STATE STREET RESEARCH INCOME TRUST, 485BPOS, 1997-07-28

STATE STREET RESEARCH INCOME TRUST
485BPOS, 1997-07-28

Previous: PUTNAM HIGH YIELD ADVANTAGE FUND, N-30D, 1997-07-28

Next: JOHNSON WORLDWIDE ASSOCIATES INC, 8-K, 1997-07-28

As filed with the Securities and Exchange Commission on July 28, 1997

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

--------------------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|

Pre-Effective Amendment No. ____ |_|

Post-Effective Amendment No. 18 |X|
----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|

Amendment No. 19 |X|
----

--------------------

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
Executive 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:

Geoffrey R.T. Kenyon, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place, Boston, Massachusetts 02109

It is proposed that this filing will become effective under Rule 485:

|_| Immediately upon filing pursuant to paragraph (b).

|X| On August 1, 1997 pursuant to paragraph (b).

|_| 60 days after filing pursuant to paragraph (a)(1).

|_| On ____________ 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, 1997,
was filed by the Registrant on or about May 29, 1997 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>

<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>

<PAGE>

23. Financial Financial Financial
Statements ............... Statements Statements
</TABLE>

iii

<PAGE>

The Prospectus of the State Street Research Managed Assets series of the State
Street Research Income Trust ("Registrant") is included herein. The Statement of
Additional Information of State Street Research Managed Assets is incorporated
by reference from Post-Effective Amendment No. 17 to its Registration Statement
on Form N-1A (File No. 33-2697) filed with the Securities and Exchange
Commission on July 3, 1997 (EDGAR accession number 0000950146-97-001019).

In addition, the Registrant hereby incorporates by reference Items 24 through 32
of Part C of Post-Effective Amendment No. 17 to its Registration Statement on
Form N-1A.

The Prospectus and Statement of Additional Information of the State Street
Research High Income Fund series of the Registrant were included in
Post-Effective Amendment No. 17 filed with the Securities and Exchange
Commission on July 3, 1997.

<PAGE>

STATE STREET RESEARCH MANAGED ASSETS
Prospectus
August 1, 1997

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 May 31, 1997, the Investment Manager
had assets of approximately $44.2 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, 1997, 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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.

Table of Contents Page
- ----------------------------------------------------------
Table of Expenses ................................. 2
Financial Highlights .............................. 4
The Fund's Asset Allocation and Investments ...... 6
Other Investment Policies and Considerations ...... 9
Purchase of Shares ................................. 12
Redemption of Shares .............................. 21
Shareholder Services .............................. 23
The Fund and its Shares ........................... 27
Management of the Fund .............................. 28
Dividends and Distributions; Taxes .................. 29
Calculation of Performance Data ..................... 29
Appendix--Description of Debt/Bond Ratings ......... 31

<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 Deferred Sales Charge (as a percentage of net asset
value at time of purchase or redemption, whichever is lower)..... None(2) 5% None 1%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) ........................... None None None None
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 Class A, Class B or Class D shares may, over
a period of years, pay more than the economic equivalent of the maximum
sales charge permissible under applicable rules. See "Purchase of Shares."

(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."

2
<PAGE>

<TABLE>
<CAPTION>
Class A Class B Class C Class D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees ................................................... 0.75% 0.75% 0.75% 0.75%
12b-1 Fees ......................................................... 0.25% 1.00% None 1.00%
Other Expenses ...................................................... 0.35% 0.35% 0.35% 0.35%
---- ---- ---- ----
Total Fund Operating Expenses* .................................... 1.35% 2.10% 1.10% 2.10%
==== ==== ==== ====
</TABLE>

*The Fund has been advised that the Distributor and its affiliates may
voluntarily assume some portion of fees or expenses relating to the Fund
through August 31, 1997, which would have the effect of reducing Total Fund
Operating Expenses until such date for each class of shares to the following
levels:

Class A Class B Class C Class D
1.25% 2.10% 1.10% 2.10%

The Fund has not received any assurance that the subsidization will be received.

