such disaggregation, depending on
the circumstances, may or may not result in such accounts receiving more or less
favorable execution relative to other clients.
CERTAIN TAX MATTERS
Federal Income Taxation of the Funds -- In General
The Fund intends to qualify and elects to be treated each taxable year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), although it cannot give complete
assurance that it will do so. Accordingly, the Fund must, among other things,
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities, (ii) options, futures, or forward contracts (other than options,
futures or forward contracts on
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<PAGE>
foreign currencies), or (iii) foreign currencies (or options, futures, or
forward contracts on foreign currencies) but only if such currencies (or
options, futures, or forward contracts) are not directly related to the Fund's
principal business of investing in stocks or securities (or options and futures
with respect to stocks or securities); (c) satisfy certain diversification
requirements; and (d) in order to be entitled to utilize the dividends paid
deduction, distributeannually at least 90% of its investment company taxable
income (determined without regard to the deduction for dividends paid).
The 30% test will limit the extent to which the Fund may sell
securities held for less than three months, write options which expire in less
than three months, and effect closing transactions with respect to call or put
options that have been written or purchased within the preceding three months.
(If the Fund purchases a put option for the purpose of hedging an underlying
portfolio security, the acquisition of the option is treated as a short sale of
the underlying security unless, for purposes only of the 30% test, the option
and the security are acquired on the same date.) Finally, as discussed below,
this requirement may also limit investments by the Fund in options on stock
indices, listed options on nonconvertible debt securities, futures contracts,
options on interest rate futures contracts and certain foreign currency
contracts.
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of such Fund's current or
accumulated earnings and profits. Also, the shareholders, if they received a
distribution in excess of current or accumulated earnings and profits, would
receive a return of capital that would reduce the basis of their shares of the
Fund.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any undistributed portion of the respective balances from the
prior year. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
Federal Income Taxation of the Fund's Investments
Original Issue Discount. For federal income tax purposes, debt
securities purchased by the Fund may be treated as having original issue
discount. Original issue discount represents interest for federal income tax
purposes and can generally be defined as the excess of the stated redemption
price at maturity of a debt obligation over the issue price. Original issue
discount is treated for federal income tax purposes as income earned by the
Fund, whether or not any income is actually received, and therefore is subject
to the distribution requirements of the Code. Generally, the amount of original
issue discount is determined on the basis of a
32
<PAGE>
constant yield maturity which takes into account the compounding of accrued
interest. Under section 1286 of the Code, an investment in a stripped bond or
stripped coupon may result in original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for income tax
purposes. In the case of any debt security issued after July 18, 1984, having a
fixed maturity date of more than one year from the date of issue and having
market discount, the gain realized on disposition will be treated as interest
income to the extent it does not exceed the accrued market discount on the
security (unless the Fund elects to include such accrued market discount in
income in the tax year to which it is attributable). Generally, market discount
is accrued on a daily basis. The Fund may be required to capitalize, rather than
deduct currently, part or all of any direct interest expense incurred to
purchase or carry any debt security having market discount, unless a Fund makes
the election to include market discount currently. Because the Fund must include
original issue discount in income, it will be more difficult for the Fund to
make the distributions required for the Fund to maintain its status as a
regulated investment company under Subchapter M of the Code or to avoid the 4%
excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments may
be subject to provisions of the Code that (i) require inclusion of unrealized
gains or losses in the Fund's income for purposes of the 90% test, the 30% test,
the excise tax and the distribution requirements applicable to regulated
investment companies; (ii) defer recognition of realized losses; and (iii)
characterize both realized and unrealized gain or loss as short-term or
long-term gain or loss. Such provisions generally apply to, among other
investments, options on debt securities, indices on securities and futures
contracts.
Federal Income Taxation of Shareholders
Distributions by the Fund can result in a reduction in the fair market
value of such Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless would be
taxable to the shareholder as ordinary income or long-term capital gain, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a taxable distribution. The price of
shares purchased at that time includes the amount of any forthcoming
distribution. Those investors purchasing shares just prior to a taxable
distribution will then receive a return of investment upon distribution which
will nevertheless be taxable to them.
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<PAGE>
DISTRIBUTION OF SHARES OF THE FUND
State Street Research Income Trust is currently comprised of the
following series: State Street Research High Income Fund and State Street
Research Managed Assets. The Trustees have authorized the Fund to issue four
classes of shares: Class A, Class B, Class C and Class D shares. The Trustees of
the Trust have authority to issue an unlimited number of shares of beneficial
interest of separate series, $.001 par value per share. A "series" is a separate
pool of assets of the Trust which is separately managed and has a different
investment objective and different investment policies from those of another
series. The Trustees have authority, without the necessity of a shareholder
vote, to create any number of new series or classes or to commence the public
offering of shares of any previously established series or class.
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B and Class D shares). The Distributor may allow all or
portions of such sales charges as concessions to dealers. For the fiscal years
ended March 31, 1994, 1995 and 1996, total sales charges on Class A shares paid
to the Distributor amounted to $4,321,364, $3,774,724 and $2,741,302,
respectively. For the same periods, $513,300, $447,617 and $268,551,
respectively, was retained by the Distributor after reallowance of concessions
to dealers.
The differences in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements and managed fee-based programs, the
amount of the sales charge reduction will similarly reflect the anticipated
reduction in sales expenses associated with such arrangements. The reduction in
sales expenses, and therefore the reduction in sales charge, will vary depending
on factors such as the size and other characteristics of the organization or
program, and the nature of its membership or the participants. The Fund reserves
the right to make variations in, or eliminate, sales charges at any time or to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
arrangements at any time.
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<PAGE>
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
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
For the periods shown below, the Distributor received contingent
deferred sales charges upon redemption of Class A, Class B and Class D shares of
the Funds and paid initial commissions to securities dealers for sales of such
shares as follows:
<TABLE>
<CAPTION>
June 1, 1993
(commencement of
Fiscal Year Ended Fiscal Year Ended share class designations)
March 31, 1996 March 31, 1995 to March 31, 1994
------------------------------- ----------------------------- -----------------------------------
Contingent Contingent Contingent
Deferred Commissions Deferred Commissions Deferred Commissions
Sales Charges Paid to Dealers Sales Charges Paid to Dealers Sales Charges Paid to Dealers
------------- --------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A $ 0 $2,472,751 $ 1,238 $ 3,327,107 $ 0 $3,808,064*
Class B $ 734,173 $2,802,176 $ 274,749 $ 2,315,926 $ 38,044 $ 1,675,127
Class D $ 4,449 $ 100,380 $ 2,188 $ 49,802 $ 0 $ 26,870
</TABLE>
- -------------------
* For the period April 1, 1993 through March 31, 1994.
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1"
(the "Distribution Plan") under which the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of Class A, Class B and Class D shares, including, but not limited to, (1) the
payment of commissions and/or reimbursement to underwriters, securities dealers
and others engaged in the sale of shares, including payments to the Distributor
to be used to pay commissions and/or reimbursement to securities dealers (which
securities dealers may be affiliates of the Distributor) engaged in the
distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the servicing of investor accounts including expenses relating to the
formulation and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, the preparation, printing and
distribution of Prospectuses of the Fund and reports for recipients other than
existing shareholders of the Fund, and obtaining such information, analyses and
reports with respect to marketing and promotional activities and
35
<PAGE>
investor accounts as the Fund may, from time to time, deem advisable, and (3)
reimbursement of expenses incurred by the Distributor in connection with the
servicing of shareholder accounts including payments to securities dealers and
others in consideration of the provision of personal service to investors and/or
the maintenance of shareholder accounts and expenses associated with the
provision of personal service by the Distributor directly to investors. In
addition, the Distribution Plan is deemed to authorize the Distributor and the
Investment Manager to make payments out of general profits, revenues or other
sources to underwriters, securities dealers and others in connection with sales
of shares, to the extent, if any, that such payments may be deemed to be within
the scope of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class D shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class D
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class D shares (as the case may be) to make payments for personal
service and/or the maintenance of shareholder accounts. Proceeds from the
service fee will be used by the Distributor to compensate securities dealers and
others selling shares of the Fund for rendering service to shareholders on an
ongoing basis. Such amounts are based on the net asset value of shares of the
Fund held by such dealers as nominee for their customers or which are owned
directly by such customers for so long as such shares are outstanding and the
Distribution Plan remains in effect with respect to the Fund. Any amounts
received by the Distributor and not so allocated may be applied by the
Distributor as reimbursement for expenses incurred in connection with the
servicing of investor accounts. The distribution and servicing expenses of a
particular class will be borne solely by that class.
During the fiscal year ended March 31, 1996, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
36
<PAGE>
Class A Class B Class D
------- ------- -------
Advertising $ 0 $ 0 $ 0
Printing and mailing of prospectuses
to other than current shareholders 0 0 0
Compensation to dealers 1,583,616 1,516,560 115,118
Compensation to sales personnel 0 0 0
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: Marketing; 0 0 0
----------- ---------- --------
Total fees $1,583,616 $1,516,560 $115,118
========== ========== ========
The Distributor may have also used additional resources of its own for further
expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Fund will attempt to make
alternative arrangements for such services for shareholders who acquired shares
through such institutions.
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") and yield of
the Class A, Class B, Class C and Class D shares of the Funds will be calculated
as set forth below. Total return and yield are computed separately for each
class of shares of the Fund. Performance data for a specified class includes
periods prior to the adoption of class designations. 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.
37
<PAGE>
The performance data reflects Rule 12b-1 fees and sales charges as set
forth below:
<TABLE>
<CAPTION>
Rule 12b-1 Fees Sales Charges
------------------------------------------------- -------------------------------------------------
Current
Class Amount Period
- ----- ------ ------
<S> <C> <C> <C>
A 0.25% Since commencement of Maximum 4.5% sales charge reflected
operations to present
B 1.00% 0.25% until June 1, 1993; 1- and 5-year periods reflect a 5% and a
1% June 1, 1993 to present; 2% contingent deferred sales charge,
fee will reduce performance respectively
for periods after June 1, 1993
C None 0.25% until June 1, 1993; None
0% thereafter
D 1.00% 0.25% until June 1, 1993; 1-year period reflects a 1% contingent
1% June 1, 1993 to present; deferred sales charge
fee will reduce performance
for periods after June 1, 1993
</TABLE>
All calculations of performance data in this section reflect the
voluntary measures by the Fund's affiliates to reduce expenses relating to the
Fund; see "Accrued Expenses" later in this section.
Total Return
The Fund's average annual total returns ("standard total return") of
each class of shares were as follows:
Commencement of
Operations Five Years One Year
(August 25, 1986) Ended Ended
Fund to March 31, 1996 March 31, 1996 March 31,1996
- ---- ----------------- -------------- -------------
Class A 9.55% 13.98% 7.77%
Class B 9.81% 14.26% 7.06%
Class C 10.11% 15.11% 13.19%
Class D 9.80% 14.49% 11.05%
Standard total return is computed separately for each class of shares
by determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
P(1+T)n = ERV
38
<PAGE>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated period
assuming a hypothetical $1,000 payment made at the beginning
of the designated period
The calculation is based on the further assumptions that the maximum
initial or contingent deferred sales charge applicable to the investment is
deducted, and that all dividends and distributions by the Fund are reinvested at
net asset value on the reinvestment dates during the periods. All accrued
expenses and recurring charges are also taken into account as described later
herein.
Yield
The annualized yield of each class of shares of the Fund based on the
month of March 1996 was as follows:
Class A 7.51%
Class B 7.15%
Class C 8.18%
Class D 7.14%
Yield for each of the Fund's Class A, Class B, Class C and Class D
shares is computed by dividing the net investment income per share earned during
a recent month or other specified 30-day period by the maximum offering price
per share on the last day of the period and annualizing the result in accordance
with the following formula:
YIELD = 2[( a-b + 1)6 -1]
---
cd
Where a = dividends and interest earned during the period
b = expenses accrued for the period (net of voluntary expense
reductions by the Investment Manager)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
39
<PAGE>
To calculate interest earned (for the purpose of "a" above) on debt
obligations, the Fund computes the yield to effective maturity of each
obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of the last business day of the
preceding period, or, with respect to obligations purchased during the period,
the purchase price (plus actual accrued interest). The yield to effective
maturity is then divided by 360 and the quotient is multiplied by the market
value of the obligation (including actual accrued interest) to determine the
interest income on the obligation for each day of the period that the obligation
is in the portfolio. Dividend income is recognized daily based on published
rates.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("paydowns"), the Fund accounts for gain or
loss attributable to actual monthly paydowns as a realized capital gain or loss
during the period. The Fund has elected not to amortize discount or premium on
such securities.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be declared as a dividend shortly thereafter. The maximum offering
price includes, as applicable, a maximum sales charge of 4.5%.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing the Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often are insured and/or provide an agreed
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that yield is a function of the kind and quality of the instruments in
the Fund's portfolio, portfolio maturity and operating expenses and market
conditions.
Accrued Expenses
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return and yield results take sales charges, if applicable, into
account, although the results do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
40
<PAGE>
Nonstandardized Total Return
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class D shares for periods which end no
earlier than the most recent calendar quarter end and which begin twelve months
before and at the time of commencement of the Fund's operations. In addition,
the Fund may provide nonstandardized total return results for differing periods,
such as for the most recent six months, and/or without taking sales charges into
account. Such nonstandardized total return is computed as otherwise described
under "Total Return" except the result may or may not be annualized, and as
noted any applicable sales charge may not be taken into account and therefore
not deducted from the hypothetical initial payment of $1,000. For example, the
Fund's nonstandardized total returns for the six months ended March 31, 1996
without taking sales charges into account, were as follows:
Class A 6.00%
Class B 5.81%
Class C 6.17%
Class D 5.63%
Distribution Rates
The Fund may also quote its distribution rate for each class of shares.
The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the offering price
per share as of the end of the period to which the distribution relates. A
distribution can include gross investment income from debt obligations purchased
at a premium and in effect include a portion of the premium paid. A distribution
can also include nonrecurring, gross short-term capital gains without
recognition of any unrealized capital losses. Further, a distribution can
include income from the sale of options by the Fund even though such option
income is not considered investment income under generally accepted accounting
principles.
Because a distribution can include such premiums, capital gains and
option income, the amount of the distribution may be susceptible to control by
the Investment Manager through transactions designed to increase the amount of
such items. Also, because the distribution rate is calculated in part by
dividing the latest distribution by the offering price, which is based on net
asset value plus any applicable sales charge, the distribution rate will
increase as the net asset value declines. A distribution rate can be greater
than the yield rate calculated as described above.
41
<PAGE>
The distribution rates of the Fund, based on the month of March 1996,
were as follows:
Class A 8.38%
Class B 8.03%
Class C 9.08%
Class D 8.03%
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing professional services
including (1) audits of the Funds' annual financial statements, (2) assistance
and consultation in connection with Securities and Exchange Commission filings
and (3) review of the annual income tax returns filed on behalf of the Funds.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a
semiannual basis, other supplementary financial reports may be made available
from time to time and holders of record may request a copy of a current
supplementary report, if any, by calling State Street Research Shareholder
Services.
The following financial statements are for the Fund's fiscal year ended
March 31, 1996.
280883.c3
42
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
INVESTMENT PORTFOLIO
March 31, 1996
- --------------------------------- ---------- --------- -------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------- ---------- --------- -------------
BONDS 80.5%
Aerospace 4.8%
BE Aerospace, Inc. Sr. Notes,
9.875%+ $ 6,300,000 2/01/2006 $ 6,363,000
K&F Industries, Inc. Sr. Sub.
Deb., 13.75% 5,743,000 8/01/2001 5,972,720
K&F Industries, Inc. Sr. Sec.
Notes, 11.875% 7,264,000 12/01/2003 7,881,440
Ladish Co., Inc. Sr. Sub. Units,
12.00%++ 181,135 12/22/2000 189,157
Sabreliner Corp. Sr. Note,
12.50%+ 1,750,000 4/15/2003 1,653,750
Talley Manufacturing and
Technology, Inc. Sr. Notes,
10.75% 7,000,000 10/15/2003 7,035,000
Talley Industries, Inc. Disc.
Deb., 0.00% to 10/14/98, 12.25%
from 10/15/98 to maturity 10,590,000 10/15/2005 8,260,200
Wyman-Gordon Co. Sr. Notes,
10.75% 3,390,000 3/15/2003 3,525,600
-----------
40,880,867
-----------
Airlines 1.3%
CHC Helicopter Corp. Sr. Sub.
Note, 11.50% 11,700,000 7/15/2002 11,115,000
-----------
Automotive 0.8%
Exide Corp. Sr. Notes, 10.75% 3,000,000 12/15/2002 3,082,500
Harvard Industries, Inc. Sr.
Notes, 12.00% 2,250,000 7/15/2004 2,317,500
Penda Industries, Inc. Sr. Notes,
10.75% 1,750,000 3/01/2004 1,470,000
Venture Holdings Trust Sr. Sub.
Notes, 9.75% 250,000 4/01/2004 200,000
-----------
7,070,000
-----------
Business Service 0.6%
La Petite Holdings Co. Sr. Sec.
Notes, 9.625% 5,000,000 8/01/2001 4,750,000
-----------
Cable 4.3%
American Telecasting, Inc. Sr.
Sub. Units, 0.00% to 6/14/99,
12.50% from 6/15/99 to maturity 5,480,056 6/15/2004 4,000,441
CAI Wireless Systems, Inc. Sr.
Disc. Note, 12.25% 1,050,000 9/15/2002 1,113,000
Heartland Wireless
Communications, Inc. Units,
13.00% 8,250,000 4/15/2003 9,033,750
Insight Communications Co., L.P.
Sr. Sub. Disc. Note, 8.25% to
2/29/96, 11.25% from 3/1/96 to
maturity $ 1,525,000 3/01/2000 $ 1,563,125
Marcus Cable Operating Co. L.P.
Sr. Deb., 11.875% 3,500,000 10/01/2005 3,727,500
Marcus Cable Operating Co. L.P.
Sr. Disc. Note, 0.00% to
7/31/99, 13.50% from 8/1/99 to
maturity 9,000,000 8/01/2004 6,525,000
Telewest Communications PLC Sr.
Deb., 9.625% 4,750,000 10/01/2006 4,738,125
Wireless One, Inc. Sr. Disc.
Note, 13.00% 5,500,000 10/15/2003 5,802,500
-----------
36,503,441
-----------
Capital Goods/Equipment 2.1%
Axia Holdings Corp. Sr. Sub.
Notes, 11.00% 750,000 3/15/2001 735,000
Chatwins Group, Inc. Sr. Exch.
Note, 13.00% 6,250,000 5/01/2003 5,187,500
Consolidated Hydro Inc. Sr. Disc.
Note, 0.00% to 1/14/99, 12.00%
from 1/15/99 to maturity 2,525,000 7/15/2003 1,648,774
ICF Kaiser International, Inc.
Sr. Sub. Notes, 12.00% 4,750,000 12/31/2003 4,476,875
ICF Kaiser International, Inc.
Units, 12.00% 3,750,000 12/31/2003 3,562,500
Specialty Equipment Companies,
Inc. Sr. Sub. Note, 11.375% 1,250,000 12/01/2003 1,309,375
Waters Corp. Sr. Sub. Note,
12.75% 1,125,000 9/30/2004 1,350,000
-----------
18,270,024
-----------
Chemical 1.2%
Pioneer Americas Acquisition
Corp. Sr. Note, 13.375% 9,500,000 4/01/2005 10,188,750
-----------
Conglomerate 0.9%
Alvey Systems, Inc. Sr. Sub.
Note, 11.375%+ 7,750,000 1/31/2003 8,060,000
-----------
Consumer Goods 2.5%
Carrols Corp. Sr. Notes, 11.50% 7,200,000 8/15/2003 7,380,000
Central Rents, Inc. Sr. Notes,
12.875% 5,250,000 12/15/2003 5,276,250
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------- ---------- --------- -------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------- ---------- --------- -------------
Consumer Goods (cont'd)
Norcal Waste Systems, Inc. Sr.
Sub. Note, 12.50% to 5/14/96,
12.75% from 5/15/96 to
11/14/96, 13.00% from 11/15/96
to 5/14/97, 13.25% from 5/15/97
to 11/14/97, 13.50% from
11/15/97 to maturity+ $ 6,750,000 11/15/2005 $ 6,986,250
Town & Country Corp. Sr. Sub.
Notes, 13.00%(open diamond) 2,561,000 5/31/1998 1,562,210
-----------
21,204,710
-----------
Cosmetics 0.1%
Renaissance Cosmetics, Inc. Sr.
Notes, 13.75% 1,000,000 8/15/2001 1,005,000
-----------
Drug 0.5%
Phar-Mor, Inc. Sr. Note, 11.72% 4,725,000 9/11/2002 4,583,250
-----------
Entertainment 2.6%
Live Entertainment Inc. Sr. Sub.
Notes, 10.00% to 3/22/96,
12.00% from 3/23/96 to maturity 7,936,100 3/23/1999 6,666,324
Plitt Theatres, Inc. Sr. Sub.
Note, 10.875% 5,750,000 6/15/2004 5,865,000
Premier Parks, Inc. Sr. Note,
12.00% 1,750,000 8/15/2003 1,855,000
United Artists Theatre Series
1995, 9.30%+ 8,000,000 7/01/2015 7,680,000
-----------
22,066,324
-----------
Food & Beverage 4.7%
Doskocil Companies, Inc. Sr. Sub.
Red. Notes, 9.75% 11,155,000 7/15/2000 11,601,200
Fresh DelMonte Produce N.V. Note,
10.00% 6,325,000 5/01/2003 5,882,250
MAFCO Inc. Sr. Sub. Notes,
11.875% 1,500,000 11/15/2002 1,567,500
Seven-Up/RC Bottling Co. of
Southern California, Inc.
Notes, 11.50% (open box) 13,500,000 8/01/1999 8,100,000
Smittys Super Value Inc. Sr. Sub.
Notes, 12.75% 3,250,000 6/15/2004 3,542,500
Specialty Foods Corp. Sr. Note,
11.125% 4,250,000 10/01/2002 3,973,750
Specialty Foods Corp. Sr. Sub.
Notes, 11.25% 6,150,000 8/15/2003 4,981,500
-----------
39,648,700
-----------
Gaming & Lodging 5.0%
AZTAR Corp. Sr. Sub. Notes,
11.00% $ 3,000,000 10/01/2002 $ 3,030,000
Belle Casinos, Inc. First
Mortgage Notes, 12.00%+(open
box) 700,000 10/15/2000 245,000
Boomtown Inc. First Mortgage
Notes, 11.50% 3,175,000 11/01/2003 3,063,875
Grand Casinos, Inc. First
Mortgage Note, 10.125% 1,500,000 12/01/2003 1,590,000
Goldriver Hotel & Casino Corp.
Mortgage Notes, 13.375%(open
box) 8,924,000 8/31/1999 4,908,200
Great Bay Property Funding Corp.
First Mortgage Note, 10.875% 6,000,000 1/15/2004 5,340,000
Griffin Gaming & Entertainment,
Inc. Sec. Note, 0.00% 6,950,000 6/30/2000 6,496,860
Mohegan Tribal Gaming Authority
Sr. Sec. Notes, 13.50%+ 3,000,000 11/15/2002 3,570,000
Motels of America, Inc. Sr. Sub.
Notes, 12.00% 5,500,000 4/15/2004 5,335,000
President Riverboat Casinos,
Inc., Sr. Sub. Notes, 13.00% 2,000,000 9/15/2001 1,650,000
Showboat Marina Casino Financing
Corp. First Mortgage Note,
13.50%+ 3,000,000 3/15/2003 3,052,500
Treasure Bay Gaming and Resorts
Inc. First Mortgage Units,
12.25%+(open box) 1,000,000 11/15/2000 245,000
Trump Plaza Funding, Inc. First
Mortgage Notes, 10.875% 2,750,000 6/15/2001 3,052,500
Trump Taj Mahal Funding, Inc.
Mortgage Units, 11.35%(open
diamond) 745,747 11/15/1999 783,967
-----------
42,362,902
-----------
Groceries 4.0%
Almacs, Inc. Sr. Sub. Note,
11.50% 1,000 11/18/2004 100
Grand Union Co. Sr. Sub. Notes,
12.00% 7,250,000 9/01/2004 6,361,875
Jitney-Jungle Stores of America,
Inc. Sr. Note, 12.00% 8,850,000 3/01/2006 8,761,500
Ralphs Grocery Co. Sr. Note,
10.45% 12,000,000 6/15/2004 11,460,000
Ralphs Grocery Co. Sr. Sub. Note,
13.75% 2,500,000 6/15/2005 2,550,000
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------- ---------- --------- -------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------- ---------- --------- -------------
Groceries (cont'd)
Ralphs Supermarkets, Inc. Sr.
Sub. Note, 11.00% $ 2,000,000 6/15/2005 $ 1,800,000
Safeway Stores, Inc. Lease
Certificates, 13.50% 90,123 1/15/2009 114,795
Star Market Co., Inc. Sr. Sub
Note, 13.00% 2,500,000 11/01/2004 2,575,000
Victory Markets Inc. Sub. Deb.,
12.50%(open box) 925,000 3/15/2000 157,250
-----------
33,780,520
-----------
Media 10.3%
Adams Outdoor Advertising Ltd.
Sr. Note, 10.75%+ 6,250,000 3/15/2006 6,375,000
Allbritton Communications Inc.
Sr. Sub. Notes, 9.75%+ 5,000,000 11/30/2007 4,712,500
Affinity Group, Inc. Sr. Sub.
Deb., 11.50% 9,750,000 10/15/2003 9,993,750
Benedek Broadcasting Corp. Sr.
Notes, 11.875% 6,250,000 3/01/2005 6,593,750
EZ Communications, Inc. Sr. Sub.
Note, 9.75% 1,500,000 12/01/2005 1,485,000
Granite Broadcasting Corp. Sr.
Sub. Deb., 12.75% 5,119,000 9/01/2002 5,682,090
Heritage Media Corp. Notes, 8.75% 500,000 2/15/2006 476,250
Hollinger International, Inc. Sr.
Sub. Notes, 9.25% 2,250,000 2/01/2006 2,182,500
K-III Communications Corp. Sr.
Note, 8.50%+ 2,750,000 2/01/2006 2,612,500
Lamar Advertising Co. Sr. Sec.
Notes, 11.00% 750,000 5/15/2003 791,250
New City Communications Inc. Sr.
Sub. Note, 11.375% 1,000,000 11/01/2003 1,012,500
PageMart, Inc. Sr. Disc. Note,
0.00% to 10/31/98, 12.25% from
11/1/98 to maturity 7,400,000 11/01/2003 5,513,000
PageMart Nationwide, Inc. Sr.
Disc. Note, 0.00% to
1/31/2000, 15.00% from 2/1/2000
to maturity 13,250,000 2/01/2005 8,745,000
Telemundo Group, Inc. Sr. Note,
7.00% to 2/14/99, 10.50% from
2/15/99 to maturity 10,600,000 2/15/2006 9,434,000
Universal Outdoor Holdings, Inc.
Sr. Sec. Disc. Note, 0.00% to
6/30/99, 14.00% from 7/1/99 to
maturity 9,700,000 7/01/2004 6,887,000
Media (cont'd)
U.S.A. Mobile Communications,
Inc. Sr. Notes, 9.50% $ 8,620,000 2/01/2004 $ 8,361,400
U.S.A. Mobile Communications,
Inc. Sr. Notes, 14.00% 5,500,000 11/01/2004 6,435,000
-----------
87,292,490
-----------
Metal & Mining 6.0%
Bar Technologies, Inc. Sr. Sec.
Notes, 13.50%+ 4,250,000 4/01/2001 4,196,875
Bayou Steel Corp. First Mortgage
Notes, 10.25% 6,250,000 3/01/2001 5,500,000
Carbide/Graphite Group, Inc.
Sr. Notes, 11.50% 2,500,000 9/01/2003 2,687,500
Crown Resources Corp. Cv. Sub.
Deb., 5.75% 220,000 8/27/2001 182,600
GS Technologies Operating Co. Sr.
Notes, 12.00% 5,250,000 9/01/2004 5,289,375
Haynes International, Inc. Sr.
Sec. Notes, 11.25% 10,025,000 6/15/1998 10,025,000
Haynes International, Inc. Sr.
Sub. Notes, 13.50% 3,525,000 8/15/1999 3,348,750
Kaiser Aluminum & Chemical Corp.
Sr. Sub. Note, 12.75% 2,250,000 2/01/2003 2,385,000
NS Group, Inc. Units, 13.50% 6,500,000 7/15/2003 5,963,750
Sheffield Steel Corp. First
Mortgage Notes, 12.00% 11,750,000 11/01/2001 10,222,500
UCAR Global Enterprises, Inc. Sr.
Sub. Notes, 12.00% 935,000 1/15/2005 1,075,250
-----------
50,876,600
-----------
Oil & Gas 4.4%
Clark U.S.A., Inc. Sr. Note,
10.875%+ 3,500,000 12/01/2005 3,657,500
Dual Drilling Co. Sr. Sub. Notes,
9.875% 6,100,000 1/15/2004 6,557,500
Empire Gas Corp. Sr. Sec. Notes,
7.00% to 7/14/99, 12.875% from
7/15/99 to maturity 5,750,000 7/15/2004 5,146,250
Moran Energy, Inc., Cv. Sub.
Deb., 8.75% 2,420,000 1/15/2008 2,057,000
Presidio Oil Co. Sr. Sec. Notes,
11.50%(open box) 8,102,950 9/15/2000 8,305,524
Presidio Oil Co. Sr. Sub. Gas
Indexed Notes, 13.30%(open box) 6,000,000 7/15/2002 4,560,000
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------- ---------- --------- -------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------- ---------- --------- -------------
Oil & Gas (cont'd)
TransAmerican Refining Corp. Sr.
Sec. Notes, 16.50% to 8/14/98,
16.00% from 8/15/98 to maturity $ 250,000 2/15/2002 $ 225,000
Tuboscope Vetco International
Inc. Sr. Sub. Deb., 10.75% 2,000,000 4/15/2003 2,090,000
United Meridian Corp. Sr. Sub.
Note, 10.375% 4,750,000 10/15/2005 4,987,500
-----------
37,586,274
-----------
Paper 1.8%
Crown Packaging Holdings Ltd. Sr.
Sec. Notes, 10.75% 3,300,000 11/01/2000 3,069,000
Crown Packaging Holdings Ltd. Sr.
Sub. Notes, 0.00% to
10/31/2000, 12.25% from
11/1/2000 to maturity 16,500,000 11/01/2003 7,095,000
Equitable Bag Co., Inc. Sr.
Notes, 11.00%(open box) 6,738,000 12/16/2004 3,369,000
Mail-Well Envelope Corp. Sr. Sub.
Note, 10.50% 2,250,000 2/15/2004 2,188,125
-----------
15,721,125
-----------
Plastics 1.1%
Plastics Specialty & Technology
Sr. Note, 11.25% 9,750,000 12/01/2003 9,750,000
-----------
Publishing 0.2%
Bell & Howell Co. Series B Sr.
Disc. Deb., 0.00% to 2/28/2000,
11.50% from 3/1/2000 to
maturity 2,500,000 3/01/2005 1,625,000
-----------
Real Estate/Building 3.2%
Dal-Tile International Inc. Sr.
Sec. Notes, 0.00% 10,500,000 7/15/1998 8,400,000
Miles Home Services, Inc. Sr.
Note, 12.00% 4,250,000 4/01/2001 3,230,000
Overhead Door Corp., 12.25% 3,250,000 2/01/2000 3,185,000
JM Peters, Inc. Sr. Note, 12.75% 3,375,000 5/01/2002 3,206,250
Waxman Industries, Inc. Sr. Sec.
Notes, 12.25% 5,000,000 9/01/1998 5,112,500
Waxman Industries, Inc. Sr. Sec.
Notes, 0.00% to
5/31/99, 12.75% from 6/1/99 to
maturity 7,424,000 6/01/2004 3,712,000
-----------
26,845,750
-----------
Retail Trade 4.1%
Finlay Enterprises, Inc. Sr.
Disc. Deb., 0.00% to 4/30/98,
12.00% from 5/1/98 to maturity $10,570,000 5/01/2005 $ 7,346,150
Finlay Fine Jewelry Corp. Sr.
Note, 10.625% 5,250,000 5/01/2003 5,105,625
Loehmann's Holdings, Inc. Sr.
Sub. Notes, 13.75% 1,500,000 2/15/1999 1,395,000
Mothers Work, Inc. Sr. Note,
12.625% 2,500,000 8/01/2005 2,606,250
Penn Traffic Co. Sr. Sub. Notes,
8.625% 5,000,000 12/15/2003 4,550,000
Penn Traffic Co. Sr. Sub. Notes,
9.625% 16,500,000 4/15/2005 14,066,250
-----------
35,069,275
-----------
Shipping/Transportation 0.6%
Tiphook Finance Corp. Notes,
7.125% 5,333,000 5/01/1998 3,893,090
Tiphook Finance Corp. Notes,
8.00% 595,000 3/15/2000 438,813
Tiphook Finance Corp. Notes,
10.75% 711,000 11/01/2002 533,250
-----------
4,865,153
-----------
Technology 12.7%
American Communications Services,
Inc. Sr. Disc. Note, 13.00%+ 9,500,000 11/01/2005 5,343,750
Anacomp, Inc. Sr. Sub. Notes,
15.00%(open box) 13,929,000 11/01/2000 12,257,520
Anacomp, Inc. Cv. Deb.,
13.875%(open box) 120,000 1/15/2002 8,400
Anacomp International N.V. Cv.
Sub. Deb., 9.00%(open box) 3,100,000 1/15/1997 217,000
Brooks Fiber Properties, Inc. Sr.
Disc. Note, 0.00% to 3/1/2001,
10.875% from 3/2/2001 to
maturity+ 5,500,000 3/01/2006 3,190,000
Celcaribe S.A. Units, 0.00% to
3/14/98, 13.50% from 3/15/98 to
maturity+ 581,000 3/15/2004 5,606,650
Clearnet Communications, Inc.
Units, 0.00% to 12/14/2000,
14.75% from 12/15/2000 to
maturity 253,500 12/15/2005 14,576,250
Computervision Corp. Sr. Sub.
Notes, 11.375% 6,000,000 8/15/1999 6,300,000
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------- ---------- --------- -------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------- ---------- --------- -------------
Technology (cont'd)
Dial Call Communications Inc. Sr.
Disc. Notes, 12.25% $ 1,250,000 4/15/2004 $ 787,500
Echostar Communications Satellite
Broadcast Co. Sr. Sec. Disc.
Note, 0.00% to 3/14/2000,
13.125% from 3/15/2000 to
maturity+ 13,250,000 3/15/2004 7,983,125
Echostar Communications Co. Sr.
Sec. Disc. Note, 0.00% to
5/31/99, 12.875% from 6/1/99 to
maturity 8,750,000 6/01/2004 6,343,750
Fonorola, Inc. Sr. Sec. Note,
12.50% 5,750,000 8/15/2002 6,267,500
GenRad Inc. Cv. Sub. Deb., 7.25% 608,000 5/01/2011 604,960
IntelCom Group, Inc. Sr. Disc.
Units, 0.00% to 9/14/2000,
13.50% from 9/15/2000 to
maturity 11,000,000 9/15/2005 7,040,000
Intercel, Inc. Units, 0.00% to
1/31/2001, 12.00% from 2/1/2001
to maturity 25,000 2/01/2006 1,512,500
Intermedia Communications, Inc.
Sr. Note, 13.50% 1,500,000 6/01/2005 1,740,000
MFS Communications Sr. Disc.
Note, 0.00% to 1/14/99, 9.375%
from 1/15/99 to maturity 16,750,000 1/15/2004 12,730,000
Nextel Communications, Inc. Sr.
Disc. Note, 0.00% to 2/15/99,
9.75% from 2/16/99 to maturity 2,500,000 8/15/2004 1,462,500
Protection One Alarm Monitoring,
Inc. Units, 0.00% to 6/29/98,
13.375% from 6/30/98 to
maturity 4,000,000 6/30/2005 3,380,000
Viatel, Inc. Sr. Disc. Note,
0.00% to 1/14/2000, 15.00% from
1/15/2000 to maturity 4,500,000 1/15/2005 2,385,000
Winstar Communications, Inc. Sr.
Sub. Cv. Note, 0.00% to
10/14/2000, 14.00% from
10/15/2000 to maturity 4,960,000 10/15/2005 3,025,600
Winstar Communications, Inc. Sr.
Disc. Note, 14.00% 9,920,000 10/15/2005 5,629,600
-----------
108,391,605
-----------
Textile & Apparel 0.5%
Interface, Inc. Sr. Sub. Note,
9.50% $ 4,500,000 11/15/2005 $ 4,522,500
-----------
Utility 0.2%
El Paso Electric Co. First
Mortgage Notes, 8.90% 1,250,000 2/01/2006 1,265,625
-----------
Total Bonds (Cost $697,380,012) 685,300,885
-----------
Shares
- --------------------------------------------- ------ -------------
PREFERRED STOCKS 11.0%
Aerospace 0.6%
Panamsat Corp. Sr. Exch. Pfd.(open diamond) 4,934 5,513,745
-----------
Automotive 1.2%
Harvard Industries, Inc. 14.25% Exch.
Pfd.(open diamond) 370,933 9,922,458
-----------
Banking 0.3%
Riverbank American Pfd.* 110,000 2,722,500
-----------
Business Service 1.2%
Anacomp, Inc. Cv. Pfd. 10,000 5,000
La Petite Holdings Co. Cum. Red. Exch. Pfd.* 361,000 10,469,000
-----------
10,474,000
-----------
Drug 0.5%
Fox Meyer Health Corp. Pfd. Series A(open
diamond) 129,293 4,266,669
-----------
Electric 0.1%
Consolidated Hydro, Inc. Cv. Pfd.* 2,000 700,000
-----------
Financial Service 0.6%
Gentra, Inc. Series G Pfd.* 100,100 1,211,332
Gentra, Inc. Series J Pfd.* 264,102 3,292,801
Gentra, Inc. Series Q Pfd.* 70,300 663,816
-----------
5,167,949
-----------
Forest Product 0.4%
S.D. Warren Co. Series B Sr. Exchange Pfd.* 108,000 3,348,000
-----------
Hotel & Restaurant 0.2%
Station Casinos, Inc. Cv. Pfd. 30,000 1,500,000
-----------
Media 2.2%
Cablevision Systems Corp. Series B Pfd.(open
diamond)+ 32,500 3,217,662
K-III Communications Corp. Series C Pfd. 80,000 8,280,000
K-III Communications Corp. Series B Exch.
Pfd.(open diamond) 65,529 6,782,301
-----------
18,279,963
-----------
Metal & Mining 0.1%
Kaiser Aluminum Corp. Cv. Pfd. 82,700 1,147,463
-----------
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
<TABLE>
<CAPTION>
------------------------------------------------------------ -------- -------------
Value
Shares (Note 1)
- ------------------------------------------------------------ -------- -------------
<S> <C> <C>
Recreation 2.1%
Granite Broadcasting Corp. Cv. Exch. Pfd.(open diamond) 253,000 $15,701,813
Live Entertainment Inc. Series B Cv. Pfd. 285,000 1,941,563
Sante Fe Gaming Corp. Cv. Exch. Pfd. 434,147 244,208
-----------
17,887,584
-----------
Retail Trade 1.4%
Loehmanns Holdings, Inc. Series A Pfd.(open diamond) 895,340 402,903
Supermarkets General Holding Corp. Exch. Pfd.*(open diamond) 453,540 11,338,500
-----------
11,741,403
-----------
Textile & Apparel 0.1%
JPS Textile Group, Inc. Series A Sr. Pfd.(open diamond) 52,666 789,990
Town & Country Corp. Exch. Pfd.(open diamond)++ 95,803 119,754
-----------
909,744
-----------
Total Preferred Stocks (Cost $83,156,597) 93,581,478
-----------
COMMON STOCKS & OTHER 3.4%
American Communications Services, Inc. Wts.*+ 9,500 555,750
American Telecasting, Inc. Wts.* 41,130 215,932
Atlantic Richfield Co. 514,600 14,794,750
Axia Holdings Corp. Com.* 2,250 67,500
Belle Casinos, Inc. Wts.*+ 1,400 14
Boomtown, Inc. Wts.* 7,250 362
CHC Helicopter Corp. Wts.* 46,000 23,000
Central Rents, Inc. Wts.* 5,250 315,000
Chattem, Inc. Wts.* 2,000 5,000
Chatwins Group Inc. Wts.*+ 7,000 3,500
County Seat Holdings, Inc. Wts.* 2,000 100
Crown Packaging Holdings Ltd. Wts.*+ 20,750 166,000
Dr. Pepper Bottling Co. Cl. A Com.* 50,000 237,500
Empire Gas Corp. Wts.* 2,760 5,520
Equitable Bag, Inc. Cl. A Com.* 640,117 6,401
Federated Department Stores, Inc.
Series C Wts.* 46,435 574,633
Federated Department Stores, Inc.
Series D Wts.* 46,435 557,220
Finlay Enterprises, Inc. Cl. A Com.* 12,760 181,830
Fitzgerald Gaming Corp. Wts.*+ 3,000 30,000
Food 4 Less Holdings, Inc. Wts.*++ 24,223 1,265,652
Goldriver Hotel & Casino Corp. Cl. B Com.* 52,500 6,562
COMMON STOCKS & OTHER (cont'd)
Goldriver Hotel & Casino Corp. Liquidation Trust Units*++ 5,250,000 $ 66,675
Grand Union Co. Com.* 100,000 600,000
Harvard Industries, Inc. Cl. B Com.* 25,000 559,375
Heartland Wireless Communications, Inc. Wts.* 37,500 281,250
ICF Kaiser International, Inc. Wts.* 22,800 17,100
INDSPEC Chemical Corp. Wts.*++ 506 634,165
Insight Communications Co., L.P. Wts.* 25,000 56,250
IntelCom Group, Inc. Wts.*+ 21,450 214,500
Intermedia Communications Inc. Wts.*+ 1,500 37,500
Jewel Recovery L.P. Units* 82,595 826
Kaiser Aluminum Corp. Com.* 70,000 1,076,250
Ladish Company, Inc. Wts.*++ 520,000 156,000
Little Switzerland, Inc. Com.* 94,263 377,052
LTX Corp. Com.* 250,000 2,031,250
Mail-Well Holdings, Inc. Com.*+ 14,205 115,416
Miles Homes, Inc. Wts.* 51,000 12,750
Motels of America, Inc. Com.*+ 5,500 440,000
Nextel Communications, Inc. Wts.* 1,250 1,250
PageMart, Inc. Wts.*+ 21,850 131,100
PageMart Nationwide, Inc. Com.*+ 18,375 172,266
Pegasus Media & Communications, Inc. Cl. B Com.*+ 375 121,875
Petro PSC Properties, Inc. Wts.* 2,000 68,000
Protection One, Inc. Wts.* 10,400 83,200
PST Holdings, Inc. Com.* 45,300 45,300
Renaissance Cosmetics, Inc. Wts.*+ 2,000 45,000
Sabreliner Corp. Wts.* 1,750 8,750
S.D.W. Holdings Corp. Wts.*+ 108,000 324,000
Sheffield Steel Corp. Wts.* 38,750 58,125
Smittys Supermarkets, Inc. Cl. B Com.* 3,250 32,500
Terex Corp. Rts.* 6,300 1,575
Total Renal Care, Inc. Cl. B Com.* 10,500 326,813
Town & Country Corp. Cl. A Com.* 371,830 232,394
TransAmerican Refining Corp. Wts.* 12,626 28,409
Universal Outdoor Holdings, Inc. Wts.* 9,700 388,000
Vestar/LPA Investment Corp. Com.*+ 14,250 171,000
Viatel, Inc. Com.*+ 162,450 649,800
Waxman Industries, Inc. Wts.*+ 236,000 236,000
Wireless One, Inc. Wts.* 16,500 115,500
-----------
Total Common Stocks & Other (Cost $31,589,061) 28,929,442
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
INVESTMENT PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
Principal Maturity Value
Amount Date (Note 1)
- ------------------------------ --------- -------- -------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS 0.1%
State Street Bank and Trust
Company, dated 3/29/96,
repurchase proceeds
$470,078, collateralized by
$490,000 U.S. Treasury Bill,
5.625%, due 6/27/96
Market Value $483,691 $ 470,000 4/01/1996 $ 470,000
-----------------------------
Total Repurchase Agreements (Cost $470,000) 470,000
-----------------------------
COMMERCIAL PAPER 3.9%
Deere & Co., 5.35% 3,597,000 4/04/1996 3,597,000
Ford Motor Credit Co., 5.37% 13,000,000 4/01/1996 13,000,000
General Electric Capital
Corp., 5.36% 6,666,000 4/10/1996 6,666,000
Norwest Financial, Inc., 5.36% 10,000,000 4/04/1996 10,000,000
-----------------------------
Total Commercial Paper (Cost $33,263,000) 33,263,000
-----------------------------
Total Investments (Cost $845,858,670)--98.9% 841,544,805
Cash and Other Assets, Less Liabilities--1.1% 9,765,858
-----------------------------
Net Assets--100.0% $851,310,663
=============================
</TABLE>
Federal Income Tax Information (Note 1):
At March 31, 1996, the net unrealized
depreciation of investments based on cost
for Federal income tax purposes of
$846,054,181 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an
excess of value over tax cost $ 48,605,257
Aggregate gross unrealized depreciation for
all investments in which there is an
excess of tax cost over value (53,114,633)
-----------
$ (4,509,376)
===========
* Nonincome-producing securities
(open diamond) Payments of income may be made in cash or in the form of
additional securities.
(open box) Security is in default.
++ Security valued under consistently applied procedures
established by the Trustees. Security restricted as to public
resale. At March 31, 1996, there were no outstanding
unrestricted securities of the same class as those held. The
total cost and market value of restricted securities owned at
March 31, 1996 were $2,786,861 and $2,431,403 (0.29% of net
assets), respectively.
+ Security restricted in accordance with Rule 144A under the
Securities Act of 1933, which allows for the resale of such
securities among certain qualified institutional buyers. The
total cost and market value of Rule 144A securities owned at
March 31, 1996 were $87,618,783 and $88,164,783 (10.36% of
net assets), respectively.
ASSET COMPOSITION TABLE
March 31, 1996 (Unaudited)
Percentage of
Ratings+++ Net Assets*
-------------- -------------
BB 4.6%
B 66.3
CCC and below 9.6
Equities 14.4
Other 5.1
-----------
TOTAL 100.0%
===========
+++As rated by Standard & Poor's Corp. and/or
equivalent rating by Moody's Investors Service,
Inc.
