As filed with the Securities and Exchange Commission on July 3, 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
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Pre-Effective Amendment No. ____ |_|
Post-Effective Amendment No. 17 |X|
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 18 |X|
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--------------------
STATE STREET RESEARCH INCOME TRUST
-------------------------------------
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
--------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 357-1200
Francis J. McNamara, III
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>
i
<PAGE>
Part B
------
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN CAPTION OR LOCATION
STATEMENT OF ADDITIONAL IN STATEMENT OF
INFORMATION FOR STATE ADDITIONAL INFORMATION FOR
STREET RESEARCH HIGH STATE STREET RESEARCH
FORM N-1A ITEM NO. INCOME FUND MANAGED ASSETS
- ------------------------------ ---------------------------------- ---------------------------------
<S> <C> <C>
10. Cover Page ............... Same Same
11. Table of Contents ........ Same Same
12. General Information
and History .............. Not Applicable Not Applicable
13. Investment Additional Investment Additional Investment
Objectives Policies and Restrictions; Policies and Restrictions;
and Policies ............. Additional Information Additional Information
Concerning Certain Concerning Certain
Investment Techniques; Investment Techniques;
Debt Instruments Additional Information
and Permitted Cash Investments; Concerning Investment
Portfolio Transactions Sectors; Portfolio
Transactions
14. Management of the
Registrant ............... Trustees and Officers Trustees and Officers
15. Control Persons and
Principal Holders of
Securities ............... Trustees and Officers Trustees and Officers
16. Investment Investment Advisory Services; Investment Advisory
Advisory and Custodian; Independent Services; Custodian;
Other Services ........... Accountants; Distribution of Independent Accountants;
Shares of the Fund Distribution of Shares of the
Fund
17. Brokerage
Allocation ............... Portfolio Transactions Portfolio Transactions
18. Capital Stock and Not Applicable (Description in Not Applicable (Description
Other Securities ......... Prospectus) in Prospectus)
19. Purchase, Redemption
and Pricing of
Securities Being Purchase and Redemption of Shares; Purchase and Redemption
Offered .................. Net Asset Value of Shares; Net Asset Value
20. Tax Status ............... Certain Tax Matters Certain Tax Matters
21. Underwriters ............. Distribution of Shares of the Distribution of Shares of the
Fund Fund
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN CAPTION OR LOCATION
STATEMENT OF ADDITIONAL IN STATEMENT OF
INFORMATION FOR STATE ADDITIONAL INFORMATION FOR
STREET RESEARCH HIGH STATE STREET RESEARCH
FORM N-1A ITEM NO. INCOME FUND MANAGED ASSETS
- ------------------------------ ---------------------------------- ---------------------------------
<S> <C> <C>
22. Calculation of
Performance
Data ..................... Calculation of Performance Data Calculation of Performance Data
23. Financial Financial Financial
Statements ............... Statements Statements
</TABLE>
iii
<PAGE>
STATE STREET RESEARCH
HIGH INCOME FUND
Prospectus - August 1, 1997
STATE STREET RESEARCH HIGH INCOME FUND (the "Fund") seeks primarily, high
current income and, secondarily, capital appreciation, from investments in
fixed income securities. In selecting investments for the Fund, the investment
manager seeks to identify those fixed income securities which it believes will
not involve undue risk. Certain of the Fund's investments, however, may be
considered predominantly speculative.
State Street Research & Management Company serves as investment adviser
for the Fund (the "Investment Manager"). As of 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.
THE FUND WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN LOWER RATED
BONDS, COMMONLY KNOWN AS "JUNK BONDS," THAT ENTAIL GREATER RISKS, INCLUDING
DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD
CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING. SEE "THE FUND'S INVESTMENTS,"
PAGES 7 AND 8 AND "APPENDIX--DESCRIPTION OF DEBT/BOND RATINGS," PAGES 29 TO 30.
Table of Contents Page
- --------------------------------------------------------------------------------
Table of Expenses ......................................................... 2
Financial Highlights ...................................................... 4
The Fund's Investments ................................................... 6
Other Investment Policies ................................................ 7
Purchase of Shares .........................................................10
Redemption of Shares ......................................................18
Shareholder Services ......................................................20
The Fund and Its Shares ...................................................24
Management of the Fund ...................................................25
Dividends and Distributions; Taxes .......................................26
Calculation of Performance Data ..........................................27
Appendix--Description of Debt/Bond Ratings .................................30
- --------------------------------------------------------------------------------
<PAGE>
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a deferred
basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5%
and (ii) an annual service fee of 0.25% of the average daily net asset value of
the Class A shares.
Class B shares are subject to (i) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees of
1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses) at
the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and
large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution and
service fees of 1% of the average daily net asset value of such shares.
<TABLE>
<CAPTION>
Table of Expenses Class A Class B Class C Class D
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) ................................................ 4.5% None None None
Maximum 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 ................................................... 0.65% 0.65% 0.65% 0.65%
12b-1 Fees ......................................................... 0.25% 1.00% None 1.00%
Other Expenses ...................................................... 0.20% 0.20% 0.20% 0.20%
------ ------ ------ ------
Total Fund Operating Expenses .................................... 1.10% 1.85% 0.85% 1.85%
====== ====== ====== ======
</TABLE>
Example:
You would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption of the entire investment at the end of each
time period:
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ---------
Class A shares ......... $56 $78 $103 $173
Class B shares (1) ...... $69 $88 $120 $197
Class C shares ......... $ 9 $27 $ 47 $105
Class D shares ......... $29 $58 $100 $217
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) ...... $19 $58 $100 $197
Class D shares ......... $19 $58 $100 $217
- ------------
(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; actual
expense levels for the current fiscal year and future years may vary from the
amounts shown. The table does not reflect charges for optional services elected
by certain shareholders, such as the $7.50 fee for remittance of redemption
proceeds by wire. For further information on sales charges, see "Purchase of
Shares--Alternative Purchase Program"; for further information on management
fees, see "Management of the Fund"; and for further information on 12b-1 fees,
see "Purchase of Shares--Distribution Plan."
3
<PAGE>
Financial Highlights
The data set forth below has been audited by Price Waterhouse LLP,
independent accountants, and their report thereon for the latest five years is
included in the Statement of Additional Information. For further information
about the performance of the Fund, see "Financial Statements" in the Statement
of Additional Information. Past results may not be indicative of future
performance because of, among other things, changes in the Fund's investment
objective and policies in January 1994. See "Calculation of Performance Data."
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Year ended March 31
------------------------------------------------------------
1997*** 1996*** 1995*** 1994 1993
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year .................. $5.95 $5.80 $6.43 $6.32 $5.95
Net investment income* ...... .59 .52 .61 .66 .67
Net realized and unrealized
gain (loss) on investments
and foreign currency ...... (.01) .20 (.58) .22 .37
----- ----- ----- ----- -----
Total from investment
operations ............... .58 .72 .03 .88 1.04
Dividends from net
investment income ......... (.52) (.56) (.60) (.62) (.67)
Distributions from net
realized gains ............ -- (.01) (.06) (.15) --
----- ----- ----- ----- -----
Total distributions ...... (.52) (.57) (.66) (.77) (.67)
Net asset value, end
of year .................. $6.01 $5.95 $5.80 $6.43 $6.32
===== ===== ===== ===== =====
Total return ............... 10.30%+ 12.85%+ 1.80%+ 14.58%+ 18.70%+
Net assets at end of year
(000s) ..................... $658,413 $646,473 $618,462 $650,755 $496,352
Ratio of operating
expenses to average
net assets* ............... 1.10% 1.17% 1.23% 1.16% 1.15%
Ratio of net investment
income to average net
assets* .................. 9.70% 8.88% 10.19% 10.41% 11.25%
Portfolio turnover rate ... 81.75% 56.47% 31.55% 24.36% 79.39%
Average commission rate@ $0.0152 -- -- -- --
- ------------
*Reflects voluntary
assumption of fees
or expenses per share in
each year .................. -- -- -- $0.00 --
<CAPTION>
1992 1991 1990 1989 1988
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year ...................... $5.21 $5.88 $7.20 $7.22 $7.73
Net investment income* ........ .71 .75 .88 .84 .85
Net realized and unrealized
gain (loss) on investments
and foreign currency.......... .72 (.67) (1.31) (.01) (.52)
----- ----- ----- ----- -----
Total from investment
operations................... 1.43 .08 (.43) .83 .33
Dividends from net
investment income............. (.69) (.75) (.89) (.85) (.83)
Distributions from net
realized gains................ -- -- -- -- (.01)
----- ----- ----- ----- -----
Total distributions .......... (.69) (.75) (.89) (.85) (.84)
Net asset value, end
of year ...................... $5.95 $5.21 $5.88 $7.20 $7.22
===== ===== ===== ===== =====
Total return .................. 28.99%+ 2.18%+ (6.72%)+ 12.32%+ 4.79%+
Net assets at end of year
(000s) ....................... $308,921 $195,739 $157,987 $88,681 $41,637
Ratio of operating
expenses to average
net assets* .................. 1.17% 1.21% 1.24% 1.25% 1.25%
Ratio of net investment
income to average net
assets*....................... 12.71% 14.21% 13.46% 11.85% 11.90%
Portfolio turnover rate ....... 72.62% 58.15% 52.46% 110.92% 126.68%
Average commission rate@ ...... -- -- -- -- --
*Reflects voluntary
assumption of fees
or expenses per share in
each year ..................... -- -- $0.00 $0.01 $0.02
</TABLE>
*** 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.
@ Average commission rate per share paid for security trades for fiscal years
beginning on or after April 1, 1996.
- --------------------------------------------------------------------------------
4
<PAGE>
Class B
--------------------------------------
Year ended March 31
---------------------------------
1997*** 1996*** 1995***
----- ----- -----
Net asset value,
beginning of
year ............ $5.93 $5.79 $6.42
Net investment
income* ......... .55 .46 .57
Net realized and
unrealized gain
(loss)
on investments
and foreign
currency ......... (.02) .21 (.58)
----- ----- -----
Total from
investment
operations ...... .53 .67 (.01)
Dividends from net
investment
income ............ (.48) (.52) (.56)
Distributions from
net realized
gains ............ -- (.01) (.06)
----- ----- -----
Total
distributions ..... (.48) (.53) (.62)
Net asset value,
end of year ...... $5.98 $5.93 $5.79
===== ===== =====
Total return ...... 9.35%+ 12.06%+ 0.89%+
Net assets at end
of year (000s) ... $259,077 $185,735 $117,767
Ratio of operating
expenses to
average net
assets* ......... 1.85% 1.92% 1.98%
Ratio of net
investment
income to
average net
assets* ......... 9.01% 7.95% 9.65%
Portfolio turnover
rate ............ 81.75% 56.47% 31.55%
Average
commission
rate@ ............ $0.0152 -- --
- ------------
*Reflects voluntary
assumption of
fees or expenses
per share in each
year ............... -- -- --
<TABLE>
<CAPTION>
Class C Class D
------------------------------------------------------ -------------------
Year ended March 31 Year ended March 31
------------------------------------------------------ -------------------
1994** 1997*** 1996*** 1995*** 1994** 1997***
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year ............ $6.34 $5.92 $5.78 $6.42 $6.34 $5.93
Net investment
income* ......... .51 .61 .53 .64 .57 .54
Net realized and
unrealized gain
(loss) on investments
and foreign
currency ......... .15 (.01) .20 (.60) .14 (.00)
----- ----- ----- ----- ----- -----
Total from
investment
operations ...... .66 .60 .73 .04 .71 .54
Dividends from net
investment
income ............ (.48) (.54) (.58) (.62) (.53) (.48)
Distributions from
net realized
gains ............ (.10) -- (.01) (.06) (.10) --
----- ----- ----- ----- ----- -----
Total
distributions ..... (.58) (.54) (.59) (.68) (.63) (.48)
Net asset value,
end of year ...... $6.42 $5.98 $5.92 $5.78 $6.42 $5.99
===== ===== ===== ===== ===== =====
Total return ...... 10.76%++ 10.63%+ 13.19%+ 1.73%+ 11.67%++ 9.52%+
Net assets at end
of year (000s) ... $67,337 $6,255 $3,840 $2,579 $851 $28,488
Ratio of operating
expenses to
average net
assets* ......... 1.93%[dbldag] 0.85% 0.92% 0.98% 0.93%[dbldag] 1.85%
Ratio of net
investment income to
average net
assets* ......... 10.32%[dbldag] 10.04% 8.97% 10.85% 11.32%[dbldag] 9.09%
Portfolio turnover
rate ............ 24.36% 81.75% 56.47% 31.55% 24.36% 81.75%
Average commission
rate@ ............ -- $0.0152 -- -- -- $0.0152
- ------------
*Reflects voluntary
assumption of
fees or expenses
per share in each
year ............... $0.00 -- -- -- $0.00 --
</TABLE>
Year ended March 31
-----------------------------------------
1996*** 1995*** 1994**
------------ ------------ --------------
Net asset value,
beginning of
year ............ $5.79 $6.42 $6.34
Net investment
income* ......... .46 .58 .51
Net realized and
unrealized gain
(loss)
on investments
and foreign
currency ......... .21 (.59) .15
----- ----- -----
Total from
investment
operations ...... .67 (.01) .66
Dividends from net
investment
income ............ (.52) (.56) (.48)
Distributions from
net realized
gains ............ (.01) (.06) (.10)
----- ----- -----
Total
distributions . (.53) (.62) (.58)
Net asset value,
end of year ...... $5.93 $5.79 $6.42
===== ===== =====
Total return ...... 12.05%+ 0.88%+ 10.74%++
Net assets at end
of year (000s) ... $15,262 $6,766 $2,661
Ratio of operating
expenses to
average net
assets* ......... 1.92% 1.98% 1.93%[dbldag]
Ratio of net
investment
income to
average net
assets* ......... 7.91% 9.81% 10.32%[dbldag]
Portfolio turnover
rate ............ 56.47% 31.55% 24.36%
Average
commission
rate@ ............ -- -- --
- ------------
*Reflects voluntary
assumption of
fees or expenses
per share in each
year ............... -- -- $0.00
** June 1, 1993 (commencement of share class designations) to March 31,
1994.
*** Per-share figures have been calculated using the average shares method.
[dbldag] Annualized.
+ Total return figures do not reflect any front-end or contingent
deferred sales charges.
++ Represents aggregate return for the period without annualization and
does not reflect any front-end or contingent deferred sales charge.
@ Average commission rate per share paid for security trades for fiscal
years beginning on or after April 1, 1996.
- --------------------------------------------------------------------------------
5
<PAGE>
The Fund's Investments
The investment objective of the Fund is to seek, primarily, high current income
and, secondarily, capital appreciation, from investments in fixed income
securities. The investment objective is a fundamental policy and may not be
changed without approval of the shareholders of the Fund.
There are risks in any investment program, and there is no assurance that
the Fund will achieve its investment objective. All bonds are subject to
relative degrees of credit risk and market volatility. Credit risk relates to
the issuer's (and any guarantor's) ability to make timely payments of principal
and interest. Market volatility relates to the changes in market price that
occur as a result of variations in the level of prevailing interest rates and
yield relationships between sectors in the bond market and other market
factors. When interest rates increase, the value of debt securities and shares
of the Fund can be expected to decline. Generally, prices of lower rated issues
tend to fluctuate more than prices of higher rated issues, and, for any given
change in the level of interest rates, prices of issues with longer maturities
tend to fluctuate more than prices of issues with shorter maturities.
In seeking to achieve this investment objective, the Fund, under normal
market conditions, invests at least 65% of its total assets in fixed income
securities, including convertible bonds and preferred stocks, rated at the time
of purchase within the major rating categories BBB through D by Standard &
Poor's Corporation ("S&P") or Baa through C by Moody's Investors Service, Inc.
("Moody's"), or which are unrated but believed by the Investment Manager to be
of comparable quality; provided that the Fund shall not invest more than 20% of
its total assets in securities which are within the major rating categories CCC
or lower by S&P, or Caa or lower by Moody's. Where an investment is split
rated, the Fund may invest on the basis of the higher rating. Where an
investment is only rated by one rating agency, the Fund may invest on the basis
of a higher rating derived from its own analysis. In selecting investments for
the Fund, including any in the lower rated categories, the Investment Manager
seeks to identify those securities the returns on which are appropriate within
the context of the risks involved. In doing so, the Investment Manager will
consider both its own credit analysis and the ratings of S&P and Moody's.
The Fund may invest in securities rated higher than the BBB category by
S&P or Baa by Moody's (or unrated securities of comparable quality) when the
difference in yields between quality classifications is relatively narrow or
for temporary defensive purposes when the Investment Manager anticipates
adverse market conditions. Investments in higher quality issues may serve to
lessen a decline in net asset value but may also affect the amount of current
income produced by the Fund, since the yields from such issues are usually
lower than those from medium and lower quality issues.
For the fiscal year ended March 31, 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: 5% BB, 65% B and 11% CCC, on a dollar weighted basis,
comprising 81% of total investments. Of these bonds, 83% were rated by a
nationally recognized statistical rating organization and 17% were unrated but
considered to be equivalent, as determined by the Investment Manager, to
comparable rated securities. The above percentages reflect ratings as of the
time of purchase and subsequent changes, if any, including downgrades, for the
period the securities were held.
Fixed income securities in which the Fund may invest include debt
obligations of all kinds such as bonds, debentures and notes as well as bonds,
debentures and preferred stocks that are convertible into, or carry rights to
acquire, equity securities. Although the Fund intends to invest primarily in
fixed income debt securities as described above, it may invest up to 35% of the
market value of its total assets in dividend-paying common stocks of
established companies listed on a national securities exchange to the extent
the Investment Manager considers such investments consistent with the Fund's
investment objective.
The Fund may invest in securities restricted as to resale which could
become illiquid. Some restricted
6
<PAGE>
securities can be resold pursuant to Rule 144A under the Securities Act of
1933, which allows for the resale of certain restricted securities among
qualified institutional buyers. Because the market for Rule 144A securities is
still developing, even restricted securities resalable pursuant to the rule can
be illiquid, however. See the Statement of Additional Information.
Risk Factors
Lower rated high yield, high risk securities (i.e., bonds rated within the BB
category or lower by S&P or Ba or lower by Moody's or equivalent as determined
by the Investment Manager) of the type in which the Fund invests generally
involve more credit risk than higher rated securities and are considered by S&P
and Moody's to be predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
Such securities may also be subject to greater market price fluctuations than
lower yielding, higher rated debt securities; credit ratings do not reflect
this market risk. In addition, these ratings may not reflect the effect of
recent developments on an issuer's ability to make interest and principal
payments. Bonds rated in the lowest category and in default may never resume
interest payments or repay principal and their market value may be difficult to
determine. In the event the rating of a security is downgraded, the Investment
Manager will determine whether the security should be retained or sold
depending on an assessment of all facts and circumstances at that time.
Additional risks of such securities include (i) limited liquidity and
secondary market support, particularly in the case of securities that are not
rated or are subject to restrictions on resale, which may limit the
availability of securities for purchase by the Fund, limit the ability of the
Fund to sell portfolio securities either to meet redemption requests or in
response to changes in the economy or the financial markets, heighten the
effect of adverse publicity and investor perceptions and make selection and
valuation of portfolio securities more subjective and dependent upon the
Investment Manager's credit analysis; (ii) substantial market price volatility
and/or the potential for the insolvency of issuers during periods of changing
interest rates and economic difficulty, particularly with respect to securities
that do not pay interest currently in cash; (iii) subordination to the prior
claims of banks and other senior lenders; (iv) the possibility that earnings of
the issuer may be insufficient to meet its debt service; and (v) the
realization of taxable income for shareholders without the corresponding
receipt of cash in connection with investments in "zero coupon" or
"pay-in-kind" securities. Growth in the market for this type of security has
paralleled a general expansion in certain sectors in the U.S. economy, and the
effects of adverse economic changes (including a recession) are unclear.
For further information concerning the ratings of debt securities, see the
Appendix to this Prospectus.
Portfolio Maturity and Turnover
The Fund's holdings may include issues across the maturity spectrum. Ordinarily
the Fund will emphasize investments in medium and longer term instruments; the
weighted average maturity of portfolio holdings, however, may be shortened or
lengthened depending primarily upon the Investment Manager's outlook for
interest rates.
The Fund reserves full freedom with respect to portfolio turnover. In
periods when there are rapid changes in economic conditions or security price
levels or when investment strategy is changed significantly, portfolio turnover
may be significantly higher than during times of economic and market price
stability or when investment strategy remains relatively constant. Increases in
the rate of portfolio turnover will result in increased transaction costs for
the Fund and may result in an increase in the realization of short-term capital
gains.
Other Investment Policies
Fixed income securities in which the Fund may invest include zero or step
coupon securities. Zero or step coupon securities may pay no interest for all
or a portion of their life but are purchased at a discount to face value at
maturity. Their return consists of the amortization of the discount between
their purchase price and their maturity value, plus, in the case of a step
coupon, any fixed rate interest income. Zero
7
<PAGE>
coupon securities pay no interest to holders prior to maturity even though
interest on these securities is reported as income to the Fund. The Fund will
be required to distribute all or substantially all of such amounts annually to
its shareholders. These distributions may cause the Fund to liquidate portfolio
assets in order to make such distributions at a time when the Fund may have
otherwise chosen not to sell such securities. The amount of the discount
fluctuates with the market value of such securities, which may be more volatile
than that of securities which pay interest at regular intervals.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers such as foreign corporate or government fixed income securities
consistent with its investment objective and policies and in connection with
such investments may enter into forward currency exchange contracts to reduce
the risks of currency fluctuations. For this purpose, American Depositary
Receipts ("ADRs") are not considered to be foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the
issuer than are unsponsored ADRs. More and higher fees are generally charged in
an unsponsored program compared to a sponsored facility. Only sponsored ADRs
may be listed on the New York or American Stock Exchanges. Unsponsored ADRs may
prove to be more risky due to (a) the additional costs involved to the Fund;
(b) the relative illiquidity of the issue in U.S. markets; and (c) the
possibility of higher trading costs in the over-the-
counter market as opposed to exchange-based tradings. The Fund will take these
and other risk considerations into account before making an investment in an
unsponsored ADR.
Investing in foreign securities entails certain risks, including those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, the possible imposition
of currency exchange blockages, higher operating expenses, expropriation of the
Fund's assets by a foreign government, foreign withholding and other taxes
which may reduce investment return, reduced availability of public information
concerning issuers and the fact that foreign issuers are not generally subject
to uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of securities of comparable
domestic issuers. Finally, to the extent the Fund invests in less developed
countries or emerging foreign markets, it will be subject to a variety of
additional risks, including risks associated with political instability,
economies based on relatively few industries, lesser market liquidity, high
rates of inflation, significant price volatility of portfolio holdings and high
levels of external debt in the relevant country.
In order to protect against the effect of uncertain future exchange rates
on securities denominated in foreign currencies, the Fund may engage in
currency exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market or by entering into forward
contracts to purchase or sell currencies. Although such contracts tend to
minimize the risk of loss resulting from a correctly predicted decline in value
of hedged currency, they tend to limit any potential gain that might result
should the value of such currency increase. In entering a forward currency
transaction, the Fund is dependent upon the creditworthiness and good faith of
the counterparty. The Fund attempts to reduce the risks of nonperformance by
the counterparty by dealing only with established, large institutions with
which the Investment Manager has done substantial business in the past. For
further information, see the Statement of Additional Information.
In seeking to lessen investment risk, the Fund operates under certain
fundamental and nonfundamental investment restrictions.
Under the fundamental investment restrictions, the Fund may not (a)
purchase a security of any one issuer (other than securities issued or
guaranteed as
8
<PAGE>
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 restriction, 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, repurchase agreements or any combination thereof. The
investing of cash collateral received from loaning portfolio securities involves
leverage which magnifies the potential for gain or loss on monies invested and,
therefore, results in an increase in the volatility of the Fund's outstanding
securities. Such loans may be terminated at any time.
The Fund will retain most rights of ownership including rights to
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending, although the Fund may call loans to vote proxies
if desired. Should the borrower of the securities fail financially, there is a
risk of delay in recovery of the securities or loss of rights in the
collateral. Loans are made only to borrowers which are deemed by the Investment
Manager to be of good financial standing.
The Fund may buy and sell options, futures contracts and options on
futures contracts on securities, securities indices and currencies, and enter
into closing transactions with respect thereto. The Fund may not establish a
position in a commodity futures contract or purchase or sell a commodity option
contract for other than bona fide hedging purposes if immediately thereafter
the sum of the amount of initial margin deposits and premiums required to
establish such positions for such nonhedging purposes would exceed 5% of the
market value of the Fund's net assets; similar policies apply to options which
are not commodities. The Fund may enter various forms of swap arrangements,
which have simultaneously the characteristics of a security and a futures
contract, although the Fund does not presently expect to invest more than 5% of
its total assets in such items. These swap arrangements include interest rate
swaps, currency swaps and index swaps. See the Statement of Additional
Information.
The Fund may purchase securities on a "when- issued," forward commitment or
delayed delivery basis and invest up to 30% of its total assets in repurchase
agreements, subject to certain limitations. See the Statement of Additional
Information.
9
<PAGE>
The Fund may hold up to 100% of its assets in cash or short-term
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against adverse market conditions
than adherence to the Fund's other investment policies. The types of short-term
instruments in which the Fund may invest for such purposes include short-term
money market securities such as repurchase agreements and securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances of certain
qualified financial institutions and corporate commercial paper rated at the
time of purchase at least "A" by S&P or "Prime" by Moody's (or, if not rated,
issued by companies having outstanding long-term unsecured debt issue rated at
least "A" by S&P or Moody's). See the Statement of Additional Information.
- --------------------------------------------------------------------------------
Information on the Purchase of Shares, Redemption of Shares and
Shareholder Services is set forth on pages 10 to 24 below.
- --------------------------------------------------------------------------------
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers,
Individual Retirement Accounts ("IRAs"), trusts, corporations,
individuals, etc. The applicability of the general information and
administrative procedures set forth below accordingly will vary depending
on the investor and the recordkeeping system established for a
shareholder's investment in the Fund. Participants in 401(k) and other
plans should first consult with the appropriate person at their employer
or refer to the plan materials before following any of the procedures
below. For more information or assistance, anyone may call 1-800-562-0032.
- --------------------------------------------------------------------------------
Purchase of Shares
Methods of Purchase
Through Dealers 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 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.
10
<PAGE>
By Wire
An investor may purchase shares by wiring Federal Funds of not less than $5,000
to State Street Bank and Trust Company, which also serves as the Trust's
custodian (the "Custodian"), as set forth below. Prior to making an investment
by wire, an investor must notify Shareholder Services at 1-800-562-0032 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 High Income Fund and class of shares
(A, B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street
Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make such
investment by 12 noon Boston time on the day of his or her investment; and (ii)
the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete
the Application accompanying this Prospectus and deliver it to his or her
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).
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 commissions and other compensation depending on which class of shares they
sell.
11
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------------------ ------------------------- --------- ----------------------
<S> <C> <C> <C> <C>
Sales Charges Initial sales Contingent deferred None Contingent deferred
charge at time of sales charge of 5% sales charge of 1%
investment of up to 2% applies to applies to any shares
to 4.5% depending any shares redeemed redeemed within one
on amount of within first five years year following
investment following their their purchase
purchase; no
contingent deferred
sales charge
after five years
On investments of $1
million or more, no
initial sales charge;
but contingent
deferred sales charge
of 1% applies to any
shares redeemed within
one year following
their purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years;
Class B shares
convert auto-
matically to
Class A shares
after eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Above described 4% None 1%
Commission initial sales charge
Received by less 0.25% to 0.50%
Selling retained by
Dealers Distributor
On investments of
$1 million or more,
0.25% to 1.00%
paid to dealer by
Distributor
</TABLE>
12
<PAGE>
In deciding which class of shares to purchase, the investor should
consider the amount of the investment, the length of time the investment is
expected to be held, and the ongoing service fee and distribution fee, among
other factors.
Class A shares are sold at net asset value plus an initial sales charge of
up to 4.5% of the public offering price. Because of the sales charge, not all
of an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class D shareholders also pay no
initial sales charge, but a contingent deferred sales charge of 1% generally
applies to redemptions made within one year of purchase. For Class B and Class
D shareholders, therefore, the entire purchase amount is immediately invested
in a Fund.
An investor who qualifies for a significantly reduced initial sales
charge, or a complete waiver of the sales charge on investments of $1,000,000
or more, on the purchase of Class A shares might elect that option to take
advantage of the lower ongoing service and distribution fees that characterize
Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual
distribution fee of 0.75% of daily net assets for an eight-year period
following the date of purchase and are then automatically converted to Class A
shares. Class D shares are assessed an annual distribution fee of 0.75% of
daily net assets for as long as the shares are held. The prospective investor
should consider these fees plus the initial or contingent deferred sales
charges in estimating the costs of investing in the various classes of a Fund's
shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its expense,
provide additional cash and noncash incentives to securities dealers that sell
shares. Such incentives may be extended only to those dealers that have sold or
may sell significant amounts of shares and/or meet other conditions established
by the Distributor; for example, the Distributor may sponsor special promotions
to develop particular distribution channels or to reach certain investor
groups. The Distributor may also compensate 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 reallowed by the Distributor to the dealer responsible for
the sale.
- --------------------------------------------------------------
Sales Sales
Charge Charge
Paid by Paid by Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
- --------------------------------------------------------------
Less than $100,000 4.50% 4.71% 4.00%
- --------------------------------------------------------------
$100,000 or above
but less than
$250,000 3.50% 3.63% 3.00%
- --------------------------------------------------------------
$250,000 or above
but less than
$500,000 2.50% 2.56% 2.00%
- --------------------------------------------------------------
$500,000 or above
but less than
$1 million 2.00% 2.04% 1.75%
- --------------------------------------------------------------
$1 million and See
above 0% 0% following
discussion
- --------------------------------------------------------------
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor may
13
<PAGE>
pay the authorized securities 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
14
<PAGE>
time to time by the Distributor. Information on such arrangements and further
conditions and limitations is available from the Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, Distributor, or any affiliated entities, including any
direct or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated Companies,
any relatives of any such individuals whose relationship is directly verified
by such individuals to the Distributor, or any beneficial account for such
relatives or individuals; and (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any spouse
or child of such person, or any beneficial account for any of them. The
purchase must be made for investment and the shares purchased may not be resold
except through redemption. This purchase program is subject to such
administrative policies, regarding the qualification of purchasers, 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 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.
15
<PAGE>
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain conditions.
In addition, the contingent deferred sales charge will be waived for: (i)
redemptions made within one year of the death or total disability, as defined
by the Social Security Administration, of all shareholders of an account; (ii)
redemptions made after attainment of a specific age in an amount which
represents the minimum distribution required at such age under Section
401(a)(9) of the Internal Revenue Code for retirement accounts or plans (e.g.,
age 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
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Sales Charge Waivers" above (as otherwise applicable to Class B shares). For
federal income tax purposes, the amount of the contingent deferred sales charge
will reduce the gain or increase the loss, as the case may be, on the amount
realized on redemption. The amount of any contingent deferred sales charge will
be paid to the Distributor.
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of the New York Stock Exchange (the "NYSE") exclusive of days on
which the NYSE is closed. The NYSE ordinarily closes at 4 P.M. New York City
time. The Fund uses one or more pricing services to value its portfolio
securities. The pricing services utilize information with respect to market
transactions, quotations from dealers and various relationships among
securities in determining value and may provide prices determined as of times
prior to the close of the NYSE. Assets for which quotations are readily
available are valued as of the close of business on the valuation date.
Securities for which there is no pricing service valuation or last reported
sale price are valued as determined in good faith by or under the authority of
the Trustees of the Trust. The Trustees have authorized the use of the
amortized cost method to value short-term debt instruments issued with a
maturity of one year or less and having a remaining maturity of 60 days or less
when the value obtained is fair value. Further information with respect to the
valuation of the Fund's assets is included in the Statement of Additional
Information.
Distribution Plan
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, the Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class of
shares as follows:
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 services and/or the maintenance or servicing of shareholder accounts.
A portion of any initial commission paid to dealers for the sale of shares of
the Fund represents payment for personal services and/or the maintenance of
shareholder accounts by such dealers. Dealers who have sold Class A shares are
eligible for further reimbursement commencing as of the time of such sale.
Dealers who have sold Class B and Class D shares are eligible for further
reimbursement after the first year during which such shares have been held of
record by such dealer as nominee for its clients (or by such clients directly).
Any service fees received by the Distributor and not allocated to dealers may
be applied by the Distributor in reduction of expenses incurred by it directly
for personal services and the maintenance or servicing of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by the
Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources of
the Distributor (including the advisory fees
17
<PAGE>
paid by the Fund), have also been authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which a Fund may incur under the Distribution
Plan to 1%, of which 0.75% may be used to pay distribution expenses and 0.25%
may be used to pay shareholder service fees. The NASD rule also limits the
aggregate amount which the Fund may pay for such distribution costs to 6.25% of
gross share sales of a class since the inception of any asset-based sales
charge plus interest at the prime rate plus 1% on unpaid amounts thereof (less
any contingent deferred sales charges). Such limitation does not apply to
shareholder service fees. Payments to the Distributor or to dealers funded
under the Distribution Plan may be discontinued at any time by the Trustees of
the Trust.
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the
NYSE is open for business. Redemptions will be effective at the net asset value
per share next determined (see "Purchase of Shares--Net Asset Value" herein)
after receipt of the redemption request, in accordance with the requirements
described below, by Shareholder Services and delivery of the request by
Shareholder Services to the Transfer Agent. To allow time for the clearance of
checks used for the purchase of any shares which are tendered for redemption
shortly after purchase, the remittance of the redemption proceeds for such
shares could be delayed for 15 days or more after the purchase. Shareholders
who anticipate a potential need for immediate access to their investments
should, therefore, purchase shares by wire. Except as noted, redemption
proceeds from the Fund are normally remitted within seven days after receipt of
the redemption request by the Fund and any necessary documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed for
transfer or accompanied by an endorsed stock power; (3) any required signature
guarantees (see "Redemption of Shares--Signature Guarantees" below); and (4)
any additional documents which may be required for redemption in the case of
corporations, trustees, etc., such as certified copies of corporate
resolutions, governing instruments, powers of attorney, and the like. The
Transfer Agent will not process requests for redemption until it has received
all necessary documents in good order. A shareholder will be notified promptly
if a redemption request cannot be accepted. Shareholders having any questions
about the requirements for redemption should call Shareholder Services
toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Fund may
revoke or suspend the telephone redemption privilege at any time and without
notice. See "Shareholder Services-- Telephone Services" for a discussion of the
conditions and risks associated with Telephone Privileges.
Request By Check (Class A Shares Only)
Shareholders of Class A shares of the Fund may redeem shares by checks drawn on
State Street Bank and Trust Company. Checks may be made payable to the order of
any person or organization designated by the shareholder and must be for
amounts of at least $500 but not more than $100,000. Shareholders will continue
to earn dividends on the shares to be
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<PAGE>
redeemed until the check clears. There is currently no charge associated with
redemption of shares by check. Checkbooks are supplied for a $2 fee. Checks
will be sent only to the registered owner at the address of record. A $10 fee
will be charged against an account in the event a redemption check is presented
for payment and not honored pursuant to the terms and conditions established by
State Street Bank and Trust Company.
Shareholders can request the checkwriting privilege by completing the
signature card which is part of the Application. In order to arrange for
redemption-by-check after an account has been opened, a revised Application
with signature card and signatures guaranteed must be sent to Shareholder
Services. Cancelled checks will be returned to shareholders at the end of each
month.
The redemption-by-check service is subject to State Street Bank and Trust
Company's rules and regulations applicable to checking accounts (as amended
from time to time), and is governed by the Massachusetts Uniform Commercial
Code. All notices with respect to checks drawn on State Street Bank and Trust
Company must be given to State Street Bank and Trust Company. Stop payment
instructions with respect to checks must be given to State Street Bank and
Trust Company by calling 1-617-985-8543. Shareholders may not close out an
account by check.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800-562-0032 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge is
subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor as
its agent to accept orders from dealers by wire or telephone for the repurchase
of shares by the Distributor from the dealer. The Fund may revoke or suspend
this authorization at any time. The repurchase price is the net asset value for
the applicable shares next determined following the time at which the shares
are offered for repurchase by the dealer to the Distributor. The dealer is
responsible for promptly transmitting a shareholder's order to the Distributor.
Payment of the repurchase proceeds is made to the dealer who placed the order
promptly upon delivery of certificates for shares in proper form for transfer
or, for Open Accounts, upon the receipt of a stock power with signatures
guaranteed as described below, and, if required, any supporting documents.
Neither the Fund nor the Distributor imposes any charge upon such a repurchase.
However, a dealer may impose a charge as agent for a shareholder in the
repurchase of his or her shares.
The Fund has reserved the right to change, modify or terminate the
services described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable sales charges, if any. The Fund may increase such minimum
account value above such amount in the future after notice to affected
shareholders. Involuntarily redeemed shares will be priced at the net asset
value on the date fixed for redemption by the Fund, and the proceeds of the
redemption will be mailed to the affected shareholder at the address of record.
Currently, the maintenance fee is $18 annually, which is paid to the Transfer
19
<PAGE>
Agent. The fee does not apply to certain retirement accounts or if the
shareholder has more than an aggregate $50,000 invested in the Fund and other
Eligible Funds combined. Imposition of a maintenance fee on a small account
could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it may
elect to suspend the redemption of shares or postpone the date of payment of
redemption proceeds: (1) during any period that the NYSE is closed (other than
customary weekend and holiday closings) or trading on the NYSE is restricted;
(2) during any period in which an emergency exists as a result of which
disposal of portfolio securities is not reasonably practicable or it is not
reasonably practicable to fairly determine the Fund's net asset value; or (3)
during such other periods as the Securities and Exchange Commission may by
order permit for the protection of investors; and (b) the payment of redemption
proceeds may be postponed as otherwise provided under "Redemption of Shares"
herein.
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees help the Transfer Agent
to determine that the person who has authorized a redemption from the account
is, in fact, the shareholder. Signature guarantees are required for, among
other things: (1) written requests for redemptions for more than $50,000; (2)
written requests for redemptions for any amount if the proceeds are transmitted
to other than the current address of record (unchanged in the past 30 days);
(3) written requests for redemptions for any amount submitted by corporations
and certain fiduciaries and other intermediaries; (4) requests to transfer the
registration of shares to another owner; and (5) authorizations to establish
the checkwriting privilege. Signatures must be guaranteed by a bank, a member
firm of a national stock exchange, or other eligible guarantor institution. The
Transfer Agent will not accept guarantees (or notarizations) from notaries
public. The above requirements may be waived in certain instances. Please
contact Shareholder Services at 1-800-562-0032 for specific requirements
relating to your account.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of the Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110.
Certificates representing Class B or Class D shares will not be issued, while
certificates representing Class A or Class C shares will only be issued if
specifically requested in writing and, in any case, will only be issued for
full shares, with any fractional shares to be carried on the shareholder's
account. Shareholders will receive periodic statements of transactions in their
account.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through dealers,
by wire or by mailing a check, payable to the Fund, to Shareholder
Services under the terms set forth above under "Purchase of Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
(b) All income dividends in cash; all capital gains distributions
reinvested in additional shares of the Fund.
(c) All income dividends and capital gains distributions in cash.
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<PAGE>
(d) All income dividends and capital gains distributions invested in any
one available Eligible Fund designated by the shareholder as described
below. See "Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will automatically be coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for available shares with
corresponding characteristics of any of the other Eligible Funds at any time on
the basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws. Shareholders
of any other Eligible Fund may similarly exchange their shares for Fund shares
with corresponding characteristics. Prior to making an exchange, shareholders
should obtain the Prospectus of the Eligible Fund into which they are
exchanging. Under the Direct Program, subject to certain conditions,
shareholders may make arrangements for regular exchanges from the Fund into
other Eligible Funds. To effect an exchange, Class A, Class B and Class D
shares may be redeemed without the payment of any contingent deferred sales
charge that might otherwise be due upon an ordinary redemption of such shares.