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 ................................................ $58 $86 $116 $200
Class B shares (1) .......................................... $71 $96 $133 $224
Class C shares ................................................ $11 $35 $ 61 $134
Class D shares ................................................ $31 $66 $113 $243
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) .......................................... $21 $66 $113 $224
Class D shares ............................................. $21 $66 $113 $243
</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, 1997 and the
assumed discontinuation of a subsidy of expenses as of September 1, 1997,
subject to requisite administrative action; 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."
For the fiscal year ended March 31, 1997, 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 1.35%, 2.10%, 1.10% and 2.10% 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 0.10% for each class of shares of the Fund.

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
------------------------------------------------------
1997*** 1996*** 1995 1994
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year ................................ $10.29 $8.76 $8.94 $8.94
Net investment income* ............... .21 .23 .27 .22
Net realized and unrealized
gain (loss) on investments,
foreign currency and
forward contracts ................... 1.05 1.72 (.14) .72
------ ------ ----- -----
Total from investment
operations ......................... 1.26 1.95 .13 .94
------ ------ ----- -----
Dividends from net
investment income ................... (.28) (.26) (.17) (.22)
Distributions from net
realized gains ...................... (.87) (.16) (.14) (.72)
------ ------ ----- -----
Total distributions ................. (1.15) (.42) (.31) (.94)
------ ------ ----- -----
Net asset value, end of year ......... $10.40 $10.29 $8.76 $8.94
====== ====== ===== =====
Total return ......................... 12.49%+ 22.55%+ 1.52%+ 10.96%+
Net assets at end of year
(000s) .............................. $244,348 $207,713 $181,358 $166,011
Ratio of operating expenses
to average net assets* .............. 1.25% 1.25% 1.25% 1.25%
Ratio of net investment
income to average net
assets* ............................. 2.02% 2.34% 3.11% 2.75%
Portfolio turnover rate .............. 108.41% 109.20% 89.58% 105.17%
Average commission rate@ ............. $0.0266 -- -- --
- ------------
*Reflects voluntary assumption of
fees or expenses per share in
each year ........................... $0.01 $0.02 $0.03 $0.02

<CAPTION>
December 29, 1988
(Commencement of
Operations) to
1993 1992 1991 1990 March 31, 1989
---------- ---------- ---------- ---------- --------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year ................................. $8.22 $7.61 $7.81 $7.60 $7.40
Net investment income* ............... .27 .37 .44 .46 .13
Net realized and unrealized
gain (loss) on investments,
foreign currency and
forward contracts ..................... 1.01 .62 (.14) .36 .19
----- ----- ----- ----- -----
Total from investment
operations ........................ 1.28 .99 .30 .82 .32
----- ----- ----- ----- -----
Dividends from net
investment income ..................... (.25) (.38) (.41) (.47) (.12)
Distributions from net
realized gains ........................ (.31) -- (.09) (.14) --
----- ----- ----- ----- -----
Total distributions .................. (.56) (.38) (.50) (.61) (.12)
----- ----- ----- ----- -----
Net asset value, end of year $8.94 $8.22 $7.61 $7.81 $7.60
===== ===== ===== ===== =====
Total return ........................... 16.54%+ 13.29%+ 4.06%+ 10.78%+ 4.26%++
Net assets at end of year
(000s) .............................. $93,537 $78,483 $64,139 $56,267 $27,762
Ratio of operating expenses
to average net assets* ............... 1.25% 1.25% 1.25% 1.25% 1.25%[dbldag]
Ratio of net investment
income to average net
assets* .............................. 3.26% 4.60% 5.78% 6.29% 7.37%[dbldag]
Portfolio turnover rate ............... 142.86% 97.76% 68.08% 71.88% 34.57%
Average commission rate@ . -- -- -- -- --
- ------------
*Reflects voluntary assumption of fees
or expenses per share in
each year ........................... $0.02 $0.02 $0.02 $0.02 $0.01
</TABLE>

[dbldag] Annualized.
*** 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.
@ Average commission rate per share paid for security trades for fiscal
years beginning on or after April 1, 1996.
- --------------------------------------------------------------------------------