*Unrated bonds were included among relevant rating
categories as determined by the Fund's manager.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
Assets
Investments, at value (Cost $845,858,670) (Note 1) $841,544,805
Cash 4,843
Interest and dividends receivable 15,578,864
Receivable for securities sold 11,040,352
Receivable for fund shares sold 1,225,434
Other assets 987
-----------
869,395,285
Liabilities
Payable for securities purchased 13,545,428
Dividends payable 2,314,527
Payable for fund shares redeemed 687,568
Accrued transfer agent and shareholder services
(Note 2) 547,238
Accrued management fee (Note 2) 465,451
Accrued distribution and service fees (Note 4) 303,353
Accrued trustees' fees (Note 2) 14,000
Other accrued expenses 207,057
-----------
18,084,622
-----------
Net Assets $851,310,663
===========
Net Assets consist of:
Undistributed net investment income $ 635,185
Unrealized depreciation of investments (4,313,865)
Accumulated net realized loss (27,698,367)
Shares of beneficial interest 882,687,710
-----------
$851,310,663
===========
Net Asset Value and redemption price per share of
Class A shares ($646,473,424 / 108,658,175
shares of beneficial interest) $5.95
===========
Maximum Offering Price per share of Class A shares
($5.95 / .955) $6.23
===========
Net Asset Value and offering price per share of
Class B shares ($185,735,283 / 31,338,216 shares
of beneficial interest)* $5.93
===========
Net Asset Value, offering price and redemption
price per share of Class C shares ($3,840,028 /
648,256 shares of beneficial interest) $5.92
===========
Net Asset Value and offering price per share of
Class D shares ($15,261,928 / 2,572,133 shares
of beneficial interest)* $5.93
===========
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
STATEMENT OF OPERATIONS
For the year ended March 31, 1996
Investment Income
Interest, net of foreign taxes of $14,099 $ 73,810,134
Dividends, net of foreign taxes of $7,460 5,949,927
-----------
79,760,061
Expenses
Management fee (Note 2) 5,199,204
Transfer agent and shareholder services (Note 2) 1,531,433
Custodian fee 236,935
Reports to shareholders 122,307
Service fee--Class A (Note 4) 1,583,616
Distribution and service fees--Class B (Note 4) 1,516,560
Distribution and service fees--Class D (Note 4) 115,118
Registration fees 106,193
Audit fee 61,622
Trustees' fees (Note 2) 30,991
Legal fees 12,297
Miscellaneous 42,440
-----------
10,558,716
-----------
Net investment income 69,201,345
-----------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Net realized loss on investments (Notes 1 and 3) (16,029,655)
-----------
Net unrealized appreciation of investments 43,123,164
Net unrealized depreciation of foreign currency (6,955)
-----------
Total net unrealized appreciation 43,116,209
-----------
Net gain on investments and foreign currency 27,086,554
-----------
Net increase in net assets resulting from
operations $ 96,287,899
===========
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Year ended March 31
-----------------------------
1996 1995
- ----------------------------- ------------ -------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 69,201,345 $ 73,111,882
Net realized loss on
investments* (16,029,655) (10,256,401)
Net unrealized appreciation
(depreciation) of
investments and foreign
currency 43,116,209 (51,717,996)
---------- -----------
Net increase resulting from
operations 96,287,899 11,137,485
---------- -----------
Dividends from net investment
income:
Class A (60,859,257) (68,341,894)
Class B (13,275,143) (9,517,499)
Class C (319,668) (185,611)
Class D (1,000,485) (474,138)
---------- -----------
(75,454,553) (78,519,142)
---------- -----------
Distributions from net realized
gains:
Class A (804,838) (5,956,632)
Class B (159,995) (701,101)
Class C (3,577) (10,576)
Class D (10,572) (29,366)
---------- -----------
(978,982) (6,697,675)
---------- -----------
Net increase from fund share
transactions (Note 5) 85,881,692 98,050,321
---------- -----------
Total increase in net assets 105,736,056 23,970,989
Net Assets
Beginning of year 745,574,607 721,603,618
---------- -----------
End of year (including
undistributed net
investment income of
$635,185 and $1,789,475,
respectively) $851,310,663 $745,574,607
========== ===========
* Net realized gain (loss)
for Federal income tax
purposes (Note 1) $(27,502,856) $ 1,433,108
========== ===========
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
Note 1
State Street Research High Income Fund, formerly MetLife-State Street
Research High Income Fund (the "Fund") is a series of State Street Research
Income Trust, formerly MetLife-State Street Income Trust (the "Trust"), which
was organized as a Massachusetts business trust on December 23, 1985 and is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Trust commenced operations in
August, 1986. The Trust consists of two separate funds: State Street Research
High Income Fund and State Street Research Managed Assets.
The investment objective of the Fund is to seek, primarily, high current
income and, secondarily, capital appreciation, from investments in fixed
income securities. In selecting investments for the Fund, the investment
manager seeks to identify those fixed income securities which it believes
will not involve undue risk. Certain of the Fund's investments, however, may
be considered predominantly speculative.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and
pay annual distribution and service fees of 1.00%. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after the issuance of the 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 a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Fixed income securities are valued by a pricing service, which utilizes
market transactions, quotations from dealers, and various relationships among
securities in determining value. If not valued by a pricing service, such
securities are valued at prices obtained from independent brokers. Values for
listed equity securities reflect final sales on national securities exchanges
quoted prior to the close of the New York Stock Exchange. Over-the-counter
securities quoted on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") system are valued at closing prices supplied through
such system. If not quoted on the NASDAQ system, such securities are valued
at prices obtained from
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
independent brokers. In the absence of recorded sales, valuations are at the
mean of the closing bid and asked quotations. Short-term securities maturing
within sixty days are valued at amortized cost. Other securities, if any, are
valued at their fair value as determined in good faith under consistently
applied procedures established by and under the supervision of the Trustees.
Securities quoted in foreign currencies are translated into U.S. dollars at
the current exchange rate. Gains and losses that arise from changes in
exchange rates are not segregated from gains and losses that arise from
changes in market prices of investments.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of
the Fund. Interest income is accrued daily as earned. Dividend income is
accrued on the ex-dividend date. Discount on debt obligations is amortized
under the effective yield method. Certain fixed income and preferred
securities held by the Fund pay interest or dividends in the form of
additional securities (payment-in-kind securities). Interest income on
payment-in-kind fixed income securities is recorded using the
effective-interest method. Dividend income on payment-in-kind preferred
securities is recorded at the market value of securities received. The Fund
is charged for expenses directly attributable to it, while indirect expenses
are allocated between both funds in the Trust.
D. Dividends
Dividends are declared daily based upon projected net investment income and
paid or reinvested monthly. Net realized capital gains, if any, are
distributed annually, unless additional distributions are required for
compliance with applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatment
of accrued interest on defaulted bonds.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods. At March 31, 1996, the
Fund had a capital loss carryforward of $27,502,856 available, to the extent
provided in regulations, to offset future capital gains, if any, which
expires on March 31, 2004.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1994
through March 31, 1995, the Fund incurred net capital losses of $9,299,301
and has deferred and treated such losses as arising in the fiscal year ended
March 31, 1996.
F. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.65% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended March 31, 1996, the fees pursuant to
such agreement amounted to $5,199,204.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended March 31, 1996, the amount of such
expenses was $316,413.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $30,991 during the year ended March 31, 1996.
Note 3
For the year ended March 31, 1996, purchases and sales of securities,
exclusive of short-term investments, aggregated $631,080,925 and
$434,573,379, respectively.
Note 4
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
pays annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class D shares. The Distributor uses such payments for personal
service and/or the maintenance of shareholder accounts, to reimburse
securities dealers for distribution and marketing services, to furnish
ongoing assistance to investors and to defray a portion of its distribution
and marketing expenses. For the year ended March 31, 1996, fees pursuant to
such plan amounted to $1,583,616, $1,516,560, and $115,118 for Class A, Class
B and Class D shares, respectively.
12
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
NOTES (cont'd)
Note 4 (cont'd)
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $268,551 and $2,059,915 respectively, on sales of Class A shares
of the Fund during the year ended March 31, 1996, and that MetLife
Securities, Inc. earned commissions aggregating $1,560,082 on sales of Class
B shares, and that the Distributor collected contingent deferred sales
charges aggregating $734,173 and $4,449 on redemptions of Class B and Class D
shares, respectively, during the same period.
Note 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At March 31, 1996, the Distributor owned 7,018 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended March 31
------------------------------------------------------------
1996 1995
--------------------------- -----------------------------
Class A Shares Amount Shares Amount
- -------------------------------------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Shares sold 18,288,203 $ 107,141,811 21,246,001 $ 128,017,213
Issued upon reinvestment of:
Dividends from net investment income 6,699,217 39,227,013 7,531,344 44,748,968
Distributions from net realized gains 110,651 647,284 721,885 4,490,064
Shares repurchased (22,983,923) (134,676,806) (24,109,224) (144,623,371)
--------- ---------- --------- ------------
Net increase 2,114,148 $ 12,339,302 5,390,006 $ 32,632,874
========= ========== ========= ============
Class B Shares Amount Shares Amount
- -------------------------------------- --------- ---------- --------- ------------
Shares sold 14,268,713 $ 83,337,086 11,897,541 $ 71,267,750
Issued upon reinvestment of:
Dividends from net investment income 1,319,995 7,702,343 978,091 5,757,785
Distributions from net realized gains 21,578 125,811 85,923 533,729
Shares repurchased (4,623,289) (27,005,817) (3,103,165) (18,503,010)
--------- ---------- --------- ------------
Net increase 10,986,997 $ 64,159,423 9,858,390 $ 59,056,254
========= ========== ========= ============
Class C Shares Amount Shares Amount
- -------------------------------------- --------- ---------- --------- ------------
Shares sold 458,494 $ 2,676,110 425,482 $ 2,530,906
Issued upon reinvestment of:
Dividends from net investment income 42,106 245,608 19,434 114,077
Distributions from net realized gains 486 2,834 1,182 7,338
Shares repurchased (298,694) (1,741,339) (132,914) (791,910)
--------- ---------- --------- ------------
Net increase 202,392 $ 1,183,213 313,184 $ 1,860,411
========= ========== ========= ============
Class D Shares Amount Shares Amount
- -------------------------------------- --------- ---------- --------- ------------
Shares sold 1,922,890 $ 11,234,354 1,263,734 $ 7,538,932
Issued upon reinvestment of:
Dividends from net investment income 76,557 447,554 35,765 209,720
Distributions from net realized gains 1,314 7,661 3,762 23,361
Shares repurchased (596,429) (3,489,815) (549,698) (3,271,231)
--------- ---------- --------- ------------
Net increase 1,404,332 $ 8,199,754 753,563 $ 4,500,782
========= ========== ========= ============
</TABLE>
13
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------
Year ended March 31
--------------------------------------------------------------
1996* 1995* 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $5.80 $6.43 $6.32 $5.95 $5.21
Net investment income .52 .61 .66 .67 .71
Net realized and unrealized gain
(loss) on investments and
foreign currency .20 (.58) .22 .37 .72
Dividends from net investment
income (.56) (.60) (.62) (.67) (.69)
Distributions from net realized
gains (.01) (.06) (.15) -- --
-------- -------- -------- ----- -------
Net asset value, end of year $5.95 $5.80 $6.43 $6.32 $5.95
======== ======== ======== ===== =======
Total return 12.85%+ 1.80%+ 14.58%+ 18.70%+ 28.99%+
Net assets at end of year (000s) $646,473 $618,462 $650,755 $496,352 $308,921
Ratio of operating expenses to
average net assets 1.17% 1.23% 1.16% 1.15% 1.17%
Ratio of net investment income to
average net assets 8.88% 10.19% 10.41% 11.25% 12.71%
Portfolio turnover rate 56.47% 31.55% 24.36% 79.39% 72.62%
</TABLE>
<TABLE>
<CAPTION>
Class B Class C
---------------------------------- ------------------------------------
Year ended March 31 Year ended March 31
---------------------------------- ------------------------------------
1996* 1995* 1994** 1996* 1995* 1994**
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $5.79 $6.42 $6.34 $5.78 $6.42 $6.34
Net investment income .46 .57 .51 .53 .64 .57
Net realized and unrealized gain
(loss) on investments and
foreign currency .21 (.58) .15 .20 (.60) .14
Dividends from net investment
income (.52) (.56) (.48) (.58) (.62) (.53)
Distributions from net realized
gains (.01) (.06) (.10) (.01) (.06) (.10)
------- ------- ------- ------- ------- ---------
Net asset value, end of year $5.93 $5.79 $6.42 $5.92 $5.78 $6.42
======= ======= ======= ======= ======= =========
Total return 12.06%+ 0.89%+ 10.76%+++ 13.19%+ 1.73%+ 11.67%+++
Net assets at end of year (000s) $185,735 $117,767 $67,337 $3,840 $2,579 $851
Ratio of operating expenses to
average net assets 1.92% 1.98% 1.93%++ 0.92% 0.98% 0.93%++
Ratio of net investment income to
average net assets 7.95% 9.65% 10.32%++ 8.97% 10.85% 11.32%++
Portfolio turnover rate 56.47% 31.55% 24.36% 56.47% 31.55% 24.36%
</TABLE>
<TABLE>
<CAPTION>
Class D
-----------------------------
Year ended March 31
-----------------------------
1996* 1995* 1994**
- -------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of
year $5.79 $6.42 $6.34
Net investment income .46 .58 .51
Net realized and unrealized gain
(loss) on investments and
foreign currency .21 (.59) .15
Dividends from net investment
income (.52) (.56) (.48)
Distributions from net realized
gains (.01) (.06) (.10)
----- ----- -----
Net asset value, end of year $5.93 $5.79 $6.42
===== ===== =====
Total return 12.05%+ 0.88%+ 10.74%+++
Net assets at end of year (000s) $15,262 $6,766 $2,661
Ratio of operating expenses to
average net assets 1.92% 1.98% 1.93%++
Ratio of net investment income to
average net assets 7.91% 9.81% 10.32%++
Portfolio turnover rate 56.47% 31.55% 24.36%
- -------------------------------------------------------------------
</TABLE>
* Per-share figures have been calculated using the average shares method.
** 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 charges.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of State Street Research Income Trust and
the Shareholders of State Street Research High Income Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research High
Income Fund (formerly MetLife - State Street Research High Income Fund) (a
series of State Street Research Income Trust, hereafter referred to as the
"Trust") at March 31, 1996, and the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1996 by correspondence with the
custodian and brokers and the application of alternative procedures where
confirmations from brokers were not received, provide a reasonable basis for
the opinion expressed above.
/s/ Price Waterhouse LLP
- ----------------------------------
Price Waterhouse LLP
Boston, Massachusetts
May 10, 1996
15
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A healthy bond market and a weak economy had the greatest influence on High
Income Fund's performance over the past 12 months. Returns were good from a
historical standpoint, but the Fund didn't do well versus its peers. A
"flight to quality" in the bond market occurred because investors believed
companies issuing lower-rated bonds would do poorly. The B-rated bonds in
High Income Fund's portfolio weren't as attractive to the market, so they
underperformed.
The decline in interest rates in 1995 drove bond prices up, helping the
Fund's return. Higher bond prices resulted in lower yields, however, and the
Fund had to lower its yield slightly in January. The yield was 7.51% on March
31, 1996, for Class A shares.
The Fund maintained its emphasis on B-rated bonds. In 1995, B-rated bonds
were out of the market's favor. The Fund's adviser didn't see this as a
long-term trend, however, so didn't change approaches. In the first quarter
of 1996, B-rated bonds came back into market favor and performed well.
The Fund built a position in paging and sold most of it when it reached the
price target. High Income Fund also invested in wireless communications and
maintained a substantial amount in that area, but reduced its position in
industries sensitive to economic cycles, such as paper and metals.
March 31, 1996
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. In January 1994, the Fund changed its
investment objective to include capital appreciation as a secondary
consideration in selecting portfolio securities, to eliminate requirements
that a percentage of the Fund be invested in certain rating categories, and
to allow greater use of convertible and preferred securities. Previously, the
Fund was required to invest at least 65% in securities rated BBB, BB, or B.
Performance for a class includes periods prior to the adoption of class
designations in 1993. Performance reflects maximum 4.5% "A" share front-end,
or 5% "B" share or 1% "D" share contingent deferred, sales charges. "C"
shares, offered without a sales charge, are available only to certain
employee benefit plans and institutions. "B" and "D" share performance prior
to adoption of multiple class shares reflects annual 12b-1 fees of .25% and
thereafter reflects annual 12b-1 fees of 1%, which will reduce subsequent
performance. The First Boston High Yield Index is a commonly used measure of
high-yield bond performance. The index is unmanaged and does not take sales
charges into consideration. Direct investment in the index is not possible;
results are for illustrative purposes only.
Comparison Of Change In Value Of A $10,000
Investment In High Income Fund and
The First Boston High Yield Index
Class A Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+7.77% +13.98% +9.55%
-------------------------------------------------------
High First Boston
Income High Yield
Fund Index
8/86 9550 10000
3/87 10631 10930
3/88 11136 11599
3/89 12509 12690
3/90 11670 12199
3/91 11926 13894
3/92 15378 18233
3/93 18252 21031
3/94 20912 23125
3/95 21289 24236
3/96 24023 27758
Class B Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+7.06% +14.26% +9.81%
-------------------------------------------------------
High First Boston
Income High Yield
Fund Index
8/86 10000 10000
3/87 11132 10930
3/88 11661 11599
3/89 13099 12690
3/90 12220 12199
3/91 12488 13894
3/92 16102 18233
3/93 19113 21031
3/94 21736 23125
3/95 21930 24236
3/96 24575 27758
Class C Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+13.19% +15.11% +10.11%
-------------------------------------------------------
High First Boston
Income High Yield
Fund Index
8/86 10000 10000
3/87 11132 10930
3/88 11661 11599
3/89 13099 12690
3/90 12220 12199
3/91 12488 13894
3/92 16102 18233
3/93 19113 21031
3/94 21913 23125
3/95 22292 24236
3/96 25233 27758
Class D Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+11.05% +14.49% +9.80%
-------------------------------------------------------
High First Boston
Income High Yield
Fund Index
8/86 10000 10000
3/87 11132 10930
3/88 11661 11599
3/89 13099 12690
3/90 12220 12199
3/91 12488 13894
3/92 16102 18233
3/93 19113 21031
3/94 21731 23125
3/95 21922 24236
3/96 24564 27758
16
<PAGE>
State Street Research Managed Assets
a series of
State Street Research Income Trust
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS...............................2
ADDITIONAL INFORMATION CONCERNING
INVESTMENT SECTORS...................................................5
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES........................................9
TRUSTEES AND OFFICERS........................................................19
INVESTMENT ADVISORY SERVICES.................................................23
PURCHASE AND REDEMPTION OF SHARES............................................24
NET ASSET VALUE..............................................................26
PORTFOLIO TRANSACTIONS.......................................................27
CERTAIN TAX MATTERS..........................................................30
DISTRIBUTION OF SHARES OF THE FUND...........................................33
CALCULATION OF PERFORMANCE DATA..............................................36
CUSTODIAN....................................................................42
INDEPENDENT ACCOUNTANTS......................................................42
FINANCIAL STATEMENTS.........................................................42
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
Managed Assets (the "Fund") dated August 1, 1996, which may be obtained without
charge from the offices of State Street Research Income Trust (the "Trust") or
State Street Research Investment Services, Inc. (the "Distributor"), One
Financial Center, Boston, Massachusetts 02111-2690.
CONTROL NUMBER:
1
<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "Other Investment Policies and Considerations - Risk
Factors and Special Considerations - Investment Limitations and Practices" in
the Fund's Prospectus, the Fund has adopted certain investment restrictions.
All of the Fund's fundamental investment restrictions are set forth
below. These fundamental restrictions may not be changed except by the
affirmative vote of a majority of the Fund's outstanding voting securities as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(Under the 1940 Act, a "vote of the majority of the outstanding voting
securities" means the vote, at a meeting of security holders duly called, (i) of
67% or more of the voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy or (ii) of more than 50% of the outstanding voting securities, whichever
is less.) Under these restrictions, it is the Fund's policy:
(1) not to purchase a security of any one issuer (other than
securities issued or guaranteed as to principal or interest by
the U.S. Government or its agencies or instrumentalities or
mixed-ownership Government corporations) if such purchase
would, with respect to 75% of the Fund's total assets, cause
more than 5% of the Fund's total assets to be invested in the
securities of such issuer or cause more than 10% of the voting
securities of such issuer to be held by the Fund;
(2) not to issue senior securities;
(3) not to underwrite or participate in the marketing of
securities of other issuers, except (a) the Fund may, acting
alone or in syndicates or groups, if determined by the Trust's
Board of Trustees, purchase or otherwise acquire securities of
other issuers for investment, either from the issuers or from
persons in a control relationship with the issuers or from
underwriters of such securities; and (b) to the extent that,
in connection with the disposition of the Fund's securities,
the Fund may be deemed to be an underwriter under certain
federal securities laws;
(4) not to purchase or sell fee simple interests in real estate,
although the Fund may purchase and sell other interests in
real estate including securities which are secured by real
estate, or securities of companies which own or invest or deal
in real estate;
(5) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Fund's total
assets, except that investments in essentially financial items
or arrangements such as, but not limited to, swap
arrangements, hybrids, currencies, currency and other forward
2
<PAGE>
contracts, delayed delivery and when-issued contracts, futures
contracts and options on futures contracts on securities,
securities indices, interest rates and currencies, shall not
be deemed investments in commodities or commodities contracts;
(6) not to make loans, except that the Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (including repurchase agreements with respect
thereto);
(7) not to conduct arbitrage transactions (provided that
investments in futures and options shall not be deemed
arbitrage transactions);
(8) not to invest in oil, gas or other mineral exploration or
development programs (provided that the Fund may invest in
securities issued by companies which invest in or sponsor such
programs and in securities indexed to the price of oil, gas or
other minerals);
(9) not to make any investment which would cause more than 25% of
the value of the Fund's total assets to be invested in
securities of nongovernment-related issuers principally
engaged in any one industry, as described in the Fund's
Prospectus or Statement of Additional Information, as amended
from time to time; and
(10) not to borrow money except for borrowings from banks for
extraordinary and emergency purposes, such as permitting
redemption requests to be honored, and then not in an amount
in excess of 25% of the value of its total assets, and except
insofar as reverse repurchase agreements may be regarded as
borrowing. As a matter of current operating, but not
fundamental, policy, the Fund will not purchase additional
portfolio securities at any time when it has outstanding money
borrowings in excess of 5% of the Fund's total assets (taken
at current value).
The following investment restrictions may be changed by a vote of a
majority of the Trustees. Under these restrictions, it is the Fund's policy:
(1) not to purchase any security or enter into a repurchase
agreement if as a result more than 15% of its net assets would
be invested in securities that are illiquid (including
repurchase agreements not entitling the holder to payment of
principal and interest within seven days);
(2) not to invest more than 15% of its net assets in restricted
securities of all types (including not more than 5% of its net
assets in restricted securities which are not eligible for
resale pursuant to Rule 144A, Regulation S or other exemptive
provisions under the Securities Act of 1933);
3
<PAGE>
(3) not to invest more than 5% of its total assets in securities
of private companies including predecessors with less than
three years' continuous operations except (a) securities
guaranteed or backed by an affiliate of the issuer with three
years of continuous operations, (b) securities issued or
guaranteed as to principal or interest by the U.S. Government,
or its agencies or instrumentalities, or a mixed-ownership
Government corporation, (c) securities of issuers with debt
securities rated at least "BBB" by Standard & Poor's
Corporation or "Baa" by Moody's Investor's Service, Inc. (or
their equivalent by any other nationally recognized
statistical rating organization) or securities of issuers
considered by the Investment Manager to be equivalent, (d)
securities issued by a holding company with at least 50% of
its assets invested in companies with three years of
continuous operations including predecessors, and (e)
securities which generate income which is exempt from local,
state or federal taxes; provided that the Fund may invest up
to 15% in such issuers so long as such investments plus
investments in restricted securities (other than those which
are eligible for resale under Rule 144A, Regulation S or other
exemptive provisions) do not exceed 15% of the Fund's total
assets;
(4) not to engage in transactions in options except in connection
with options on securities, securities indices and
commodities, and options on futures on securities, securities
indices and commodities;
(5) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (as a matter of current operating, but not
fundamental policy, the Fund will not make short sales or
maintain a short position unless not more than 5% of the
Fund's net assets (taken at current value) is held as
collateral for such sales at any time);
(6) not to hypothecate, mortgage or pledge any of its assets
except as may be necessary in connection with permitted
borrowings (for the purpose of this restriction, futures and
options, and related escrow or custodian receipts or letters,
margin or safekeeping accounts, or similar arrangements used
in the industry in connection with the trading of futures and
options, are not deemed to involve a hypothecation, mortgage
or pledge of assets);
(7) not to purchase a security issued by another investment
company including any real estate investment trust, any issuer
of collateralized mortgage obligations or any unit investment
trust to the extent such entity is deemed an "investment
company" for purposes of the Investment Company Act of 1940
if, immediately after such purchase, the Fund would own, in
the aggregate, (i) more than 3% of the total outstanding
voting stock of such other investment company; (ii) securities
issued by such other investment company having an aggregate
value in excess of 5% of the value of the Fund's total assets;
or (iii) securities issued
4
<PAGE>
by such other investment company and all other investment
companies (other than treasury stock of the Fund) having an
aggregate value in excess of 10% of the value of the Fund's
total assets; provided, however, that the Fund may purchase
investment company securities without limit for the purpose of
completing a merger, consolidation or other acquisition of
assets;
(8) not to purchase or retain any security of an issuer if, to the
knowledge of the Trust, those of its officers and Trustees and
officers and directors of its investment advisers who
individually own more than 1/2 of 1% of the securities of such
issuer, when combined, own more than 5% of the securities of
such issuer taken at market;
(9) not to invest in warrants more than 5% of the value of its
total assets and not to invest in warrants that are not
publicly traded more than 2% of its total assets, in each
case, taken at the lower of cost or market value (warrants
initially attached to securities and acquired by the Fund upon
original issuance thereof shall be deemed to be without
value);
(10) not to invest in companies for the purpose of exercising
control over their management, although the Fund may from time
to time present its views on various matters to the management
of issuers in which it holds investments; and
ADDITIONAL INFORMATION CONCERNING
INVESTMENT SECTORS
Certain Fixed Income Securities
Fixed income securities acquired by the Fund may include the following:
U.S. Government and Related Securities. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
(bullet) direct obligations of the U.S. Treasury, i.e., Treasury bills,
notes, certificates and bonds;
(bullet) obligations of U.S. Government agencies or instrumentalities
such as the Federal Home Loan Banks, the Federal Farm Credit
Banks, the Federal National Mortgage
5
<PAGE>
Association, the Government National Mortgage Association and
the Federal Home Loan Mortgage Corporation; and
(bullet) obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a
variety of ways by the U.S. Government, its agencies or instrumentalities. Some
of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full faith and credit of the U.S.
Treasury. Other obligations, such as those of the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase certain obligations of agencies or instrumentalities. Obligations such
as those of the Federal Home Loan Banks, the Federal Farm Credit Banks, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation are backed by the credit of the agency or instrumentality issuing
the obligations. Certain obligations of Resolution Funding Corporation, a
mixed-ownership Government corporation, are backed with respect to interest
payments by the U.S. Treasury, and with respect to principal payments by U.S.
Treasury obligations held in a segregated account with a Federal Reserve Bank.
Except for certain mortgage-related securities, the Fund will only invest in
obligations issued by mixed- ownership Government corporations where such
securities are guaranteed as to payment of principal or interest by the U.S.
Government or a U.S. Government agency or instrumentality, and any unguaranteed
principal or interest is otherwise supported by U.S. Government obligations held
in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and may
not be deemed U.S. Government securities.
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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.
Risk Factors of Lower Quality Fixed Income Securities
In addition to those risks set forth in the Prospectus, lower quality
securities involve risks (i) that the limited liquidity and secondary market
support for such securities will 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) of 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) of subordination to the prior claims of banks and other
senior lenders; (iv) of the possibility that earnings of an issuer may be
insufficient to meet its debt service; and (v) of 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.
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.
Cash & Cash Equivalent Investments
Cash & Cash Equivalent Investments may include the following:
Bank Money Investments. Bank money investments include but are not
limited to certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are generally short-term (i.e., less than one year),
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). A banker's acceptance may be
obtained from a domestic or foreign bank including a U.S. branch or agency of a
foreign bank. The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. Time deposits are nonnegotiable deposits
for a fixed period of time at a stated interest rate. The Fund will not invest
in any such bank money investment unless the investment is issued by a U.S. bank
that is a member of the Federal Deposit Insurance Corporation ("FDIC"),
including any foreign branch thereof, a U.S. branch or agency of a foreign bank,
a foreign branch of a foreign bank, or a savings bank or savings and loan
association that is a member of the FDIC and which at the date of investment has
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capital, surplus and undivided profits (as of the date of its most recently
published financial statements) in excess of $50 million. The Fund will not
invest in time deposits maturing in more than seven days and will not invest
more than 10% of its total assets in time deposits maturing in two to seven
days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
Short-Term Corporate Debt Instruments. Short-term corporate debt
instruments include commercial paper to finance short-term credit needs (i.e.,
short-term, unsecured promissory notes) issued by corporations including but not
limited to (a) domestic or foreign bank holding companies or (b) their
subsidiaries or affiliates where the debt instrument is guaranteed by the bank
holding company or an affiliated bank or where the bank holding company or the
affiliated bank is unconditionally liable for the debt instrument. Commercial
paper is usually sold on a discounted basis and has a maturity at the time of
issuance not exceeding nine months.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated A by Standard & Poor's Corporation ("S&P") or Prime by
Moody's Investors Service Inc. ("Moody's"), or, if not rated, issued by
companies having an outstanding long-term unsecured debt issue rated at least A
by S&P or by Moody's. The money market investments in corporate bonds and
debentures (which must have maturities at the date of settlement of one year or
less) must be rated at the time of purchase at least A by S&P or by Moody's.
Commercial paper rated A (highest quality) by S&P is issued by entities
which have liquidity ratios which are adequate to meet cash requirements.
Long-term senior debt is rated A or better, although in some cases BBB credits
may be allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1, A-2
or A-3. (Those A-1 issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign: A-1+.)
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The rating Prime is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
In the event applicable rating agencies lower the ratings of debt
instruments held by the Fund, resulting in a material decline in the overall
quality of the Fund's portfolio, the situation will be reviewed and necessary
action, if any, will be taken, including changes in the composition of the
portfolio.
Cash & Cash Equivalents may also include securities of the U.S.
Government and its agencies and instrumentalities and custodial receipts in
respect thereof as described above under "Certain Fixed Income Securities" from
time to time.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Among other investments described below, the Fund may buy and sell
domestic and foreign options on securities, securities indices and precious
metals and other commodities, futures contracts, and options on futures
contracts, and may enter into closing transactions with respect to each of the
foregoing under circumstances in which such techniques are expected by State
Street Research & Management Company (the "Investment Manager") to aid in
achieving the investment objective of the Fund.
The Fund on occasion may also purchase instruments with characteristics
of both futures and securities (e.g., debt instruments with interest and
principal payments determined by reference to the value of a commodity or a
currency at a future time) and which, therefore, possess the risks of both
futures and securities investments.
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell certain
underlying assets, such as precious metals or other commodities, securities or
an index of securities, at a future time at a specified price. A contract to buy
establishes a "long" position while a contract to sell establishes a "short"
position.
The purchase of a futures contract on precious metals and other
commodities, securities or an index of securities normally enables a buyer to
participate in the market movement of the
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underlying commodity, security or index after paying a transaction charge and
posting margin in an amount equal to a small percentage of the value of the
underlying commodity, security or index. The Fund will initially be required to
deposit with the Trust's custodian or the broker effecting the transaction an
amount of "initial margin" in cash or U.S. Treasury obligations.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when the Fund has taken a long
position in a futures contract and the value of the underlying asset has risen,
that position will have increased in value and the Fund will receive from the
broker a maintenance margin payment equal to the increase in value of the
underlying asset. Conversely, when the Fund has taken a long position in a
futures contract and the value of the underlying asset has declined, the
position would be less valuable, and the Fund would be required to make a
maintenance margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will terminate
its position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of securities,
such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus protect the Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and thus to participate
in an expected rise in market value of securities or commodities which the Fund
intends to purchase. In transactions establishing a long position in a futures
contract, money market instruments equal to the face value of the futures
contract will be identified by the Fund to the Trust's custodian for maintenance
in a separate account to insure that the use of such futures contracts is
unleveraged. Similarly, a representative portfolio of securities having a value
equal to the aggregate face value of the futures contract will be identified
with respect to each short position. The Fund will employ any other appropriate
method of cover which is consistent with applicable regulatory and exchange
requirements.
Options on Securities and Commodities
The Fund may use options on equity or fixed income securities and
commodities to implement its investment strategy. A call option on a security,
for example, gives the purchaser of the option the right to buy, and the writer
the obligation to sell, the underlying asset at the exercise price during the
option period. Conversely, a put option on a security
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gives the purchaser the right to sell, and the writer the obligation to buy, the
underlying asset at the exercise price during the option period.
Purchased options have defined risk, i.e., the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset.
Written options have varying degrees of risk. An uncovered written call
option theoretically carries unlimited risk, as the market price of the
underlying asset could rise far above the exercise price before its expiration.
This risk is tempered when the call option is covered, i.e., when the option
writer owns the underlying asset. In this case, the writer runs the risk of the
lost opportunity to participate in the appreciation in value of the asset rather
than the risk of an out-of-pocket loss. A written put option has defined risk,
i.e., the difference between the agreed upon price that the Fund must pay to the
buyer upon exercise of the put and the value, which could be zero, of the asset
at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
his obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Options on Securities Indices
The Fund may engage in transactions in call and put options on
securities indices. For example, the Fund may purchase put options on indices of
equity or fixed income securities in anticipation of or during a market decline
to attempt to offset the decrease in market value of its securities that might
otherwise result.
Put options on indices of securities are similar to put options on the
securities themselves except that the delivery requirements are different.
Instead of giving the right to make delivery of a security at a specified price,
a put option on an index of securities gives the holder the right to receive an
amount of cash upon exercise of the option if the value of the underlying index
has fallen below the exercise price. The amount of cash received will be equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple. As with options
on equity or fixed income securities, futures contracts or commodities, the Fund
may offset its position in index option prior to expiration by entering into a
closing transaction on an exchange or it may let the option expire unexercised.
A securities index assigns relative values to the securities included
in the index and the index options are based on a broad market index such as the
Standard & Poor's 500 Stock Index or the New York Stock Exchange Composite
Index, or a narrower market index such as the Standard & Poor's 100 Stock Index.
Securities indices are also based on industry or
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market segments such as the American Stock Exchange Oil and Gas Index or the
Computer and Business Equipment Index.
Although there are at present few available options on indices of fixed
income securities, other than tax-exempt securities, or futures and related
options based on such indices, such instruments may become available in the
future. In connection with the use of such options, the Fund may cover its
position by identifying a representative portfolio of securities having a value
equal to the aggregate face value of the option position taken. However, the
Fund may employ any appropriate method to cover its positions that is consistent
with applicable regulatory and exchange requirements.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Options Strategy
A basic option strategy for protecting the Fund against a decline in
securities prices could involve (a) the purchase of a put -- thus "locking in"
the selling price of the underlying securities or securities indices -- or (b)
the writing of a call on securities or securities indices held by the Fund --
thereby generating income (the premium paid by the buyer) by giving the holder
of such call the option to buy the underlying asset at a fixed price. The
premium will offset, in whole or in part, a decline in portfolio value; however,
if prices of the relevant securities or securities indices rose instead of
falling, the call might be exercised, thereby resulting in a potential loss of
appreciation in the underlying securities or securities indices.
A basic option strategy when a rise in securities prices is anticipated
is the purchase of a call -- thus "locking in" the purchase price of the
underlying security or other asset. In transactions involving the purchase of
call options by the Fund, money market instruments equal to the aggregate
exercise price of the options will be identified by the Fund to the Trust's
custodian to insure that the use of such investments is unleveraged.
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security or other asset and
concurrently write a call option against that security or other asset. If the
call option is exercised in such a transaction, the Fund's maximum gain will be
the premium received by it for writing the option, adjusted upward or downward
by the difference between the Fund's purchase price of the security or other
asset and the exercise price of the option. If the option is not exercised and
the price of the underlying security or other asset declines, the amount of such
decline will be offset in part, or entirely, by the premium received.
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The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security or other asset rises or otherwise is above the exercise
price, the put option will expire worthless and the Fund's gain will be limited
to the premium received. If the market price of the underlying security or other
asset declines or otherwise is below the exercise price, the Fund's return will
be the premium received from writing the put option minus the amount by which
the market price of the security or other asset is below the exercise price.
Limitations and Risks of Options and Futures Activity
The Fund will engage in transactions in futures contracts or options
only as a hedge against changes resulting from market conditions which produce
changes in the values of its securities or the securities which it intends to
purchase (e.g., to replace portfolio securities which will mature in the near
future) and, subject to the limitations described below, to enhance return. The
Fund will not purchase any futures contract or purchase any call option if,
immediately thereafter, more than one-third of the Fund's net assets would be
represented by long futures contracts or call options. The Fund will not write a
covered call option if, immediately thereafter, the aggregate value of the
assets (securities in the case of written calls and cash or cash equivalents in
the case of written puts) underlying all such options, determined as of the
dates such options were written, would exceed 25% of the Fund's net assets. In
addition, the Fund may not establish a position in a commodity futures contract
or purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of the Fund's net assets.
Although effective hedging can generally capture the bulk of a desired
risk adjustment, no hedge is completely effective. Moreover, the use of options,
futures and options on futures may involve risks not associated with other types
of investments which the Fund intends to purchase. Most of the hedging
anticipated for the Fund will be against the risk characteristics of its
portfolio and not against the risk characteristics of specific investments. The
Fund's ability to hedge effectively through transactions in futures or options
depends on the degree to which price movements in its holdings correlate with
price movements of the futures and options. The prices of the assets being
hedged may not move in the same amount as the hedging instrument, which would
result in an ineffective hedge and a loss to the Fund.
Some positions in futures and options may be closed out only on an
exchange which provides a secondary market therefor. There can be no assurance
that a liquid secondary market will exist for any particular futures contract or
option at any specific time. Thus, it may not be possible to close such an
option or futures position prior to maturity. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability
effectively to hedge its securities and might, in some cases, require the Fund
to deposit cash to meet applicable margin requirements. The Fund will enter into
an option or futures position only if it appears to be a liquid investment.
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The Fund may engage in transactions in unlisted options. A position in
an unlisted option may be closed out only with the other party to the
transaction. The lack of an established secondary market may lead the Fund to
encounter more difficulties in effecting closing purchase or sale transactions
with respect to unlisted options than in the case of listed options. If the Fund
as a covered call option writer is unable to effect a closing purchase
transaction, it will not be able to sell the underlying assets until the option
expires. When the Fund purchases or writes an option listed on a domestic
securities exchange, it is afforded the protections offered by the Options
Clearing Corporation. If any member of the Options Clearing Corporation fails to
perform any of its obligations in a transaction involving the purchase or sale
of options, then the Options Clearing corporation will perform the obligations
of that member. The Options Clearing Corporation also maintains Clearing Funds
to ensure that it can do so. This protection is not available with respect to
transactions in unlisted options. The Fund, however, will enter into unlisted
options transactions only with persons which the Investment Manager believes to
be of high credit standing.
Transactions in Precious Metals
The Fund will invest in precious metals only through banks (both United
States and foreign), brokers or dealers who are members of (or affiliated with
members of) a regulated North American commodities, commodities futures or
securities exchange or a foreign commodities, commodities futures or securities
exchange, or other institutions that meet certain standards of creditworthiness
established by the Trustees from time to time. Bullion and coins do not usually
generate income, offering only the potential of capital appreciation, and, in
these transactions, the Fund may encounter higher custody and transaction costs
than those normally associated with the ownership of securities, as well as
insurance and shipping costs. In addition, investments in bullion and coins
could adversely affect the Fund's ability to qualify as a regulated investment
company under the Internal Revenue Code. See "Certain Tax Matters" herein.
Repurchase Agreements
The Fund may enter into repurchase agreements. Repurchase agreements
occur when the Fund acquires a security and the seller, which may be either (i)
a primary dealer in U.S. Government securities or (ii) an FDIC-insured bank
having gross assets in excess of $500 million, simultaneously commits to
repurchase it at an agreed-upon price on an agreed-upon date within a specified
number of days (usually not more than seven) from the date of purchase. The
repurchase price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the acquired
security. The Fund will only enter into repurchase agreements involving U.S.
Government securities. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
Repurchase agreements will be limited to 30% of the Fund's total assets, except
that repurchase agreements extending for more than seven days when combined with
any other illiquid assets held by the Fund will be limited to 10% of the Fund's
total assets.
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Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. In a reverse
repurchase agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker or dealer, in return for
a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed-upon rate.
The ability to use reverse repurchase agreements may enable, but does not ensure
the ability of, the Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous.
When effecting reverse repurchase agreements, assets of the Fund in a
dollar amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
Short Sales Against the Box
The Fund may effect short sales, but only if such transactions are
short sale transactions known as short sales "against the box." A short sale is
a transaction in which the Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where the Fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversion, exercise or exchange of
options with respect to securities held in its portfolio. The effect of selling
a security short against the box is to insulate that security against any future
gain or loss.
When-Issued Securities
The Fund may purchase "when-issued" securities, which are traded on a
price or yield basis prior to actual issuance. Such purchases will be made only
to achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to up to months, or over a year
or more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs in the U.S. Treasury
market when dealers begin to trade a new issue of bonds or notes shortly after a
Treasury financing is announced, but prior to the actual sale of the securities.
Similarly, securities to be created by a merger of companies may also be traded
prior to the actual consummation of the merger. Such transactions may involve a
risk of loss if the value of the securities falls below the price committed to
prior to actual issuance. The Trust's custodian will establish a segregated
account when the Fund purchases securities on a when- issued basis consisting of
cash or liquid securities equal to the amount of the when-issued commitments.
Securities transactions involving delayed deliveries or forward commitments are
frequently characterized as when-issued transactions and are similarly treated
by the Fund.
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Rule 144A Securities
The Fund may buy or sell restricted securities in accordance with Rule
144A under the Securities Act of 1933 ("Rule 144A Securities"). Securities may
be resold pursuant to Rule 144A under certain circumstances only to qualified
institutional buyers as defined in the rule, and the markets and trading
practices for such securities are relatively new and still developing; depending
on the development of such markets, such Rule 144A Securities may be deemed to
be liquid as determined by or in accordance with methods adopted by the
Trustees. Under such methods the following factors are considered, among others:
the frequency of trades and quotes for the security, the number of dealers and
potential purchasers in the market, marketmaking activity, and the nature of the
security and marketplace trades. Investments in Rule 144A Securities could have
the effect of increasing the level of the Fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. Also, the Fund may be adversely impacted by the possible
illiquidity and subjective valuation of such securities in the absence of a
market for them.
Securities Lending
The Fund may lend portfolio securities with a value of up to 33 1/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of the loaned security plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, irrevocable stand-by letters of credit issued by
a bank, or any combination thereof. The investing of cash collateral received
from loaning portfolio securities involves leverage which magnifies the
potential for gain or loss on monies invested and, therefore, results in an
increase in the volatility of the Fund's outstanding securities. Such loans may
be terminated at any time. The Fund will retain most rights of ownership on the
loaned securities including rights to dividends, interest or other distributions
on the loaned securities. Voting rights pass with the lending, although the Fund
may call loans to vote proxies if desired. Should the borrower of securities
fail financially, there is a risk of delay in recovery of the securities or loss
of rights in the collateral. Loans are made only to borrowers which are deemed
by the Investment Manager to be of good financial standing.
Swap Arrangements
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap, the Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap, the Fund would agree with the other party to
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exchange cash flows based on the relative differences in values of a notional
amount of two (or more) currencies; in an index swap, the Fund would agree to
exchange cash flows on a notional amount based on changes in the values of the
selected indices. Purchase of a cap entitles the purchaser to receive payments
from the seller on a notional amount to the extent that the selected index
exceeds an agreed upon interest rate or amount whereas purchase of a floor
entitles the purchaser to receive such payments to the extent the selected index
falls below an agreed-upon interest rate or amount. A collar combines a cap and
a floor.
Most swaps entered into by the Fund will be on a net basis; for
example, in an interest rate swap, amounts generated by application of the fixed
rate and the floating rate to the notional principal amount would first offset
one another, with the Fund either receiving or paying the difference between
such amounts. In order to be in a position to meet any obligations resulting
from swaps, the Fund will set up a segregated custodial account to hold
appropriate liquid assets, including cash; for swaps entered into on a net
basis, assets will be segregated having a daily net asset value equal to any
excess of the Fund's accrued obligations over the accrued obligations of the
other party, while for swaps on other than a net basis assets will be segregated
having a value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to
preserve the return on an investment or on a part of the Fund's portfolio.
However, the Fund may enter into such arrangements for income purposes to the
extent permitted by the CFTC for entities which are not commodity pool
operators, such as the Fund. In entering a swap arrangement, the Fund is
dependent upon the creditworthiness and good faith for the counterparty. The
Fund attempts to reduce the risks of nonperformance by the counterparty by
dealing only with the established, reputable institutions. The swap market is
still relatively new and emerging; positions in swap arrangements may become
illiquid to the extent that nonstandard arrangements with one counterparty are
not readily transferable to another counterparty of if a market for the transfer
of swap positions does not develop. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
Investment Manager is incorrect in its forecasts of market values, interest
rates and other applicable factors, the investment performance of the Fund would
diminish compared with what it would have been if these investment techniques
were not used. Moreover, even if the Investment Manager is correct in its
forecasts, there is a risk that the swap position may correlate imperfectly with
the price of the asset or liability being hedged.
Industry Classifications
In determining how much of the Fund's portfolio is invested in a given
industry, the following industry classifications, grouped by sectors, are
currently used. Companies engaged in the business of financing will be
classified according to the industries of the parent companies or industries
that otherwise most affect such financing companies. Issuers of asset- backed
pools will be classified as separate industries based on the nature of the
underlying assets, such as mortgages, credit card receivables, etc.
17
<PAGE>
<TABLE>
<CAPTION>
Basic Industries Consumer Staple Science & Technology
- ---------------- --------------- --------------------
<S> <C> <C>
Chemical Business Service Aerospace
Diversified Container Computer Software & Service
Electrical Equipment Drug Electronic Components
Forest Products Food & Beverage Electronic Equipment
Machinery Hospital Supply Office Equipment
Metal & Mining Personal Care
Railroad Printing & Publishing
Truckers Tobacco
Utility Energy Consumer Cyclical
Electric Oil Refining & Marketing Airline
Gas Oil Production Automotive
Gas Transmission Oil Service Building
Telephone Hotel & Restaurant
Photography
Other Finance Recreation
Trust Certificates-- Bank Retail Trade
Government Related Lending Financial Service Textile & Apparel
Asset-backed--Mortgages Insurance
Asset-backed--Credit
Card Receivables
</TABLE>
Other Investment Limitations
The Fund has undertaken with a state securities authority that it will
not purchase real estate limited partnerships or make investments in oil, gas or
mineral leases for so long as Fund shares are offered in that state.
18
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their addresses, and
their principal occupations and positions with certain affiliates of the
Investment Manager are set forth below.
*+Bartlett R. Geer, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 40. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 55. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as portfolio manager for State Street Research &
Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 69. He is engaged principally in private
investments and civic affairs, and is an author of business history. Previously,
he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Trustee of the Trust. He is 69. His principal occupation during
the past five years has been Partner, Saltonstall & Co., a private investment
firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. His principal occupation is Executive Vice President,
Treasurer, Chief Financial Officer and Director of State Street Research &
Management Company. He is 45. During the past five years he has also served as
Executive Vice President and Chief Financial Officer of New England Investment
Companies and as Senior Vice President and Vice President of New England Mutual
Life Insurance Company. Mr. Maus's other principal business affiliations include
Executive Vice President, Treasurer, Chief Financial Officer and Director of
State Street Research Investment Services, Inc.
*+Francis J. McNamara, III has served as Secretary and General Counsel
of the Trust since May, 1995. He is 40. His principal occupation is Senior Vice
President, General Counsel and Secretary of State Street Research & Management
Company. During the past five years he has also served as Senior Vice President,
General Counsel and Assistant Secretary of The Boston Company, Inc., Boston Safe
Deposit and Trust Company and The Boston Company Advisors, Inc. Mr. McNamara's
other principal business affiliations include Senior Vice President, Clerk and
General Counsel of State Street Research Investment Services, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 64. He is retired, having served during the past
five years, until October
- ---------------
* or + See footnotes on page 20.