The State Street Research Money Market Fund issues Class E shares which are
sold without any sales charge. Exchanges of State Street Research Money Market
Fund Class E shares into Class A shares of the Fund or any other Eligible Fund
are subject to the initial sales charge or contingent deferred sales charge
applicable to an initial investment in such Class A shares, unless a prior
Class A sales charge has been paid directly or indirectly with respect to the
shares redeemed. For purposes of computing the contingent deferred sales charge
that may be payable upon disposition of any acquired Class A, Class B and Class
D shares, the holding period of the redeemed shares is "tacked" to the holding
period of the acquired shares. The period any Class E shares are held is not
tacked to the holding period of any acquired shares. No exchange transaction
fee is currently imposed on any exchange.
Shares of the Fund may also be acquired or redeemed in exchange for shares
of the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers of
Merrill Lynch, Pierce, Fenner & Smith Incorporated (subject to completion of
steps necessary to implement the program). The Fund and Summit Cash Reserves
are related mutual funds for purposes of investment and investor services. Upon
the acquisition of shares of Summit Cash Reserves by exchange for redeemed
shares of the Fund, (a) no sales charge is imposed by Summit Cash Reserves, (b)
no contingent deferred sales charge is imposed by the Fund on the Fund shares
redeemed, and (c) any applicable holding period of the Fund shares redeemed is
"tolled," that is, the holding period clock stops running pending further
transactions. Upon the acquisition of shares of the Fund by exchange for
redeemed shares of Summit Cash Reserves, (a) the acquisition of Class A shares
shall be subject to the initial sales charges or contingent deferred sales
charges applicable to an initial investment in such Class A shares, unless a
prior Class A sales charge has been paid indirectly, and (b) the acquisition of
Class B or Class D shares of the Fund shall restart any holding period
previously tolled, or shall be subject to the contingent deferred sales charge
applicable to an initial investment in such shares.
For the convenience of the shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or his
or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-562-0032. 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
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<PAGE>
exchange actually represents the sale of shares of one fund and the purchase of
shares of another. Accordingly, exchanges may produce a capital gain or loss
for tax purposes. The exchange privilege may be terminated or suspended or its
terms changed at any time, subject, if required under applicable regulations,
to 60 days' prior notice. New accounts established for investments upon
exchange from an existing account in another fund will have the same Telephone
Privileges as the existing account, unless Shareholder Services is instructed
otherwise. Related administrative policies and procedures may also be adopted
with regard to a series of exchanges, street name accounts, sponsored
arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer identification
number, may be aggregated for purposes of the six exchange limit.
Notwithstanding the six exchange limit, the Fund reserves the right to refuse
exchanges by any person or group if, in the Investment Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Exchanges may be restricted or refused if the Fund receives or anticipates
simultaneous orders affecting significant portions of the Fund's assets. In
particular, a pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to the Fund. The Fund may impose these restrictions
at any time. The exchange limit may be modified for accounts in certain
institutional retirement plans because of plan exchange limits, Department of
Labor regulations or administrative and other considerations. Subject to the
foregoing, if an exchange request in good order is received by Shareholder
Services and delivered by Shareholder Services to the Transfer Agent by 12 noon
Boston time on any business day, the exchange usually will occur that day. For
further information regarding the exchange privilege, shareholders should
contact Shareholder Services.
Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares repurchased at
his or her request may reinvest all or any portion of the proceeds (plus that
amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and without
subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 120 calendar days after a redemption or repurchase.
Upon such reinvestment, the shareholder will be credited with any contingent
deferred sales charge previously charged with respect to the amount reinvested.
The redemption of shares is, for federal income tax purposes, a sale on which
the shareholder may realize a gain or loss. If a redemption at a loss is
followed by a reinvestment within 30 days, the transaction may be a "wash sale"
resulting in a denial of the loss for federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once per 12-month period with respect
to his or her shares of the Fund. No charge is imposed by the Fund for such
reinvestments; however, dealers may charge fees in connection with the
reinvestment privilege. The reinvestment privilege may be exercised with
respect to an Eligible Fund only in those states where shares of the relevant
other Eligible Fund may legally be sold.
Investment Plans
The Investamatic Program is available to Class A, Class B and Class D
shareholders. Under this Program, shareholders may make regular investments
22
<PAGE>
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 certain minimums, depending on the class of shares held. The Plan
provides that all income dividends and capital gains distributions of the Fund
shall be credited to participating shareholders in additional shares of the
Fund. Thus, the withdrawal amounts paid can only be realized by redeeming
shares of the Fund under the Plan. To the extent such amounts paid exceed
dividends and distributions from the Fund, a shareholder's investment will
decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually of
either (a) the value, at the time the Plan is initiated, of the shares then in
the account, or (b) the value, at the time of a withdrawal, of the same number
of shares as in the account when the Plan was initiated, whichever is higher.
Expenses of the Plan are borne by the Fund. A participating shareholder
may withdraw from the Plan, and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is receiving
payments under a Plan is ordinarily disadvantageous because of duplicative
sales charges. For this reason, a shareholder may not participate in the
Investamatic Check Program and the Systematic Withdrawal Plan at the same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all their
dividends and any other distributions from the Fund or any Eligible Fund
automatically invested at net asset value in one other such Eligible Fund
designated by the shareholder, provided the account into which the 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, as, for instance, may be applicable to street name or master
accounts, that may be adopted from time to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by the
Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions for
amounts up to $50,000 to be mailed to the shareholder's address of record
is available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically;
23
<PAGE>
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not previously
request such telephone wire privilege on his or her original Application
may request the privilege by completing a Telephone Redemption- by-Wire
Form which may be obtained by calling 1-800-562-0032. The Telephone
Redemption-by- Wire Form requires a signature guarantee; and
(4) the privilege allowing the shareholder to make telephone purchases or
redemptions, transmitted via the Automated Clearing House system, into or
from the shareholder's predesignated bank account, is available upon
completion of the requisite initial documentation. For details and forms,
call 1-800-562-0032. The documentation requires a signature guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in
(1) and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by
advising Shareholder Services that the shareholder wishes to discontinue the
use of such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account for which such services have been authorized;
and (2) honor any written instructions for a change of address regardless of
whether such request is accompanied by a signature guarantee. All telephone
calls will be recorded. None of the Fund, the other Eligible Funds, the
Transfer Agent, the Investment Manager or the Distributor will be liable for
any loss, expense or cost arising out of any request, including any fraudulent
or unauthorized requests. Shareholders assume the risk to the full extent of
their accounts that telephone requests may be unauthorized. Reasonable
procedures will be followed to confirm that instructions communicated by
telephone are genuine. The shareholder will not be liable for any losses
arising from unauthorized or fraudulent instructions if such procedures are not
followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-562-0032. 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 Funds. Account inquiries may also be made in
writing to State Street Research Shareholder Services, P.O. Box 8408, Boston,
Massachusetts 02266-8408. A fee of up to $10 will be charged against an account
for providing additional account transcripts or photocopies of paid redemption
checks or for researching records in response to special requests.
Shareholder Telephone Transactions:
Please call 1-800-562-0032
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 1985 as series of State Street Research Income Trust,
a Massachusetts business trust. The Trustees have authorized shares of the Fund
to be issued in four classes: Class A, Class B, Class C
24
<PAGE>
and Class D shares. The Trust is registered with the Securities and Exchange
Commission as an open-end management investment company. The fiscal year end of
the Fund is March 31.
Except for those differences between the classes of shares described below
and elsewhere in the Prospectus, each share of the Fund has equal dividend,
redemption and liquidation rights with other shares of the Fund and when issued
is fully paid and nonassessable. In the future, certain classes may be
redesignated, for administrative purposes only, to conform to standard class
designations and common usage of terms which may develop in the mutual fund
industry. For example, Class C shares may be redesignated as Class Y shares and
Class D shares may be redesignated as Class C shares. Any redesignations would
not affect any substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class D shares bear
the expenses of the deferred sales arrangement and any expenses (including the
higher service and distribution fees) resulting from such sales arrangement,
and certain other incremental expenses related to a class. Each class will have
exclusive voting rights with respect to provisions of the Rule 12b-1
distribution plan pursuant to which the service and distribution fees, if any,
are paid. Although the legal rights of holders of each class of shares are
identical, it is likely that the different expenses borne by each class will
result in different net asset values and dividends. The different classes of
shares of the Fund also have different exchange privileges.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material, adverse effect on
the rights of any shareholder. The Trustees may reorganize, merge or liquidate
the Fund without shareholder approval and subject to compliance with applicable
law. On any matter submitted to the shareholders, the holder of each Fund share
is entitled to one vote per share (with proportionate voting for fractional
shares) regardless of the relative net asset value thereof.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder
meetings unless required by the 1940 Act. Except as otherwise provided under
said Act, the Board of Trustees will be a self-perpetuating body until fewer
than two thirds of the Trustees serving as such are Trustees who were elected
by shareholders of the Trust. In the event less than a majority of the Trustees
serving as such were elected by shareholders of the Trust, a meeting of
shareholders will be called to elect Trustees. Under the Master Trust
Agreement, any Trustee may be removed by vote of two thirds of the outstanding
Trust shares; holders of 10% or more of the outstanding shares of the Trust can
require that the Trustees call a meeting of shareholders for purposes of voting
on the removal of one or more Trustees. In connection with such meetings called
by shareholders, shareholders will be assisted in shareholder communications to
the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for indemnification
for all losses and expenses of any shareholder of the Fund held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund would be unable to meet its obligations. The
Investment Manager believes that, in view of the above, the risk of personal
liability to shareholders is remote.
Management of the Fund
Under the provisions of the Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
25
<PAGE>
The Fund's investment manager is State Street Research & Management
Company. The Investment Manager is charged with the overall responsibility for
managing the investments and business affairs of the Fund, subject to the
authority of the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first
mutual funds, presently known as State Street Research Investment Trust, which
they had formed in 1924. Their investment management philosophy emphasized
comprehensive fundamental research and analysis, including meetings with the
management of companies under consideration for investment. The Investment
Manager's portfolio management group has extensive investment industry
experience managing equity and debt securities. In managing debt securities, if
any, for a portfolio, the Investment Manager may consider yield curve
positioning, sector rotation and duration, among other factors.
The Investment Manager and the Distributor are indirect wholly owned
subsidiaries of Metropolitan Life Insurance Company and are located at One
Financial Center, Boston, Massachusetts 02111-2690.
The Investment Manager has entered into an Advisory Agreement with the
Trust pursuant to which investment research and management, administrative
services, office facilities and personnel are provided for the Fund in
consideration of a fee from the Fund.
Under its Advisory Agreement with the Trust, the Investment Manager
receives a monthly investment advisory fee equal to 0.65% (on an annual basis)
of the average daily value of the net assets of the Fund. The Fund bears all
costs of its operation other than those incurred by the Investment Manager
under the Advisory Agreement. In particular, the Fund pays, among other
expenses, investment advisory fees, certain distribution expenses under the
Fund's Distribution Plan and the compensation and expenses of the Trustees who
are not otherwise currently affiliated with the Investment Manager or any of
its affiliates. The Investment Manager compensates Trustees of the Trust if
such persons are employees or affiliates of the Investment Manager or its
affiliates.
The Fund is managed by Bartlett R. Geer. Mr. Geer has managed the Fund
since early 1987. Mr. Geer's principal occupation currently is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research &
Management Company.
Subject to the policy of seeking best overall price and execution, sales
of shares of the Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for the Fund's portfolio transactions.
The Investment Manager has a Code of Ethics governing personal securities
transactions of certain of its employees; see the Statement of Additional
Information.
Dividends and Distributions; Taxes
The Fund 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 fiscal years, although it
cannot give complete assurance that it will do so. As long as the Fund so
qualifies and satisfies certain distribution requirements, it will not be
subject to federal income tax on its taxable income (including capital gains,
if any) distributed to its shareholders. Consequently, the Fund intends to
distribute annually to its shareholders substantially all of its net investment
income and any capital gain net income (capital gains net of capital losses).
Dividends from net investment income will be declared daily during each
calendar month and paid after the end of the month; distributions of long-term
and short-term capital gain net income will generally be made on an annual
basis, shortly after the end of the fiscal year in which such gains are
realized (or as otherwise required for compliance with applicable tax
regulations), except to the extent that net short-term gains, if any, are
included in the monthly income dividends for the purpose of stabilizing, to the
extent possible, the amount of net monthly distributions as described below.
Both dividends from net investment income and distributions of capital gain net
income will be paid in additional shares of the Fund at net asset value (except
in the case of shareholders who elect a different available distribution
method).
26
<PAGE>
The Fund will provide its shareholders with annual information on a timely
basis concerning the federal tax status of dividends and distributions during
the preceding calendar year.
The Fund has adopted distribution procedures which differ from those which
have been customary for investment companies in general. The Fund will declare
a dividend each day in an amount based on monthly projections of its future net
investment income and will pay such dividends monthly as described above.
Consequently, the amount of each daily dividend may differ from actual net
investment income as determined under generally accepted accounting principles.
The purpose of these distribution procedures is to attempt to eliminate, to the
extent possible, fluctuations in the level of monthly dividend payments that
might result if the Fund declared dividends in the exact amount of its daily
net investment income.
Each daily dividend is payable to shareholders of record at the time of
its declaration (for this purpose, including only holders of shares purchased
for which payment has been received by the Transfer Agent and excluding holders
of shares redeemed on that day).
Although not contemplated, it is possible that total distributions in a
year could exceed the total of the Fund's current and accumulated earnings and
profits as calculated for federal income tax purposes, because of technical
accounting considerations and the distribution procedures described above,
among other reasons. This excess would first be treated as a "return of
capital" for federal income tax purposes and would reduce by its amount the
shareholder's cost or other basis in his or her shares. After the shareholder's
cost or other basis is reduced to zero, which is highly unlikely, the
distribution will be treated as gain from the sale of the Fund shares.
Dividends paid by the Fund from taxable net investment income and
distributions of net short-term capital gains, whether they are paid in cash or
reinvested in additional shares, will be taxable for federal income tax
purposes to shareholders as ordinary income. Distributions of net capital gains
(the excess of net long-term capital gains over net short-term capital losses)
which are designated as capital gains distributions, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax
purposes to shareholders as long-term capital gains, regardless of how long
shareholders have held their shares.
Dividends and other distributions and proceeds of redemption of Fund
shares paid to individuals and other nonexempt payees will be subject to a 31%
federal backup withholding tax if the Transfer Agent is not provided with the
shareholder's correct taxpayer identification number or certification that the
shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisers regarding
tax matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, the Fund may compare the performance of its Class A,
Class B, Class C or Class D shares to that of other mutual funds with similar
investment objectives, to certificates of deposit, to other financial
alternatives and/or to appropriate indices, rankings or averages such as those
compiled by Lipper Analytical Services, Inc., Morningstar, Inc., Money
Magazine, Business Week, Forbes Magazine, Fortune Magazine, The Wall Street
Journal, Investor's Daily, or Wiesenberger Mutual Fund Investment Report. For
example, the performance of the Fund might be compared to the Lipper High
Current Yield Fund category, First Boston High Yield Index, Lehman Corporate
Bond Index, Salomon Brothers Mortgage PT Index, Shearson/Lehman Government
Agency Index, S&P 500, U.S. Government securities, Merrill Lynch Treasury
Index, Salomon Brothers High Yield Index and Consumer Price Index.
Total return is computed separately for each class of shares of the Fund.
The average annual total return ("standard total return") for shares of the
Fund is computed by determining the average annualcompounded rate of return for
a designated
27
<PAGE>
historical period that, 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 with nonstandard
total return information for differing periods computed in the same manner with
or without annualizing the total return or taking sales charges into account.
The Fund's yield is computed separately for each class of shares by
dividing the net investment income, after recognition of all recurring charges,
per share earned during the most recent month or other specified thirty-day
period by the applicable maximum offering price per share on the last day of
such period and annualizing the result.
The standard total return and yield results take sales
charges into account, if applicable, but do not take into
account recurring and nonrecurring charges for optional
services which only certain shareholders elect and which involve nominal fees,
such as the $7.50 fee for remittance of redemption proceeds by wire. Where
sales charges are not applicable and therefore not taken into account in the
calculation of standard total return and yield, the results will be increased.
The Fund's distribution rate is calculated separately for each class of
shares by annualizing the latest distribution and dividing the result by the
maximum offering price per share as of the end of the period to which the
distribution relates. The distribution rate is not computed in the same manner
as the above described yield and, therefore, can be significantly different
from it. In its supplemental sales literature, the Fund may quote its
distribution rate together with the above described standard total return and
yield information. The use of such distribution rates would be subject to an
appropriate explanation of how the components of the distribution rate differ
from the above described yield.
Performance information may be useful in evaluating
the Fund and for providing a basis for comparison with other financial
alternatives. Since the performance of the Fund varies in response to
fluctuations in economic and market conditions, interest rates and Fund
expenses, among other things, no performance quotation should be considered a
representation as to the Fund's performance for any future period.
In evaluating the Fund's performance, consideration should be given to
changes in the Fund's investment objective and policies effected in January
1994. Prior to that time the Fund's investment objective was "to seek a high
level of current income by investing under normal conditions at least 65% of
its total assets in fixed income securities rated at the time of purchase BBB,
BB or B by S&P or Baa, Ba or B by Moody's or which are unrated but believed by
the Investment Manager to be of comparable quality." The change in the
investment objective, i.e. "to seek, primarily, high current income and,
secondarily, capital appreciation, from investments in fixed income securities"
enables the Fund's Investment Manager (i) to take into account, as a secondary
consideration in selecting portfolio securities, their possible capital
appreciation, (ii) to remove the percentage of the Fund's portfolio which, as a
minimum, must be invested in fixed income securities included in the foregoing
specific rating categories and (iii) to include within the scope of fixed
income securities convertible debt securities and preferred stock. Further, the
Fund's investment policy limiting the purchase of illiquid securities was
changed from a fundamental policy to a nonfundamental policy and the Fund may
now invest up to 15% (rather than up to 10%) in such securities.
In addition, the net asset value of shares of the Fund will fluctuate,
with the result that shares of the Fund, 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.
28
<PAGE>
Shares of the Fund had no class designations until June 1, 1993, when
designations were assigned based on the pricing and Rule 12b-1 fees applicable
to shares sold thereafter. Performance data for a specified class includes
periods prior to the adoption of class designations. Performance data for
periods prior to June 1, 1993 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.
In reviewing performance for the Fund, a number of factors should be
considered. The price of lower rated, high yield, high risk securities can rise
and fall substantially. A substantial decline can dramatically increase yields
on these securities. The price declines reflect an expectation that many
issuers of these securities will experience financial difficulties, among other
things. Thus, significantly higher yields do not reflect the income stream
investors can expect but rather the risk that their investment may lose a
substantial portion of its value in a financial restructuring or default.
29
<PAGE>
APPENDIX
Description of Debt/Bond Ratings
Standard & Poor's Corporation
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having speculative
characteristics with respect to capacity to pay interest and repay principal.
BB indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the due date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high
variability in expected returns due to noncredit risks created by the terms of
the obligation, such as securities whose principal or interest return is
indexed to equities, commodities, or currencies; certain swaps and options; and
interest only (IO) and principal only (PO) mortgage securities.
30
<PAGE>
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the addition
of a numeral indicating a bond's rank within its rating category.
31
<PAGE>
STATE STREET RESEARCH
HIGH INCOME FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research & Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
[STATE STREET RESEARCH LOGO]
State Street Research
High Income Fund
August 1, 1997
P R O S P E C T U S
HI-612D-897IBS CONTROL NUMBER: 3988-970729(0898)SSR-LD
<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%
Less Voluntary Reduction .......................................... (0.10%) (0.10%) (0.10%) (0.10%)
----- ----- ----- -----
Total Fund Operating Expenses
(after voluntary reduction) .................................... 1.25% 2.00% 1.00% 2.00%
===== ===== ===== =====
</TABLE>
Example:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption of the entire
investment at the end of each time period:
Class A shares ................................................ $57 $83 $111 $189
Class B shares (1) .......................................... $70 $93 $128 $213
Class C shares ................................................ $10 $32 $ 55 $122
Class D shares ................................................ $30 $63 $108 $233
You would pay the following expenses on the same investment,
assuming no redemption: 1 Year 3 Years 5 Years 10 Years
------- -------- --------- ---------
Class B shares (1) .......................................... $20 $63 $108 $213
Class D shares ............................................. $20 $63 $108 $233
</TABLE>
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense levels shown in the table above are based on
experience with expenses during the fiscal year ended March 31, 1997; actual
expense levels for the current fiscal year and future years may vary from the
amounts shown. The table does not reflect charges for optional services elected
by certain shareholders, such as the $7.50 fee for remittance of redemption
proceeds by wire. For further information on sales charges, see "Purchase of
Shares--Alternative Purchase Program"; for further information on management
fees, see "Management of the Fund"; and for further information on 12b-1 fees,
see "Purchase of Shares-- Distribution Plan."
The Fund has been advised that the Distributor and its affiliates may from
time to time and in varying amounts voluntarily assume some portion of fees or
expenses relating to the Fund. For the fiscal year ended March 31, 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. The Fund expects the subsidization of fees or
expenses to continue in the current year, although it cannot give complete
assurance that such assistance will be received.
3
<PAGE>
Financial Highlights
The data set forth below has been audited by Price Waterhouse LLP, independent
accountants, and their report thereon for the latest five years is included in
the Statement of Additional Information. For further information about the
performance of the Fund, see "Financial Statements" in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Year ended March 31
------------------------------------------------------
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, repurchase agreements or any combination thereof. The
investing of cash collateral received from loaning portfolio securities involves
leverage, which magnifies the potential for gain or loss on monies invested and,
therefore, results in an increase in the volatility of the Fund's outstanding
securities. Such loans may be terminated at any time.
The Fund will retain most rights of ownership including rights to
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending, although the Fund may call loans to vote proxies
if desired. Should the borrower of the securities fail financially, there is a
risk of delay in recovery of the securities or loss of rights in the
collateral. Loans are made only to borrowers which are deemed by the Investment
Manager to be of good financial standing.
Risk Factors and Special Considerations
Value of Shares and Assets
The value of the Fund's investments (and accordingly the net asset value of its
shares) will be subject to fluctuation in response to a variety of economic,
political and other factors. For example, the Fund's holdings of Inflation
Responsive Investments such as gold stocks and gold (to which the value of some
of the Fund's investments may be indexed) could be adversely affected by
circumstances such as currency revaluations, economic conditions, social
conditions within a country (particularly South Africa, the world's largest
producer of gold), trade imbalances and trade and currency restrictions. The
prices of oil stocks and the price of oil (to which the value of some of the
Fund's investments may be indexed) may be similarly affected by unpredictable
circumstances such as social, political or military disturbances in or near oil
producing countries or oil shipping or pipeline routes, the policies of various
governments and the Organization of Petroleum Exporting Countries ("OPEC"), an
organization of major oil
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
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<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
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<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
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<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.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in any
one available Eligible Fund designated by the shareholder as
described below. See "Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for available shares with
corresponding characteristics of the other Eligible Funds at any time on the
basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws. Shareholders
of any other Eligible Fund may similarly exchange their shares for shares of
the Fund with corresponding characteristics. Prior to making an exchange,
shareholders should obtain the Prospectus of the Eligible Fund into which they
are exchanging. Under the Direct Program, subject to certain conditions,
shareholders may make arrangements for regular exchanges from the Fund into
other Eligible Funds. To effect an exchange, Class A, Class B and Class D
shares may be redeemed without the payment of any contingent deferred sales
charge that might otherwise be due upon an ordinary redemption of such shares.
The State Street Research Money Market Fund issues Class E shares which are
sold without any sales charge. Exchanges of State Street Research Money Market
Fund Class E shares into Class A shares of the Fund or any other Eligible Fund
are subject to the initial sales charge or contingent deferred sales charge
applicable to an initial investment in such Class A shares, unless a prior
Class A sales charge has been paid directly or indirectly with respect to the
shares redeemed. For purposes of computing the contingent deferred sales charge
that may be payable
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<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.
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<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.
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<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. The Trustees may reorganize, merge or liquidate
the Fund without prior shareholder approval and subject to compliance with
applicable law. On any matter submitted to the shareholders, the holder of
shares of the Fund is entitled to one vote per share (with proportionate voting
for fractional shares) regardless of the relative net asset value thereof.
Shares of the Fund have equal dividend, redemption and liquidation rights
and when issued are fully paid and nonassessable by the Trust. Each share has
one vote (with proportionate voting for fractional shares) irrespective of net
asset value.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus,
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.
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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
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<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
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<PAGE>
payments are protected by a large or by an exceptionally stable margin, and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the addition
of a numeral indicating a bond's rank within its rating category.
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<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
a series of
STATE STREET RESEARCH INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
TABLE OF CONTENTS
Page
----
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS................................2
ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT TECHNIQUES................5
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS...............................13
TRUSTEES AND OFFICERS.........................................................16
INVESTMENT ADVISORY SERVICES..................................................21
PURCHASE AND REDEMPTION OF SHARES.............................................22
NET ASSET VALUE...............................................................24
PORTFOLIO TRANSACTIONS........................................................25
CERTAIN TAX MATTERS...........................................................28
DISTRIBUTION OF SHARES OF THE FUND............................................30
CALCULATION OF PERFORMANCE DATA...............................................33
CUSTODIAN.....................................................................38
INDEPENDENT ACCOUNTANTS.......................................................38
FINANCIAL STATEMENTS..........................................................38
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
High Income Fund (the "Fund") dated August 1, 1997, which may be obtained
without charge from the offices of State Street Research Income Trust ("the
Trust") or State Street Research Investment Services, Inc. (the "Distributor"),
One Financial Center, Boston, Massachusetts 02111-2690.
CONTROL NUMBER: 1285G-961125(0898)SSR-LD HI-879D-897
<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Fund's Investments" and "Other Investment
Policies" in the Fund's Prospectus, the Fund has adopted certain investment
restrictions.
All of the Fund's fundamental investment restrictions are set forth
below. These fundamental restrictions may not be changed by the Fund except by
the affirmative vote of a majority of the outstanding voting securities of the
Fund as defined in the Investment Company Act of 1940, as amended (the "1940
Act"). (Under the 1940 Act, a "vote of the majority of the outstanding voting
securities" means the vote, at the annual or a special meeting of security
holders duly called, (i) of 67% or more of the voting securities present at a
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy or (ii) of more than 50% of the outstanding
voting securities, whichever is less.) Under these restrictions, it is, except
as noted, the Fund's policy:
(1) not to purchase a security of any one issuer (other than
securities issued or guaranteed as to principal or interest by
the U.S. Government or its agencies or instrumentalities or
mixed-ownership Government corporations) if such purchase
would, with respect to 75% of the Fund's total assets, cause
more than 5% of the Fund's total assets to be invested in the
securities of such issuer or cause more than 10% of the voting
securities of such issuer to be held by the Fund;
(2) not to issue senior securities;
(3) not to underwrite or participate in the marketing of
securities of other issuers, except (a) the Fund may, acting
alone or in a syndicate or group, purchase or otherwise
acquire securities of other issuers for investment, either
from the issuers or from persons in a control relationship
with the issuers or from underwriters of such securities; and
(b) to the extent that, in connection with the disposition of
the Fund's securities, the Fund may be a selling shareholder
in an offering or deemed to be an underwriter under certain
federal securities laws;
(4) not to purchase or sell real estate in fee simple;
(5) not to lend money; however, the Fund may lend portfolio
securities and purchase bonds, debentures, notes, bills and
any other debt-related instruments or interests (and enter
into repurchase agreements with respect thereto);
(6) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Fund's total
assets, except that investments in essentially financial items
or arrangements such as, but not limited to, swap
arrangements, hybrids, currencies, currency and other forward
contracts, delayed delivery and when-issued contracts, futures
contracts and options on
2
<PAGE>
futures contracts on securities, securities indices, interest
rates and currencies, shall not be deemed investments in
commodities or commodities contracts;
(7) not to invest in oil, gas or other mineral exploration
programs (provided that the Fund may invest in securities
which are based, directly or indirectly, on the credit of
companies which invest in or sponsor such programs);
(8) not to make any investment which would cause more than 25% of
the value of the Fund's total assets to be invested in
securities of nongovernment-related issuers principally
engaged in any one industry, as described in the Fund's
Prospectus or Statement of Additional Information, as amended
from time to time; and
(9) not to borrow money (through reverse repurchase agreements or
otherwise) except for extraordinary and emergency purposes,
such as permitting redemption requests to be honored, and then
not in an amount in excess of 10% of the value of its total
assets, provided that reverse repurchase agreements shall not
exceed 5% of its total assets, and provided further that
additional investments will be suspended during any period
when borrowing exceeds 5% of total assets. Reverse repurchase
agreements occur when the Fund sells money market securities
and agrees to repurchase such securities at an agreed-upon
price, date and interest payment. The Fund would use the
proceeds from the transaction to buy other money market
securities, which are either maturing or under the terms of a
resale agreement, on the same day as (or day prior to) the
expiration of the reverse repurchase agreement, and would
employ a reverse repurchase agreement when interest income
from investing the proceeds of the transaction is greater than
the interest expense of the reverse repurchase transaction.
The following investment restrictions may be changed with respect to
the Fund by a vote of a majority of the Trustees. Under these restrictions, it
is, except as noted, the Fund's policy:
(1) not to invest more than 5% of its total assets in securities
of private companies including predecessors with less than
three years' continuous operations except (a) securities
guaranteed or backed by an affiliate of the issuer with three
years of continuous operations, (b) securities issued or
guaranteed as to principal or interest by the U.S. Government,
or its agencies or instrumentalities, or a mixed-ownership
Government corporation, (c) securities of issuers with debt
securities rated at least "BBB" by Standard & Poor's
Corporation or "Baa" by Moody's Investor's Service, Inc. (or
their equivalent by any other nationally recognized
statistical rating organization) or securities of issuers
considered by the Investment Manager to be equivalent, (d)
securities issued by a holding company with at least 50% of
its assets invested in companies with three years of
continuous operations including predecessors, and (e)
securities which
3
<PAGE>
generate income which is exempt from local, state or federal
taxes; provided that the Fund may invest up to 15% in such
issuers so long as such investments plus investments in
restricted securities (other than those which are eligible for
resale under Rule 144A, Regulation S or other exemptive
provisions) do not exceed 15% of the Fund's total assets;
(2) not to make an investment in warrants, valued at the lower of
cost or market, which causes the Fund to own, at the time of
such investment, warrants in excess of 5% of the Fund's net
assets, provided that warrants not listed on the New York or
American Stock Exchange shall be further limited to 2% of the
Fund's net assets (warrants initially attached to securities
and acquired by the Fund upon original issuance thereof shall
be deemed to be without value);
(3) not to purchase securities on margin, make a short sale of any
securities or purchase or deal in puts, calls, straddles or
spreads with respect to any security, except in connection
with the purchase or writing of options, including options on
financial futures, and futures contracts to the extent set
forth in the Trust's Prospectus and Statement of Additional
Information;
(4) not to hypothecate, mortgage or pledge any of its assets
except as may be necessary in connection with permitted
borrowings and then not in excess of 15% of the Fund's total
assets, taken at cost (for the purpose of this restriction
financial futures, options on financial futures and forward
currency exchange contracts are not deemed to involve a pledge
of assets);
(5) not to purchase a security issued by another investment
company if, immediately after such purchase, the Fund would
own, in the aggregate, (i) more than 3% of the total
outstanding voting stock of such other investment company;
(ii) securities issued by such other investment company having
an aggregate value in excess of 5% of the value of the Fund's
total assets; or (iii) securities issued by such other
investment company and all other investment companies (other
than treasury stock of the Fund) having an aggregate value in
excess of 10% of the value of the Fund's total assets;
provided, however, that the Fund may purchase investment
company securities without limit for the purpose of completing
a merger, consolidation or other acquisition of assets;
(6) not to purchase for or retain any security of an issuer if, to
the knowledge of the Trust, those of its officers and Trustees
and officers and directors of its investment advisers who
individually own more than 1/2 of 1% of the securities of such
issuer, when combined, own more than 5% of the securities of
such issuer taken at market;
(7) not to invest in companies for the purpose of exercising
control over their management, although the Trust may from
time to time present its views on various matters to the
management of issuers in which it holds investments; and
4
<PAGE>
(8) not to purchase any security or enter into a repurchase
agreement if as a result more than 15% of its net assets would
be invested in securities that are illiquid (including
repurchase agreements not entitling the holder to payment of
principal and interest within seven days).
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Among other investments described below, the Fund may buy and sell
options, futures contracts, and options on futures contracts with respect to
securities and securities indices and may enter into closing transactions with
respect to each of the foregoing under circumstances in which such instruments
and techniques are expected by State Street Research & ManagemenT Company (the
"Investment Manager") to aid in achieving the investment objective of the Fund.
The Fund on occasion may also purchase instruments with characteristics of both
futures and securities (e.g., debt instruments with interest and principal
payments determined by reference to the value of a commodity at a future time)
and which, therefore, possess the risks of both futures and securities
investments.
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell
underlying assets, such as certain securities or an index of securities, at a
future time at a specified price. A contract to buy establishes a "long"
position while a contract to sell establishes a "short" position.
The purchase of a futures contract on securities or an index of
securities normally enables a buyer to participate in the market movement of the
underlying asset or index after paying a transaction charge and posting margin
in an amount equal to a small percentage of the value of the underlying asset or
index. The Fund will initially be required to deposit with the Trust's custodian
or the broker effecting the futures transaction an amount of "initial margin" in
cash or U.S. Treasury obligations.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when the Fund has taken a long
position in a futures contract and the value of the underlying asset has risen,
that position will have increased in value and the Fund will receive from the
broker a maintenance margin payment equal to that increase in value of the
underlying asset. Conversely, when the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position would be less valuable, and the Fund would be required to make a
maintenance margin payment to the broker.
5
<PAGE>
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will terminate
the Fund's position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain. While futures
contracts with respect to securities do provide for the delivery and acceptance
of securities, such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus to protect the Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and thus to participate
in an unexpected rise in market value of securities which the Fund intends to
purchase. In transactions establishing a long position in a futures contract,
permissible assets equal to the face value of the futures contract will be
identified by the Fund to the Trust's custodian for maintenance in a separate
account to insure that the use of such futures contracts is unleveraged.
Similarly, a representative portfolio of securities having a value equal to the
aggregate face value of the futures contract will be identified with respect to
each short position. The Fund will employ any other appropriate method of cover
which is consistent with applicable regulatory and exchange requirements.
Options on Securities
- ---------------------
The Fund may use options on securities to implement its investment
strategy. A call option on a security, for example, gives the purchaser of the
option the right to buy, and the writer the obligation to sell, the underlying
asset at the exercise price during the option period. Conversely, a put option
on a debt security gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying asset at the exercise price during the option
period.
Purchased options have defined risk, i.e., the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset.
Written options have varying degrees of risk. An uncovered written call
option theoretically carries unlimited risk, as the market price of the
underlying asset could rise far above the exercise price before its expiration.
This risk is tempered when the call option is covered, i.e., when the option
writer owns the underlying asset. In this case, the writer runs the risk of the
lost opportunity to participate in the appreciation in value of the asset rather
than the risk of an out-of-pocket loss. A written put option has defined risk,
i.e., the difference between the agreed upon price that the Fund must pay to the
buyer upon exercise of the put and the value, which could be zero, of the asset
at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
his obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
6
<PAGE>
Options on Securities Indices
- -----------------------------
The Fund may engage in transactions in call and put options on
securities indices. For example, the Fund may purchase put options on indices of
securities in anticipation of or during a market decline to attempt to offset
the decrease in market value of its securities that might otherwise result.
Put options on indices of securities are similar to put options on the
securities themselves except that the delivery requirements are different.
Instead of giving the right to make delivery of a security at a specified price,
a put option on an index of securities gives the holder the right to receive an
amount of cash upon exercise of the option if the value of the underlying index
has fallen below the exercise price. The amount of cash received will be equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple. As with options
on securities or future contracts, the Fund may offset its position in index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A securities index assigns relative values to the securities included
in the index and the index options are based on a broad market index. Although
there are at present few available options on indices of fixed income
securities, other than tax-exempt securities, or futures and related options
based on such indices, such instruments may become available in the future. In
connection with the use of such options, the Fund may cover its position by
identifying a representative portfolio of securities having a value equal to the
aggregate face value of the option position taken. However, the Fund may employ
any appropriate method to cover its position that is consistent with applicable
regulatory and exchange requirements.
Options on Futures Contracts
- ----------------------------
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Options Strategy
- ----------------
A basic option strategy for protecting the Fund against a decline in
securities prices could involve (a) the purchase of a put -- thus "locking in"
the selling price of the underlying securities or securities indices -- or (b)
the writing of a call on securities or securities indices held by the Fund --
thereby generating income (the premium paid by the buyer) by giving the holder
of such call the option to buy the underlying asset at a fixed price. The
premium will offset, in whole or in part, a decline in portfolio value; however,
if prices of the relevant securities or securities indices rose instead of
falling, the call might be exercised, thereby resulting in a potential loss of
appreciation in the underlying securities or securities indices.
7
<PAGE>
A basic option strategy when a rise in securities prices is anticipated
is the purchase of a call -- thus "locking in" the purchase price of the
underlying security or other asset. In transactions involving the purchase of
call options by the Fund, money market instruments equal to the aggregate
exercise price of the options will be identified by the Fund to the Trust's
custodian to insure that the use of such investments is unleveraged.
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security and concurrently write a
call option against that security. If the call option is exercised in such a
transaction, the Fund's maximum gain will be the premium received by it for
writing the option, adjusted upward or downward by the difference between the
Fund's purchase price of the security and the exercise price of the option. If
the option is not exercised and the price of the underlying security declines,
the amount of such decline will be offset in part, or entirely, by the premium
received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund's return will be the premium received from
writing the put option minus the amount by which the market price of the
security is below the exercise price.
Limitations and Risks of Options and Futures Activity
- -----------------------------------------------------
The Fund will engage in transactions in futures contracts or options as
a hedge against changes resulting from market conditions which produce changes
in the values of their securities or the securities which they intend to
purchase (e.g., to replace portfolio securities which will mature in the near
future) and, subject to the limitations described below, to enhance return. The
Fund will not purchase any futures contract or purchase any call option if,
immediately thereafter, more than one third of the Fund's net assets would be
represented by long futures contracts or call options. In addition, the Fund may
not establish a position in a commodity futures contract or purchase or sell a
commodity option contract for other than bona fide hedging purposes if
immediately thereafter the sum of the amount of initial margin deposits and
premiums required to establish such positions for such nonhedging purposes would
exceed 5% of the market value of the Fund's net assets.
Although effective hedging can generally capture the bulk of a desired
risk adjustment, no hedge is completely effective. The Fund's ability to hedge
effectively through transactions in futures and options depends on the degree to
which price movements in its holdings correlate with price movements of the
futures and options.
Some positions in financial futures and options may be closed out only
on an exchange which provides a secondary market therefor. There can be no
assurance that a liquid secondary market will exist for any particular futures
contract or option at any specific time. Thus, it may not be possible to close
such an option or futures position prior to maturity. The
8
<PAGE>
inability to close options and futures positions also could have an adverse
impact on the Fund's ability effectively to hedge its securities and might, in
some cases, require the Fund to deposit cash to meet applicable margin
requirements. The Fund will enter into an option or futures position only if it
appears to be a liquid investment.