4
<PAGE>

<TABLE>
<CAPTION>
Class B
------------------------------------------------------------------
Year ended March 31
------------------------------------------------------------------
1997*** 1996*** 1995 1994**
------------- ------------ ------------ --------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ...... $10.25 $8.74 $8.92 $8.78
Net investment income* .................. .13 .15 .20 .16
Net realized and unrealized gain (loss)
on investments, foreign currency and
forward contracts ...................... 1.06 1.71 (.13) .39
------ ------ ----- -----
Total from investment operations ....... 1.19 1.86 .07 .55
------ ------ ----- -----
Dividends from net investment income .... (.20) (.19) (.11) (.18)
Distributions from net realized gains ... (.87) (.16) (.14) (.23)
------ ------ ----- -----
Total distributions .................... (1.07) (.35) (.25) (.41)
------ ------ ----- -----
Net asset value, end of year ............ $10.37 $10.25 $8.74 $8.92
====== ====== ===== =====
Total return ............................ 11.76%+ 21.48%+ 0.82%+ 6.26%++
Net assets at end of year (000s) ........ $251,518 $193,272 $152,251 $83,244
Ratio of operating expenses to average
net assets* ............................ 2.00% 2.00% 2.00% 2.00%[dbldag]
Ratio of net investment income to
average net assets* .................... 1.27% 1.59% 2.38% 2.03%[dbldag]
Portfolio turnover rate ................. 108.41% 109.20% 89.58% 105.17%
Average commission rate@ ................ $0.0266 -- -- --

*Reflects voluntary assumption of fees
or expenses per share in each year ..... $0.01 $0.02 $0.03 $0.03

<CAPTION>
Class C
-----------------------------------------------
Year ended March 31
-----------------------------------------------
1997*** 1996*** 1995 1994**
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ... $10.29 $8.77 $8.95 $8.78
Net investment income* .................. .24 .25 .29 .21
Net realized and unrealized gain (loss)
on investments, foreign currency and
forward contracts ..................... 1.05 1.71 (.14) .43
------ ------ ----- -----
Total from investment operations ...... 1.29 1.96 .15 .64
------ ------ ----- -----
Dividends from net investment income (.31) (.28) (.19) (.24)
Distributions from net realized gains ... (.87) (.16) (.14) (.23)
------ ------ ----- -----
Total distributions .................. (1.18) (.44) (.33) (.47)
------ ------ ----- -----
Net asset value, end of year ......... $10.40 $10.29 $8.77 $8.95
====== ====== ===== =====
Total return ........................... 12.77%+ 22.70%+ 1.77%+ 7.27%++
Net assets at end of year (000s) ...... $21,263 $19,548 $25,803 $21,434
Ratio of operating expenses to average
net assets* ........................... 1.00% 1.00% 1.00% 1.00%[dbldag]
Ratio of net investment income to
average net assets* .................. 2.26% 2.59% 3.37% 3.03%[dbldag]
Portfolio turnover rate ............... 108.41% 109.20% 89.58% 105.17%
Average commission rate@ ............... $0.0266 -- -- --
- ------------
*Reflects voluntary assumption of fees
or expenses per share in each year ... $0.01 $0.02 $0.03 $0.02
</TABLE>

<TABLE>
<CAPTION>
Class D
--------------------------
Year ended March 31
--------------------------
1997*** 1996***
------------- ------------
<S> <C> <C>
Net asset value, beginning of year .................................... $10.27 $8.75
Net investment income* ................................................... .13 .15
Net realized and unrealized gain (loss) on investments, foreign currency
and forward contracts ................................................... 1.05 1.72
------ ------
Total from investment operations ....................................... 1.18 1.87
------ ------
Dividends from net investment income .................................... (.20) (.19)
Distributions from net realized gains .................................... (.87) (.16)
------ ------
Total distributions ................................................... (1.07) (.35)
------ ------
Net asset value, end of year .......................................... $10.38 $10.27
====== ======
Total return ............................................................ 11.64%+ 21.54%+
Net assets at end of year (000s) ....................................... $17,485 $13,061
Ratio of operating expenses to average net assets* ..................... 2.00% 2.00%
Ratio of net investment income to average net assets* .................. 1.26% 1.60%
Portfolio turnover rate ................................................ 108.41% 109.20%
Average commission rate @ ............................................. $0.0266 --
- ------------
*Reflects voluntary assumption of fees or expenses per share in each year $0.01 $0.02