19
<PAGE>
1992, as Executive Vice President, Chief Operating Officer and Director of
Hewlett-Packard Company.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173 serves as
Trustee of the Trust. He is 71. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 57. His principal occupations during the past
five years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
58. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. He is 53. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and as Chief Investment
Officer and Director of New England Mutual Life Insurance Company. Mr. Verni's
other principal business affiliations include Chairman of the Board and Director
of State Street Research Investment Services, Inc.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 71. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
*+Michael R. Yogg, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 49. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President, State Street Research & Management
Company.
- ---------------
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations
or past affiliations with the Fund's investment adviser.
+ Serves as a Trustee and/or officer of one or more of the following
investment companies, each of which has an advisory relationship with
the Investment Manager or its affiliates: State Street Research Equity
Trust, State Street Research Financial Trust, State Street Research
Income Trust, State Street Research Money Market Trust, State Street
Research Tax-Exempt Trust, State Street Research Capital Trust, State
Street Research Exchange Trust, State Street Research Growth Trust,
State Street Research Master Investment Trust, State Street Research
Securities Trust, State Street Research Portfolios, Inc. and
Metropolitan Series Fund, Inc.
20
<PAGE>
As of April 30, 1996, the following persons or entities were the record
and/or beneficial owners of the approximate amounts of each class of shares of
the Fund as set forth beside their names:
Shareholder %
Class C Chase Manhattan Bank 92.3
Class D Merrill Lynch 24.9
The full name and address of each of the above persons or entities are
as follows:
Chase Manhattan Bank, N.A. (a)(b)
770 Broadway
New York, New York 10003
Merrill Lynch, Pierce, Fenner & Smith, Inc. (b)
One Liberty Plaza
165 Broadway
New York, New York 10080
(a) Chase Manhattan Bank holds such shares as trustee under certain
employee benefit plans serviced by Metropolitan Life Insurance Company.
(b) The Fund believes that such entity does not have beneficial
ownership of such shares.
As of April 30, 1996, the Trustees and officers of the Fund as a group
owned approximately 1.7% of the Fund's outstanding Class A shares, and owned no
shares of the Fund's outstanding class B, Class C or Class D shares.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
21
<PAGE>
The Trustees have been compensated as follows:
- -------------------------------------------------------------------------------
Total
Compensation
Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Trust(a) to Trustees(b)
- -------------------------------------------------------------------------------
Edward M. Lamont $ 4,300 $ 63,510
Robert A. Lawrence $ 4,300 $ 91,685
Dean O. Morton $ 4,700 $ 103,085
Thomas L. Phillips $ 4,000 $ 67,185
Toby Rosenblatt $ 4,300 $ 63,510
Michael S. Scott Morton $ 5,100 $ 109,035
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $ 4,400 $ 76,285
(a) Includes compensation from multiple series of the Trust for the fiscal
year ended March 31, 1996. See "Distribution of Shares" for a listing
of series.
(b) Includes compensation from 30 series, including Metropolitan Series
Fund, Inc., for which the Investment Manager serves as sub-investment
adviser, State Street Research Portfolios, Inc., for which State Street
Research Investment Services, Inc. serves as distributor, and all
investment companies for which the Investment Manager serves as primary
investment adviser. Total Compensation from Trust and Fund Complex is
for the 12 months ended December 31, 1995. The Trust does not provide
any pension or retirement benefits for the Trustees.
22
<PAGE>
INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Advisory
Agreement provides that the Investment Manager shall furnish the Fund with an
investment program, office facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of the
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly-owned subsidiary of Metropolitan
Life Insurance Company.
The advisory fee payable monthly by the Fund to the Investment Manager
is computed as a percentage of the average of the value of the net assets of the
Fund as determined at the close of the New York Stock Exchange (the "NYSE") on
each day the NYSE is open for trading, at the annual rate of 0.75% of the net
assets of the Fund. The Distributor and its affiliates have from time to time
and in varying amounts voluntarily assumed some portion of fees or expenses
relating to the Fund. For the fiscal years ended March 31, 1994, 1995 and 1996
the investment advisory fee for the Fund was $1,195,270, $2,564,590 and
$3,051,182, respectively. For the same periods, the voluntary reduction of fees
or assumption of expenses amounted to $380,527, $1,062,971 and $715,739,
respectively.
Further, to the extent required under applicable state regulatory
requirements, the Investment Manager will reduce its management fee up to the
amount of any expenses (excluding permissible items, such as Rule 12b-1
Distribution Plan payments, brokerage commissions, interest, taxes and
litigation expenses) paid or incurred by the Fund in any fiscal year which
exceed specified percentages of the average daily net assets of such Fund for
such fiscal year. The most restrictive of such percentage limitations is
currently 2.5% of the first $30 million of average net assets, 2% of the next
$70 million of average net assets and 1.5% of the remaining average net assets.
These commitments may be amended or rescinded in response to changes in the
requirements of the various states by the Trustees without shareholder approval.
The Advisory Agreement provides that it shall continue in effect with
respect to the Fund from year to year as long as it is approved at least
annually both (i) by a vote of a majority of the outstanding voting securities
of the Fund (as defined in the 1940 Act) or by the Trustees of the Trust, and
(ii) in either event by a vote of a majority of the Trustees who are not parties
to the Advisory Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated on 60 days' written notice by either party
and will terminate automatically in the event of its assignment, as defined
under the 1940 Act and regulations thereunder. Such regulations provide that a
transaction which does not result in a change of actual control or management of
an adviser is not deemed an assignment.
23
<PAGE>
Under a Funds Administration Agreement between the Investment Manager
and the Distributor, the Distributor provides assistance to the Investment
Manager in performing certain fund administration services for the Trust, such
as assistance in determining the daily net asset value of shares of series of
the Trust and in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the
Trust and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Fund, and is entitled to
reimbursements of its costs for providing such services. Under certain
arrangements for Metropolitan to provide subadministration services,
Metropolitan may receive a fee for the maintenance of certain share ownership
records for participants in sponsored arrangements, such as employee benefit
plans, through or under which Fund shares may be purchased.
Under the Code of Ethics of the Investment Manager, its employees in
Boston, where investment management operations are conducted, are only permitted
to engage in personal securities transactions in accordance with certain
conditions relating to an employee's position, the identity of the security, the
timing of the transaction, and similar factors. Such employees must report their
personal securities transactions quarterly and supply broker confirmations to
the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by the Distributor. 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). General information on how to buy shares of the Fund, as well as
sales charges involved, are set forth under "Purchase of Shares" in the
Prospectus. The following supplements that information.
Public Offering Price - The public offering price for each class of
shares of the Fund is based on their net asset value determined as of the close
of the NYSE on the day the purchase order is received by State Street Research
Shareholder Services provided that the order is received prior to the close of
the NYSE on that day; otherwise the net asset value used is that determined as
of the close of the NYSE on the next day it is open for unrestricted trading.
When a purchase order is placed through a dealer, that dealer is responsible for
transmitting the order promptly to State Street Research Shareholder Services in
order to permit the investor to obtain the current price. Any loss suffered by
an investor which results from a dealer's failure to transmit an order promptly
is a matter for settlement between the investor and the dealer.
24
<PAGE>
Reduced Sales Charges - For purposes of determining whether a purchase
of Class A shares qualifies for reduced sales charges, the term "person"
includes: (i) an individual, or an individual combining with his or her spouse
and their children and purchasing for his, her or their own account; (ii) a
"company" as defined in Section 2(a)(8) of the 1940 Act; (iii) a trustee or
other fiduciary purchasing for a single trust estate or single fiduciary account
(including a pension, profit sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code);
(iv) a tax-exempt organization under Section 501(c)(3) or (13) of the Internal
Revenue Code; and (v) an employee benefit plan of a single employer or of
affiliated employers.
Investors may purchase Class A shares of the Fund at reduced sales
charges by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds" as
designated by the Distributor within a 13-month period. The sales charge
applicable to each purchase made pursuant to a Letter of Intent will be that
which would apply if the total dollar amount set forth in the Letter of Intent
were being bought in a single transaction. Purchases made within a 90-day period
prior to the execution of a Letter of Intent may be included therein; in such
case the date of the earliest of such purchases marks the commencement of the
13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Fund and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class D shares may also be included in the
combination under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrow shares will be released when the Letter of Intent is completed
or, if it is not completed, when the balance of the higher sales charge is, upon
notice, remitted by the investor. All dividends and capital gains distributions
with respect to the escrowed shares will be credited to the investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to the Right of Accumulation.
The applicable sales charge under this right is determined on the amount arrived
at by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C, and Class D shares may also be included in the combination
under certain circumstances. Investors must
25
<PAGE>
submit to the Distributor sufficient information to show that they qualify for
this Right of Accumulation.
Class C Shares - Class C shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants (currently a minimum of 100 employees),
service arrangements, or similar factors; insurance companies; investment
companies; endowment funds of nonprofit organizations with substantial minimum
assets (currently a minimum of $10,000,000); and other similar institutional
investors.
Reorganizations - In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined in the 1940 Act, the Fund may issue its shares at net asset value (or
more) to such entities or to their security holders.
Redemptions - The Fund reserves the right to pay redemptions in kind
with portfolio securities in lieu of cash. In accordance with its election
pursuant to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of
redemption proceeds paid in cash. Although it has no present intention to do so,
the Fund may, under unusual circumstances, limit redemptions in cash with
respect to each shareholder during any ninety-day period to the lesser of (i)
$250,000, or (ii) 1% of the net asset value of the Fund at the beginning of such
period. In connection with any redemptions paid in kind with portfolio
securities, brokerage and other costs may be incurred by the redeeming
shareholder in the sale of the securities received.
NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily
as of the close of the NYSE, ordinarily 4 P.M. New York City time, Monday
through Friday, on each day during which the NYSE is open for trading. The NYSE
is currently closed on New Year's Day, Presidents Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of the Fund is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets minus all liabilities by the total number of outstanding shares of the
Fund at such time. Any expenses, except for extraordinary or nonrecurring
expenses, borne by the Fund, including the investment management fee payable to
the Investment Manager, are accrued daily.
In determining the values of portfolio assets as provided below, the
Trustees may utilize one or more pricing services, in lieu of market quotations
for certain securities which are not readily available on a daily basis. Such
services may provide prices determined as of times prior to the close of the New
York Stock Exchange.
26
<PAGE>
In general, securities are valued as follows. Securities which are
listed or traded on the New York or American Stock Exchange are valued at the
price of the last quoted sale on the respective exchange for that day.
Securities which are listed or traded on a national securities exchange or
exchanges, but not on the New York or American Stock Exchange, are valued at the
price of the last quoted sale on the exchange for that day prior to the close of
the NYSE. Securities not listed on any national securities exchange which are
traded "over the counter" and for which quotations are available on the National
Association of Securities Dealers' NASDAQ System, or other system, are valued at
the closing price supplied through such system for that day at the close of the
NYSE. Other securities are, in general, valued at the mean of the bid and asked
quotations last quoted prior to the close of the NYSE if there are market
quotations readily available, or in the absence of such market quotations, then
at the fair value thereof as determined by or under authority of the Trustees of
the Trust utilizing such pricing services as may be deemed appropriate.
Securities deemed restricted as to resale are valued at the fair value thereof
as determined by or in accordance with methods adopted by the Trustees of the
Trust.
Short-term debt instruments issued with a maturity of one year or less
which have a remaining maturity of 60 days or less are valued using the
amortized cost method, provided that during any period in which more than 25% of
the Fund's total assets is invested in short-term debt securities the current
market value of such securities will be used in calculating net asset value per
share in lieu of the amortized cost method. The amortized cost method is used
when the value obtained reflects fair value. Under the amortized cost method of
valuation, the security is initially valued at cost on the date of purchase (or
in the case of short-term debt instruments purchased with more than 60 days
remaining to maturity, the market value on the 61st day prior to maturity), and
thereafter a constant amortization to maturity of any discount or premium is
assumed regardless of the impact of fluctuating interest rates on the market
value of the security.
PORTFOLIO TRANSACTIONS
Portfolio Turnover
The Fund's portfolio turnover rate is determined by dividing the lesser
of securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The Fund reserves full freedom with respect to portfolio
turnover, as described in the Prospectus. The portfolio turnover rates for the
fiscal years ended March 31, 1995 and 1996 were 89.58% and 109.20%,
respectively.
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase
27
<PAGE>
or sale orders and the most favorable net prices in securities transactions
consistent with its judgment as to the business qualifications of the various
broker or dealer firms with whom the Investment Manager may do business, and the
Investment Manager may not necessarily choose the broker offering the lowest
available commission rate. Decisions with respect to the market where the
transaction is to be completed, to the form of transaction (whether principal or
agency), and to the allocation of orders among brokers or dealers are made in
accordance with this policy. In selecting brokers or dealers to effect portfolio
transactions, consideration is given to their proven integrity and financial
responsibility, their demonstrated execution experience and capabilities both
generally and with respect to particular markets or securities, the
competitiveness of their commission rates in agency transactions (and their net
prices in principal transactions), their willingness to commit capital, and
their clearance and settlement capability. The Investment Manager makes every
effort to keep informed of commission rate structures and prevalent bid/ask
spread characteristics of the markets and securities in which transactions for
the Fund occur. Against this background, the Investment Manager evaluates the
reasonableness of a commission or a net price with respect to a particular
transaction by considering such factors as difficulty of execution or security
positioning by the executing firm. The Investment Manager may or may not solicit
competitive bids based on its judgment of the expected benefit or harm to the
execution process for that transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given to services other than execution services which certain of such firms have
provided in the past or may provide in the future. Negotiated commission rates
and prices, however, are based upon the Investment Manager's judgment of the
rate which reflects the execution requirements of the transaction without regard
to whether the broker provides services in addition to execution. Among such
other services are the supplying of supplemental investment research; general
economic, political and business information; analytical and statistical data;
relevant market information, quotation equipment and services; reports and
information about specific companies, industries and securities; purchase and
sale recommendations for stocks and bonds; portfolio strategy services;
historical statistical information; market data services providing information
on specific issues and prices; financial publications; proxy voting data and
analysis services; technical analysis of various aspects of the securities
markets, including technical charts; computer hardware used for brokerage and
research purposes; computer software and databases, including those used for
portfolio analysis and modelling; and portfolio evaluation services and relative
performance of accounts.
Certain nonexecution services provided by broker-dealers may in turn be
obtained by the broker-dealers from third parties who are paid for such services
by the broker-dealers. The Investment Manager has an investment of less than ten
percent of the outstanding equity of one such third party which provides
portfolio analysis and modelling and other research and investment
decision-making services integrated into a
28
<PAGE>
trading system developed and licensed
by the third party to others. The Investment Manager could be said to benefit
indirectly if in the future it allocates brokerage to a broker-dealer who in
turn pays this third party for services to be provided to the Investment
Manager.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Some services may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and is
therefore paid directly by the Investment Manager. Some research and execution
services may benefit the Investment Manager's clients as a whole, while others
may benefit a specific segment of clients. Not all such services will
necessarily be used exclusively in connection with the accounts which pay the
commissions to the broker-dealer producing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which that firm may
expect to receive for services supplied to the Investment Manager or otherwise.
There may be, however, understandings with certain firms that in order for such
firms to be able to continuously supply certain services, they need to receive
allocation of a specified amount of brokerage business. These understandings are
honored to the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, relies on the provisions of Section 28(e) of the
Securities Exchange Act of 1934, to the extent applicable. Brokerage commissions
paid by the Fund in secondary trading during the fiscal years ended March 31,
1994, 1995 and 1996, amounted to $330,251, $546,075 and $754,584, respectively.
During and at the end of its most recent fiscal year, the Fund held in its
portfolio no securities of any entity that might be deemed to be a regular
broker-dealer of the Fund as defined under the 1940 Act.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling concessions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Investment Manager may make such allocations
to broker-dealers which have provided the Investment Manager with research and
brokerage services.
29
<PAGE>
When more than one client of the Investment Manager is seeking to buy
or sell the same security, the sale or purchase is carried out in a manner which
is considered fair and equitable to all accounts. In allocating investments
among various clients (including in what sequence orders for trades are placed),
the Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the amount already committed for each client
to a specific investment and the relative risks of the investments, all in order
to provide on balance a fair and equitable result to each client over time.
Although sharing in large transactions may sometimes affect price or volume of
shares acquired or sold, overall it is believed there may be an advantage in
execution. The Investment Manager may follow the practice of grouping orders of
various clients for execution to get the benefit of lower prices or commission
rates. In certain cases where the aggregate order may be executed in a series of
transactions at various prices, the transactions are allocated as to amount and
price in a manner considered equitable to each so that each receives, to the
extent practicable, the average price of such transactions. Exceptions may be
made based on such factors as the size of the account and the size of the trade.
For example, the Investment Manager may not aggregate trades where it believes
that it is in the best interests of clients not to do so, including situations
where aggregation might result in a large number of small transactions with
consequent increased custodial and other transactional costs which may
disproportionately impact smaller accounts. Such disaggregation, depending on
the circumstances, may or may not result in such accounts receiving more or less
favorable execution relative to other clients.
CERTAIN TAX MATTERS
Federal Income Taxation of the Fund -- In General
The Fund intends to qualify and elect to be treated each taxable year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), although it cannot give complete
assurance that it will do so. Accordingly, the Fund must, among other things,
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities; (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies), or (iii) foreign currencies
(or options, futures or forward contracts on foreign currencies) but only if
such currencies (or options, futures or forward contracts) are not directly
related to the Fund's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities); (c) satisfy certain
diversification
30
<PAGE>
requirements; and (d) in order to be entitled to utilize the dividends paid
deduction, distribute annually at least 90% of its investment company taxable
income (determined without regard to the deduction for dividend paid).
If in any year the Fund derived more than 10% of its gross income (as
defined in the Code, which disregards losses for that purpose) from investments
made directly in commodities, including precious metal investments, or
commodity-related options, futures or indices, the Fund in such year may fail to
qualify as a regulated investment company under the Code. The Investment Manager
intends to manage the Fund's portfolio so as to minimize the risk of such a
disqualification.
The 30% test will limit the extent to which the Fund may sell
securities held for less than three months, write options which expire in less
than three months, and effect closing transactions with respect to call or put
options that have been written or purchased within the preceding three months.
(If the Fund purchases a put option for the purpose of hedging an underlying
portfolio security, the acquisition of the option is treated as a short sale of
the underlying security unless, for purposes only of the 30% test, the option
and the security are acquired on the same date.) Finally, as discussed below,
this requirement may also limit investments by the Fund in options on stock
indices, listed options on nonconvertible debt securities, futures contracts,
options on interest rate futures contracts and certain foreign currency
contracts.
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income or accumulated earnings and profits. Also, the
shareholders, if they received a distribution in excess of current or
accumulated earnings and profits, would receive a return of capital that would
reduce the basis of their shares of the Fund.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any undistributed portion of the respective balances from the
prior year. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
Federal Income Taxation of the Fund's Investments
Original Issue Discount. For federal income tax purposes, debt
securities purchased by the Fund may be treated as having original issue
discount. Original issue discount represents interest for federal income tax
purposes and can generally be defined as the excess of the
31
<PAGE>
stated redemption price at maturity of a debt obligation over the issue price.
Original issue discount is treated for federal income tax purposes as income
earned by the Fund, whether or not any income is actually received, and
therefore is subject to the distribution requirements of the Code. Generally,
the amount of original issue discount is determined on the basis of a constant
yield to maturity which takes into account the compounding of accrued interest.
Under section 1286 of the Code, an investment in a stripped bond or stripped
coupon may result in original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for income tax
purposes. In the case of any debt security issued after July 18, 1984, having a
fixed maturity date of more than one year from the date of issue and having
market discount, the gain realized on disposition will be treated as interest
income to the extent it does not exceed the accrued market discount on the
security (unless the Fund elects to include such accrued market discount in
income in the tax year to which it is attributable). Generally, market discount
is accrued on a daily basis. The Fund may be required to capitalize, rather than
deduct currently, part or all of any direct interest expense incurred to
purchase or carry any debt security having market discount, unless the Fund
makes the election to include market discount currently. Because the Fund must
include original issue discount in income, it will be more difficult for the
Fund to make the distributions required for the Fund to maintain its status as a
regulated investment company under Subchapter M of the Code or to avoid the 4%
excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments may
be subject to provisions of the Code that (i) require inclusion of unrealized
gains or losses in the Fund's income for purposes of the 90% test, the 30% test,
the excise tax and the distribution requirements applicable to regulated
investment companies; (ii) defer recognition of realized losses; and (iii)
characterize both realized and unrealized gain or loss as short-term or
long-term gain or loss. Such provisions generally apply to, among other
investments, options on debt securities, indices on securities and futures
contracts.
Foreign Currency Transactions. Under section 988 of the Code, special
rules are provided for certain foreign currency transactions. Foreign currency
gains or losses from foreign currency contracts (whether or not traded in the
interbank market), from futures contracts that are not "regulated futures
contracts," and from unlisted options are treated as ordinary income or loss
under section 988. The Fund may elect to have foreign currency- related
regulated futures contracts and listed options subject to ordinary income or
loss treatment under section 988. In addition, in certain circumstances, the
Fund may elect capital gain or loss for foreign currency transactions. The rules
under section 988 may also affect the timing of income recognized by the Fund.
32
<PAGE>
Federal Income Taxation of Shareholders
Dividends paid by the Fund may be eligible for the 70%
dividends-received deduction for corporations. The percentage of the Fund's
dividends eligible for such tax treatment may be less than 100% to the extent
that less than 100% of the Fund's gross income may be from qualifying dividends
of domestic corporations. Any dividend declared in October, November and
December and made payable to shareholders of record in any such month is treated
as received by such shareholders on December 31, provided that the Fund pays the
dividend during January of the following calendar year.
Distributions by the Fund can result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless would be
taxable to the shareholder as ordinary income or long-term capital gain, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a taxable distribution. The price of
shares purchased at that time includes the amount of any forthcoming
distribution. Those investors purchasing shares just prior to a taxable
distribution will then receive a return of investment upon distribution which
will nevertheless be taxable to them.
DISTRIBUTION OF SHARES OF THE FUND
State Street Research Income Trust is currently comprised of the
following series: State Street Research High Income Fund and State Street
Research Managed Assets. The Trustees have authorized the Fund to issue four
classes of shares: Class A, Class B, Class C and Class D shares. The Trustees of
the Trust have authority to issue an unlimited number of shares of beneficial
interest of separate series, $.001 par value per share. A "series" is a separate
pool of assets of the Trust which is separately managed and has a different
investment objective and different investment policies from those of another
series. The Trustees have authority, without the necessity of a shareholder
vote, to create any number of new series or classes or to commence the public
offering of shares of any previously established series or class.
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B and Class D shares). The Distributor may reallow all or
a portion of such sales charges as concessions to dealers. For the fiscal years
ended March 31, 1994, 1995 and 1996, total sales charges on Class A shares paid
to the Distributor amounted to $1,683,053,
33
<PAGE>
$1,652,827 and $869,039, respectively. For the same periods, $197,005, $198,230
and $107,358, respectively, was retained by the Distributor after reallowance of
concessions to dealers.
The difference in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements, and managed fee-based programs, the
amount of the sales charge reduction will similarly reflect the anticipated
reduction in sales expenses associated with such arrangements. The reduction in
sales expenses, and therefore the reduction in sales charge, will vary depending
on factors such as the size and other characteristics of the organization or
program, and the nature of its membership or the participants. The Fund reserves
the right to make variations in, or eliminate, sales charges at any time or to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
arrangements at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
For the periods shown below, the Distributor received contingent
deferred sales charges upon redemption of Class A, Class B and Class D shares of
the Fund and paid initial commissions to securities dealers for sales of such
shares as follows:
34
<PAGE>
<TABLE>
<CAPTION>
June 1, 1993
(commencement
of share class
Fiscal Year Ended Fiscal Year Ended designations) to
March 31, 1996 March 31, 1995 March 31, 1994
----------------------------- ----------------------------- ----------------------------
Contingent Commissions Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers Sales Charges Dealers
------------- ------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Class A $ 0 $ 761,681 $ 657 $ 1,454,597 $ 0 $ 1,486,048*
Class B $ 965,398 $ 1,290,690 $ 451,301 $ 3,334,444 $ 37,903 $ 2,156,424
Class D $ 6,098 $ 22,246 $ 7,564 $ 71,301 $ 630 $ 69,505
</TABLE>
- ----------------------
* For the period April 1, 1993 through March 31, 1994.
For information on the amount of distribution fees paid by the Fund to
the Distributor, see below.
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1"
(the "Distribution Plan") under which the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of Class A, Class B and Class D shares, including, but not limited to, (1) the
payment of commissions and/or reimbursement to underwriters, securities dealers
and others engaged in the sale of shares, including payments to the Distributor
to be used to pay commissions and/or reimbursement to securities dealers (which
securities dealers may be affiliates of the Distributor) engaged in the
distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the servicing of investor accounts including expenses relating to the
formulation and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, the preparation, printing and
distribution of Prospectuses of the Fund and reports for recipients other than
existing shareholders of the Fund, and obtaining such information, analyses and
reports with respect to marketing and promotional activities and investor
accounts as the Fund may, from time to time, deem advisable, and (3)
reimbursement of expenses incurred by the Distributor in connection with the
servicing of shareholder accounts including payments to securities dealers and
others in consideration of the provision of personal services to investors
and/or the maintenance of shareholder accounts and expenses associated with the
provision of personal services by the Distributor directly to investors. In
addition, the Distribution Plan is deemed to authorize the Distributor and the
Investment Manager to make payments out of general profits, revenues or other
sources to underwriters, securities dealers and others in connection with sales
of shares, to the extent, if any, that such payments may be deemed to be within
the scope of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class D shares, an
35
<PAGE>
annual rate of 0.75% of the average daily value of the net assets represented by
such Class B or Class D shares (as the case may be) to finance sales or
promotion expenses and an annual rate of 0.25% of the average daily value of the
net assets represented by such Class B or Class D shares (as the case may be) to
make payments for personal services and/or the maintenance of shareholder
accounts. Proceeds from the service fee will be used by the Distributor to
compensate securities dealers and others selling shares of the Fund for
rendering service to shareholders on an ongoing basis. Such amounts are based on
the net asset value of shares of the Fund held by such dealers as nominee for
their customers or which are owned directly by such customers for so long as
such shares are outstanding and the Distribution Plan remains in effect with
respect to the Fund. Any amounts received by the Distributor and not so
allocated may be applied by the Distributor as reimbursement for expenses
incurred in connection with the servicing of investor accounts. The distribution
and servicing expenses of a particular class will be borne solely by that class.
During the fiscal year ended March 31, 1996, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
<TABLE>
<CAPTION>
Class A Class B Class D
----------- ------------ -----------
<S> <C> <C> <C>
Advertising $ 2,421 $ 0 $ 4,780
Printing and mailing of
prospectuses to other
than current shareholders 848 0 1,673
Compensation to dealers 468,635 1,715,683 96,187
Compensation to sales
personnel 8,734 0 17,242
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing; 4,878 0 9,631
----------- ------------ -----------
Total Fees $ 485,516 $ 1,715,683 $ 129,513
=========== ============ ===========
</TABLE>
The Distributor may have also used additional resources of its own for further
expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
36
<PAGE>
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Fund will attempt to make
alternative arrangements for such services for shareholders who acquired shares
through such institutions.
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") and yield of
the Class A, Class B, Class C and Class D shares of the Fund will be calculated
as set forth below. Total return and yield are computed separately for each
class of shares of the Fund. 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 a
specified class includes periods prior to the adoption of class designations.
All calculations of performance data in this section reflect the
voluntary measures by the Fund's affiliates to reduce expenses relating to the
Fund; see "Accrued Expenses" later in this section.
The performance data reflects Rule 12b-1 fees and sales charges, where
applicable, as set forth below:
<TABLE>
<CAPTION>
Rule 12b-1 Fees Sales Charges
------------------------------------------------------- ----------------------------------
Current
Class Amount Period
- ----- ------ ------
<S> <C> <C> <C>
A 0.25% Since commencement of operations to present Maximum 4.5% sales charge
reflected
B 1.00% 0.25% until June 1, 1993; 1.00% June 1, 1- and 5-year periods reflect a 5%
1993 to present; fee will reduce performance and a 2% contingent deferred sales
for periods after June 1, 1993 charge, respectively
C None 0.25% until June 1, 1993; 0% thereafter None
D 1.00% 0.25% until June 1, 1993; 1.00% June 1, 1993 1-year period reflects a 1% contin-
to present; fee will reduce performance for gent deferred sales charge
periods after June 1, 1993
</TABLE>
All calculations of performance data in this section reflect the
voluntary measures, if any, by the Fund's affiliates to reduce fees or expenses
relating to the Fund; see "Accrued Expenses" later in this section.
37
<PAGE>
Total Return
The average annual total return ("standard total return") of each class
of shares was as follows:
Commencement of
Operations Five Years One Year
(December 29, 1988) Ended Ended
to March 31, 1996 March 31, 1996 March 31, 1996
----------------- -------------- --------------
Class A 10.70% 11.72% 17.03%
Class B 11.07% 12.00% 16.48%
Class C 11.51% 12.91% 22.70%
Class D 11.08% 12.28% 20.54%
Standard total return is computed by determining the average annual
compounded rates of return over the designated periods that, if applied to the
initial amount invested would produce the ending redeemable value, in accordance
with the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated
period assuming a hypothetical $1,000 payment made at
the beginning of the designated period
The calculation is based on the further assumptions that the maximum
initial or contingent deferred sales charge applicable to the investment is
deducted, and that all dividends and distributions by the Fund are reinvested at
net asset value on the reinvestment dates during the periods. All accrued
expenses and recurring charges are also taken into account as described later
herein.
38
<PAGE>
Yield
The annualized yield of each class of shares of the Fund based on the
month of March 1996 was as follows:
Class A 1.68%
Class B 1.04%
Class C 2.01%
Class D 1.03%
Yield for each of the Fund's Class A, Class B, Class C and Class D
shares is computed by dividing the net investment income per share earned during
a recent month or other specified 30-day period by the applicable maximum
offering price per share on the last day of the period and annualizing the
result, according to the following formula:
YIELD = 2[( a-b + 1)6 -1]
---
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of voluntary expense
reductions by the Investment Manager)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, the Fund computes the yield to maturity of each obligation held by
the Fund based on the market value of the obligation (including actual accrued
interest) at the close of the last business day of the preceding period, or,
with respect to obligations purchased during the period, the purchase price
(plus actual accrued interest). The yield to maturity is then divided by 360 and
the quotient is multiplied by the market value of the obligation (including
actual accrued interest) to determine the interest income on the obligation for
each day of the period that the obligation is in the portfolio. Dividend income
is recognized daily based on published rates.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("paydowns"), the Fund accounts for gain or
loss attributable to actual monthly paydowns as a realized capital gain or loss
during the period. The Fund has elected not to amortize discount or premium on
such securities.
39
<PAGE>
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be declared as a dividend shortly thereafter. The maximum offering
price includes, as applicable, a maximum sales charge of 4.5% with respect to
Class A shares.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing the Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which are insured and/or often provide an agreed
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that yield is a function of the kind and quality of the instruments in
the Fund's portfolio, portfolio maturity and operating expenses and market
conditions.
Accrued Expenses
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return and yield results take sales charges, if applicable, into
account, although the results do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class D shares for periods which end no
earlier than the most recent calendar quarter end and which begin twelve months
before and at the time of commencement of the Fund's operations. In addition,
the Fund may provide nonstandardized total return results for differing periods,
such as for the most recent six months, and/or without taking sales charges into
account. Such nonstandardized total return is computed as otherwise described
under "Total Return" except the result may or may not be annualized, and as
noted any applicable sales charge, if any, may not be taken into account and
therefore not deducted from the hypothetical initial payment of $1,000. For
example, the Fund's nonstandardized
40
<PAGE>
total returns for the six months ended March 31, 1996, without taking sales
charges into account were as follows:
Class A 7.21%
Class B 6.74%
Class C 7.34%
Class D 6.82%
Distribution Rates
The Fund may also quote its distribution rate for each class of shares.
The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the maximum
offering price per share as of the end of the period to which the distribution
relates. A distribution can include gross investment income from debt
obligations purchased at a premium and in effect include a portion of the
premium paid. A distribution can also include non-recurring, gross short-term
capital gains without recognition of any unrealized capital losses. Further, a
distribution can include income from the sale of options by the Fund even though
such option income is not considered investment income under generally accepted
accounting principles.
Because a distribution can include such premiums, capital gains and
option income, the amount of the distribution may be susceptible to control by
the Investment Manager through transactions designed to increase the amount of
such items. Also, because the distribution rate is calculated in part by
dividing the latest distribution by the offering price, which is based on net
asset value plus any applicable sales charge, the distribution rate will
increase as the net asset value declines. A distribution rate can be greater
than the yield rate calculated as described above.
The distribution rates of the Fund, based on the month of March 1996,
were as follows:
Class A 1.86%
Class B 1.25%
Class C 2.18%
Class D 1.21%
41
<PAGE>
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing professional services
including (1) an audit of the Fund's annual financial statements, (2) assistance
and consultation in connection with Securities and Exchange Commission filings
and (3) review of the annual income tax returns filed on behalf of the Fund.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a
semiannual basis, other supplementary financial reports may be made available
from time to time and holders of record may request a copy of a current
supplementary report, if any, by calling State Street Research Shareholder
Services.
The following financial statements are for the Fund's fiscal year ended
March 31, 1996.
280724.c3
42
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
Investment Portfolio
-----------------------------------------------------------------------------
March 31, 1996
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income Securities 27.2%
U.S. Treasury 4.5%
U.S. Treasury Bond, 12.00% $ 2,100,000 8/15/2013 $ 3,031,539
U.S. Treasury Bond, 8.125% 3,625,000 8/15/2021 4,158,564
U.S. Treasury Bond, 6.25% 2,075,000 8/15/2023 1,918,400
U.S. Treasury Note, 8.50% 575,000 5/15/1997 592,877
U.S. Treasury Note, 6.75% 750,000 5/31/1999 766,170
U.S. Treasury Note, 7.125% 1,250,000 9/30/1999 1,293,362
U.S. Treasury Note, 6.875% 2,400,000 3/31/2000 2,466,744
U.S. Treasury Note, 6.25% 575,000 8/31/2000 577,875
U.S. Treasury Note, 7.50% 2,100,000 11/15/2001 2,228,625
U.S. Treasury Note, 5.75% 225,000 8/15/2003 217,300
U.S. Treasury Note, 7.875% 2,125,000 11/15/2004 2,331,189
-----------
19,582,645
-----------
U.S. Agency Mortgage 5.7%
Federal Home Loan Mortgage Corp., 7.50% 142,062 4/01/2002 143,172
Federal Home Loan Mortgage Corp., 6.50% 594,284 4/01/2009 584,253
Federal Home Loan Mortgage Corp., 6.50% 873,572 5/01/2009 858,826
Federal Home Loan Mortgage Corp., 8.50% 414 7/01/2009 430
Federal Home Loan Mortgage Corp., 6.50% 201,768 7/01/2009 198,363
Federal Home Loan Mortgage Corp. TBA, 6.00% 2,000,000 4/19/2011 1,918,125
Federal Home Loan Mortgage Corp., 9.50% 569,640 7/25/2022 606,706
Federal Home Loan Mortgage Corp., 6.50% 425,000 3/25/2023 412,114
Federal Home Loan Mortgage Corp., 7.00% 1,676,591 6/01/2024 1,635,195
Federal Home Loan Mortgage Corp., 7.50% 1,327,313 8/01/2024 1,325,229
Federal Home Loan Mortgage Corp., 8.00% 180,197 8/01/2024 183,406
Federal Home Loan Mortgage Corp., 7.00% 867,783 12/01/2024 846,357
Federal Home Loan Mortgage Corp., 8.00% 732,624 6/01/2025 745,672
Federal Home Loan Mortgage Corp., 7.50% 973,202 11/01/2025 971,674
Federal Home Loan Mortgage Corp. TBA, 7.50% 2,700,000 4/18/2026 2,700,000
Federal National Mortgage Association, 8.00% 302,628 4/01/2008 312,082
--------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------------------------------------------------------------
U.S. Agency Mortgage (cont'd)
Federal National Mortgage Association, 8.00% $ 390,823 6/01/2008 $ 403,032
Federal National Mortgage Association, 8.50% 354,155 2/01/2009 377,126
Federal National Mortgage Association, 9.00% 79,789 5/01/2009 84,675
Government National Mortgage Association, 8.00% 1,182,894 5/15/2008 1,231,688
Government National Mortgage Association, 6.50% 728,783 2/15/2009 717,618
Government National Mortgage Association, 6.50% 271,932 6/15/2009 267,598
Government National Mortgage Association, 6.50% 1,629,993 7/15/2009 1,605,022
Government National Mortgage Association, 9.00% 485,464 6/15/2016 520,811
Government National Mortgage Association, 8.00% 297 10/15/2017 308
Government National Mortgage Association, 8.50% 1,045,139 10/15/2017 1,112,414
Government National Mortgage Association, 8.00% 1,340,322 12/15/2022 1,372,783
Government National Mortgage Association, 6.50% 1,149,971 7/15/2024 1,089,230
Government National Mortgage Association, 7.00% 1,328,303 1/15/2025 1,293,847
Government National Mortgage Association, 7.50% 1,374,835 11/15/2025 1,371,824
-----------
24,889,580
-----------
Foreign 0.4%
Hydro Quebec Deb., 9.40% 1,025,000 2/01/2021 1,201,741
Laidlaw Inc. Deb., 8.75% 400,000 4/15/2025 435,252
-----------
1,636,993
-----------
Foreign Government 5.3%
Australian Dollar
Commonwealth of Australia, 9.50% 7,400,000 8/15/2003 5,993,208
Canadian Dollar
Government of Canada, 7.50% 5,375,000 12/01/2003 3,946,713
Danish Krone
Kingdom of Denmark, 8.00% 14,200,000 11/15/2001 2,652,925
Kingdom of Denmark, 8.00% 24,075,000 3/15/2006 4,362,683
Deutsche Mark
German Unity Fund, 8.00% 5,875,000 1/21/2002 4,406,151
French Franc
Government of France, 8.00% 1,150,000 4/25/2003 1,538,307
-----------
22,899,987
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Certificates 0.4%
Cooperative Utility Trust Certificates, 10.70% $ 350,000 9/15/2017 $ 388,696
Cooperative Utility Trust Certificates, 10.125% 225,000 3/15/2019 250,884
Cooperative Trust Certificates, 10.11% 900,000 12/15/2017 993,942
-----------
1,633,522
-----------
Corporate 7.9%
Acme Boot, Inc. Sr. Notes, 11.50% 250,000 12/15/2000 105,000
Adams Outdoor Advertising Ltd. Sr. Notes, 10.75%+ 250,000 3/15/2006 255,000
Affinity Group, Inc. Sr. Sub. Deb., 11.50% 250,000 10/15/2003 256,250
Allbritton Communications, Inc. Sr. Sub. Notes,
9.75%+ 500,000 11/30/2007 471,250
Alvey Systems, Inc. Sr. Sub. Notes, 11.375%+ 250,000 1/31/2003 260,000
American Telecasting, Inc. Sr. Sub. Units, 0.00% to
6/14/99, 12.50% from 6/15/99 to maturity 223,947 6/15/2004 163,481
Anacomp, Inc. Cv. Deb., 13.875%(Box) 395,000 1/15/2002 27,650
Anacomp International N.V. Cv. Sub. Deb., 9.00%(Box) 250,000 1/15/1997 17,500
Axia Holdings Corp. Sr. Sub. Note, 11.00% 250,000 3/15/2001 245,000
B.E. Aerospace, Inc. Sr. Notes, 9.875%+ 250,000 2/01/2006 252,500
Bar Technologies, Inc. Sec. Notes, 13.50%+ 250,000 4/01/2001 246,875
Bayou Steel Corp. First Mortgage Note, 10.25% 500,000 3/01/2001 440,000
Bell & Howell Co. Series B Sr. Disc. Deb., 0.00% to
2/28/2000, 11.50% from 3/1/2000 to maturity 250,000 3/01/2005 162,500
Belle Casinos, Inc. First Mortgage Note, 12.00%+(Box) 125,000 10/15/2000 43,750
Benedek Broadcasting Corp. Sr. Notes, 11.875% 250,000 3/01/2005 263,750
CHC Helicopter Corp. Sr. Sub. Note, 11.50% 600,000 7/15/2002 570,000
Carrols Corp. Sr. Notes, 11.50% 250,000 8/15/2003 256,250
--------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------------------------------------------------------------
Corporate (cont'd)
Celcaribe S.A. Units, 0.00% to 3/14/98, 13.50% from
3/15/98 to maturity+ $ 183,000 3/15/2004 $ 1,765,950
Central Rents, Inc. Sr. Notes, 12.875% 250,000 12/15/2003 251,250
Chatwins Group Inc. Sr. Exch. Note, 13.00% 250,000 5/01/2003 207,500
Clark USA, Inc. Sr. Note, 10.875%+ 500,000 12/01/2005 522,500
Clearnet Communications, Inc. Units, 0.00% to
12/14/2000, 14.75% from 12/15/2000 to maturity 8,000 12/15/2005 460,000
Columbia/HCA Healthcare Corp. Note, 6.87% 525,000 9/15/2003 523,803
Consolidated Hydro Inc. Sr. Disc. Notes, 0.00% to
1/14/99, 12.00% from 1/15/99 to maturity 500,000 7/15/2003 326,490
Continental Cablevision, Inc. Sr. Notes, 8.30%+ 400,000 5/15/2006 414,000
Crown Packaging Holdings Ltd., 0.00% to 10/31/2000,
12.25% from 11/1/2000 to maturity 1,250,000 11/01/2003 537,500
Dell Computer Corp. Sr. Notes, 11.00% 500,000 8/15/2000 537,500
Doskocil Companies Inc. Sr. Sub. Red. Notes, 9.75% 500,000 7/15/2000 520,000
Dual Drilling Co. Sr. Sub. Notes, 9.875% 250,000 1/15/2004 268,750
EZ Communications, Inc. Sr. Sub. Notes, 9.75% 250,000 12/01/2005 247,500
Echostar Satellite Broadcast Co. Sr. Sec. Disc.
Note, 0.00% to 3/14/2000, 13.125% from 3/15/2000
to maturity+ 500,000 3/15/2004 301,250
Echostar Communications Co. Sr. Sec. Disc. Note,
0.00% to 5/31/99, 12.875% from 6/1/99 to maturity 375,000 6/01/2004 271,875
El Paso Electric Co. First Mortgage Bonds Series D,
8.90% 500,000 2/01/2006 506,250
Electronic Data Systems Corp. Note, 6.85%+ 800,000 5/15/2000 811,312
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Portfolio (cont'd)
Corporate (cont'd)
Empire Gas Corp. Sr. Sec. Notes, 7.00% to 7/14/99,
12.875% from 7/15/99 to maturity $ 250,000 7/15/2004 $ 223,750
Equitable Bag Co. Inc. Sr. Notes, 11.00%(Box) 238,000 12/16/2004 119,000
Finlay Enterprises, Inc. Sr. Disc. Deb., 0.00% to
4/30/98, 12.00% from 5/1/98 to maturity 500,000 5/01/2005 347,500
Finlay Fine Jewelry Corp. Sr. Note, 10.625% 250,000 5/01/2003 243,125
Fonorola, Inc. Sr. Sec. Note, 12.50% 250,000 8/15/2002 272,500
Goldriver Hotel & Casino Corp. Mortgage Notes,
13.375%(Box) 317,000 8/31/1999 174,350
Grand Casinos, Inc. First Mortgage Notes, 10.125% 250,000 12/01/2003 265,000
Grand Union Co. Sr. Sub. Notes, 12.00%(Box) 250,000 9/01/2004 219,375
Great Bay Property Funding Corp. First Mortgage
Notes, 10.875% 250,000 1/15/2004 222,500
Griffin Gaming & Entertainment, Inc. Note, 0.00% 250,000 6/30/2000 233,700
Harvard Industries, Inc. Sr. Notes, 12.00% 250,000 7/15/2004 257,500
Haynes International Inc. Sr. Sec. Notes, 11.25% 500,000 6/15/1998 500,000
Haynes International Inc. Sr. Sub. Notes, 13.50% 125,000 8/15/1999 118,750
Heartland Wireless Communications, Inc. Units,
13.00% 250,000 4/15/2003 273,750
ICF Kaiser International, Inc. Sr. Sub. Notes,
12.00% 250,000 12/31/2003 235,625
IntelCom Group, Inc. Sr. Disc. Note, 0.00% to
9/14/2000, 13.50% from 9/15/2000 to maturity 500,000 9/15/2005 320,000
Intercel Inc. Units, 0.00% to 1/31/2001, 12.00%
from 2/1/2001 to maturity 3,000 2/01/2006 181,500
Interface, Inc. Sr. Sub. Notes, 9.50% 250,000 11/15/2005 251,250
Jitney-Jungle Stores of America, Inc. Sr. Notes,
12.00% 250,000 3/01/2006 247,500
JM Peters, Inc. Sr. Notes, 12.75% 250,000 5/01/2002 237,500
--------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------------------------------------------------------------
Corporate (cont'd)
K-III Communications Corp. Sr. Note, 8.50%+ $ 375,000 2/01/2006 $ 356,250
K&F Industries Inc. Sr. Sub. Deb., 13.75% 428,000 8/01/2001 445,120
Ladish Co. Sr. Sub. Units, 12.00%++ 18,114 12/22/2000 18,916
Mail-Well Corp. Sr. Sub. Notes, 10.50% 250,000 2/15/2004 243,125
Marcus Cable Operating Co. L.P. Sr. Disc. Note,
0.00% to 7/31/99, 13.50% from 8/1/99 to maturity 750,000 8/01/2004 543,750
Merrill Lynch & Co., Inc. Equity Partnership, 0.00% 1,015,000 1/31/2000 1,041,644
MFS Communications Company, Inc. Sr. Disc. Notes,
0.00% to 1/14/99, 9.375% from 1/15/99 to maturity 500,000 1/15/2004 380,000
Miles Home Services, Inc. Sr. Notes, 12.00% 250,000 4/01/2001 190,000
Motels of America, Inc. Sr. Sub. Notes, 12.00% 500,000 4/15/2004 485,000
Mothers Work, Inc. Sr. Note, 12.625% 250,000 8/01/2005 260,625
Norcal Waste Systems, Inc. Sr. Sub. Notes, 12.50%
to 5/14/96, 12.75% from 5/15/96 to 11/14/96,
13.00% from 11/15/96 to 5/14/97, 13.25% from
5/15/97 to 11/14/97, 13.50% from 11/15/97
to maturity+ 500,000 11/15/2005 517,500
NS Group, Inc. Units, 13.50% 500,000 7/15/2003 458,750
Oryx Energy Co. Note, 8.125% 500,000 10/15/2005 489,345
PageMart, Inc. Sr. Disc. Note, 0.00% to 10/31/98,
12.25% from 11/1/98 to maturity 500,000 11/01/2003 372,500
Penda Industries, Inc. Sr. Notes, 10.75% 250,000 3/01/2004 210,000
Penn Traffic Co. Sr. Notes, 8.625% 500,000 12/15/2003 455,000
Penn Traffic Co. Sr. Notes, 9.625% 500,000 4/15/2005 426,250
Phar-Mor, Inc. Sr. Notes, 11.72% 250,000 9/11/2002 242,500
Pioneer Americas Acquisition Corp. Sr. Notes,
13.375% 250,000 4/01/2005 268,125
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Plastic Specialties & Technology Sr. Notes, 11.25% $ 350,000 12/01/2003 $ 350,000
Presidio Oil Co. Sr. Sec. Notes, 11.50%(Box) 500,000 9/15/2000 512,500
Presidio Oil Co. Sr. Sub. Gas Indexed Notes,
13.30%(Box) 200,000 7/15/2002 152,000
Protection One Alarm Monitoring, Inc. Sr. Sub.