Repurchase Agreements
- ---------------------
The Fund may enter into repurchase agreements. Repurchase agreements
occur when a Fund acquires a security and the seller, which may be either (i) a
primary dealer in U.S. Government securities or (ii) an FDIC-insured bank having
gross assets in excess of $500 million, simultaneously commits to repurchase it
at an agreed-upon price on an agreed-upon date within a specified number of days
(usually not more than seven) from the date of purchase. The repurchase price
reflects the purchase price plus an agreed-upon market rate of interest which is
unrelated to the coupon rate or maturity of the acquired security. The Fund will
only enter into repurchase agreements involving U.S. Government securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. Repurchase
agreements will be limited to 30% of the Fund's total assets, except that
repurchase agreements extending for more than seven days when combined with any
other illiquid securities held by the Fund will be limited to 10% of the Fund's
total assets.
When-Issued Securities
- ----------------------
The Fund may purchase "when-issued" securities, which are traded on a
price or yield basis prior to actual issuance. Such purchases will be made only
to achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs in the U.S. Treasury
market when dealers begin to trade a new issue of bonds or notes shortly after a
Treasury financing is announced, but prior to the actual sale of the securities.
Similarly, securities to be created by a merger of companies may also be traded
prior to the actual consummation of the merger. Such transactions may involve a
risk of loss if the value of the securities falls below the price committed to
prior to actual issuance. The Trust's custodian will establish a segregated
account when the Fund purchases securities on a when-issued basis consisting of
cash or liquid securities equal to the amount of the when-issued commitments.
Securities transactions involving delayed deliveries or forward commitments are
frequently characterized as when-issued transactions and are similarly treated
by the Fund.
Swap Arrangements
- -----------------
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap, the Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange
9
<PAGE>
for agreement by the bank or investment banker to pay the Fund a fixed rate of
interest on the notional principal amount. In a currency swap, the Fund would
agree with the other party to exchange cash flows based on the relative
differences in values of a notional amount of two (or more) currencies; in an
index swap, the Fund would agree to exchange cash flows on a notional amount
based on changes in the values of the selected indices. Purchase of a cap
entitles the purchaser to receive payments from the seller on a notional amount
to the extent that the selected index exceeds an agreed upon interest rate or
amount whereas purchase of a floor entitles the purchaser to receive such
payments to the extent the selected index falls below an agreed-upon interest
rate or amount. A collar combines a cap and a floor.
Most swaps entered into by the Fund will be on a net basis; for
example, in an interest rate swap, amounts generated by application of the fixed
rate and the floating rate to the notional principal amount would right offset
one another, with a fund either receiving or paying the difference between such
amounts. In order to be in a position to meet any obligations resulting from
swaps, the Fund will set up a segregated custodial account to hold appropriate
liquid assets, including cash; for swaps entered into on a net basis, assets
will be segregated having a daily net asset value equal to any excess of the
Fund's accrued obligations over the accrued obligations of the other party,
while for swaps on other than a net basis assets will be segregated having a
value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to
preserve the return on an investment or on a part of the Fund's portfolio.
However, the Fund may enter into such arrangements for income purposes to the
extent permitted by the CFTC for entities which are not commodity pool
operators, such as the Fund. In entering a swap arrangement, the Fund is
dependent upon the creditworthiness and good faith for the counterparty. The
Fund attempts to reduce the risks of nonperformance by the counterparty by
dealing only with the established, reputable institutions. The swap market is
still relatively new and emerging; positions in swap arrangements may become
illiquid to the extent that nonstandard arrangements with one counterparty are
not readily transferable to another counterparty of if a market for the transfer
of swap positions does not develop. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
Investment Manager is incorrect in its forecasts of market values, interest
rates and other applicable factors, the investment performance of the Fund would
diminish compared with what it would have been if these investment techniques
were not used. Moreover, even if the Investment Manager is correct in its
forecasts, there is a risk that the swap position may correlate imperfectly with
the price of the asset or liability being hedged.
Restricted Securities
- ---------------------
Subject to finalization of implementation steps, the Fund's policy is
to not make an investment in restricted securities, including Rule 144A and
other restricted securities if as a result more than 50% of its total assets are
invested in such securities provided not more than 10% of its total assets are
invested in non-Rule 144A restricted securities. Securities may be resold
pursuant to Rule 144A under certain circumstances only to qualified
institutional buyers as defined in the rule, and the markets and trading
practices for such securities are still developing; depending on the development
of such markets, such Rule 144A securities may be
10
<PAGE>
deemed to be liquid as determined by or in accordance with methods adopted by
the Trustees. Under such methods the following factors are considered, among
others: the frequency of trades and quotes for the security, the number of
dealers and potential purchasers in the market, marketmaking activity, and the
nature of the security and marketplace trades. Investments in Rule 144A
securities could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the Fund may be
adversely impacted by the possible illiquidity and subjective valuation of such
securities in the absence of a market for them.
Restricted securities which are not resalable under Rule 144A can be
subject to risks of illiquidity and subjective valuations to a greater degree
than Rule 144A securities.
Foreign Investments
- -------------------
To the extent the Fund invests in securities of issuers in less
developed countries or emerging foreign markets, it will be subject to a variety
of additional risks, including risks associated with political instability,
economies based on relatively few industries, lesser market liquidity, high
rates of inflation, significant price volatility of portfolio holdings and high
levels of external debt in the relevant country.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in the local markets.
Currency Transactions
- ---------------------
The Fund's dealings in forward currency exchange contracts will be
limited to hedging involving either specific transactions or aggregate portfolio
positions. A forward currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are not commodities and are entered into
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. Although spot and forward contracts
will be used primarily to protect the Fund from adverse currency movements, they
also involve the risk that anticipated currency movements will not be accurately
predicted, which may result in losses to the Fund. This method of protecting the
value of the Fund's portfolio securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It
11
<PAGE>
simply establishes a rate of exchange that can be achieved at
some future point in time. Although such contracts tend to minimize the risk of
loss due to a decline in the value of hedged currency, they tend to limit any
potential gain that might result should the value of such currency increase.
Industry Classifications
- ------------------------
In determining how much of the portfolio is invested in a given private
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing may be classified according to
the industries of their parent or sponsor companies, or industries that
otherwise most affect such financing companies. Issuers of asset-backed pools
will be classified as separate industries based on the nature of the underlying
assets, such as mortgages, credit card receivables includes private pools of
nongovernment backed mortgages.
Aerospace Grocery
Airline Healthcare & Hospital Management
Asset-backed--Mortgages Hospital Supply
Asset-backed--Credit Card Receivables Hotel & Restaurant
Automotive Insurance
Automotive Parts Machinery
Bank Media
Building Metal & Mining
Business Service Office Equipment
Cable Oil Production
Capital Goods & Equipment Oil Refining & Marketing
Chemical Oil Service
Computer Software & Service Paper Products
Conglomerate Personal Care
Consumer Goods & Services Photography
Container Plastics
Cosmetics Printing & Publishing
Diversified Railroad
Drug Real Estate & Building
Electric Recreation
Electrical Equipment Retail Trade
Electronic Components Savings & Loan
Electronic Equipment Shipping & Transportation
Entertainment Technology & Communications
Financial Service Telephone
Food & Beverage Textile & Apparel
Forest Products Tobacco
Gaming & Lodging Truckers
Gas Trust Certificates--Government
Gas Transmission Related Lending
12
<PAGE>
DEBT INSTRUMENTS AND
PERMITTED CASH INVESTMENTS
As indicated in the Fund's Prospectus, the Fund may invest in cash and
short-term securities for temporary defensive purposes when, in the opinion of
the Investment Manager, such a position is more likely to provide protection
against unfavorable market conditions than adherence to other investment
policies. Certain debt securities and money market instruments in which the Fund
may invest are described below.
U.S. Government and Related Securities. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
[bullet] direct obligations of the U.S. Treasury, i.e., U.S. Treasury
bills, notes, certificates and bonds;
[bullet] obligations of U.S. Government agencies or instrumentalities
such as the Federal Home Loan Banks, the Federal Farm Credit
Banks, the Federal National Mortgage Association, the
Government National Mortgage Association and the Federal Home
Loan Mortgage Corporation; and
[bullet] obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a
variety of ways by the U.S. Government, its agencies or instrumentalities. Some
of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full faith and credit of the U.S.
Treasury. Other obligations, such as those of the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase certain obligations of agencies or instrumentalities, although the U.S.
Government has no legal obligation to do so. Obligations such as those of the
Federal Home Loan Banks, the Federal Farm Credit Banks, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation are backed
by the credit of the agency or instrumentality issuing the obligations. Certain
obligations of Resolution Funding Corporation, a mixed-ownership Government
corporation, are backed with respect to interest payments by the U.S. Treasury,
and with respect to principal payments by U.S. Treasury obligations held in a
segregated account with a Federal Reserve Bank. Except for certain
mortgage-related securities, the Fund will only invest in obligations issued by
mixed-ownership Government corporations where such securities are guaranteed as
to payment of principal or interest by the U.S. Government or a U.S. Government
agency or instrumentality, and any unguaranteed
13
<PAGE>
principal or interest is otherwise supported by U.S. Government obligations held
in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and may
not be deemed U.S. Government securities.
The Fund may also invest from time to time in collective investment
vehicles, the assets of which consist principally of U.S. Government securities
or other assets substantially collateralized or supported by such securities,
such as Government trust certificates.
Bank Money Investments. Bank money investments include but are not
limited to certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are generally short-term (i.e., less than one year),
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). A banker's acceptance may be
obtained from a domestic or foreign bank, including a U.S. branch or agency of a
foreign bank. The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. Time deposits are nonnegotiable deposits
for a fixed period of time at a stated interest rate. The Fund will not invest
in any such bank money investment unless the investment is issued by a U.S. bank
that is a member of the Federal Deposit Insurance Corporation ("FDIC"),
including any foreign branch thereof, a U.S. branch or agency of a foreign bank,
a foreign branch of a foreign bank, or a savings bank or savings and loan
association that is a member of the FDIC and which at the date of investment has
capital, surplus and undivided profits (as of the date of its most recently
published financial statements) in excess of $50 million. The Fund will not
invest in time deposits maturing in
14
<PAGE>
more than seven days and will not invest more than 10% of its total assets in
time deposits maturing in two to seven days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective status or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
Short-Term Corporate Debt Instruments. Short-term corporate debt
instruments include commercial paper to finance short-term credit needs (i.e.,
short-term, unsecured promissory notes) issued by corporations including but not
limited to (a) domestic or foreign bank holding companies or (b) their
subsidiaries or affiliates where the debt instrument is guaranteed by the bank
holding company or an affiliated bank or where the bank holding company or the
affiliated bank is unconditionally liable for the debt instrument. Commercial
paper is usually sold on a discounted basis and has a maturity at the time of
issuance not exceeding nine months.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated within the "A" major rating category by S&P or within the
"Prime" category by Moody's, or, if not rated, issued by companies having an
outstanding long-term unsecured debt issue rated at least within the "A"
category by S&P or by Moody's. The money market investments in corporate bonds
and debentures (which must have maturities at the date of settlement of one year
or less) must be rated at the time of purchase at least within the "A" category
by S&P or within the "Prime" category by Moody's.
Commercial paper rated within the "A" category (highest quality) by S&P
is issued by entities which have liquidity ratios which are adequate to meet
cash requirements. Long-term senior debt is rated A or better, although in some
cases credits within the "BBB" category may be allowed. The issuer has access to
at least two additional channels of borrowing. Basic earnings and cash flow have
an upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
The relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. (Those A-1 issues determined
to possess overwhelming safety characteristics are denoted with a plus (+) sign:
A-1+.)
15
<PAGE>
The rating Prime is the highest commercial paper rating category
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: evaluation of the management of the issuer; economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial management of obligations which may be present or may arise as
a result of public interest questions and preparations to meet such obligations.
These factors are all considered in determining whether the commercial paper is
rated Prime-1, Prime-2 or Prime-3.
Information concerning corporate bond and debenture ratings of S&P and
Moody's appears in the Appendix to the Fund's Prospectus. In the event
applicable rating agencies lower the ratings of debt instruments held by the
Fund, resulting in a material decline in the overall quality of the Fund's
portfolio, the situation will be reviewed and necessary action, if any, will be
taken, including changes in the composition of the portfolio.
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their addresses, and
their principal occupations and positions with certain affiliates of the
Investment Manager are set forth below.
*+Peter C. Bennett, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 58. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President of State
Street Research & Management Company. Mr. Bennett's other principal business
affiliation is Director, State Street Research Investment Services, Inc.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 59. He is
retired and was formerly Senior Vice President for Finance and Operations and
Treasurer of The Pennsylvania State University.
+Malcom T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville, NC
28803, serves as Trustee of the Trust. He is 69. He is engaged principally in
private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
*+Bartlett R. Geer, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 42. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
- -----------------
* or + See footnotes on page 18
16
<PAGE>
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 56. Mr. Kallis's principal occupation is
Senior Vice President of State Street Research & Management Company. During the
past five years he has also served as portfolio manager for State Street
Research & Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 70. He is engaged principally in private
investments and civic affairs, and is an author of business history. Previously,
he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109 serves as Trustee of the Trust. He is 70. His principal occupation during
the past five years has been Partner, Saltonstall & Co., a private investment
firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 46. His principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer and Director of State Street
Research & Management Company. During the past five years he has also served as
Executive Vice President and Chief Financial Officer of New England Investment
Companies and Senior Vice President and Vice President of New England Mutual
Life Insurance Company. Mr. Maus's other principal business affiliations include
Executive Vice President, Treasurer, Chief Financial Officer and Director of
State Street Research Investment Services, Inc.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111,
serves as Secretary and General Counsel of the Trust. He is 41. His principal
occupation is Executive Vice President, General Counsel and Secretary of State
Street Research & Management Company. During the past five years he has also
served as Senior Vice President of State Street Research & Management Company
and as Senior Vice President, General Counsel and Assistant Secretary of The
Boston Company, Inc., Boston Safe Deposit and Trust Company and The Boston
Company Advisors, Inc. Mr. McNamara's other principal business affiliations
include Senior Vice President, General Counsel and Clerk of State Street
Research Investment Services, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 65. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173 serves as
Trustee of the Trust. He is 73. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
- -----------------
* or + See footnotes on page 18
17
<PAGE>
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 59. His principal occupations during the past
five years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
59. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+Thomas A. Shively, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 43. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President of State
Street Research & Management Company. Mr. Shively's other principal business
affiliation is Director of State Street Research Investment Services, Inc.
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. He is 54. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and Chief Investment
Officer and Director of New England Mutual Life Insurance Company. Mr. Verni's
other principal business affiliations include Chairman of the Board and Director
of State Street Research Investment Services, Inc., and until February, 1996,
prior positions as President and Chief Executive Officer of that Company.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 72. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
- ------------------
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations
with the Fund's investment adviser.
+ Serves as a Trustee and/or officer of one or more of the following
investment companies, each of which has an advisory relationship with
the Investment Manager or its affiliates: State Street Research Equity
Trust, State Street Research Financial Trust, State Street Research
Income Trust, State Street Research Money Market Trust, State Street
Research Tax-Exempt Trust, State Street Research Capital Trust, State
Street Research Exchange Trust, State Street Research Growth Trust,
State Street Research Master Investment Trust, State Street Research
Securities Trust, State Street Research Portfolios, Inc.
and Metropolitan Series Fund, Inc.
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As of May 31, 1997, the following persons or entities were the record
and/or beneficial owners of the approximate amounts of each class of shares of
the Fund as set forth beside their names:
Shareholder %
----------- ----
Class B Merrill Lynch 16.5
Class C Chase Manhattan Bank 32.5
Andover Newton Theological School 10.2
Class D Merrill Lynch 36.6
The full name and address of each of the above persons or entities are
as follows:
Andover Newton Theological School
c/o State Street Research Shareholder Services
One Financial Center
Boston, Massachusetts 02111
Chase Manhattan Bank, N.A. (a) (b)
770 Broadway
New York, New York 10003
Merrill Lynch, Pierce, Fenner & Smith, Inc. (a)
One Liberty Plaza
165 Broadway
New York, New York 10080
- --------------------
(a) The Fund believes that such entity does not have beneficial ownership
of such shares.
(b) Chase Manhattan Bank holds such shares as trustee under certain
employee benefit plans serviced by Metropolitan Life Insurance Company.
19
<PAGE>
As of May 31, 1997, the Trustees and principal officers of the Fund as
a group owned less than 1% of the Fund's outstanding Class A shares, and owned
no shares of the Fund's outstanding Class B, Class C or Class D shares.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
The Trustees were compensated as follows:
- --------------------------------------------------------------------------------
Total
Compensation
Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Trust(a) to Trustees(b)
Steve A. Garban $ 930 $ 34,750
Malcom T. Hopkins $ 930 $ 34,750
Edward M. Lamont $ 8,000 $ 59,375
Robert A. Lawrence $ 8,000 $ 92,125
Dean O. Morton $ 8,600 $ 96,125
Thomas L. Phillips $ 8,200 $ 59,375
Toby Rosenblatt $ 8,000 $ 59,375
Michael S. Scott Morton $ 9,000 $ 100,325
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $ 8,600 $ 63,375
- --------------------------------------------------------------------------------
(a) For the Fund's fiscal year ended March 31, 1997. Includes compensation
from multiple Series of the Trust. See "Distribution of Shares" for a
listing of series.
(b) Includes compensation on behalf of all series of 12 investment
companies for which the Investment Manager served directly or
indirectly as investment adviser or for which the Investment Manager
served as sub-investment adviser, and series of State Street Research
Portfolios, Inc., for which State Street Research Investment Services,
Inc. served as distributor. "Total Compensation from Trust and Complex"
is for 12 months ended December 31, 1996. The Trust does not provide
any pension or retirement benefits for the Trustees.
20
<PAGE>
INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Advisory
Agreement provides that the Investment Manager shall furnish the Fund with an
investment program, office facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of the
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly owned subsidiary of Metropolitan
Life Insurance Company.
The advisory fee payable monthly by the Fund to the Investment Manager
is computed as a percentage of the average of the value of the net assets of the
Fund as determined at the close of the New York Stock Exchange (the "NYSE") on
each day said Exchange is open for trading, at the annual rate of 0.65% of the
net assets of the Fund. The Distributor and its affiliates have from time to
time and in varying amounts voluntarily assumed some portion of fees or expenses
relating to the Fund. For the fiscal years ended March 31, 1995, 1996 and 1997,
the investment advisory fee for the Fund was $4,696,647, $5,199,204, and
$5,911,041 respectively.
The Advisory Agreement provides that it will continue in effect with
respect to the Fund from year to year as long as it is approved at least
annually both (i) by a vote of a majority of the outstanding voting securities
of the Fund (as defined in the 1940 Act) or by the Trustees of the Trust, and
(ii) in either event by a vote of a majority of the Trustees who are not parties
to the Advisory Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated on 60 days' written notice by either party
and will terminate automatically in the event of its assignment, as defined
under the 1940 Act and regulations thereunder. Such regulations provide that a
transaction which does not result in a change of actual control or management of
an adviser is not deemed an assignment.
Under a Funds Administration Agreement between the Investment Manager
and the Distributor, the Distributor provides assistance to the Investment
Manager in performing certain fund administration services for the Trust, such
as assistance in determining the daily net asset value of shares of series of
the Trust and in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the
Trust and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Fund, and is entitled to
reimbursements of its costs for providing such services. Under certain
arrangements for Metropolitan to provide subadministration services,
Metropolitan may receive a fee for the maintenance of certain share ownership
records for participants in sponsored arrangements, such as employee benefit
plans, through or under which Fund shares may be purchased.
21
<PAGE>
Under the Code of Ethics of the Investment Manager, its employees in
Boston and selected other persons elsewhere involved in investment management
operations, are conducted, are only permitted to engage in personal securities
transactions in accordance with certain conditions relating to such person's
position, the identity of the security, the timing of the transaction and
similar factors. Such employees must report their personal securities
transactions quarterly and supply broker confirmations of such transactions to
the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by the Distributor. The Fund offers
four classes of shares which may be purchased at the next determined net asset
value per share plus, in the case of all classes except Class C shares, a sales
charge which, at the election of the investor, may be imposed (i) at the time of
purchase (the Class A shares) or (ii) on a deferred basis (the Class B and Class
D shares). General information on how to buy shares of the Funds, as well as
sales charges involved, are set forth under "Purchase of Shares" in the
Prospectus. The following supplements that information.
Public Offering Price - The public offering price for each class of
shares is based on their net asset value determined as of the close of the NYSE
on the day the purchase order is received by State Street Research Shareholder
Services provided that the order is received prior to the close of the NYSE on
that day; otherwise the net asset value used is that determined as of the close
of the NYSE on the next day it is open for unrestricted trading. When a purchase
order is placed through a dealer, that dealer is responsible for transmitting
the order promptly to State Street Research Shareholder Services in order to
permit the investor to obtain the current price. Any loss suffered by an
investor which results from a dealer's failure to transmit an order promptly is
a matter for settlement between the investor and the dealer.
Reduced Sales Charges - For purposes of determining whether a purchase
of Class A shares qualifies for reduced sales charges, the term "person"
includes: (i) an individual, or an individual combining with his or her spouse
and their children and purchasing for his, her or their own account; (ii) a
"company" as defined in Section 2(a)(8) of the 1940 Act; (iii) a trustee or
other fiduciary purchasing for a single trust estate or single fiduciary account
(including a pension, profit sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code);
(iv) a tax-exempt organization under Section 501(c)(3) or (13) of the Internal
Revenue Code; and (v) an employee benefit plan of a single employer or of
affiliated employers.
Investors may purchase Class A shares of the Fund at reduced sales
charges by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds" as
designated by the Distributor within a 13-month period. The sales charge
applicable to each purchase made pursuant to a Letter of Intent will be that
which would apply if the total dollar amount set forth in the Letter of Intent
were being bought in a single transaction. Purchases made within a 90-day period
prior to the
22
<PAGE>
execution of a Letter of Intent may be included therein; in such case the date
of the earliest of such purchases marks the commencement of the 13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Fund and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class D shares may also be included under certain
circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
Class C Shares - Class C shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants (currently a minimum of 100 eligible
employees), service arrangements, or similar factors; insurance companies;
investment companies; endowment funds of nonprofit organizations with
substantial minimum assets (currently a minimum of $10,000,000); and other
similar institutional investors.
Reorganizations - In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined in the 1940 Act, the Fund may issue its shares at net asset value (or
more) to such entities or to their security holders.
Redemptions - The Fund reserves the right to pay redemptions in kind
with portfolio securities in lieu of cash. In accordance with its election
pursuant to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of
redemption proceeds paid in cash. Although it has no present intention to do so,
the Fund may, under unusual circumstances, limit
23
<PAGE>
redemptions in cash with respect to each shareholder during any ninety-day
period to the lesser of (i) $250,000 or (ii) 1% of the net asset value of the
Fund at the beginning of such period. In connection with any redemptions paid in
kind with portfolio securities, brokerage and other costs may be incurred by the
redeeming shareholder in the sale of the securities received.
NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily
as of the close of the NYSE, ordinarily 4 P.M. New York City time, Monday
through Friday, on each day during which the NYSE is open for unrestricted
trading. The NYSE is currently closed on New Year's Day, Presidents Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The net asset value per share of the Fund is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets minus all liabilities by the total number of outstanding shares of the
Fund at such time. Any expenses, except for extraordinary or nonrecurring
expenses, borne by the Fund, including the investment management fee payable to
the Investment Manager, are accrued daily.
In determining the values of portfolio assets, the Trustees may utilize
one or more pricing services in lieu of market quotations for certain securities
which are not readily available on a daily basis. Such services may provide
prices determined as of times prior to the close of the NYSE.
In general, securities are valued as follows. Securities which are
listed or traded on the New York or American Stock Exchange are valued at the
price of the last quoted sale on the respective exchange for that day.
Securities which are listed or traded on a national securities exchange or
exchanges, but not on the New York or American Stock Exchange, are valued at the
price of the last quoted sale on the exchange for that day prior to the close of
the NYSE. Securities not listed on any national securities exchange and for
which quotations are available on the National Association of Securities
Dealers' NASDAQ System, or other system, are valued at the closing price
supplied through such system for that day at the close of the NYSE. Other
securities are, in general, valued at the mean of the bid and asked quotations
last quoted prior to the close of the NYSE if there are market quotations
readily available, or in the absence of such market quotations, then at the fair
value thereof as determined by or under authority of the Trustees of the Trust
with use of such pricing services as may be deemed appropriate or methodologies
approved by the Trustees.
Short-term debt instruments issued with a maturity of one year or less
which have a remaining maturity of 60 days or less are valued using the
amortized cost method, provided that during any period in which more than 25% of
the Fund's total assets is invested in short-term debt securities the current
market value of such securities will be used in calculating net asset value per
share in lieu of the amortized cost method. The amortized cost method is used
when the value obtained reflects fair value. Under the amortized cost method of
valuation, the security is initially valued at cost on the date of purchase (or
in the case of
24
<PAGE>
short-term debt instruments purchased with more than 60 days remaining to
maturity, the market value on the 61st day prior to maturity), and thereafter a
constant amortization to maturity of any discount or premium is assumed
regardless of the impact of fluctuating interest rates on the market value of
the security.
PORTFOLIO TRANSACTIONS
Portfolio Turnover
- ------------------
The Fund's portfolio turnover rate is determined by dividing the lesser
of securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The portfolio turnover rates for the fiscal years ended March 31,
1996 and 1997 were 56.47% and 81.75%, respectively. The Investment Manager
believes the portfolio turnover rate for the fiscal year ended March 31, 1997
was significantly higher because among other things, a change in portfolio
structure to increase the relative weighting of convertible bonds compared to
other securities. The Fund reserves full freedom with respect to portfolio
turnover, as described in the Prospectus.
Brokerage Allocation
- --------------------
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Fund occur. Against this background, the Investment Manager
evaluates the reasonableness of a commission or a net price with respect to a
particular transaction by considering such factors as difficulty of execution or
security positioning by the executing firm. The Investment Manager may or may
not solicit competitive bids based on its judgment of the expected benefit or
harm to the execution process for that transaction.
25
<PAGE>
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given to services other than execution services which certain of such firms have
provided in the past or may provide in the future. Negotiated commission rates
and prices, however, are based upon the Investment Manager's judgment of the
rate which reflects the execution requirements of the transaction without regard
to whether the broker provides services in addition to execution. Among such
other services are the supplying of supplemental investment research; general
economic, political and business information; analytical and statistical data;
relevant market information, quotation equipment and services; reports and
information about specific companies, industries and securities; purchase and
sale recommendations for stocks and bonds; portfolio strategy services;
historical statistical information; market data services providing information
on specific issues and prices; financial publications; proxy voting data and
analysis services; technical analysis of various aspects of the securities
markets, including technical charts; computer hardware used for brokerage and
research purposes; computer software and databases (including those used for
portfolio analysis and modeling and including software providing investment
personnel with efficient access to current and historical data from a variety of
internal and external sources) and portfolio evaluation services and relative
performance of accounts.
In the case of the Fund and other registered investment companies
advised by the Investment Manager, the above services may include data relating
to performance, expenses and fees of those investment companies and other
investment companies; this information is used by the Trustees or Directors of
the investment companies to fulfill their responsibility to oversee the quality
of the Investment Manager's advisory services and to review the fees and other
provisions contained in the advisory contracts between the investment companies
and the Investment Manager. The Investment Manager considers these investment
company services only in connection with the execution of transactions on behalf
of its investment company clients and not its other clients.
Certain of the nonexecution services provided by broker-dealers may in
turn be obtained by the broker-dealers from third parties who are paid for such
services by the broker-dealers. The Investment Manager has an investment in less
than ten percent of the outstanding equity of one such third party which is
engaged in the development and licensing of trading systems which include
portfolio analysis and modeling and other research and investment
decision-making capabilities. The Investment Manager may allocate brokerage to
broker-dealers who in turn pay this third party for the portion of the third
party's trading system provided to the Investment Manager which is estimated by
the Investment Manager to provide appropriate assistance in the investment
decision-making process. Because of its minority interest in the third party,
the Investment Manager could be said to benefit indirectly from such brokerage
allocation.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Among other measures, the Investment Manager's
investment management personnel seek to evaluate the quality of research and
other services received, and the results of this effort are made available to
the equity trading department which sometimes uses this information as a
consideration in the selection of brokers to execute portfolio transactions.
26
<PAGE>
Some services furnished by broker-dealers may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and the
Investment Manager pays for that portion directly from its own funds. Some
research and execution services may benefit the Investment Manager's clients as
a whole, while others may benefit a specific segment of clients. Not all such
services will necessarily be used exclusively in connection with the accounts
which pay the commissions to the broker-dealer producing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which that firm may
expect to receive for services supplied to the Investment Manager or otherwise.
There may be, however, understandings with certain firms that in order for such
firms to be able to continuously supply certain services, they need to receive
allocation of a specified amount of brokerage business. These understandings are
honored to the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, the Investment Manager relies on the provisions of
Section 28(e) of the Securities Exchange Act of 1934, to the extent applicable.
Brokerage commissions paid by the Fund in secondary trading during the fiscal
years ended March 31, 1995, 1996 and 1997, amounted to $56,055, $131,397 and
$262,173, respectively. The Investment Manager believes the amount of brokerage
commissions paid by the Fund during the fiscal year ended March 31, 1997 was
significantly higher than during the previous year because of increased
portfolio turnover. During and at the end of its most recent fiscal year, the
Fund held in its portfolio no securities of any entity that might be deemed to
be a regular broker-dealer of the Fund as defined under the 1940 Act.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling concessions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Investment Manager may make such allocations
to broker-dealers which have provided the Investment Manager with research and
brokerage services.
When more than one client of the Investment Manager is seeking to buy
or sell the same security, the sale or purchase is carried out in a manner which
is considered fair and equitable to all accounts. In allocating investments
among various clients (including in what sequence orders for trades are placed),
the Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the amount already committed for each client
to
27
<PAGE>
a specific investment and the relative risks of the investments, all in order
to provide on balance a fair and equitable result to each client over time.
Although sharing in large transactions may sometimes affect price or volume of
shares acquired or sold, overall it is believed there may be an advantage in
execution. The Investment Manager may follow the practice of grouping orders of
various clients for execution to get the benefit of lower prices or commission
rates. In certain cases where the aggregate order may be executed in a series of
transactions at various prices, the transactions are allocated as to amount and
price in a manner considered equitable to each so that each receives, to the
extent practicable, the average price of such transactions. Exceptions may be
made based on such factors as the size of the account and the size of the trade.
For example, the Investment Manager may not aggregate trades where it believes
that it is in the best interests of clients not to do so, including situations
where aggregation might result in a large number of small transactions with
consequent increased custodial and other transactional costs which may
disproportionately impact smaller accounts. Such disaggregation, depending on
the circumstances, may or may not result in such accounts receiving more or less
favorable execution relative to other clients.
CERTAIN TAX MATTERS
Federal Income Taxation of the Funds -- In General
- --------------------------------------------------
The Fund intends to qualify and elects to be treated each taxable year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), although it cannot give complete
assurance that it will do so. Accordingly, the Fund must, among other things,
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities, (ii) options, futures, or forward contracts (other than options,
futures or forward contracts on foreign currencies), or (iii) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies (or options, futures, or forward contracts) are not directly
related to the Fund's principal business of investing in stocks or securities
(or options and futures with respect to stocks or securities); (c) satisfy
certain diversification requirements; and (d) in order to be entitled to utilize
the dividends paid deduction, distribute annually at least 90% of its investment
company taxable income (determined without regard to the deduction for dividends
paid).
The 30% test will limit the extent to which the Fund may sell
securities held for less than three months, write options which expire in less
than three months, and effect closing transactions with respect to call or put
options that have been written or purchased within the preceding three months.
(If the Fund purchases a put option for the purpose of hedging an underlying
portfolio security, the acquisition of the option is treated as a short sale of
the underlying security unless, for purposes only of the 30% test, the option
and the security are
28
<PAGE>
acquired on the same date.) Finally, as discussed below, this requirement may
also limit investments by the Fund in options on stock indices, listed options
on nonconvertible debt securities, futures contracts, options on interest rate
futures contracts and certain foreign currency contracts.
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of such Fund's current or
accumulated earnings and profits. Also, the shareholders, if they received a
distribution in excess of current or accumulated earnings and profits, would
receive a return of capital that would reduce the basis of their shares of the
Fund.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any undistributed portion of the respective balances from the
prior year. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
Federal Income Taxation of the Fund's Investments
- -------------------------------------------------
Original Issue Discount. For federal income tax purposes, debt
securities purchased by the Fund may be treated as having original issue
discount. Original issue discount represents interest for federal income tax
purposes and can generally be defined as the excess of the stated redemption
price at maturity of a debt obligation over the issue price. Original issue
discount is treated for federal income tax purposes as income earned by the
Fund, whether or not any income is actually received, and therefore is subject
to the distribution requirements of the Code. Generally, the amount of original
issue discount is determined on the basis of a constant yield maturity which
takes into account the compounding of accrued interest. Under section 1286 of
the Code, an investment in a stripped bond or stripped coupon may result in
original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for income tax
purposes. In the case of any debt security issued after July 18, 1984, having a
fixed maturity date of more than one year from the date of issue and having
market discount, the gain realized on disposition will be treated as interest
income to the extent it does not exceed the accrued market discount on the
security (unless the Fund elects to include such accrued market discount in
income in the tax year to which it is attributable). Generally, market discount
is accrued on a daily basis. The Fund may be required to capitalize, rather than
deduct currently, part or all of any direct interest expense incurred to
purchase or carry any debt security having market discount, unless a Fund makes
the election to include market
29
<PAGE>
discount currently. Because the Fund must include original issue discount in
income, it will be more difficult for the Fund to make the distributions
required for the Fund to maintain its status as a regulated investment company
under Subchapter M of the Code or to avoid the 4% excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments may
be subject to provisions of the Code that (i) require inclusion of unrealized
gains or losses in the Fund's income for purposes of the 90% test, the 30% test,
the excise tax and the distribution requirements applicable to regulated
investment companies; (ii) defer recognition of realized losses; and (iii)
characterize both realized and unrealized gain or loss as short-term or
long-term gain or loss. Such provisions generally apply to, among other
investments, options on debt securities, indices on securities and futures
contracts.
Federal Income Taxation of Shareholders
- ---------------------------------------
Distributions by the Fund can result in a reduction in the fair market
value of such Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless would be
taxable to the shareholder as ordinary income or long-term capital gain, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a taxable distribution. The price of
shares purchased at that time includes the amount of any forthcoming
distribution. Those investors purchasing shares just prior to a taxable
distribution will then receive a return of investment upon distribution which
will nevertheless be taxable to them.
DISTRIBUTION OF SHARES OF THE FUND
State Street Research Income Trust is currently comprised of the
following series: State Street Research High Income Fund and State Street
Research Managed Assets. The Trustees have authorized the Fund to issue four
classes of shares: Class A, Class B, Class C and Class D shares. The Trustees of
the Trust have authority to issue an unlimited number of shares of beneficial
interest of separate series, $.001 par value per share. A "series" is a separate
pool of assets of the Trust which is separately managed and has a different
investment objective and different investment policies from those of another
series. The Trustees have authority, without the necessity of a shareholder
vote, to create any number of new series or classes or to commence the public
offering of shares of any previously established series or class.
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B and Class D shares). The Distributor may allow all or
portions of such sales charges
30
<PAGE>
as concessions to dealers. For the fiscal years ended March 31, 1995, 1996 and
1997, total sales charges on Class A shares paid to the Distributor amounted to
$3,774,724, $2,741,302 and $2,477,538, respectively. For the same periods,
$447,617, $268,551 and $294,695, respectively, was retained by the Distributor
after reallowance of concessions to dealers. The Distributor may also pay its
affiliate, MetLife Securities, Inc. additional sales compensation of up to 0.25%
of certain sales.
The differences in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements and managed fee-based programs, the
amount of the sales charge reduction will similarly reflect the anticipated
reduction in sales expenses associated with such arrangements. The reduction in
sales expenses, and therefore the reduction in sales charge, will vary depending
on factors such as the size and other characteristics of the organization or
program, and the nature of its membership or the participants. The Fund reserves
the right to make variations in, or eliminate, sales charges at any time or to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
arrangements at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
For the periods shown below, the Distributor received contingent
deferred sales charges upon redemption of Class A, Class B and Class D shares of
the Funds and paid initial commissions to securities dealers for sales of such
shares as follows:
31
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 1997 March 31, 1996 March 31, 1995
------------------------------- ------------------------------- -------------------------------
Contingent Contingent Contingent
Deferred Commissions Deferred Commissions Deferred Commissions
Sales Charges Paid to Dealers Sales Charges Paid to Dealers Sales Charges Paid to Dealers
------------- --------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Class A $ 0 $2,182,843 $ 0 $2,472,751 $ 1,238 $3,327,107
Class B $493,705 $3,153,798 $734,173 $2,802,176 $274,749 $2,315,926
Class D $ 61,492 $ 140,483 $ 4,449 $ 100,380 $ 2,188 $ 49,802
</TABLE>
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1"
(the "Distribution Plan") under which the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of Class A, Class B and Class D shares, including, but not limited to, (1) the
payment of commissions and/or reimbursement to underwriters, securities dealers
and others engaged in the sale of shares, including payments to the Distributor
to be used to pay commissions and/or reimbursement to securities dealers (which
securities dealers may be affiliates of the Distributor) engaged in the
distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the servicing of investor accounts including expenses relating to the
formulation and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, the preparation, printing and
distribution of Prospectuses of the Fund and reports for recipients other than
existing shareholders of the Fund, and obtaining such information, analyses and
reports with respect to marketing and promotional activities and investor
accounts as the Fund may, from time to time, deem advisable, and (3)
reimbursement of expenses incurred by the Distributor in connection with the
servicing of shareholder accounts including payments to securities dealers and
others in consideration of the provision of personal service to investors and/or
the maintenance or servicing of shareholder accounts and expenses associated
with the provision of personal service by the Distributor directly to investors.
In addition, the Distribution Plan is deemed to authorize the Distributor and
the Investment Manager to make payments out of general profits, revenues or
other sources to underwriters, securities dealers and others in connection with
sales of shares, to the extent, if any, that such payments may be deemed to be
within the scope of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class D shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class D
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class D shares (as the case may be) to make payments for personal
service and/or the maintenance or servicing of shareholder accounts. Proceeds
from the service fee will be used by the Distributor to compensate securities
dealers and others selling shares of the Fund for rendering service to
shareholders on an ongoing basis. Such amounts are based on the net asset value
of shares of the Fund held by such dealers as nominee for their customers or
which are owned directly by such customers for so long as such shares are
outstanding and the Distribution Plan remains in effect with respect to the
Fund. Any amounts received by the Distributor and not so allocated may be
applied by the Distributor as
32
<PAGE>
reimbursement for expenses incurred in connection with the servicing of investor
accounts. The distribution and servicing expenses of a particular class will be
borne solely by that class.
During the fiscal year ended March 31, 1997, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
<TABLE>
<CAPTION>
Class A Class B Class D
------- ------- -------
<S> <C> <C> <C>
Advertising $ $ $
Printing and mailing of prospectuses
to other than current shareholders
Compensation to dealers 1,649,935 2,236,399 207,441
Compensation to sales personnel
Interest
Carrying or other
financing charges
Other expenses: marketing; general
-------------- ------------- -----------
Total fees $ 1,649,935 $ 2,236,399 $ 207,441
============== ============= ===========
</TABLE>
The Distributor may have also used additional resources of its own for further
expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Fund will attempt to make
alternative arrangements for such services for shareholders who acquired shares
through such institutions.
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") and yield of
the Class A, Class B, Class C and Class D shares of the Funds will be calculated
as set forth below. Total return and
33
<PAGE>
yield are computed separately for each class of shares of the Fund. Performance
data for a specified class includes periods prior to the adoption of class
designations. Shares of the Fund had no class designations until June 1, 1993,
when designations were assigned based on the pricing and Rule 12b-1 fees
applicable to shares sold thereafter.