<CAPTION>
1995 1994**
-------- -------
<S> <C> <C>
Net asset value, beginning of year .................................... $8.93 $8.78
Net investment income* ................................................... .20 .16
Net realized and unrealized gain (loss) on investments, foreign currency
and forward contracts ................................................... (.13) .40
----- -----
Total from investment operations ....................................... .07 .56
----- -----
Dividends from net investment income .................................... (.11) (.18)
Distributions from net realized gains .................................... (.14) (.23)
----- -----
Total distributions ................................................... (.25) (.41)
----- -----
Net asset value, end of year .......................................... $8.75 $8.93
===== =====
Total return ............................................................ 0.82%+ 6.31%++
Net assets at end of year (000s) ....................................... $12,772 $7,117
Ratio of operating expenses to average net assets* ..................... 2.00% 2.00%[dbldag]
Ratio of net investment income to average net assets* .................. 2.39% 2.03%[dbldag]
Portfolio turnover rate ................................................ 89.58% 105.17%
Average commission rate @ ............................................. -- --
- ------------
*Reflects voluntary assumption of fees or expenses per share in each year $0.03 $0.03
</TABLE>

[dbldag] 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.
@ Average commission rate per share paid for security trades for fiscal years
beginning on or after April 1, 1996.
- --------------------------------------------------------------------------------

5
<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 within the
AAA, AA, A or BBB major rating categories by Standard & Poor's Corporation
("S&P") or within the Aaa, Aa, A or

6
<PAGE>

Baa major rating categories 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 within the BB or B
categories by S&P or Ba or B categories 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 within the BB or B
categories by S&P or Ba or B categories 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, 1997, 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: 14% AAA, 3% AA, 2% A, 1% BBB, 1% BB, and 6% B as
determined on a dollar weighted basis, comprising 27% of total investments. Of
these bonds, 96% were rated by a nationally recognized statistical rating
organization and 4% 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. Some mortgage-related securities 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. Other mortgage-related
securities, such as collateralized mortgage obligations ("CMO's") are offered in
the form of senior or subordinated interests in the interest and/or principal
payments on a pool of mortgages. 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").

7
<PAGE>

Equity Securities

The Fund may invest in domestic and foreign common stocks, preferred stocks,
debt securities and warrants convertible into or carrying the right to acquire
common stock and depositary receipts in respect of the foregoing ("Equity
Securities"). The Fund may invest in the Equity Securities of a broad spectrum
of both large and small capitalization companies. These 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
and securities issued by real estate investment trusts ("REITs")); 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 within
categories 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

8
<PAGE>

from time to time, subject to applicable diversification and concentration
limitations as described under "Other Investment Policies and
Considerations--Investment Limitations and Practices."

Other Investment Policies and Considerations

Other Investment Practices
The Fund may buy and sell 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 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. See the Statement of Additional
Information.

The Fund may lend portfolio securities with a value of up to 331/3% 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 invested in quality short-term
unaffiliated mutual funds, 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 repurchase agreements, among similar investments.
The investing of cash collateral received from loaning portfolio securities
involves leverage, which magnifies the potential for gain or loss on monies
invested and, therefore, results in an increase in the volatility of the Fund's
outstanding securities. Such loans may be terminated at any time.

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

9
<PAGE>

producing countries, the discovery of new reserves and the development of new
techniques for producing, refining and transporting oil, gas and related
products, energy conservation and the development of alternative energy
sources.

Foreign Investments

The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly or in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") or similar securities
representing interests in the securities of foreign issuers.

ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs are receipts issued in Europe which evidence a similar ownership
arrangement. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets, and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of ADRs or EDRs
facilitates trading in foreign securities, it does not mitigate the risks
associated with investing in foreign securities.

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

10
<PAGE>

transactions either on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, or by entering into forward contracts to purchase or
sell currencies. The Fund's dealings in forward currency exchange contracts
will be limited to hedging involving either specific transactions or aggregate
portfolio positions. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are 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 within the BB
category or lower by S&P or Ba category 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

11
<PAGE>

that year, and the shareholders, if they received a dividend, might receive a
return of capital that would reduce the basis of their shares of the Fund.