Disc. Note, 0.00% to 6/29/98, 13.375% from
6/30/98 to maturity 250,000 6/30/2005 211,250
Ralphs Grocery Co. Sr. Note, 10.45% 500,000 6/15/2004 477,500
Sam Houston Race Park Ltd. Sr. Sec. Note, 11.00%(Box) 126,184 9/01/2001 50,474
Sappi BVI Finance Ltd. Cv. Note, 7.50%+ 1,000,000 8/01/2002 952,500
Seven-Up/RC Bottling Co. of Southern California,
Inc. Notes, 11.50%(Box) 750,000 8/01/1999 450,000
Sheffield Steel Corp. First Mortgage Notes, 12.00% 250,000 11/01/2001 217,500
Showboat Marina Casino Financing Corp. First
Mortgage Note, 13.50%+ 250,000 3/15/2003 254,375
Specialty Foods Corp. Sr. Note, 11.125% 250,000 10/01/2002 233,750
Talley Manufacturing and Technology, Inc. Sr.
Note, 10.75% 250,000 10/15/2003 251,250
Telemundo Group, Inc.
Sr. Disc. Note, 7.00% to 2/14/99, 10.50% from
2/15/99 to maturity 400,000 2/15/2006 356,000
Telewest Communications PLC Sr. Deb., 9.625% 250,000 10/01/2006 249,375
Treasure Bay Gaming and Resorts, Inc. First
Mortgage Units, 12.25%+(Box) 250,000 11/15/2000 61,250
UCAR Global Enterprises, Inc. Sr. Sub. Notes,
12.00% 135,000 1/15/2005 155,250
United Artists Theatre
Series 1995-A, 9.30%+ 500,000 7/01/2015 480,000
United Meridian Corp. Sr. Sub. Notes, 10.375% 250,000 10/15/2005 262,500
--------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------------------------------------------------------------
Corporate (cont'd)
Universal Outdoor Holdings, Inc. Units, 0.00% to
6/30/99, 14.00% from 7/1/99 to maturity $1,000,000 7/01/2004 $ 710,000
U.S.A. Mobile Communications, Inc. Sr. Notes, 9.50% 150,000 2/01/2004 145,500
U.S.A. Mobile Communications, Inc. Sr. Notes,
14.00% 250,000 11/01/2004 292,500
Viacom, Inc. Sr. Notes, 6.75% 1,000,000 1/15/2003 952,660
Waxman Industries, Inc. Sr. Sec. Notes, 12.25% 500,000 9/01/1998 511,250
Waxman Industries, Inc. Sr. Sec. Notes, 0.00% to
5/31/99, 12.75% from 6/1/99 to maturity 928,000 6/01/2004 464,000
Winstar Communications Inc.,
Sr. Sub. Cv. Note, 0.00% to 10/14/2000, 14.00%
from 10/15/2000 to maturity 165,000 10/15/2005 100,650
Winstar Communications, Inc.
Sr. Disc. Note, 14.00% 330,000 10/15/2005 187,275
Wireless One, Inc.
Sr. Disc. Notes, 13.00% 250,000 10/15/2003 263,750
Wyman-Gordon Co. Sr. Notes, 10.75% 250,000 3/15/2003 260,000
-----------
34,423,820
-----------
Finance/Mortgage 3.0%
American Southwest Financial Services Corp., 8.00% 417,446 8/25/2010 424,752
Associates Corp. of North America Notes, 6.375% 675,000 10/15/2002 662,377
Beneficial Corp. Note, 9.125% 425,000 2/15/1998 446,862
Beneficial Corp. Note, 8.17% 200,000 11/09/1999 210,622
Countrywide Mortgage Series 1994-2 Class A-7, 6.50% 650,000 3/25/2008 652,230
Countrywide Mortgage Series 1993-E Class A-1, 6.50% 413,839 1/25/2024 413,710
First Chicago Credit Master Trust Series 1991-D,
8.40% 262,500 6/15/1998 264,631
Fleet Mortgage Group, Inc. Note, 7.06% 1,000,000 7/26/2002 1,003,040
Ford Credit Auto Loan Master Trust Notes, 6.50% 1,100,000 8/15/2002 1,100,000
GE Global Insurance Holdings Corp. Note, 7.00% 750,000 2/15/2026 715,350
General Electric Capital Corp. Note, 7.625% 1,000,000 7/24/1996 1,006,480
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance/Mortgage (cont'd)
General Motors Acceptance Corp., 7.85% $ 675,000 11/17/1997 $ 694,231
General Motors Acceptance Corp., 8.625% 1,000,000 6/15/1999 1,062,010
Prudential Home Mortgage Series 93-29 A-6, 6.75% 1,269,784 8/25/2008 1,274,939
Prudential Home Mortgage Series 93-54 A-21, 5.50% 425,000 1/25/2024 410,788
Residential Funding Corp. Series 93-S25 A-1, 6.50% 210,879 7/25/2008 210,548
Sears Roebuck & Co. Master Trust Series 95-2, 8.10% 650,000 6/15/2004 687,167
Standard Credit Card Master Trust Series 1993-3A,
5.50% 950,000 2/07/2000 932,482
Standard Credit Card Master
Trust Series 1994-4A, 8.25% 550,000 11/07/2003 590,387
-----------
12,762,606
-----------
Total Fixed Income Securities (Cost $118,738,399) 117,829,153
-----------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY SECURITIES 54.0%
Basic Industries 10.3%
Chemical 4.2%
Atlantic Richfield Co. 41,600 1,196,000
Cookson Group PLC* 204,000 976,099
Cytec Industries, Inc. 6,600 557,700
Daicel Chemical Industries, Inc.* 260,000 1,572,517
FMC Corp.* 16,700 1,254,587
Hoechst AG* 5,300 1,877,599
IMC Global, Inc. 27,260 994,990
L'Air Liguide* 5,200 946,787
Mallinckrodt Group, Inc. 10,400 391,300
Monsanto Co.* 26,000 3,991,000
Potash Corp. of Saskatchewan, Inc. 13,900 868,750
Rohm & Haas Co. 55,900 3,717,350
-----------
18,344,679
-----------
Diversified 1.3%
Axia Holdings Corp.* 750 22,500
Hoya Corp* 97,000 3,336,854
Johnson Controls, Inc. 7,300 544,762
Mark IV Industries, Inc. 21,705 477,510
PST Holdings, Inc.* 7,500 7,500
Tenma Corp.* 59,000 1,351,250
-----------
5,740,376
-----------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Electrical Equipment 0.4%
Baldor Electric Co. 17,400 $ 350,175
Belden, Inc.* 12,200 359,900
Philips Electronics NV 27,000 982,125
Protection One Alarm Monitoring, Inc. Wts.* 800 6,400
-----------
1,698,600
-----------
Forest Product 0.6%
Aracruz Celulose SA ADR 94,000 752,000
Crown Packaging Holdings Ltd. Wts.*+ 3,750 30,000
Equitable Bag, Inc. Cl.A* 22,619 226
Mail-Well Holdings, Inc.*+ 14,205 115,416
Nippon Paper Industries Co. 150,000 1,069,876
S.D. Warren Co. Series B Sr. Exch. Pfd.(Diamond) 18,000 558,000
SDW Holdings Corp. Wts.*+ 18,000 54,000
-----------
2,579,518
-----------
Machinery 2.2%
Briggs & Stratton Corp. 9,400 405,375
Case Corp. 59,600 3,032,150
Chatwins Group, Inc. Wts.*+ 500 250
Kajima Corp.* 126,000 1,354,522
Millipore Corp. 41,600 1,591,200
Minebea Co.* 180,000 1,539,612
Sundstrand Corp. 24,800 1,010,600
Terex Corp. Rts. 750 188
United States Filter Corp.* 14,000 392,000
-----------
9,325,897
-----------
Metal & Mining 1.6%
Alumax, Inc.* 41,800 1,478,675
Bohler Uddeholm 12,000 932,207
Century Aluminum Co.* 13,600 185,300
Reynold Metals Co. 15,900 940,087
RTZ Corp.* 51,500 745,933
SGL Carbon AG* 10,700 1,021,947
Sheffield Steel Corp. Wts.* 1,250 1,875
Toho Titanium Co.* 99,000 1,452,956
Wyman Gordon Co.* 19,000 320,625
-----------
7,079,605
-----------
Total Basic Industries 44,768,675
-----------
Consumer Cyclical 6.0%
Airline 0.2%
Atlas Air 23,100 866,250
CHC Helicopter Corp. Wts.* 2,000 1,000
-----------
867,250
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Automotive 1.1%
Chrysler Corp. 6,000 $ 373,500
Exide Corp. 56,000 1,309,000
Harvard Industries, Inc. 14.25% Exch. Pfd.(Diamond) 10,095 270,041
Lear Seating Corp.* 52,200 1,703,025
Masland Corp.* 12,600 220,500
Michelin CI. B* 18,000 857,756
-----------
4,733,822
-----------
Building 0.3%
Lafarge Corp. 21,900 413,362
Miles Homes Services, Inc. Wts.* 3,000 750
Owens-Corning Fiberglas Corp.* 16,600 666,075
Waxman Industries, Inc. Wts.*+ 29,500 29,500
-----------
1,109,687
-----------
Hotel & Restaurant 1.6%
Au Bon Pain Company, Inc.* 19,700 167,450
Harrahs Entertainment, Inc.* 105,000 3,084,375
Main Street and Main, Inc.* 33,600 100,800
Mirage Resorts, Inc.* 59,050 2,590,819
Motels of America, Inc.+ 500 40,000
Outback Steakhouse, Inc.* 11,900 448,481
Primadonna Resorts, Inc.* 14,600 222,650
Station Casinos, Inc.* 31,000 360,375
-----------
7,014,950
-----------
Recreation 0.8%
American Radio Systems Corp.* 4,900 165,375
American Telecasting, Inc. Wts.* 1,250 6,562
Argyle Television, Inc., Cl. A* 13,400 291,450
Boomtown, Inc. Wts.* 500 25
Comcast Corp. Cl. A 57,800 1,004,275
Comcast Corp. Cl. A Special 50,700 896,756
Evergreen Media Corp. Cl. A 5,800 208,800
Fitzgerald Gaming Corp. Wts.*+ 1,000 10,000
Goldriver Hotel & Casino Corp. Cl. B* 20,000 2,500
Goldriver Hotel & Casino Corp. Liquidation Trust
Units*++ 500,000 6,350
Heartland Wireless Communications, Inc. Wts.* 1,500 11,250
SHRP Equity, Inc.* 37 185
Sierra On-Line, Inc.* 10,800 363,150
Silver King Communications, Inc.* 10,200 316,200
Taj Mahal Holdings Corp. Cl. A* 3,821 99,346
-----------
3,382,224
-----------
Retail Trade 1.9%
Central Rents, Inc. Wts.* 250 15,000
Corporate Express, Inc.* 4,920 162,360
Federated Department Stores, Inc.* 42,000 1,354,500
Finlay Enterprises, Inc. Cl. A* 1,333 18,995
--------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
--------------------------------------------------------------------------------------------------
Retail Trade (cont'd)
Food 4 Less Holdings, Inc. Wts.*++ 584 $ 30,514
Gymboree Corp.* 13,100 342,238
Home Depot, Inc. 79,700 3,815,637
Home Shopping Network, Inc.* 94,100 952,763
Intimate Brands, Inc. Cl. A 19,000 368,125
May Department Stores Co. 9,400 453,550
Supermarkets General Holding Corp. Exch. Pfd.* 18,200 455,000
Viking Office Products, Inc.* 7,800 433,875
-----------
8,402,557
-----------
Textile & Apparel 0.1%
Acme Boot Co.+ 250 250
Authentic Fitness Corp.* 17,900 463,163
-----------
463,413
-----------
Total Consumer Cyclical 25,973,903
-----------
Consumer Staple 10.9%
Business Service 1.9%
ADT Corp. Ltd. 103,700 1,827,713
ADVO, Inc.* 30,100 293,475
Career Horizons, Inc.* 9,000 267,750
Catalina Marketing Corp.* 5,000 390,625
Data Processing Resources Corp.* 1,600 44,000
Eagle River Interactive, Inc.* 7,200 93,600
Eltron International, Inc.* 12,500 412,500
Encad, Inc.* 8,100 192,375
Global Directmail Corp.* 45,300 1,579,837
HA-LO Industries, Inc. 18,000 497,250
ICF Kaiser International, Inc. Wts.* 1,200 900
La Petite Holdings Corp. Red. Exch. Pfd.* 22,000 638,000
NRP, Inc.* 11,800 99,563
PageMart, Inc. Wts.*+ 2,300 13,800
Personnel Group of America, Inc.* 29,200 532,900
Premenos Technologies Corp.* 30,500 549,000
Profit Recovery Group International, Inc.* 5,800 89,900
Scientific Games Holdings Corp. 8,400 235,200
Superior Services, Inc.* 4,600 60,950
Technology Solutions Co.* 11,500 311,938
Universal Outdoor Holdings, Inc. Wts.* 1,000 40,000
Vestar/LPA Investment Corp.*+ 1,375 16,500
VTEL Corp.* 16,900 177,450
-----------
8,365,226
-----------
Drug 2.5%
Arris Pharmaceutical Corp.* 25,700 326,069
Cyto Therapeutic, Inc.* 19,900 288,550
Foxmeyer Health Corp. Series A Exch. Pfd.(Diamond) 2,900 95,700
Healthdyne Technologies, Inc.* 34,700 431,581
Merck & Company, Inc. 68,600 4,270,350
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Drug (cont'd)
Pfizer, Inc. 30,300 $ 2,030,100
Roussel Uclaf 5,000 1,092,050
Sandoz AG 900 1,055,574
Yamanouchi Pharmaceutical Co. 60,000 1,334,891
-----------
10,924,865
-----------
Food & Beverage 2.5%
Coca-Cola Enterprises, Inc. 70,100 2,164,338
Dr. Pepper Bottling Co. Cl. A* 56,000 266,000
General Mills, Inc. 3,400 198,475
LVMH Moet Hennessy Louis Vuitton* 4,400 1,116,512
PepsiCo, Inc. 60,600 3,832,950
Ralcorp Holdings, Inc.* 45,600 1,168,500
Whitman Corp. 78,600 1,906,050
-----------
10,652,825
-----------
Hospital Supply 2.3%
American Medical Response, Inc.* 10,700 379,850
Baxter International, Inc. 50,000 2,262,500
Circon Corp.* 14,100 206,213
Columbia/HCA Healthcare Corp.* 42,900 2,477,475
Community Care of America, Inc.* 27,300 279,825
Community Health Systems, Inc. 9,300 381,300
Cytyc Corp.* 4,700 78,725
Integra Lifesciences Corp.* 11,200 131,600
I-Stat Corp.* 10,600 270,300
Lincare Holdings, Inc.* 24,800 806,000
Orthologic Corp.* 10,300 261,362
Physicians Support Systems, Inc.* 13,600 232,900
Respironics, Inc.* 10,000 210,000
Roche Holdings AG 175 1,453,674
Rotech Medical Corp.*. 11,300 418,100
Total Renal Care, Inc.* 3,000 93,375
Ultram-Fem, Inc. 15,700 204,100
-----------
10,147,299
-----------
Personal Care 0.5%
Procter & Gamble Co. 22,500 1,906,875
U.S.A. Detergents, Inc.* 10,650 346,125
-----------
2,253,000
-----------
Printing & Publishing 0.6%
General Media Inc. Wts.*+ 250 250
Heritage Media Corp. Cl. A* 5,600 200,900
Hollinger International, Inc.* 88,400 1,060,800
K-III Communications Corp. Series B Exch. Pfd.(Diamond) 4,837 500,668
K-III Communications Corp. Series C. Pfd. 2,500 258,750
Knight-Ridder, Inc. 8,700 592,688
Sullivan Holdings, Inc.* 148 53,467
-----------
2,667,523
-----------
--------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
--------------------------------------------------------------------------------------------------
Tobacco 0.6%
Philip Morris Companies, Inc. 24,200 $ 2,123,550
Schweitzer-Maudit International, Inc.* 11,100 305,250
-----------
2,428,800
-----------
Total Consumer Staple 47,439,538
-----------
Energy 5.0%
Oil 3.4%
Amerada Hess Corp. 9,200 506,000
Broken Hill Proprietary Ltd. ADR 18,000 1,021,500
Broken Hill Proprietary Ltd. 74,800 1,064,981
Imperial Oil Ltd. 25,700 1,015,150
MOL Magyar Olaj ES Gazipar GDR*+ 100,100 1,063,562
Oryx Energy Co.+++ 83,300 1,155,788
Phillips Petroleum Co. 22,400 884,800
Repsol SA ADR 26,500 990,438
Repsol SA 48,000 1,809,934
Royal Dutch Petroleum Co. 17,000 2,401,250
Tosco Corp. 35,500 1,664,062
Total SA ADR 10,400 353,600
Total SA 12,909 871,468
-----------
14,802,533
-----------
Oil Service 1.6%
Baker Hughes, Inc. 7,100 207,675
Coflexip 31,763 1,355,938
Halliburton Co. 3,500 199,063
Schlumberger Ltd. 34,900 2,761,462
Transocean AS* 109,000 2,379,504
-----------
6,903,642
-----------
Total Energy 21,706,175
-----------
Finance 7.2%
Bank 3.4%
Banco Industrial Colombiano ADR 106,500 1,970,250
Bank of New York, Inc. 7,300 375,950
BankAmerica Corp. 33,000 2,557,500
Chase Manhattan Corp. 18,000 1,323,000
Citicorp* 35,000 2,800,000
Fleet Financial Group, Inc. 25,200 1,020,600
Mellon Bank Corp. 5,500 303,188
National City Corp. 3,900 136,988
PNC Bank Corp. 11,100 341,325
Riverbank America Non-cum. Pfd. 20,000 495,000
South Trust Corp. 6,500 179,562
Sparbanken Sverige AB+ 203,700 2,288,147
U.S. Bancorp 24,919 847,246
-----------
14,638,756
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial Service 1.3%
Alex Brown, Inc. 8,000 $ 415,000
Bear Stearns Companies, Inc.* 25,300 626,175
Federal Home Loan Mortgage Corp. 19,900 1,696,475
Federal National Mortgage Association 65,500 2,087,812
First USA Paymentech, Inc.* 500 17,625
Piper Jaffrey Companies, Inc. 13,700 188,375
RAC Financial Group, Inc.* 5,300 119,250
Raymond James Financial, Inc.* 8,400 189,000
Salomon, Inc. 5,700 213,750
-----------
5,553,462
-----------
Insurance 2.5%
Ace Ltd.* 39,300 1,753,763
AMBAC, Inc. 10,000 481,250
American Travellers Corp.* 6,500 192,562
Delphi Financial Group, Inc. Cl. A* 7,700 187,110
IPC Holdings, Inc.* 7,100 148,212
Mid Ocean Ltd.*. 43,200 1,668,600
Mutual Risk Management Ltd. 9,900 409,613
NAC Re Corp. 23,600 769,950
National Re Corp. 13,100 442,125
Penn Treaty American Corp.* 4,700 89,300
PMI Group, Inc.* 22,400 977,200
Safeco Corp. 39,800 1,333,300
Travelers, Inc. 37,300 2,461,800
-----------
10,914,785
-----------
Total Finance 31,107,003
-----------
Science & Technology 10.8%
Aerospace 1.8%
Boeing Co. 51,200 4,435,200
Bombardier, Inc. Cl. B* 85,200 1,257,536
Honeywell, Inc. 7,500 414,375
Ladish Company, Inc. Wts.*++ 52,000 15,600
Rolls Royce PLC 400,000 1,315,629
Sequa Corp.* 12,500 426,563
-----------
7,864,903
-----------
Computer Software & Service 3.5%
Boca Research, Inc.* 17,300 315,725
Cerner Corp.* 21,600 502,200
Cisco Systems, Inc.* 46,500 2,156,438
Computervision Corp.* 181,800 1,886,175
Comshare, Inc.* 14,600 335,800
Datastream Systems, Inc.* 18,700 406,725
Desktop Data, Inc. 11,600 426,300
Discreet Logic, Inc.* 12,000 165,000
Enterprise Systems, Inc.* 6,400 176,800
General Motors Corp. Cl. E 20,200 1,151,400
--------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
--------------------------------------------------------------------------------------------------
Computer Software & Service (cont'd)
Hyperion Software Corp.* 38,400 $ 835,200
Inso Corp.* 2,100 96,862
Intersolv, Inc.* 50,300 584,738
On Technologies Corp.* 35,300 388,300
Pixar* 8,200 182,450
SAP AG ADR+ 34,300 1,637,825
Spyglass, Inc.* 4,600 99,475
Sync Research, Inc.* 5,500 86,625
System Soft Corp.* 23,200 371,200
Teltrend, Inc.* 13,200 600,600
Videoserver, Inc.* 18,300 462,075
Western Digital Corp.* 76,000 1,463,000
Wonderware Corp.* 31,000 728,500
-----------
15,059,413
-----------
Electronic Components 0.6%
AMP, Inc. 15,500 641,313
BBC Brown Boveri AG* 775 942,849
Mosaid Technologies, Inc.* 9,100 170,187
Thomas & Betts Corp. 7,800 585,000
U.S. Order, Inc.* 10,900 223,450
-----------
2,562,799
-----------
Electronic Equipment 3.1%
Alcatel Alsthom 16,000 1,483,282
Berg Electronics Corp.* 5,000 117,500
Itron, Inc.* 15,400 689,150
L.M. Ericsson Telephone Co. Cl. B ADR* 109,780 2,346,548
L.M. Ericsson Telephone Co. Cl. B 96,800 2,131,201
Nokia Corp.* 23,300 804,558
Perkin-Elmer Corp. 96,200 5,206,825
Tokyo Electronics Ltd. 22,000 750,642
Wireless One, Inc. Wts.* 750 5,250
-----------
13,534,956
-----------
Office Equipment 1.8%
Digital Equipment Corp.* 60,600 3,340,575
Filenet Corp.* 9,400 542,850
HMT Technology Corp.* 15,000 156,563
International Business Machines Corp. 34,500 3,833,812
-----------
7,873,800
-----------
Total Science & Technology 46,895,871
-----------
Utility 3.8%
Electric 0.4%
Allegheny Power Systems, Inc. 13,200 400,950
American Electric Power, Inc. 19,300 805,775
Texas Utilities Co. 8,400 347,550
-----------
1,554,275
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Natural Gas 0.8%
Coastal Corp. 30,300 $ 1,196,850
ENSERCH Corp.+++ 154,700 2,513,875
-----------
3,710,725
-----------
Telephone 2.6%
Air Touch Communications, Inc.* 110,700 3,445,538
Allen Group, Inc. 19,100 370,062
BCE, Inc. 30,000 1,061,250
Colonial Data Technologics, Inc.* 19,200 424,800
Geotek Communications, Inc.* 19,200 196,800
IntelCom Group, Inc. Wts.*+ 1,650 16,500
Orange PLC* 532,800 1,797,143
Rural Cellular Corp. Cl. A* 6,100 70,150
Southern New England Telecom Corp. 17,300 696,325
Sprint Corp.* 18,200 705,250
Tele Danmark AS Cl. B ADR 19,750 1,028,989
Telecom Italia Mobile SPA* 925,000 1,017,927
Tel-Save Holdings, Inc.* 22,200 374,625
-----------
11,205,359
-----------
Total Utility 16,470,359
-----------
Total Equity Securities (Cost $194,944,319) 234,361,524
-----------
EQUITY SECURITIES--INFLATION RESPONSIVE INVESTMENTS 12.2%
Basic Industries 3.4%
Chemical 1.1%
Agrium, Inc.*@ 137,200 1,762,163
Arcadian Corp.* 23,800 470,050
Cambrex Corp.@ 28,100 1,296,113
CFC International, Inc.* 50,000 587,500
Mississippi Chemical Corp. 8,200 166,050
Sociedad Quimicay Minera ADR* 8,000 418,000
-----------
4,699,876
-----------
Forest Product 0.1%
St. Laurent Paperboard, Inc.* 25,000 327,741
-----------
Metal & Mining 2.2%
Aber Resources Ltd.* 60,000 735,000
Aluminum Co. of America 15,000 939,375
AUR Resources, Inc.* 50,000 371,287
Coeur d'Alene Mines Corp. 70,000 1,478,750
Crown Resources Corp.* 125,000 812,500
Cyprus Amax Minerals Co. 25,000 706,250
Dia Met Minerals Ltd. Cl. A* 2,000 24,936
Dia Met Minerals Ltd. Cl. B* 20,000 278,694
Freeport-McMoRan Copper & Gold, Inc.* 20,000 632,500
Kinross Gold Corp.* 60,000 487,500
Maxxam Inc.* 25,000 1,221,875
--------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
--------------------------------------------------------------------------------------------------
Metal & Mining (cont'd)
Royal Oaks Mines Ltd.* 100,000 $ 418,750
Santa Fe Pacific Gold Corp.* 10,000 160,000
Southernera Resources Ltd.* 100,000 550,055
TVX Gold, Inc.* 60,000 540,000
Western Garnet Ltd.* 100,000 337,367
-----------
9,694,839
-----------
Total Basic Industries 14,722,456
-----------
Energy 8.3%
Oil 5.9%
Abacan Resource Corp.*@ 446,100 1,895,925
Barrett Resources Corp.* 7,100 177,500
Basin Exploration, Inc.* 65,000 333,125
Benton Oil & Gas Co.* 14,400 226,800
Tom Brown Inc.*@ 104,100 1,470,413
Clayton Williams Energy, Inc. 41,498 160,805
Coho Energy, Inc.* 42,900 268,125
Crystal Oil Co.* 10,000 332,500
CS Resources Ltd.* 100,000 797,580
Discovery West Corp.* 50,000 165,016
Elan Energy, Inc.* 15,000 133,388
Flores & Rucks, Inc.* 18,100 334,850
Garnet Resources Corp.* 25,000 25,000
Gerrity Oil & Gas Corp.* 48,000 150,000
Global Natural Resources, Inc.*@ 186,200 2,467,150
Intensity Resources Ltd.* 161,300 350,164
Morgan Hydrocarbons, Inc.* 250,000 715,072
Morrison Middlefield Ltd.* 43,800 409,571
Nuevo Energy Co.*@ 94,400 2,714,000
Optima Petroleum Corp.* 43,100 123,912
Phoenix Resource Cos., Inc.*@ 252,800 6,035,600
Plains Resources Inc.*@ 150,000 1,359,375
Ranger Oil Ltd.*@ 370,700 2,594,900
Strike Energy, Inc.* 34,800 88,053
Summit Resources Ltd. 50,000 233,773
Swift Energy Co.@ 78,860 1,035,037
Triton Energy Corp. Cl. A 4,400 245,300
Ulster Petroleum Ltd. 178,000 669,050
United Meridian Corp.* 1,600 38,200
-----------
25,550,184
-----------
Oil Service 2.4%
Atwood Oceanics, Inc.@ 38,000 1,368,000
Dual Drilling Co.* 20,000 342,500
Energy Ventures, Inc.* 55,900 1,488,337
Falcon Drilling, Inc.* 18,900 420,525
Global Industries, Inc.* 45,800 961,800
Grant Geophysical, Inc.* 30,000 93,750
J. Ray McDermott SA* 17,000 329,375
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Oil Service (cont'd)
Landmark Graphics Corp.*@ 52,300 $ 869,488
Nabors Industries, Inc.* 23,600 336,300
Noble Drilling Corp.* 112,000 1,428,000
Nowsco Well Service Ltd. 80,000 1,180,000
Rowan Companies, Inc. 89,100 1,136,025
Scientific Software-Intercomp Inc.* 40,000 110,000
Tuboscope Vetco International Corp.* 40,000 390,000
-----------
10,454,100
-----------
Total Energy 36,004,284
-----------
Utility 0.5%
Natural Gas 0.5%
Louis Dreyfus Natural Gas Corp.* 27,300 296,887
TransTexas Gas Corp.*@ 199,600 1,996,000
-----------
2,292,887
-----------
Total Utility 2,292,887
-----------
Total Equity Securities--Inflation Responsive Investments (Cost
$41,688,766) 53,019,627
-----------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Principal Maturity
Amount Date
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS 0.1%
State Street Bank and Trust Company, dated 3/29/96,
repurchase proceeds $340,057, collateralized by
$355,000 U.S. Treasury Bill, 5.625%, due 6/27/96,
market value $350,429 $340,000 4/01/1996 340,000
-----------
Total Repurchase Agreements (Cost $340,000) 340,000
-----------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH EQUIVALENTS 7.3%
American Express Credit Corp., 5.50% $11,238,000 4/01/1996 $ 11,238,000
American Express Credit Corp., 5.45% 8,702,000 4/01/1996 8,702,000
American Express Credit Corp., 5.38% 1,181,000 4/03/1996 1,181,000
Deere & Co., 5.35% 7,463,000 4/03/1996 7,463,000
Ford Motor Credit Co., 5.27% 2,938,000 4/18/1996 2,938,000
-----------
Total Cash Equivalents (Cost $31,522,000) 31,522,000
-----------
Total Investments (Cost $387,233,484)--100.8% 437,072,304
Cash and Other Assets, Less Liabilities--(0.8)% (3,477,861)
-----------
Net Assets--100.0% $433,594,443
===========
Federal Income Tax Information:
At March 31, 1996, the net unrealized appreciation of investments based on cost
for Federal income tax purposes of $387,743,297 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an
excess of value over tax cost $ 59,828,643
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value (10,499,636)
-----------
$ 49,329,007
===========
</TABLE>
ADR and GDR stand for American Depositary Receipt and Global
Depositary Receipt, respectively, representing ownership of foreign
securities.
*Nonincome-producing securities.
(Diamond)Payments of income may be made in cash or in the form of additional
securities.
(Box)Security is in default.
++Security valued under consistently applied procedures established by
the Trustees. Security restricted as to public resale. The total cost
and market value of restricted securities owned at March 31, 1996 were
$212,122 and $71,380 (0.02% of net assets), respectively.
+Security restricted in accordance with Rule 144A under the Securities
Act of 1933, which allows for the resale of such securities among
certain qualified institutional buyers. The total cost and market
value of Rule 144A securities owned at March 31, 1996 were
$12,791,682 and $13,282,262 (3.06% of net assets), respectively.
+++60,000 shares of ENSERCH Corp. and 30,000 shares of Oryx Energy Co.
are considered by the Adviser to be part of Inflation Responsive
Investments.
@113,700 shares of Abacan Resource Corp., 37,200 shares of Agrium
Inc., 5,500 shares of Atwood Oceanics, Inc., 14,300 shares of
Tom Brown, Inc., 13,100 shares of Cambrex Corp., 21,200 shares of
Global Natural Resources, Inc., 13,900 shares of Landmark Graphics
Corp., 22,000 shares of Nuevo Energy Co., 12,800 shares of Phoenix
Resource Companies, Inc., 23,700 shares of Plains Resources, Inc.,
66,600 shares of Ranger Oil Ltd., 36,800 shares of Swift Energy Co.
and 55,600 shares of TransTexas Gas Corp. are considered by the
Adviser to be part of Equity Securities.
TBA Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the
principal value has not been finalized and may vary by no more than 2%.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
-----------------------------------------------------------------------------
Forward currency exchange contracts outstanding at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Total Value Price (Depreciation) Date
- --------------------------------------------- --------------- --------- ----------- --------
<S> <C> <C> <C> <C>
Sell Australian dollars, buy U.S. dollars 561,900 AUD .72895 AUD $ (28,845) 4/24/96
Sell Australian dollars, buy U.S. dollars 1,141,000 AUD .74103 AUD (44,796) 4/24/96
Sell Australian dollars, buy U.S. dollars 5,033,000 AUD .75070 AUD (143,995) 5/15/96
Sell Australian dollars, buy U.S. dollars 451,500 AUD .75220 AUD (12,240) 5/15/96
Sell Canadian dollars, buy U.S. dollars 114,000 CAD .73276 CAD (100) 4/24/96
Sell Canadian dollars, buy U.S. dollars 1,631,977 CAD .72661 CAD (11,741) 5/15/96
Sell Canadian dollars, buy U.S. dollars 535,926 CAD .72648 CAD (3,926) 5/15/96
Sell Canadian dollars, buy U.S. dollars 2,845,074 CAD .73473 CAD 2,618 5/15/96
Sell Danish krone, buy U.S. dollars 1,233,200 DKK .17524 DKK (417) 4/24/96
Sell Danish krone, buy U.S. dollars 3,314,000 DKK .17783 DKK 7,451 4/24/96
Sell Danish krone, buy U.S. dollars 3,460,000 DKK .17513 DKK (1,541) 4/24/96
Sell U.S. dollars, buy Danish krone 1,514,900 DKK .17548 DKK 149 4/24/96
Sell Danish krone, buy U.S. dollars 32,335,000 DKK .17621 DKK 16,447 5/15/96
Sell Deutsche marks, buy U.S. dollars 3,269,911 DEM .67645 DEM (2,997) 4/01/96
Sell Deutsche marks, buy U.S. dollars 1,880,000 DEM .69867 DEM 39,293 4/09/96
Sell Deutsche marks, buy U.S. dollars 225,000 DEM .67916 DEM 193 4/24/96
Sell Deutsche marks, buy U.S. dollars 58,000 DEM .68937 DEM 642 4/24/96
Sell Deutsche marks, buy U.S. dollars 4,720,000 DEM .69334 DEM 70,951 4/24/96
Sell Deutsche marks, buy U.S. dollars 604,000 DEM .68169 DEM 1,517 5/15/96
Sell Deutsche marks, buy U.S. dollars 3,075,400 DEM .68381 DEM 14,230 5/15/96
Sell Deutsche marks, buy U.S. dollars 564,000 DEM .68311 DEM 2,215 5/15/96
Sell U.S. dollars, buy Deutsche marks 3,106,400 DEM .67820 DEM 3,058 5/15/96
Buy European currency units, sell U.S.
dollars 1,311,794 XEU 1.26200 XEU (6,880) 4/03/96
Sell European currency units, buy U.S.
dollars 1,259,500 XEU 1.26095 XEU 9,579 5/15/96
Sell French francs, buy U.S. dollars 16,735,262 FRF .20402 FRF 90,060 4/09/96
Sell French francs, buy U.S. dollars 6,104,881 FRF .19846 FRF (1,802) 4/24/96
Sell U.S. dollars, buy French francs 6,104,881 FRF .20125 FRF (15,266) 4/24/96
Sell U.S. dollars, buy French francs 9,354,500 FRF .20149 FRF (25,630) 4/24/96
Sell French francs, buy U.S. dollars 9,354,500 FRF .19822 FRF (5,006) 4/24/96
Sell Japanese yen, buy U.S. dollars 474,160,000 JPY .00971 JPY 164,439 4/09/96
Sell Italian lira, buy U.S. dollars 760,880,000 ITL .00062 ITL (9,466) 4/24/96
Sell Italian lira, buy U.S. dollars 233,200,000 ITL .00063 ITL (2,225) 4/24/96
Sell U.S. dollars, buy Italian lira 233,200,000 ITL .00062 ITL 4,385 4/24/96
Sell Pound sterling, buy U.S. dollars 311,800 GBP 1.53650 GBP 3,534 5/15/96
Sell U.S. dollars, buy Pound sterling 311,800 GBP 1.53250 GBP (2,287) 5/15/96
Sell Pound sterling, buy U.S. dollars 1,070,100 GBP 1.53657 GBP 11,994 5/15/96
Sell U.S. dollars, buy Pound sterling 1,070,100 GBP 1.53100 GBP (6,242) 5/15/96
Sell U.S. dollars, buy Pound sterling 1,193,812 GBP 1.52600 GBP 300 4/02/96
Sell Spanish peseta, buy U.S. dollars 121,251,466 ESP .00808 ESP 7,001 4/03/96
Sell Spanish peseta, buy U.S. dollars 149,598,545 ESP .00807 ESP 3,066 4/03/96
Sell Spanish peseta, buy U.S. dollars 106,785,000 ESP .00807 ESP 6,239 4/24/96
Sell Spanish peseta, buy U.S. dollars 131,750,000 ESP .00806 ESP 7,076 4/24/96
Sell Spanish peseta, buy U.S. dollars 100,000,000 ESP .00803 ESP (1,146) 4/24/96
Sell Spanish peseta, buy U.S. dollars 6,785,000 ESP .00807 ESP 221 4/24/96
Sell Spanish peseta, buy U.S. dollars 131,750,000 ESP .00802 ESP (2,105) 4/24/96
Sell Swiss franc, buy U.S. dollars 2,636,000 CHF .86546 CHF 62,638 4/09/96
---------
$ 200,643
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------------------------------------------------
March 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments, at value (Cost $387,233,484) (Note 1) $437,072,304
Cash 4,959
Receivable for securities sold 8,448,720
Interest and dividends receivable 2,267,871
Receivable for open forward contracts 529,296
Receivable for fund shares sold 430,603
Receivable from Distributor (Note 3) 36,339
Other assets 12,773
-----------
448,802,865
Liabilities
Payable for securities purchased 13,555,653
Payable for open forward contracts 328,653
Payable for fund shares redeemed 314,144
Accrued management fee (Note 2) 271,556
Accrued transfer agent and shareholder services
(Note 2) 238,808
Accrued distribution fee and service fees (Note 5) 214,017
Dividends payable 88,059
Accrued trustees' fees (Note 2) 8,486
Other accrued expenses 189,046
-----------
15,208,422
-----------
Net Assets $433,594,443
===========
Net Assets consist of:
Undistributed net investment income $ 3,185,167
Unrealized appreciation of investments 49,838,820
Unrealized appreciation of forward contracts
and foreign currency 207,666
Accumulated net realized gain 12,963,312
Shares of beneficial interest 367,399,478
-----------
$433,594,443
===========
Net Asset Value and redemption price per share of
Class A shares ($207,712,953 (Division sign)
20,191,806 shares of beneficial interest) $10.29
===========
Maximum Offering Price per share of Class A shares
($10.29 (Division sign) .955) $10.77
===========
Net Asset Value and offering price per share of
Class B shares ($193,272,356 (Division sign)
18,846,845 shares of beneficial interest)* $10.25
===========
Net Asset Value, offering price and redemption
price per share of Class C shares ($19,547,904
(Division sign) 1,900,101 shares of
beneficial interest) $10.29
===========
Net Asset Value and offering price per share of
Class D shares ($13,061,230 (Division sign)
1,272,086 shares of beneficial interest)* $10.27
===========
</TABLE>
-----------------------------------------------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
-----------------------------------------------------------------------------
Statement of Operations
-----------------------------------------------------------------------------
For the year ended March 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Investment Income
Interest, net of foreign taxes of $1,958 $11,112,990
Dividends, net of foreign taxes of $96,738 3,480,290
----------
14,593,280
Expenses
Management fee (Note 2) 3,051,182
Transfer agent and shareholder services (Note 2) 993,574
Custodian fee 379,456
Reports to shareholders 153,286
Service fee--Class A (Note 5) 485,516
Distribution and service fees--Class B (Note 5) 1,715,683
Distribution and service fees--Class D (Note 5) 129,513
Audit fee 67,254
Registration fees 61,824
Trustees' fees (Note 2) 33,588
Miscellaneous 42,336
----------
7,113,212
Expenses borne by the Distributor (Note 3) (715,739)
----------
6,397,473
----------
Net investment income 8,195,807
----------
Realized and Unrealized Gain on Investments,
Foreign Currency and Forward Contracts
Net realized gain on investments (Notes 1 and 4) 32,926,773
Net realized gain on forward contracts and foreign
currency (Note 1) 1,006,886
----------
Total net realized gain 33,933,659
----------
Net unrealized appreciation of investments 37,405,073
Net unrealized appreciation of forward contracts
and foreign currency 632,620
----------
Total net unrealized appreciation 38,037,693
----------
Net gain on investments, foreign currency and
forward contracts 71,971,352
----------
Net increase in net assets resulting from
operations $80,167,159
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------
Notes to Financial Statements
March 31, 1996
<TABLE>
<CAPTION>
Year ended March 31
----------------------------
1996 1995
------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 8,195,807 $ 9,683,302
Net realized gain (loss) on
investments, foreign
currency and forward
contracts* 33,933,659 (14,798,019)
Net unrealized appreciation
of investments, foreign
currency and forward
contracts 38,037,693 10,188,263
--------- -----------
Net increase resulting from
operations 80,167,159 5,073,546
--------- -----------
Dividends from net investment income:
Class A (5,148,650) (3,550,468)
Class B (3,355,386) (1,701,801)
Class C (819,460) (551,533)
Class D (240,897) (145,276)
--------- -----------
(9,564,393) (5,949,078)
--------- -----------
Distributions from net realized gains:
Class A (3,056,467) (2,686,125)
Class B (2,771,674) (1,571,333)
Class C (490,395) (352,065)
Class D (194,112) (134,219)
--------- -----------
(6,512,648) (4,743,742)
--------- -----------
Net increase (decrease) from
fund share transactions
(Note 6) (2,678,848) 99,996,131
--------- -----------
Total increase in net assets 61,411,270 94,376,857
Net Assets
Beginning of year 372,183,173 277,806,316
--------- -----------
End of year (including
undistributed net
investment income of
$3,185,167 and $1,018,118,
respectively) $433,594,443 $372,183,173
========= ===========
* Net realized gain (loss)
for Federal income tax
purposes (Note 1) $ 20,102,035 $ (2,823,098)
========= ===========
</TABLE>
-----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
March 31, 1996
Note 1
State Street Research Managed Assets, formerly MetLife-State Street Research
Managed Assets (the "Fund") is a series of State Street Research Income
Trust, formerly MetLife-State Street Income Trust (the "Trust"), which was
organized as a Massachusetts business trust in December, 1985 and is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund commenced operations in
December, 1988. The Trust consists presently of two separate funds: State
Street Research Managed Assets and State Street Research High Income Fund.
The investment objective of 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.
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.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and
pay annual distribution and service fees of 1.00%. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after the issuance of the 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 a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Values for listed equity securities reflect final sales on national
securities exchanges quoted prior to the close of the New York Stock
Exchange. Over-the-counter securities quoted on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system are valued at
closing prices supplied through such system. If not quoted on the NASDAQ
system, such securities are valued at prices obtained from independent
brokers. In the absence of recorded sales, valuations are at the mean of the
closing bid and asked quotations. Fixed income securities are valued by a
pricing service, which utilizes market transactions, quotations from dealers,
and various relationships among securities in determining value. Short-term
securities maturing
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
within sixty days are valued at amortized cost. Other securities, if any, are
valued at their fair value as determined in good faith under consistently
applied procedures established by and under the supervision of the Trustees.
B. Forward Contracts and Foreign Currencies
The fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange
contract is an obligation by the Fund to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the origination
date of the contract. Forward foreign currency exchange contracts establish
an exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar. The aggregate principal amount of forward currency exchange
contracts is recorded in the Fund's accounts. All commitments are
marked-to-market at the applicable transaction rates resulting in unrealized
gains or losses. The Fund records realized gains or losses at the time the
forward contracts are extinguished by entry into a closing contract or by
delivery of the currency. Neither spot transactions nor forward currency
exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the
price of these securities should decline.
Securities quoted in foreign currencies are translated into U.S. dollars at
the current exchange rate. Gains and losses that arise from changes in
exchange rates are not segregated from gains and losses that arise from
changes in market prices of investments.
C. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
D. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of
the Fund. Interest income is accrued daily as earned. Dividend income is
accrued on the ex-dividend date. Discount on debt obligations is amortized
under the effective yield method. Certain fixed income securities held by the
Fund pay interest or dividends in the form of additional securities
(payment-in-kind securities). Interest income on payment-in-kind fixed income
securities is recorded using the effective-interest method. Dividend income
on payment-in-kind preferred securities is recorded at the market value of
securities received. The Fund is charged for expenses directly attributable
to it, while indirect expenses are allocated among all funds in the Trust.
E. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually,
unless additional distributions are required for compliance with applicable
tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing
treatments for foreign currency transactions, paydown gains and losses and
wash sale deferrals.
F. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1994
through March 31, 1995, the Fund incurred net capital losses of $9,216,832
and has deferred and treated such losses as arising in the fiscal year ended
March 31, 1996.
G. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.75% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended March 31, 1996, the fees pursuant to
such agreement amounted to $3,051,182.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance
of the accounts of certain shareholders who are participants in sponsored
arrangements, such as employee benefit plans, through or under which shares
of the Fund may be purchased. During the year ended March 31, 1996, the
amount of such expenses was $300,306.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $33,588 during the year ended March 31, 1996.
16
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
NOTES (cont'd)
-----------------------------------------------------------------------------
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended March 31, 1996, the amount of such expenses
assumed by the Distributor and its affiliates was $715,739.