The performance data reflects Rule 12b-1 fees and sales charges, where
applicable as set forth below:
<TABLE>
<CAPTION>
Rule 12b-1 Fees Sales Charges
------------------------------------------------- -----------------------------------------
Current
Class Amount Period
- ----- ------ ------
<S> <C> <C> <C>
A 0.25% Since commencement of Maximum 4.5% sales charge reflected
operations to present
B 1.00% 0.25% until June 1, 1993; 1- and 5-year periods reflect a 5% and a
1% June 1, 1993 to present; 2% contingent deferred sales charge,
fee will reduce performance respectively
for periods after June 1, 1993
C None 0.25% until June 1, 1993; None
0% thereafter
D 1.00% 0.25% until June 1, 1993; 1-year period reflects a 1% contingent
1% June 1, 1993 to present; deferred sales charge
fee will reduce performance
for periods after June 1, 1993
</TABLE>
All calculations of performance data in this section reflect the
voluntary measures, if any, by the Fund's affiliates to reduce expenses relating
to the Fund; see "Accrued Expenses" later in this section.
Total Return
The standard total return of each class of shares of the Fund was as
follows:
Ten Years Five Years One Year
Ended Ended Ended
March 31, 1997 March 31, 1997 March 31,1997
-------------- -------------- -------------
Class A 9.06% 10.48% 5.34%
Class B 9.21% 10.52% 4.35%
Class C 9.63% 11.63% 10.63%
Class D 9.22% 10.81% 8.52%
34
<PAGE>
Standard total return is computed separately for each class of shares
by determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated
period assuming a hypothetical $1,000 payment made at
the beginning of the designated period
The calculation is based on the further assumptions that the highest
applicable initial or contingent deferred sales charge is deducted, and that all
dividends and distributions by the Fund are reinvested at net asset value on the
reinvestment dates during the periods. All accrued expenses and recurring
charges are also taken into account as described later herein.
Yield
The annualized yield of each class of shares of the Fund based on the
month of March 1997 was as follows:
Class A 7.60%
Class B 7.22%
Class C 8.27%
Class D 7.20%
Yield for each of the Fund's Class A, Class B, Class C and Class D
shares is computed by dividing the net investment income per share earned during
a recent month or other specified 30-day period by the maximum offering price
per share on the last day of the period and annualizing the result in accordance
with the following formula:
35
<PAGE>
YIELD = 2[(a-b + 1)6 -1]
--
cd
Where a = dividends and interest earned during the period
b = expenses accrued for the period (net of voluntary expense
reductions by the Investment Manager)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, the Fund computes the yield to effective maturity of each
obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of the last business day of the
preceding period, or, with respect to obligations purchased during the period,
the purchase price (plus actual accrued interest). The yield to effective
maturity is then divided by 360 and the quotient is multiplied by the market
value of the obligation (including actual accrued interest) to determine the
interest income on the obligation for each day of the period that the obligation
is in the portfolio. Dividend income is recognized daily based on published
rates.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("paydowns"), the Fund accounts for gain or
loss attributable to actual monthly paydowns as a realized capital gain or loss
during the period. The Fund has elected not to amortize discount or premium on
such securities.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be declared as a dividend shortly thereafter. The maximum offering
price includes, as applicable, a maximum sales charge of 4.5%.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing the Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often are insured and/or provide an agreed
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that yield is a function of the kind and quality of the instruments in
the Fund's portfolio, portfolio maturity and operating expenses and market
conditions.
36
<PAGE>
Accrued Expenses
- ----------------
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return and yield results take sales charges, if applicable, into
account, although the results do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
- ----------------------------
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class D shares for periods which end no
earlier than the most recent calendar quarter end and which begin twelve months
before and at the time of commencement of the Fund's operations. In addition,
the Fund may provide nonstandardized total return results for differing periods,
such as for the most recent six months, and/or without taking sales charges into
account. Such nonstandardized total return is computed as otherwise described
under "Total Return" except the result may or may not be annualized, and as
noted any applicable sales charge may not be taken into account and therefore
not deducted from the hypothetical initial payment of $1,000. For example, the
Fund's nonstandardized total returns for the six months ended March 31, 1997
without taking sales charges into account, were as follows:
Class A 2.37%
Class B 2.00%
Class C 2.50%
Class D 1.99%
Distribution Rates
- ------------------
The Fund may also quote its distribution rate for each class of shares.
The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the offering price
per share as of the end of the period to which the distribution relates. A
distribution can include gross investment income from debt obligations purchased
at a premium and in effect include a portion of the premium paid. A distribution
can also include nonrecurring, gross short-term capital gains without
recognition of any unrealized capital losses. Further, a distribution can
include income from the sale of options by the Fund even though such option
income is not considered investment income under generally accepted accounting
principles.
Because a distribution can include such premiums, capital gains and
option income, the amount of the distribution may be susceptible to control by
the Investment Manager through transactions designed to increase the amount of
such items. Also, because the distribution rate is calculated in part by
dividing the latest distribution by the offering price, which is based on net
37
<PAGE>
asset value plus any applicable sales charge, the distribution rate will
increase as the net asset value declines. A distribution rate can be greater
than the yield rate calculated as described above.
The distribution rates of the Fund, based on the month of March 1997,
were as follows:
Class A 8.30%
Class B 7.95%
Class C 8.99%
Class D 7.93%
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing professional services
including (1) audits of the Funds' annual financial statements, (2) assistance
and consultation in connection with Securities and Exchange Commission filings
and (3) review of the annual income tax returns filed on behalf of the Funds.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a
semiannual basis, other supplementary financial reports may be made available
from time to time through electronic or other media. Shareholders with
substantial holdings in one or more State Street Research Funds may also receive
reports and other information which reflect or analyze their positions in a
consolidated manner. For more information, call State Street Research
Shareholder Services.
The following financial statements are for the Fund's fiscal year ended
March 31, 1997.
DOCSC\518443.3
38
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
March 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 74.2%
Aerospace/Defense 1.5%
Dyncorp Inc. Sr. Sub. Note, 9.50%+ $ 2,250,000 3/01/2007 $ 2,193,750
Haynes International Inc. Sr. Note, 11.625% 5,240,000 9/01/2004 5,502,000
Ladish Company, Inc. Sr. Sub. Sec. Note, 12.00%++ 199,732 12/22/2000 213,234
Ladish Inc. Sr. Sub. Note, 12.00%++**@ 975,550 12/22/2000 908,530
Wyman-Gordon Co. Sr. Note, 10.75% 5,390,000 3/15/2003 5,740,350
--------------
14,557,864
--------------
Airlines 1.3%
CHC Helicopter Corp. Sr. Sub. Note, 11.50% 11,700,000 7/15/2002 12,051,000
--------------
Automotive Parts 0.2%
Exide Corp. Sr. Note, 10.00% 2,250,000 4/15/2005 2,250,000
--------------
Cable Television 5.2%
American Telecasting Inc. Sr. Note, 0.00% to
6/14/99, 14.50% from 6/15/99 to maturity 15,685,372 6/15/2004 5,333,027
American Telecasting Inc. Sr. Note Series B, 0.00%
to 8/14/2000, 14.50% from 8/15/2000 to maturity 4,545,000 8/15/2005 1,386,225
Intermedia Capital Partners LP Sr. Note, 11.25% 6,250,000 8/01/2006 6,375,000
Marcus Cable Co. L.P. Sr. Deb., 11.875% 6,500,000 10/01/2005 6,760,000
Marcus Cable Co. L.P. Sr. Note, 0.00% to 6/14/2000,
14.25% from 6/15/2000 to maturity 19,750,000 12/15/2005 13,627,500
Telewest Communications PLC Sr. Deb., 9.625% 2,000,000 10/01/2006 1,940,000
Wireless One Inc. Sr. Disc. Note, 13.00% 10,950,000 10/15/2003 7,117,500
Wireless One Inc. Sr. Note, 0.00% to 7/31/2001,
13.50% from 8/1/2001 to maturity 27,250,000 8/01/2006 7,357,500
--------------
49,896,752
--------------
Capital Goods/Equipment 4.3%
Celestica International Inc. Sr. Sub. Note, 10.50%+ 1,750,000 12/31/2006 1,837,500
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Goods/Equipment (cont'd)
Chatwins Group Inc. Sr. Exch. Note, 13.00% $ 6,250,000 5/01/2003 $ 5,812,500
ICF International Inc. Sr. Sub. Note, 13.00% 10,250,000 6/30/1996 9,686,250
Intertek Financial Corp. Sr. Sub. Note, 10.25%+ 9,000,000 11/01/2006 9,270,000
Tokheim Corp. Sr. Sub. Note Series B, 11.50% 10,500,000 8/01/2006 11,235,000
Tracor Inc. Sr. Sub. Note, 8.50%+ 3,250,000 3/01/2007 3,120,000
--------------
40,961,250
--------------
Conglomerate 0.9%
Alvey Systems Inc. Sr. Sub. Note, 11.375% 7,375,000 1/31/2003 7,670,000
Axia Inc. Sr. Sub. Note Series B, 11.00% 750,000 3/15/2001 765,000
--------------
8,435,000
--------------
Consumer Goods & Services 3.0%
Anchor Advanced Products Inc. Sr. Note, 11.75%+ 3,000,000 4/01/2004 3,037,500
La Petite Holdings Corp. Sr. Sec. Notes, 9.625% 10,750,000 8/01/2001 10,535,000
Norcal Waste Systems Inc. Sr. Note Series B, 13.00%
to 5/14/97, 13.25% from 5/15/97 to 11/14/97,
13.50% from 11/15/97 to maturity 7,940,000 11/15/2005 8,734,000
Renaissance Cosmetics Inc. Sr. Note, 11.75%+ 1,000,000 2/15/2004 1,005,000
Rose Hills Acquisition Corp. Sr. Sub. Note, 9.50%+ 4,750,000 11/15/2004 4,797,500
--------------
28,109,000
--------------
Electric Utility 0.2%
Calpine Corp. Sr. Note, 9.25% 2,000,000 2/01/2004 2,000,000
--------------
Entertainment/Leisure 2.5%
Coleman Worldwide Corp. Sr. Sec. Liquid Yield
Option Note, 0.00% 65,000,000 5/27/2013 18,850,000
Premier Parks Inc. Sr. Note Series A, 12.00% 3,300,000 8/15/2003 3,630,000
Premier Parks Inc. Sr. Note, 9.75% 1,000,000 1/15/2007 1,015,000
--------------
23,495,000
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Food & Beverage 0.8%
Cafeteria Operators L.P. Sr. Sec. Note, 12.00% $ 8,082,980 12/31/2001 $ 7,759,661
--------------
Gaming & Lodging 0.5%
Belle Casinos Inc. First Mortgage Note, 12.00%+*** 700,000 10/15/2000 266,000
Mohegan Tribal Gaming Authority Sr. Sec. Notes
Series B, 13.50% 3,000,000 11/15/2002 3,870,000
Treasure Bay Gaming and Resorts, Inc. First
Mortgage Units, 12.25%+*** 1,000,000 11/15/2000 200,000
--------------
4,336,000
--------------
Grocery 2.5%
Electronic Retailing Systems International, Inc.
Unit, 13.25%+ 1,500,000 2/01/2004 1,012,500
Grand Union Co. Sr. Sub. Note, 12.00% 13,000,000 9/01/2004 12,772,500
Pathmark Stores Inc. Sub. Note, 11.625% 3,750,000 6/15/2002 3,871,875
Ralphs Grocery Co. Sr. Sub. Note, 13.75% 2,500,000 6/15/2005 2,675,000
Safeway Inc. Lease Certificate, 13.50% 90,123 1/15/2009 126,623
Star Market Inc. Sr. Sub. Note, 13.00% 2,500,000 11/01/2004 2,800,000
Victory Markets Inc. Sub. Deb., 12.50%*** 925,000 3/15/2000 46,250
--------------
23,304,748
--------------
Hospital/Health Care 1.8%
Dade International Inc. Sr. Sub. Note, 11.125% 4,000,000 5/01/2006 4,510,000
Healthsource Inc. Sub. Cv. Note, 5.00% 2,000,000 3/01/2003 1,962,500
Owens & Minor Inc. Sr. Sub. Note, 10.875% 1,875,000 6/01/2006 2,020,313
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% 5,250,000 12/15/2006 5,407,500
Theratx, Inc. Cv. Sub. Deb., 8.00% 3,000,000 2/01/2002 2,902,500
--------------
16,802,813
--------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Media 9.9%
Affiliated Newspapers Investments, Inc. Sr. Deb.,
0.00% to 6/30/99, 13.25% from 7/1/99 to maturity $ 3,000,000 7/01/2006 $ 2,550,000
Affinity Group Inc. Sr. Sub. Deb., 11.50% 5,250,000 10/15/2003 5,512,500
Allbritton Communications Co. Sr. Sub. Deb., 11.50% 5,000,000 8/15/2004 5,225,000
Benedek Broadcasting Corp. Sr. Note, 11.875% 6,250,000 3/01/2005 6,875,000
Benedek Communications Corp. Sr. Sub. Note, 0.00%
to 5/14/2001, 13.25% from 5/15/2001 to maturity 16,500,000 5/15/2006 9,570,000
Busse Broadcasting Corp. Sr. Sec. Note, 11.625% 4,000,000 10/15/2000 4,210,000
Capstar Broadcasting Partners Sr. Note, 0.00% to
1/31/2002, 12.75% from 2/1/2002 to maturity+ 15,500,000 2/01/2009 8,215,000
Lamar Advertising Co. Sr. Sub. Note, 9.625% 3,250,000 12/01/2006 3,250,000
Muzak L.P. Sr. Note, 10.00% 3,000,000 10/01/2003 3,030,000
Outdoor Systems Inc. Sr. Sub. Note, 9.375% 11,250,000 10/15/2006 11,475,000
Spanish Broadcasting Systems Inc. Sr. Note, 7.50%
to 6/14/97, 12.50% from 6/15/97 to maturity 13,250,000 6/15/2002 14,177,500
Sun Media Corp. Sr. Sub. Note, 9.50%+ 3,000,000 2/15/2007 2,850,000
Telemundo Group Inc. Sr. Note, 7.00% to 2/14/99,
10.50% from 2/15/99 to maturity 7,000,000 2/15/2006 6,895,000
TV Azteca SA de CV Sr. Note Series B, 10.50%+ 3,500,000 2/15/2007 3,410,190
Universal Outdoor Inc. Sr. Sub. Note, 9.75% 6,000,000 10/15/2006 5,940,000
Universal Outdoor Inc. Sr. Sub. Note Series B,
9.75%+ 1,250,000 10/15/2006 1,237,500
--------------
94,422,690
--------------
Metals/Mining/Steel 5.4%
Crown Resources Corp. Cv. Sub. Deb., 5.75% 220,000 8/27/2001 193,600
Envirosource Inc. Note, 9.75% 17,875,000 6/15/2003 17,428,125
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Metals/Mining/Steel (cont'd)
Euramax International PLC Sr. Sub. Note, 11.25% $ 2,500,000 10/01/2006 $ 2,631,250
GS Technologies Operating Inc. Sr. Note, 12.00% 5,250,000 9/01/2004 5,486,250
NS Group Inc. Sr. Sec. Note, 13.50% 14,500,000 7/15/2003 15,515,000
Sheffield Steel Corp. First Mortgage Note, 12.00% 10,750,000 11/01/2001 10,105,000
--------------
51,359,225
--------------
Oil & Gas 5.3%
Empire Gas Corp. Sr. Sec. Note, 7.00% to 7/14/99,
12.875% from 7/15/99 to maturity 11,500,000 7/15/2004 10,005,000
Moran Energy Inc. Cv. Deb., 8.75% 2,420,000 1/15/2008 2,117,500
TransAmerican Refining Corp. Sr. Note, 0.00% to
2/14/98, 18.50% from 2/15/98 to 8/14/98, 18.00%
from 8/15/98 to maturity 10,000,000 2/15/2002 9,150,000
TransAmerican Refining Corp. Sr. Note, 16.50% to
8/14/98, 16.00% from 8/15/98 to maturity 5,190,000 2/15/2002 5,605,200
TransTexas Gas Corp. Sr. Sec. Note, 11.50% 21,713,000 6/15/2002 23,775,735
--------------
50,653,435
--------------
Paper Products 2.8%
Crown Packaging Enterprises Ltd. Sr. Sec. Note,
14.00%+ 9,000,000 8/01/2006 1,530,000
Crown Packaging Ltd. Sr. Sec. Note, 10.75% 1,000,000 11/01/2000 945,000
Mail-Well Envelope Corp. Sr. Sub. Note, 10.50% 2,250,000 2/15/2004 2,351,250
Packaging Resources Inc. Sr. Sec. Note, 11.625% 12,250,000 5/01/2003 12,678,750
Spinnaker Industries Inc. Sr. Sec. Note, 10.75%+ 9,000,000 10/15/2006 9,270,000
--------------
26,775,000
--------------
Plastics 1.2%
Plastic Containers Inc. Sr. Sec. Note, 10.00%+ 1,250,000 12/15/2006 1,262,500
Plastic Specialties & Technologies, Inc. Sr. Note,
11.25% 9,750,000 12/01/2003 10,530,000
--------------
11,792,500
--------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate/Building 0.9%
Miles Homes Services Inc. Sr. Note, 12.00% $ 2,000,000 4/01/2001 $ 1,620,000
Overhead Door Corp. Note, 12.25% 7,000,000 2/01/2000 7,350,000
--------------
8,970,000
--------------
Retail Trade 1.0%
Almacs Inc. Sr. Sub. Note, 11.50%** 1,000 11/18/2004 20
Finlay Enterprises, Inc. Sr. Deb., 0.00% to
4/30/98, 12.00% from 5/1/98 to maturity 10,070,000 5/01/2005 9,314,750
--------------
9,314,770
--------------
Technology/Communications 23.0%
Advanced Radio Telecom Corp. Unit, 14.00% 6,500,000 2/15/2007 7,085,000
Anacomp Inc. Sr. Sub. Note, 13.00%** 13,605,260 6/04/2002 14,557,628
Brooks Fiber Properties Inc. Sr. Note, 0.00% to
2/28/2001, 10.875% from 3/1/2001 to maturity 5,500,000 3/01/2006 3,410,000
Celcaribe SA Sr. Sec. Note, 0.00% to 3/14/98,
13.50% from 3/15/98 to maturity 5,810,000 3/15/2004 5,229,000
Clearnet Communications Inc. Sr. Note, 0.00% to
12/14/2000, 14.75% from
12/15/2000 to maturity 27,100,000 12/15/2005 16,666,500
Dial Callable Communications Inc. Sr. Note, 0.00%
to 4/14/99, 12.25% from 4/15/99 to maturity 10,750,000 4/15/2004 7,740,000
Echostar Satellite Broadcast Corp. Sr. Sec. Note,
0.00% to 3/14/2000, 13.125% from 3/15/2000 to
maturity 9,000,000 3/15/2004 7,110,000
Geotek Communications Inc. Sr. Note Series B, 0.00%
to 7/14/2000, 15.00% from 7/15/2000 to maturity 6,000,000 7/15/2005 3,450,000
ICG Holdings Inc. Sr. Note, 0.00% to 9/14/2000,
13.50% from 9/15/2000 to maturity 20,575,000 9/15/2005 13,785,250
Intercel Inc. Sr. Note, 0.00% to 1/31/2001, 12.00%
from 2/1/2001 to maturity 2,650,000 2/01/2006 1,590,000
Ionica PLC Sr. Note, 13.50% 8,500,000 8/15/2006 8,500,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Technology/Communications (cont'd)
Mobile Telecommunication Technology, Inc. Sr. Sub.
Disc. Note, 13.50% $ 7,500,000 12/15/2002 $ 7,050,000
Nextel Communications Inc. Sr. Note, 0.00% to
2/14/99, 9.75% from 2/15/99 to maturity 16,000,000 8/15/2004 10,880,000
Orion Network Systems Inc. Unit, 11.25% 14,250,000 1/15/2007 14,036,250
Pagemart Inc. Sr. Exch. Note, 0.00% to 10/31/98,
12.25% from 11/1/98 to maturity 7,400,000 11/01/2003 5,920,000
Pagemart Nationwide Inc. Sr. Exch. Note, 0.00% to
1/31/2000,15.00% from 2/1/2000 to maturity 16,750,000 2/01/2005 11,515,625
Phonetel Technologies Inc. Sr. Note, 12.00% 1,500,000 12/15/2006 1,501,875
Pricellular Wireless Corp. Sr. Note, 10.75% 6,000,000 11/01/2004 6,075,000
Protection One Alarm Inc. Sr. Sub. Note, 0.00% to
6/29/98, 13.625% from 6/30/98 to maturity 6,000,000 6/30/2005 5,700,000
Qwest Communications International Inc. Sr. Note,
10.875%+ 2,000,000 4/01/2007 1,970,000
Real Time Data Inc. Unit, 0.00% to 8/14/2001,
13.50% from 8/15/2001 to maturity+ 17,436,000 8/15/2006 9,415,440
RSL Communications Ltd. Unit, 12.25%+ 12,500,000 11/15/2006 12,500,000
U.S.A. Mobile Communications Inc. Sr. Note, 9.50% 7,120,000 2/01/2004 6,123,200
U.S.A. Mobile Communications Inc. Sr. Note, 14.00% 11,000,000 11/01/2004 11,770,000
Viatel Inc. Sr. Note, 0.00% to 1/14/2000, 15.00%
from 1/15/2000 to maturity 5,190,000 1/15/2005 3,269,700
Winstar Communications Inc. Sr. Sub. Cv. Note,
0.00% to 10/14/2000, 14.00% from 10/15/2000 to
maturity+ 6,525,000 10/15/2005 4,110,750
Winstar Equipment Corp. Sr. Sec. Note, 12.50%+ 18,250,000 3/15/2004 17,839,375
--------------
218,800,593
--------------
Total Bonds (Cost $716,310,042) 706,047,301
--------------
</TABLE>
- -----------------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------------
PREFERRED STOCKS 14.7%
Automotive 0.1%
Harvard Industries Inc. 14.25% Exch. Pfd.** 423,790 1,218,396
--------------
Bank 0.3%
Riverbank America Pfd.* 110,000 2,640,000
--------------
Business Service 1.6%
La Petite Holdings Corp. Cum. Red. Exch. Pfd.* 361,000 14,710,750
--------------
Cable Television 0.6%
Cablevision Systems Corp. Series B Pfd. 57,913 5,168,735
--------------
Chemical 1.9%
Atlantic Richfield Co. Exch. Note 836,800 18,409,600
--------------
Electric 0.0%
Consolidated Hydro Inc. Cv. Pfd.* 2,000 300,000
--------------
Food & Beverage 0.1%
Silgan Holdings Inc. Exch. Pfd.* 1,065 1,235,400
--------------
Financial Service 0.6%
Gentra Inc. Series G Pfd.* 100,100 1,418,897
Gentra Inc. Series J Pfd.* 264,102 3,672,057
Gentra Inc. Series Q Pfd.* 70,300 787,035
--------------
5,877,989
--------------
Forest Product 0.7%
Equitable Bag Inc. Series A Pfd.* 134,760 2,897,340
S.D. Warren Co. Series B Sr. Exch. Pfd.* 108,000 4,023,000
--------------
6,920,340
--------------
Gaming & Lodging 0.4%
Station Casinos Inc. Cv. Pfd. 78,600 3,389,625
--------------
Hotel & Restaurant 0.5%
Ameriking Inc. Sr. Exch. Pfd.* 191,000 5,061,500
--------------
Media 2.3%
American Radio Systems Corp. Exch. Pfd.+ 12,500 1,225,000
Granite Broadcasting Corp. Cv. Exch. Pfd. 114,700 5,620,300
Granite Broadcasting Corp. Exch. Pfd.+ 15,250 14,106,250
SFX Broadcasting Inc. Series E Pfd. 10,000 990,000
--------------
21,941,550
--------------
Personal Care 0.0%
Renaissance Cosmetics Inc. Sr. Exch. Pfd.+** 72 63,000
--------------
Printing & Publishing 3.8%
Hollinger International, Inc. Cv. Pfd. 2,000,000 20,000,000
K-III Communications Corp. Series B Exch. Pfd.** 73,485 8,028,227
K-III Communications Corp. Series D Exch. Pfd.* 80,000 8,020,000
--------------
36,048,227
--------------
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade 1.4%
Supermarkets General Holdings Corp. Exch. Pfd.** 568,540 $13,502,825
--------------
Telephone 0.4%
ICG Holdings Inc. Exch. Pfd.* 3,890 3,890,000
--------------
Total Preferred Stocks (Cost $151,798,079) 140,377,937
--------------
COMMON STOCKS & OTHER 4.6%
American Communications Services, Inc. Wts.*+ 9,500 285,000
American Telecasting Inc. Wts.* 41,130 41,130
Ameriking Inc. Com.*+ 4,775 238,750
Anacomp Inc. Com.* 873,507 9,608,577
Anacomp Inc. Wts.* 25,848 96,930
Axia Holding Corp. Com.*++ 2,250 90,000
Bar Technologies Inc. Wts.*+ 4,250 191,250
Belle Casinos Inc. Wts.*+ 1,400 14
Boomtown Inc. Wts.*+ 7,250 15
Celcaribe SA Trust Certificates*+ 944,706 2,125,588
Central Rents Inc. Com.*+ 5,250 288,750
Chatwins Group Inc. Wts.*+ 7,000 7,000
CHC Helicopter Corp. Wts.*++ 46,000 23,000
Clearnet Communications Inc. Wts.* 85,305 490,504
County Seat Holdings Inc. Wts.*++ 2,000 20
Crown Packaging Enterprises Ltd. Com.*+ 1,170,000 11,700
Crown Packaging Holdings Ltd. Wts.*+ 20,750 2,594
DeGeorge Financial Corp. Wts.* 51,000 12,750
Dr Pepper Bottling Holdings Inc. Cl. A Com.* 50,000 700,000
Empire Gas Corp. Wts.*++ 2,760 13,800
Equitable Bag Inc. Com.* 1,347,600 673,800
Fitzgeralds South Inc. Wts.*++ 3,750 37,500
Goldriver Hotel & Casino Corp. Cl. B Com.*++ 52,500 6,563
Goldriver Hotel & Casino Corp. Liquidation Trust
Units*++ 5,250,000 66,675
Heartland Wireless Communications, Inc. Wts.*++ 37,500 37,500
ICF Kaiser International Inc. Wts.* 49,200 24,600
Indspec Chemical Corp. Wts.*++@ 506 1,479,630
Insight Capital Corp. Wts.*++ 25,000 68,750
Intelcom Group, Inc. Wts.*++ 21,450 257,400
Intercel Inc. Wts.* 8,480 50,880
Intermedia Communications Inc. Wts.*+ 1,500 30,000
Ionica PLC Wts.*+ 9,500 1,377,500
Jewel Recovery L.P. Units*++ 82,595 826
Ladish Co., Inc. Wts.++@* 520,000 975,000
LTX Corp. Com.* 145,000 715,937
Mail-Well Holdings, Inc. Com.*++ 14,205 280,549
<CAPTION>
- -----------------------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Motels of America Inc. Com.*+ 5,500 $ 63,250
Nextel Communications Inc. Wts.* 1,250 38
NS Group Inc. Wts.*+ 13,250 39,750
Pagemart Inc. Wts.*+ 21,850 87,400
Pagemart Nationwide Inc. Com.*+ 18,375 101,062
Pegasus Communications Corp. Cl. A Com.*+ 8,461 93,071
Plastic Specialties & Technologies, Inc. Com.* 45,300 135,900
Protection One Inc. Wts.*+ 10,400 70,200
Ralphs Grocery Co. Wts.*++@ 401,762 4,050,086
Renaissance Cosmetics Inc. Com.*+ 1,000 1,000,000
Renaissance Cosmetics Inc. Wts.*+ 2,000 100,000
Sabreliner Corp. Wts.*+ 1,750 5,250
SDW Holdings Corp. Wts.* 108,000 459,000
Seven-Up / RC Bottling Company of Southern California
Com.* 472,500 5,610,937
Sheffield Steel Corp. Wts.* 38,750 116,250
Tom Brown, Inc. Com.* 283,304 5,241,124
Town & Country Corp. Cl. A Com.*++@ 188,526 58,914
TransAmerican Refining Corp. Wts.* 12,626 25,252
Universal Outdoor Holdings Inc. Com.* 155,200 4,500,800
Vestar/LPA Investment Corp. Com.*+ 14,250 142,500
Viatel Inc. Com.*+ 108,300 649,800
Waxman Industries Inc. Wts.*+ 236,000 708,000
Wireless One Inc. Wts.*+ 16,500 16,500
Wireless One Inc. Wts.* 27,250 20,437
--------------
Total Common Stocks & Other (Cost $32,700,049) 43,606,003
--------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Principal Maturity
Amount Date
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 5.4%
Beneficial Corp., 5.55% $14,458,000 4/01/1997 14,458,000
Commercial Credit Co., 5.45% 10,000,000 4/02/1997 10,000,000
Ford Motor Credit Co., 5.65% 11,730,000 4/07/1997 11,730,000
General Electric Capital Corp., 5.63% 8,448,000 4/03/1997 8,448,000
General Electric Capital Corp., 5.65% 6,813,000 4/03/1997 6,813,000
--------------
Total Short-Term Obligations (Cost $51,449,000) 51,449,000
--------------
Total Investments (Cost $952,257,170) - 98.9% 941,480,241
Cash and Other Assets, Less Liabilities - 1.1% 10,751,937
--------------
Net Assets - 100.0% $952,232,178
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Federal Income Tax Information (Note 1):
At March 31, 1997, the net unrealized depreciation
of investments based on cost for Federal income
tax purposes of $952,442,680 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost $ 51,153,778
Aggregate gross unrealized depreciation for all
investments in which there is an excess of value
over tax cost (62,116,217)
---------------
$(10,962,439)
===============
- --------------------------------------------------------------------------------
*Nonincome-producing securities
**Payments of income may be made in cash or in the form of additional
securities.
***Security is in default.
@Security valued under consistently applied procedures established by the
Trustees.
++Security restricted as to public resale. At March 31, 1997, there were no
outstanding unrestricted securities of the same class as those held. The
total cost and market value of restricted securities owned at March 31,
1997 were $4,032,871 and $8,567,977 (0.90% of net assets), respectively.
+Security restricted in accordance with Rule 144A under the Securities Act of
1933, which allows for the resale of such securities among certain qualified
institutional buyers. The total cost and market value of Rule 144A
securities owned at March 31, 1997 were $128,334,504 and $123,379,699
(12.96% of net assets), respectively.
ASSET COMPOSITION TABLE
March 31, 1997 (Unaudited)
Percentage of
Ratings+++ Net Assets*
- ---------- -----------
BB 4.4%
B 59.9
CCC and below 9.9
Equities 19.3
Other 6.5
-----
TOTAL 100.0%
=====
++As rated by Standard & Poor's Corp. and/or
equivalent rating by Moody's Investors Service, Inc.
*Unrated bonds were included among relevant rating
categories as determined by the Fund's manager.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------
March 31, 1997
Assets
Investments, at value (Cost $952,257,170) (Note 1) $941,480,241
Cash 28,628
Interest and dividends receivable 15,646,022
Receivable for securities sold 4,684,543
Receivable for fund shares sold 1,722,546
Other assets 39,427
-------------
963,601,407
Liabilities
Payable for securities purchased 5,110,773
Dividends payable 2,631,925
Payable for fund shares redeemed 2,000,197
Accrued transfer agent and shareholder services (Note 2) 573,330
Accrued management fee (Note 2) 538,356
Accrued distribution and service fees (Note 4) 392,014
Accrued trustees' fees (Note 2) 10,850
Other accrued expenses 111,784
-------------
11,369,229
-------------
Net Assets $952,232,178
=============
Net Assets consist of:
Undistributed net investment income $ 6,713,699
Unrealized depreciation of investments (10,776,929)
Accumulated net realized loss (26,194,290)
Shares of beneficial interest 982,489,698
-------------
$952,232,178
=============
Net Asset Value and redemption price per share of Class A
shares ($658,412,513 [divided by] 109,584,701 shares of
beneficial interest) $6.01
=====
Maximum Offering Price per share of Class A shares ($6.01
[divided by] .955) $6.29
=====
Net Asset Value and offering price per share of
Class B shares ($259,077,249 [divided by] 43,309,066
shares of beneficial interest)* $5.98
=====
Net Asset Value, offering price and redemption price per
share of Class C shares ($6,254,742 [divided by] 1,046,284
shares of beneficial interest) $5.98
=====
Net Asset Value and offering price per share of
Class D shares ($28,487,674 [divided by] 4,757,298 shares
of beneficial interest)* $5.99
=====
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
- ----------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------
For the year ended March 31, 1997
Investment Income
Interest, net of foreign taxes of $46,751 $91,335,450
Dividends 7,006,175
------------
98,341,625
Expenses
Management fee (Note 2) 5,911,041
Transfer agent and shareholder services (Note 2) 1,284,233
Custodian fee 210,634
Service fee--Class A (Note 4) 1,649,935
Distribution and service fees--Class B (Note 4) 2,236,399
Distribution and service fees--Class D (Note 4) 207,441
Reports to shareholders 130,348
Audit fee 40,817
Registration fees 38,972
Trustees' fees (Note 2) 29,250
Legal fees 3,393
Miscellaneous 44,406
------------
11,786,869
------------
Net investment income 86,554,756
------------
Realized and Unrealized (Gain) Loss on Investments
Net realized gain on investments (Notes 1 and 3) 5,358,925
Net unrealized depreciation of investments (6,463,064)
------------
Net loss on investments (1,104,139)
------------
Net increase in net assets resulting from operations $85,450,617
============
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- ------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
Year ended March 31
--------------------------------
1997 1996
- ----------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 86,554,756 $ 69,201,345
Net realized gain (loss) on
investments* 5,358,925 (16,029,655)
Net unrealized appreciation
(depreciation) of investments (6,463,064) 43,116,209
------------ ------------
Net increase resulting from operations 85,450,617 96,287,899
------------ ------------
Dividends from net investment income:
Class A (58,427,483) (60,859,257)
Class B (18,222,317) (13,275,143)
Class C (463,672) (319,668)
Class D (1,682,938) (1,000,485)
------------ ------------
(78,796,410) (75,454,553)
------------ ------------
Distribution from net realized
gains:
Class A -- (804,838)
Class B -- (159,995)
Class C -- (3,577)
Class D -- (10,572)
------------ ------------
-- (978,982)
------------ ------------
Net increase from fund share
transactions (Note 5) 94,267,308 85,881,692
------------ ------------
Total increase in net assets 100,921,515 105,736,056
Net Assets
Beginning of year 851,310,663 745,574,607
------------ ------------
End of year (including undistributed
net investment income of $6,713,699
and $635,185, respectively) $952,232,178 $851,310,663
============ ============
* Net realized gain (loss) for Federal
income tax purposes (Note 1) $ 10,417,121 $(27,502,856)
============ ============
- ------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
March 31, 1997
Note 1
State Street Research High Income Fund, (the "Fund"), is a series of State
Street Research Income Trust (the "Trust"), which was organized as a
Massachusetts business trust on December 23, 1985 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Trust commenced operations in August, 1986. The Trust
consists of two separate funds: State Street Research High Income Fund and
State Street Research Managed Assets.
The investment objective of the Fund is to seek, primarily, high current
income and, secondarily, capital appreciation, from investments in fixed
income securities. In selecting investments for the Fund, the investment
manager seeks to identify those fixed income securities which it believes
will not involve undue risk. Certain of the Fund's investments, however, may
be considered predominantly speculative.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and
pay annual distribution and service fees of 1.00%. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after the issuance of the Class B shares. Class C
shares are only offered to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Fixed income securities are valued by a pricing service, which utilizes
market transactions, quotations from dealers, and various relationships among
securities in determining value. If not valued by a pricing service, such
securities are valued at prices obtained from independent brokers. Values for
listed equity securities reflect final sales on national securities exchanges
quoted prior to the close of the New York Stock Exchange. Over-the-counter
securities quoted on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") system are valued at closing prices supplied through
such system. If not quoted on the NASDAQ system, such securities are valued
at prices obtained from independent brokers. In the absence of recorded
sales, valuations are at the mean of the closing bid and asked quotations.
Short-term securities maturing within sixty days are valued at amortized
cost. Other securities, if any, are valued at their fair value as determined
in good faith under consistently applied procedures established by and under
the supervision of the Trustees.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
Securities quoted in foreign currencies are translated into U.S. dollars at
the current exchange rate. Gains and losses that arise from changes in
exchange rates are not segregated from gains and losses that arise from
changes in market prices of investments.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of
the Fund. Interest income is accrued daily as earned. Dividend income is
accrued on the ex-dividend date. Discount on debt obligations is amortized
under the effective yield method. Certain fixed income and preferred
securities held by the Fund pay interest or dividends in the form of
additional securities (payment-in-kind securities). Interest income on
payment-in-kind fixed income securities is recorded using the
effective-interest method. Dividend income on payment-in-kind preferred
securities is recorded at the market value of securities received. The Fund
is charged for expenses directly attributable to it, while indirect expenses
are allocated between both funds in the Trust.
D. Dividends
Dividends are declared daily based upon projected net investment income and
paid or reinvested monthly. Net realized capital gains, if any, are
distributed annually, unless additional distributions are required for
compliance with applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatment
of accrued interest on defaulted bonds.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods. At March 31, 1997, the
Fund had a capital loss carryforward of $20,803,392 available, to the extent
provided in regulations, to offset future capital gains, if any, which
expires on March 31, 2004.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1996
through March 31, 1997, the Fund incurred net capital losses of $5,068,197
and has deferred and treated such losses as arising in the fiscal year ended
March 31, 1998.
F. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.65% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended March 31, 1997, the fees pursuant to
such agreement amounted to $5,911,041.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended March 31, 1997, the amount of such
expenses was $288,490.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $29,250 during the year ended March 31, 1997.
Note 3
For the year ended March 31, 1997, purchases and sales of securities,
exclusive of short-term investments, aggregated $803,583,108 and
$707,229,117, respectively.
Note 4
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
pays annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class D shares. The Distributor uses such payments for personal
service and/or the maintenance or servicing of shareholder accounts, to
reimburse securities dealers for distribution and marketing services, to
furnish ongoing assistance to investors and to defray a portion of its
distribution and marketing expenses. For the year ended March 31, 1997, fees
pursuant to such plan amounted to $1,649,935, $2,236,399, and $207,441 for
Class A, Class B and Class D shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $294,695 and $1,737,055 respectively, on sales of Class A shares
of the Fund during the year ended March 31, 1997, and that MetLife
Securities, Inc. earned commissions aggregating $1,356,752 on sales of Class
B shares, and that the Distributor collected contingent deferred sales
charges aggregating $493,705 and $61,492 on redemptions of Class B and Class
D shares, respectively, during the same period.