Investment Limitations and Practices

In seeking to lessen investment risk, the Fund operates under certain
fundamental and nonfundamental investment restrictions.

Under 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 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. The foregoing nonfundamental
investment restriction 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.

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 12 to 27 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 and Others

Shares of the Fund are continuously offered through securities dealers,
financial institutions and others (collectively referred to herein as
securities dealers or 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

12
<PAGE>

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 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 1-800-562-0032 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
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

Class of Shares
-------------------------------
A B C D
-------- -------- ----- -------
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All Other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $ 50 $ 50 (a) $ 50
By Investamatic $ 50 $ 50 (a) $ 50
All Other $ 50 $ 50 (a) $ 50

(a) Special conditions apply; contact the Distributor.

The Fund reserves the right to vary the minimums for initial or subsequent
investments 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 Program).

13
<PAGE>

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, dealers are paid differing amounts
of commission and other compensation depending on which class of shares they
sell.

14
<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 None Contingent
at time of deferred sales deferred sales
investment of up to charge of 5% to charge of 1%
4.5 % depending on 2% applies to any applies to any
amount of shares redeemed shares redeemed
investment within first five within one year
years following following their
their purchase; no purchase
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
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
Selling 0.50% retained by
Dealer Distributor

On investments of
$1 million or
more, 0.25% to 1%
paid to dealer by
Distributor
</TABLE>

15
<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 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 those dealers with clients who maintain
their investments in a Fund over a period of years. The incentives may include
merchandise and trips to and attendance at sales seminars at resorts. The
Distributor may also pay additional sales compensation to its affiliate,
MetLife Securities, Inc.

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 dealer responsible for the sale.

- -----------------------------------------------------------
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
- -----------------------------------------------------------
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
- -----------------------------------------------------------

On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor

16
<PAGE>

may pay the authorized dealer a commission based on the aggregate of such sales
as follows:

Amount of Sale Commission
- -------------- -----------
(a) $1 million to $3 million 1.00%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%

On such sales of $1,000,000 or more, unless the above commission is waived
by the dealer, 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. 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

17
<PAGE>

arrangements and further conditions and limitations is available from the
Distributor.

In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to 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, minimum
investments by various groups of eligible persons 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 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
- ------------------------- ---------------------------
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.

18
<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 at such age under Section 401(a)(9) of the
Internal Revenue Code for retirement accounts or plans (e.g., age 701/2 for
IRAs and Section 403(b) plans), calculated solely on the basis of assets
invested in the Fund or other Eligible Funds; and (iii) a redemption resulting
from a tax-free return of an excess contribution to an IRA. (The foregoing
waivers do not apply to a tax-free rollover or transfer of assets out of the
Fund.) The Fund may modify or terminate the waivers described above at any
time; for example, the Fund may limit the application of multiple waivers and
establish other conditions for employee benefit plans.

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 employee benefit plans which acquire shares
through programs or products sponsored by Metropolitan Life Insurance Company
("Metropolitan") 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 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 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

19
<PAGE>

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. 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 dealers
(including 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 or
servicing 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 dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by the
Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by dealers.

The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.

Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources

20
<PAGE>

of the Distributor (including the advisory fees paid by the Fund), have also
been authorized pursuant to the Distribution Plan.

A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the Distribution
Plan to 1%, of which 0.75% may be used to pay distribution expenses and 0.25%
may be used to pay shareholder service fees. The NASD Rule also limits the
aggregate amount which the Fund may pay for such distribution costs to 6.25% of
gross share sales of a class since the inception of any asset-based sales
charge plus interest at the prime rate plus 1% on unpaid amounts thereof (less
any contingent deferred sales charges). Such limitation 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
1-800-562-0032 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire

21
<PAGE>

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
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

22
<PAGE>

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.

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.

(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

23
<PAGE>

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 1-800-562-0032. 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.