Note 4
For the year ended March 31, 1996, purchases and sales of securities,
exclusive of short-term obligations and forward foreign currency exchange
contracts, aggregated $427,699,736 and $420,688,677 (including $85,515,603
and $109,041,576 of U.S. Government obligations), respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
pays annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class D shares. The Distributor uses such payments for personal
services and/or the maintenance of shareholder accounts, to reimburse
securities dealers for distribution and marketing services, to furnish
ongoing assistance to investors and to defray a portion of its distribution
and marketing expenses. For the year ended March 31, 1996, fees pursuant to
such plan amounted to $485,516, $1,715,683 and $129,513 for Class A, Class B
and Class D shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $107,358 and $708,640, respectively, on sales of Class A shares
of the Fund during the year ended March 31, 1996, and that MetLife
Securities, Inc. earned commissions aggregating $1,104,124 on sales of Class
B shares, and the Distributor collected contingent deferred sales charges
aggregating $965,398 and $6,098 on redemptions of Class B and Class D shares,
respectively, during the same period.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At March 31, 1996 the Distributor owned one Class A share of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended March 31
--------------------------------------------------------
1996 1995
------------------------- ---------------------------
Class A Shares Amount Shares Amount
- -------------------------------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold 3,142,066 $ 30,625,584 6,602,965 $ 57,372,536
Issued upon reinvestment of:
Dividends from net investment income 505,011 4,934,090 392,651 3,377,080
Distributions from net realized gains 307,042 2,969,095 297,451 2,584,847
Shares repurchased (4,460,168) (43,019,460) (5,156,516) (44,295,455)
-------- --------- -------- -----------
Net increase (decrease) (506,049) $ (4,490,691) 2,136,551 $ 19,039,008
======== ========= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Amount Shares Amount
- -------------------------------------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Shares sold 3,862,169 $ 37,612,607 10,279,851 $ 88,909,733
Issued upon reinvestment of:
Dividends from net investment income 332,475 3,235,190 189,138 1,630,253
Distributions from net realized gains 281,171 2,710,479 176,093 1,524,943
Shares repurchased (3,052,294) (29,408,533) (2,549,340) (21,785,748)
-------- ---------- -------- -----------
Net increase 1,423,521 $ 14,149,743 8,095,742 $ 70,279,181
======== ========== ======== ===========
Class C Shares Amount Shares Amount
- -------------------------------------- -------- ---------- -------- -----------
Shares sold 1,072,850 $ 10,385,513 1,583,387 $ 13,778,442
Issued upon reinvestment of:
Dividends from net investment income 84,178 819,983 63,889 549,690
Distributions from net realized gains 50,697 489,441 40,418 351,228
Shares repurchased (2,251,394) (22,256,352) (1,139,442) (9,788,334)
-------- ---------- -------- -----------
Net increase (decrease) (1,043,669) $(10,561,415) 548,252 $ 4,891,026
======== ========== ======== ===========
Class D Shares Amount Shares Amount
- -------------------------------------- -------- ---------- -------- -----------
Shares sold 252,653 $ 2,474,692 844,434 $ 7,326,800
Issued upon reinvestment of:
Dividends from net investment income 22,570 219,580 14,873 128,335
Distributions from net realized gains 18,905 182,432 14,278 123,793
Shares repurchased (482,326) (4,653,189) (209,961) (1,792,012)
-------- ---------- -------- -----------
Net increase (decrease) (188,198) $ (1,776,485) 663,624 $ 5,786,916
======== ========== ======== ===========
</TABLE>
17
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
---------------------------------------------------
Year ended March 31
---------------------------------------------------
1996*** 1995 1994 1993 1992
- ----------------------------------------------------- ------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $8.76 $8.94 $8.94 $8.22 $7.61
Net investment income* .23 .27 .22 .27 .37
Net realized and unrealized gain (loss) on
investments and forward contracts 1.72 (.14) .72 1.01 .62
Dividends from net investment income (.26) (.17) (.22) (.25) (.38)
Distributions from net realized gains (.16) (.14) (.72) (.31) --
----- ----- ----- ---- ------
Net asset value, end of year $10.29 $8.76 $8.94 $8.94 $8.22
===== ===== ===== ==== ======
Total return 22.55%+ 1.52%+ 10.96%+ 16.54%+ 13.29%+
Net assets at end of year (000s) $207,713 $181,358 $166,011 $93,537 $78,483
Ratio of operating expenses to average net assets* 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to average net assets* 2.34% 3.11% 2.75% 3.26% 4.60%
Portfolio turnover rate 109.20% 89.58% 105.17% 142.86% 97.76%
*Reflects voluntary assumption of fees
or expenses per share in each year (Note 3) $.02 $.03 $.02 $.02 $.02
</TABLE>
<TABLE>
<CAPTION>
Class B Class C
------------------------------------ ------------------------------
Year ended March 31 Year ended March 31
------------------------------------ ------------------------------
1996*** 1995 1994** 1996*** 1995 1994**
- --------------------------------- ------- --------- ------------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $8.74 $8.92 $8.78 $8.77 $8.95 $8.78
Net investment income* .15 .20 .16 .25 .29 .21
Net realized and unrealized gain
(loss) on investments and
forward contracts 1.71 (.13) .39 1.71 (.14) .43
Dividends from net investment
income (.19) (.11) (.18) (.28) (.19) (.24)
Distributions from net realized
gains (.16) (.14) (.23) (.16) (.14) (.23)
----- ------- ---------- ------ ------ ------
Net asset value, end of year $10.25 $8.74 $8.92 $10.29 $8.77 $8.95
===== ======= ========== ====== ====== ======
Total return 21.48%+ 0.82%+ 6.26%+++ 22.70%+ 1.77%+ 7.27%+++
Net assets at end of year (000s) $193,272 $152,251 $83,244 $19,548 $25,803 $21,434
Ratio of operating expenses to
average net assets* 2.00% 2.00% 2.00%++ 1.00% 1.00% 1.00%++
Ratio of net investment income to
average net assets* 1.59% 2.38% 2.03%++ 2.59% 3.37% 3.03%++
Portfolio turnover rate 109.20% 89.58% 105.17% 109.20% 89.58% 105.17%
*Reflects voluntary assumption of
fees or expenses per share in
each year (Note 3) $.02 $.03 $.03 $.02 $.03 $.02
</TABLE>
<TABLE>
<CAPTION>
Class D
------------------------------------------
Year ended March 31
------------------------------------------
1996*** 1995 1994**
- --------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Net asset value, beginning of
year $8.75 $8.93 $8.78
Net investment income* .15 .20 .16
Net realized and unrealized gain
(loss) on investments and
forward contracts 1.72 (.13) .40
Dividends from net investment
income (.19) (.11) (.18)
Distributions from net realized
gains (.16) (.14) (.23)
--------- --------- -----------
Net asset value, end of year $10.27 $8.75 $8.93
========= ========= ===========
Total return 21.54%+ 0.82%+ 6.31%+++
Net assets at end of year (000s) $13,061 $12,772 $7,117
Ratio of operating expenses to
average net assets* 2.00% 2.00% 2.00%++
Ratio of net investment income to
average net assets* 1.60% 2.39% 2.03%++
Portfolio turnover rate 109.20% 89.58% 105.17%
*Reflects voluntary assumption of
fees or expenses per share in
each year (Note 3) $.02 $.03 $.03
</TABLE>
++Annualized.
**June 1, 1993 (commencement of share class designations) to March 31, 1994.
***Per-share figures have been calculated using the average shares method.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
18
<PAGE>
- -----------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
-----------------------------------------------------------------------------
To the Trustees of State Street Research Income Trust and
the Shareholders of State Street Research Managed Assets
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research
Managed Assets (formerly MetLife-State Street Research Managed Assets) (a
series of State Street Research Income Trust, hereafter referred to as the
"Trust") at March 31, 1996, and the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1996, by correspondence with the
custodian and brokers and the application of alternative procedures where
confirmations from brokers were not received, provide a reasonable basis for
the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------------------
Price Waterhouse LLP
Boston, Massachusetts
May 10, 1996
19
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
-----------------------------------------------------------------------------
The stock and bond markets both had strong years, which benefited the Fund's
performance. Managed Assets had its portfolio diversified over a variety of
stocks and bonds that provided a range of returns over the period. Stocks
provided the biggest boost, particularly larger domestic issues. Although
they represented a small part of the portfolio, inflation-responsive
securities were the strongest performers in the portfolio. Managed Assets
bond holdings also had positive returns.
The Fund's diversified portfolio helped it weather the volatility in interest
rates and the markets in early 1996. Over the past 12 months, the Fund's
diversification limited the effect that any single market had on its
performance.
The Fund maintained its emphasis on stocks and made only minor adjustments to
its asset allocation. In April 1995, the Fund had 52% in stocks, 35% in
bonds, 10% in inflation-responsive securities and 3% in cash. In July, the
Fund moved about 5% of the portfolio from bonds to stocks, profiting from the
sale of high-grade bonds. On March 31, 1996, the portfolio contained 54%
stocks, 27% bonds, 12% inflation-responsive securities and 7% in cash.
March 31, 1996
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Performance for a class includes periods
prior to the adoption of class designations in 1993. Performance reflects
maximum 4.5% "A" share front-end, or 5% "B" share or 1% "D" share contingent
deferred, sales charges. "C" shares, offered without a sales charge, are
available only to certain employee benefit plans and institutions. "B" and
"D" share performance prior to adoption of multiple class shares reflects
annual 12b-1 fees of .25% and thereafter reflects annual 12b-1 fees of 1%,
which will reduce subsequent performance. The Standard & Poor's 500 Composite
Index (S&P 500) includes 500 widely traded common stocks and is a commonly
used measure of U.S. stock market performance. Lehman Brothers
Government/Corporate Index is a commonly used index of bond market
performance. Indices are unmanaged and do not take sales charges into
consideration. Direct investment in the indices are not possible; results are
for illustrative purposes only.
Comparison Of Change In Value Of A $10,000
Investment In Managed Assets, The S&P 500 And
The Lehman Brothers Government/Corporate Index
[Description of Line Chart for Class A Shares]
Class A Shares
- --------------------------------------------
Average Annual Total Return
- --------------------------------------------
1 Year 5 Year Life of Fund
+17.03% +11.72% +10.70%
- --------------------------------------------
Managed LB Gov't/ S&P
Assets Corp Index 500
12/88 $ 9,550 $10,000 $10,000
3/89 9,957 10,111 10,708
3/90 11,030 11,293 12,767
3/91 11,478 12,703 14,603
3/92 13,003 14,149 16,212
3/93 15,154 16,172 18,678
3/94 16,815 16,621 18,951
3/95 17,070 17,381 21,896
3/96 20,918 19,280 28,918
[Description of Line Chart for Class B Shares]
Class B Shares
- --------------------------------------------
Average Annual Total Return
- --------------------------------------------
1 Year 5 Year Life of Fund
+16.48% +12.00% +11.07%
- --------------------------------------------
Managed LB Gov't/ S&P
Assets Corp Index 500
12/88 $10,000 $10,000 $10,000
3/89 10,426 10,111 10,708
3/90 11,550 11,293 12,767
3/91 12,019 12,703 14,603
3/92 13,616 14,149 16,212
3/93 15,868 16,172 18,678
3/94 17,495 16,621 18,951
3/95 17,638 17,381 21,896
3/96 21,425 19,280 28,918
[Description of Line Chart for Class C Shares]
Class C Shares
- --------------------------------------------
Average Annual Total Return
- --------------------------------------------
1 Year 5 Year Life of Fund
+22.70% +12.91% +11.51%
- --------------------------------------------
Managed LB Gov't/ S&P
Assets Corp Index 500
12/88 $10,000 $10,000 $10,000
3/89 10,426 10,111 10,708
3/90 11,550 11,293 12,767
3/91 12,019 12,703 14,603
3/92 13,616 14,149 16,212
3/93 15,868 16,172 18,678
3/94 17,661 16,621 18,951
3/95 17,974 17,381 21,896
3/96 22,053 19,280 28,918
[Description of Line Chart for Class D Shares]
Class D Shares
- --------------------------------------------
Average Annual Total Return
- --------------------------------------------
1 Year 5 Year Life of Fund
+20.54% +12.28% +11.08%
- --------------------------------------------
Managed LB Gov't/ S&P
Assets Corp Index 500
12/88 $10,000 $10,000 $10,000
3/89 10,426 10,111 10,708
3/90 11,550 11,293 12,767
3/91 12,019 12,703 14,603
3/92 13,616 14,149 16,212
3/93 15,868 16,172 18,678
3/94 17,504 16,621 18,951
3/95 17,647 17,381 21,896
3/96 21,449 19,280 28,918
LEGEND
-------------------------------------------------------
+++++ Managed Assets ===== LB Gov't/Corp Index
- ----- S&P 500
-------------------------------------------------------
20
<PAGE>
STATE STREET RESEARCH INCOME TRUST
PART C
OTHER INFORMATION
Item 24: Financial Statements and Exhibits**
(a) Financial Statements
(1) Financial Statements included in PART A (Prospectus) of this
Registration Statement:
Financial Highlights for State Street Research High
Income Fund for the period August 25, 1986 (commencement of
operations) through March 31, 1996.
Financial Highlights for State Street Research Managed
Assets for the period December 29, 1988 (commencement of
operations) through March 31, 1996.
(2) Financial Statements included in Part B (Statement of Additional
Information) of this Registration Statement:
For State Street Research High Income Fund for the fiscal year
ended March 31, 1996 (except as provided below):
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
(Fiscal years ended March 31, 1996 and March 31, 1995)
Notes to Financial Statements
(including financial highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
For State Street Research Managed Assets for the fiscal year
ended March 31, 1996 (except as provided below):
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<PAGE>
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
(Fiscal years ended March 31, 1996 and March 31, 1995)
Notes to Financial Statements
(including financial highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
(b) Exhibits
(1)(a) First Amended and Restated Master Trust Agreement and
Amendment No. 1 to First Amended and Restated Master Trust
Agreement (16)
(1)(b) Amendment No. 2 to First Amended and Restated Master
Trust Agreement
(1)(c) Amendment No. 3 to First Amended and Restated Master
Trust Agreement
(1)(d) Form of Amendment No. 4 to First Amended and Restated Master
Trust Agreement
(2)(a) By-Laws of the Registrant (1)
(2)(b) Amendment No. 1 to By-Laws effective September 30, 1992 (11)
(3) Not applicable
(4)(a) Specimen Share Certificates -- MetLife - State Street High
Income Fund (2)**
(4)(b) Specimen Share Certificate -- MetLife - State Street Managed
Assets (9)**
(5)(a) Advisory Agreement with MetLife - State Street Investment
Services, Inc. (2)*
(5)(c) Letter Agreement with respect to the Advisory Agreement
relating to MetLife - State Street Managed Assets (9)**
(5)(e) Transfer and Assumption of Responsibilities and Rights
relating to the Advisory Agreement between State Street
Financial Services, Inc. and State Street Research &
Management Company (11)*
(6)(a) Distribution Agreement with MetLife - State Street Investment
Services, Inc. (2)*
(6)(b) Form of Selected Dealer Agreement, as Supplemented
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement (16)
(6)(d) Letter Agreement with respect to the Distribution Agreement
relating to MetLife - State Street Managed Assets (9)**
(7) Not applicable
(8)(a) Custodian Contract with State Street Bank and Trust Company
(2)
(8)(d) Letter Agreement with respect to the Custodian Contract
relating to MetLife - State Street Managed Assets (9)**
(8)(f) Amendment to the Custodian Contract with State Street Bank and
Trust Company (7)
(9) Not applicable
(10)(a) Opinion and Consent of Goodwin, Procter & Hoar with respect to
MetLife - State Street High Income Fund (2)**
(10)(b) Opinion and Consent of Goodwin, Procter & Hoar with respect to
MetLife - State Street Managed Assets (6)**
C-2
<PAGE>
(11) Consent of Price Waterhouse LLP
(12) Not applicable
(13)(a) Purchase Agreement and Investment Letter (2)
(13)(b) Purchase Agreement and Investment Letter (2)
(13)(c) Purchase Agreement and Investment Letter -- MetLife - State
Street Managed Assets (9)**
(14)(a) State Street Research IRA: Disclosure Statement, Forms
Booklet and Transfer of Assets/Direct Rollover Form
(14)(b) State Street Research 403(b): Brochure, Account Agreement,
Maximum Salary Reduction Worksheet, Account Application,
Salary Reduction Agreement and Direct Rollover of Assets Form
(15) First Amended and Restated Plan of Distribution Pursuant to
Rule 12b-1 (12)
(16)(a) Calculation of Performance Data with respect to MetLife -
State Street High Income Fund (4)**
(16)(b) Calculation of Performance Data with respect to MetLife -
State Street Managed Assets (7)**
(16)(c) Calculation of Distribution Rate (8)
(17) First Amended and Restated Multiple Class Expense Allocation
Plan
(18) Powers of Attorney (16)
(19) Certificate of Board Resolution Respecting Powers of Attorney
(16)
(20) Application Forms (15)
(27) Financial Data Schedules
- ----------
* MetLife - State Street Investment Services, Inc. changed its name to State
Street Financial Services, Inc. effective as of June 18, 1992, and
subsequently changed its name to State Street Research Investment Services,
Inc. effective October 28, 1992. Documents in this listing of Exhibits
which were effective prior to the most recent name change accordingly refer
to MetLife - State Street Investment Services, Inc. or State Street
Financial Services, Inc.
** The Series of the Registrant have changed their names at various times.
Documents in this listing of Exhibits which were effective prior to the
most recent name change accordingly refer to a former name of the Series.
C-3
<PAGE>
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote Securities Act of 1933
Reference Registration/Amendment Date Filed
--------- ---------------------- ----------
1 Initial Registration January 15, 1986
2 Pre-Effective Amendment No. 1 August 12, 1986
3 Post-Effective Amendment No. 1 April 30, 1987
4 Post-Effective Amendment No. 2 June 3, 1988
5 Post-Effective Amendment No. 3 October 26, 1988
6 Post-Effective Amendment No. 4 December 23, 1988
7 Post-Effective Amendment No. 5 June 23, 1989
8 Post-Effective Amendment No. 7 July 31, 1990
9 Post-Effective Amendment No. 8 July 31, 1991
10 Post-Effective Amendment No. 9 August 1, 1992
11 Post-Effective Amendment No. 10 April 1, 1993
12 Post-Effective Amendment No. 11 June 1, 1993
13 Post-Effective Amendment No. 12 November 18, 1993
14 Post-Effective Amendment No. 14 July 28, 1994
15 Post-Effective Amendment No. 16 April 28, 1995
to the Registration Statement of
MetLife-State Street Equity Trust
(Securities Act of 1933 Registration
No. 33-4296, Investment Company
Act of 1940 File No. 811-4624)
16 Post-Effective Amendment No. 15 July 31, 1995
Item 25: Persons Controlled by or under Common Control with Registrant
Inapplicable.
Item 26. Number of Holders of Securities
As of April 30, 1996, the number of record holders of the Registrant's
Funds were as follows:
(1) (2)
Number of
Title of Class Record Holders
Shares of Beneficial Interest
State Street Research High Income Fund
Class A 35,082
Class B 7,894
Class C 183
Class D 334
C-4
<PAGE>
State Street Research Managed Assets
Class A 19,451
Class B 12,131
Class C 153
Class D 483
Item 27. Indemnification
Under Article VI of the Registrant's Master Trust Agreement each of its
Trustees and officers or persons serving in such capacity with another entity at
the request of the Registrant ("Covered Person") shall be indemnified against
all liabilities, including, but not limited to, amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered Person, in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, director or trustee, except with respect to any
matter as to which it has been determined that such Covered Person had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office (such conduct
referred to hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before which the proceeding was brought that the
person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of a court action or an administrative proceeding against a Covered
Person for insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Registrant as defined in
section 2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion.
Under the Distribution Agreement between the Registrant and State Street
Research Investment Services, Inc., the Registrant's distributor, the Registrant
has agreed to indemnify and hold harmless State Street Research Investment
Services, Inc. and each person who has been, is, or may hereafter be an officer,
director, employee or agent of State Street Research
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<PAGE>
Investment Services, Inc. against any loss, damage or expense reasonably
incurred by any of them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party, which arises out
of or is alleged to arise out of or is based upon a violation of any of its
covenants herein contained or any untrue or alleged untrue statement of material
fact, or the omission or alleged omission to state a material fact necessary to
make the statements made not misleading, in a Registration Statement or
Prospectus of the Registrant, or any amendment or supplement thereto, unless
such statement or omission was made in reliance upon written information
furnished by State Street Research Investment Services, Inc.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to trustees, officers, underwriters
and controlling persons of the Registrant, pursuant to Article VI of the
Registrant's Master Trust Agreement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
C-6
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
State Street Investment Adviser Various investment Boston, MA
Research & advisory clients
Management
Company
Bangs, Linda L. None
Vice President
Barton, Michael E. None
Vice President
Bennett, Peter C. Vice President State Street Research Capital Trust Boston, MA
Director and Vice President State Street Research Exchange Trust Boston, MA
Executive Vice Vice President State Street Research Growth Trust Boston, MA
President Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust
Director State Street Research Investment Services, Inc Boston, MA
Director Boston Private Bank & Trust Co. Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Brown, Susan H. None
Vice President
Burbank, John F. None
Vice President
Canavan, Joseph W. Assistant Treasurer State Street Research Equity Trust Boston, MA
Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Controller State Street Research Portfolios, Inc. New York, NY
C-7
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Carmen, Michael T. None
Vice President
Carstens, Linda C. None
Vice President
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President Director Avalon, Inc. Boston, MA
DiFazio, Susan M.W. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Dillman, Thomas J Director of Research Bank of New York New York, NY
Senior Vice President (until 6/95)
Drake, Susan W. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President (until 2/96)
Duggan, Peter J. Vice President New England Mutual Life Insurance Company Boston, MA
Senior Vice (until 8/94)
President
Evans, Gordon Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President (Vice President until 3/96)
Federoff, Alex G. None
Vice President
Gardner, Michael D. Partner Prism Group Seattle, WA
Senior Vice President
(Vice President until
6/95)
Geer, Bartlett R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
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<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Glovsky, Charles S. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
Hamilton, Jr., William A. Treasurer and Director Ellis Memorial and Eldredge House Boston, MA
Senior Vice President Treasurer and Director Nautical and Aviation Publishing Company, Inc. Baltimore, MD
(Vice President Treasurer and Director North Conway Institute Boston, MA
until 8/93)
Haverty, Jr., Lawrence J. None
Senior Vice President
Heineke, George R. None
Vice President
Jackson, Jr., Trustee Certain trusts of related and
F. Gardner non-related individuals
Senior Vice President Trustee Vincent Memorial Hospital Boston, MA
Jamieson, Frederick H. Vice President and Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Senior Vice President Vice President and Asst. Treasurer SSRM Holdings, Inc. Boston, MA
(Vice President Vice President and Controller MetLife Securities, Inc. New York, NY
until 6/95)
Kallis, John H. Vice President State Street Research Financial Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Director and President K&G Enterprises Washington, D.C.
Kasper, M. Katherine None
Vice President
C-9
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Vice President
Kobrick, Frederick R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice Vice President State Street Research Capital Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Member Harvard Business School Association Cambridge, MA
Member National Alumni Council, Boston University Boston, MA
Leary, Eileen M. None
Vice President
Lintz, Carol None
Vice President
McNamara, III, Francis J. Senior Vice President, Clerk State Street Research Investment Services, Inc. Boston, MA
Senior Vice President, and General Counsel
Secretary and Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
General Counsel Secretary and General Counsel State Street Research Capital Trust Boston, MA
Secretary and General Counsel State Street Research Exchange Trust Boston, MA
Secretary and General Counsel State Street Research Growth Trust Boston, MA
Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel State Street Research Equity Trust Boston, MA
Secretary and General Counsel State Street Research Financial Trust Boston, MA
Secretary and General Counsel State Street Research Income Trust Boston, MA
Secretary and General Counsel State Street Research Money Market Trust Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
Clerk and Director State Street Research Energy, Inc. Boston, MA
Senior Vice President, General The Boston Company, Inc. Boston, MA
Counsel and Assistant Secretary
(until 5/95)
Senior Vice President, General Boston Safe Deposit and Trust Company Boston, MA
Counsel and Assistant Secretary
(until 5/95)
Senior Vice President, General The Boston Company Advisors, Inc. Boston, MA
Counsel and Assistant Secretary
(until 5/95)
C-10
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Maus, Gerard P. Treasurer State Street Research Equity Trust Boston, MA
Director, Executive Treasurer State Street Research Financial Trust Boston, MA
Vice President Treasurer State Street Research Income Trust Boston, MA
and Treasurer Treasurer State Street Research Money Market Trust Boston, MA
Treasurer State Street Research Tax-Exempt Trust Boston, MA
Treasurer State Street Research Capital Trust Boston, MA
Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Treasurer and Chief Financial Officer
Director and Treasurer State Street Research Energy, Inc. Boston, MA
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Director GFM International Investors, Ltd. London, England
(until 11/94)
Treasurer and Chief Financial SSRM Holdings, Inc. Boston, MA
Officer
Treasurer MetLife Securities, Inc. New York, NY
Milder, Judith J. None
Senior Vice President
(Vice President
until 6/95)
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Moore, Jr., Thomas P. Director Hibernia Savings Bank Quincy, MA
Senior Vice Vice President State Street Research Capital Trust Boston, MA
President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Mulligan, JoAnne C. Vice President State Street Research Money Market Trust Boston, MA
Vice President
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
C-11
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Pannell, James C. None
Vice President
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
(Vice President
until 7/94)
Pluckhahn, Charles W. None
Vice President
Ragsdale, Easton Senior Vice President Kidder, Peabody, & Co. Incorporated New York, NY
Vice President (until 12/94)
Rawlins, Jeffrey A. None
Vice President
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Richards, Scott None
Vice President
Romich, Douglas A. Assistant Treasurer State Street Research Equity Trust Boston, MA
Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Controller State Street Research Portfolios, Inc. New York, NY
Row, III, Walter A. None
Vice President
C-12
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Schrage, Michael None
Vice President
Schultz, David C. Director (non-voting) Capital Trust, S.A. Luxembourg
Executive Vice Director Alex Brown Capital, Ltd. Hamilton, Bermuda
President
(Senior Vice President Director and Treasurer Mafraq Hospital Association Mafraq, Jordan
until 12/94, Vice Member Association of Investment
President until Management Sales Executives Atlanta, GA
4/94) Member, Investment Committee Lexington Christian Academy Lexington, MA
Shaver, Jr. C. Troy President and Chief Executive State Street Research Investment Services, Inc. Boston, MA
Executive Vice Officer
President President and Chief Executive John Hancock Funds, Inc. Boston, MA
Officer (until 1/96)
Shean, William G. None
Vice President
Shively, Thomas A. Vice President State Street Research Financial Trust Boston, MA
Director and Vice President State Street Research Money Market Trust Boston, MA
Executive Vice Vice President State Street Research Tax-Exempt Trust
President Director State Street Research Investment Services, Inc Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Shoemaker, Richard D. None
Senior Vice President
(Vice President
until 8/93)
Strelow, Dan R. None
Senior Vice President
Stuka, Paul U.S. Portfolio Consultant Teton Partners Boston, MA
Senior Vice President (until 4/95)
C-13
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Swanson, Amy McDermott None
Senior Vice President
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
(Vice President
until 6/95)
Verni, Ralph F. Chairman, President, Chief State Street Research Capital Trust Boston, MA
Chairman, President, Executive Officer and Trustee
Chief Executive Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Growth Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Master Investment Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Securities Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Equity Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Financial Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Income Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Money Market Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Tax-Exempt Trust Boston, MA
Executive Officer and Trustee
Chairman and Director State Street Research Investment Services, Inc. Boston, MA
(President and Chief Executive
Officer until 2/96)
President and Director State Street Research Energy, Inc. Boston, MA
Chairman and Director Metric Holdings, Inc. San Francisco, CA
Director and Officer Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Chairman of the Board and Director MetLife Securities, Inc. New York, NY
Chairman and Director (until 11/94) GFM International Investors, Ltd. London, England
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director CML Group, Inc. Boston, MA
C-14
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wade, Dudley Vice President State Street Research Growth Trust Boston, MA
Freeman Vice President State Street Research Master Investment Trust Boston, MA
Senior Vice
President
Wallace, Julie K. None
Vice President
Ward, Geoffrey None
Senior Vice President
Weiss, James M. Chief Investment Officer IDS Equity Advisory Group, Inc. Minneapolis, MN
Senior Vice President (until 12/95)
Westvold, President and Director Bondurant, Inc. Medfield, MA
Elizabeth McCombs (until 2/94)
Vice President
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Vice President, Asst. Clerk (Vice President
Assistant Secretary until 6/95)
and Assistant Assistant Secretary State Street Research Capital Trust Boston, MA
General Counsel Assistant Secretary State Street Research Exchange Trust Boston, MA
Assistant Secretary State Street Research Growth Trust Boston, MA
Assistant Secretary State Street Research Master Investment Trust Boston, MA
Assistant Secretary State Street Research Securities Trust Boston, MA
Assistant Secretary State Street Research Equity Trust Boston, MA
Assistant Secretary State Street Research Financial Trust Boston, MA
Assistant Secretary State Street Research Income Trust Boston, MA
Assistant Secretary State Street Research Money Market Trust Boston, MA
Assistant Secretary State Street Research Tax-Exempt Trust Boston, MA
Assistant Secretary SSRM Holdings, Inc. Boston, MA
Woodbury, Robert S. Employee Metropolitan Life Insurance Company New York, NY
Vice President
Woodworth, Jr., Kennard Vice President State Street Research Exchange Trust Boston, MA
Senior Vice Vice President State Street Research Growth Trust Boston, MA
President (until 2/96)
C-15
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
(Vice President
until 8/93)
Yogg, Michael Richard Vice President State Street Research Financial Trust Boston, MA
Senior Vice Vice President State Street Research Income Trust Boston, MA
President
</TABLE>
C-16
<PAGE>
Item 29. Principal Underwriters
(a) State Street Research Investment Services, Inc. serves as principal
underwriter for State Street Research Equity Trust, State Street Research
Financial Trust, State Street Research Income Trust, State Street Research Money
Market Trust, State Street Research Tax-Exempt Trust, State Street Research
Capital Trust, State Street Research Master Investment Trust,
State Street Research Growth Trust, State Street Research Securities Trust and
State Street Research Portfolios, Inc.
(b) Directors and Officers of State Street Research Investment Services,
Inc. are as follows:
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------------
<S> <C> <C>
Ralph F. Verni Chairman of the Chairman of the
One Financial Center Board Board, President,
Boston, MA 02111 and Director Chief Executive Officer and
Trustee
C. Troy Shaver, Jr. President and None
One Financial Center Chief Executive
Boston, MA 02111 Officer
Peter C. Bennett Director None
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice Treasurer
One Financial Center President, Treasurer,
Boston, MA 02111 Chief Financial
Officer and Director
Thomas A. Shively Director None
One Financial Center
Boston, MA 02111
Dennis C. Barghann Senior Vice President None
One Financial Center
Boston, MA 02111
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-17
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------------
<S> <C> <C>
Paul V. Daly Senior Vice None
One Financial Center President
Boston, MA 02111
Susan M.W. DiFazio Senior Vice None
One Financial Center President
Boston, MA 02111
Gordon Evans Senior Vice None
One Financial Center President
Boston, MA 02111
Robert Haeusler Senior Vice None
One Financial Center President
Boston, MA 02111
Francis J. McNamara, III Senior Vice Secretary
One Financial Center President and Clerk
Boston, MA 02111
Gregory R. McMahan Senior None
One Financial Center Vice President
Boston, MA 02111
Joan D. Miller Senior None
One Financial Center Vice President
Boston, MA 02111
Richard P. Samartin Senior Vice None
One Financial Center President
Boston, MA 02111
Darman A. Wing Senior Vice Assistant Secretary
One Financial Center President and
Boston, MA 02111 Assistant Clerk
Linda Grasso Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-18
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------------
<S> <C> <C>
Frederick H. Jamieson Vice President None
One Financial Center and Assistant
Boston, MA 02111 Treasurer
</TABLE>
C-19
<PAGE>
Item 30. Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
(a) Inapplicable.
(b) Inapplicable.
(c) The Registrant has elected to include the information required by Item
5A of Form N-1A in its annual report to shareholders. The Registrant undertakes
to furnish each person to whom a prospectus is delivered with a copy of the
applicable fund's latest annual report to shareholders upon request and without
charge.
(d) The Registrant undertakes to hold a special meeting of shareholders for
the purpose of voting upon the question of removal of any trustee or trustees
when requested in writing to do so by the record holders of not less than 10 per
centum of the outstanding shares of the Registrant, and, in connection with such
meeting, to comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 relating to shareholder communications.
C-20
<PAGE>
Notice
A copy of the Master Trust Agreement of the Registrant is on file with the
Secretary of State of the Commonwealth of Massachusetts and notice is hereby
given that the obligations of the Registrant hereunder, and the authorization,
execution and delivery of this amendment to the Registrant's Registration
Statement, shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Registrant as individuals or
personally, but shall bind only the property of the Funds of the Registrant, as
provided in the Master Trust Agreement. Each Fund of the Registrant shall be
solely and exclusively responsible for all of its direct or indirect debts,
liabilities and obligations, and no other Fund shall be responsible for the
same.
C-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 16 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Boston and the Commonwealth of Massachusetts on the 31st day of May, 1996.
STATE STREET RESEARCH
INCOME TRUST
By *
--------------------------------
Ralph F. Verni
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed on the
above date by the following persons in the capacities indicated:
Signature Capacity
* Trustee and Chief
- ------------------------- Executive Officer
Ralph F. Verni (principal executive
officer)
* Treasurer
- ------------------------- (principal financial
Gerard P. Maus and accounting officer)
* Trustee
- -------------------------
Edward M. Lamont
* Trustee
- -------------------------
Robert A. Lawrence
C-22
<PAGE>
* Trustee
- -------------------------
Dean O. Morton
* Trustee
- -------------------------
Thomas L. Phillips
* Trustee
- -------------------------
Toby Rosenblatt
* Trustee
- -------------------------
Michael S. Scott Morton
* Trustee
- -------------------------
Jeptha H. Wade
*By: /s/ Francis J. McNamara, III
-----------------------------
Francis J. McNamara, III
Attorney-in-Fact under
Powers of Attorney
filed July 31, 1995.
C-23
<PAGE>
1933 Act Registration No. 33-2697
1940 Act File No. 811-4559
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT [ ]
OF 1933
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 16 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ ]
Amendment No. 17 [X]
--------------------
STATE STREET RESEARCH INCOME TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
--------------------
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(1)(b) Amendment No. 2 to First Amended and Restated Master
Trust Agreement
(1)(c) Amendment No. 3 to First Amended and Restated Master
Trust Agreement
(1)(d) Form of Amendment No. 4 to First Amended and Restated
Master Trust Agreement
(6)(b) Form of Selected Dealer Agreement, as Supplemented
(11) Consent of Price Waterhouse LLP
(14)(a) State Street Research IRA: Disclosure Statement,
Forms Booklet and Transfer of Assets/Direct
Rollover Form
(14)(b) State Street Research 403(b): Brochure, Account
Agreement, Maximum Salary Reduction Agreement,
Account Application, Salary Reduction Agreement
and Direct Rollover of Assets Form
(17) First Amended and Restated Multiple Class Expense
Allocation Plan
(27) Financial Data Schedules
Exhibit (1)(b)
METLIFE - STATE STREET INCOME TRUST
Amendment No. 2
to
First Amended and Restated Master Trust Agreement
INSTRUMENT OF AMENDMENT
Pursuant to Article I, Section 1.1, Article IV, Sections 4.1 and 4.2 and
Article VII, Section 7.3 of the First Amended and Restated Master Trust
Agreement of MetLife - State Street Income Trust (the "Trust") dated June 1,
1993 (the "Master Trust Agreement"), as heretofore amended, the Master Trust
Agreement is hereby amended to change the name of the Trust to "State Street
Research Income Trust" and to change the name of the Sub-Trusts established and
currently designated under the Trust as "MetLife - State Street Research High
Income Fund to "State Street Research High Income Fund" and as "MetLife - State
Street Research Managed Assets" to "State Street Research Managed Assets."
This Amendment shall be effective as of August 1, 1995.
IN WITNESS WHEREOF, the undersigned officer of the Trust hereby adopts the
foregoing on behalf of the Trust pursuant to authorization by the Trustees of
the Trust.
/s/ Francis J. McNamara, III
----------------------------
Francis J. McNamara, III
Secretary
Exhibit (1)(c)
STATE STREET RESEARCH INCOME TRUST
Amendment No. 3
to
First Amended and Restated Master Trust Agreement
INSTRUMENT OF AMENDMENT
Pursuant to Article VII, Section 7.3 and Article IV, Section 4.1 of the
First Amended and Restated Master Trust Agreement (the "Master Trust Agreement")
of State Street Research Income Trust (the "Trust") dated June 1, 1993, as
heretofore amended, the following action is taken:
The first sentence of the first paragraph of Section 4.2 of Article IV of
the Master Trust Agreement is hereby amended to read as follows:
"Section 4.2 Establishment and Designation of Sub-Trusts.
Without limiting the authority of the Trustees set forth in
Section 4.1 to establish and designate any further Sub-Trusts,
the Trustees hereby establish and designate two Sub-Trusts: The
'State Street Research High Income Fund' and 'State Street
Research Managed Assets.'"
This Amendment shall operate to abolish State Street Research Government
Securities Fund and shall be effective as of April 30, 1996.
IN WITNESS WHEREOF, the undersigned Trustees of the Trust hereby adopt the
foregoing on behalf of the Trust pursuant to Article IV, Section 4.1.
/s/Edward M. Lamont /s/Toby Rosenblatt
- ------------------------------- -----------------------------
Edward M. Lamont Toby Rosenblatt
/s/Robert A. Lawrence /s/Michael S. Scott Morton
- ------------------------------- -----------------------------
Robert A. Lawrence Michael S. Scott Morton
/s/Dean O. Morton /s/Ralph F. Verni
- ------------------------------- -----------------------------
Dean O. Morton Ralph F. Verni
/s/Thomas L. Phillips /s/Jeptha H. Wade
- ------------------------------- -----------------------------
Thomas L. Phillips Jeptha H. Wade
Exhibit (1)(d)
STATE STREET RESEARCH INCOME TRUST
Amendment No. 4
to
First Amended and Restated Master Trust Agreement
INSTRUMENT OF AMENDMENT
Pursuant to Article VII, Section 7.3 of the First Amended and Restated
Master Trust Agreement of the State Street Research Income Trust (the "Trust")
dated June 1, 1993 ("Master Trust Agreement"), as heretofore amended, the
following actions are taken:
The last sentence of Article IV, Section 4.2(d) of the Master Trust
Agreement is hereby amended to read as follows:
"The liquidation of any particular Sub-Trust or class thereof may be
authorized by vote of a majority of the Trustees then in office without
the approval of shareholders of such Sub-Trust."
Section 5.3 of Article V of the Master Trust Agreement is revised in its
entirety to read as follows:
"Section 5.3 Record Dates. For the purpose of determining the Shareholders
who are entitled to vote or act at any meeting or any adjournment thereof,
or who are entitled to participate in any dividend or distribution, or for
the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may
determine; or without closing the transfer books the Trustees may fix a
reasonable date and time prior to the date of any meeting of Shareholders
or other action as the date and time of record for the determination of
Shareholders entitled to vote at such meeting or any adjournment thereof
or to be treated as a Shareholder of record for purposes of such other
action, even though he has since that date and time disposed of his
Shares, and no Shareholder becoming such after that date and time shall be
so entitled to vote at such meeting or any adjournment thereof or to be
treated as a Shareholder of record for purposes of such other action."
Section 7.2 of Article VII of the Master Trust Agreement is revised
in its entirety to read as follows:
"Section 7.2 Reorganization. The Trust, or any one or more Sub-Trusts,
may, either as the successor, survivor, or non-survivor, (1) consolidate
or merge with one or more other trusts, sub-trusts, partnerships,
associations or corporations organized under the laws of the Commonwealth
of Massachusetts or any other state of the United States, to form a
consolidated or merged trust, sub-trust, partnership, limited liability
company, association or corporation under the laws of which any one of the
constituent entities is organized, with the Trust or Sub-Trust to be the
survivor or non-survivor of such consolidation or merger or (2) transfer a
substantial portion of its assets to one or more other trusts, sub-trusts,
partnerships, limited liability companies, associations or corporations
organized under the laws of the Commonwealth of Massachusetts or any other
state of the United States, or have one or more such trusts, sub-trusts,
partnerships, limited liability companies, associations or corporations
transfer a substantial portion of its assets to it, any such
consolidation, merger or transfer to be upon such terms and conditions as
are specified in an agreement and plan of reorganization authorized and
approved by the Trustees and entered into by the Trust, or one or more
Sub-Trusts, as the case may be, in connection therewith. Any such
consolidation, merger or transfer may be authorized by vote of a majority
of the Trustees then in office without the approval of shareholders of any
Sub-Trust."
This Amendment shall be effective as of _____________, 1996.
IN WITNESS WHEREOF, the undersigned officer of the Trust hereby adopts the
foregoing on behalf of the Trust pursuant to authorization by the Trustees of
the Trust.
------------------------------
Francis J. McNamara, III
Secretary
Exhibit (6)(b)
SELECTED DEALER AGREEMENT
Boston, Massachusetts
Effective Date: __________
Dealer Name:
---------------------------------------
Address:
---------------------------------------
---------------------------------------
Attn:
---------------------------------------
Ladies and Gentlemen:
We have been appointed to serve as an agent and principal underwriter as
defined in the Investment Company Act of 1940 (the "1940 Act") for the purpose
of selling and distributing shares (the "Shares") of each of the portfolio
series as specified from time to time, of certain investment companies,
including, but not limited to, the MetLife - State Street trusts, the State
Street trusts and MetLife Portfolios, Inc. Hereinafter the specified portfolio
series shall be denoted individually as a "Fund" and collectively as the
"Funds", and the investment companies shall be denoted individually as an
"Investment Company" and collectively as the "Investment Companies" for purposes
of this Agreement.
We are hereby inviting you, as a selected dealer and subject to the terms
and conditions set forth below, to make available to your customers Shares of
the Funds. By your acceptance hereof, you agree that you shall exercise your
best efforts to find purchasers for the Shares, shall purchase Shares only from
us or from your customers, and shall act only as agent for your customers or
dealer for your own account, with no authority to act as agent for the Funds,
for us or for any other dealer in any respect.
1. Acceptance of Orders. Orders received from you will be accepted only at
the public offering price (as defined below in Section 2) applicable to each
order. You agree to place orders for Shares immediately upon the receipt of, and
in the same amount as, orders from your customers. We will not accept a
conditional order from you on any basis. All orders are subject to our receipt
of Shares from the Investment Company and to acceptance and confirmation of such
<PAGE>
orders by us and by the Investment Company. The procedures relating to the
handling of orders shall be subject to instructions which we shall provide from
time to time to you. We and the Investment Companies reserve the right in our
sole discretion to reject any order.
2. Public Offering Price and Sales Charge. The public offering price shall
be the net asset value per Share plus any sales charge payable upon the purchase
of Shares of such Fund or class thereof as described in the then current
prospectus applicable to such Shares, as amended and in effect from time to time
(the "Prospectus"). The public offering price may reflect scheduled variations
in, or the elimination of, the sales charge on sales of the Shares either
generally to the public or in connection with special purchase plans, as
described in the Prospectus and related Statement of Additional Information. You
agree that you will apply any scheduled variation in, or elimination of, the
sales charge uniformly to all offerees in the class specified in the Prospectus.
The sales charge applicable to any sale of Shares by you and the dealer
concession or commission applicable to any order from you for the purchase of
Shares accepted by us shall be as set forth in the applicable Prospectus and
related Statement of Additional Information. You agree that you will not combine
customer orders to reach breakpoints in commissions for any purpose unless
authorized by the Prospectus or by us in writing. All commissions and
concessions are subject to change without notice by us.
3. 12b-1 Plans.
(a) As consideration for your providing distribution and marketing
services in the promotion of the sale of Shares of certain Funds or classes
thereof which have adopted Distribution Plans pursuant to Rule 12b-1 under the
1940 Act, and for providing personal services to and/or the maintenance of the
accounts of, your customers who invest in and own such Shares, we shall pay you
such fee, if any, as is described in the applicable Prospectus and otherwise
established by us from time to time on Shares which are owned of record by your
firm as nominee for your customers or which are owned by those customers of your
firm whose records, as maintained by such Fund or its agent, designate your firm
as the customer's dealer of record. Any fee payable hereunder shall be computed
and accrued daily and for each month shall be based on average daily net asset
value of the relevant Shares which remain outstanding during such month. No such
fee will be paid to you with respect to Shares redeemed or repurchased by such
Fund within seven business days after the date of our confirmation of such
purchase. No such fee will be paid to you with respect to any of your customers
2
<PAGE>
if the amount of such fee based upon the value of such customer's Shares will be
less than $1.00.
(b) The provisions of this Paragraph 3 may be terminated with respect to
any Fund or class thereof in accordance with the provisions of Rule 12b-1 under
the 1940 Act or the rules of the National Association of Securities Dealers,
Inc. (the "NASD") and thereafter no such fee will be paid to you.
(c) Consistent with NASD policies as amended or interpreted from time to
time (i) you waive payment of amounts due from us which are funded by fees we
receive under such Distribution Plans until we are in receipt of the fees on the
relevant shares of a Fund, and (ii) our liability for amounts payable to you is
limited solely to the proceeds of the fees receivable to us on the relevant
shares.
4. Payment for Shares. Payment for Shares sold through you shall be made on
or before the settlement date specified in the applicable confirmation, at the
office of our clearing agent, and by your check payable to the order of such
Fund or, if applicable, by Federal Funds wire for credit to such Fund, in any
case in accordance with the procedures and conditions described in the
applicable Prospectus. Each Fund reserves the right to delay issuance or
transfer of Shares until such check has cleared. If such payment is not received
by us, we reserve the right, without notice, forthwith to cancel the sale.
Unless other instructions are received by us on or before the settlement date,
orders accepted by us may be placed in an Open Account in your name. If such
payment or instruments are not timely received by us, we may hold you
responsible for any expense or loss, including loss of profit, suffered by us or
by such Fund resulting from your failure to make payment as aforesaid.
5. Redemption and Repurchase of Shares. If any of the Shares sold through
you hereunder are redeemed by such Fund or repurchased by us as agent for such
Fund within seven business days after confirmation of the original purchase, it
is agreed that you shall forfeit your right to the entire dealer concession and
related commission, if any, received by you on such Shares. We will notify you
of any such repurchase or redemption within ten business days from the date
thereof and you shall forthwith refund to us the entire concession and
commission, if any, received by you on such sale. We agree, in the event of any
such repurchase or redemption, to refund to such Fund our share of the sales
charge retained by us, if any, and upon receipt from you of the refund of the
concession allowed to you, to pay such refund forthwith to such Fund.
3
<PAGE>
If you purchase Shares from any customer in connection with repurchase
arrangements offered by an Investment Company, you agree to pay such customer
not less than the applicable repurchase price as established by the Prospectus.
If you act as agent for your customer in selling Shares to us or a Fund, you
agree not to charge your customer more than a fair commission for handling the
transaction. Any order placed by you for the repurchase of Shares of a Fund is
subject to the timely receipt by the Fund's transfer agent of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation, in which
case you agree to be responsible for any loss resulting to the Fund or to us
from such cancellation.
6. Manner of Offering.
(a) No person is authorized to make any representations concerning
Shares except those contained in the applicable Prospectus, in the related
Statement of Additional Information and in any then current sales literature or
other material issued by us supplemental to such Prospectus, which sales
literature or other material is used in conformity with applicable rules or
conditions. All offerings of Shares by you shall be subject to the conditions
set forth in the applicable Prospectus (including the condition relating to
minimum purchases) and to the terms and conditions herein set forth. We will
furnish additional copies of the Prospectuses and such sales literature and
other material issued by us in reasonable quantities upon request. You will
provide all customers with the applicable Prospectus prior to or at the time
such customer purchases Shares and will forward promptly to us any customer
request for a copy of the applicable Statement of Additional Information. Sales
and exchanges of Shares may only be made in those states and jurisdictions where
the Shares are registered or qualified for sale to the public. We agree to
advise you currently of the identity of those states and jurisdictions in which
the Shares are registered or qualified for sale, and you agree to indemnify us
and/or the Funds for any claim, liability, expense or loss in any way arising
out of a sale of Shares in any state or jurisdiction in which such Shares are
not so registered or qualified.
(b) You agree to conform to any compliance or offering standards that we
may establish from time to time, including without limitation standards as to
when classes of Shares may appropriately be sold to particular investors.
4
<PAGE>
7. NASD Matters. This Agreement is conditioned upon your representation and
warranty that you are a member of the NASD or, in the alternative, that you are
a foreign dealer not eligible for membership in the NASD. You and we agree to
abide by the Rules and Regulations of the NASD, including Rule 26 of its Rules
of Fair Practice, and all applicable federal, state, and foreign laws, rules and
regulations.
8. Rejection of Orders. We shall have the right to accept or reject orders
for the purchase of Shares of any Fund. It is understood that for the purposes
hereof no Share shall be considered to have been sold by you and no compensation
will be payable to you with respect to any subscription for Shares which is
rejected by us or an Investment Company. Any consideration which you may receive
in connection with a rejected purchase order will be returned promptly.
Confirmations of all accepted purchase orders will be transmitted by the
Transfer Agent for the applicable Fund or class thereof to the investor or to
you, if authorized.
9. Status of Soliciting Dealer. Nothing herein shall make you a partner
with us or render our relationship an association. You are responsible for your
own conduct, for the employment, control and conduct of your employees and
agents and for injury to such employees or agents or to others through such
employees or agents. You assume full responsibility for your employees and
agents under applicable laws and agree to pay all employer taxes relating
thereto.