11
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At March 31, 1997, the
Distributor owned 7,018 Class A shares and Metropolitan owned 1,567 Class B
and 16,155 Class D shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended March 31
-----------------------------------------------------------------
1997 1996
------------------------------- --------------------------------
Class A Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 15,602,119 $ 94,973,592 18,288,203 $ 107,141,811
Issued upon reinvestment of:
Dividends from net investment income 6,212,698 37,840,814 6,699,217 39,227,013
Distribution from net realized gains -- -- 110,651 647,284
Shares repurchased (20,888,291) (127,047,788) (22,983,923) (134,676,806)
----------- ------------ ----------- ------------
Net increase 926,526 $ 5,766,618 2,114,148 $ 12,339,302
=========== ============ =========== ============
Class B Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
Shares sold 15,907,481 $ 96,551,028 14,268,713 $ 83,337,086
Issued upon reinvestment of:
Dividends from net investment income 1,668,549 10,129,956 1,319,995 7,702,343
Distribution from net realized gains -- -- 21,578 125,811
Shares repurchased (5,605,180) (33,954,283) (4,623,289) (27,005,817)
----------- ------------ ----------- ------------
Net increase 11,970,850 $ 72,726,701 10,986,997 $ 64,159,423
=========== ============ =========== ============
Class C Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
Shares sold 733,872 $ 4,470,033 458,494 $ 2,676,110
Issued upon reinvestment of:
Dividends from net investment income 58,765 357,467 42,106 245,608
Distribution from net realized gains -- -- 486 2,834
Shares repurchased (394,609) (2,403,760) (298,694) (1,741,339)
----------- ------------ ----------- ------------
Net increase 398,028 $ 2,423,740 202,392 $ 1,183,213
=========== ============ =========== ============
Class D Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
Shares sold 2,630,966 $ 16,046,241 1,922,890 $ 11,234,354
Issued upon reinvestment of:
Dividends from net investment income 163,926 998,823 76,557 447,554
Distribution from net realized gains -- -- 1,314 7,661
Shares repurchased (609,727) (3,694,815) (596,429) (3,489,815)
----------- ------------ ----------- ------------
Net increase 2,185,165 $ 13,350,249 1,404,332 $ 8,199,754
=========== ============ =========== ============
</TABLE>
12
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------
Year ended March 31
--------------------------------------------------------------
1997* 1996* 1995* 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 5.95 $ 5.80 $ 6.43 $ 6.32 $ 5.95
Net investment income 0.59 0.52 0.61 0.66 0.67
Net realized and unrealized gain
(loss) on investments (0.01) 0.20 (0.58) 0.22 0.37
----- ----- ----- ----- -----
Total from investment operations 0.58 0.72 0.03 0.88 1.04
----- ----- ----- ----- -----
Dividends from net investment income (0.52) (0.56) (0.60) (0.62) (0.67)
Distributions from net realized gains -- (0.01) (0.06) (0.15) --
----- ----- ----- ----- -----
Total distributions (0.52) (0.57) (0.66) (0.77) (0.67)
----- ----- ----- ----- -----
Net asset value, end of year $6.01 $5.95 $5.80 $6.43 $6.32
===== ===== ===== ===== =====
Total return 10.30%+ 12.85%+ 1.80%+ 14.58%+ 18.70%+
Net assets at end of year (000s) $658,413 $646,473 $618,462 $650,755 $496,352
Ratio of operating expenses to
average net assets 1.10% 1.17% 1.23% 1.16% 1.15%
Ratio of net investment income to
average net assets 9.70% 8.88% 10.19% 10.41% 11.25%
Portfolio turnover rate 81.75% 56.47% 31.55% 24.36% 79.39%
Average commission rate@ $0.0152 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class B
------------------------------------------------
Year ended March 31
------------------------------------------------
1997* 1996* 1995* 1994**
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 5.93 $ 5.79 $ 6.42 $ 6.34
Net investment income 0.55 0.46 0.57 0.51
Net realized and unrealized gain
(loss) on investments (0.02) 0.21 (0.58) 0.15
----- ----- ----- -----
Total from investment operations 0.53 0.67 (0.01) 0.66
----- ----- ----- -----
Dividends from net investment income (0.48) (0.52) (0.56) (0.48)
Distributions from net realized gains -- (0.01) (0.06) (0.10)
----- ----- ----- -----
Total distributions (0.48) (0.53) (0.62) (0.58)
----- ----- ----- -----
Net asset value, end of year $5.98 $5.93 $5.79 $6.42
===== ===== ===== =====
Total return 9.35%+ 12.06%+ 0.89%+ 10.76%+++
Net assets at end of year (000s) $259,077 $185,735 $117,767 $67,337
Ratio of operating expenses to
average net assets 1.85% 1.92% 1.98% 1.93%++
Ratio of net investment income to
average net assets 9.01% 7.95% 9.65% 10.32%++
Portfolio turnover rate 81.75% 56.47% 31.55% 24.36%
Average commission rate@ $0.0152 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------------------------------
Year ended March 31
----------------------------------------------------
1997* 1996* 1995* 1994**
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 5.92 $ 5.78 $ 6.42 $ 6.34
Net investment income 0.61 0.53 0.64 0.57
Net realized and unrealized gain
(loss) on investments (0.01) 0.20 (0.60) 0.14
------ ------ ------ ------
Total from investment operations 0.60 0.73 0.04 0.71
------ ------ ------ ------
Dividends from net investment income (0.54) (0.58) (0.62) (0.53)
Distributions from net realized gains -- (0.01) (0.06) (0.10)
------ ------ ------ ------
Total distributions (0.54) (0.59) (0.68) (0.63)
------ ------ ------ ------
Net asset value, end of year $ 5.98 $ 5.92 $ 5.78 $ 6.42
====== ====== ====== ======
Total return 10.63%+ 13.19%+ 1.73%+ 11.67%+++
Net assets at end of year (000s) $6,255 $3,840 $2,579 $851
Ratio of operating expenses to
average net assets 0.85% 0.92% 0.98% 0.93%++
Ratio of net investment income to
average net assets 10.04% 8.97% 10.85% 11.32%++
Portfolio turnover rate 81.75% 56.47% 31.55% 24.36%
Average commission rate@ $0.0152 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class D
-------------------------------------------------
Year ended March 31
-------------------------------------------------
1997* 1996* 1995* 1994**
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 5.93 $ 5.79 $ 6.42 $ 6.34
Net investment income 0.54 0.46 0.58 0.51
Net realized and unrealized gain
(loss) on investments (0.00) 0.21 (0.59) 0.15
------ ------ ------ ------
Total from investment operations 0.54 0.67 (0.01) 0.66
------ ------ ------ ------
Dividends from net investment income (0.48) (0.52) (0.56) (0.48)
Distributions from net realized gains -- (0.01) (0.06) (0.10)
------ ------ ------ ------
Total distributions (0.48) (0.53) (0.62) (0.58)
------ ------ ------ ------
Net asset value, end of year $ 5.99 $ 5.93 $ 5.79 $ 6.42
====== ====== ====== ======
Total return 9.52%+ 12.05%+ 0.88%+ 10.74%+++
Net assets at end of year (000s) $28,488 $15,262 $6,766 $2,661
Ratio of operating expenses to
average net assets 1.85% 1.92% 1.98% 1.93%++
Ratio of net investment income to
average net assets 9.09% 7.91% 9.81% 10.32%++
Portfolio turnover rate 81.75% 56.47% 31.55% 24.36%
Average commission rate@ $ 0.0152 -- -- --
</TABLE>
- --------------------------------------------------------------------------------
* Per-share figures have been calculated using the average shares method.
** June 1, 1993 (commencement of share class designations) to March 31, 1994.
++ Annualized
+ Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
@ For fiscal years beginning on or after April 1, 1996, the Fund is required
to disclose its average commission rate per share paid for security trades.
13
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research Income Trust and
the Shareholders of State Street Research High Income Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research High
Income Fund (a series of State Street Research Income Trust, hereafter
referred to as the "Trust") at March 31, 1997, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at March 31, 1997 by correspondence
with the custodian and brokers and the application of alternative procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
May 9, 1997
14
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
High Income Fund turned in a solid performance but slightly underperformed
the average of its competitive group. Class A shares generated a total return
of 10.30% (does not reflect sales charge) versus the average of 11.35% of the
154 fund classes in Lipper Analytical Services' High Current Yield Funds
category.
The environment was positive for high-yield bonds for most of the past year.
At the end of 1996, however, interest rates began to rise. Throughout 1996
and the first part of 1997, the economic climate was favorable and demand was
strong from both traditional and non-traditional investors in high-yield
bonds. Inflation was low and interest rates were stable.
High-yield bonds were the top-performing U.S. fixed- income sector during the
past year and were the only U.S. fixed-income sector to generate a positive
return in the first quarter of 1997. In addition to the attractive yields in
an otherwise low-interest-rate environment, positive events, such as
takeovers, pushed high-yield bond prices higher. This demand drove yields in
this sector to historically low levels relative to higher- quality
fixed-income investments. High-yield bonds maintained their value better than
most U.S. fixed- income sectors during this time.
The Fund was primarily invested in B-rated bonds. These bonds tended to
benefit from the healthy economic environment and provided attractive yields.
Fund management believes that B-rated bonds help add more value through the
firm's fundamental credit research. In terms of sectors, telecommunications
was a point of focus over the past year.
The yields of lower-quality bonds recently have risen, making them more
attractive. If rates continue to rise, we will continue our emphasis on
B-rated bonds.
March 31, 1997
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. In January 1994, the Fund changed its
investment objective to include capital appreciation as a secondary part of
its objective and to allow greater use of lower-rated securities, and
convertible and preferred securities. Performance for a class may include
periods prior to the adoption of class designations in 1993, which resulted
in new or increased 12b-1 fees of up to 1% per class thereafter and which
will reduce subsequent performance. Performance reflects maximum 4.5% "A"
share front-end sales charge, or 5% "B" share or 1% "D" share contingent
deferred sales charges, where applicable. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and large
institutions. The First Boston High Yield Index is a commonly used measure of
bond market performance. The index is unmanaged and does not take transaction
charges into consideration. Direct investment in the index is not possible;
results are for illustrative purposes only.
Change In Value of $10,000
Based On The First Boston High Yield Index
Compared to Change In Value of $10,000
Invested In High Income Fund
[LINE CHART CLASS A SHARES]
High Income Fund First Boston High Yield Index
3/87 9550 10000
3/88 10004 10613
3/89 11247 11612
3/90 10484 11162
3/91 10713 12713
3/92 13814 16682
3/93 16397 19243
3/94 18786 21159
3/95 19124 22176
3/96 21581 25398
3/97 23804 28363
[LINE CHART CLASS B SHARES]
High Income Fund First Boston High Yield Index
3/87 10000 10000
3/88 10475 10613
3/89 11767 11612
3/90 10978 11162
3/91 11218 12713
3/92 12182 16682
3/93 17169 19243
3/94 19526 21159
3/95 19700 22176
3/96 22076 25398
3/97 24140 28363
[LINE CHART CLASS C SHARES]
High Income Fund First Boston High Yield Index
3/87 10000 10000
3/88 10475 10613
3/89 11767 11612
3/90 10978 11162
3/91 11218 12713
3/92 14465 16682
3/93 17169 19243
3/94 19685 21159
3/95 20025 22176
3/96 22668 25398
3/97 25076 28363
[LINE CHART CLASS D SHARES]
High Income Fund First Boston High Yield Index
3/87 10000 10000
3/88 10475 10613
3/89 11767 11612
3/90 10978 11162
3/91 11218 12713
3/92 14465 16682
3/93 17169 19243
3/94 19522 21159
3/95 19693 22176
3/96 22066 25398
3/97 24166 28363
15
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
REPORT ON SPECIAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Shareholders of the State Street Research High Income Fund
("Fund"), along with shareholders of other series of State Street Research
Income Trust ("Meeting"), was convened on July 19, 1996. The results of the
Meeting are set forth below.
Votes (millions of
shares)
------------------
For Withheld
--- --------
1. The following persons were elected as Trustees:
Thomas L. Phillips 97.9 2.6
Toby Rosenblatt 98.2 2.3
Ralph F. Verni 98.0 2.5
<TABLE>
<CAPTION>
Votes (millions
of shares)
--------------------------
Against
For Proposal Abstain
- -------------------------------------------------------------------------------------------------------- ------- ---------- -------
<S> <C> <C> <C>
Proposal
2. The Fund's following investment policies were reclassified from fundamental to nonfundamental:
a. The policy regarding investments in securities of companies with less than three (3) years'
continuous operation 67.9 3.7 5.9
c. The policy regarding arbitrage and warrants 67.8 3.2 6.4
3. The Fund's fundamental policy regarding investments in commodities and commodity contracts was amended 67.5 4.0 6.0
4. The Fund's fundamental policy on lending was amended to clarify the permissibility of securities
lending 67.2 3.9 6.3
5. The Fund's fundamental policies regarding diversification of investments were amended 68.8 2.7 5.9
6. The Fund's fundamental policy regarding industry concentration was amended 68.4 3.0 6.1
7. The Fund's fundamental policy regarding participation in underwritings was amended 67.7 3.1 6.6
8. The Master Trust Agreement was amended to permit the Trustees to reorganize, merge or liquidate a fund
without prior shareholder approval 83.0 9.8 7.6
9. The Master Trust Agreement was amended to eliminate specified time permitted between the record date
and any shareholders meeting 86.2 6.3 8.0
</TABLE>
16
<PAGE>
State Street Research Managed Assets
a series of
State Street Research Income Trust
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
TABLE OF CONTENTS
Page
----
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS................................2
ADDITIONAL INFORMATION CONCERNING INVESTMENT SECTORS...........................5
ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT TECHNIQUES................9
TRUSTEES AND OFFICERS.........................................................18
INVESTMENT ADVISORY SERVICES..................................................23
PURCHASE AND REDEMPTION OF SHARES.............................................24
NET ASSET VALUE...............................................................26
PORTFOLIO TRANSACTIONS........................................................27
CERTAIN TAX MATTERS...........................................................30
DISTRIBUTION OF SHARES OF THE FUND............................................33
CALCULATION OF PERFORMANCE DATA...............................................36
CUSTODIAN.....................................................................41
INDEPENDENT ACCOUNTANTS.......................................................41
FINANCIAL STATEMENTS..........................................................41
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
Managed Assets (the "Fund") dated August 1, 1997, which may be obtained without
charge from the offices of State Street Research Income Trust (the "Trust") or
State Street Research Investment Services, Inc. (the "Distributor"), One
Financial Center, Boston, Massachusetts 02111-2690.
CONTROL NUMBER: 1285K-960731(0898)SSR-LD MA-879D-897
<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "Other Investment Policies and Considerations - Risk
Factors and Special Considerations - Investment Limitations and Practices" in
the Fund's Prospectus, the Fund has adopted certain investment restrictions.
All of the Fund's fundamental investment restrictions are set forth
below. These fundamental restrictions may not be changed except by the
affirmative vote of a majority of the Fund's outstanding voting securities as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(Under the 1940 Act, a "vote of the majority of the outstanding voting
securities" means the vote, at a meeting of security holders duly called, (i) of
67% or more of the voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy or (ii) of more than 50% of the outstanding voting securities, whichever
is less.) Under these restrictions, it is the Fund's policy:
(1) not to purchase a security of any one issuer (other than
securities issued or guaranteed as to principal or interest by
the U.S. Government or its agencies or instrumentalities or
mixed-ownership Government corporations) if such purchase
would, with respect to 75% of the Fund's total assets, cause
more than 5% of the Fund's total assets to be invested in the
securities of such issuer or cause more than 10% of the voting
securities of such issuer to be held by the Fund;
(2) not to issue senior securities;
(3) not to underwrite or participate in the marketing of
securities of other issuers, except (a) the Fund may, acting
alone or in syndicates or groups, if determined by the Trust's
Board of Trustees, purchase or otherwise acquire securities of
other issuers for investment, either from the issuers or from
persons in a control relationship with the issuers or from
underwriters of such securities; and (b) to the extent that,
in connection with the disposition of the Fund's securities,
the Fund may be deemed to be an underwriter under certain
federal securities laws;
(4) not to purchase or sell fee simple interests in real estate,
although the Fund may purchase and sell other interests in
real estate including securities which are secured by real
estate, or securities of companies which own or invest or deal
in real estate;
(5) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Fund's total
assets, except that investments in essentially financial items
or arrangements such as, but not limited to, swap
arrangements, hybrids, currencies, currency and other forward
contracts, delayed delivery and when-issued contracts, futures
contracts and options on
2
<PAGE>
futures contracts on securities, securities indices, interest
rates and currencies, shall not be deemed investments in
commodities or commodities contracts;
(6) not to make loans, except that the Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (including repurchase agreements with respect
thereto);
(7) not to conduct arbitrage transactions (provided that
investments in futures and options shall not be deemed
arbitrage transactions);
(8) not to invest in oil, gas or other mineral exploration or
development programs (provided that the Fund may invest in
securities issued by companies which invest in or sponsor such
programs and in securities indexed to the price of oil, gas or
other minerals);
(9) not to make any investment which would cause more than 25% of
the value of the Fund's total assets to be invested in
securities of nongovernment-related issuers principally
engaged in any one industry, as described in the Fund's
Prospectus or Statement of Additional Information, as amended
from time to time; and
(10) not to borrow money except for borrowings from banks for
extraordinary and emergency purposes, such as permitting
redemption requests to be honored, and then not in an amount
in excess of 25% of the value of its total assets, and except
insofar as reverse repurchase agreements may be regarded as
borrowing. As a matter of current operating, but not
fundamental, policy, the Fund will not purchase additional
portfolio securities at any time when it has outstanding money
borrowings in excess of 5% of the Fund's total assets (taken
at current value).
The following investment restrictions may be changed by a vote of a
majority of the Trustees. Under these restrictions, it is the Fund's policy:
(1) not to purchase any security or enter into a repurchase
agreement if as a result more than 15% of its net assets would
be invested in securities that are illiquid (including
repurchase agreements not entitling the holder to payment of
principal and interest within seven days);
(2) not to invest more than 5% of its total assets in securities
of private companies including predecessors with less than
three years' continuous operations except (a) securities
guaranteed or backed by an affiliate of the issuer with three
years of continuous operations, (b) securities issued or
guaranteed as to principal or interest by the U.S. Government,
or its agencies or instrumentalities, or a mixed-ownership
Government corporation, (c) securities of issuers with debt
3
<PAGE>
securities rated at least "BBB" by Standard & Poor's
Corporation or "Baa" by Moody's Investor's Service, Inc. (or
their equivalent by any other nationally recognized
statistical rating organization) or securities of issuers
considered by the Investment Manager to be equivalent, (d)
securities issued by a holding company with at least 50% of
its assets invested in companies with three years of
continuous operations including predecessors, and (e)
securities which generate income which is exempt from local,
state or federal taxes; provided that the Fund may invest up
to 15% in such issuers so long as such investments plus
investments in restricted securities (other than those which
are eligible for resale under Rule 144A, Regulation S or other
exemptive provisions) do not exceed 15% of the Fund's total
assets;
(3) not to engage in transactions in options except in connection
with options on securities, securities indices and
commodities, and options on futures on securities, securities
indices and commodities;
(4) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (as a matter of current operating, but not
fundamental policy, the Fund will not make short sales or
maintain a short position unless not more than 5% of the
Fund's net assets (taken at current value) is held as
collateral for such sales at any time);
(5) not to hypothecate, mortgage or pledge any of its assets
except as may be necessary in connection with permitted
borrowings (for the purpose of this restriction, futures and
options, and related escrow or custodian receipts or letters,
margin or safekeeping accounts, or similar arrangements used
in the industry in connection with the trading of futures and
options, are not deemed to involve a hypothecation, mortgage
or pledge of assets);
(6) not to purchase a security issued by another investment
company including any real estate investment trust, any issuer
of collateralized mortgage obligations or any unit investment
trust to the extent such entity is deemed an "investment
company" for purposes of the Investment Company Act of 1940
if, immediately after such purchase, the Fund would own, in
the aggregate, (i) more than 3% of the total outstanding
voting stock of such other investment company; (ii) securities
issued by such other investment company having an aggregate
value in excess of 5% of the value of the Fund's total assets;
or (iii) securities issued by such other investment company
and all other investment companies (other than treasury stock
of the Fund) having an aggregate value in excess of 10% of the
value of the Fund's total assets; provided, however, that the
Fund may purchase investment company securities without limit
for the purpose of completing a merger, consolidation or other
acquisition of assets;
4
<PAGE>
(7) not to purchase or retain any security of an issuer if, to the
knowledge of the Trust, those of its officers and Trustees and
officers and directors of its investment advisers who
individually own more than 1/2 of 1% of the securities of such
issuer, when combined, own more than 5% of the securities of
such issuer taken at market;
(8) not to invest in warrants more than 5% of the value of its
total assets and not to invest in warrants that are not
publicly traded more than 2% of its total assets, in each
case, taken at the lower of cost or market value (warrants
initially attached to securities and acquired by the Fund upon
original issuance thereof shall be deemed to be without
value);
(9) not to invest in companies for the purpose of exercising
control over their management, although the Fund may from time
to time present its views on various matters to the management
of issuers in which it holds investments; and
ADDITIONAL INFORMATION CONCERNING
INVESTMENT SECTORS
Certain Fixed Income Securities
Fixed income securities acquired by the Fund may include the following:
U.S. Government and Related Securities. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
[bullet] direct obligations of the U.S. Treasury, i.e., Treasury bills,
notes, certificates and bonds;
[bullet] obligations of U.S. Government agencies or instrumentalities
such as the Federal Home Loan Banks, the Federal Farm Credit
Banks, the Federal National Mortgage Association, the
Government National Mortgage Association and the Federal Home
Loan Mortgage Corporation; and
[bullet] obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a
variety of ways by the U.S. Government, its agencies or instrumentalities. Some
of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full
5
<PAGE>
faith and credit of the U.S. Treasury. Other obligations, such as those of the
Federal National Mortgage Association, are backed by the discretionary authority
of the U.S. Government to purchase certain obligations of agencies or
instrumentalities. Obligations such as those of the Federal Home Loan Banks, the
Federal Farm Credit Banks, the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation are backed by the credit of the agency or
instrumentality issuing the obligations. Certain obligations of Resolution
Funding Corporation, a mixed-ownership Government corporation, are backed with
respect to interest payments by the U.S. Treasury, and with respect to principal
payments by U.S. Treasury obligations held in a segregated account with a
Federal Reserve Bank. Except for certain mortgage-related securities, the Fund
will only invest in obligations issued by mixed-ownership Government
corporations where such securities are guaranteed as to payment of principal or
interest by the U.S. Government or a U.S. Government agency or instrumentality,
and any unguaranteed principal or interest is otherwise supported by U.S.
Government obligations held in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and may
not be deemed U.S. Government securities.
The Fund may also invest from time to time in collective investment
vehicles, the assets of which consist principally of U.S. Government securities
or other assets substantially collateralized or supported by such securities,
such as Government trust certificates.
Risk Factors of Lower Quality Fixed Income Securities
- -----------------------------------------------------
In addition to those risks set forth in the Prospectus, lower quality
securities involve risks (i) that the limited liquidity and secondary market
support for such securities will heighten the effect of adverse publicity and
investor perceptions and make selection and valuation of portfolio securities
more subjective and dependent upon the Investment Manager's credit analysis;
(ii) of substantial market price volatility and/or the potential for the
insolvency
6
<PAGE>
of issuers during periods of changing interest rates and economic difficulty,
particularly with respect to securities that do not pay interest currently in
cash; (iii) of subordination to the prior claims of banks and other senior
lenders; (iv) of the possibility that earnings of an issuer may be insufficient
to meet its debt service; and (v) of realization of taxable income for
shareholders without the corresponding receipt of cash in connection with
investments in "zero coupon" or "pay-in-kind" securities. Growth in the market
for this type of security has paralleled a general expansion in certain sectors
in the U.S. economy, and the effects of adverse economic changes (including a
recession) are unclear.
In the event the rating of a security is downgraded, the Investment
Manager will determine whether the security should be retained or sold depending
on an assessment of all facts and circumstances at that time.
Cash & Cash Equivalent Investments
- ----------------------------------
Cash & Cash Equivalent Investments may include the following:
Bank Money Investments. Bank money investments include but are not
limited to certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are generally short-term (i.e., less than one year),
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). A banker's acceptance may be
obtained from a domestic or foreign bank including a U.S. branch or agency of a
foreign bank. The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. Time deposits are nonnegotiable deposits
for a fixed period of time at a stated interest rate. The Fund will not invest
in any such bank money investment unless the investment is issued by a U.S. bank
that is a member of the Federal Deposit Insurance Corporation ("FDIC"),
including any foreign branch thereof, a U.S. branch or agency of a foreign bank,
a foreign branch of a foreign bank, or a savings bank or savings and loan
association that is a member of the FDIC and which at the date of investment has
capital, surplus and undivided profits (as of the date of its most recently
published financial statements) in excess of $50 million. The Fund will not
invest in time deposits maturing in more than seven days and will not invest
more than 10% of its total assets in time deposits maturing in two to seven
days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such
7
<PAGE>
branches elect FDIC insurance. Unlike U.S. branches of foreign banks, U.S.
agencies of foreign banks may not accept deposits and thus are not eligible for
FDIC insurance. Both branches and agencies can maintain credit balances, which
are funds received by the office incidental to or arising out of the exercise of
their banking powers and can exercise other commercial functions, such as
lending activities.
Short-Term Corporate Debt Instruments. Short-term corporate debt
instruments include commercial paper to finance short-term credit needs (i.e.,
short-term, unsecured promissory notes) issued by corporations including but not
limited to (a) domestic or foreign bank holding companies or (b) their
subsidiaries or affiliates where the debt instrument is guaranteed by the bank
holding company or an affiliated bank or where the bank holding company or the
affiliated bank is unconditionally liable for the debt instrument. Commercial
paper is usually sold on a discounted basis and has a maturity at the time of
issuance not exceeding nine months.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated within the "A" major rating category by Standard & Poor's
Corporation ("S&P") or within the "Prime" category by Moody's Investors Service
Inc. ("Moody's"), or, if not rated, issued by companies having an outstanding
long-term unsecured debt issue rated at least within the "A" major rating
category by S&P or by Moody's. The money market investments in corporate bonds
and debentures (which must have maturities at the date of settlement of one year
or less) must be rated at the time of purchase at least within the "A" major
rating category by S&P or within the "Prime" category by Moody's.
Commercial paper rated within the "A" major rating category (highest
quality) by S&P is issued by entities which have liquidity ratios which are
adequate to meet cash requirements. Long-term senior debt is rated A or better,
although in some cases credits within the "BBB" category may be allowed. The
issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong position within the industry. The reliability and quality of
management are unquestioned. The relative strength or weakness of the above
factors determines whether the issuer's commercial paper is rated A-1, A-2 or
A-3. (Those A-1 issues determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating category
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: evaluation of the management of the issuer; economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial management of obligations which may be present or may arise as
a result of public interest questions and preparations to meet such obligations.
These factors are all considered in determining whether the commercial paper is
rated Prime-1, Prime-2 or Prime-3.
8
<PAGE>
In the event applicable rating agencies lower the ratings of debt
instruments held by the Fund, resulting in a material decline in the overall
quality of the Fund's portfolio, the situation will be reviewed and necessary
action, if any, will be taken, including changes in the composition of the
portfolio.
Cash & Cash Equivalents may also include securities of the U.S.
Government and its agencies and instrumentalities and custodial receipts in
respect thereof as described above under "Certain Fixed Income Securities" from
time to time.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Among other investments described below, the Fund may buy and sell
domestic and foreign options on securities, securities indices and precious
metals and other commodities, futures contracts, and options on futures
contracts, and may enter into closing transactions with respect to each of the
foregoing under circumstances in which such techniques are expected by State
Street Research & Management Company (the "Investment Manager") to aid in
achieving the investment objective of the Fund.
The Fund on occasion may also purchase instruments with characteristics
of both futures and securities (e.g., debt instruments with interest and
principal payments determined by reference to the value of a commodity or a
currency at a future time) and which, therefore, possess the risks of both
futures and securities investments.
Futures Contracts
- -----------------
Futures contracts are publicly traded contracts to buy or sell certain
underlying assets, such as precious metals or other commodities, securities or
an index of securities, at a future time at a specified price. A contract to buy
establishes a "long" position while a contract to sell establishes a "short"
position.
The purchase of a futures contract on precious metals and other
commodities, securities or an index of securities normally enables a buyer to
participate in the market movement of the underlying commodity, security or
index after paying a transaction charge and posting margin in an amount equal to
a small percentage of the value of the underlying commodity, security or index.
The Fund will initially be required to deposit with the Trust's custodian or the
broker effecting the transaction an amount of "initial margin" in cash or U.S.
Treasury obligations.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as
9
<PAGE>
"marking to market." For example, when the Fund has taken a long position in a
futures contract and the value of the underlying asset has risen, that position
will have increased in value and the Fund will receive from the broker a
maintenance margin payment equal to the increase in value of the underlying
asset. Conversely, when the Fund has taken a long position in a futures contract
and the value of the underlying asset has declined, the position would be less
valuable, and the Fund would be required to make a maintenance margin payment to
the broker.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will terminate
its position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of securities,
such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus protect the Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and thus to participate
in an expected rise in market value of securities or commodities which the Fund
intends to purchase. In transactions establishing a long position in a futures
contract, permissible assets equal to the face value of the futures contract
will be identified by the Fund to the Trust's custodian for maintenance in a
separate account to insure that the use of such futures contracts is
unleveraged. Similarly, a representative portfolio of securities having a value
equal to the aggregate face value of the futures contract will be identified
with respect to each short position. The Fund will employ any other appropriate
method of cover which is consistent with applicable regulatory and exchange
requirements.
Options on Securities and Commodities
- -------------------------------------
The Fund may use options on equity or fixed income securities and
commodities to implement its investment strategy. A call option on a security,
for example, gives the purchaser of the option the right to buy, and the writer
the obligation to sell, the underlying asset at the exercise price during the
option period. Conversely, a put option on a security gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying asset at the
exercise price during the option period.
Purchased options have defined risk, i.e., the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset.
Written options have varying degrees of risk. An uncovered written call
option theoretically carries unlimited risk, as the market price of the
underlying asset could rise far above the exercise price before its expiration.
This risk is tempered when the call option is covered, i.e., when the option
writer owns the underlying asset. In this case, the writer runs
10
<PAGE>
the risk of the lost opportunity to participate in the appreciation in value of
the asset rather than the risk of an out-of-pocket loss. A written put option
has defined risk, i.e., the difference between the agreed upon price that the
Fund must pay to the buyer upon exercise of the put and the value, which could
be zero, of the asset at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
his obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Options on Securities Indices
- -----------------------------
The Fund may engage in transactions in call and put options on
securities indices. For example, the Fund may purchase put options on indices of
equity or fixed income securities in anticipation of or during a market decline
to attempt to offset the decrease in market value of its securities that might
otherwise result.
Put options on indices of securities are similar to put options on the
securities themselves except that the delivery requirements are different.
Instead of giving the right to make delivery of a security at a specified price,
a put option on an index of securities gives the holder the right to receive an
amount of cash upon exercise of the option if the value of the underlying index
has fallen below the exercise price. The amount of cash received will be equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple. As with options
on equity or fixed income securities, futures contracts or commodities, the Fund
may offset its position in index option prior to expiration by entering into a
closing transaction on an exchange or it may let the option expire unexercised.
A securities index assigns relative values to the securities included
in the index and the index options are based on a broad market index such as the
Standard & Poor's 500 Stock Index or the New York Stock Exchange Composite
Index, or a narrower market index such as the Standard & Poor's 100 Stock Index.
Securities indices are also based on industry or market segments such as the
American Stock Exchange Oil and Gas Index or the Computer and Business Equipment
Index.
Although there are at present few available options on indices of fixed
income securities, other than tax-exempt securities, or futures and related
options based on such indices, such instruments may become available in the
future. In connection with the use of such options, the Fund may cover its
position by identifying a representative portfolio of securities having a value
equal to the aggregate face value of the option position taken. However, the
Fund may employ any appropriate method to cover its positions that is consistent
with applicable regulatory and exchange requirements.
11
<PAGE>
Options on Futures Contracts
- ----------------------------
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Options Strategy
- ----------------
A basic option strategy for protecting the Fund against a decline in
securities prices could involve (a) the purchase of a put -- thus "locking in"
the selling price of the underlying securities or securities indices -- or (b)
the writing of a call on securities or securities indices held by the Fund --
thereby generating income (the premium paid by the buyer) by giving the holder
of such call the option to buy the underlying asset at a fixed price. The
premium will offset, in whole or in part, a decline in portfolio value; however,
if prices of the relevant securities or securities indices rose instead of
falling, the call might be exercised, thereby resulting in a potential loss of
appreciation in the underlying securities or securities indices.
A basic option strategy when a rise in securities prices is anticipated
is the purchase of a call -- thus "locking in" the purchase price of the
underlying security or other asset. In transactions involving the purchase of
call options by the Fund, money market instruments equal to the aggregate
exercise price of the options will be identified by the Fund to the Trust's
custodian to insure that the use of such investments is unleveraged.
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security or other asset and
concurrently write a call option against that security or other asset. If the
call option is exercised in such a transaction, the Fund's maximum gain will be
the premium received by it for writing the option, adjusted upward or downward
by the difference between the Fund's purchase price of the security or other
asset and the exercise price of the option. If the option is not exercised and
the price of the underlying security or other asset declines, the amount of such
decline will be offset in part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security or other asset rises or otherwise is above the exercise
price, the put option will expire worthless and the Fund's gain will be limited
to the premium received. If the market price of the underlying security or other
asset declines or otherwise is below the exercise price, the Fund's return will
be the premium received from writing the put option minus the amount by which
the market price of the security or other asset is below the exercise price.
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<PAGE>
Limitations and Risks of Options and Futures Activity
- -----------------------------------------------------
The Fund will engage in transactions in futures contracts or options as
a hedge against changes resulting from market conditions which produce changes
in the values of its securities or the securities which it intends to purchase
(e.g., to replace portfolio securities which will mature in the near future)
and, subject to the limitations described below, to enhance return. The Fund
will not purchase any futures contract or purchase any call option if,
immediately thereafter, more than one-third of the Fund's net assets would be
represented by long futures contracts or call options. In addition, the Fund may
not establish a position in a commodity futures contract or purchase or sell a
commodity option contract for other than bona fide hedging purposes if
immediately thereafter the sum of the amount of initial margin deposits and
premiums required to establish such positions for such nonhedging purposes would
exceed 5% of the market value of the Fund's net assets.
Although effective hedging can generally capture the bulk of a desired
risk adjustment, no hedge is completely effective. Moreover, the use of options,
futures and options on futures may involve risks not associated with other types
of investments which the Fund intends to purchase. Most of the hedging
anticipated for the Fund will be against the risk characteristics of its
portfolio and not against the risk characteristics of specific investments. The
Fund's ability to hedge effectively through transactions in futures or options
depends on the degree to which price movements in its holdings correlate with
price movements of the futures and options. The prices of the assets being
hedged may not move in the same amount as the hedging instrument, which would
result in an ineffective hedge and a loss to the Fund.
Some positions in futures and options may be closed out only on an
exchange which provides a secondary market therefor. There can be no assurance
that a liquid secondary market will exist for any particular futures contract or
option at any specific time. Thus, it may not be possible to close such an
option or futures position prior to maturity. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability
effectively to hedge its securities and might, in some cases, require the Fund
to deposit cash to meet applicable margin requirements. The Fund will enter into
an option or futures position only if it appears to be a liquid investment.
The Fund may engage in transactions in unlisted options. A position in
an unlisted option may be closed out only with the other party to the
transaction. The lack of an established secondary market may lead the Fund to
encounter more difficulties in effecting closing purchase or sale transactions
with respect to unlisted options than in the case of listed options. If the Fund
as a covered call option writer is unable to effect a closing purchase
transaction, it will not be able to sell the underlying assets until the option
expires. When the Fund purchases or writes an option listed on a domestic
securities exchange, it is afforded the protections offered by the Options
Clearing Corporation. If any member of the Options Clearing Corporation fails to
perform any of its obligations in a transaction involving the purchase or sale
of options, then the Options Clearing corporation will perform the obligations
of that member. The Options Clearing Corporation also maintains Clearing Funds
to ensure
13
<PAGE>
that it can do so. This protection is not available with respect to transactions
in unlisted options. The Fund, however, will enter into unlisted options
transactions only with persons which the Investment Manager believes to be of
high credit standing.
Transactions in Precious Metals
- -------------------------------
The Fund will invest in precious metals only through banks (both United
States and foreign), brokers or dealers who are members of (or affiliated with
members of) a regulated North American commodities, commodities futures or
securities exchange or a foreign commodities, commodities futures or securities
exchange, or other institutions that meet certain standards of creditworthiness
established by the Trustees from time to time. Bullion and coins do not usually
generate income, offering only the potential of capital appreciation, and, in
these transactions, the Fund may encounter higher custody and transaction costs
than those normally associated with the ownership of securities, as well as
insurance and shipping costs. In addition, investments in bullion and coins
could adversely affect the Fund's ability to qualify as a regulated investment
company under the Internal Revenue Code. See "Certain Tax Matters" herein.
Repurchase Agreements
- ---------------------
The Fund may enter into repurchase agreements. Repurchase agreements
occur when the Fund acquires a security and the seller, which may be either (i)
a primary dealer in U.S. Government securities or (ii) an FDIC-insured bank
having gross assets in excess of $500 million, simultaneously commits to
repurchase it at an agreed-upon price on an agreed-upon date within a specified
number of days (usually not more than seven) from the date of purchase. The
repurchase price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the acquired
security. The Fund will only enter into repurchase agreements involving U.S.
Government securities. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
Repurchase agreements will be limited to 30% of the Fund's total assets, except
that repurchase agreements extending for more than seven days when combined with
any other illiquid assets held by the Fund will be limited to 15% of the Fund's
total assets.
Reverse Repurchase Agreements
- -----------------------------
The Fund may enter into reverse repurchase agreements. In a reverse
repurchase agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker or dealer, in return for
a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed-upon rate.
The ability to use reverse repurchase agreements may enable, but does not ensure
the ability of, the Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous.
14
<PAGE>
When effecting reverse repurchase agreements, assets of the Fund in a
dollar amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
Short Sales Against the Box
- ---------------------------
The Fund may effect short sales, but only if such transactions are
short sale transactions known as short sales "against the box." A short sale is
a transaction in which the Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where the Fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversion, exercise or exchange of
options with respect to securities held in its portfolio. The effect of selling
a security short against the box is to insulate that security against any future
gain or loss.
When-Issued Securities
- ----------------------
The Fund may purchase "when-issued" securities, which are traded on a
price or yield basis prior to actual issuance. Such purchases will be made only
to achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to up to months, or over a year
or more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs in the U.S. Treasury
market when dealers begin to trade a new issue of bonds or notes shortly after a
Treasury financing is announced, but prior to the actual sale of the securities.
Similarly, securities to be created by a merger of companies may also be traded
prior to the actual consummation of the merger. Such transactions may involve a
risk of loss if the value of the securities falls below the price committed to
prior to actual issuance. The Trust's custodian will establish a segregated
account when the Fund purchases securities on a when-issued basis consisting of
cash or liquid securities equal to the amount of the when-issued commitments.
Securities transactions involving delayed deliveries or forward commitments are
frequently characterized as when-issued transactions and are similarly treated
by the Fund.
Restricted Securities
- ---------------------
Currently, the Fund's policy is to not make an investment in Rule 144A
securities if as a result more than 25% of its total assets are invested in such
securities. Securities may be resold pursuant to Rule 144A under certain
circumstances only to qualified institutional buyers as defined in the rule, and
the markets and trading practices for such securities are still developing;
depending on the development of such markets, such Rule 144A securities may be
deemed to be liquid as determined by or in accordance with methods adopted by
the Trustees. Under such methods the following factors are considered, among
others: the frequency of trades and quotes for the security, the number of
dealers and potential purchasers in the market, marketmaking activity, and the
nature of the security and marketplace trades. Investments in Rule 144A
securities could have the effect of increasing the level of the Fund's
15
<PAGE>
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the Fund may be
adversely impacted by the possible illiquidity and subjective valuation of such
securities in the absence of a market for them.
Also, under current policy, the Fund will not invest in other
restricted securities if as a result more than 10% of its total assets are
invested in such other restricted securities. Restricted securities which are
not resalable under Rule 144A can be subject to risks of illiquidity and
subjective valuations to a greater degree than Rule 144A securities.
Swap Arrangements
- -----------------
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap, the Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap, the Fund would agree with the other party to exchange cash flows based on
the relative differences in values of a notional amount of two (or more)
currencies; in an index swap, the Fund would agree to exchange cash flows on a
notional amount based on changes in the values of the selected indices. Purchase
of a cap entitles the purchaser to receive payments from the seller on a
notional amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an
agreed-upon interest rate or amount. A collar combines a cap and a floor.