24
<PAGE>

Reinvestment Privilege

A shareholder of the Fund who has redeemed shares or had shares repurchased at
his or her request may reinvest any portion or all of the proceeds (plus that
amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and without
subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 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 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 Distributor also offers IRAs and retirement plans, including prototype
and other employee benefit plans for employees, sole proprietors, partnerships
and corporations. 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 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 distri-

25
<PAGE>

butions from the Fund or any Eligible Fund automatically invested at net asset
value in one other such Eligible Fund designated by the shareholder, provided
the account into which the dividends and distributions are directed is
initially funded with the requisite minimum amount. The number of shares
purchased will be determined as of the dividend payment date. The Dividend
Allocation Plan is subject to state securities law requirements, to suspension
at any time, and to such policies, limitations and restrictions, such as may be
applicable to street name or master accounts, that may be adopted from time to
time.

Automatic Bank Connection

A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.

Reports

Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by the
Fund as well as the Fund's financial statements.

Telephone Services

The following telephone privileges ("Telephone Privileges") can be used:

(1) the privilege allowing the shareholder to make telephone redemptions for
amounts up to $50,000 to be mailed to the shareholder's address of record
is available automatically;

(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically;

(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.

26
<PAGE>

Shareholders may redeem or exchange shares by calling toll-free
1-800-562-0032. 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 1-800-357-7800 or otherwise at its main office at One
Financial Center, Boston, Massachusetts 02111-2690.

Shareholder Account Inquiries:
Please call 1-800-562-0032

Call this number for assistance in answering general questions on your account,
including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made in
writing to State Street Research Shareholder Services, P.O. Box 8408, Boston,
Massachusetts 02266-8408. A fee of up to $10 will be charged against an account
for providing additional account transcripts or photocopies of paid redemption
checks or for researching records in response to special requests.

Shareholder Telephone Transactions:

Please call 1-800-562-0032

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. 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,

27
<PAGE>

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 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 compensates Trustees of the
Trust if such persons are employees or affiliates of the Investment Manager or
its affiliates.

Peter C. Bennett is primarily responsible for the day-to-day management of
the Fund's portfolio. Mr. Bennett has managed the Fund since December 1996.

28
<PAGE>

Mr. Bennett's principal occupation currently is Executive Vice President and
Director of State Street Research & Management Company. Mr. Bennett also serves
as Chief Investment Officer -- Equities and is a member of the Management
Committee of the Investment Manager. During the past five years he has also
served as Senior Vice President of the Investment Manager. Mr. Bennett 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 equity and fixed income securities and
among different industry sectors. The portfolio manager uses a team approach on
behalf of the Fund and has delegated purchase and sale authority for defined
portions of the portfolio to other officers of the Investment Manager. The team
members focus on different investment areas within the Fund's sectors, such as
international securities, high-yield high-risk securities, large- and
small-capitalization equities, investment grade debt, etc.

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 has 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.

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

29
<PAGE>

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. 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 historical period as applied to a hypothetical $1,000 initial
investment, which is redeemed in total at the end of such period. In making the
calculation, all dividends and distributions are assumed to be reinvested, and
all accrued expenses and recurring charges, including management and
distribution fees, are recognized. The calculation also reflects the highest
applicable initial or contingent deferred sales charge, determined as of the
assumed date of initial investment or the assumed date of redemption, as the
case may be. 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
do 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.

30
<PAGE>

APPENDIX

Description of Debt/Bond Ratings

Standard & Poor's Corporation

AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

Debt rated BB, B, CCC, CC and C is regarded as having speculative
characteristics with respect to capacity to pay interest and repay principal.
BB indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.

BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied BBB- rating.

B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.

CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.

CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.

C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI: The rating CI is reserved for income bonds on which no interest is
being paid.

D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the due date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

S&P may attach the "r" symbol to derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high
variability in expected returns due to noncredit risks created by the terms of
the obligation, such as securities whose principal or interest return is
indexed to equities, commodities, or currencies; certain swaps and options; and
interest only (IO) and principal only (PO) mortgage securities.

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

31
<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.

<PAGE>

Notice

A copy of the First Amended and Restated 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.

<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. 17 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 28th day of July, 1997.

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
- -------------------------
Steve A. Garban

* Trustee
- -------------------------
Malcolm T. Hopkins

* Trustee
- -------------------------
Edward M. Lamont

* Trustee
- -------------------------
Robert A. Lawrence

<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 3, 1997.