10. No Liability. As distributor of the Shares, we shall have full
authority to take such action as we may deem advisable in respect of all matters
pertaining to the distribution of such Shares. We shall not be under any
liability to you, except for lack of good faith and for obligations expressly
assumed by us in this Agreement; provided, however, that nothing in this
sentence shall be deemed to relieve any of us from any liability imposed by the
Securities Act of 1933, as amended.
11. Term of Contract; Amendment; Termination. This Agreement shall become
effective on the date hereof. We and each Fund reserve the right, in our
discretion upon notice to you, to amend, modify or terminate this Agreement at
any time, to change any sales charges, commissions, concessions and other fees
described in the applicable Prospectus or to suspend sales or withdraw the
offering of Shares of any Fund or class of Shares thereof entirely. You agree
that any order to purchase Shares placed by you after notice of any amendment to
this Agreement has been sent to you shall constitute your agreement to such
amendment.
5
<PAGE>
12. Miscellaneous. This Agreement supersedes any and all prior agreements
between us. All communications to us should be sent to the above address. Any
notice to you shall be duly given if mailed or telefacsimiled to you at the
address specified by you above. This Agreement shall be effective when accepted
by you below and shall be construed under the laws of the Commonwealth of
Massachusetts.
The following provision, as marked, applies to this agreement.
|_| This document constitutes an amendment to and restatement of the Selected
Dealer Agreement currently in effect between you and us.
|_| Please confirm your agreement hereto by signing and returning the enclosed
counterpart of this Agreement at once to: State Street Research Investment
Services, Inc., One Financial Center, Boston, Massachusetts 02111,
Attention: President. Upon receipt thereof, this Agreement and such signed
duplicate copy will evidence the agreement between us as of the date
indicated.
State Street Research
Investment Services, Inc.
(Distributor)
By:
-----------------------
ACCEPTED:
[ ]
(Selected Dealer)
By:
----------------------------
6
<PAGE>
SUPPLEMENT NO. 1 TO
SELECTED DEALER AGREEMENT
Boston, Massachusetts
Effective Date: ---------------
Dealer Name: _____________________________________
Address: _____________________________________
-------------------------------------
Attn: _____________________________________
Ladies and Gentlemen:
This Agreement amends and supplements the Selected Dealer Agreement
between you and us, as in effect from time to time (the "Selected Dealer
Agreement"). All of the terms and provisions of the Selected Dealer Agreement
remain in full force and effect, and this Agreement and the Selected Dealer
Agreement shall be construed and interpreted as one Agreement, provided that in
the event of any inconsistency between this Agreement and the Selected Dealer
Agreement, the terms and provisions of this Agreement shall control. Capitalized
terms used in this Agreement and not defined herein are used as defined in the
Selected Dealer Agreement.
We understand that you wish to use Shares of the Funds in managed
fee-based programs in which you participate (the "Fee-Based Program"), and that
you wish to afford investors participating in such programs the opportunity to
qualify for the ability to purchase shares of the Funds at net asset value. We
are willing to allow you to purchase Shares of the Funds for sale to investors
participating in the Fee-Based Program on such basis, subject to the terms and
conditions of this Agreement and the Selected Dealer Agreement.
<PAGE>
1. Sale of Shares through Fee-Based Program
You may, in connection with the Fee-Based Program, sell shares of any
Funds made available by us, from time to time, at net asset value to investors
participating in a bona fide Fee-Based Program. You will receive no discount,
commission or other concession with respect to any such sale, but will be
entitled to receive any service fees otherwise payable with respect thereto to
the extent provided from time to time in the applicable Funds' Prospectuses and
in the Dealer Agreement. We will, after consulting with you, determine, from
time to time, which Funds we will make available to you for use in the Fee-Based
Program. You agree that Shares will not be made available through the Fee-Based
Program for the sole purpose of enabling evasion of sales charges.
2. Eligibility of Fee-Based Program
We reserve the right to establish basic eligibility requirements from time
to time for the sale of Fund shares under your programs, relating to the minimum
aggregate amount of your clients' assets invested in the Funds, management fees
you charge on such assets, regulatory requirements, and/or similar matters. You
shall send to us upon request from time to time the then-current standard fee
schedule for the applicable Fee-Based Program and a copy of the applicable
Schedule H to the Form ADV containing the required disclosures relating to the
Fee-Based Program, or any successor required disclosures. Any brochures, written
materials or advertising relating to the Fee-Based Program may refer to the
Funds as available at net asset value if the fees and expenses of the Fee-Based
Program are given at least equal prominence. In connection with explaining the
fees and expenses of the Fee-Based Program, your representatives may describe to
customers the option of purchasing Fund shares through such Program at net asset
value.
3. Undertakings
You will (i) provide us with continuous reasonable access to your offices,
representatives and mutual fund and Fee-Based Program sales support personnel,
(ii) include descriptions of all Funds offered through the Fee-Based Program in
internal sales materials and electronic information displays used in conjunction
with the Fee-Based Program, (iii) use reasonable efforts to motivate your
representatives to recommend suitable Funds for clients of the Fee-Based
Program, and (iv) include the Funds on any approved, preferred or other similar
list of mutual fund products offered through the Fee-Based Program.
4. Customer Accounts
You may maintain with the Funds' shareholder servicing agent either (i)
one or more omnibus accounts solely for the participants in the applicable
Fee-Based Program or (ii) separate accounts for each participant in the
applicable Fee-Based Program. If one or more omnibus accounts are maintained,
you shall, among other things, be responsible for forwarding proxies, annual and
semi-annual reports and other materials to each beneficial owner in a timely
manner.
<PAGE>
5. Applicable Law
This Agreement shall be governed by and construed and interpreted in
accordance with the internal laws of The Commonwealth of Massachusetts.
6. Disclaimer and Indemnity
We are not endorsing, recommending and are not otherwise involved in
providing any investment product of yours, including but not limited to any
Fee-Based Program. We are merely affording you the opportunity to use shares of
the Funds as an investment medium for the applicable Fee-Based Program. You
acknowledge and agree that you are solely responsible for any such Fee-Based
Program and you agree to indemnify, defend and hold harmless us, the Funds and
our and their affiliates, directors, trustees, officers, employees and agents
from and against any claims, losses, damages or costs (including attorneys'
fees) arising from or related to such Fee-Based Program, including without
limitation any brochures, written materials or advertising in any form that
refers to the Funds or the Fee-Based Program.
7. Miscellaneous
This Agreement is not exclusive and shall terminate automatically upon
termination of the Selected Dealer Agreement. We reserve the right, in our
discretion upon notice to you, to amend, modify or terminate this Agreement at
any time. You agree that any order to purchase Shares placed by you after notice
of any amendment to this Agreement has been sent to you shall constitute your
agreement to such amendment.
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By: _______________________________
Name:
Title:
Accepted:
----------------------------------
Name of Dealer
By: __________________________________
Name:
Title:
<PAGE>
Eligibility Requirements
for
Fee-Based Programs
Dealers with Fee-Based Programs for the purchase of shares of the State
Street Research Funds, are subject to satisfaction of any one of the following
eligibility conditions:
1. The effective annual management fee charged on the assets invested
under the Fee-Based Program may not exceed 2.50%, or be less than
0.50%, of average net assets.
or
2. After the first year, the assets invested under the Dealer's Fee
Based Programs in the aggregate must be not less than $250,000.
These conditions are subject to change by State Street Research Investment
Services, Inc. at any time upon notice to the Dealer.
Exhibit (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statements of Additional Information
constituting part of this Post-Effective Amendment No. 16 to the registration
statement (No. 33-2697) on Form N-1A (the "Registration Statement") of our
reports dated May 10, 1996 relating to the financial statements and financial
highlights of State Street Research High Income Fund and State Street Research
Managed Assets (each a series of State Street Research Income Trust), which
appear in such Statements of Additional Information and to the incorporation by
reference of our reports into the Prospectuses which constitute part of this
Registration Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statements of Additional Information and to
the reference to us under the heading "Financial Highlights" in such
Prospectuses.
/s/ Price Waterhouse LLP
- --------------------------------
Price Waterhouse LLP
Boston, Massachusetts
May 30, 1996
Exhibit (14)(a)
[LOGO] STATE STREET RESEARCH
[LOGO]
STATE STREET RESEARCH
IRA
Forms Booklet
o o o o o o o o o o o o o o o o o o o
This IRA Forms Booklet includes:
o Terms and Conditions
o Application
o Lump Sum Profile
o Distribution Form
o Pre-59 1/2 Distribution
Information Request Form
<PAGE>
Just about everything you will need to open an IRA at
State Street Research is included in this Forms Booklet.
- --------------------------------------------------------------------------------
Terms and Conditions
- --------------------------------------------------------------------------------
This legal document explains the provisions of your Individual Retirement
Account.
- --------------------------------------------------------------------------------
IRA Application
- --------------------------------------------------------------------------------
This application allows you or your investment representative to open all types
of IRAs, including:
o Regular/accumulation IRAs (you can make contributions to it each year).
o Rollover IRAs (you can move money from another qualified retirement
plan--such as a former employer's 401(k) plan--into an IRA at State Street
Research.) You will also need to complete the Transfer of Assets/Direct
Rollover Form.
o Transfer of assets IRAs (you can transfer money from an IRA somewhere else
to an IRA at State Street Research.) You will also need to complete the
Transfer of Assets/Direct Rollover Form.
- --------------------------------------------------------------------------------
Lump Sum Profile
- --------------------------------------------------------------------------------
You or your investment representative may fill out this form to request a
personalized, hypothetical illustration based on a lump-sum distribution from a
qualified retirement plan.
- --------------------------------------------------------------------------------
Distribution Form
- --------------------------------------------------------------------------------
When it's time to withdraw money from your IRA, this is the form to use. Among
other things, the form allows you to withdraw all of your money, set up a
Systematic Withdrawal Plan, or begin "required minimum distributions."
Before you begin withdrawals from your IRA, please consult your tax adviser
to determine whether any tax penalties apply to you. Also, don't forget that a
contingent deferred sales charge may apply to distributions. If you plan to
direct your distributions to an address besides your address of record--a bank
account or a State Street Research mutual fund, for instance--you will need a
signature guarantee.
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Pre-59 1/2 Distribution Information Request Form
- --------------------------------------------------------------------------------
In certain cases, it may be possible to receive distributions from your IRA
before you reach age 59 1/2--without paying a tax penalty. This form lets you
request additional information. Before you begin withdrawals from your IRA,
please consult your tax adviser to determine whether any tax penalties apply to
you.
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Transfer of Assets/Direct Rollover Form
- --------------------------------------------------------------------------------
(not included in the Forms Booklet)
Fill out this form to move money to State Street Research from an IRA at another
company (transfer of assets), or from your employee retirement plan (direct
rollover). Send us a completed Transfer of Assets/Direct Rollover Form and a
completed IRA Application, and we'll do the rest.
If you have any questions, please contact your investment representative,
or call us at 1-800-562-0032.
<PAGE>
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[LOGO] State Street Research IRA
Terms & Conditions
- --------------------------------------------------------------------------------
These Terms and Conditions are in the form promulgated by the Internal Revenue
Service in Form 5305 for use in establishing an individual retirement trust
account.
ARTICLE I.
The Trustee may accept additional cash contributions on behalf of the Grantor
for a tax year of the Grantor. The total cash contributions are limited to
$2,000 for the tax year unless the contribution is a rollover contribution
described in section 402(c) (but only after December 31, 1992), 403(a)(4),
403(b)(8), 408(d)(3), or an employer contribution to a simplified employee
pension plan as described in section 408(k). Rollover contributions before
January 1, 1993, include rollovers described in section 402(a)(5), 402(a)(6),
402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a
simplified employee pension plan as described in section 408(k).
ARTICLE II.
The Grantor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III.
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state.
ARTICLE IV.
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Grantor's interest in the custodial account shall be made in
accordance with the following requirements and shall otherwise comply with
section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are herein incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Grantor under paragraph 3, or to the surviving spouse under paragraph 4,
other than in the case of life annuity, life expectancies shall be recalculated
annually. Such election shall be irrevocable as to the Grantor and the surviving
spouse and shall apply to all subsequent years. The life expectancy of a
nonspouse beneficiary may not be recalculated.
3. The Grantor's entire interest in the custodial account must be, or begin to
be, distributed by the Grantor's required beginning date (April 1 following the
calendar year end in which the Grantor reaches age 70 1/2). By that date, the
Grantor may elect, in a manner acceptable to the Trustee, to have the balance in
the custodial account distributed in:
(a) A single sum payment
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Grantor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Grantor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period that
may not be longer than the Grantor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period that
may not be longer than the joint life and last survivor expectancy of the
Grantor and his or her designated beneficiary.
4. If the Grantor dies before his or her entire interest is distributed to him
or her, the entire remaining interest will be distributed as follows:
(a) If the Grantor dies on or after distribution of his or her interest has
begun, distribution must continue to be made in accordance with paragraph 3.
(b) If the Grantor dies before distribution of his or her interest has begun,
the entire remaining interest will, at the election of the Grantor or, if the
Grantor has not so elected, at the election of the beneficiary or
beneficiaries, either
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Grantor's death, or
(ii) Be distributed in equal or substantially equal payments over the life
or life expectancy of the designated beneficiary or beneficiaries starting
by December 31 of the year following the year of the Grantor's death. If,
however, the beneficiary is the Grantor's surviving spouse, then this
distribution is not required to begin before December 31 of the year in
which the Grantor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has irrevocably
commenced, distributions are treated as having begun on the Grantor's required
beginning date, even though payments may actually have been made before that
date.
(d) If the Grantor dies before his or her entire interest has been distributed
and if the beneficiary is other than the surviving spouse, no additional cash
contributions or rollover contributions may he accepted in the account.
5. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Grantor's entire interest in the custodial account as of the close of
business on December 31 of the preceding year by the life expectancy of the
Grantor (or the joint life and last survivor expectancy of the Grantor and the
Grantor's designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under paragraph 3,
determine the initial life expectancy (or joint life and last survivor
expectancy) using the attained ages of the Grantor and designated beneficiary as
of their birthdays in the year the Grantor reaches age 70 1/2. In the case of a
distribution in accordance with paragraph 4(b)(ii), determine life expectancy
using the attained age of the designated beneficiary as of the beneficiary's
birthday in the year distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C. B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
ARTICLE V.
1. The Grantor agrees to provide the Trustee with information necessary for the
Trustee to prepare any reports required under section 408(i) and Regulations
sections 1.408-5 and 1.408-6.
2. The Trustee agrees to submit reports to the Internal Revenue Service and the
Grantor as prescribed by the Internal Revenue Service.
ARTICLE Vl.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and related
regulations will be invalid.
ARTICLE Vll.
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear below.
<PAGE>
ARTICLE VIII.
1. The amount of each contribution credited to the Grantor's individual
retirement trust account shall (except to the extent applied to pay fees or
other charges under section 7 below) be applied to purchase full and fractional
shares of beneficial interest of one or more classes in one or more mutual funds
(hereinafter collectively the "Funds" or individually a "Fund"), as designated
from time to time by State Street Research Investment Services, Inc. ("SSRIS")
as available for investment under this agreement (provided always that such
shares may legally be offered for sale in the state of the Grantor's residence),
in accordance with instructions of the Grantor given under Section 3 below. The
Trustee (or any party appointed to act as agent for the Trustee under section 16
of this Article VlIl--the "Agent"; whenever an Agent is acting for the Trustee,
references to the Trustee will be deemed to include the Agent) may retain the
Grantor's initial deposit for a period of up to ten days after receipt thereof
without liability for any loss of interest, earnings or appreciation, and may
invest such initial deposit at the end of such period if the Grantor has not
revoked his account. The Grantor may revoke the account by written notice to the
Trustee or its Agent received by the Trustee or its Agent within seven calendar
days after the Grantor establishes the account. Upon revocation, the amount of
the Grantor's initial deposit will be returned to him, without interest.
2. All dividends and capital gain distributions received on the shares of a
particular class of any Fund held in the Grantor's account shall be retained in
the account and (unless received in additional shares of such class) shall be
reinvested in full and fractional shares of such class of such Fund.
3. For each contribution, the Grantor shall designate the portion that will be
invested in each Fund. A contribution may be invested entirely in one Fund, or
may be invested in two or more Funds. However, investment designations will be
subject to any minimum initial or additional investment rules applicable to a
Fund. In addition, the Grantor shall designate which class of shares of each
such Fund the Grantor's contribution shall be invested in.
The Grantor shall make such designation on the State Street Research
Individual Retirement Account Application or other written notice acceptable to
the Trustee.
4. Subject to the minimum initial or additional investment, minimum balance and
other exchange rules applicable to a Fund, the Grantor may at any time direct
the Trustee to exchange all or a specified portion of the shares of a Fund in
the Grantor's account for shares and fractional shares of one or more other
Funds.
The Grantor shall give such directions by written, telephonic or other
notice acceptable to the Trustee and the Trustee will process such directions as
soon as practicable after receipt thereof.
If any investment designation or direction relating to investments under
these Terms and Conditions is, in the opinion of the Trustee (or SSRIS or the
Agent), ambiguous or incomplete, the Trustee may refrain from carrying out such
designation or other investment direction until the designation or other
investment direction has been clarified or completed to the Trustee's
satisfaction, and neither the Trustee, SSRIS, the Agent nor any Fund (nor any of
their affiliates) will have any liability for loss of interest, earnings or
investment gains or appreciation during such period.
5. The Grantor, by written notice to the Trustee, may designate one or more
beneficiaries to receive the balance (if any) remaining in the Grantor's account
after his death and the time and manner of payment of such balance (subject to
the applicable requirements of the preceding Articles of these Terms and
Conditions). A designation may be on a form provided by the Trustee or on a
written instrument acceptable to the Trustee executed by the Grantor and filed
with the Trustee. The Grantor may revoke or change such designation in like
manner, at any time and from time to time. No designation will be effective
until received by the Trustee. Any designation filed with the Trustee (whether
or not such designation fully disposes of the Grantor's account) will revoke all
other designations previously filed with the Trustee. If no such designation is
in effect upon the Grantor's death, or if such a designation is in effect but
does not fully dispose of the Grantor's account, the balance in the account
shall be paid in a single sum, as soon as is practicable, to the Grantor's
estate.
Subject to the applicable requirements of the preceding Articles of these
Terms and Conditions, the Grantor may designate a form of payment to the
beneficiary by filing an instrument so specifying with the Trustee. In the
absence of such written instructions from the Grantor, the Trustee will pay the
beneficiary in such form as the beneficiary selects.
Except as provided in the first sentence of the preceding paragraph,
following the Grantor's death, each beneficiary (or the representative of the
Grantor's estate) will exercise the powers and responsibilities of the Grantor
hereunder with respect to the portion of the Grantor's account passing to such
beneficiary (or estate).
6. The Trustee shall forward to the Grantor any notices, prospectuses, reports
to shareholders, financial statements, proxies and proxy soliciting materials,
relating to the Fund shares in the Grantor's account. The Trustee shall vote any
such shares held in the account in accordance with the timely written
instructions of the Grantor if received. If no timely written instructions are
received from the Grantor, the Trustee may vote such shares in such manner as it
deems appropriate (including "present" or in accordance with the recommendations
of SSRIS).
7. The Trustee's fee for performing its duties hereunder shall be such
reasonable amounts as shall be agreed to from time to time by the Trustee and
SSRIS. Such fee, any taxes of any kind and any liabilities with respect to the
account, and any and all expenses reasonably incurred by the Trustee shall, if
not paid by the Grantor, be paid from the Grantor's account.
8. The Trustee shall make distributions from the account at such times and in
such manner as the Grantor directs in writing, subject (except where otherwise
specifically provided in this Article VIII) to the applicable requirements of
the preceding Articles of these Terms and Conditions.
The recalculation of life expectancy of the Grantor and/or the Grantor's
spouse in connection with distributions from the account before the Grantor's
death will be made only at the written election of the Grantor. The
recalculation of life expectancy of the surviving spouse in connection with
distributions from the account after the Grantor's death will be made only at
the written election of the surviving spouse. By establishing the account, the
Grantor (for himself and his surviving spouse, if any) determines not to
recalculate life expectancies unless the Grantor (or surviving spouse)
specifically elects the recalculation of life expectancies approach in
accordance with the following sentence. Any such election may be made in such
form as the Grantor (or the surviving spouse) provides for (including
instructions to such effect to the Trustee or the calculation of minimum
distribution amounts in accordance with a method that provides for recalculation
of life expectancy and instructions to the Trustee to make distributions in
accordance with such method).
9. It shall be the sole responsibility of the Grantor to determine the time and
amount of contributions to the account and the time, amount and manner of
payment of distributions from the account (and to instruct the Trustee or the
Agent accordingly), and the federal and state tax treatment of any contributions
to or distributions from the account. SSRIS, the Agent, the Trustee and the
Funds shall be fully protected in following the direction of the Grantor with
respect to the time, amount and manner of payment of such distributions, or in
not acting in the absence of such direction. If the Grantor (or beneficiary)
does not direct the Trustee to make distributions from the account by the time
that such distributions are required to commence in accordance with the
preceding Articles of these Terms and Conditions, the Trustee (and SSRIS and the
Agent) will assume that the Grantor (or beneficiary) is meeting the minimum
distribution requirements from another individual retirement arrangement
maintained by the Grantor (or beneficiary) and will be fully protected in so
doing. SSRIS, the Agent, the Trustee and the Funds shall not be liable for any
taxes, penalties, liabilities or other costs to the Grantor or any other person
resulting from contributions to or distributions from the
<PAGE>
Grantor's account.
10. SSRIS, the Agent, the Trustee and the Funds shall not be responsible for any
loss or diminution in the value of the Grantor's account arising out of the
Grantor's establishment of a State Street Research Individual Retirement Account
or arising out of any investment instructions of the Grantor, whether relating
to the portion of contributions invested in one or more of the Funds, the
selection of a particular class of shares of a particular Fund, or the exchange
of shares of one Fund for shares of one or more other Funds. SSRIS, the Agent,
the Trustee and the Funds shall not render any investment advice to the Grantor
(or beneficiary) and will have no duty of inquiry concerning the Grantor's (or
beneficiary's) investment directions (subject to the right of the Trustee, SSRIS
or the Agent to obtain clarification or completion of any investment directions
under section 4 above). The Grantor (or beneficiary) will have exclusive
investment control over the account.
11. Whenever the Grantor (or beneficiary) is responsible for any direction,
notice, representation or instruction under these Terms and Conditions, SSRIS,
the Agent, the Trustee and the Funds shall be entitled to assume the propriety
and truth of any statement made by the Grantor (or beneficiary), and shall be
under no duty of further inquiry with respect thereto, and shall have no
liability with respect to any action taken in reliance upon such statement.
However, the Trustee (or Agent or SSRIS) shall be entitled to receive such
information or documentation (including signature guarantees, waivers or
indemnifications) as it may reasonably request before carrying out any
direction, notice or instruction from the Grantor (or beneficiary).
Grantor agrees to provide information to the Trustee at such times as may be
necessary to enable the Trustee to administer the account hereunder.
Except to the extent provided by applicable law, the account will not be
subject to assignment, transfer, pledge or hypothecation, nor shall it be liable
for the debts of the Grantor (or beneficiary) or subject to seizure, attachment,
execution or other legal process. However, the Trustee (or Agent or SSRIS) may
carry out the requirements of any apparently valid order of a governmental
authority (including a court) relating to the Grantor's account and will have no
liability for so doing.
12. These Terms and Conditions shall terminate upon the complete distribution of
the account to the Grantor or his beneficiaries or to a successor individual
retirement account, annuity or bond, to a qualified plan, or to an annuity or
custodial account under Section 403(b) of the Internal Revenue Code. The Trustee
shall have the right to terminate this account upon 60 days notice to the
Grantor, or to his beneficiaries if he is then dead. In such event, upon
expiration of such 60 day period, the Trustee shall transfer the amount in the
account into such successor individual retirement accounts, annuities or bonds,
qualified plan, or annuity or custodial account as the Grantor (or his
beneficiaries) shall designate, or, in the absence of such designation, to the
Grantor, or if he is then dead, to the beneficiaries or the Grantor's estate as
their interests shall appear.
13. The Trustee may resign at any time upon 60 days notice in writing to SSRIS
and may be removed by SSRIS at any time upon 60 days notice in writing to the
Trustee. Upon such resignation or removal, SSRIS shall appoint a successor
trustee which satisfies the requirements of Section 408 of the Internal Revenue
Code.
14. Upon receipt by the Trustee of written notice of appointment of a successor
trustee or custodian and of written acceptance of such appointment by the
successor, the Trustee shall transfer to such successor the assets of the
account and copies of all records pertaining thereto. The Trustee may reserve
such sum of money as it deems advisable for payment of its fees, taxes, costs,
expenses or liabilities with respect to the account, with the balance (if any)
of such reserve remaining after the payment of such items to be paid over to the
successor. The successor shall hold the assets paid over to it under terms that
satisfy the requirements of Section 408 of the Internal Revenue Code.
15. If, within 60 days after the Trustee's resignation or removal, SSRIS has not
appointed a successor trustee which has accepted such appointment, the Trustee
shall appoint such a successor unless it elects to terminate the Agreement under
Section 12 of this Article VIII.
16. The Trustee may employ or designate one or more parties to serve as agents
or contractors to perform any or all of its duties hereunder.
17. Any notice sent to the Grantor or to his beneficiaries or estate, if he is
then dead, shall be effective if sent by first class mail to him or them at his
or their last addresses of record as provided to the Trustee.
18. Any distributions from the account may be mailed, first-class postage
prepaid to the last known address of the person who is to receive such
distribution, as shown on the Trustee's records, and such distribution shall to
the extent of the amount thereof completely discharge the Trustee's liability
for such payment.
19. Any purchase or redemption of shares of any class of a Fund for or from the
Grantor's account will be effected at the public offering price or net asset
value of such Fund (as described in the then effective prospectus for such Fund)
next established after the Fund's transfer agent receives the contribution or
other directions.
Any purchase, exchange, transfer or redemption of shares of any class of a
Fund for or from the Grantor's account will be subject to any sales charge,
distribution fee or redemption charge, or other fee or charge applicable to
shares of such class, as described in the then effective prospectus for such
Fund. In addition, shares of any class of a Fund will be subject to any service
fee, charge or other annual maintenance or servicing fees or charges applicable
to shares of such class as described in the then effective prospectus for such
Fund.
20. SSRIS may amend these Terms and Conditions from time to time, and shall give
written notice of any material amendment to the Grantor within a reasonable time
after the amendment is adopted or becomes effective, whichever is later. The
Grantor hereby expressly delegates authority to SSRIS to amend these Terms and
Conditions and consents to any such amendments.
21. These Terms and Conditions shall be construed, administered and enforced
according to the laws of Massachusetts. The Grantor agrees that any legal
proceedings relating to the Grantor's account must be brought in a court
(including a federal district court) located in Massachusetts.
22. The term "Trustee" refers to the person serving as the Trustee of the
Individual Retirement Account established hereby, and the term "Grantor" refers
to the person for whose benefit such Account was established.
23. Articles I through VII of these Terms and Conditions are in the form
promulgated by the Internal Revenue Service. It is anticipated that if and when
the Internal Revenue Service promulgates changes to Form 5305, SSRIS will adopt
such changes as an amendment to these Terms and Conditions. Pending the adoption
of any amendment necessary or desirable to conform these Terms and Conditions to
the requirements of any amendment to the Internal Revenue Code or regulations or
rulings thereunder, the Trustee (and SSRIS and the Agent) may operate the
Grantor's account in accordance with such requirements to the extent deemed
necessary to preserve the tax benefits of the account.
24. The Grantor acknowledges that he or she has received and read the current
prospectus for each Fund in which his or her account is invested and the State
Street Research Individual Retirement Account Disclosure Statement.
(References are to the Internal Revenue Code.)
[LOGO] STATE STREET RESEARCH
<PAGE>
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[LOGO] State Street Research IRA
IRA Application
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Upon completion, send application and check (if you are making a
contribution at this time) made payable to "State Street Bank and Trust Company,
Trustee" to the address listed on the back.
1 What Type of IRA?
/ / Regular/Accumulation
(if you plan to make additional investments
into the account)
/ / Rollover IRA
/ / Direct rollover (sent trustee to trustee, from
a qualified retirement plan elsewhere to a
State Street Research IRA)
/ / Rollover (proceeds from my former qualified
retirement plan were paid to me, and my
check is enclosed) Please note: Rollover must be
transferred within 60 days of the date proceeds
were paid to you.
Do not rollover or transfer any amounts required
to be paid to you under the minimum distribution
rules that apply after you reach age 70 1/2, or any
other amounts which are not eligible rollover
distributions or would not be otherwise includable
in your gross income.
/ / Transfer of Assets
(from an IRA at another company to a State Street
Research IRA)
/ / SEP IRA / / SAR-SEP IRA
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Name of employer Employer telephone
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Address of employer
2 What is your name and address?
(Please print.)
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Your name
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Street address
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City State ZIP
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Daytime telephone number Evening telephone number
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
3 Which funds have you selected?
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Fund name
$ / / A / / B / / D*
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Amount ($2,000 minimum) Share class**
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Fund name
$ / / A / / B / / D*
- --------------------------------------------------------------------------------
Amount ($2,000 minimum) Share class**
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Fund name
$ / / A / / B / / D*
- --------------------------------------------------------------------------------
Amount ($2,000 minimum) Share class**
$
- ---------------------
Total amount invested
* "D" shares not available through MSI.
**Investments in Money Market Fund will purchase
class E shares.
If a check is enclosed, make it payable to "State Street Bank and Trust
Company, Trustee." Please add $10 for the first year's trustee fee;
otherwise, the fee will be deducted from your account at year end.
<PAGE>
4 Who is your beneficiary?
Primary beneficiary
(only one required per account. If you have more than
two, include them on a separate sheet. If two or more
are named, they will receive equal amounts unless you
specify otherwise; also if one of the named primary
beneficiaries predeceases you, that person's share will
be distributed pro-rata to the other primary beneficiaries
who survive you, unless you specify otherwise.)
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State ZIP
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State ZIP
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
Secondary beneficiary
(if the person(s) named as primary beneficiary fails to
survive you.)
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Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State ZIP
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
5 We need your signature
I hereby establish a State Street Research IRA, appoint State Street Bank and
Trust Company as Trustee, direct that contributions to my IRA be invested as
specified by this application, and designate the individual(s) named above, or
in any signed attachment, as my beneficiary(ies). I have received a current
prospectus for the Fund(s) indicated above and the Terms and Conditions of the
State Street Research IRA (which are incorporated herein by reference) and have
read its Disclosure Statement.
Under penalties of perjury, I certify that: (1) the number shown on this form is
my correct taxpayer identification number (or I am waiting for a number to be
issued to me), and (2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the Internal
Revenue Service that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding. (You must cross out item (2) above if you
have been notified by the IRS that you are currently subject to backup
withholding because of under-reporting interest or dividends on your tax
return.)
I confirm that all the information, instructions and agreements set forth hereon
shall apply to the account, and if applicable, shall also apply to any other
fund account with shares acquired upon exchange of share of the Fund.
- --------------------------------------------------------------------------------
Signature Date
<PAGE>
6 Dealer information
(for Dealer use only)
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Dealer name
- --------------------------------------------------------------------------------
Street address of home office
- --------------------------------------------------------------------------------
City State ZIP
- --------------------------------------------------------------------------------
Authorized signature of dealer
- --------------------------------------------------------------------------------
Agency/branch office number
- --------------------------------------------------------------------------------
Street address of agency/branch office servicing account
- --------------------------------------------------------------------------------
City State ZIP
- --------------------------------------------------------------------------------
Registered representative's name and number
If this application is for an account introduced through the above-named Dealer,
the Dealer further agrees to all applicable provisions in this application and
in the Prospectus. The Dealer warrants that this application is completed in
accordance with the shareholder's instructions and agrees to indemnify the
Transfer Agent, the Fund, any other eligible Funds, State Street Research
Shareholder Services, the Investment Manager or the Distributor for any loss or
liability from acting or relying upon such instructions and information. The
terms and conditions of the currently effective Selected Dealer Agreement or
sales agreement are included by reference in this section. The dealer represents
that it may lawfully sell shares of the designated Fund(s) in the state
designated as the Applicant's address of record, and that it has a currently
effective selected dealer agreement with a Distributor authorizing the Dealer to
sell shares of the Fund and the Eligible Funds.
- --------------------------------------------------------------------------------
Optional Shareholder Services
- --------------------------------------------------------------------------------
A Telephone Exchange Privilege
To exchange Fund shares over the telephone--available only for shares held on
deposit with Agent.
Telephone Exchange By Shareholder OR DEALER
State Street Research Shareholder Services may effect exchanges for my account
according to telephone instructions FROM ME OR MY DEALER as set forth in the
Prospectus, and may register the shares of the fund to be acquired exactly the
same as my existing account. Authorizing an exchange constitutes an
acknowledgment that I have received the current prospectus of the Fund to be
acquired.
I will not hold the Transfer Agent, the Fund, any other Eligible Funds, State
Street Research Shareholder Services, the Investment Manager or the Distributor
liable for any loss, injury, damage or expense as a result of acting upon any
telephone instructions or responsible for the authenticity of any telephone
instructions. I understand that all telephone calls are tape recorded. My
liability shall be subject to the use of reasonable procedures to confirm that
instructions communicated by telephone are genuine.
The account will automatically have this privilege unless you expressly decline
it by providing your initials below.
I do not want the Telephone Exchange Privilege.
(initial here.)
-----------------
B Do You Qualify For Reduced Sales Charges?
(Applies to Class A shares only)
/ / Right of Accumulation:
I apply for Right of Accumulation reduced sales charges for Class A share
purchases because the combined holdings for me and my family members in the
Eligible Funds (listed below) totals $100,000 or more. I understand the Transfer
Agent must confirm the holdings listed below.
Name on account Account number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/ / Letter of Intent:
I intend to invest / / $100,000, / / $250,000, / / $500,000, or
/ / $1,000,000 in any combination of the Eligible Funds
over a 13-month period beginning _________________ 19__
(purchase date not more than 90 days prior to this letter). If
the amount indicated is not invested within 13 months,
reduced sales charges do not apply.
<PAGE>
C Investamatic Check Program
To arrange automatic additional investments from a bank account into Fund
accounts. Accounts must first meet minimum initial investment requirements.
(Total annual contribution should not exceed $2,000 for an individual IRA.)
- --------------------------------------------------------------------------------
Fund name Account number
$ / / A / / B / / D
- --------------------------------------------------------------------------------
Amount (See prospectus for minimum) Share class*
- --------------------------------------------------------------------------------
Fund name Account number
$ / / A / / B / / D
- --------------------------------------------------------------------------------
Amount (See prospectus for minimum) Share class*
* Investments in Money Market Fund will purchase
Class E shares.
- --------------------------------------------------------------------------------
Account registration (exactly as it appears on Fund records)
Frequency of investment
/ / Monthly / / Quarterly
Investment date (if you don't choose a date, the 5th will be
chosen automatically)
/ / 5th business day / / 20th business day
I hereby request and authorize the bank named in this section ("the Bank") to
pay and charge checks drawn on, or debits against, my account initiated by and
payable to the transfer agent designated by the Distributor. I agree that the
Bank's rights in respect to each such check or debit shall be the same as if it
were a check drawn on or debit against my account authorized personally by me.
This authority is to remain in effect until revoked by me, and until the Bank
actually receives such notice, I agree that the Bank shall be fully protected in
honoring any such check or debit authorization. I further agree that if any
check or debit authorization be dishonored, whether with or without cause and
whether intentionally or inadvertently, the Bank shall be under no liability
whatsoever, unless the nonpayment is because of insufficient funds. I understand
that this Program may be revoked by the Agent or the Distributor without prior
notice if any check is not paid upon presentation, and that this Program may be
discontinued by the Distributor, the Agent or me upon thirty (30) business days'
notice prior to the due date of any deposit.
State Street Bank and Trust Company, Trustee:
You are hereby authorized and appointed on behalf of the above-signed dealer
to execute the purchase transactions in accordance with the terms and
conditions of this Application, and to confirm each purchase.
Acceptance by the Trustee:
This plan shall be deemed to have been accepted by the Trustee, State Street
Bank and Trust Company, after all necessary forms, properly completed, are
received by State Street Research Shareholder Services, and delivered by
Shareholder Services to the agent for the Trustee.
Type of bank account:
/ / Checking / / NOW or Money Market / / Savings
- --------------------------------------------------------------------------------
Account title (print exactly as it appears on bank records)
- --------------------------------------------------------------------------------
Bank routing number Bank account number
- --------------------------------------------------------------------------------
Bank name
- --------------------------------------------------------------------------------
Bank street address
- --------------------------------------------------------------------------------
City State ZIP
1944
4-122/100
________________ 19____
______________________________________________________________/ $
______________________________________________________________ DOLLARS
Staple a blank check marked "VOID" here
_________________________________________________________________________
1505
================================================================================
Once completed, send application and check (if you are making a contribution at
this time) made payable to "State Street Bank and Trust Company, Trustee" to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
================================================================================
[LOGO] STATE STREET RESEARCH
<PAGE>
- --------------------------------------------------------------------------------
[LOGO] State Street Research IRA
Lump Sum Profile
- --------------------------------------------------------------------------------
Registered Representative Information
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Firm name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State ZIP
- --------------------------------------------------------------------------------
Telephone Fax
================================================================================
Registered representative, return form to:
State Street Research Investment Services
Attn: Marketing Analysis Department
One Financial Center, 3rd Floor
Boston, MA 02111
Or fax to: 1-617-261-0288
================================================================================
Client Information
- --------------------------------------------------------------------------------
Name
/ /
- --------------------------------------------------------------------------------
Date of lump-sum distribution Age Date of birth
- --------------------------------------------------------------------------------
Spouse's age Age to start income payments (maximum age 70 1/2)
Exempt from early distribution penalty? / / yes / / no
$
- --------------------------------------------------------------------------------
Year you entered plan Total taxable distribution
$
- --------------------------------------------------------------------------------
Number of exemptions Other taxable income in year of distribution
(income after deductions and exemptions)
$
- --------------------------------------------------------------------------------
Other taxable income during payout period
(income after deductions and exemptions)
Tax filing status / / single / / joint / / head of household
%
- --------------------------------------------------------------------------------
Inflation rate (for 15% penalty tax exclusion)
(3% assumed unless otherwise indicated)
%
- --------------------------------------------------------------------------------
Federal income tax bracket (if none elected, 28% assumed)
%
- --------------------------------------------------------------------------------
Your state income tax rate
- --------------------------------------------------------------------------------
Rate of return to assume (5% unless otherwise indicated)
Investment Information
What is your investment objective? (check all that apply)
/ / Aggressive growth
/ / Growth
/ / Growth and income
/ / Current income
[LOGO] STATE STREET RESEARCH
<PAGE>
- --------------------------------------------------------------------------------
[[LOGO] State Street Research IRA
IRA Distribution Form
- --------------------------------------------------------------------------------
1 IRA owner information
(Please print or type.)
- --------------------------------------------------------------------------------
Today's date
- --------------------------------------------------------------------------------
IRA account number
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Daytime phone number
- --------------------------------------------------------------------------------
Address (P.O. Boxes may not be used)
- --------------------------------------------------------------------------------
City State ZIP
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
2 Oldest primary designated beneficiary
(If you wish to add beneficiaries, please attach a separate list.)
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Relationship
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State ZIP
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
3 Account balance on December 31:
If you transferred or rolled over your IRA from another
retirement plan this year, please provide its account
balance as of December 31 of the prior year.
$______________
4 Type of Distribution
(Choose one. For Class "B" or "D" shares, a contingent
deferred sales charge may apply.)
/ / A. Regular distribution
I am age 59 1/2 or older and wish to withdraw $_____________
(To establish a Systematic Withdrawal Plan, fill out
section 5.)
/ / B. Disability
I wish to withdraw $_____________
I have attached a copy of Schedule R from my tax return
or a confirmation letter from my physician.
(To establish a Systematic Withdrawal Plan, fill out section 5.)
/ / C. Death of IRA shareholder
Withdrawal amount: $______________
The beneficiary should complete this form and enclose a
certified copy of the shareholder's death certificate.
(To establish a Systematic Withdrawal Plan, fill out section 5.)
/ / D. Withdrawal of excess contribution
Year excess contribution was made: 19_____.
Withdrawal amount: $______________
/ / E. Pre-59 1/2 distribution
I wish to withdraw $
I understand that a 10% tax penalty may apply on the
amount of the withdrawal includable in income.
/ / F. Pre-59 1/2 distribution with substantially equal
periodic payments
(If you have any questions, contact your investment
representative or tax adviser, or call State Street Research
at 1-800-562-0032. State Street Research does not guarantee
or give any assurance that the pre-59 1/2 distribution with
"substanially equal periodic payments" will qualify for an
exception to the 10% penalty tax.)
/ / I have made the calculations to determine substantially
equal periodic payments from my IRA account. I understand
that if I modify the withdrawal plan before the end of
5 years, or before I reach age 59 1/2, whichever occurs later,
the IRS may impose a retroactive 10% penalty on
payments includable in income with interest.
Payment amount $__________________
Payment frequency:
/ / Monthly / / Quarterly / / Semiannually / / Annually
/ / Make the calculations for me based on:
/ / My individual life expectancy.
/ / Joint life expectancy with my designated beneficiary.
Payment frequency:
/ / Monthly / / Quarterly / / Semiannually / / Annually
/ / G. Post-70 1/2 - Required minimum distribution
(choose one.)
/ / I wish to receive my entire IRA account balance.
/ / I am already taking the required minimum distribution
from another IRA. Please take no action.
/ / I have calculated the amount of my required distribution.
Payment amount $__________________
Payment frequency:
/ / Monthly / / Quarterly / / Semiannually / / Annually
/ / Make the calculations for me based on:
/ / My individual life expectancy.
/ / Joint life expectancy with my designated beneficiary.
/ / A fixed number of years:_____________ years
Payment frequency:
/ / Monthly / / Quarterly / / Semiannually / / Annually
Payments to begin:____________________(month/year)
Note: to begin payments in the month indicated,
State Street Research must receive this form at least
three weeks prior to the first payment.
/ / H. Income distributions
Choose only one. (Not available if you are under age 59 1/2.
If you choose this option, you may not choose a Systematic
Withdrawal Plan. Please note: this may not be enough to satisfy
minimum distribution rules if you are over age 70 1/2.)
/ / Dividends in cash
/ / Dividends and capital gain distributions in cash
<PAGE>
5 Systematic Withdrawal Plan
Please base my systematic withdrawal payments on
the following (choose only one). For Class "B" or "D"
shares, a contingent deferred sales charge may apply.
/ / My individual life expectancy.
Do you wish us to recalculate this each year? / / Yes / / No
/ / Joint life expectancy with my designated beneficiary.
Do you wish us to recalculate this each year? / / Yes / / No
/ / A fixed number of years:_________________years
Do you wish us to recalculate this each year? / / Yes / / No
/ / A fixed dollar amount: $____________________
/ / A fixed number of shares:___________________
/ / A fixed percentage:_________________________%
Payment frequency:
/ / Monthly / / Quarterly / / Semiannually / / Annually
Payments to begin:___________________________(month/year)
Note: to begin payments in the month indicated, State Street
Research must receive this form at least three weeks prior to
the first payment.
6 Distribute To:
/ / Mail to IRA owner, at address of record
/ / Deposit to the following (non-retirement) State Street
Research mutual fund account
- --------------------------------------------------------------------------------
Fund name:
- --------------------------------------------------------------------------------
Account number:
/ / Open a new (non-retirement) account in the following
mutual fund from State Street Research:
- --------------------------------------------------------------------------------
Fund
/ / A / / B / / D
- --------------------------------------------------------------------------------
Share class*
/ / Other payee:
- --------------------------------------------------------------------------------
Name of bank (Automatic Bank Connection) or payee
- --------------------------------------------------------------------------------
Bank account number (if applicable)
- --------------------------------------------------------------------------------
Street address
- --------------------------------------------------------------------------------
City State ZIP
Attach a blank check marked "Void" if distribution
is to be made to your bank.
* Investments in Money Market Fund will purchase
Class E shares.
7 Substitute Form W-4P
Withholding Election:
(This section must be completed.)
Instructions: Check the first box if you do not want federal
tax withheld from each IRA distribution. If you elect no withholding,
your election will remain in effect until revoked; you
may change your election by writing to State Street Research
Shareholder Services. Check the second box to have withholding
apply. Even if you elect not to have federal tax withheld,
you are liable for payment of federal tax on the taxable portion
of your IRA distribution. You may also be subject to tax penalties
under the estimated tax payment rules if your payments
of estimated tax and withholding are not adequate. Some
states may also require us to withhold state income tax from
these withdrawals.
We encourage you to consult with your tax adviser regarding
your IRA distributions.
/ / I elect not to have tax withheld from each distribution.
/ / I elect to have 10% tax withheld from each distribution.
Also, please withhold an additional________________% or $____________
from each distribution.
- --------------------------------------------------------------------------------
Signature of IRA owner Date
8 Authorizations and signatures:
I authorize the Transfer Agent to act upon my
instructions for both the options I have checked
on this form and the withholding elections I
have indicated:
- --------------------------------------------------------------------------------
Signature of IRA owner
- --------------------------------------------------------------------------------
Printed name of IRA owner
Signature Guarantee
- --------------------------------------------------------------------------------
Name of bank or eligible guarantor
- --------------------------------------------------------------------------------
Authorized signature of bank or eligible guarantor
- --------------------------------------------------------------------------------
Title
A signature guarantee is required if you are directing a
distribution to an address other than your address of record or
to a payee other than yourself. Signatures may be guaranteed
by a bank, a member of a domestic stock exchange, or other
eligible guarantor. Notarizations are not acceptable.
================================================================================
Return this signed and dated form to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
================================================================================
[LOGO] STATE STREET RESEARCH
<PAGE>
- --------------------------------------------------------------------------------
[LOGO] State Street Research IRA
Pre-59 1/2 Distribution Information Request Form
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Client's Name
/ / / /
- --------------------------------------------------------------------------------
Date Date of Birth
$
- --------------------------------------------------------------------------------
Current Account Balance(1)
Payout Mode (Circle) A S Q M
/ /
- --------------------------------------------------------------------------------
Beneficiary's Date of Birth (Optional)(2)
================================================================================
Registered representative, return form to:
State Street Research Investment Services
Attn: Marketing Analysis Department
One Financial Center, 3rd Floor
Boston, MA 02111
Or fax to: 1-617-261-0288
================================================================================
- --------------------------------------------------------------------------------
Representative's Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
( )
- --------------------------------------------------------------------------------
Telephone Number
( )
- --------------------------------------------------------------------------------
Fax Number
Unless otherwise indicated, response will be to the
fax number above.
Comments:
(1) Account balance at end of prior month or current balance
for this month. Factors are valid for current balances and
current month only. However, factors can be used for
planning purposes for withdrawals in the future. When actual
withdrawals are to commence, the client's age, account
balance and actual month will be used for factor calculations.
(2) While the age of the beneficiary can be used for factor
calculations, usually a single life quotation will maximize
the payouts.
[LOGO] STATE STREET RESEARCH P59TT (2/95)
<PAGE>
[LOGO] STATE STREET RESEARCH
(C)1995 State Street Research Investment Services, Inc. Boston, MA 02111
CONTROL NUMBER: 2251-950331(0496)SSR-LD IR-082E-395
<PAGE>
- --------------------------------------------------------------------------------
[LOGO] State Street Research IRA
Transfer of Assets/Direct Rollover Form
- --------------------------------------------------------------------------------
Once completed, send the top two copies of this form and a State Street Research
IRA Application to: State Street Research Shareholder Services, P.O. Box 8408,
Boston, MA 02266-8408. Do not rollover or transfer any amounts required to be
paid to you under the minimum distribution rules that apply after you reach age
70 1/2.