Most swaps entered into by the Fund will be on a net basis; for
example, in an interest rate swap, amounts generated by application of the fixed
rate and the floating rate to the notional principal amount would first offset
one another, with the Fund either receiving or paying the difference between
such amounts. In order to be in a position to meet any obligations resulting
from swaps, the Fund will set up a segregated custodial account to hold
appropriate liquid assets, including cash; for swaps entered into on a net
basis, assets will be segregated having a daily net asset value equal to any
excess of the Fund's accrued obligations over the accrued obligations of the
other party, while for swaps on other than a net basis assets will be segregated
having a value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to
preserve the return on an investment or on a part of the Fund's portfolio.
However, the Fund may enter into such arrangements for income purposes to the
extent permitted by the CFTC for entities which are not commodity pool
operators, such as the Fund. In entering a swap arrangement, the Fund is
dependent upon the creditworthiness and good faith for the counterparty. The
Fund attempts to reduce the risks of nonperformance by the counterparty by
dealing only with the established, reputable institutions. The swap market is
still relatively new and emerging; positions in swap arrangements may become
illiquid to the extent that nonstandard arrangements with one counterparty are
not readily transferable to another counterparty of if a
16
<PAGE>
market for the transfer of swap positions does not develop. The use of interest
rate swaps is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. If the Investment Manager is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment performance
of the Fund would diminish compared with what it would have been if these
investment techniques were not used. Moreover, even if the Investment Manager is
correct in its forecasts, there is a risk that the swap position may correlate
imperfectly with the price of the asset or liability being hedged.
Industry Classifications
- ------------------------
In determining how much of the portfolio is invested in a given private
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing may be classified according to
the industries of their parent or sponsor companies, or industries that
otherwise most affect such financing companies. Issuers of asset-backed pools
will be classified as separate industries based on the nature of the underlying
assets, such as mortgages, credit card receivables includes private pools of
nongovernment backed mortgages.
<TABLE>
<CAPTION>
Basic Industries Consumer Staple Science & Technology
- ---------------- --------------- --------------------
<S> <C> <C>
Chemical Business Service Aerospace
Diversified Container Computer Software & Service
Electrical Equipment Drug Electronic Components
Forest Products Food & Beverage Electronic Equipment
Machinery Hospital Supply Office Equipment
Metal & Mining Personal Care
Railroad Printing & Publishing
Truckers Tobacco
Utility Energy Consumer Cyclical
- ------- ------ -----------------
Electric Oil Refining & Marketing Airline
Gas Oil Production Automotive
Gas Transmission Oil Service Building
Telephone Hotel & Restaurant
Photography
Other Finance Recreation
- ----- ------- Retail Trade
Trust Certificates-- Bank Textile & Apparel
Government Related Lending Financial Service
Asset-backed--Mortgages Insurance
Asset-backed--Credit
Card Receivables
</TABLE>
17
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their addresses, and
their principal occupations and positions with certain affiliates of the
Investment Manager are set forth below.
*+Peter C. Bennett, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 58. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President of State
Street Research & Management Company. Mr. Bennett's other principal business
affiliation is Director, State Street Research Investment Services, Inc.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 59. He is
retired and was formerly Senior Vice President for Finance and Operations and
Treasurer of The Pennsylvania State University.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville, NC
28803, serves as Trustee of the Trust. He is 69. He is engaged principally in
private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
*+Bartlett R. Geer, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 42. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 56. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as portfolio manager for State Street Research &
Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 70. He is engaged principally in private
investments and civic affairs, and is an author of business history. Previously,
he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Trustee of the Trust. He is 70. His principal occupation during
the past five years has been Partner, Saltonstall & Co., a private investment
firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 46. His principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer and Director of State Street
Research & Management Company. During the
- ---------------
* or + See footnotes on page 20.
18
<PAGE>
past five years he has also served as Executive Vice President and Chief
Financial Officer of New England Investment Companies and as Senior Vice
President and Vice President of New England Mutual Life Insurance Company. Mr.
Maus's other principal business affiliations include Executive Vice President,
Treasurer, Chief Financial Officer and Director of State Street Research
Investment Services, Inc.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111
serves as Secretary and General Counsel of the Trust. He is 41. His principal
occupation is Executive Vice President, General Counsel and Secretary of State
Street Research & Management Company. During the past five years he has also
served as Senior Vice President of State Street Research & Management Company
and as Senior Vice President, General Counsel and Assistant Secretary of The
Boston Company, Inc., Boston Safe Deposit and Trust Company and The Boston
Company Advisors, Inc. Mr. McNamara's other principal business affiliations
include Senior Vice President, General Counsel and Clerk of State Street
Research Investment Services, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 65. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173 serves as
Trustee of the Trust. He is 73. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 59. His principal occupations during the past
five years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
59. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+Thomas A. Shively, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 43. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President of State
Street Research & Management Company. Mr. Shively's other principal business
affiliation is Director of State Street Research Investment Services, Inc.
- ---------------
* or + See footnotes on page 20.
19
<PAGE>
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. He is 54. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and as Chief Investment
Officer and Director of New England Mutual Life Insurance Company. Mr. Verni's
other principal business affiliations include Chairman of the Board and Director
of State Street Research Investment Services, Inc., and until February, 1996,
prior positions as President and Chief Executive Officer of that Company.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 72. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
- ---------------
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations
or past affiliations with the Fund's investment adviser.
+ Serves as a Trustee and/or officer of one or more of the following
investment companies, each of which has an advisory relationship with
the Investment Manager or its affiliates: State Street Research Equity
Trust, State Street Research Financial Trust, State Street Research
Income Trust, State Street Research Money Market Trust, State Street
Research Tax-Exempt Trust, State Street Research Capital Trust, State
Street Research Exchange Trust, State Street Research Growth Trust,
State Street Research Master Investment Trust, State Street Research
Securities Trust, State Street Research Portfolios, Inc.
and Metropolitan Series Fund, Inc.
20
<PAGE>
As of May 31, 1997, the following persons or entities were the record
and/or beneficial owners of the approximate amounts of each class of shares of
the Fund as set forth beside their names:
Shareholder %
----------- ----
Class C Chase Manhattan Bank 91.1
Class D Merrill Lynch 26.0
The full name and address of each of the above persons or entities are
as follows:
Chase Manhattan Bank, N.A. (a)(b)
770 Broadway
New York, New York 10003
Merrill Lynch, Pierce, Fenner & Smith, Inc. (b)
One Liberty Plaza
165 Broadway
New York, New York 10080
- -----------------------
(a) Chase Manhattan Bank holds such shares as trustee under certain
employee benefit plans serviced by Metropolitan Life Insurance Company.
(b) The Fund believes that such entity does not have beneficial ownership
of such shares.
As of May 31, 1997, the Trustees and principal officers of the Fund as
a group owned approximately 1.9% of the Fund's outstanding Class A shares, and
owned no shares of the Fund's outstanding Class B, Class C or Class D shares.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
21
<PAGE>
The Trustees were compensated as follows:
- --------------------------------------------------------------------------------
Total
Compensation
Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Trust(a) to Trustees(b)
- --------------------------------------------------------------------------------
Steve A. Garban $ 930 $ 34,750
Malcolm T. Hopkins $ 930 $ 34,750
Edward M. Lamont $ 8,000 $ 59,375
Robert A. Lawrence $ 8,000 $ 92,125
Dean O. Morton $ 8,600 $ 96,125
Thomas L. Phillips $ 8,200 $ 59,375
Toby Rosenblatt $ 8,000 $ 59,375
Michael S. Scott Morton $ 9,000 $ 100,325
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $ 8,600 $ 63,375
(a) For the Fund's fiscal year ended March 31, 1997. Includes compensation
from multiple series of the Trust for the fiscal year ended March 31,
1997. See "Distribution of Shares" for a listing of series.
(b) Includes compensation on behalf of all series of 12 investment
companies for which the Investment Manager served directly or
indirectly as investment adviser or for which the Investment Manager
served as sub-investment adviser, and series of State Street Research
Portfolios, Inc., for which State Street Research Investment Services,
Inc. served as distributor. "Total Compensation from Trust and Complex"
is for the 12 months ended December 31, 1996. The Trust does not
provide any pension or retirement benefits for the Trustees.
22
<PAGE>
INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Advisory
Agreement provides that the Investment Manager shall furnish the Fund with an
investment program, office facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of the
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly owned subsidiary of Metropolitan
Life Insurance Company.
The advisory fee payable monthly by the Fund to the Investment Manager
is computed as a percentage of the average of the value of the net assets of the
Fund as determined at the close of the New York Stock Exchange (the "NYSE") on
each day the NYSE is open for trading, at the annual rate of 0.75% of the net
assets of the Fund. The Distributor and its affiliates have from time to time
and in varying amounts voluntarily assumed some portion of fees or expenses
relating to the Fund. For the fiscal years ended March 31, 1995, 1996 and 1997
the investment advisory fee for the Fund was $2,564,590, $3,051,182 and
$3,692,033, respectively. For the same periods, the voluntary reduction of fees
or assumption of expenses amounted to $1,062,971, $715,739 and $475,396,
respectively.
The Advisory Agreement provides that it shall continue in effect with
respect to the Fund from year to year as long as it is approved at least
annually both (i) by a vote of a majority of the outstanding voting securities
of the Fund (as defined in the 1940 Act) or by the Trustees of the Trust, and
(ii) in either event by a vote of a majority of the Trustees who are not parties
to the Advisory Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated on 60 days' written notice by either party
and will terminate automatically in the event of its assignment, as defined
under the 1940 Act and regulations thereunder. Such regulations provide that a
transaction which does not result in a change of actual control or management of
an adviser is not deemed an assignment.
Under a Funds Administration Agreement between the Investment Manager
and the Distributor, the Distributor provides assistance to the Investment
Manager in performing certain fund administration services for the Trust, such
as assistance in determining the daily net asset value of shares of series of
the Trust and in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the
Trust and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Fund, and is entitled to
reimbursements of its costs for providing such services. Under certain
arrangements for Metropolitan to provide subadministration services,
Metropolitan may receive a fee for the maintenance of certain share ownership
records for participants in
23
<PAGE>
sponsored arrangements, such as employee benefit plans, through or under which
Fund shares may be purchased.
Under the Code of Ethics of the Investment Manager, its employees in
Boston and selected other persons elsewhere involved in investment management
operations, are conducted, are only permitted to engage in personal securities
transactions in accordance with certain conditions relating to such person's
position, the identity of the security, the timing of the transaction, and
similar factors. Such employees must report their personal securities
transactions quarterly and supply broker confirmations of such transactions to
the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by the Distributor. The Fund offers
four classes of shares which may be purchased at the next determined net asset
value per share plus, in the case of all classes except Class C shares, a sales
charge which, at the election of the investor, may be imposed (i) at the time of
purchase (the Class A shares) or (ii) on a deferred basis (the Class B and Class
D shares). General information on how to buy shares of the Fund, as well as
sales charges involved, are set forth under "Purchase of Shares" in the
Prospectus. The following supplements that information.
Public Offering Price - The public offering price for each class of
shares of the Fund is based on their net asset value determined as of the close
of the NYSE on the day the purchase order is received by State Street Research
Shareholder Services provided that the order is received prior to the close of
the NYSE on that day; otherwise the net asset value used is that determined as
of the close of the NYSE on the next day it is open for unrestricted trading.
When a purchase order is placed through a dealer, that dealer is responsible for
transmitting the order promptly to State Street Research Shareholder Services in
order to permit the investor to obtain the current price. Any loss suffered by
an investor which results from a dealer's failure to transmit an order promptly
is a matter for settlement between the investor and the dealer.
Reduced Sales Charges - For purposes of determining whether a purchase
of Class A shares qualifies for reduced sales charges, the term "person"
includes: (i) an individual, or an individual combining with his or her spouse
and their children and purchasing for his, her or their own account; (ii) a
"company" as defined in Section 2(a)(8) of the 1940 Act; (iii) a trustee or
other fiduciary purchasing for a single trust estate or single fiduciary account
(including a pension, profit sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code);
(iv) a tax-exempt organization under Section 501(c)(3) or (13) of the Internal
Revenue Code; and (v) an employee benefit plan of a single employer or of
affiliated employers.
Investors may purchase Class A shares of the Fund at reduced sales
charges by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or
24
<PAGE>
any combination of Class A shares of "Eligible Funds" as designated by the
Distributor within a 13-month period. The sales charge applicable to each
purchase made pursuant to a Letter of Intent will be that which would apply if
the total dollar amount set forth in the Letter of Intent were being bought in a
single transaction. Purchases made within a 90-day period prior to the execution
of a Letter of Intent may be included therein; in such case the date of the
earliest of such purchases marks the commencement of the 13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Fund and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class D shares may also be included in the
combination under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrow shares will be released when the Letter of Intent is completed
or, if it is not completed, when the balance of the higher sales charge is, upon
notice, remitted by the investor. All dividends and capital gains distributions
with respect to the escrowed shares will be credited to the investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to the Right of Accumulation.
The applicable sales charge under this right is determined on the amount arrived
at by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C, and Class D shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
Class C Shares - Class C shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants (currently a minimum of 100 eligible
employees), service arrangements, or similar factors; insurance companies;
investment companies; endowment funds of nonprofit organizations with
substantial minimum assets (currently a minimum of $10,000,000); and other
similar institutional investors.
Reorganizations - In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined in the 1940
25
<PAGE>
Act, the Fund may issue its shares at net asset value (or more) to such entities
or to their security holders.
Redemptions - The Fund reserves the right to pay redemptions in kind
with portfolio securities in lieu of cash. In accordance with its election
pursuant to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of
redemption proceeds paid in cash. Although it has no present intention to do so,
the Fund may, under unusual circumstances, limit redemptions in cash with
respect to each shareholder during any ninety-day period to the lesser of (i)
$250,000, or (ii) 1% of the net asset value of the Fund at the beginning of such
period. In connection with any redemptions paid in kind with portfolio
securities, brokerage and other costs may be incurred by the redeeming
shareholder in the sale of the securities received.
NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily
as of the close of the NYSE, ordinarily 4 P.M. New York City time, Monday
through Friday, on each day during which the NYSE is open for trading. The NYSE
is currently closed on New Year's Day, Presidents Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of the Fund is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets minus all liabilities by the total number of outstanding shares of the
Fund at such time. Any expenses, except for extraordinary or nonrecurring
expenses, borne by the Fund, including the investment management fee payable to
the Investment Manager, are accrued daily.
In determining the values of portfolio assets as provided below, the
Trustees may utilize one or more pricing services, in lieu of market quotations
for certain securities which are not readily available on a daily basis. Such
services may provide prices determined as of times prior to the close of the New
York Stock Exchange.
In general, securities are valued as follows. Securities which are
listed or traded on the New York or American Stock Exchange are valued at the
price of the last quoted sale on the respective exchange for that day.
Securities which are listed or traded on a national securities exchange or
exchanges, but not on the New York or American Stock Exchange, are valued at the
price of the last quoted sale on the exchange for that day prior to the close of
the NYSE. Securities not listed on any national securities exchange which are
traded "over the counter" and for which quotations are available on the National
Association of Securities Dealers' NASDAQ System, or other system, are valued at
the closing price supplied through such system for that day at the close of the
NYSE. Other securities are, in general, valued at the mean of the bid and asked
quotations last quoted prior to the close of the NYSE if there are market
quotations readily available, or in the absence of such market quotations, then
at the fair value thereof as determined by or under authority of the Trustees of
the Trust with the use
26
<PAGE>
of such pricing services as may be deemed appropriate or methodologies approved
by the Trustees.
Short-term debt instruments issued with a maturity of one year or less
which have a remaining maturity of 60 days or less are valued using the
amortized cost method, provided that during any period in which more than 25% of
the Fund's total assets is invested in short-term debt securities the current
market value of such securities will be used in calculating net asset value per
share in lieu of the amortized cost method. The amortized cost method is used
when the value obtained reflects fair value. Under the amortized cost method of
valuation, the security is initially valued at cost on the date of purchase (or
in the case of short-term debt instruments purchased with more than 60 days
remaining to maturity, the market value on the 61st day prior to maturity), and
thereafter a constant amortization to maturity of any discount or premium is
assumed regardless of the impact of fluctuating interest rates on the market
value of the security.
PORTFOLIO TRANSACTIONS
Portfolio Turnover
- ------------------
The Fund's portfolio turnover rate is determined by dividing the lesser
of securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The Fund reserves full freedom with respect to portfolio
turnover, as described in the Prospectus. The portfolio turnover rates for the
fiscal years ended March 31, 1996 and 1997 were 109.20% and 108.41%,
respectively.
Brokerage Allocation
- --------------------
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Fund occur. Against this background, the Investment Manager
evaluates
27
<PAGE>
the reasonableness of a commission or a net price with respect to a particular
transaction by considering such factors as difficulty of execution or security
positioning by the executing firm. The Investment Manager may or may not solicit
competitive bids based on its judgment of the expected benefit or harm to the
execution process for that transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given to services other than execution services which certain of such firms have
provided in the past or may provide in the future. Negotiated commission rates
and prices, however, are based upon the Investment Manager's judgment of the
rate which reflects the execution requirements of the transaction without regard
to whether the broker provides services in addition to execution. Among such
other services are the supplying of supplemental investment research; general
economic, political and business information; analytical and statistical data;
relevant market information, quotation equipment and services; reports and
information about specific companies, industries and securities; purchase and
sale recommendations for stocks and bonds; portfolio strategy services;
historical statistical information; market data services providing information
on specific issues and prices; financial publications; proxy voting data and
analysis services; technical analysis of various aspects of the securities
markets, including technical charts; computer hardware used for brokerage and
research purposes; computer software and databases (including those used for
portfolio analysis and modeling and including software providing investment
personnel with efficient access to current and historical data from a variety of
internal and external sources) and portfolio evaluation services and relative
performance of accounts.
In the case of the Fund and other registered investment companies
advised by the Investment Manager, the above services may include data relating
to performance, expenses and fees of those investment companies and other
investment companies; this information is used by the Trustees or directors of
the investment companies to fulfill their responsibility to oversee the quality
of the Investment Manager's advisory services and to review the fees and other
provisions contained in the advisory contracts between the investment companies
and the Investment Manager. The Investment Manager considers these investment
company services only in connection with the execution of transactions on behalf
of its investment company clients and not its other clients.
Certain of the nonexecution services provided by broker-dealers may in
turn be obtained by the broker-dealers from third parties who are paid for such
services by the broker-dealers. The Investment Manager has an investment in less
than ten percent of the outstanding equity of one such third party which is
engaged in the development and licensing of trading systems which include
portfolio analysis and modelling and other research and investment
decision-making capabilities. The Investment Manager may allocate brokerage to
broker-dealers who in turn pay this third party for the portion of the third
party's trading system provided to the Investment Manager which is estimated by
the Investment Manager to provide appropriate assistance in the investment
decision-making process. Because of its minority interest in the third party,
the Investment Manager could be said to benefit indirectly from such brokerage
allocation.
28
<PAGE>
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Among other measures, the Investment Manager's
investment management personnel seek to evaluate the quality of research and
other services received, and the results of this effort are made available to
the equity trading department which sometimes uses this information as a
consideration in the selection of brokers to execute portfolio transactions.
Some services furnished by broker-dealers may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and the
Investment Manager pays for that portion directly from its own funds. Some
research and execution services may benefit the Investment Manager's clients as
a whole, while others may benefit a specific segment of clients. Not all such
services will necessarily be used exclusively in connection with the accounts
which pay the commissions to the broker-dealer producing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which that firm may
expect to receive for services supplied to the Investment Manager or otherwise.
There may be, however, understandings with certain firms that in order for such
firms to be able to continuously supply certain services, they need to receive
allocation of a specified amount of brokerage business. These understandings are
honored to the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, the Investment Manager relies on the provisions of
Section 28(e) of the Securities Exchange Act of 1934, to the extent applicable.
Brokerage commissions paid by the Fund in secondary trading during the fiscal
years ended March 31, 1995, 1996 and 1997, amounted to $546,075, $754,584 and
$1,136,104, respectively. The Investment Manager believes that the amount of
brokerage commission paid by the Fund for the most recent fiscal year was
significantly higher than during the previous year because of the investment of
proceeds from the increased sale of Fund shares, and general investment activity
for a larger portfolio. During and at the end of its most recent fiscal year,
the Fund held in its portfolio no securities of any entity that might be deemed
to be a regular broker-dealer of the Fund as defined under the 1940 Act.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling concessions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Investment Manager may make such allocations
to
29
<PAGE>
broker-dealers which have provided the Investment Manager with research and
brokerage services.
When more than one client of the Investment Manager is seeking to buy
or sell the same security, the sale or purchase is carried out in a manner which
is considered fair and equitable to all accounts. In allocating investments
among various clients (including in what sequence orders for trades are placed),
the Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the amount already committed for each client
to a specific investment and the relative risks of the investments, all in order
to provide on balance a fair and equitable result to each client over time.
Although sharing in large transactions may sometimes affect price or volume of
shares acquired or sold, overall it is believed there may be an advantage in
execution. The Investment Manager may follow the practice of grouping orders of
various clients for execution to get the benefit of lower prices or commission
rates. In certain cases where the aggregate order may be executed in a series of
transactions at various prices, the transactions are allocated as to amount and
price in a manner considered equitable to each so that each receives, to the
extent practicable, the average price of such transactions. Exceptions may be
made based on such factors as the size of the account and the size of the trade.
For example, the Investment Manager may not aggregate trades where it believes
that it is in the best interests of clients not to do so, including situations
where aggregation might result in a large number of small transactions with
consequent increased custodial and other transactional costs which may
disproportionately impact smaller accounts. Such disaggregation, depending on
the circumstances, may or may not result in such accounts receiving more or less
favorable execution relative to other clients.
CERTAIN TAX MATTERS
Federal Income Taxation of the Fund -- In General
- -------------------------------------------------
The Fund intends to qualify and elect to be treated each taxable year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), although it cannot give complete
assurance that it will do so. Accordingly, the Fund must, among other things,
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities; (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies), or (iii) foreign currencies
(or options, futures or forward contracts on foreign currencies) but only if
such currencies (or options, futures or forward contracts) are not directly
related to the Fund's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities); (c) satisfy certain
diversification
30
<PAGE>
requirements; and (d) in order to be entitled to utilize the dividends paid
deduction, distribute annually at least 90% of its investment company taxable
income (determined without regard to the deduction for dividend paid).
If in any year the Fund derived more than 10% of its gross income (as
defined in the Code, which disregards losses for that purpose) from investments
made directly in commodities, including precious metal investments, or
commodity-related options, futures or indices, the Fund in such year may fail to
qualify as a regulated investment company under the Code. The Investment Manager
intends to manage the Fund's portfolio so as to minimize the risk of such a
disqualification.
The 30% test will limit the extent to which the Fund may sell
securities held for less than three months, write options which expire in less
than three months, and effect closing transactions with respect to call or put
options that have been written or purchased within the preceding three months.
(If the Fund purchases a put option for the purpose of hedging an underlying
portfolio security, the acquisition of the option is treated as a short sale of
the underlying security unless, for purposes only of the 30% test, the option
and the security are acquired on the same date.) Finally, as discussed below,
this requirement may also limit investments by the Fund in options on stock
indices, listed options on nonconvertible debt securities, futures contracts,
options on interest rate futures contracts and certain foreign currency
contracts.
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income or accumulated earnings and profits. Also, the
shareholders, if they received a distribution in excess of current or
accumulated earnings and profits, would receive a return of capital that would
reduce the basis of their shares of the Fund.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any undistributed portion of the respective balances from the
prior year. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
Federal Income Taxation of the Fund's Investments
- -------------------------------------------------
Original Issue Discount. For federal income tax purposes, debt
securities purchased by the Fund may be treated as having original issue
discount. Original issue discount represents interest for federal income tax
purposes and can generally be defined as the excess of the stated redemption
price at maturity of a debt obligation over the issue price. Original issue
discount
31
<PAGE>
is treated for federal income tax purposes as income earned by the Fund, whether
or not any income is actually received, and therefore is subject to the
distribution requirements of the Code. Generally, the amount of original issue
discount is determined on the basis of a constant yield to maturity which takes
into account the compounding of accrued interest. Under section 1286 of the
Code, an investment in a stripped bond or stripped coupon may result in original
issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for income tax
purposes. In the case of any debt security issued after July 18, 1984, having a
fixed maturity date of more than one year from the date of issue and having
market discount, the gain realized on disposition will be treated as interest
income to the extent it does not exceed the accrued market discount on the
security (unless the Fund elects to include such accrued market discount in
income in the tax year to which it is attributable). Generally, market discount
is accrued on a daily basis. The Fund may be required to capitalize, rather than
deduct currently, part or all of any direct interest expense incurred to
purchase or carry any debt security having market discount, unless the Fund
makes the election to include market discount currently. Because the Fund must
include original issue discount in income, it will be more difficult for the
Fund to make the distributions required for the Fund to maintain its status as a
regulated investment company under Subchapter M of the Code or to avoid the 4%
excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments may
be subject to provisions of the Code that (i) require inclusion of unrealized
gains or losses in the Fund's income for purposes of the 90% test, the 30% test,
the excise tax and the distribution requirements applicable to regulated
investment companies; (ii) defer recognition of realized losses; and (iii)
characterize both realized and unrealized gain or loss as short-term or
long-term gain or loss. Such provisions generally apply to, among other
investments, options on debt securities, indices on securities and futures
contracts.
Foreign Currency Transactions. Under section 988 of the Code, special
rules are provided for certain foreign currency transactions. Foreign currency
gains or losses from foreign currency contracts (whether or not traded in the
interbank market), from futures contracts that are not "regulated futures
contracts," and from unlisted options are treated as ordinary income or loss
under section 988. The Fund may elect to have foreign currency-related regulated
futures contracts and listed options subject to ordinary income or loss
treatment under section 988. In addition, in certain circumstances, the Fund may
elect capital gain or loss for foreign currency transactions. The rules under
section 988 may also affect the timing of income recognized by the Fund.
Federal Income Taxation of Shareholders
- ---------------------------------------
Dividends paid by the Fund may be eligible for the 70%
dividends-received deduction for corporations. The percentage of the Fund's
dividends eligible for such tax treatment may
32
<PAGE>
be less than 100% to the extent that less than 100% of the Fund's gross income
may be from qualifying dividends of domestic corporations. Any dividend declared
in October, November and December and made payable to shareholders of record in
any such month is treated as received by such shareholders on December 31,
provided that the Fund pays the dividend during January of the following
calendar year.
Distributions by the Fund can result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless would be
taxable to the shareholder as ordinary income or long-term capital gain, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a taxable distribution. The price of
shares purchased at that time includes the amount of any forthcoming
distribution. Those investors purchasing shares just prior to a taxable
distribution will then receive a return of investment upon distribution which
will nevertheless be taxable to them.
DISTRIBUTION OF SHARES OF THE FUND
State Street Research Income Trust is currently comprised of the
following series: State Street Research High Income Fund and State Street
Research Managed Assets. The Trustees have authorized the Fund to issue four
classes of shares: Class A, Class B, Class C and Class D shares. The Trustees of
the Trust have authority to issue an unlimited number of shares of beneficial
interest of separate series, $.001 par value per share. A "series" is a separate
pool of assets of the Trust which is separately managed and has a different
investment objective and different investment policies from those of another
series. The Trustees have authority, without the necessity of a shareholder
vote, to create any number of new series or classes or to commence the public
offering of shares of any previously established series or class.
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B and Class D shares). The Distributor may reallow all or
a portion of such sales charges as concessions to dealers. For the fiscal years
ended March 31, 1995, 1996 and 1997, total sales charges on Class A shares paid
to the Distributor amounted to $1,652,827, $869,039 and $1,283,941,
respectively. For the same periods, $198,230, $107,358 and $158,495,
respectively, was retained by the Distributor after reallowance of concessions
to dealers. The Distributor may also pay its affiliate, MetLife Securities,
Inc., additional sales compensation of up to 0.25% of certain sales.
33
<PAGE>
The difference in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements, and managed fee-based programs, the
amount of the sales charge reduction will similarly reflect the anticipated
reduction in sales expenses associated with such arrangements. The reduction in
sales expenses, and therefore the reduction in sales charge, will vary depending
on factors such as the size and other characteristics of the organization or
program, and the nature of its membership or the participants. The Fund reserves
the right to make variations in, or eliminate, sales charges at any time or to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
arrangements at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
For the periods shown below, the Distributor received contingent
deferred sales charges upon redemption of Class A, Class B and Class D shares of
the Fund and paid initial commissions to securities dealers for sales of such
shares as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 1997 March 31, 1996 March 31, 1995
----------------------------- ----------------------------- ---------------------------
Contingent Commissions Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers Sales Charges Dealers
------------- ------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Class A $ 0 $1,125,446 $ 0 $ 761,681 $ 657 $1,454,597
Class B $387,778 $2,208,110 $965,398 $1,290,690 $451,301 $3,334,444
Class D $ 1,277 $ 46,532 $ 6,098 $ 22,246 $ 7,564 $ 71,301
</TABLE>
34
<PAGE>
For information on the amount of distribution fees paid by the Fund to
the Distributor, see below.
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1"
(the "Distribution Plan") under which the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of Class A, Class B and Class D shares, including, but not limited to, (1) the
payment of commissions and/or reimbursement to underwriters, securities dealers
and others engaged in the sale of shares, including payments to the Distributor
to be used to pay commissions and/or reimbursement to securities dealers (which
securities dealers may be affiliates of the Distributor) engaged in the
distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the servicing of investor accounts including expenses relating to the
formulation and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, the preparation, printing and
distribution of Prospectuses of the Fund and reports for recipients other than
existing shareholders of the Fund, and obtaining such information, analyses and
reports with respect to marketing and promotional activities and investor
accounts as the Fund may, from time to time, deem advisable, and (3)
reimbursement of expenses incurred by the Distributor in connection with the
servicing of shareholder accounts including payments to securities dealers and
others in consideration of the provision of personal services to investors
and/or the maintenance or servicing of shareholder accounts and expenses
associated with the provision of personal services by the Distributor directly
to investors. In addition, the Distribution Plan is deemed to authorize the
Distributor and the Investment Manager to make payments out of general profits,
revenues or other sources to underwriters, securities dealers and others in
connection with sales of shares, to the extent, if any, that such payments may
be deemed to be within the scope of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class D shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class D
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class D shares (as the case may be) to make payments for personal
services and/or the maintenance or servicing of shareholder accounts. Proceeds
from the service fee will be used by the Distributor to compensate securities
dealers and others selling shares of the Fund for rendering service to
shareholders on an ongoing basis. Such amounts are based on the net asset value
of shares of the Fund held by such dealers as nominee for their customers or
which are owned directly by such customers for so long as such shares are
outstanding and the Distribution Plan remains in effect with respect to the
Fund. Any amounts received by the Distributor and not so allocated may be
applied by the Distributor as reimbursement for expenses incurred in connection
with the servicing of investor accounts. The distribution and servicing expenses
of a particular class will be borne solely by that class.
35
<PAGE>
During the fiscal year ended March 31, 1997, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
<TABLE>
<CAPTION>
Class A Class B Class D
------- ------- -------
<S> <C> <C> <C>
Advertising $ 2,244 $ 2,507 $ 1,295
Printing and mailing of prospectuses to 857 957 522
other than current shareholders
Compensation to dealers 560,647 2,232,701 145,310
Compensation to sales personnel 7,475 8,340 5,034
Interest
Carrying or other financing charges
Other expenses: marketing; general 3,730 4,165 2,295
Total Fees $574,953 $2,248,670 $154,456
======== ========== ========
</TABLE>
The Distributor may have also used additional resources of its own for
further expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Fund will attempt to make
alternative arrangements for such services for shareholders who acquired shares
through such institutions.
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") and yield of
the Class A, Class B, Class C and Class D shares of the Fund will be calculated
as set forth below. Total return and yield are computed separately for each
class of shares of the Fund. Shares of the Fund had no class designations until
June 1, 1993, when designations were assigned based on the pricing and Rule
12b-1 fees applicable to shares sold thereafter. Performance data for a
specified class includes periods prior to the adoption of class designations.
36
<PAGE>
All calculations of performance data in this section reflect the
voluntary measures, if any, by the Fund's affiliates to reduce expenses relating
to the Fund; see "Accrued Expenses" later in this section.
The performance data reflects Rule 12b-1 fees and sales charges, where
applicable, as set forth below:
<TABLE>
<CAPTION>
Rule 12b-1 Fees Sales Charges
-------------------------------------------------------- ---------------------------------------
Current
Class Amount Period
- ----- ------ ------
<S> <C> <C> <C>
A 0.25% Since commencement of operations to present Maximum 4.5% sales charge reflected
B 1.00% 0.25% until June 1, 1993; 1.00% June 1, 1- and 5-year periods reflect a 5% and
1993 to present; fee will reduce performance a 2% contingent deferred sales charge,
for periods after June 1, 1993 respectively
C None 0.25% until June 1, 1993; 0% thereafter None
D 1.00% 0.25% until June 1, 1993; 1.00% June 1, 1993 1-year period reflects a 1% contingent
to present; fee will reduce performance for deferred sales charge
periods after June 1, 1993
</TABLE>
Total Return
- ------------
The standard total return of each class of shares of the Fund was as
follows:
Commencement of
Operations Five Years One Year
(December 29, 1988) Ended Ended
to March 31, 1997 March 31, 1997 March 31, 1997
----------------- -------------- --------------
Class A 10.92% 11.56% 7.43%
Class B 11.15% 11.70% 6.76%
Class C 11.66% 12.80% 12.77%
Class D 11.15% 11.95% 10.64%
Standard total return is computed by determining the average annual
compounded rates of return over the designated periods that, if applied to the
initial amount invested would produce the ending redeemable value, in accordance
with the following formula:
37
<PAGE>
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated period
assuming a hypothetical $1,000 payment made at the beginning of
the designated period
The calculation is based on the further assumptions that the highest
applicable initial or contingent deferred sales charge is deducted, and that all
dividends and distributions by the Fund are reinvested at net asset value on the
reinvestment dates during the periods. All accrued expenses and recurring
charges are also taken into account as described later herein.
Yield
- -----
The annualized yield of each class of shares of the Fund based on the
month of March 1997 was as follows:
Class A 1.65%
Class B 0.97%
Class C 1.98%
Class D 0.97%
Yield for each of the Fund's Class A, Class B, Class C and Class D
shares is computed by dividing the net investment income per share earned during
a recent month or other specified 30-day period by the applicable maximum
offering price per share on the last day of the period and annualizing the
result, according to the following formula:
YIELD = 2[(a-b + 1)6 -1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of voluntary expense
reductions by the Investment Manager)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
38
<PAGE>
To calculate interest earned (for the purpose of "a" above) on debt
obligations, the Fund computes the yield to maturity of each obligation held by
the Fund based on the market value of the obligation (including actual accrued
interest) at the close of the last business day of the preceding period, or,
with respect to obligations purchased during the period, the purchase price
(plus actual accrued interest). The yield to maturity is then divided by 360 and
the quotient is multiplied by the market value of the obligation (including
actual accrued interest) to determine the interest income on the obligation for
each day of the period that the obligation is in the portfolio. Dividend income
is recognized daily based on published rates.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("paydowns"), the Fund accounts for gain or
loss attributable to actual monthly paydowns as a realized capital gain or loss
during the period. The Fund has elected not to amortize discount or premium on
such securities.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be declared as a dividend shortly thereafter. The maximum offering
price includes, as applicable, a maximum sales charge of 4.5% with respect to
Class A shares.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing the Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which are insured and/or often provide an agreed
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that yield is a function of the kind and quality of the instruments in
the Fund's portfolio, portfolio maturity and operating expenses and market
conditions.
Accrued Expenses
- ----------------
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return and yield results take sales charges, if applicable, into
account, although the results do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
39
<PAGE>
Nonstandardized Total Return
- ----------------------------
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class D shares for periods which end no
earlier than the most recent calendar quarter end and which begin twelve months
before and at the time of commencement of the Fund's operations. In addition,
the Fund may provide nonstandardized total return results for differing periods,
such as for the most recent six months, and/or without taking sales charges into
account. Such nonstandardized total return is computed as otherwise described
under "Total Return" except the result may or may not be annualized, and as
noted any applicable sales charge, if any, may not be taken into account and
therefore not deducted from the hypothetical initial payment of $1,000. For
example, the Fund's nonstandardized total returns for the six months ended March
31, 1997, without taking sales charges into account were as follows:
Class A 4.17%
Class B 3.83%
Class C 4.30%
Class D 3.83%
Distribution Rates
- ------------------
The Fund may also quote its distribution rate for each class of shares.
The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the maximum
offering price per share as of the end of the period to which the distribution
relates. A distribution can include gross investment income from debt
obligations purchased at a premium and in effect include a portion of the
premium paid. A distribution can also include non-recurring, gross short-term
capital gains without recognition of any unrealized capital losses. Further, a
distribution can include income from the sale of options by the Fund even though
such option income is not considered investment income under generally accepted
accounting principles.
Because a distribution can include such premiums, capital gains and
option income, the amount of the distribution may be susceptible to control by
the Investment Manager through transactions designed to increase the amount of
such items. Also, because the distribution rate is calculated in part by
dividing the latest distribution by the offering price, which is based on net
asset value plus any applicable sales charge, the distribution rate will
increase as the net asset value declines. A distribution rate can be greater
than the yield rate calculated as described above.
The distribution rates of the Fund, based on the month of March 1997,
were as follows:
Class A 1.84%
Class B 0.93%
Class C 2.15%
Class D 0.89%
40
<PAGE>
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing professional services
including (1) an audit of the Fund's annual financial statements, (2) assistance
and consultation in connection with Securities and Exchange Commission filings
and (3) review of the annual income tax returns filed on behalf of the Fund.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a
semiannual basis, other supplementary financial reports may be made available
from time to time through electronic or other media. Shareholders with
substantial holdings in one or more State Street Research Funds may also receive
reports and other information which reflect or analyze their positions in a
consolidated manner. For more information, call State Street Research
Shareholder Services.
The following financial statements are for the Fund's fiscal year ended
March 31, 1997.