1 Your name and address
(Please print.)
- --------------------------------------------------------------------------------
Your name
- --------------------------------------------------------------------------------
Street address
- --------------------------------------------------------------------------------
City State ZIP
- --------------------------------------------------------------------------------
Home telephone number Business telephone number
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
2 Your fund selections at
State Street Research
Fund Name Account number Share class* Amount
(if applicable)
/ / A / / B / / D
- --------------------------------------------------------------------------------
/ / A / / B / / D
- --------------------------------------------------------------------------------
/ / A / / B / / D
- --------------------------------------------------------------------------------
*Money Market Fund investments will purchase Class E shares.
3 Direct Rollover of Eligible Rollover
Distributions (complete if applicable)
(Sent trustee-to-trustee, from a retirement plan
elsewhere to an IRA at State Street Research)
Type of current plan:
/ / 403(b) / / 401(k) / / Pension plan / / Other
- --------------------------------------------------------------------------------
Account number
- --------------------------------------------------------------------------------
Name and address of current trustee/custodian
4 Transfer of Assets (complete if applicable)
(From an IRA at another company to an
IRA at State Street Research)
- --------------------------------------------------------------------------------
Name and address of current trustee/custodian
- --------------------------------------------------------------------------------
Fund name IRA account number
- --------------------------------------------------------------------------------
Fund name IRA account number
5 Authorization
(To authorize your current Trustee/custodian to
transfer/rollover your qualified plan or IRA assets to
State Street Research)
Please redeem / / all or / / part ($__________ ) of my present
account and transfer the redemption proceeds to my State
Street Research IRA account / / immediately / / at maturity.
- --------------------------------------------------------------------------------
Your signature Date
- --------------------------------------------------------------------------------
Employer's signature (if required) Date
6 Signature guarantee
(Ask your current custodian/trustee if it requires
your signature to be guaranteed.)
Signature guaranteed by:
- --------------------------------------------------------------------------------
Name of bank/eligible guarantor
- --------------------------------------------------------------------------------
Authorized signature of bank or eligible guarantor
Please do not fill out the lower portion of this form.
- --------------------------------------------------------------------------------
For current trustee/custodian use: Instructions for delivery to State Street
Research IRA.
- --------------------------------------------------------------------------------
Please liquidate and transfer on a fiduciary-to-fiduciary basis all or part of
the designated account as instructed above and make check payable to: State
Street Bank and Trust Company, Trustee.
================================================================================
Please include account number and FBO on the check.
Mail to: State Street Research Shareholder Services, P.O. Box 8408, Boston,
MA 02266-8408
Please remember to include a copy of this form, along with a check, for
proper credit to the accounts. State Street Research Shareholder Services
will deliver the items to the agent for State Street Bank and Trust Company,
who serves as Trustee.
================================================================================
For successor trustee/custodian use: Successor Trustee's acceptance of
Individual Retirement Account assets.
State Street Bank and Trust Company will accept the transfer described above
once this form has been completed and signed by you.
- --------------------------------------------------------------------------------
Authorized signature of acceptance by Agent for State Street Bank and Trust
Company, Trustee.
CONTROL NUMBER: 2237-950331(0496)SSR-LD IR 139E-395
[LOGO] STATE STREET RESEARCH
<PAGE>
[Logo] STATE STREET RESEARCH
[LOGO]
STATE STREET RESEARCH
IRA
YOUR GUIDE TO PLANNING FOR
A COMFORTABLE RETIREMENT
o o o o o o o o o o o o o o
o Regular/accumulation IRA
o Rollover IRA
o Transfer of assets IRA
o Lump-Sum distribution IRA
o IRA distributions and withdrawals
<PAGE>
GONE
FISHIN'
[Graphic -- Fish]
CONTENTS PAGE
Introduction.................................1
What is an IRA...............................3
IRA at a glance..............................4
Choosing your IRA
o regular/accumulation IRA ...............5
o rollover/transfer of assets...............7
o lump-sum distribution.....................9
State Street Research
IRA services
o Distributions/withdrawals ...........12-13
IRA basics
Answers to common
questions................................15
Why invest with
State Street Research.......................18
Your investment
options.............................Back Cover
A RELAXED
RETIREMENT
REQUIRES
CAREFUL
PLANNING
o o o o o o o o o o o o o o o o o o o o o
Many of us look forward to retirement as
a time when we can do the things we've
wanted to do for years. But in order for
your "golden years" to shine, you need
to start planning today.
The Financial Challenges
of Retirement
When planning for something as important
as your retirement, it's crucial that
you know the facts:
o Many people are retiring earlier and
living longer; retirement assets may
have to last 20, even 30, years. Yet
half of all retirees during the late
1980s entered their retirement years
with less than $10,000 in savings.(1)
Outliving retirement income is a
serious concern.
(1) Source: Rep. William J. Hughes,
statement before the Subcommittee on
Retirement Income and Security, House
Select Committee on Aging, U.S. House
of Representatives, July 10, 1991.
1
<PAGE>
How Long Will Your
Money Last...
$100,000 earning hypothetical rates of
return with monthly withdrawals of $800
(compounded monthly)
Years of withdrawals before principal is exhausted
[The table below was represented as a bar graph in the printed material.]
4% 13.5 yrs.
6% 16.2 yrs.
8% 22.1 yrs.
Rate of return before inflation
These figures are for illustration only
and are not a projection of investment
performance. There is no guarantee that
any available fund managed by State
Street Research or its affiliates will
achieve any particular rate of return.
Results do not take into account the
effect of taxes or inflation on income.
o Estimates indicate that most retirees
need 70% to 80% of their
pre-retirement income to maintain
their standard of living. In most
cases, Social Security and pension(s)
provide only a portion of the income
needed. A third or more may have to
come from personal savings and
investments.
o Retirees should not count on Social
Security as a sole means of
retirement income. Consider that the
average Social Security payment is
$7,836 per year (that's only $653 per
month),(2) fine as a supplement, but
not as a primary source of income.
(2) Source: Social Security
Administration
Where Will The Money
Come From
THE PERCEPTION
Where will many pre-retirees think
the money will come from
[The table below was represented as pie graph in the printed material.]
Savings* 18%
Pensions** 43%
Social Security 25%
Earnings 4%
Other/Unsure 10%
Source: Merrill Lynch
* Includes IRA, payroll reduction plan,
401(k), life insurance, annuities,
investments, other savings on hand
and savings to be added.
** Includes employer's pension plan,
profit sharing plan, government
pension, Keogh/SEP.
THE REALITY
Actual sources of
Retirement Income
[The table below was represented as a pie graph in the printed material.]
Pensions 20%
Earned Income 27%
Investment/Savings 33%
Social Security 18%
Other Benefits 2%
Source: Social Security Administration.
For retirees with at least $28,714 in
annual income in 1990.
o Most Americans change jobs numerous
times over their careers; frequent
job changes can mean reduced income
from company pension plans. Similar
to Social Security, pension plans
should be viewed as a supplementary
source of retirement income.
o Taxes and inflation. They don't go
away, even for retirees. In fact, the
portion of Social Security benefits
that may be subject to tax has
increased from 50% to 85%! And when
you consider that an annual inflation
rate of 4% cuts purchasing power in
half in just 15 years, the
combination of taxes and inflation
can make a serious dent in any
retirement nest egg.
Remember When...
A dollar was worth a dollar.
Thanks to inflation, your 1974 dollar is
worth only 29 cents in today's economy.
[The table below was represented as a line graph in the printed material.]
1974 $1.00
1994 $0.29
Source: Consumer Price Index
You Need A
Substantial Nest Egg
To comfortably meet retirement and
health care costs, you'll probably need
more income than Social Security and
your pension plan alone will provide.
Unfortunately, taxable savings plans may
not be adequate either. Both the money
you set aside and the interest it earns
are taxed at current rates, and that tax
bite can make a real difference over the
long term. Fortunately, there is an easy
way to help insure a more comfortable
retirement. It's called an IRA.
2
<PAGE>
[Graphic -- What is an IRA?]
An Individual Retirement Account,
commonly referred to as an "IRA," is a
savings or investment plan that lets you
set aside money specifically for your
retirement. An IRA offers three
important advantages:
o Tax-deferred earnings--you pay no
taxes on your investment earnings
until you begin taking distributions
from your account. Generally,
withdrawals begin after retirement,
when you may be in a lower tax
bracket--ultimately, your tax bill
might be smaller.
[BAR CHART]
Build For Tomorrow
Tax-deferred growth can help make a
comfortable retirement a reality.
Tax deferred $202,144
28% $140,539
31% $135,297
36% $127,048
39.6% $121,511
Tax-deferred annual investments of
$2,000 over 30 years, earning a 7%
hypothetical rate of return versus the
same investments taxed at the 28%, 31%,
36%, and 39.6 federal tax rates.
For illustration only. Not intended to
imply or guarantee a rate of return on
any investment.
o Power of tax-deferred
compounding--compounding is the money
you earn on your IRA contributions
(dividends, interest, appreciation
and capital gains). Because earnings
are tax-deferred, your retirement
nest egg has the potential to build
even more quickly than a taxable
investment earning the same rate of
return. This can make a significant
difference, particularly over the
long-term.
o Potential tax deduction--you may be
eligible to deduct some or all of
your IRA contributions on your
current federal income tax return.
But even if your contributions aren't
deductible, you still benefit from
tax-deferred growth--a key component
to a sound retirement plan.
In addition to these incentives, a State
Street Research IRA offers you other
advantages, including--a wide choice of
mutual funds and services, and all the
information you need in an easy-to-use,
easy-to-read format. With help from this
guide and the accompanying forms
booklet, you can choose any type of IRA
transaction you need. Open an IRA, take
distributions from your IRA, or just
call to find out more.
Mutual Funds Can Help
The American public has become more
focused than ever on the importance of
investing for retirement. And mutual
funds have taken center stage. Currently
33% (approximately $284 billion) of all
IRA assets are invested in mutual funds.
Why? Because mutual funds offer a
variety of features that appeal to
investors accumulating assets for the
future, including--
o professional management
o diversification
o flexibility
o convenience
o affordability
Source: Investment Company Institute,
1994 Mutual Fund Fact Book
CONSIDER
the potential benefits
if your earnings
could grow tax-deferred...
3
<PAGE>
Mutual Funds and
IRA Investing --
A Natural Fit
An increasing number of investors are
choosing mutual funds to help meet their
future retirement needs.
Number of Mutual Fund
IRA Accounts
1993
29,300,000
1981
500,000
Source: Investment Company Institute,
1994 Mutual Fund Fact Book
We want to
MAKE IT EASY
to plan for retirement...
All the forms you need
are in the forms booklet
that accompanies
this brochure.
And, remember
to consult your
investment representative
and tax adviser.
STATE STREET RESEARCH
IRA
AT A GLANCE
State Street Research offers an IRA to meet your needs.
Included in this brochure:
Regular/Accumulation IRA--see page 5
Open a State Street Research IRA and build your
retirement assets over time through periodic
contributions.
Rollover & Transfer of Assets IRA--see page 7
Rollovers and Transfers are great for
consolidating your finances. They potentially
reduce your IRA fees and simplify your
record-keeping, while continuing to let your
assets build for tomorrow.
Lump-Sum Distribution IRA--see page 9
Retiring or leaving your job? If so, you may be
expecting a lump-sum distribution. Let us show you
what your options are. Making the wrong decision
could cost you thousands. Help avoid tax penalties
with a State Street Research IRA.
Distributions and withdrawals--see page 12
If you're approaching 70 1/2, it's almost time to
begin taking mandatory IRA withdrawals. The IRS
has rules about how much you must withdraw based
on your age, life expectancy and account balance.
State Street Research can help with the
calculations for your review.
4
<PAGE>
YOUR IRA OPTIONS
REGULAR
IRA
IS THIS THE
IRA FOR YOU?
o o o o o o o o o o o o o o o o o o o o
Consider a Regular/Accumulation IRA if
you are:
o Interested in a tax-advantaged way to
save for retirement.
o Concerned about future retirement and
health care expenses and the real
danger of outliving your retirement
assets.
o Employed, but do not have the benefit
of an employer-sponsored retirement
plan.
o Employed and covered by a retirement
plan at work, but want additional
tax-deferred growth potential.
[Graphic]
CONTRIBUTIONS
TO AN IRA
With a regular IRA, you can contribute
up to $2,000 per year or 100% of earned
income, whichever is less.
THE BENEFITS
Without the added boost of personal
retirement savings, many retirees must
make marked cuts in their standard of
living. Establishing an IRA today is a
great way to help build for the future.
You'll benefit from:
o Tax deferral--
Pay no taxes on your investment
earnings until you begin taking
distributions from your account. Once
you reach retirement age, you may be
in a lower tax bracket--which may
mean you pay less in taxes!
o Tax-deferred compounding--
Compounding is the money you earn on
your IRA contributions plus
accumulated investment earnings
(interest, dividends and capital
gains). Because your earnings grow
tax-deferred, your assets have the
potential to accumulate even more
quickly.
o Current tax deduction--
You may be eligible to take a full or
partial tax deduction for
contributions to an IRA.*
* See your tax adviser for details.
[Graphic]
CAN'T DEDUCT
YOUR IRA
CONTRIBUTION?
Don't worry, over time, it's the tax
deferral, not the tax deduction, that
can make the real difference. And, it's
available to all IRA investors.
[PIE CHART]
Benefits of Tax Deduction
Contribute a total of $60,000
to an IRA...
...and your
tax deductions
total $21,600
$60,000
For illustration only. Assumes
individual in 36% federal tax bracket
contributes $2,000 annually over 30
years.
5
<PAGE>
THE FORMS
YOU NEED
1. IRA Terms & Conditions
2. IRA Application
3. Fund Prospectus(es)
Benefits of Tax Deferral
You gain a significant edge when
your investment is tax-deferred
[The table below was represented as a graphic in the printed material.]
$2,000/yr. tax-deferred $202,144
$2,000/yr. taxable 36% bracket $127,048
$75,096 tax advantage
For illustration only. Not intended to imply or guarantee a rate of return on
any investment. Assumes individual in 36% federal tax bracket; annual
contributions of $2,000 for 30 years; and a hypothetical 7% rate of return.
How To Open
Your IRA
o o o o o o o o o o o o o o o o o o o o
A o Sit down with your investment
representative to map out a solid
plan for preparing for retirement.
Choose the State Street Research
funds that best suit your goals and
risk tolerance.
o Read the prospectus for each fund
you're considering before you
invest.
B o Familiarize yourself with the IRA
Terms & Conditions.
o Complete the IRA Application--be
sure to specify which mutual funds
you would like to invest in (Section
3).
o Attach a check made payable to State
Street Bank & Trust Co.*
C o Keep a copy of your signed documents
for your files.
o Mail your completed application in
the envelope provided.
o You will receive written
confirmation that your account has
been established.
* Note: you may contribute up to
$2,000 annually to your IRA. Once
you invest the minimum initial
investment of $2,000 to open your
IRA, you may choose either a
lump-sum investment or periodic
contributions in following years. If
you'd like your IRA contributions
made automatically from your
checking account--each month or
every quarter--fill out the
Investamatic section of the IRA
Application. If you use
Investamatic, you may invest as
little as $50 once the $2,000
minimum investment requirement is
met.
That's all there is to it!
If you have any questions, call toll-free:
1-800-562-0032.
6
<PAGE>
YOUR IRA OPTIONS
ROLLOVER
IRA
IS THIS THE
IRA FOR YOU?
o o o o o o o o o o o o o o o o o o o o
Consider a rollover or a transfer of
assets if you:
o Have IRA(s) at other financial
institution(s) and want to transfer
your assets to consolidate your
accounts for easier record keeping
and potentially lower fees.
o Already have an IRA, but are
dissatisfied with your current level
of service or want a wider array of
investment options.
"TRANSFER"
"ROLLOVER"
What's The Difference?
While the terms are often used
interchangeably, there are important
differences between a "transfer" and a
"rollover:"
o Transfer--moves your IRA assets
directly from one custodian to
another. One of the key differences
between a transfer and a rollover is
with a transfer you never take
receipt of your assets. There is no
limit to the number of IRA transfers
you can make in a given year.
o Rollover--moves your retirement
assets from one place to another.
Unlike a transfer, which occurs
between two custodians, with no
direct involvement by you, choosing
a rollover means you receive an
actual distribution from the first
IRA and it is your responsibility to
reinvest it in another IRA within 60
days. Aside from certain exceptions,
if you are under age 59 1/2 and do
not complete the rollover within 60
days, you will pay ordinary income
tax on your withdrawal, plus a
possible 10% tax penalty. While you
can make an unlimited number of
transfers, you are entitled to only
one IRA rollover between IRAs in a
12-month period. For more
information on direct rollovers,
please see the Lump Sum Distribution
IRA on pages 9-11. Also, remember
that whether a transfer or rollover
of assets, sales charges may apply
to investments in a mutual fund.
THE BENEFITS
o Easier record keeping
o Help avoid tax penalties
o Continue to build for retirement
o Potentially lower fees
Sales charges may apply; please consult
the Fund prospectus(es) for more
details.
CASE STUDY
o o o o o o o o o o o o o o o o o o o o
Transferring
Assets For Easier
Record Keeping
Over the years, Fred Viola and his wife
Florence had established IRAs with a
number of financial institutions. It was
becoming a record-keeping nightmare,
particularly at tax time. The Violas,
long-time investors with State Street
Research, called their investment
representative to see whether their IRAs
could be consolidated into one IRA.
Their representative assured them that
this could be easily accomplished. The
transaction was simply called a
"transfer of assets." After the transfer
was complete, the Violas were pleased to
finally have their IRA assets "under one
roof" and found that State Street
Research's consolidated IRA statement
made tax time much easier.
Note: consolidation of rollover IRAs
(which contain assets from 403(b)
contracts or qualified plans other than
IRAs), with an existing IRA may have
adverse tax consequences such as
limiting future rollovers into qualified
plans other than IRAs.
7
<PAGE>
THE FORMS
YOU NEED
1. IRA Terms & Conditions
2. IRA Application
3. Transfer of Assets/
Direct Rollover Form
4. Fund Prospectus(es)
o o o o o o o o o o o o o o o o o o o o
STATE STREET RESEARCH IRA
How To
Rollover
Or Transfer
Assets To
An IRA
o o o o o o o o o o o o o o o o o o o o
A o Sit down with your investment
representative; he or she will help
you select the funds for your IRA
that are best suited to your
retirement goals.
o Read the prospectus for each fund
you're considering before you
invest.
B o Familiarize yourself with the IRA
Terms & Conditions.
o Complete the IRA Application--be
sure to specify which mutual funds
you would like to invest in (Section
3).
For Rollovers Only:
o Attach a check made payable to State
Street Bank & Trust Co., or, if the
check representing your assets was
made payable to you, please endorse
it to State Street Bank & Trust Co.
For Transfers of Assets &
Direct Rollovers Only:
C o Complete the Transfer of
Assets/Direct Rollover Form. This
will authorize your present IRA
trustee (or the plan administrator
of your employer's plan) to
transfer/rollover your assets
directly to State Street Research.
D o Keep a copy of your signed documents
for your files
o Mail your completed application and
the transfer of assets/direct
rollover form in the envelope
provided.
o You will receive written
confirmation that the transfer, or
rollover, has occurred and your IRA
has been established.
That's all there is to it!
If you have any questions, call toll-free:
1-800-562-0032.
8
<PAGE>
YOUR IRA OPTIONS
LUMP-SUM
IRA
IS THIS THE
IRA FOR YOU?
o o o o o o o o o o o o o o o o o o o o
Consider a Lump-Sum Distribution IRA if
you are leaving your job for any reason:
o You have reached retirement age, or
you've decided to retire early.
o You have accepted a new job with
another employer.
o Your industry is consolidating and
layoffs are inevitable.
o Your company has recently been
acquired or taken over.
o You're starting your own business.
Avoid the 20% withholding and keep your
retirement money working by rolling your
eligible rollover distribution directly
into an IRA from State Street Research.
What's A Lump-Sum
Distribution?
To qualify as a lump-sum, the
distribution from your company's
retirement plan must:
o Represent your entire vested account
balance
o Be paid as a result of separation
from service; attainment of
age 59 1/2; disability; or death
o Be paid in one or more payments
within one calendar year
Facing Major Decisions
If your employer has a retirement plan
that you've participated in, when you
leave your job, you may receive a
lump-sum distribution from that plan.
You need to decide--in advance--how to
deal with those assets or you may face
some serious tax consequences:
o how much will you owe in taxes?
o do you qualify for income averaging?
o is your best option a direct
rollover into an IRA?
o what are the tax consequences if you
keep the money?
YOUR OPTIONS
Take a cash distribution and pay
your tax bill now
If you don't roll your money into an
IRA (or other tax-qualified
retirement plan) within 60 days, or
don't qualify for income averaging,
you may face a hefty tax bill that
could include penalties if you are
under age 59 1/2.
Use income averaging to minimize the
taxes you pay now(4)
If you keep your distribution,
current taxes are due on your entire
distribution. It's possible to reduce
your taxes by using 5- or 10-year
income averaging, if you qualify:
5-year averaging--you must be at
least 59 1/2 when you receive your
lump-sum distribution and have been
an active participant in your former
employer's retirement plan for at
least five years.
10-year averaging--you can use this
method if you were 50 or older on
January 1, 1986 (this rule applies
to 5-year averaging as well).
(4) Income averaging can only be used
once.
Choose a direct rollover to defer
taxes
A direct rollover into an IRA or
your new employer's qualified
retirement plan will defer taxes on
all or part of your distribution. By
continuing to benefit from
tax-deferred growth, a direct
rollover IRA may provide the
opportunity to substantially
increase your retirement assets over
time.(5)
(5) If you receive a check and the
rollover is not done directly
(institution-to-institution), you
will be subject to 20% income tax
withholding (mandatory under IRA
rules). This applies even if you
comply with the 60-day rollover
deadline.
Another option is to begin periodic
withdrawals of substantially equal
amounts for at least 10 years. You
pay tax as you receive distributions
but avoid the 20% withholding tax
and the 10% penalty tax if rolled
over within 60 days.
9
<PAGE>
How To Choose
Your Best Distribution
Option
State Street Research offers a free
personalized program called Lump Sum to
help you get the most from your
retirement plan distributions. Lump Sum
will show you--in real dollar
terms--what each distribution option
means, given your age, tax bracket and
income needs.(6) In an
individually-prepared analysis, Lump Sum
shows:
1 How your distribution can grow in a
tax-deferred IRA.
2 How 5- or 10-year income averaging
can lower your tax bill (if you are
eligible).
3 Expected income and taxes for each
of your distribution options.
4 Hypothetical performance
illustration on selected mutual
funds that correspond with the
investment objective that you
indicate on the Lump Sum Profile
form.
(6) Lump Sum Illustrations are based on
past performance only and are not
meant to imply or guarantee future
performance of any funds managed by
State Street Research or its
affiliates.
o o o o o o o o o o o o o o o o o o o o
STATE STREET RESEARCH IRA
NEW TAX LAW
$
COULD COST YOU $$$
20% Withholding Law--
Effective January 1, 1993
The 20% withholding rule applies to all
eligible rollover distributions and not
just the taxable portion of a lump sum
distribution.
If you accept a check--made payable to
you--your employer must withhold 20% of
the total for taxes. This rule applies
even if you have every intention of
rolling the money over within 60 days.
Exempt From 20%
Withholding Rule
In general, eligible rollover
distributions are all distributions from
a qualified retirement plan except the
following:
o Distributions from IRAs
o Substantially equal periodic payments
(made not less frequently than
annually) with a term of 10 years or
more.
o Substantially equal payments (made not
less frequently than annually) made
for your lifetime or over a period not
exceeding your life expectancy; or for
the joint lives of you and your
beneficiary or over a period not
exceeding your joint life
expectancies.
o Minimum required distributions
o Distributions of previously taxed
amounts.
CASE STUDY
o o o o o o o o o o o o o o o o o o o o
20% Law In Action
George Mills, age 50, has accepted a new
job and is eligible for a $100,000
lump-sum distribution from his former
employer's retirement plan. Thinking he
has 60 days to decide to roll all, or a
portion, into an IRA, George accepts the
distribution check. Later, when George
looks at the check, he sees that it is
for $80,000 not $100,000. He immediately
calls the benefits department at his
former employer. They explain that the
lump-sum distribution was in IRS-terms
an "eligible rollover distribution,"
hence, it is subject to the new 20%
withholding. Now what?
o George decides to roll the $80,000
into an IRA.
o The $20,000 withheld is treated as a
premature distribution and will be
included in his annual income for tax
purposes.
o George is in the 36% tax
bracket--income tax due on the $20,000
is $7,200.
o The remainder of the $20,000 withheld
will be refunded after he files his
tax return.
o And it gets worse. George is under
59 1/2, so he has to pay an additional
penalty tax of 10%. Already his tax
bill is up to $9,200--and that doesn't
include state or local taxes!
If George wants to roll over the entire
$100,000, is it still possible? Yes. But
he must come up with the additional
$20,000 from his other assets. And, the
rollover must be completed within 60
days from the date he received the
$80,000. This will not get back the
$20,000 withheld for tax purposes (he'll
have to wait for his IRS refund), but it
will avoid a 10% premature withdrawal
penalty and the $7,200 income tax.
TURN PAGE FOR MORE INFO ON LUMP-SUM IRA
10
<PAGE>
THE FORMS
YOU NEED
1. IRA Terms & Conditions
2. IRA Application
3. Lump Sum Profile
4. Transfer of Assets/Direct
Rollover Form
5. Fund Prospectus(es)
How To Open An
IRA With Your
Lump-Sum
Distribution
o o o o o o o o o o o o o o o o o o o o
A o Complete the Lump Sum Profile form
and mail, or fax, it to State Street
Research.
o With your investment representative,
review the Lump Sum Illustration
provided by State Street Research
and select the distribution option
that best suits your needs.
B o If an investment is appropriate,
your representative will help you
select the funds for your IRA that
will best meet your retirement
goals.
o Read the prospectus for each fund
you're considering before you
invest.
C o Familiarize yourself with the IRA
Terms & Conditions.
o Complete the IRA Application--be
sure to specify which mutual funds
you would like to invest in (Section
3).
For an institution-to-institution
rollover:
D o Complete the Transfer of
Assets/Direct Rollover Form.
This will authorize your retirement
plan trustee to transfer/rollover
your assets directly to State Street
Research.
E o Keep a copy of your signed documents
for your files.
o Mail your completed application and
the transfer of assets/direct
rollover form in the envelope
provided.
o You will receive written
confirmation that the transfer, or
direct rollover has occurred and
your IRA has been established.
That's all there is to it!
If you have any questions, call toll-free:
1-800-562-0032.
11
<PAGE>
DISTRIBUTION SERVICES AVAILABLE TO IRA OWNERS
MINIMUM DISTRIBUTION
IRA
Investing for retirement is serious
business, and State Street Research
recognizes that it takes more than
attractive investments to power a
successful IRA. It takes dedicated
service, low cost, and features that
help make investing easier.
MINIMUM
DISTRIBUTION SERVICE
Consider a minimum distribution from
your IRA if you are:
o approaching age 70 1/2.
o Between age 59 1/2 and 70 1/2 and
ready to supplement your retirement
income with distributions from your
IRA.(7)
(7) Minimum withdrawals are not
mandatory until April 1 following
the year you reach age 70 1/2. Also
sales charges may apply to
withdrawals made prior to age
70 1/2. See Fund prospectus for
details.
Withdrawals Are
Mandatory At
Age 70 1/2
You may make withdrawals from an IRA
from age 59 1/2 on. However, if you are
approaching 70 1/2, the IRS requires
that you begin taking a minimum
distribution from your IRA each year. If
you don't make the required withdrawals,
you will be subject to a 50% penalty tax
on the amount that should have been
withdrawn. Therefore, once you reach
70 1/2, it is important that you begin
taking your minimum distributions by
April 1 of the following year.
DID YOU TURN
70 1/2 THIS YEAR?
If so, you MUST begin IRA withdrawals by
April 1 of next year
How Much Do You Need
To Withdraw?
When you're ready to take distributions,
you have two choices for determining the
amount to withdraw to meet the minimum
requirement (based on age, account
balance and life expectancy):
o We will do the calculations for your
State Street Research IRA--for your
review--based on information you
provide. Distributions will be paid
on a periodic basis, and your
minimum distribution amount will be
recalculated automatically each
year.
o You may make your own
calculations--take your IRA
withdrawal in an annual lump-sum or
choose periodic payments.(8)
(8) If you choose to make your own
calculations, you must take all your
IRAs into consideration (State
Street Research and others) in
computing the aggregate amount
required to satisfy the minimum
distribution requirements. However,
the IRS allows you to take the
amount from any one or more of your
IRAs, as you choose. As your account
size changes, the required minimum
distribution will vary each year;
therefore, it is your responsibility
to be sure that the withdrawal
amount you specify does not fall
below the minimum amount required.
If you change beneficiaries, see
your tax adviser. This may affect
your calculations.
o o o o o o o o o o o o o o o o o o o o
STATE STREET RESEARCH IRA
TURN PAGE FOR MORE INFO ON MINIMUM DISTRIBUTION
12
<PAGE>
Cash Or Reinvest--
It's Up To You
Take your IRA distribution(s) in cash or
choose automatic reinvestment:
o Cash--We'll send you one check,
representing your annual minimum
withdrawal amount, or a series of
smaller periodic payments. Or choose
the Automatic Bank Connection (ABC)
option, and your distributions will
automatically be deposited in your
bank checking or NOW account. ABC is
easy and gives you ready access to
your distributions.
o Automatic Reinvestment--Just tell us
which available funds managed by
State Street Research (or its
affiliates) you'd like to invest in,
and we'll automatically reinvest
your minimum distributions for you.9
While no longer tax-sheltered, your
money has the potential to continue
to grow to provide future income for
you or your heirs.
9 See Fund prospectus for minimum
required investments. Also, in
general, contributions--whether in
cash or reinvested--are taxable. If
you have made non-deductible
contributions to your IRA, a portion
of each distribution will not be
taxable.
A WORD ABOUT
PRE-59 1/2
DISTRIBUTIONS
There are several circumstances in which
you might choose to make withdrawals
from your IRA prior to reaching age
59 1/2. Call us if you'd like more
information. Make sure you consult with
your tax adviser first so that you fully
understand the potential tax
consequences. A 10% penalty may apply to
these withdrawals.
THE FORMS
YOU NEED
1. IRA
Distribution
Form
How To Choose
The Minimum Distribution Option
o o o o o o o o o o o o o o o o o o o o
A o Complete the IRA Distribution
Form--be sure to indicate which
distribution option you'd like
(Section 4).
B o Keep a copy of your signed documents
for your files.
o Mail the completed form in the
envelope provided.
That's all there is to it! Your
distributions will begin within one month.
If you have any questions, call toll-free:
1-800-562-0032.
13
<PAGE>
MORE FEATURES
IRA
ONE FEE
$10
ANNUALLY
Choose as many available mutual funds
for your IRA account as you want--you
pay only one fee (Does not include sales
charge).(10)
o Easy-To-Use Brochure/Forms--
We explain your IRA options and give
you step-by-step instructions on how
to open the IRA that's right for you.
Forms are easy to fill
out--everything you need is at your
fingertips.
o Consolidated Statement--
All your State Street Research IRA
information on one statement. You'll
see at a glance what portion of your
investments are tax-qualified and--if
you have non-IRA mutual fund
accounts--what are not. This can be a
big timesaver at tax time. For your
convenience, statements are generated
quarterly.
(10) Applies to annual trustee fee, does
not include applicable sales
charges. See Fund prospectus for
more information.
o Free Hypothetical Illustrations
(based on past performance)--
Tailored to your needs--this
powerful tool shows any number of
investment scenarios all in real
dollar terms. This service can be
invaluable for retirement planning.
See your investment representative
for details.(11)
o DIRECT--
An innovative risk reduction
strategy for lump-sum investments.
Commit a minimum of $10,000 to any
available State Street Research
mutual fund. Smaller sums(12) are then
systematically invested (monthly or
quarterly) into a maximum of four
other funds that you choose. It's a
great solution if you have a
substantial sum of money to invest
but are concerned about committing
it all at once.
o Automatic Reinvestment of Required
Distributions--
If it's time to take required
distributions from your State Street
Research IRA--but you don't
currently need the money--this
option will help your assets
continue to work for you. Although
no longer tax-advantaged, your IRA
distributions will automatically be
reinvested in the fund(s) you
choose. You will generally pay taxes
on the amounts reinvested, and the
earnings on the distributions will
no longer be tax-sheltered.
(11) Illustrations are based on past
performance only and are not
intended to imply or guarantee the
future performance of any available
fund managed by State Street
Research or its affiliates.
(12) See prospectus for minimum required
investments.
o Investamatic--
Invest in your State Street Research
IRA, on a monthly or quarterly
basis, through the Investamatic
check program. You can have as
little as $50 automatically
withdrawn from your checking account
and invested in your IRA. It's a
great way to build for your future
with no inconvenience.(12)
o Automatic Bank Connection (ABC)--
If you're taking distributions from
your IRA, choose this feature and
insure that all investment income is
deposited directly into your bank
checking account. No phone calls or
unnecessary paperwork, it all
happens automatically and gives you
immediate access to your money.
o Overview--
Receive a copy of our shareholder
newsletter four times a year. Each
issue is full of information about
the economy, tips to make investing
easier, what State Street Research
portfolio managers are saying about
the markets, and more!
14
<PAGE>
IRA BASICS
Q/A
ANSWERS TO
FREQUENTLY
ASKED
QUESTIONS
o o o o o o o o o o o o o o o o o o o o
CONTRIBUTIONS
TO YOUR IRA
Q. Who can open an IRA?
A. Anyone with earned income who is
under age 70 1/2.
Q. How much can I contribute to an IRA
each year?
A. Except for rollover contributions,
you can contribute a maximum of $2,000
or 100% of your earned income, whichever
is less.
Q. We're a dual-income household. Can we
each contribute $2,000?
A. Yes. If your spouse is a wage-earner,
he or she can open a separate IRA--the
maximum contribution rules apply
separately to each of you--$2,000 each
for a combined annual total of $4,000 or
100% of compensation, whichever is less.
Q. May I have more than one IRA?
A. Absolutely. Just be sure that total
annual contributions to your IRAs do not
exceed 100% of compensation, up to a
maximum of $2,000. Many investors have
found that by consolidating multiple
IRAs into one IRA, annual account
maintenance fees are reduced and record
keeping is made easier. One note
though--sales charges may apply. Please
consult a Fund prospectus for details.
Q. How do I determine whether my IRA
contribution is deductible on my federal
tax return?
A. Deductibility of IRA contributions
depends on your income and whether you
participate in an employer-sponsored
retirement plan. Generally, you can
fully deduct up to $2,000 if:
o you or your spouse is not covered by
an employer-sponsored retirement
plan;
o you or your spouse participate in an
employer-sponsored retirement plan,
but your adjusted gross income does
not exceed $40,000 ($25,000 if you
are single).
For married couples filing jointly with
earnings of $40,000 to $50,000 (and
single filers who earn $25,000 to
$35,000), contributions may be partially
deductible--the rules can be complex.
Please see your tax adviser for details.
Q. Why contribute to an IRA if I can't
deduct my contribution?
A. You're helping prepare for a
comfortable retirement. And regardless
of whether you are able to deduct your
contribution, contributing to an IRA
gives you the benefit of tax deferral on
your earnings. Earnings are tax-free
until they are distributed to you. When
you're ready to retire, this
tax-deferred compounding may make a
sizable difference in your retirement
savings.
Q. Do I have to contribute to an IRA
every year?
A. You are not required to contribute to
your IRA each year, but it may be wise
to do so. IRA contributions--up to the
maximum annual limit--are completely at
your discretion. Contribute as much or
as little as you choose. However, you
may not make up "missed" contributions
in later years.
Q. Is there a cut-off date for my annual
IRA contribution?
A. You can contribute to your IRA
(deductible and non-deductible
contributions) up to the due date for
filing your federal tax return for the
prior year--generally April 15th.
Q. Do I have to stop contributing to my
IRA once I reach a certain age?
A. Yes. You can make IRA contributions
as long as you are a wage-earner up to,
but not including, the year you reach
age 70 1/2.
15
<PAGE>
DISTRIBUTIONS
FROM YOUR IRA
Q. When will I start to make
withdrawals?
A. You may elect to make withdrawals
from your IRA in the year in which you
reach age 59 1/2. Withdrawals before you
reach age 59 1/2 may be considered
premature and may be subject to a
penalty tax of 10%. However, you must
begin making withdrawals from your IRA
by April 1 of the year following the
year in which you reach 70 1/2.
Q. What if I decide to make withdrawals
before I turn 59 1/2?
A. If you decide to withdraw money from
your IRA before age 59 1/2, you may
incur a 10% tax penalty--on top of your
regular income tax. This penalty is
imposed to encourage people to invest in
an IRA as a future retirement account,
not a short-term savings vehicle.
However, exceptions exist, including
those based on hardships such as death
or disability. (Sales charges may apply
in some circumstances.)
Q. Will I have to pay tax on my IRA
withdrawals?
A. Unfortunately, the answer is yes. IRA
withdrawals are generally taxable as
ordinary income in the year you receive
them. But--and this is part of the
attraction of IRAs--when you reach
retirement, your income may be lower
than it is now, putting you in a lower
tax bracket. So by deferring your tax
bill until retirement, you may pay less
in taxes.
Q. What about tax on withdrawals of
non-deductible contributions?
A. Don't worry, you don't have to pay
taxes twice! If you've made
contributions that you did not deduct on
your tax return, they are returned to
you tax-free because you paid tax on
them in the year they were contributed.
However, for maximum flexibility under
the income tax rules, you may want to
consider keeping rollover IRAs separate
from others.
Q. I'd like to wait as long as possible
before I take withdrawals from my IRA.
What's the latest date I can start?
A. The law requires that you begin
withdrawals no later than April 1
following the year you reach age 70 1/2.
If you have reached this age and choose
to take your withdrawals in installments
(versus a lump-sum payment) you must
satisfy certain minimum distribution
requirements. These calculations are
based on your life expectancy (and those
of your beneficiaries, if any). As part
of our IRA service, we'll provide you
with your minimum distribution
calculation(s) on your State Street
Research IRA, for your review. If you
begin withdrawals after age 70 1/2 and
do not take your minimum required
distribution, you may be assessed a
penalty tax equal to 50% of the
difference between the amount you
received and the amount you should have
received. See your tax adviser for
details.
Q. Will IRA withdrawals affect my Social
Security benefits?
A. No. Your IRA withdrawals are in
addition to other retirement income such
as Social Security and any other
retirement or pension plan benefits you
may receive.
o o o o o o o o o o o o o o o o o o o o
STATE STREET RESEARCH IRA
TURN PAGE FOR MORE Qs & As
16
<PAGE>
Q. Will I have access to my IRA money if
I become disabled?
A. Absolutely. If you become
disabled--as defined in Section 72(m) of
the Internal Revenue Code--you may begin
to receive penalty-free distributions
from your IRA regardless of your age.
Q. What happens to my IRA if I die?
A. Your assets will be distributed to
your designated beneficiary(ies). If you
die after some of your IRA assets have
been distributed to you, your designated
beneficiary may continue to receive
payments under the method you elected
prior to your death. Distributions to
your beneficiary must be made at least
as rapidly as they were made to you.
However, if you die before any IRA
distributions have begun, the rules
change slightly:
o In general, your IRA assets must be
distributed to your estate or
beneficiary within five years after
your death.
o If you have designated a beneficiary
and he or she is someone other than
your spouse, your beneficiary may
begin distributions no later than
one year after the date of your
death, and such distributions must
be made over your beneficiary's life
or over a period not exceeding your
beneficiary's life expectancy.
o If your designated beneficiary is
your spouse, he or she may defer any
distributions until December 31st of
the year in which you would have
reached age 70 1/2. Distributions
must then be made over your spouse's
life or over a period not exceeding
his or her life expectancy. Or, your
spouse may roll your IRA assets over
into his or her own IRA; the assets
would then be subject to the same
distribution rules as any IRA.
INVESTING
YOUR IRA
Q. Are there any rules about how IRA
contributions can be invested?
A. You have a number of investment
options to choose from,
including--individual stocks and bonds,
mutual funds, certain types of
annuities, endowment policies and
savings accounts. These options vary in
risk and potential rate of return, so be
sure to consult your investment adviser.
He or she can help you select the asset
mix that's right for you. The law
prohibits IRAs from investing in life
insurance.
Q. I keep reading about IRAs and mutual
fund investing--what is a mutual fund?
A. A mutual fund is a company that pools
the money of many shareholders,
investing it in a variety of securities
chosen by a full-time, professional
money manager, for the purpose of
meeting a stated financial objective.
The flexibility and diversification of
mutual funds have wide appeal--currently
over $284 billion (approximately 33%) of
all IRA assets are invested in mutual
funds.
Source: Investment Company Institute,
1994 Mutual Fund Fact Book
Q. If I own mutual funds in my IRA, what
happens to any dividends and capital
gains?
A. Dividends and capital gain
distributions are automatically
reinvested in additional shares. These
additional shares do not affect the
amount you may contribute. It is
important to understand that the value
of a fund's portfolio will fluctuate
with changes in market conditions;
therefore, the amount available when you
are ready to take your distributions
cannot be projected or guaranteed.
Q. What about fees? Is it expensive to
open an IRA with State Street Research?
A. State Street Research offers some of
the most competitive pricing for IRAs
that you'll find anywhere. You'll pay a
$10 annual account administration
(trustee) fee. This $10 (per IRA) fee
allows you to choose any number of our
available mutual funds. You pay per IRA,
not per fund! Remember though, sales
charges may also apply to the mutual
funds that you invest in for your IRA.
JUST THE
ABCs
OF IRAs
These are the IRA basics. You may have
further questions which your investment
representative and/or tax adviser can
answer.
17
<PAGE>
WHY INVEST WITH
STATE STREET RESEARCH
PROVEN
MANAGEMENT
SINCE 1924
o o o o o o o o o o o o o o o o o o o o
State Street Research & Management
Company has a history that dates to
1924, when Paul Cabot and his
Boston-based colleagues opened America's
second mutual fund. Over the years,
State Street Research has built a
reputation for top-notch research and
prudent investment management. Today,
the Company is well-respected in many of
the nation's most powerful board rooms
and is best known as the institutional
asset manager for some of the most
successful and renowned companies in the
United States. The knowledge, resources
and experience of over seven decades are
available to individual investors
through the State Street Research IRA.
Investment
Flexibility
Choose the mutual fund, or combination
of funds, which best suits your
investment objectives. If your financial
goals change, you can easily exchange
shares of one available mutual fund
managed by State Street Research or its
affiliates for shares of another with no
fee. Exchanges may be subject to
applicable sales charges, and the
privilege may be changed or discontinued
at any time.
A Wealth of Experience
An investment as important as your
retirement plan--and that's what an IRA
is--shouldn't be entrusted to anyone but
experts. To manage its assets, State
Street Research employs some of the best
in the business. The Company currently
has 22 portfolio managers on staff--they
average 20 years of investment
experience--and 25 analysts--with an
average 15 years of experience.
o o o o o o o o o o o o o o o o o o o o
STATE STREET RESEARCH IRA
18
<PAGE>
[Graphic]
OPTIONS
YOUR
INVESTMENT
OPTIONS
o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o
Whichever IRA you choose, State Street
Research offers a family of mutual funds
from which to choose. Each fund is
managed to achieve a specific objective
such as growth, income, or growth and
income combined.
Consult your investment representative
for the fund(s) best suited to your
goals and risk tolerance.
- --------------------------------------------------------------------------------
Please note that neither State Street Research, Metropolitan Life Insurance
Company nor any of their agents give legal or tax advice. The brief discussion
of taxes in this brochure is neither complete nor necessarily up-to-date--it is
intended strictly as a guide. The laws and regulations are complex and subject
to change.
For complete details, consult your attorney or tax adviser.
- --------------------------------------------------------------------------------
[Logo] STATE STREET RESEARCH
A MetLife Company
When used as sales material, this brochure must be preceded or accompanied by a
current, relevant fund prospectus which provides more complete information
including investment policies, sales charges and expenses. Please read the
prospectus(es) carefully before you invest.
(C)1995 State Street Research Investment Services, Inc., Boston, MA 02111
CONTROL NUMBER: 2074-950302(0496)SSR-LD
IR-081E-395
Exhibit (14)(b)
[FRONT COVER]
[State Street Research Logo]
403(b)
Retirement--The Key Is Planning Now
As a working person, you have a decision to make--how to protect your current
earnings and provide for a comfortable retirement.
Social Security may not be adequate. Currently, average monthly benefits
are around $675.* And, as the retired population grows in proportion to
the number of workers paying into the fund, Social Security may become
less reliable. In fact, in many places, employees of state or local
governments do not participate in Social Security.
Taxable savings plans may not be adequate either. Both the money you set
aside and the interest it earns are taxed at current rates--just when
you're at peak income levels.
*Source: Social Security Administration.
A Good Way To Plan For Retirement
A State Street Research 403(b) Account is a good way for employees of
private tax-exempt organizations such as hospitals or colleges, and
employees of public schools or colleges, to build financial resources
for retirement. If you are such an employee, you should consider a
403(b) account.
The 403(b) Advantage--Lower Income Taxes
Contributions to your State Street Research 403(b) Account are not
subject to current federal income tax, within the limits allowed by the tax
laws. This reduces your current federal income tax liability and increases your
spendable income, compared to a taxable savings program. Many states
exclude 403(b) contributions from state income taxes as well.
This chart shows the benefits of saving with a 403(b) account. In each
instance, the employee plans to save 10% of income, or $5,000. This
example shows only federal income tax savings. You may also save on
state income taxes.
Saving Outside 403(b) Saving With 403(b)
Salary $50,000 Salary $50,000
Income Taxes 9,353 403(b) Savings 5,000
- ---------------------------- -------------------------------
After-Tax Income 40,647 Taxable income 45,000
Savings 5,000 Income Taxes 7,953
- ---------------------------- -------------------------------
Spendable Income $35,647 Spendable Income $37,047
With 403(b), you have $1,400 more in spendable income!
The 403(b) Advantage--Tax-Free Accumulation
The interest and other investment earnings accumulating in your 403(b)
account compound tax deferred until you begin making withdrawals from your
account. This can mean greater overall returns than with taxable
investments.
<PAGE>
------------------------ LINE CHART ------------------------------
Taxable vs. Tax-free Accumulation
The chart at right
illustrates what
happens when monthly investments of $125
grow at 7% and 5%
tax free for 10 years,
versus the same
taxable investments
growing at 7% and 5%
for 10 years in the 28%
tax bracket. All
distributions are
reinvested. Sales
charges, if any are
not reflected.
($ in Thousands)
$21,501 Tax deferred 7%
$19,413 Taxable 7%
$19,375 Tax deferred 5%
$18,018 Taxable 5%
The chart illustrates general advantages of tax-deferral. Returns are
hypothetical and are for illustrative purposes only; they are not
intended to imply or guarantee a rate of return on any mutual fund or
other investment.
----------------------------------------------------------------
State Street Research Mutual Funds
Your 403(b) contributions will be invested in the State Street Research
fund(s) of your choice. State Street Research offers a variety of mutual
funds, each managed to meet a specific investment objective, such as
growth or income.