DOCSC\518808.3
41
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
March 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 24.7%
U.S. Treasury 6.0%
U.S. Treasury Bond, 12.00% $ 800,000 8/15/2013 $ 1,099,872
U.S. Treasury Bond, 8.125% 4,375,000 8/15/2021 4,814,556
U.S. Treasury Bond, 6.25% 875,000 8/15/2023 775,329
U.S. Treasury Note, 5.125% 975,000 6/30/1998 962,510
U.S. Treasury Note, 5.875% 1,950,000 10/31/1998 1,935,687
U.S. Treasury Note, 6.75% 2,275,000 5/31/1999 2,286,375
U.S. Treasury Note, 6.625% 6,475,000 7/31/2001 6,442,625
U.S. Treasury Note, 7.25% 3,475,000 5/15/2004 3,545,056
U.S. Treasury Note, 7.875% 6,375,000 11/15/2004 6,732,574
U.S. Treasury Note, 6.50% 3,700,000 8/15/2005 3,597,658
-------------
32,192,242
-------------
U.S. Agency Mortgage 5.4%
Federal Home Loan Mortgage Corp., 7.50% 103,849 4/01/2002 103,330
Federal Home Loan Mortgage Corp., 8.50% 358 7/01/2009 369
Federal Home Loan Mortgage Corp., 9.50% 444,890 7/25/2022 478,448
Federal Home Loan Mortgage Corp., 7.00% 1,568,475 6/01/2024 1,509,171
Federal Home Loan Mortgage Corp., 7.50% 1,221,813 8/01/2024 1,205,013
Federal Home Loan Mortgage Corp., 7.00% 803,606 12/01/2024 773,221
Federal Home Loan Mortgage Corp., 7.50% 908,998 11/01/2025 895,218
Federal Home Loan Mortgage Corp., 7.50% 495,435 4/01/2026 487,924
Federal Home Loan Mortgage Corp. Series 29-H PAC,
6.50% 425,000 3/25/2023 400,427
Federal National Mortgage Association, 9.50% 1,705,243 10/01/2003 1,794,751
Federal National Mortgage Association, 8.00% 252,528 4/01/2008 257,563
Federal National Mortgage Association, 8.00% 324,735 6/01/2008 331,210
Federal National Mortgage Association, 8.50% 293,961 2/01/2009 309,061
Federal National Mortgage Association, 7.50% 1,992,418 6/01/2010 1,998,874
Federal National Mortgage Association, 7.50% 982,977 10/01/2025 965,460
Federal National Mortgage Association, 7.50% 1,689,384 10/01/2025 1,657,709
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Agency Mortgage (cont'd)
Government National Mortgage Association, 6.50% $ 646,881 2/15/2009 $ 626,362
Government National Mortgage Association, 6.50% 238,466 6/15/2009 230,863
Government National Mortgage Association, 6.50% 1,417,768 7/15/2009 1,372,796
Government National Mortgage Association, 9.00% 422,142 6/15/2016 448,817
Government National Mortgage Association, 8.00% 754,986 9/15/2017 768,289
Government National Mortgage Association, 8.00% 735,673 8/15/2022 743,714
Government National Mortgage Association, 8.00% 578,287 12/15/2022 584,607
Government National Mortgage Association, 8.00% 590,114 12/15/2022 596,564
Government National Mortgage Association, 7.00% 1,217,897 1/15/2025 1,167,282
Government National Mortgage Association, 8.00% 744,805 5/15/2025 748,760
Government National Mortgage Association, 8.00% 909,559 7/15/2025 913,252
Government National Mortgage Association, 6.50% 937,647 11/15/2025 868,196
Government National Mortgage Association, 7.50% 1,334,858 11/15/2025 1,309,402
Government National Mortgage Association, 8.00% 640,212 9/15/2026 642,812
Government National Mortgage Association TBA,
7.50% 975,000 5/15/2012 978,656
Government National Mortgage Association TBA,
8.50% 2,925,000 4/17/2027 2,999,953
Government National Mortgage Association TBA,
8.00% 500,000 5/19/2027 500,938
-------------
28,669,012
-------------
Foreign 0.8%
Hydro-Quebec Deb. Series HS,
9.40% 1,025,000 2/01/2021 1,174,435
Usinor Sacilor Note ADR, 7.25% 3,500,000 8/01/2006 3,382,190
-------------
4,556,625
-------------
Foreign Government 1.8%
Government of Australia,
10.00% Australian Dollar
6,375,000 2/15/2006 5,630,900
Canadian Dollar
Government of Canada, 7.50% 1,775,000 12/01/2003 1,354,923
French Franc
Government of France, 8.00% 1,925,000 4/25/2003 2,511,711
-------------
9,497,534
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Certificates 0.3%
Cooperative Trust Certificates, 10.11% $ 900,000 12/15/2017 $ 964,989
Cooperative Utility Trust Certificates, 10.70% 350,000 9/15/2017 375,123
Cooperative Utility Trust Certificates, 10.125% 225,000 3/15/2019 243,455
-------------
1,583,567
-------------
Corporate 6.5%
Acme Boot Inc. Sr. Note Series B, 11.50% 250,000 12/15/2000 105,000
Allbritton Communications Co. Sr. Sub. Deb.,
11.50% 500,000 8/15/2004 522,500
Alvey Systems Inc. Sr. Sub. Note, 11.375% 375,000 1/31/2003 390,000
American Telecasting Inc. Sr. Note, 0.00% to
6/14/99, 12.50% from 6/15/99 to maturity 499,947 6/15/2004 169,982
Anacomp Inc. Sr. Sub. Note, 13.00%[diamond] 268,688 6/04/2002 287,496
Anchor Advanced Products Inc. Sr. Note, 11.75%+ 500,000 4/01/2004 506,250
Axia Inc. Sr. Sub. Note, 11.00% 250,000 3/15/2001 255,000
Belle Casinos Inc. First Mortgage Note, 12.00%+[ ] 125,000 10/15/2000 47,500
Benedek Broadcasting Corp. Sr. Note, 11.875% 250,000 3/01/2005 275,000
Benedek Communications Co. Sr. Sub. Note, 0.00%
to 5/14/2001, 13.25% from 5/15/2001 to maturity 1,000,000 5/15/2006 580,000
Brooks Fiber Properties Inc. Sr. Note, 0.00% to
2/28/2001, 10.875% from 3/1/2001 to maturity 500,000 3/01/2006 310,000
Busse Broadcasting Corp. Sr. Sec. Note, 11.625% 500,000 10/15/2000 526,250
Cafeteria Operators L.P. Sr. Sec. Note, 12.00% 250,000 12/31/2001 240,000
Calpine Corp. Sr. Note, 9.25% 500,000 2/01/2004 500,000
Capstar Broadcasting Partners Sr. Note, 0.00% to
1/31/2002, 12.75% from 2/1/2002 to maturity+ 750,000 2/01/2009 397,500
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Celcaribe SA Sr. Sec. Note, 0.00% to 3/14/98,
13.50% from 3/15/98 to maturity $1,830,000 3/15/2004 $1,647,000
Celestica International Inc. Sr. Sub. Note,
10.50%+ 250,000 12/31/2006 262,500
Chatwins Group Inc. Sr. Exch. Note, 13.00% 250,000 5/01/2003 232,500
CHC Helicopter Corp. Sr. Sub. Note, 11.50% 600,000 7/15/2002 618,000
Clearnet Communications Inc. Sr. Note, 0.00% to
12/14/2000, 14.75% from 12/15/2000 to maturity 1,050,000 12/15/2005 645,750
Coleman Worldwide Corp. Sr. Sec. Liquid Yield
Option Note, 0.00% 5,000,000 5/27/2013 1,450,000
Dyncorp Inc. Sr. Sub. Note, 9.50%+ 500,000 3/01/2007 487,500
Echostar Satellite
Broadcast Corp. Sr. Note, 0.00% to 3/14/2000,
13.125% from 3/15/2000 to maturity 250,000 3/15/2004 197,500
Edison Mission Energy Funding Corp. Series A
Note, 6.77%+ 2,463,700 9/15/2003 2,423,468
Empire Gas Corp. Sr. Sec Note, 7.00% to 7/14/99,
12.875% from 7/15/99 to maturity 750,000 7/15/2004 652,500
Envirosource Inc. Note, 9.75% 1,000,000 6/15/2003 975,000
Euramax International PLC Sr. Sub. Note, 11.25% 500,000 10/01/2006 526,250
Exide Corp. Sr. Note, 10.00% 250,000 4/15/2005 250,000
Finlay Enterprises, Inc. Sr. Deb., 0.00% to
4/30/98, 12.00% from 5/1/98 to maturity 250,000 5/01/2005 231,250
Grand Union Co. Sr. Note, 12.00% 500,000 9/01/2004 491,250
Haynes International Inc. Sr. Note, 11.625% 125,000 9/01/2004 131,250
ICF International Inc. Sr. Sub. Note, 13.00% 500,000 12/31/2003 472,500
ICG Holdings Inc. Sr. Note, 0.00% to 9/14/2000,
13.50% from 9/15/2000 to maturity 675,000 9/15/2005 452,250
Intercel Inc. Sr. Note, 0.00% to 1/31/2001,
12.00% from 2/1/2001 to maturity 300,000 2/01/2006 180,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Intertek Financial Corp. Sr. Sub. Note, 10.25%+ $ 500,000 11/01/2006 $515,000
Ladish Company, Inc. Sr. Sub. Sec. Note, 12.00%++ 19,974 12/22/2000 21,324
Lamar Advertising Co. Sr. Sub. Note, 9.625% 250,000 12/01/2006 250,000
Mail-Well Envelope Corp. Sr. Sub. Note, 10.50% 250,000 2/15/2004 261,250
Marcus Cable Company L.P. Sr. Note, 0.00% to
6/14/2000, 14.25% from 6/15/2000 to maturity 1,000,000 12/15/2005 690,000
Muzak L.P. Sr. Note, 10.00% 250,000 10/01/2003 252,500
Nextel Communications Inc.
Sr. Note, 0.00% to 2/14/99, 9.75% from 2/15/99
to maturity 1,000,000 8/15/2004 680,000
Norcal Waste Systems Inc.
Sr. Note Series B, 13.00% to 5/14/97, 13.25%
from 5/15/97 to 11/14/97, 13.50% from 11/15/97
to maturity 500,000 11/15/2005 550,000
NS Group Inc. Sr. Sec. Note, 13.50% 650,000 7/15/2003 695,500
Outdoor Systems Inc. Sr. Sub. Note, 9.375% 500,000 10/15/2006 510,000
Overhead Door Corp. Note, 12.25% 500,000 2/01/2000 525,000
Owens & Minor Inc. Sr. Sub. Note, 10.875% 125,000 6/01/2006 134,687
Packaging Resources Inc.
Sr. Sec. Note, 11.625% 750,000 5/01/2003 776,250
Pagemart Inc. Sr. Exch. Note, 0.00% to 10/31/98,
12.25% from 11/1/98 to maturity 500,000 11/01/2003 400,000
Pathmark Stores Inc. Sub. Note, 11.625% 500,000 6/15/2002 516,250
Plastic Specialties & Technologies, Inc. Sr.
Note, 11.25% 350,000 12/01/2003 378,000
Pricellular Wireless Corp. Sr. Note, 10.75% 250,000 11/01/2004 253,125
Protection One Alarm Inc. Sr. Note, 0.00% to
6/29/98, 13.625% from 6/30/98 to maturity 500,000 6/30/2005 475,000
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% $ 500,000 12/15/2006 $ 515,000
Qwest Communications International Inc. Sr. Note,
10.875%+ 500,000 4/01/2007 492,500
RSL Communications Ltd. Unit, 12.25%+ 750,000 11/15/2006 750,000
Sam Houston Race Park Ltd. Sr. Sec. Note,
11.00%[diamond] 140,244 9/01/2001 56,097
Sheffield Steel Corp. First Mortgage Note, 12.00% 500,000 11/01/2001 470,000
Spanish Broadcasting Systems Inc. Sr. Note, 7.50% 1,000,000 6/15/2002 1,070,000
Spinnaker Industries Inc. Sr. Sec. Note, 10.75%+ 250,000 10/15/2006 257,500
Sun Media Corp. Sr. Sub. Note, 9.50%+ 250,000 2/15/2007 237,500
Telemundo Group Inc. Sr. Note, 7.00% to 2/14/99,
10.50% from 2/15/99 to maturity 250,000 2/15/2006 246,250
Tokheim Corp. Sr. Sub. Note, 11.50% 750,000 8/01/2006 802,500
Tracor Inc., 8.50%+ 750,000 3/01/2007 720,000
TransAmerican Refining Corp. Sr. Note, 0.00% to
2/14/98, 18.50% from 2/15/98 to 8/14/98, 18.00%
from 8/15/98 to maturity 500,000 2/15/2002 457,500
TransTexas Gas Corp. Sr. Sec. Note, 11.50% 750,000 6/15/2002 821,250
Treasure Bay Gaming and Resorts, Inc. First
Mortgage Units, 12.25%+[ ] 250,000 11/15/2000 50,000
TV Azteca SA de CV Sr. Note Series B, 10.50%+ 500,000 2/15/2007 487,170
U.S.A. Mobile Communications Inc. Sr. Note, 9.50% 150,000 2/01/2004 129,000
U.S.A. Mobile Communications Inc. Sr. Note,
14.00% 750,000 11/01/2004 802,500
Universal Outdoor Inc. Sr. Sub. Note Series B,
9.75%+ 250,000 10/15/2006 247,500
Winstar Communications Inc. Sr. Sub. Cv. Note,
0.00% to 10/14/2000, 14.00% from 10/15/2000 to
maturity+ 300,000 10/15/2005 189,000
Wireless One Inc. Sr. Disc Note, 13.00% 400,000 10/15/2003 260,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Wireless One Inc. Sr. Note, 0.00% to 7/31/2001,
13.50% from 8/1/2001 to maturity $1,250,000 8/01/2006 $ 337,500
Wyman-Gordon Co. Sr. Note, 10.75% 250,000 3/15/2003 266,250
-------------
34,987,849
-------------
Finance/Mortgage 3.9%
Advanta Credit Card Master Trust Series 95F-A1,
6.05% 475,000 8/01/2003 462,085
Bank of New York Institutional Capital Trust,
7.78%+ 2,650,000 12/01/2026 2,475,126
BankAmerica Institutional Capital Series B,
7.70%+ 2,600,000 12/31/2026 2,432,404
Capital One Bank Sr. Note, 7.08% 2,500,000 10/30/2001 2,467,950
Chase Mortgage Finance Corp. Series 93L-2A5,
6.25% 675,000 10/25/2024 646,102
Countrywide Mortgage Inc. Series 1993-E A-1,
6.50% 270,352 1/25/2024 269,423
Countrywide Mortgage Inc. Series 1994-2 A-7,
6.50% 650,000 4/25/2008 647,354
DeBartolo Capital Partnership Class A2, 7.48%+ 2,475,000 5/01/2004 2,504,391
Ford Credit Auto Loan Master Trust Series 95-1,
6.50% 1,100,000 8/15/2000 1,086,591
GE Global Insurance Holding Corp. Note, 7.00% 1,500,000 2/15/2026 1,363,695
Prudential Home Mortgage Securities Co. Series
93-29 A-6 PAC, 6.75% 1,046,908 8/25/2008 1,040,030
Residential Funding Corp. Series 1993-S25 A-1,
6.50% 163,016 7/25/2008 161,182
Sears Credit Account Master Trust Series 1995-2A,
8.10% 2,650,000 6/15/2004 2,738,589
Sears Roebuck Acceptance Corp. Note, 6.86% 2,500,000 8/06/2001 2,475,625
-------------
20,770,547
-------------
Total Fixed Income Securities (Cost $134,462,387) 132,257,376
-------------
</TABLE>
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
EQUITY SECURITIES 55.3%
Basic Industries 8.9%
Chemical 3.3%
Agrium Inc.*+++ 347,747 $ 4,433,774
Cabot Corp. 120,000 2,880,000
Cambrex Corp.+++ 45,750 1,532,625
Ciba Specialty Chemicals AG* 2,700 223,280
Monsanto Co. 65,000 2,486,250
Nippon Chemical Industrial Co. Ltd.* 19,000 109,849
Rhone-Poulenc SA* 72,700 2,464,122
Thiokol Corp. 60,000 3,315,000
--------------
17,444,900
--------------
Diversified 0.2%
Axia Holdings Corp.*++ 750 30,000
Plastic Specialties & Technology, Inc.* 7,500 22,500
Tenma Corp.* 99,000 1,320,854
--------------
1,373,354
--------------
Electrical Equipment 0.8%
Asia Pacific Wire & Cable Corp.* 121,800 1,461,600
General Electric Co. 25,900 2,570,575
Protection One Inc. Wts.*+ 800 5,400
Watsco Inc.* 10,800 275,400
--------------
4,312,975
--------------
Forest Product 0.7%
Aracruz Celulose SA ADR 47,000 857,750
Crown Packaging Holdings Ltd. Wts.*+ 3,750 469
Equitable Bag Inc.* 47,600 23,800
Equitable Bag Inc. Pfd.* 4,760 102,340
Mail-Well Holdings, Inc.*++ 14,205 280,548
S.D. Warren Co. Exch. Pfd.* 18,000 670,500
SDW Holdings Corp. Wts.* 18,000 76,500
Stone Container Corp. 135,000 1,501,875
--------------
3,513,782
--------------
Machinery 1.3%
Amada Co* 262,000 1,896,094
Chatwins Group Inc. Wts.*+ 500 500
NSK Ltd.* 50,000 266,435
Sundstrand Corp. 85,000 3,686,875
US Filter Corp.* 39,600 1,222,650
--------------
7,072,554
--------------
Metal & Mining 2.1%
Alumax Inc.* 80,000 2,770,000
Aluminum Company of America 35,800 2,434,400
Bar Technologies Inc. Wts.*+ 250 11,250
Kennametal Inc. 85,000 3,081,250
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
Metal & Mining (cont'd)
NS Group Inc. Wts.*+ 650 $ 1,950
RTZ Corp.* 51,952 823,129
SGL Carbon AG* 10,700 1,469,005
Sheffield Steel Corp. Wts.* 1,250 3,750
Wyman-Gordon Co.* 21,000 427,875
------------
11,022,609
------------
Railroad 0.5%
Canadian National Railway Co. 80,000 2,830,000
------------
Total Basic Industries 47,570,174
------------
Consumer Cyclical 7.7%
Airline 0.2%
America West Holding Corp. Cl. B* 46,500 726,563
CHC Helicopter Corp. Wts.*++ 2,000 1,000
UNC Inc.* 16,800 239,400
------------
966,963
------------
Automotive 1.3%
Exide Corp. 165,000 2,701,875
Harvard Industries Inc. 14.25% Exch. Pfd.[diamond] 11,533 33,157
Honda Motor Co.* 73,000 2,178,135
Lear Corp.* 18,800 627,450
NGK Spark Plug Co.* 175,000 1,698,068
------------
7,238,685
------------
Building 0.7%
DeGeorge Financial Corp. Wts.* 3,000 750
Lafarge Corp. 116,600 2,652,650
Shenzhen Expressway Co. Ltd.* 2,900,000 907,572
Waxman Industries Inc. Wts.*+ 29,500 88,500
------------
3,649,472
------------
Hotel & Restaurant 1.3%
Fine Host Corp.* 30,100 707,350
Harrah's Entertainment Inc.* 201,000 3,442,125
Mirage Resorts Inc.* 121,900 2,590,375
Motels of America Inc.*+ 500 5,750
Primadonna Resorts Inc.* 14,600 290,175
------------
7,035,775
------------
Recreation 1.2%
Amer Group Ltd. Cl. A* 80,300 1,655,637
American Radio Systems Corp. 14,300 436,150
American Radio Systems Corp. Exch. Pfd.*+ 2,500 245,000
American Telecasting Inc. Wts.* 1,250 1,250
Evergreen Media Corp. Cl. A 17,800 519,538
Fitzgeralds South Inc. Wts.*++ 1,250 12,500
Goldriver Hotel & Casino Corp. Cl. B*++ 20,000 2,500
Recreation (cont'd)
Goldriver Hotel & Casino Corp. Liquidation Trust
Units++ 500,000 $ 6,350
Granite Broadcasting Corp.*+ 250 231,250
Heartland Wireless Communications, Inc. Wts.*++ 1,500 1,500
SHRP Equity Inc.* 37 148
Walt Disney Co. 45,000 3,285,000
Wireless One Inc. Wts.*+ 750 750
Wireless One Inc. Wts.* 1,250 938
------------
6,398,511
------------
Retail Trade 2.8%
Carson Pirie Scott & Co.* 14,300 441,513
Central Rents Inc.*+ 250 13,750
Dominick's Supermarkets Inc.* 27,500 632,500
Filenes Basement Corp.* 35,100 236,925
Genesco Inc.* 29,500 331,875
Global DirectMail Corp.* 37,000 642,875
Gucci Group NV* 35,300 2,546,013
Kroger Co.* 100,000 5,075,000
Ralphs Grocery Co. Wts.*++# 9,686 97,645
Rite-Aid Corp. 41,600 1,747,200
Sears Roebuck & Co. 39,100 1,964,775
Stride Rite Corp. 19,100 286,500
Sunglass Hut International Inc.* 63,000 441,000
Supermarkets General Holdings Corp.
Exch. Pfd.[diamond] 18,200 432,250
------------
14,889,821
------------
Textile & Apparel 0.2%
Acme Boot Co.*+ 250 250
Kenneth Cole Productions Inc. Cl. A* 24,600 516,600
Samsonite Corp.* 8,700 376,275
------------
893,125
------------
Total Consumer Cyclical 41,072,352
------------
Consumer Staple 12.8%
Business Service 2.4%
ADT Ltd.* 170,000 4,250,000
Greenwich Air Services Inc.* 42,700 1,216,950
HBO & Co. 40,000 1,900,000
ICF Kaiser International Inc. Wts.* 2,400 1,200
La Petite Holdings Corp.* 22,000 896,500
Pagemart Inc. Wts.*+ 2,300 9,200
Philip Environmental Inc.* 74,900 1,132,863
Republic Industries Inc.* 76,700 2,660,531
Universal Outdoor Holdings Inc.* 16,000 464,000
Vestar/LPA Investment Corp.*+ 1,375 13,750
----------
12,544,994
----------
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
Drug 2.5%
Amgen Inc.* 44,300 $ 2,475,263
Axogen Ltd.* 52,500 1,207,500
Biora AB* 168,900 1,781,787
BioVail Corp.* 44,800 1,041,600
Novartis AG* 2,700 3,351,077
Pfizer Inc. 40,300 3,390,238
------------
13,247,465
------------
Food & Beverage 1.5%
Coca-Cola Enterprises Inc. 47,500 2,725,312
Dr Pepper Bottling Holdings Inc. Cl. A* 56,000 784,000
LVMH Moet Hennessy Louis Vuitton* 4,400 1,070,514
Seven-Up/RC Bottling Co. of Southern California* 26,250 311,719
Whitman Corp. 131,900 3,231,550
------------
8,123,095
------------
Hospital Supply 3.8%
Baxter International Inc. 59,600 2,570,250
Columbia/HCA Healthcare Corp. 84,350 2,836,269
Genesis Health Ventures Inc.* 10,900 340,625
Healthdyne Technologies Inc.* 67,100 944,642
IDX Systems Corp.* 5,400 147,150
Johnson & Johnson 60,000 3,172,500
Karrington Health Inc.* 35,000 420,000
Pacificare Health Systems, Inc. Cl. A* 12,000 991,500
Physio-Control International Corp.* 13,700 190,088
Roche Holdings AG* 475 4,107,974
Rural/Metro Corp.* 29,500 899,750
Tenet Healthcare Corp. 108,800 2,679,200
Total Renal Care Holdings Inc.* 25,700 780,637
Xomed Surgical Products Inc.* 22,300 367,950
------------
20,448,535
------------
Personal Care 0.6%
Avon Products Inc. 50,500 2,651,250
Wesley Jessen Visioncare Inc.* 48,000 744,000
------------
3,395,250
------------
Printing & Publishing 1.4%
A.H. Belo Corp. Cl. A 12,852 475,524
General Media Inc. Wts.*++ 250 250
Hollinger International, Inc. Cl. A* 340,000 3,102,500
K-III Communications Corp. Series B Exch. Pfd.* 5,424 592,562
K-III Communications Corp. Series D Exch. Pfd.* 2,500 250,625
Sullivan Holdings Inc.* 149 53,467
Valassis Communications Inc. 125,000 2,796,875
------------
7,271,803
------------
Tobacco 0.6%
Imperial Tobacco Group PLC* 359,100 $ 2,463,717
Philip Morris Companies, Inc. 8,500 970,062
------------
3,433,779
------------
Total Consumer Staple 68,464,921
------------
Energy 6.0%
Oil 4.9%
Burlington Resources Inc. 59,800 2,556,450
Energy Africa Ltd.* 938,900 4,355,119
ENI SPA ADR 41,700 2,111,063
Oryx Energy Co. 186,200 3,584,350
Royal Dutch Petroleum Co. 17,000 2,975,000
Seagull Energy Corp.*+++ 358,288 6,449,184
Tosco Corp. 117,000 3,334,500
Total SA Cl. B* 12,909 1,119,493
------------
26,485,159
------------
Oil Service 1.1%
Cliffs Drilling Co.* 4,700 279,062
Coflexip* 31,763 1,951,774
Schlumberger Ltd. 34,900 3,743,025
------------
5,973,861
------------
Total Energy 32,459,020
------------
Finance 7.6%
Bank 3.3%
BankAmerica Corp. 43,000 4,332,250
Citicorp 35,000 3,788,750
Fleet Financial Group Inc. 65,900 3,772,775
Glendale Federal Bank FSB 22,300 512,900
Mellon Bank Corp. 49,900 3,630,225
NationsBank Corp. 11,600 642,350
Riverbank America Pfd.* 20,000 480,000
Sovereign Bancorp Inc.* 32,660 391,920
------------
17,551,170
------------
Financial Service 0.9%
Beacon Properties Corp. 10,000 331,250
CMAC Investment Corp. 13,500 450,562
CRIIMI MAE Inc.* 13,500 199,125
Essex Property Trust, Inc.* 11,300 337,588
Federal Home Loan Mortgage Corp. 96,800 2,637,800
First Industrial Realty Trust Inc. 11,300 357,363
Homeside Inc.* 30,100 443,975
----------
4,757,663
----------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
Insurance 3.4%
Ace Ltd. 88,900 $ 5,689,600
AMBAC Inc. 27,200 1,754,400
Capital Re Corp. 5,500 234,438
Mid Ocean Ltd. 90,000 4,297,500
Mutual Risk Management Ltd. 12,900 467,625
Penncorp Financial Group Inc.* 20,000 640,000
Saint Paul Companies, Inc. 7,000 454,125
Travelers Group Inc. 46,100 2,207,037
Travelers Property Casualty Corp. Cl. A 76,700 2,435,225
------------
18,179,950
------------
Total Finance 40,488,783
------------
Science & Technology 10.0%
Aerospace 1.2%
Boeing Co. 18,246 1,799,512
Bombardier, Inc. Cl. B 85,200 1,541,538
First Aviation Services Inc.* 49,900 474,050
General Dynamics Corp. 34,800 2,344,650
Ladish Company, Inc.*++# 52,000 97,500
Triumph Group, Inc.* 14,700 369,338
------------
6,626,588
------------
Computer Software & Service 3.2%
Anacomp Inc.* 19,457 214,027
Anacomp Inc. Wts.* 4,941 18,529
Boston Technology Inc.* 19,600 369,950
Check Point Software Technologies Ltd.* 21,200 434,600
Cisco Systems Inc.* 51,000 2,454,375
Complete Business Solutions Inc.* 15,500 151,125
Manugistics Group Inc.* 9,900 361,350
Mastech Corp.* 22,000 354,750
Microsoft Corp.* 27,800 2,548,912
National Processing, Inc.* 57,700 461,600
Planning Sciences International PLC ADR* 51,600 464,400
SAP AG Pfd.* 14,900 2,554,796
Sema Group PLC* 72,300 1,635,315
TriTeal Corp.* 12,000 141,000
TT Tieto Oy Cl. B* 8,000 658,179
Veritas Software Co.* 15,500 459,188
Wang Laboratories Inc.* 44,200 784,550
Western Digital Corp.* 27,500 1,557,187
Wind River Systems Inc.* 10,350 244,519
WM Data AB Cl. B* 8,100 706,170
Xylan Corp.* 12,400 238,700
------------
16,813,222
------------
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
Electronic Components 2.0%
ABB AG* 775 $ 931,723
AMP Inc. 59,400 2,041,875
Hitachi Ltd.* 220,000 1,956,821
Intel Corp. 13,000 1,808,625
Lernout & Hauspie Speech Products NV ADR* 4,000 77,000
Microtouch Systems Inc.* 20,500 404,875
Remec Inc.* 28,900 621,350
Rohm Co. 32,000 2,359,829
Zebra Technologies Corp. Cl A* 20,400 469,200
------------
10,671,298
------------
Electronic Equipment 2.7%
Berg Electronics Corp.* 16,000 456,000
Chicago Miniature Lamp, Inc.* 22,900 449,412
L.M. Ericsson Telephone Co. ADR Cl. B* 88,480 2,991,730
L.M. Ericsson Telephone Co. Cl. B* 96,800 3,416,773
Lucent Technologies Inc.* 34,600 1,825,150
Motorola Inc. 38,900 2,348,587
Network Equipment Technologies, Inc.* 61,800 834,300
Pioneer-Standard Electronics Inc. 14,400 183,600
Toolex Alpha NV* 204,400 1,929,022
------------
14,434,574
------------
Office Equipment 0.9%
Compaq Computer Corp.* 45,400 3,478,775
FileNet Corp.* 17,500 282,188
Hewlett-Packard Co. 23,200 1,235,400
------------
4,996,363
------------
Total Science & Technology 53,542,045
------------
Utility 2.3%
Electric 1.7%
Allegheny Power Systems Inc. 78,600 2,328,525
Edison International Inc. 103,800 2,335,500
OGE Energy Corp. 60,000 2,512,500
Veba AG* 37,000 2,095,114
------------
9,271,639
------------
Electronic Equipment 0.1%
Telco Systems Inc.* 24,100 265,100
------------
Telephone 0.5%
Allen Telecom Inc. 33,400 584,500
BCE Inc. 30,000 1,380,000
Celcaribe SA Trust Certificates*+ 297,558 669,505
Clearnet Communications Inc. Wts.* 2,640 15,180
Intelcom Group, Inc. Wts.*++ 1,650 19,800
Intercel Inc. Wts.* 960 5,760
------------
2,674,745
------------
Total Utility 12,211,484
-----------
Total Equity Securities (Cost $266,295,334) 295,808,779
-----------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
EQUITY SECURITIES--INFLATION RESPONSIVE
INVESTMENTS 12.2%
Basic Industries 2.3%
Metal & Mining 2.0%
Ashanti Goldfields Ltd. GDR 50,000 $ 687,500
AUR Resources Inc.* 50,000 274,467
Battle Mountain Gold Co. 100,000 662,500
Carpenter Technology Corp.* 25,000 956,250
Crown Resources Corp.* 125,000 765,625
Delta Gold NL* 168,000 247,601
Freeport-McMoRan Copper & Gold, Inc. Cl. B* 20,000 607,500
Kinross Gold Corp.* 60,000 405,000
Maxxam Inc.* 25,000 1,131,250
Menzies Gold NL* 400,000 163,061
Newcrest Mining Ltd.* 150,000 491,533
Normandy Mining Ltd.* 500,000 678,504
Pan African Resources Corp.* 215,600 62,290
Placer Dome Inc. 30,000 543,750
Royal Oak Mines Inc.* 100,000 318,750
Southernera Resources Ltd.* 100,000 548,935
Stillwater Mining Co.* 30,900 606,412
Sutton Resources Ltd.* 28,000 490,000
TVX Gold Inc.* 60,000 427,500
Vaal Reefs Exploration & Mining Ltd. ADR 43,100 261,294
Viceroy Resource Corp.* 100,000 426,147
------------
10,755,869
------------
Railroad 0.3%
OMI Corp. 142,200 1,386,450
------------
Total Basic Industries 12,142,319
------------
Consumer Staple 0.3%
Business Service 0.3%
Commodore Applied Technologies, Inc.* 150,000 1,068,750
Commodore Applied Technologies, Inc. Wts.* 150,000 337,500
------------
1,406,250
------------
Total Consumer Staple 1,406,250
------------
Energy 8.9%
Oil 6.6%
3DX Technologies Inc.* 50,000 550,000
Abacan Resource Corp.*@ 395,100 3,111,412
Apache Corp. 37,500 1,256,250
Arakis Energy Corp.*@ 453,100 1,925,675
Barrett Resources Corp.* 38,900 1,162,138
Barrington Petroleum Ltd.* 91,400 330,083
Basin Exploration Inc.* 65,000 446,875
Canadian 88 Energy Corp.* 40,700 163,153
- ------------------------------------------------------------------------------
Value
Shares (Note 1)
- ------------------------------------------------------------------------------
Oil (cont'd)
Canadian Conquest Exploration Inc.* 173,600 $ 206,891
Clayton Williams Energy Inc.* 27,198 333,176
Coho Energy Inc.* 139,300 1,009,925
Crystal Oil Co.* 10,000 347,500
CS Resources Ltd.* 100,000 841,459
Forcenergy Inc. 8,900 255,875
Intensity Resources Ltd.* 161,300 258,639
KCS Energy Inc.@ 110,800 3,642,550
Mercantile International Petroleum, Inc.* 101,600 162,560
Nuevo Energy Co.*@ 89,100 3,419,212
Oil Search Ltd.* 1,598,100 3,382,620
Optima Petroleum Corp.* 43,100 94,281
Pan East Petroleum Inc.* 85,300 277,248
Plains Resources Inc.* 109,800 1,454,850
Ranger Oil Ltd.* 367,000 3,486,500
Seven Seas Petroleum Inc* 30,000 300,000
Southwestern Energy Co.* 58,600 783,775
Stampeder Exploration Ltd. 225,350 1,126,750
Summit Resources Ltd. 50,000 234,742
Tarragon Oil & Gas Ltd.* 116,357 1,416,118
Tom Brown, Inc.*@ 96,843 1,791,595
Triton Energy Ltd. Cl. A 28,500 1,104,375
Ulster Petroleum Ltd.* 89,000 636,403
------------
35,512,630
------------
Oil Service 2.3%
Atwood Oceanics Inc.* 35,000 2,174,375
Dailey Petroleum Services Corp. Cl. A* 34,200 230,850
Dreco Energy Services Ltd. Cl. A*@ 47,100 1,601,400
Ensco International Inc.*@ 61,887 3,047,935
Global Marine Inc.* 31,900 685,850
J. Ray McDermott SA* 46,900 1,137,325
Noble Drilling Corp.* 83,200 1,435,200
Patterson Energy, Inc.* 4,584 126,633
Pool Energy Services Co.* 51,400 758,150
Rowan Companies, Inc.* 11,400 257,925
TMBR / Sharp Drilling, Inc.* 20,500 243,437
Tuboscope Vetco International Corp.* 30,000 408,750
------------
12,107,830
------------
Total Energy 47,620,460
------------
Utility 0.7%
Natural Gas 0.7%
TransTexas Gas Corp.*@ 279,700 3,915,800
------------
Total Utility 3,915,800
------------
Total Equity Securities--Inflation Responsive Investments
(Cost $50,538,462) 65,084,829
----------
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
Investment Portfolio (cont'd)
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.1%
State Street Bank and Trust Co.,
dated 3/31/97, repurchase
proceeds $260,031,
collateralized by $265,000 U.S.
Treasury Note, 6.00%, due
5/31/98, market value $269,582 $ 260,000 4/01/1997 $ 260,000
--------------
Total Repurchase Agreements (Cost $260,000) 260,000
--------------
CASH EQUIVALENTS 8.8%
American Express Credit Corp.,
5.48% 1,325,000 4/01/1997 1,325,000
American Express Credit Corp.,
5.60% 2,646,000 4/08/1997 2,646,000
Deere & Co., 5.60% 15,000,000 4/10/1997 15,000,000
Ford Motor Credit Co., 5.56%* 14,582,000 4/01/1997 14,582,000
General Electric Capital Corp.,
5.63% 11,725,000 4/02/1997 11,725,000
General Electric Capital Corp.,
5.65% 1,643,000 4/10/1997 1,643,000
--------------
Total Cash Equivalents (Cost $46,921,000) 46,921,000
--------------
Total Investments (Cost $498,477,183)--101.1% 540,331,984
Cash and Other Assets, Less Liabilities--(1.1%) (5,718,014)
--------------
Net Assets--100.0% $ 534,613,970
==============
- -----------------------------------------------------------------------------
Federal Income Tax Information:
At March 31, 1997, the net unrealized appreciation of
investments based on cost for Federal income tax purposes of
$499,107,458 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $ 61,630,193
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (20,405,667)
-----------
$ 41,224,526
===========
ADR and GDR stand for American Depositary Receipt and Global Depositary
Receipt, respectively, representing ownership of foreign securities.
* Nonincome-producing securities.
[diamond] Payments of income may be made in cash or in the form of additional
securities.
[ ] Security is in default.
# Security valued under consistently applies procedures established by
the Trustees.
++ Security restricted as to public resale. The total cost and market
value of restricted securities owned at March 31, 1997 were $396,266
and $570,917 (0.11% of net assets), respectively.
+ Security restricted in accordance with Rule 144A under the Securities
Act of 1933, which allows for the resale of such securities among
certain qualified institutional buyers. The total cost and market
value of Rule 144A securities owned at March 31, 1997 were $17,345,368
and $16,780,083 (3.14% of net assets), respectively.
+++ 152,747 shares of Agrium, Inc., 22,500 shares of Cambrex Corp. and
158,780 shares of Seagull Energy Corp. are considered by the Adviser
to be part of Inflation Responsive Investments.
@ 107,000 shares of Abacan Resource Corp., 118,200 shares of Arakis
Energy Corp., 17,100 shares of Dreco Energy Services Ltd., 28,100
shares of Ensco International, Inc., 30,800 shares of KCS Energy,
Inc., 14,100 shares of Nuevo Energy Co., 9,444 shares of Tom Brown,
Inc., and 70,000 shares of TransTexas Gas Corp. are considered by the
Adviser to be part of Equity Securities.