Corporate Heritage
State Street Research has a history dating to 1924, with the founding of
the nation's second oldest mutual fund. Today the Company manages over
$27 billion in assets.
How To Get Started
The following questions and answers will give you important information
about your State Street Research 403(b) Account. Simply follow the
instructions on the back cover to set up your account.
Questions And Answers About Your
403(b) Account
Eligibility
Who can have a 403(b) account?
Only employees of an organization described in Section 501(c)(3) of the
Internal Revenue Code may have a 403(b) account. These include non-
profit charitable, educational, scientific or religious organizations,
such as hospitals or colleges. Also, an employee of a state or local
government who is employed by a school (for example, a local school
system or state college or university) can have a 403(b) account. Check
with your employer to determine whether you qualify for a 403(b)
account.
<PAGE>
What happens if I change employers?
If your new employer is a qualified employer, you may continue to
contribute to your 403(b) account after changing jobs. If your new
employer is not a qualified organization, you may no longer make
contributions to your 403(b) account, but your account will continue to
accumulate tax free until you begin making withdrawals. Contact
State Street Research Shareholder Services for additional information:
1-800-562-0032.
Contributions
How do I make contributions to my 403(b) account?
Usually, you would enter into a salary reduction agreement with your
employer that specifies the amount you want to contribute. Your
compensation will be reduced by this amount and the money will be
contributed by your employer to your 403(b) account. In some cases, your
employer may make contributions to your 403(b) account as a retirement
benefit for you.
Your employer may already have a salary reduction agreement for you to
use. If not, a form of salary reduction agreement is included in your
State Street Research 403(b) Package. Read the form for an explanation
of IRS restrictions on changing the amount of your salary reduction.
Maximum Contribution
How much can be contributed each year to my 403(b) account?
Determining your maximum 403(b) contribution is complex because several
different tax law limits apply depending on your individual situation.
For most employees, the maximum salary reduction contribution for a
calendar year will be the smaller of 20% of your compensation or $9,500.
In the future, the $9,500 limit may be indexed for inflation each year.
Employees of certain kinds of qualified employers (for example, public
schools and private tax-exempt schools, colleges, hospitals and home-
health agencies) can elect different limits in some situations. Also,
long-service employees (15 or more years of service) of such employers
may have increased limits.
Your employer's benefits or personnel department, or the business
office, may be available to calculate your maximum contribution. If not,
you may use the worksheet enclosed in your State Street Research 403(b)
Package. You may wish to consult an accountant or tax adviser to confirm
your maximum contribution.
What happens if I exceed the maximum for a year?
If you exceed the $9,500 limit for a year, you should request State
Street Research to return the excess contribution to you with earnings.
You should make your request no later than March 1 of the following
year.
<PAGE>
If your contributions for a year exceed any of the other limits, you
must include the excess in your income for federal income tax purposes.
In addition, you may have to pay a penalty tax equal to 6% of the
"excess contribution." The penalty tax also applies to excess
contribution amounts left over from prior years.
You can avoid paying the penalty tax if you withdraw the amount of the
excess from your account before the end of the year in which the excess
contribution was made.
Even if you have to pay the penalty tax in one year, you can avoid paying it in
later years by contributing less than your maximum for the later year; the
excess is reduced by the difference between the maximum and the actual
contribution.
Investments
What are my investment choices?
Contributions to your 403(b) account may be invested in one or more of
the eligible mutual funds distributed by State Street Research.
Also, you can exchange amounts from one fund to another. (You can even
choose telephone exchange privileges when completing your State Street
Research 403(b) Account Application.) There may be minimum investment
amounts for certain funds, or there may be sales charges. Such minimums
or charges are described in the prospectus(es).
Before investing, be sure to read the current prospectus(es) for the
funds in which you are interested so that you can be familiar with the
investment objectives and policies, and the sales charges or other
charges applicable to a Fund.
May I transfer my existing 403(b) to State Street Research?
Yes. Complete the Transfer of 403(b) Assets Form found in your State
Street Research 403(b) Package. Be sure to note the requirements for a
tax-free transfer described in the Form. Consult your personnel or
benefits department or your tax adviser for additional information.
What about an IRA?
You can have an IRA even though you are contributing to a 403(b)
account. Depending on your income level, contributions to an IRA may or
may not be deductible on your federal income tax return. For more
information about our IRAs, call State Street Research Shareholder
Services: 1-800-562-0032.
<PAGE>
Withdrawals From Your Account
When will I begin to receive retirement benefits from my account?
You choose when to make withdrawals from your 403(b) account. However,
withdrawals may not begin until you have retired or terminated
employment with your employer; reached age 59-1/2 (even though you are
still employed by your employer); or died. Earlier withdrawals are
permitted only if you become disabled or suffer a financial hardship
(as defined by IRS regulations). Consult your tax adviser, as tax
penalties may result. You may be requested to verify disability with a
doctor's certificate or a Social Security disability benefits award.
You may be asked to verify financial hardship by a certificate from an
independent person appointed by your employer, and financial hardship
withdrawals are limited to the amount of your salary reduction
contributions (no earnings or investment gains). You must begin making
withdrawals by April 1 of the year following the year when you reach
age 70-1/2. This is required even if you are still working.
Use the Withdrawal Form to notify State Street Research when you wish to
begin making withdrawals from your account.
How will the benefits be paid to me?
Benefits will be paid to you either in a lump-sum payment or in periodic
(monthly, quarterly, or annual) installments. Installment payments may
not extend beyond your life expectancy or the joint life expectancy of
you and your designated beneficiary.
Also, there are minimums on the amount of installments you must receive
after age 70-1/2. There are substantial penalty taxes (up to 50%) if you
do not make the minimum required withdrawals.
What happens to my account if I die?
Your account balance goes to the beneficiary(ies) you designate on the
403(b) application or on another written document you send to State
Street Research Shareholder Services. You can change your
beneficiary(ies) in writing. Naming a beneficiary(ies) can have estate
and tax-planning implications; consult a qualified professional.
Withdrawals by a beneficiary(ies) are also subject to rules relating to
when withdrawals must begin and minimums for installment withdrawals.
Taxes
How will I be taxed on withdrawals from my 403(b)?
Generally, amounts withdrawn from your account are taxed as ordinary
income in the year when received. In addition, with limited exceptions,
such as disability, amounts withdrawn before age 59-1/2 are subject to
an additional 10% penalty tax.
Special five-year averaging, applicable to lump-sum distributions from
certain retirement plans, does not apply to 403(b).
<PAGE>
Certain very large withdrawals (generally over $150,000 in a year--
counting all 403(b) and IRA withdrawals and distributions to you from
qualified retirement plans) may be subject to a 15% penalty tax.
There may be income tax withholding on the amounts you withdraw. If you
withdraw an amount from your State Street Research 403(b) Account that
is eligible for rollover (see next question), mandatory 20% federal
income tax withholding will apply unless the withdrawn amount is rolled
directly to another 403(b) arrangement or to an IRA. If the amount you
withdraw is not eligible for rollover to another 403(b) arrangement or
IRA, 10% withholding of federal income tax will apply unless you elect
no withholding on your Withdrawal Form.
Can I postpone federal income tax on a withdrawal from my 403(b)
account?
In certain situations, you can defer income taxes on withdrawals from
your 403(b) account if all or part of the withdrawal is rolled over to
another 403(b) account or into an IRA either directly by State Street
Research (direct rollover) or by you (regular rollover) within 60 days.
All withdrawals are eligible for rollover (either a direct rollover or a
regular rollover) except minimum required withdrawals after age 70-1/2
and withdrawals over a period of at least 10 years or over the life
expectancy of you (or you and your designated beneficiary).
Caution: Rollovers must meet technical IRS requirements that cannot be
described in detail here. Consult your employer or tax adviser for
assistance in carrying out a rollover.
If a withdrawal is eligible for rollover and if you do not elect a
direct rollover, the Custodian must withhold 20% of your withdrawal for
federal income taxes. The rollover and withholding rules also apply to
your surviving spouse if he or she receives a distribution from your
account upon your death.
Be certain to carefully read the notice on tax treatment and withholding
on withdrawals that accompanies the Withdrawal Form for more
information.
What about other taxes?
Contributions under a salary reduction agreement will be subject to
Social Security withholding if you are covered by Social Security.
State tax treatment varies from state to state. You should consult your
tax adviser with any questions on how a 403(b) account would affect your
state taxes.
IMPORTANT. The preceding questions and answers are general and are
provided for informative purposes only. Always consult your tax adviser
for advice on how the tax laws apply to you and how a State Street
Research 403(b) account will affect your tax situation. More information
is available in IRS Publication 571, Tax-Sheltered Annuity Plans for
Employees of Public Schools and Certain Tax-Exempt Organizations; this
publication is available from the IRS.
<PAGE>
How To Start Your State Street Research 403(b) Account
1. Carefully read the material describing the State Street Research
403(b) Account and the prospectus(es) for the fund(s) in which you plan
to invest. You may want to review the material with your accountant,
lawyer or other tax adviser because the rules under Section 403(b) are
complex and subject to change.
2. If contributions to your 403(b) Account will be made under a salary
reduction agreement, you should fill out, and you and your employer
should sign, a salary reduction agreement. If your employer does not
have a form of salary reduction agreement for use with employees, you
may use the sample Salary Reduction Agreement found in the State Street
Research 403(b) package.
3. Complete and sign the State Street Research 403(b) Account
Application. Be sure to complete the beneficiary section of the
Application.
4. If you are transferring your current 403(b) assets to State Street
Research, complete and sign the Transfer of Assets Form.
5. Mail the completed and signed Application (and the Transfer of Assets
Form, if used) to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
Enclose a check in the amount of $10.00 payable to State Street Bank and
Trust Company, Custodian, to cover the first year's annual maintenance
fee for the account; otherwise the fee will be charged to your account.
There is a $10.00 annual maintenance fee for each calendar year (the fee
is not prorated for less than a full calendar year). We will forward the
necessary materials to the Custodian.
This brochure must be preceded or accompanied by the relevant fund
prospectus(es), which includes investment policies, sales charges and
expenses. Please read the prospectus(es) carefully before investing.
[State Street Research logo]
(C)1995 State Street Research Investment Services, Inc. Boston, MA 02111
Control Number: 2717-951025(1196)SSR-LD RP-923C-1095
<PAGE>
[BACK COVER]
(C)1995 State Street Research Investment Services, Inc., Boston, MA 02111
CONTROL NUMBER: 2713-951025(1196)SSR-LD RP-921C-1095
[FRONT COVER]
[State Street Research logo]
403(b)
Maximum Salary
Reduction Worksheet
Maximum Salary Reduction Worksheet
This worksheet will help you compute the maximum amount by which you can reduce
your salary without exceeding any of the limits. Before doing the calculations,
you may wish to check with your Employer's benefits or personnel department or
business office. Often these departments will calculate an employee's 403(b)
maximum.
If you use the worksheet to do your own calculation, read the
information following the worksheet first. After completing the
worksheet, you should consult your accountant, lawyer or other
professional tax adviser to verify your calculation or answer your
questions. The tax laws change often and individual situations can vary.
Also, certain exceptions and rules that apply only in relatively rare
situations are not covered by the worksheet. This worksheet and the
questions and answers following it are not intended to be tax advice,
and you are responsible for meeting the tax law limits
on contributions to your 403(b) account.
To help you, the example demonstrates a typical salary reduction situation and
the worksheet provides spaces for your own computations. This worksheet and the
questions and answers are designed to help you determine your maximum salary
reduction. If your employer will make contributions on your behalf as an
addition to your salary, or if you will contribute by foregoing an increase in
compensation, there are different formulas to determine your maximum. If this
situation applies to you, your Employer should be able to help you calculate the
limits that apply to you.
In the example, a college teacher will earn $40,000 in 1995. She will
have worked for the college 15 years at the end of 1995. The college has
previously contributed $20,000 on her behalf to its 403(b) retirement
plan ($18,000 of which was contributed in the most recent 10 years). The
college will contribute 10% of her salary ($4,000) to its retirement
plan for 1995. In addition, the employee reduced her salary in prior
years by a total of $10,000 for contribution to her 403(b) account. How
much can this employee reduce her salary for 1995?
Step 1 - Determine the Exclusion Allowance
(example) (your computation)
(a) Enter your expected
salary for the current
year before reduction
for contributions to
your 403(b) account. $40,000 ___________________
(b) Enter your number
of years of service
(including whole
and fractional years)
as of the end of the
current year. 15 ____________________
(c) Multiply (a) by (b)
by .20. $120,000 ____________________
(d) Enter the amount of
your salary reduction
contributions and
employer contributions
for you to a 403(b)
retirement plan or to a
qualified retirement plan
in prior years. $ 30,000 _____________________
<PAGE>
(e) Enter amount of
contributions by
your employer
for you to a 403(b)
retirement plan for
the current year. $ 4,000 ______________________
(f) Subtract (d) and (e)
from (c). $ 86,000 ______________________
(g) Multiply your years
of service in (b) by .20
and add 1. 4 ______________________
(h) Divide (f) by (g) to
determine your
exclusion allowance
for the year. $ 21,500 ______________________
Step 2 - Determine the Section 415 General Limitation
(a) Multiply your expected
salary (before reduction
for contributions to your
403(b) account) for the
current year by .20. $ 8,000 ______________________
(b) Multiply amount of
your employer's
expected contributions
for you for the current
year to a 403(b) retire-
ment plan by .80. $ 3,200 ______________________
(c) Subtract (b) from
(a)to determine your
Section 415 general
limitation (but not
in excess of $30,000). $ 4,800 ______________________
Step 3 - Determine the Section 415 Alternatives
Alternative A
Available if employee
terminates service;
same as exclusion
allowance but based
on last ten years of
service with employer,
up to a maximum
of $30,000. $ 16,000 ______________________
Alternative B
(a) Enter the exclusion
allowance determined
in Step 1. $ 21,500 ______________________
(b) Add $3,200 to the Section
415 general limitation
determined in Step 2. $ 8,000 ______________________
(c) Enter $15,000. $ 15,000 $ 15,000
<PAGE>
(d) Your alternative B
limitation is the
smallest of (a),
(b) or (c). $ 8,000 ______________________
Alternative C
Enter the Section 415
general limitation
determined in Step 2. $ 4,800 ______________________
Step 4 - Apply the $9,500 Limit
(a) Enter $9,500. $ 9,500 $9,500
(b) If eligible (see Question 14
below), use the smallest
of the following:
(i) $ 3,000 $ 3,000 $3,000
(ii) $15,000 reduced
by increases to the
$9,500 limit you
used in prior years. $ 15,000 ______________________
(iii) $5,000 multiplied
times years of service,
reduced by all prior
salary reduction
contributions to a
403(b) account or
annuity or to a
401(k) plan. $ 65,000 $_____________________
(c) Add the amount
determined in (b)
to $9,500; this is
your limit for the
year under this step. $ 12,500 $_____________________
Step 5 - Determine the maximum salary reduction
(a) Enter your exclusion
allowance from step 1. $ 21,500 ______________________
(b) Enter your Section 415
general limitation
from step 2. $ 4,800 ______________________
(c) Enter the lesser
of (a) or (b). $ 4,800 ______________________
(d) Enter Alternative A
if applicable. $ 16,000* ______________________
(e) Enter Alternative B. $ 8,000 ______________________
(f) Enter Alternative C. $ 4,800 ______________________
(g) Enter the largest
of items (c), (d),
(e) or (f). $ 8,000* ______________________
<PAGE>
(h) Enter the $9,500
limit (Step 5(c)). $ 12,500 $_____________________
(i) Enter the smaller
of (g) or (h).
This is your maxi-
mum salary reduc-
tion for this year. $ 8,000 ______________________
*Alternative A is not available to the employee in the example because
she is not terminating employment.
For this employee, the Alternative B limit of $8,000 is the largest for
this year. Keep in mind that the alternative election, which appears
most advantageous in this year may not necessarily be the best for you
over the long run. See Questions 9 and 12.
Step 6 - Salary Reduction Agreement
Enter a salary reduction agreement with your Employer, which reduces
your compensation each pay period so that the correct amount is
contributed to your State Street Research 403(b) Account.
QUESTIONS AND ANSWERS ON
CALCULATING YOUR MAXIMUM
Maximum Contribution
1. What is the maximum annual contribution to my 403(b) account?
The maximum contribution you can exclude from your taxable income
(sometimes called your "maximum exclusion allowance"
or "MEA") is the smaller of your "403(b) exclusion allowance" (Questions
2-5) or your "415 limit" (Questions 6-12). Finally, your salary
reduction contributions for a year cannot exceed $9,500; this is
increased for certain employees (Questions 13 and 14).
Exclusion Allowance
2. How do I compute my "exclusion allowance"?
Use the following steps to compute your 403(b) exclusion allowance:
(a) Take 20 percent of your expected salary for the current
year (before reduction for your 403(b) contributions, but
after reduction for salary reduction contributions under a
cafeteria or flexible benefits plan or 401(k) plan if your
employer maintains such a plan).
(b) Multiply (a) by your number of years of service with your
current employer as of the end of the current year.
(c) Subtract the following total from (b):
(bullet) your total 403(b) salary reduction contributions
in previous years (which you excluded from your
income),
(bullet) your employer's contributions in previous years on
your behalf to a 403(b) retirement plan or to a
qualified retirement plan,
<PAGE>
(bullet) your employer's expected contributions to a 403(b)
retirement plan for you for the current year (see
Questions 15 and 16).
(d) Divide (c) by the sum of one plus 20 percent of your years
of service as of the end of the current year.
The resulting figure is the amount of your exclusion allowance for the
current year.
3. What if I do not know how much my employer has contributed in
previous years on my behalf to a retirement plan?
If you cannot learn this from the benefits or personnel office of your
employer, IRS regulations provide a method for determining the amount of
your employer's prior contributions. Consult your employer or tax
adviser for further information.
Years of Service
4. How do I determine my years of service?
Count one year of service for each full year you were a full-time
employee. Count a fraction of a year of service for years in which you
were a part-time employee or did not work a full year. Add your full and
fractional years of service together to determine your total years of
service. Only service with your current employer can be counted.
Part-time Fraction. For part-time work, the fraction is your work
schedule divided by the normal work schedule for a full-time employee
holding the same position. For example, if for a year you taught one
course for six hours per week, and a full-time teacher normally teaches
18 hours per week, your fraction would be one-third of a year.
Partial Year Fraction. If you were a full-time employee for part of the year,
the fraction is the number of weeks or months you worked divided by the number
of weeks or months in your employer's annual work period. For example, if you
taught full-time for four and one-half months and your employer's annual work
period is an academic year of nine months, your fraction would be one-half of a
year.
Part-time, Partial Year Fraction. If you were a part-time employee for
part of a year, calculate one fraction as though you were a part-time
employee for a full year and one fraction as though you were
a full-time employee for a part of a year. Then multiply the two
fractions together to obtain your fractional year of service. For
example, if you taught a course for six hours per week for one semester
at a school where full-time teachers taught 18 hours per week for two
semesters, your fractional year of service would be one-sixth (part-time
fraction of one-third times full-time for part-of-a-year fraction of
one-half).
5. What if I have less than one year of service?
Under the law, you may compute your exclusion allowance based on one
year of service even if you have worked for your employer for less than
a year or if your fractional years of service total less than a year.
<PAGE>
415 Limits
6. What are the 415 limits?
The 415 limits are from Section 415 of the Internal Revenue Code. The
415 limits apply even though your 403(b) exclusion allowance for the
year is greater. Section 415 has a general limit and certain
alternatives that may permit a larger maximum.
7. How do I compute the 415 general limit?
Your 415 general limit is the smaller of:
(a) 20 percent of your compensation for the year (before
reduction for contributions to your 403(b) account, but
after reduction for salary reduction contributions under
any cafeteria or flexible benefits plan or 401(k) plan your
employer maintains); this amount must be reduced by 80% of
your employer's contribution for the year to the 403(b)
retirement plan; or
(b) $30,000. (This $30,000 figure will eventually be indexed
for cost-of-living changes. However, the indexing will not
begin for some years depending on future inflation.)
415 Alternatives
8. What are the 415 alternatives?
In the past, many employees eligible for 403(b) did not enter into
salary reduction agreements because they expected to make large "catch-
up" contributions later. The 415 general limit might prevent those
employees from saving enough for their retirement years. To remedy this
situation, 415 provides certain alternatives.
These alternatives are available only to employees of an educational
organization, a hospital, a home health service agency, a health and
welfare service agency, or a church or association of churches. If you
do not work for such an employer, you can skip Questions 9 through 12.
9. How many alternatives are there?
Section 415 provides three alternatives:
Alternative A may be used only once, in the year you leave the
service of your employer. Under this alternative, the 415
percentage limitation (see Answer 7(a)) is disregarded and you
may calculate your 403(b) exclusion allowance using your years
of service with your employer up to a maximum of ten years. The
$30,000 limit still applies, however, even if your exclusion
allowance is higher.
In other words, under this alternative, you are limited to your
403(b) exclusion allowance based on a maximum of ten years of
service, or $30,000, whichever is less.
Alternative B is the smallest of:
(a) the amount of your 403(b) exclusion allowance;
(b) 20 percent of your compensation (before reduction for
contributions to your 403(b) account) plus $3,200;
(c) $15,000
<PAGE>
Alternative C is to disregard the 403(b) exclusion allowance
altogether. Under this alternative, contributions are subject
only to the 415 general limit described in Answer 7.
Finally, there is a separate alternative available only to an employee
of a church or association of churches: to replace the 415 general limit
with the limit of $10,000 per year (up to a cumulative total
of $40,000).
10. Are there any special rules for electing one of the alternatives?
Yes. You may elect only one of the three alternatives. If you elect one
of the alternatives, you may not elect either of the other
alternatives in any future year.
Alternative A (for the year of separation) may be elected only once. If
you elect this alternative in any year, you may not elect an
alternative at any time in the future.
If you elect an alternative, your election is irrevocable for that year.
However, you may elect either alternative B or C in one year,
choose not to use it in the following year, and then elect the same
alternative again in the third year.
11. How do l elect an alternative?
You elect an alternative simply by computing your income tax
liability in a manner consistent with the alternative.
12. Which alternative is best for me?
This depends upon your current compensation, expected future
compensation, years of service, expected future years of service,
expected ability to make future salary reduction contributions, and so
forth. An alternative which appears advantageous this year may restrict
contributions to your 403(b) account in later years. Only you can decide
which alternative is most advantageous to you.
The $9,500 Cap
13. Where did the $9,500 limit come from?
In the Tax Reform Act of 1986, Congress decided to limit salary
reduction contributions by employees. For 403(b), Congress chose a
$9,500 cap. This $9,500 cap applies as a maximum salary reduction
contribution even though your 403(b) exclusion allowance or 415 limit is
higher. This cap applies only to your salary reduction contributions,
not to employer contributions to a 403(b) retirement plan for you.
The $9,500 cap is indexed for future cost-of-living increases.
However, the cap will not increase for some years; exactly when depends
on future inflation rates.
14. Who qualifies for an increased $9,500 cap?
Congress realized that the $9,500 cap would affect employees who
expected to make "catch-up" contributions. Therefore, an increased cap
is available to some employees.
There are two requirements for an increased cap. First, your employer
must be one of the types listed in Answer 8. Second, you must have 15 or
more years of service with the employer. If you qualify, your $9,500 cap
is increased by the smallest of the following:
(a) $3,000;
<PAGE>
(b) $15,000 (reduced by all amounts by which your $9,500 cap
was increased in prior years under this special rule); or
(c) $5,000 multiplied by your number of years of service, minus
all previous salary reduction contributions under 403(b)
(or under any 401(k) plan in which you participated).
Additional Rules for an Employee with Another Retirement Program
15. If for the current year my employer or any other employer contributes to
another 403(b) account or annuity for me, must such contributions be added to my
salary reduction contributions when determining my maximum contribution?
Yes. To determine your 403(b) exclusion allowance, your 415 limit or one
of the alternatives (but not the $9,500 cap--only your salary reduction
contributions count against the $9,500 cap), your employer's current
contributions to a 403(b) plan or arrangement for you must be included.
(See the Worksheet for an example of this situation). If your employer
has a retirement plan, you should find out whether it is a 403(b) plan.
16. If for the current year my employer makes contributions for me to a
retirement plan that is "qualified" under section 401(a) of the Code,
must such contributions be counted when determining my maximum
contribution?
If this situation applies to you, you should consult your tax adviser.
The following is only a general summary of the rules governing
aggregation of contributions to your 403(b) account with contributions
to a qualified plan.
Contributions for you to a qualified plan during the current year by an
employer are not counted in determining your 403(b) exclusion allowance
this year.
However, for your 415 limit, the answer depends on whether you have
elected one of the 415 alternatives and on whether you
"control" your employer.
If you have not elected an alternative, or if you have elected
alternative A or B, you need not combine contributions to your 403(b)
account with contributions on your behalf to a qualified plan of the
same or any other employer unless you control the employer by owning a
50% or greater interest.
If you have elected alternative C (to disregard the exclusion allowance
entirely), you must count contributions to your 403(b) account with
contributions for you to a qualified retirement plan maintained by any employer
regardless of whether you "control" the employer.
<PAGE>
State Street Research 403(b)
Account Application
How to open your
State Street
Research 403(b)
Account
1. To open a State Street Research 403(b) Account, please complete
this side of the Application.
2. Your investment dealer must complete the dealer information
section of the Application.
What type of State
Street Research
403(b) are you
opening?
[ ] Regular 403(b) [ ] Transfer of Assets [ ] Regular Rollover
or Direct Rollover
Employee
information
Complete the following
information about
yourself. Your account
will be registered in
your name.
Name ___________________________________ Birth date______________________
Street___________________________________________________________________
City_____________________________________State___________ZIP_____________
Social Security #________________________________________________________
Daytime telephone #______________________________________________________
Employer
information
Complete the following
information about your
Employer.
Name_____________________________________________________________________
Street___________________________________________________________________
City_____________________________________State___________ZIP_____________
Name of contact person___________________Daytime telephone #_____________
Which Fund(s)
have you selected
for your 403(b)?
See the State Street
Research 403(b)
brochure and relevant
prospectus(es) for
Fund details.
Name of Fund Class of Shares Percentage
A B D
[ ] [ ] [ ] _______ %
- ---------------------------------------
[ ] [ ] [ ] _______ %
- ---------------------------------------
[ ] [ ] [ ] _______ %
- ---------------------------------------
[ ] [ ] [ ] _______ %
- ---------------------------------------
[ ] [ ] [ ] _______ %
- ---------------------------------------
Total 100%
<PAGE>
Who is the
beneficiary of
your State Street
Research 403(b) Account?
1. Name__________________________________Birth date______________________
Relationship to you___________________________________________________
Street________________________________________________________________
City__________________________________State___________ZIP_____________
Social Security #_____________________________________________________
Percentage to this beneficiary ____%
2. Name__________________________________Birth date______________________
Relationship to you___________________________________________________
Street________________________________________________________________
City__________________________________State___________ZIP_____________
Social Security #_____________________________________________________
Percentage to this beneficiary ____%
Important
Naming a beneficiary(ies) can have estate and tax-planning implications.
Also, if you are married and live in a community property state (AZ, CA,
ID, LA, NM, NV, TX, or WA), you may need your spouse's consent to
designate someone else as beneficiary for more than half of your
Account. Consult your attorney, or other qualified professional, for
additional advice.
Keep a copy of this account application with your other important papers
(such as your will).
Telephone Exchange
The Telephone Exchange Privilege is available only for shares held on
deposit with the Transfer Agent. None of the Transfer Agent, any of the
Funds, State Street Research Shareholder Services, the Investment
Manager or the Distributor will be liable for any loss, injury, damage
or expense as a result of acting upon, and will not be responsible for
the authenticity of, any telephone instructions. I understand that all
telephone calls are tape recorded. My liability shall be subject to the
use of reasonable procedures to confirm that instructions communicated
by telephone are genuine.
<PAGE>
Telephone Exchange
by Shareholder
or Dealer
The Transfer Agent may effect exchanges for my account according
to telephone instructions from me or my Dealer as set forth in the
prospectus, and may register the shares of the Fund to be acquired
exactly the same as my existing account. Authorizing an exchange
constitutes an acknowledgment that the shareholder has received
the current prospectus of the Fund to be acquired. The account will
automatically have this privilege unless it is expressly declined by
providing your initials in the space below.
I DO NOT WANT THE TELEPHONE EXCHANGE PRIVILEGE.
___(Initial here.)
Sign here to
establish the
403(b) Account
I hereby establish a State Street Research 403(b) Account, the terms of
which are contained in this Application and the State Street Research
403(b) Agreement (which I have received and which is incorporated herein
by reference) and appoint State Street Bank and Trust Company as
Custodian. I direct that contributions to my 403(b) Account be invested
as specified above in this Application (until changed by me
in accordance with the Agreement), designate the individual(s) named
above as my beneficiary(ies) (unless I have filed a separate written
designation with the Custodian or its agent), acknowledge that I have
received a current prospectus(es) of the Fund(s) indicated above, and
acknowledge that there is a $10 annual maintenance fee (in addition
to any fees and charges described in the prospectus(es)).
Under penalties of perjury, I certify that (1) the number shown on this
Application is my correct taxpayer identification number (or I am
waiting for a number to be issued to me), and (2) I am not subject to
backup withholding because (a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal Revenue Service that I am
subject to backup withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
Certification Instructions--You must cross out item (2) above if you have
been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your
tax return.
Employee signature_____________________________Date___________________
<PAGE>
Dealer information
and signature
guarantee
Please have your
investment dealer
fill out this section.
Dealer firm__________________________________________________________
Home office address_________________City__________State______ZIP_____
Branch office address_______________City__________State______ZIP_____
Telephone #______________Branch #_____________Rep. #_________________
Authorized dealer signature__________________________________________
Investment Dealer's last name________________________________________
If this Application is for an account introduced through the
above-named Dealer, the Dealer further agrees to all applicable
provisions in this Application and in the prospectus(es) of the
Fund(s) selected by the Employee, represents that it has provided a
current prospectus(es) to the Employee and that the Application is
properly executed by a person authorized by the Dealer to guarantee
signatures. The Dealer warrants that this Application is completed in
accordance with the Employee's instructions and agrees to indemnify
the Funds(s), the Distributor, the Investment Manager, State Street
Research Shareholder Services and the Transfer Agent for any loss or
liability from acting or relying upon such instructions and
information. The terms and conditions of the Distributor's currently
effective Selected Dealer Agreement or sales agreement are included by
reference in this section. The Dealer represents that it has a
currently effective Selected Dealer Agreement or sales agreement with
the Distributor authorizing the Dealer to sell shares of the Fund(s),
and that it may lawfully sell shares of the designated Fund(s) in the
state designated as the Employee's address of record.
State Street Bank
and Trust Company,
Custodian
You are hereby authorized and appointed on behalf of the above-signed
dealer to execute purchase transactions in accordance with the terms and
conditions of this Application, and to confirm each purchase.
Acceptance by
the Custodian
This Account will be deemed to have been accepted by the Custodian,
State Street Bank and Trust Company, after all necessary forms, properly
completed, are received by State Street Research Shareholder
Services and delivered by Shareholder Services to the Transfer Agent.
Send completed application to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
Control Number: 2709-951025(1196)SSR-LD RP-918C-1095
<PAGE>
State Street Research 403(b)
Salary Reduction Agreement
Parties
Complete the information
about the Employee and
the Employer.
Employee name______________________________________
Social Security #__________________________________
Employer name______________________________________
Check one box.
[ ] Original Agreement [ ] Modification
Agreements
Fill in the dollar amount
or percentage that you
want to contribute in
section 2.
The Employee and the Employer agree as follows:
1. The Employee has signed the State Street Research 403(b) Account
Application establishing the Account for the benefit of the
Employee. The Employee and the Employer are entering into this
salary reduction agreement ("this Agreement") to provide for
contributions to the Account.
2. The Employee requests, and the Employer agrees, to reduce the
compensation of the Employee by $______ or by ______% per pay
period, starting with the first pay period that begins after the
Employee and the Employer have signed this Agreement.
3. As soon as possible after each pay day, the Employer will transmit
the amount by which the Employee's compensation is reduced for that
pay period to the agent for the Custodian of the Employee's
Account, to be credited to the Employee's Account in accordance
with the State Street Research 403(b) Account Agreement. For
federal income tax purposes, such amounts are considered Employer
contributions to the Employee's Account.
Where to send
contributions.
Checks should be made payable to "State Street Bank and Trust Company,
Custodian, FBO __________________________ [insert name of Employee]
403(b) Account." Mail checks to State Street Research, P.O. Box
8408, Boston, MA 02266-8408.
OVER >
<PAGE>
4. This Agreement will be effective only with respect to compensation
not yet earned by the Employee, and not with respect to
compensation already earned by the Employee on the date this
Agreement is signed.
This Agreement is binding and irrevocable with respect to
compensation earned by the Employee while this Agreement is in
effect. The Employer or the Employee may terminate this Agreement
at any time with respect to compensation not yet earned by the
Employee at the date of termination, by giving written notice to
the other party. After termination, the Employee may reinstate this
Agreement (with the same or a different salary reduction amount);
however, the Employee may not reinstate this Agreement during the
same calendar year that the Employee (or Employer) terminated this
Agreement.
The Employee may modify the amount of salary reduction elected in
Paragraph 2 above at any time by giving the Employer signed
instructions specifying the new salary reduction amount. However,
the Employee may not modify this Agreement during the same calendar
year that the Employee originally signed this Agreement or in any
calendar year when the Employee has already modified this Agreement
once during such year.
5. Unless the Employer agrees to calculate the Employee's maximum
403(b) contribution, the Employer has no responsibility for
determining that the amount by which the Employee's compensation is
reduced, as set forth in Paragraph 2 above, does not exceed the
limitations applicable to the Employee under the Internal Revenue
Code. The Employee agrees to indemnify the Employer, State Street
Research Investment Services, Inc., and its affiliates for any and
all charges, expenses, taxes, interest or penalties imposed on the
Employer as a result of any reduction in compensation in excess of
such limitations.
Signatures
In witness whereof, the parties hereto have signed this Agreement
on______________________________, 19_______.
Employee Employer
(Signature)______________ (Name of employer)___________________________
By:_________________________________________
Signature and title of authorized official)
CONTROL NUMBER: 2711-951025(1196)SSR-LD RP-920C-1095
<PAGE>
State Street Research 403(b)
Transfer of 403(b) Assets Form
How to transfer
your existing
403(b) Account
to State Street
Research
(bullet) If you don't have a State Street Research 403(b) Account
yet, complete this transfer form and a State Street Research
403(b) Account Application.
(bullet) If you already have a State Street Research 403(b) Account,
just complete this transfer form.
(bullet) When completed, send this transfer form (and if necessary,
your 403(b) Account Application) to: State Street Research
Shareholder Services, P.O. Box 8408, Boston, MA 02266-8408.
Information
about you
Name______________________________Social Security #__________________
Telephone (day)___________________Telephone (night)__________________
Account number (If you already have a State Street Research 403(b)
Account)_____________________________________________________________
Where is your
403(b) Account
now?
Name of current Custodian/Insurer____________________________________
Address______________________________________________________________
City_____________________________State__________________ZIP__________
Account number_____________________Name of mutual fund or fund family
(if applicable)______________________________________________________
Please tell us
which Fund(s)
you have selected
for your 403(b)
investment
[ ] This is a new State Street Research 403(b) Account. My
investment choices are on my 403(b) Account Application.
[ ] I already have a State Street Research 403(b) Account. Please
invest the amount transferred as follows:
Fund name___________________________Account number____________ _____%
Fund name___________________________Account number____________ _____%
I acknowledge that I have received a current prospectus(es) of the
Fund(s) selected.
OVER >
<PAGE>
Please authorize
transfer of your
current 403(b)
Account to State
Street Research
To my current Custodian/Insurer: Please redeem
[ ] ALL or [ ] PART ($_________) of my current 403(b) and transfer
the proceeds in cash to my State Street Research 403(b) Account.
(For partial transfers, indicate which investments are to be liquidated.)
Your signature______________________________Date____________
Note: Under current IRS rulings, a transfer from another 403(b) account
to a State Street Research 403(b) Account will be a tax-free transaction
as long as the withdrawal restrictions under your existing 403(b) are
not more severe than those under the State Street Research 403(b)
account (see Section 5.2 of the State Street Research 403(b) Agreement).
By signing this form, you are certifying that this transfer will be a
tax-free transaction under the preceding sentence.
Signature
Guarantee
A signature guarantee may be required. Call your current Custodian/
Insurer for requirements.
Signature guaranteed by (name of bank or dealer firm)__________________
Signature and title of officer_________________________________________
PLEASE DO NOT FILL OUT THE FOLLOWING PORTION OF THIS FORM
Directions
to Current
Custodian/Insurer
Please liquidate and transfer on a fiduciary-to-fiduciary basis all or
part of the designated account as instructed above. Make check payable
to State Street Bank and Trust Company, Custodian.
Include the following account number and FBO on the check.
Account number________________________Name____________________________
Mail to: State Street Research Shareholder Services,
P.O. Box 8408, Boston, MA 02266-8408
Include a copy of this Transfer of 403(b) Assets Form with the check for
proper credit to the customer's account. State Street Research
Shareholder Services will deliver the items to Boston Financial Data
Services, Inc., which serves as Agent for the Custodian.
Successor
Custodian
State Street Bank and Trust Company will accept the transfer described
above once this form has been completed by you and the transfer has been
completed by your current 403(b) Custodian/Insurer.
______________________________________________________________________
Authorized signature of acceptance Date
by State Street Research Shareholder
Services on behalf of State Street Bank and Trust Company, Custodian
CONTROL NUMBER: 2707-951025(1196)SSR-LD RP-919C-1095
Exhibit (17)
First Amended and Restated
Multiple Class Expense Allocation Plan
WHEREAS, State Street Research Income Trust, an unincorporated association
of the type commonly known as a business trust organized under the laws of the
Commonwealth of Massachusetts (the "Trust"), engages in business as an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust (i) is authorized to issue shares of beneficial
interest ("Shares") in separate series, with the Shares of each such series
representing the interests in a separate portfolio of securities and other
assets, and (ii) is or may be authorized to divide the Shares within each such
series into two or more classes;
WHEREAS, the Trust has established one or more portfolio series as of the
date hereof (such portfolios being referred to collectively herein as the
"Initial Series", such series, together with all other series subsequently
established by the Trust and made subject to this Plan, being referred to herein
individually as a "Series" and collectively as the "Series"), and such Series,
and Series of affiliated investment companies, have or may establish classes
thereof designated as "Class A," "Class B," "Class C," "Class D" and "Class E"
shares;
WHEREAS, prior to the adoption of Rule 18f-3 by the Securities and
Exchange Commission the Trust received an Order from the Securities and Exchange
Commission under Section 6(c) of the Act for an exemption from Sections
2(a)(32), 2(a)(35), 18(f), 18(g), 18(i), 22(c) and 22(d) of the Act and Rule
22c-1 thereunder to permit the Trust to issue multiple classes of shares
representing interests in the same portfolio of securities, assess a contingent
deferred sales charge ("CDSC") on certain redemptions of shares, and waive the
CDSC in certain cases; and
WHEREAS, the Trustees have determined to operate under Rule 18f-3 and
pursuant to such Rule the Board of Trustees as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the Act) (the "Qualified
Trustees"), having determined in the exercise of their reasonable business
judgment this Plan is in the best interest of each class of the Initial Series
individually and the Initial Series as a whole, have accordingly approved this
Plan.
NOW, THEREFORE, Trust hereby adopts this Plan in accordance with Rule
18f-3 under the Act, on the following terms and conditions:
1. Class Differences. Each class of Shares of each Initial Series shall
represent interests in the same portfolio of
<PAGE>
investments of Initial Series and shall be identical in all respects, and except
as otherwise set forth in this Plan, shall differ solely with respect to: (i)
arrangements for shareholder services or the distribution of Shares, or both, as
provided for in Sections 2 and 3 of this Plan; (ii) the exclusive right of a
Class to vote on certain matters relating to the Plan of Distribution Pursuant
to Rule 12b-1 adopted by the Trust with respect to such Class; (iii) such
differences relating to purchase minimums, sales charges and eligible investors
as may be set forth in the Prospectuses and Statement of Additional Information
of the Initial Series, as the same may be amended or supplemented from time to
time (the "Prospectuses" and "SAI"); (iv) the different exchange privileges of
the classes of Shares; (v) the fact that only certain classes will have a
conversion feature; and (iv) the designation of each Class of shares.
2. Differences in Distribution and Shareholder Services. Each Class
of Shares of the Initial Series shall have a different arrangement for
shareholder services or the distribution of Shares, or both, as follows:
Class A Shares shall be sold subject to a front-end sales charge as
set forth in the Prospectuses and SAI with respect to the applicable Initial
Series. Class A, Class B and Class D Shares shall be sold subject to a
contingent deferred sales charge as set forth in the Prospectuses and SAI with
respect to the applicable Initial Series. Class A, B and D Shares shall be
subject to a service fee of up to 0.25% of the nets assets of the Initial Series
allocable to such Class of Shares. Class B and D Shares shall also be subject to
an annual distribution fee of up to 0.75% of the nets assets of the Initial
Series allocable to such Class of Shares. Such service and distribution fees may
be used to finance activities in accordance with Rule 12b-1 under the Act and
the Plan of Distribution pursuant to Rule 12b-1 adopted by the Trust.
3. Allocation of Expenses. Expenses of the Series shall be
allocated as follows:
(a) Class Expenses. Expenses relating to different arrangements for
shareholder services or the distribution of Shares, or both, shall be allocated
to and paid by that class. A class may pay a different share of other expenses,
not including advisory or custodial fees or other expenses related to the
management of a Series' assets, if such expenses are actually incurred in a
different amount by that class, or if the class receives services of a different
kind or to a different degree than other classes.
(b) Other Allocations. All expenses of the Series not allocated to a
particular class pursuant to Sections 2 and 3(a) of this Plan shall be allocated
to each class on the basis of the net asset value of that class in relation to
the net asset value of the Series or on the basis of the Dividend Assets of that
2
<PAGE>
class in relation to the aggregate Dividend Assets of the Series for periodic
income distribution funds and daily income distributions funds, respectively.
"Dividend Assets" are defined as the net asset value of those shares eligible to
receive a dividend on the current day as set forth in the Fund's prospectus.
Notwithstanding the foregoing, the underwriter, adviser, or other provider of
services to a Series may waive or reimburse the expenses of a specific class or
classes to the extent permitted under Rule 18f-3 under the Act; provided,
however, that the Board shall monitor the use of such waivers or reimbursements
intended to differ by class.
4. Term and Termination.
(a) Initial Series. This Plan shall become effective with respect to
the multiple classes, if any, of the Initial Series as of May 5, 1995, and shall
continue in effect with respect to each Class of Shares of the Initial Series
(subject to Section 4(c) hereof) until terminated in accordance with the
provisions of Section 4(c) hereof.
(b) Additional Series or Classes. This Plan shall become effective
with respect to any class of the Initial Series other than Class A, Class B,
Class C, Class D, and Class E, and with respect to each additional Series or
class thereof established by the Trust after the date hereof and made subject to
this Plan, upon commencement of operations thereof or as otherwise determined,
and shall continue in effect with respect to each such additional Series or
class (subject to Section 4(c) hereof) until terminated in accordance with the
provisions of Section 4(c) hereof. An addendum hereto setting forth such
specific and different terms of such additional series of classes shall be
attached to this Plan.
(c) Termination. This Plan may be terminated at any time with
respect to the Trust or any Series or class thereof, as the case may be, by vote
of a majority of both the Trustees of the Trust and the Qualified Trustees. The
Plan may remain in effect with respect to a Series or class thereof even if it
has been terminated in accordance with this Section 4(e) with respect to such
Series or class or one or more other Series of the Trust.
5. Amendments. Any material amendment to this Plan shall require
the affirmative vote of a majority of both the Trustees of the Trust and the
Qualified Trustees.
Dated: May 8, 1996
------------------
3
<TABLE> <S> <C>
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<CIK> 0000787980
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<SERIES>
<NUMBER> 011
<NAME> STATE STREET RESEARCH HIGH INCOME FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 845,858,670
<INVESTMENTS-AT-VALUE> 841,544,805
<RECEIVABLES> 27,844,650
<ASSETS-OTHER> 5,830
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 869,395,285
<PAYABLE-FOR-SECURITIES> 13,545,428
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<OVERDISTRIBUTION-GAINS> (27,698,367)
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<NET-ASSETS> 851,310,663
<DIVIDEND-INCOME> 5,949,927
<INTEREST-INCOME> 73,810,134
<OTHER-INCOME> 0
<EXPENSES-NET> 10,558,716
<NET-INVESTMENT-INCOME> 69,201,345
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<NET-CHANGE-FROM-OPS> 96,287,899
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> (804,838)
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<NUMBER-OF-SHARES-REDEEMED> (22,983,923)
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<PER-SHARE-NAV-END> 5.95
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<ARTICLE> 6
<CIK> 0000787980
<NAME> STATE STREET RESEARCH INCOME TRUST
<SERIES>
<NUMBER> 012
<NAME> STATE STREET RESEARCH HIGH INCOME FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 845,858,670
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<OTHER-ITEMS-ASSETS> 0
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<DISTRIBUTIONS-OF-GAINS> (159,995)
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<PER-SHARE-NII> 0.46
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000787980
<NAME> STATE STREET RESEARCH INCOME TRUST
<SERIES>
<NUMBER> 013
<NAME> STATE STREET RESEARCH HIGH INCOME FUND CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 845,858,670
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<ASSETS-OTHER> 5,830
<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 13,545,428
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<INTEREST-INCOME> 73,810,134
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</TABLE>
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<NAME> STATE STREET RESEARCH INCOME TRUST
<SERIES>
<NUMBER> 014
<NAME> STATE STREET RESEARCH HIGH INCOME FUND CLASS D
<S> <C>
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<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000787980
<NAME> STATE STREET RESEARCH INCOME TRUST
<SERIES>
<NUMBER> 031
<NAME> STATE STREET RESEARCH MANAGED ASSETS CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000787980
<NAME> STATE STREET RESEARCH INCOME TRUST
<SERIES>
<NUMBER> 032
<NAME> STATE STREET RESEARCH MANAGED ASSETS CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
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<PER-SHARE-DIVIDEND> (0.19)
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000787980
<NAME> STATE STREET RESEARCH INCOME TRUST
<SERIES>
<NUMBER> 033
<NAME> STATE STREET RESEARCH MANAGED ASSETS CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
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<REALIZED-GAINS-CURRENT> 33,933,659
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (819,460)
<DISTRIBUTIONS-OF-GAINS> (490,395)
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<NUMBER-OF-SHARES-SOLD> 1,072,850
<NUMBER-OF-SHARES-REDEEMED> (2,251,394)
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<PER-SHARE-DIVIDEND> (0.28)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000787980
<NAME> STATE STREET RESEARCH INCOME TRUST
<SERIES>
<NUMBER> 034
<NAME> STATE STREET RESEARCH MANAGED ASSETS CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
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<NUMBER-OF-SHARES-REDEEMED> (482,326)
<SHARES-REINVESTED> 41,475
<NET-CHANGE-IN-ASSETS> 61,411,270
<ACCUMULATED-NII-PRIOR> 1,018,118
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (12,755,387)
<GROSS-ADVISORY-FEES> 3,051,182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,113,212
<AVERAGE-NET-ASSETS> 403,279,067
<PER-SHARE-NAV-BEGIN> 8.75
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 1.72
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (0.16)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