TBA Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the
principal value has not been finalized and may vary by no more than
1%.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Forward currency exchange contracts outstanding at March 31, 1997, are as
follows:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Total Value Price (Depreciation) Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sell Australian dollars, buy U.S. dollars 2,300,000 AUD 0.78840 AUD $ 10,845 4/24/97
Sell Australian dollars, buy U.S. dollars 1,141,000 AUD 0.77500 AUD (9,910) 4/24/97
Buy Australian dollars, sell U.S. dollars 655,500 AUD 0.77567 AUD 5,150 5/14/97
Sell Australian dollars, buy U.S. dollars 3,965,500 AUD 0.75560 AUD (110,743) 5/14/97
Sell Canadian dollars, buy U.S. dollars 1,580,000 CAD 0.74223 CAD 28,064 5/14/97
Buy Canadian dollars, sell U.S. dollars 1,632,000 CAD 0.74228 CAD (29,078) 5/14/97
Buy Canadian dollars, sell U.S. dollars 1,580,000 CAD 0.74267 CAD (28,761) 5/14/97
Sell Canadian dollars, buy U.S. dollars 1,632,000 CAD 0.74247 CAD 29,393 5/14/97
Sell Danish krone, buy U.S. dollars 24,516,700 DKK 0.15680 DKK (23,029) 5/14/97
Buy Danish krone, sell U.S. dollars 14,170,000 DKK 0.15305 DKK 66,359 5/14/97
Buy Danish krone, sell U.S. dollars 10,346,700 DKK 0.15553 DKK 22,840 5/14/97
Buy Danish krone, sell U.S. dollars 3,032,300 DKK 0.15516 DKK 7,229 4/24/97
Sell Danish krone, buy U.S. dollars 3,032,300 DKK 0.16063 DKK 9,353 4/24/97
Sell European currency units, buy U.S.
dollars 2,148,000 XEU 1.16180 XEU (12,838) 5/14/97
Buy Hong Kong dollars, sell U.S. dollars 4,042,616 HKD 0.12904 HKD 53 4/01/97
Buy Hong Kong dollars, sell U.S. dollars 3,000,589 HKD 0.12907 HKD (35) 4/02/97
----------
$ (35,108)
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1997
Assets
Investments, at value (Cost $498,477,183) (Note 1) $ 540,331,984
Cash 799,829
Receivable for securities sold 3,927,457
Interest and dividends receivable 2,574,248
Receivable for fund shares sold 1,157,255
Receivable for open forward contracts 179,286
Receivable from Distributor (Note 3) 43,318
Other assets 73,585
-----------
549,086,962
Liabilities
Payable for securities purchased 12,092,628
Payable for fund shares purchased 900,757
Accrued transfer agent and shareholder services (Note
2) 381,612
Accrued management fee (Note 2) 348,777
Accrued distribution and service fees (Note 5) 286,100
Payable for open forward contracts 214,394
Dividends payable 91,700
Accrued trustees' fees (Note 2) 8,580
Other accrued expenses 148,444
-----------
14,472,992
-----------
Net Assets $ 534,613,970
===========
Net Assets consist of:
Undistributed net investment income $ 6,424
Unrealized appreciation of investments 41,854,801
Unrealized depreciation of forward contracts and
foreign currency (52,419)
Accumulated net realized gain 25,604,549
Shares of beneficial interest 467,200,615
-----------
$ 534,613,970
===========
Net Asset Value and redemption price per share of Class
A shares ($244,347,819 / 23,497,866 shares of
beneficial interest) $10.40
======
Maximum Offering Price per share of Class A shares
($10.40 / .955) $10.89
======
Net Asset Value and offering price per share of
Class B shares ($251,518,149 / 24,263,341 shares of
beneficial interest)* $10.37
======
Net Asset Value, offering price and redemption price
per share of Class C shares ($21,262,673 / 2,044,892
shares of beneficial interest) $10.40
======
Net Asset Value and offering price per share of
Class D shares ($17,485,329 / 1,683,937 shares of
beneficial interest)* $10.38
======
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended March 31, 1997
Investment Income
Interest $ 12,294,998
Dividends, net of foreign taxes of $143,358 3,785,347
-----------
16,080,345
Expenses
Management fee (Note 2) 3,692,033
Transfer agent and shareholder services (Note 2) 1,050,878
Custodian fee 383,283
Service fee-Class A (Note 5) 574,953
Distribution and service fees-Class B (Note 5) 2,248,670
Distribution and service fees-Class D (Note 5) 154,456
Reports to shareholders 123,770
Registration fees 41,671
Audit fee 41,012
Trustees' fees (Note 2) 28,894
Miscellaneous 36,566
-----------
8,376,186
Expenses borne by the Distributor (Note 3) (475,396)
-----------
7,900,790
-----------
Net investment income 8,179,555
-----------
Realized and Unrealized Gain (Loss) on Investments,
Foreign Currency and Forward Contracts
Net realized gain on investments (Notes 1 and 4) 52,402,713
Net realized gain on forward contracts and foreign
currency (Note 1) 1,399,025
-----------
Total net realized gain 53,801,738
-----------
Net unrealized depreciation of investments (7,984,019)
Net unrealized depreciation of forward contracts and
foreign currency (260,085)
-----------
Total net unrealized depreciation (8,244,104)
-----------
Net gain on investments, foreign currency and forward
contracts 45,557,634
-----------
Net increase in net assets resulting from operations $ 53,737,189
===========
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year ended March 31
------------------------
1997 1996
- --------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 8,179,555 $ 8,195,807
Net realized gain on investments,
foreign currency and forward
contracts* 53,801,738 33,933,659
Net unrealized appreciation
(depreciation) of investments,
foreign currency and forward
contracts (8,244,104) 38,037,693
---------- -----------
Net increase resulting from
operations 53,737,189 80,167,159
---------- -----------
Dividends from net investment
income:
Class A (6,086,782) (5,148,650)
Class B (4,234,267) (3,355,386)
Class C (634,525) (819,460)
Class D (289,417) (240,897)
---------- -----------
(11,244,991) (9,564,393)
---------- -----------
Distributions from net realized
gains:
Class A (18,380,936) (3,056,467)
Class B (18,075,176) (2,771,674)
Class C (1,771,455) (490,395)
Class D (1,236,399) (194,112)
---------- -----------
(39,463,966) (6,512,648)
---------- -----------
Net increase (decrease) from fund
share transactions (Note 6) 97,991,295 (2,678,848)
---------- -----------
Total increase in net assets 101,019,527 61,411,270
Net Assets
Beginning of year 433,594,443 372,183,173
---------- -----------
End of year (including
undistributed net investment
income of $6,424 and $3,185,167,
respectively) $534,613,970 $ 433,594,443
========== ===========
*Net realized gain for Federal
income tax purposes (Note 1) $ 52,820,595 $ 20,102,035
========== ===========
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
March 31, 1997
Note 1
State Street Research Managed Assets (the "Fund"), is a series of State
Street Research Income Trust (the "Trust"), which was organized as a
Massachusetts business trust in December, 1985 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund commenced operations in December, 1988. The
Trust consists presently of two separate funds: State Street Research Managed
Assets and State Street Research High Income Fund.
The investment objective of the Fund is to seek a high total return while
attempting to limit investment risk and preserve capital. To achieve its
investment objective, the Fund intends to allocate assets among selected
investments in the following sectors: Fixed Income Securities, Equity
Securities, Inflation Responsive Investments and Cash & Cash Equivalents.
Total return may include current income as well as capital appreciation. The
Fund's investment manager believes that the timely re-allocation of assets
can enhance performance and reduce portfolio volatility.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and
pay annual distribution and service fees of 1.00%. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after the issuance of the Class B shares. Class C
shares are only offered to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Values for listed equity securities reflect final sales on national
securities exchanges quoted prior to the close of the New York Stock
Exchange. Over-the-counter securities quoted on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system are valued at
closing prices supplied through such system. If not quoted on the NASDAQ
system, such securities are valued at prices obtained from independent
brokers. In the absence of recorded sales, valuations are at the mean of the
closing bid and asked quotations. Fixed income securities are valued by a
pricing service, which utilizes market transactions, quotations from dealers,
and various relationships among securities in determining value. Short-term
securities maturing within sixty days are valued at amortized cost. Other
securities, if any,
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
are valued at their fair value as determined in good faith under consistently
applied procedures established by and under the supervision of the Trustees.
B. Forward Contracts and Foreign Currencies
The fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange
contract is an obligation by the Fund to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the origination
date of the contract. Forward foreign currency exchange contracts establish
an exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar. The aggregate principal amount of forward currency exchange
contracts is recorded in the Fund's accounts. All commitments are
marked-to-market at the applicable transaction rates resulting in unrealized
gains or losses. The Fund records realized gains or losses at the time the
forward contracts are extinguished by entry into a closing contract or by
delivery of the currency. Neither spot transactions nor forward currency
exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the
price of these securities should decline.
Securities quoted in foreign currencies are translated into U.S. dollars at
the current exchange rate. Gains and losses that arise from changes in
exchange rates are not segregated from gains and losses that arise from
changes in market prices of investments.
C. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
D. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of
the Fund. Interest income is accrued daily as earned. Dividend income is
accrued on the ex-dividend date. Discount on debt obligations is amortized
under the effective yield method. Certain fixed income securities held by the
Fund pay interest or dividends in the form of additional securities
(payment-in-kind securities). Interest income on payment-in-kind fixed income
securities is recorded using the effective-interest method. Dividend income
on payment-in-kind preferred securities is recorded at the market value of
securities received. The Fund is charged for expenses directly attributable
to it, while indirect expenses are allocated among all funds in the Trust.
E. Dividends
Dividends from net investment income are declared and paid or
reinvestedquarterly. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicabletax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing
treatments for foreign currency transactions, paydown gains and losses and
wash sale deferrals.
F. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1994
through March 31, 1995, the Fund incurred net capital losses of $9,216,832
and has deferred and treated such losses as arising in the fiscal year ended
March 31, 1996.
G. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.75% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended March 31, 1997, the fees pursuant to
such agreement amounted to $3,692,033.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance
of the accounts of certain shareholders who are participants in sponsored
arrangements, such as employee benefit plans, through or under which shares
of the Fund may be purchased. During the year ended March 31, 1997, the
amount of such expenses was $275,962.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $28,894 during the year ended March 31, 1997.
15
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended March 31, 1997, the amount of such expenses
assumed by the Distributor and its affiliates was $475,396.
Note 4
For the year ended March 31, 1997, purchases and sales of securities,
exclusive of short-term obligations and forward foreign currency exchange
contracts, aggregated $547,388,033 and $490,693,454 (including $62,847,769
and $49,513,359 of U.S. Government obligations), respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
pays annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class D shares. The Distributor uses such payments for personal
services and/or the maintenance of shareholder accounts, to reimburse
securities dealers for distribution and mar- keting services, to furnish
ongoing assistance to investors and to defray a portion of its distribution
and marketing expenses. For the year ended March 31, 1997, fees pursuant to
such plan amounted to $574,953, $2,248,670 and $154,456 for Class A, Class B
and Class D shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $158,495 and $1,045,013, respectively, on sales of Class A shares
of the Fund during the year ended March 31, 1997, and that MetLife
Securities, Inc. earned commissions aggregating $1,972,843 on sales of Class
B shares, and the Distributor collected contingent deferred sales charges
aggregating $387,778 and $1,277 on redemptions of Class B and Class D shares,
respectively, during the same period.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At March 31, 1997, the Distributor owned one Class A share and Metropolitan
owned 1,019 Class B shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended March 31
-------------------------------------------------------------
1997 1996
---------------------------- ------------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,746,853 $ 50,499,204 3,142,066 $ 30,625,584
Issued upon reinvestment of:
Dividends from net investment income 558,830 5,876,689 505,011 4,934,090
Distributions from net realized gains 1,699,169 17,870,060 307,042 2,969,095
Shares repurchased (3,698,792) (39,318,613) (4,460,168) (43,019,460)
---------- ----------- ---------- -----------
Net increase (decrease) 3,306,060 $ 34,927,340 (506,049) $ (4,490,691)
========== =========== ========== ===========
<CAPTION>
Class B Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,191,667 $ 65,679,543 3,862,169 $ 37,612,607
Issued upon reinvestment of:
Dividends from net investment income 389,723 4,088,191 332,475 3,235,190
Distributions from net realized gains 1,680,278 17,607,323 281,171 2,710,479
Shares repurchased (2,845,172) (30,131,674) (3,052,294) (29,408,533)
---------- ----------- ---------- -----------
Net increase 5,416,496 $ 57,243,383 1,423,521 $ 14,149,743
========== =========== ========== ===========
<CAPTION>
Class C Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 718,397 $ 7,645,927 1,072,850 $ 10,385,513
Issued upon reinvestment of:
Dividends from net investment income 60,113 631,951 84,178 819,983
Distributions from net realized gains 168,533 1,771,442 50,697 489,441
Shares repurchased (802,252) (8,601,591) (2,251,394) (22,256,352)
---------- ----------- ---------- -----------
Net increase (decrease) 144,791 $ 1,447,729 (1,043,669) $(10,561,415)
========== =========== ========== ===========
<CAPTION>
Class D Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 594,410 $ 6,307,999 252,653 $ 2,474,692
Issued upon reinvestment of:
Dividends from net investment income 25,583 268,626 22,570 219,580
Distributions from net realized gains 110,940 1,163,717 18,905 182,432
Shares repurchased (319,082) (3,367,499) (482,326) (4,653,189)
---------- ----------- ---------- -----------
Net increase (decrease) 411,851 $ 4,372,843 (188,198) $ (1,776,485)
========== =========== ========== ===========
</TABLE>
16
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------
Year ended March 31
--------------------------------------------------------
1997*** 1996*** 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 10.29 $ 8.76 $ 8.94 $ 8.94 $ 8.22
Net investment income* 0.21 0.23 0.27 0.22 0.27
Net realized and unrealized
gain (loss) on investments,
foreign currency and
forward contracts 1.05 1.72 (0.14) 0.72 1.01
--------- --------- --------- --------- ---------
Total from investment
operations 1.26 1.95 0.13 0.94 1.28
--------- --------- --------- --------- ---------
Dividends from net
investment income (0.28) (0.26) (0.17) (0.22) (0.25)
Distributions from net
realized gains (0.87) (0.16) (0.14) (0.72) (0.31)
--------- --------- --------- --------- ---------
Total distributions (1.15) (0.42) (0.31) (0.94) (0.56)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 10.40 $ 10.29 $ 8.76 $ 8.94 $ 8.94
========= ========= ========= ========= =========
Total return 12.49%+ 22.55%+ 1.52%+ 10.96%+ 16.54%+
Net assets at end of year
(000s) $244,348 $207,713 $181,358 $166,011 $93,537
Ratio of operating expenses
to average net assets* 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment
income to average net
assets* 2.02% 2.34% 3.11% 2.75% 3.26%
Portfolio turnover rate 108.41% 109.20% 89.58% 105.17% 142.86%
Average commission rate@ $ 0.0266 -- -- -- --
*Reflects voluntary
assumption of fees
or expenses per share in
each year (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.02 $ 0.02
</TABLE>
Class B
----------------------------------------------
Year ended March 31
----------------------------------------------
1997*** 1996*** 1995 1994**
- -----------------------------------------------------------------------------
Net asset value, beginning
of year $ 10.25 $ 8.74 $ 8.92 $ 8.78
Net investment income* 0.13 0.15 0.20 0.16
Net realized and unrealized
gain (loss) on investments,
foreign currency and
forward contracts 1.06 1.71 (0.13) 0.39
--------- --------- --------- ----------
Total from investment
operations 1.19 1.86 0.07 0.55
--------- --------- --------- ----------
Dividends from net
investment income (0.20) (0.19) (0.11) (0.18)
Distributions from net
realized gains (0.87) (0.16) (0.14) (0.23)
--------- --------- --------- ----------
Total distributions (1.07) (0.35) (0.25) (0.41)
--------- --------- --------- ----------
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%++
Ratio of net investment
income to average net
assets* 1.27% 1.59% 2.38% 2.03%++
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 (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.03
- --------------------------------------------------------------------------------
++ Annualized.
** June 1, 1993 (commencement of share class designations) to March 31, 1994.
*** Per-share figures have been calculated using the average shares method.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
@ For fiscal years beginning on or after April 1, 1996, the Fund is required
to disclose its average commission rate per share paid for security trades.
17
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<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* 0.24 0.25 0.29 0.21
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts 1.05 1.71 (0.14) 0.43
-------- -------- -------- ---------
Total from investment operations 1.29 1.96 0.15 0.64
-------- -------- -------- ---------
Dividends from net investment income (0.31) (0.28) (0.19) (0.24)
Distributions from net realized
gains (0.87) (0.16) (0.14) (0.23)
-------- -------- -------- ---------
Total distributions (1.18) (0.44) (0.33) (0.47)
-------- -------- -------- ---------
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%++
Ratio of net investment income to
average net assets* 2.26% 2.59% 3.37% 3.03%++
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 (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
Class D
-----------------------------------------
Year ended March 31
-----------------------------------------
1997*** 1996*** 1995 1994**
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.27 $ 8.75 $ 8.93 $ 8.78
Net investment income* 0.13 0.15 0.20 0.16
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts 1.05 1.72 (0.13) 0.40
-------- -------- -------- ---------
Total from investment operations 1.18 1.87 0.07 0.56
-------- -------- -------- ---------
Dividends from net investment income (0.20) (0.19) (0.11) (0.18)
Distributions from net realized
gains (0.87) (0.16) (0.14) (0.23)
-------- -------- -------- ---------
Total distributions (1.07) (0.35) (0.25) (0.41)
-------- -------- -------- ---------
Net asset value, end of year $ 10.38 $ 10.27 $ 8.75 $ 8.93
======== ======== ======== =========
Total return 11.64%+ 21.54%+ 0.82%+ 6.31%+++
Net assets at end of year (000s) $17,485 $13,061 $12,772 $ 7,117
Ratio of operating expenses to
average net assets* 2.00% 2.00% 2.00% 2.00%++
Ratio of net investment income to
average net assets* 1.26% 1.60% 2.39% 2.03%++
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 (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.03
</TABLE>
- --------------------------------------------------------------------------------
++ Annualized.
** June 1, 1993 (commencement of share class designations) to March 31, 1994.
*** Per-share figures have been calculated using the average shares method.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
@ For fiscal years beginning on or after April 1, 1996, the Fund is required
to disclose its average commission rate per share paid for security trades.
18
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research Income Trust and
the Shareholders of State Street Research Managed Assets
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research
Managed Assets (a series of State Street Research Income Trust, hereafter
referred to as the "Trust") at March 31, 1997, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at March 31, 1997, by
correspondence with the custodian and brokers and the application of
alternative procedures where confirmations from brokers were not received,
provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
May 9, 1997
19
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
Managed Assets provided shareholders with consistent performance during the
year, in line with its broadly diversified portfolio. For the 12 months ended
March 31, 1997, Class A shares returned +12.49% (does not reflect sales
charge). The Fund outperformed the average for Lipper Analytical Services'
Flexible Portfolio Funds, which was +10.13% for 196 fund classes.
It was a year of generally rising stock prices that peaked in mid-March of
1997 and then experienced a modest correction during the last weeks of the
period. Returns were positive in all areas in which the Fund invests, but
varied considerably among asset classes. The Fund's overweighting in stocks
helped performance, particularly the portfolio's value stock and
inflation-responsive holdings. Small-company stocks, which had made a very
strong contribution early in the year, were hit hardest in the first quarter
of 1997 and dampened Fund performance.
Bond returns improved over the year. High-yield bonds continued as the top
performers and international bonds rebounded from their disappointing returns
the year before.
The Fund's asset allocation changed little during the year. The portfolio
continued its emphasis on stocks, with the equity allocation increasing from
54% on March 31, 1996 to 55% a year later. Bond allocation decreased from 27%
to 25%, inflation-responsive holdings remained steady at 12%, and cash
increased slightly from 7% to 8%.
March 31, 1997
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Performance for a class may include
periods prior to the adoption of class designations in 1993, which resulted
in new or increased 12b-1 fees of up to 1% per class thereafter and which
will reduce subsequent performance. Performance reflects maximum 4.5% "A"
share front-end sales charge, or 5% "B" share or 1% "D" share contingent
deferred sales charges, where applicable. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and large
institutions. The Standard & Poor's 500 Composite Index (S&P 500) includes
500 widely traded common stocks and is a commonly used measure of U.S. stock
market performance. The Lehman Brothers Government/Corporate Bond Index is a
commonly used measure of bond market performance. The indices are unmanaged
and do not take transaction charges into consideration. Direct investment in
the indices is not possible; results are for illustrative purposes only.
Change In Value of $10,000 Based On The S&P 500
And The Lehman Brothers Government/Corporate Index
Compared To Change In Value of $10,000 Invested In
Managed Assets
Class A Shares
- ---------------------------------
Average Annual Total Return
- ---------------------------------
1 Year 5 Years Life of Fund
- ---------------------------------
+7.43% +11.56% +10.92%
- ---------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
12/88 9550 10000 10000
3/89 9957 10111 10708
3/90 11030 11293 12767
3/91 11478 12703 14603
3/92 13003 14149 16212
3/93 15154 16172 18678
3/94 16815 16621 18951
3/95 17070 17381 21896
3/96 20918 19280 28918
3/97 23531 20140 34649
Class B Shares
- ---------------------------------
Average Annual Total Return
- ---------------------------------
1 Year 5 Years Life of Fund
- ---------------------------------
+6.76% +11.70% +11.15%
- ---------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
12/88 10000 10000 10000
3/89 10426 10111 10708
3/90 11550 11293 12767
3/91 12019 12703 14603
3/92 13616 14149 16212
3/93 15868 16172 18678
3/94 17495 16621 18951
3/95 17638 17381 21896
3/96 21425 19280 28918
3/97 23945 20140 34649
Class C Shares
- ---------------------------------
Average Annual Total Return
- ---------------------------------
1 Year 5 Years Life of Fund
- ---------------------------------
+12.77% +12.80% +11.66%
- ---------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
12/88 10000 10000 10000
3/89 10426 10111 10708
3/90 11550 11293 12767
3/91 12019 12703 14603
3/92 13616 14149 16212
3/93 15868 16172 18678
3/94 17661 16621 18951
3/95 17974 17381 21896
3/96 22053 19280 28918
3/97 24869 20140 34649
Class D Shares
- ---------------------------------
Average Annual Total Return
- ---------------------------------
1 Year 5 Years Life of Fund
- ---------------------------------
+10.64% +11.95% +11.15%
- ---------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
12/88 10000 10000 10000
3/89 10426 10111 10708
3/90 11550 11293 12767
3/91 12019 12703 14603
3/92 13616 14149 16212
3/93 15868 16172 18678
3/94 17504 16621 18951
3/95 17647 17381 21896
3/96 21449 19280 28918
3/97 23945 20140 34649
20
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
REPORT ON SPECIAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
Report on Special Meeting of ShareholdersA Special Meeting of Shareholders of
State Street Research Managed Assets ("Fund"), along with shareholders of
other series of State Street Research Income Trust ("Meeting"), was convened
on July 19, 1996. The results of the Meeting are set forth below.
Votes (millions
of shares)
------------------
For Withheld
----- ----------
1. The following persons were elected as Trustees:
Thomas L. Phillips 97.9 2.6
Toby Rosenblatt 98.2 2.3
Ralph F. Verni 98.0 2.5
<TABLE>
<CAPTION>
Votes (millions
of shares)
---------------------
Proposal For Against Abstain
--- ------- -------
<S> <C> <C> <C>
2. The Fund's following investment policies were
reclassified from fundamental to nonfundamental:
a. The policy regarding investments in securities of
companies with less than three (3) years'
continuous operation 19.9 1.3 1.8
b. The policy regarding investments in illiquid
securities. 19.7 1.4 1.9
3. The Fund's fundamental policy regarding investments in
commodities and commodity contracts was amended. 19.6 1.4 1.9
5. The Fund's fundamental policies regarding
diversification of investments were amended 20.1 1.1 1.8
6. The Fund's fundamental policy regarding industry
concentration was amended. 19.8 1.2 2.0
8. The Master Trust Agreement was amended to permit the
Trustees to reorganize, merge or liquidate a fund
without prior shareholder approval. 83.0 9.8 7.6
9. The Master Trust Agreement was amended to eliminate
specified time permitted between the record date and
any shareholders meeting. 86.2 6.3 8.0
</TABLE>
21
<PAGE>
STATE STREET RESEARCH INCOME TRUST
PART C
OTHER INFORMATION
Item 24: Financial Statements and Exhibits**
(a) Financial Statements
(1) Financial Statements included in PART A (Prospectus) of this
Registration Statement:
Financial Highlights for State Street Research High Income Fund
for the fiscal years ended March 31, 1988 through March 31, 1997.
Financial Highlights for State Street Research Managed
Assets for the period December 29, 1988 (commencement of
operations) through March 31, 1997.
(2) Financial Statements included in Part B (Statement of Additional
Information) of this Registration Statement:
For State Street Research High Income Fund for the fiscal year
ended March 31, 1997 (except as provided below):
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
(Fiscal years ended March 31, 1997 and March 31, 1996)
Notes to Financial Statements
(including financial highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
Report on Special Meeting of Shareholders
For State Street Research Managed Assets for the fiscal year
ended March 31, 1997 (except as provided below):
C-1
<PAGE>
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
(Fiscal years ended March 31, 1997 and March 31, 1996)
Notes to Financial Statements
(including financial highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
Report on Special Meeting of Shareholders
(b) Exhibits
(1)(a) First Amended and Restated Master Trust Agreement and
Amendment No. 1 to First Amended and Restated Master Trust
Agreement (16)
(1)(b) Amendment No. 2 to First Amended and Restated Master
Trust Agreement (17)
(1)(c) Amendment No. 3 to First Amended and Restated Master
Trust Agreement (17)
(1)(d) Form of Amendment No. 4 to First Amended and Restated Master
Trust Agreement (17)
(2)(a) By-Laws of the Registrant (1)***
(2)(b) Amendment No. 1 to By-Laws effective September 30, 1992
(11)***
(3) Not applicable
(5)(a) Advisory Agreement with MetLife - State Street Investment
Services, Inc. (2)*, ***
(5)(c) Letter Agreement with respect to the Advisory Agreement
relating to MetLife - State Street Managed Assets (9)**, ***
(5)(e) Transfer and Assumption of Responsibilities and Rights
relating to the Advisory Agreement between State Street
Financial Services, Inc. and State Street Research &
Management Company (11)*, ***
(6)(a) Distribution Agreement with MetLife - State Street Investment
Services, Inc. (2)*, ***
(6)(b) Form of Selected Dealer Agreement, as Supplemented (17)
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement (17)
(6)(d) Letter Agreement with respect to the Distribution Agreement
relating to MetLife - State Street Managed Assets (9)**, ***
(7) Not applicable
(8)(a) Custodian Contract with State Street Bank and Trust Company
(2)***
(8)(b) Letter Agreement with respect to the Custodian Contract
relating to MetLife - State Street Managed Assets (9)**, ***
(8)(c) Amendment to the Custodian Contract with State Street Bank and
Trust Company dated January 12, 1989 (7)***
(8)(d) Amendment to the Custodian Contract with State Street Bank and
Trust Company dated November 2, 1995
(9) Not applicable
(10)(a) Opinion and Consent of Goodwin, Procter & Hoar with respect to
MetLife - State Street High Income Fund (2)**, ***
(10)(b) Opinion and Consent of Goodwin, Procter & Hoar with respect to
MetLife - State Street Managed Assets (6)**, ***
C-2
<PAGE>
(11) Consent of Price Waterhouse LLP
(12) Not applicable
(13)(a) Purchase Agreement and Investment Letter (2)***
(13)(b) Purchase Agreement and Investment Letter (2)***
(13)(c) Purchase Agreement and Investment Letter -- MetLife - State
Street Managed Assets (9)**, ***
(14)(a) State Street Research IRA: Disclosure Statement, Forms
Booklet and Transfer of Assets/Direct Rollover Form (17)
(14)(b) State Street Research 403(b) Materials
(15) First Amended and Restated Plan of Distribution Pursuant to
Rule 12b-1 (12)***
(16)(a) Calculation of Performance Data with respect to MetLife -
State Street High Income Fund (4)**, ***
(16)(b) Calculation of Performance Data with respect to MetLife -
State Street Managed Assets (7)**, ***
(16)(c) Calculation of Distribution Rate (8)***
(17) First Amended and Restated Multiple Class Expense Allocation
Plan (17)
(18) Powers of Attorney
(19) Certificate of Board Resolution Respecting Powers of Attorney
(20) Application Forms
(27) Financial Data Schedules
- ----------
* MetLife - State Street Investment Services, Inc. changed its name to State
Street Financial Services, Inc. effective as of June 18, 1992, and
subsequently changed its name to State Street Research Investment Services,
Inc. effective October 28, 1992. Documents in this listing of Exhibits
which were effective prior to the most recent name change accordingly refer
to MetLife - State Street Investment Services, Inc. or State Street
Financial Services, Inc.
** The Series of the Registrant have changed their names at various times.
Documents in this listing of Exhibits which were effective prior to the
most recent name change accordingly refer to a former name of the Series.
*** Restated in electronic format in Post-Effective Amendment No. 17, filed on
July 3, 1997.
C-3
<PAGE>
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote Securities Act of 1933
Reference Registration/Amendment Date Filed
--------- ---------------------- ----------
1 Initial Registration January 15, 1986
2 Pre-Effective Amendment No. 1 August 12, 1986
3 Post-Effective Amendment No. 1 April 30, 1987
4 Post-Effective Amendment No. 2 June 3, 1988
5 Post-Effective Amendment No. 3 October 26, 1988
6 Post-Effective Amendment No. 4 December 23, 1988
7 Post-Effective Amendment No. 5 June 23, 1989
8 Post-Effective Amendment No. 7 July 31, 1990
9 Post-Effective Amendment No. 8 July 31, 1991
10 Post-Effective Amendment No. 9 August 1, 1992
11 Post-Effective Amendment No. 10 April 1, 1993
12 Post-Effective Amendment No. 11 June 1, 1993
13 Post-Effective Amendment No. 12 November 18, 1993
14 Post-Effective Amendment No. 14 July 28, 1994
15 Post-Effective Amendment No. 16 April 28, 1995
to the Registration Statement of
MetLife-State Street Equity Trust
(Securities Act of 1933 Registration
No. 33-4296, Investment Company
Act of 1940 File No. 811-4624)
16 Post-Effective Amendment No. 15 July 31, 1995
17 Post-Effective Amendment No. 16 May 31, 1996
Item 25: Persons Controlled by or under Common Control with Registrant
Inapplicable.
Item 26. Number of Holders of Securities
As of May 31, 1997, the number of record holders of the Registrant's
Funds were as follows:
(1) (2)
Number of
Title of Class Record Holders
Shares of Beneficial Interest
State Street Research High Income Fund
Class A 33,555
Class B 9,841
Class C 185
Class D 558
C-4
<PAGE>
State Street Research Managed Assets
Class A 20,266
Class B 15,814
Class C 169
Class D 637
Item 27. Indemnification
Under Article VI of the Registrant's First Amended and Restated Master
Trust Agreement each of its Trustees and officers or persons serving in such
capacity with another entity at the request of the Registrant ("Covered Person")
shall be indemnified against all liabilities, including, but not limited to,
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person, in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person had acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office (such conduct referred to hereafter as "Disabling Conduct"). A
determination that the Covered Person is entitled to indemnification may be made
by (i) a final decision on the merits by a court or other body before which the
proceeding was brought that the person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for insufficiency of evidence
of Disabling Conduct, or (iii) a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by reason of Disabling Conduct
by (a) a vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Registrant as defined in section 2(a)(19) of the 1940 Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion.
Under the Distribution Agreement between the Registrant and State Street
Research Investment Services, Inc., the Registrant's distributor, the Registrant
has agreed to indemnify and hold harmless State Street Research Investment
Services, Inc. and each person who has been, is, or may hereafter be an officer,
director, employee or agent of State Street Research
C-5
<PAGE>
Investment Services, Inc. against any loss, damage or expense reasonably
incurred by any of them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party, which arises out
of or is alleged to arise out of or is based upon a violation of any of its
covenants herein contained or any untrue or alleged untrue statement of material
fact, or the omission or alleged omission to state a material fact necessary to
make the statements made not misleading, in a Registration Statement or
Prospectus of the Registrant, or any amendment or supplement thereto, unless
such statement or omission was made in reliance upon written information
furnished by State Street Research Investment Services, Inc.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to trustees, officers, underwriters
and controlling persons of the Registrant, pursuant to Article VI of the
Registrant's First Amended and Restated Master Trust Agreement, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
C-6
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
State Street Investment Adviser Various investment Boston, MA
Research & advisory clients
Management
Company
Arpiarian, Tanya None
Vice President
Bangs, Linda L. None
Vice President
Barton, Michael E. None
Vice President
Bennett, Peter C. Vice President State Street Research Capital Trust Boston, MA
Director and Vice President State Street Research Exchange Trust Boston, MA
Executive Vice Vice President State Street Research Financial Trust Boston, MA
President Vice President State Street Research Growth Trust Boston, MA
State Street Research Income Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Director State Street Research Investment Services, Inc Boston, MA
Director Boston Private Bank & Trust Co. Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Bochman, Kathleen None
Vice President
Bray, Michael J. Employee Merrill Lynch & Co. Boston, MA
Vice President (until 4/96)
Brown, Susan H. None
Vice President
Buffum, Andrea Project Manager BankBoston Boston, MA
(until 12/96)
Managing Director State Street Global Advisors Boston, MA
(until 12/95)
Burbank, John F. None
Senior Vice President
(Vice President
until 7/96)
Cabrera, Jesus A. Vice President First Chicago Investment Management Co. Chicago, IL
Vice President (until 5/96)
Vice President State Street Research Capital Trust Boston, MA
Canavan, Joseph W. Assistant Treasurer State Street Research Equity Trust Boston, MA
Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust Boston, MA
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
C-7
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Carmen, Michael T. Portfolio Manager Montgomery Asset Management San Francisco, CA
Vice President (until 11/96)
Vice President State Street Research & Management Company Boston, MA
(until 4/96)
Vice President State Street Research Capital Trust Boston, MA
Carstens, Linda C. None
Vice President
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President
D'Vari, Ronald None
Vice President
DeVeuve, Donald None
Vice President
DiFazio, Susan M.W. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Dillman, Thomas J.
Senior Vice President
Drake, Susan W. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President (until 2/96)
Duggan, Peter J. None
Senior Vice
President
Evans, Gordon Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President (Vice President
until 3/96)
Even, Karen None
Vice President
Federoff, Alex G. None
Vice President
Fee, Jr., Richard E. Employee Cigna Financial Advisors Hartford, CT
Vice President
Feliciano, Rosalina None
Vice President
Gardner, Michael D. Partner Prism Group Seattle, WA
Senior Vice President
(Vice President until
6/95)
Geer, Bartlett R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
C-8
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Govoni, Electra None
Vice President
Granger, Allison None
Vice President
Hamilton, Jr., William A. Treasurer and Director Ellis Memorial and Eldredge House Boston, MA
Senior Vice President Treasurer and Director Nautical and Aviation Publishing Company, Inc. Baltimore, MD
Treasurer and Director North Conway Institute Boston, MA
Hanson, Phyllis None
Vice President
Haverty, Jr., Lawrence J. None
Senior Vice President
Heineke, George R. None
Vice President
Jackson, Jr., Trustee Certain trusts of related and
F. Gardner non-related individuals
Senior Vice President Trustee and Chairman of the Board Vincent Memorial Hospital Boston, MA
Jamieson, Frederick H. Vice President and Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Senior Vice President Vice President and Asst. Treasurer SSRM Holdings, Inc. Boston, MA
Vice President and Controller MetLife Securities, Inc. New York, NY
Assistant Treasurer State Street Research Energy, Inc. Boston, MA
Kallis, John H. Vice President State Street Research Financial Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Director and President K&G Enterprises Washington, D.C.
Kasper, M. Katherine None
Vice President
C-9
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Vice President
Kobrick, Frederick R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice Vice President State Street Research Capital Trust Boston, MA
President Vice President State Street Research Growth Trust Boston, MA
Member Harvard Business School Association Cambridge, MA
Member National Alumni Council, Boston University Boston, MA
Langholm, Knut None
Vice President
Leary, Eileen M. None
Vice President
McNamara, III, Francis J. Senior Vice President, Clerk State Street Research Investment Services, Inc. Boston, MA
Executive and General Counsel
Vice President, Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
Secretary and Secretary and General Counsel State Street Research Capital Trust Boston, MA
General Counsel Secretary and General Counsel State Street Research Exchange Trust Boston, MA
(Senior Vice President Secretary and General Counsel State Street Research Growth Trust Boston, MA
until 7/96) Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel State Street Research Equity Trust Boston, MA
Secretary and General Counsel State Street Research Financial Trust Boston, MA
Secretary and General Counsel State Street Research Income Trust Boston, MA
Secretary and General Counsel State Street Research Money Market Trust Boston, MA
Secretary and General Counsel State Street Research Portfolios, Inc. Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
Clerk and Director State Street Research Energy, Inc. Boston, MA
C-10
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Maus, Gerard P. Treasurer State Street Research Equity Trust Boston, MA
Director, Executive Treasurer State Street Research Financial Trust Boston, MA
Vice President Treasurer State Street Research Income Trust Boston, MA
and Treasurer Treasurer State Street Research Money Market Trust Boston, MA
Treasurer State Street Research Tax-Exempt Trust Boston, MA
Treasurer State Street Research Capital Trust Boston, MA
Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Portfolios, Inc. Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Treasurer and Chief Financial Officer
Director and Treasurer State Street Research Energy, Inc. Boston, MA
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Treasurer and Chief Financial SSRM Holdings, Inc. Boston, MA
Officer
Treasurer MetLife - Securities, Inc. New York, NY
Milder, Judith J. None
Senior Vice
President
(Vice President
until 6/95)
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice
President
(Vice President
until 7/96)
Moore, Jr., Thomas P. Vice President State Street Research Capital Trust Boston, MA
Senior Vice (until 11/96)
President Vice President State Street Research Exchange Trust Boston, MA
(until 2/97)
Vice President State Street Research Growth Trust Boston, MA
(until 2/97)
Vice President State Street Research Master Investment Trust Boston, MA
(until 2/97)
Vice President State Street Research Equity Trust Boston, MA
Director Hibernia Savings Bank Quincy, MA
Governor on the Association for Investment Management and Charlottesville, VA
Board of Governors Research
Mulligan, JoAnne C. Vice President State Street Research Money Market Trust Boston, MA
Senior Vice
President
(Vice President
until 7/96)
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
C-11
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Paddon, Steven W. Employee Metropolitan Life Insurance Company New York, NY
Vice President (until 10/96)
Pannell, James C. None
Senior Vice
President
(Vice President
until 4/97)
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice
President
Poritzky, Dean Employee Fidelity Managed Research Company Boston, MA
Vice President (until 3/97)
Ragsdale, E.K. Easton None
Senior Vice
President
(Vice President
until 7/96)
Rawlins, Jeffrey A. None
Senior Vice
President
(Vice President
until 7/96)
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Richards, Scott None
Vice President
Romich, Douglas A. Assistant Treasurer State Street Research Equity Trust Boston, MA
Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
Saperstone, Paul None
Vice President
C-12
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Schrage, Michael None
Vice President
Schultz, David C. Director and Treasurer Mafraq Hospital Association Mafraq, Jordan
Executive Vice Member Association of Investment
President Management Sales Executives Atlanta, GA
Member, Investment Committee Lexington Christian Academy Lexington, MA
Shaver, Jr., C. Troy President and Chief Executive State Street Research Investment Services, Inc. Boston, MA
Executive Vice Officer
President President and Chief Executive John Hancock Funds, Inc. Boston, MA
Officer (until 1/96)
Shean, William G. None
Vice President
Shively, Thomas A. Vice President State Street Research Financial Trust Boston, MA
Director and Vice President State Street Research Money Market Trust Boston, MA
Executive Vice Vice President State Street Research Tax-Exempt Trust
President Director State Street Research Investment Services, Inc Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Shoemaker, Richard D. None
Senior Vice President
Strelow, Dan R. None
Senior Vice President
C-13
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Swanson, Amy McDermott None
Senior Vice President
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
Verni, Ralph F. Chairman, President, Chief State Street Research Capital Trust Boston, MA
Chairman, President, Executive Officer and Trustee
Chief Executive Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Growth Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Master Investment Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Securities Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Equity Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Financial Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Income Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Money Market Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Portfolios, Inc. Boston, MA
Executive Officer and Director
Chairman, President, Chief State Street Research Tax-Exempt Trust Boston, MA
Executive Officer and Trustee
Chairman and Director State Street Research Investment Services, Inc. Boston, MA
(President and Chief
Executive Officer until 2/96)
President and Director State Street Research Energy, Inc. Boston, MA
Chairman and Director Metric Holdings, Inc. San Francisco, CA
Director and Officer Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Chairman of the Board and Director MetLife Securities, Inc. New York, NY
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director CML Group, Inc. Boston, MA
Director Colgate University Hamilton, NY
C-14
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wade, Dudley Vice President State Street Research Growth Trust Boston, MA
Freeman Vice President State Street Research Master Investment Trust Boston, MA
Senior Vice
President
Wallace, Julie K. None
Vice President
Ward, Geoffrey None
Senior Vice President
Weiss, James M. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Chief Investment Officer IDS Equity Advisory Group, Inc. Minneapolis, MN
(until 12/95)
Westvold, Vice President State Street Research Securities Trust Boston, MA
Elizabeth McCombs
Senior Vice
President
(Vice President
until 7/96)
Wilson, John T. Vice President State Street Research Capital Trust Boston, MA
Vice President Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President Phoenix Investment Counsel, Inc. Hartford, CT
(until 6/96)
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Vice President, Asst. Clerk
Assistant Secretary
and Assistant Assistant Secretary State Street Research Capital Trust Boston, MA
General Counsel Assistant Secretary State Street Research Exchange Trust Boston, MA
Assistant Secretary State Street Research Growth Trust Boston, MA
Assistant Secretary State Street Research Master Investment Trust Boston, MA
Assistant Secretary State Street Research Securities Trust Boston, MA
Assistant Secretary State Street Research Equity Trust Boston, MA
Assistant Secretary State Street Research Financial Trust Boston, MA
Assistant Secretary State Street Research Income Trust Boston, MA
Assistant Secretary State Street Research Money Market Trust Boston, MA
Assistant Secretary State Street Research Portfolios, Inc. Boston, MA
Assistant Secretary State Street Research Tax-Exempt Trust Boston, MA
Assistant Secretary SSRM Holdings, Inc. Boston, MA
Woodbury, Robert S. Employee Metropolitan Life Insurance Company New York, NY
Vice President
Woodworth, Jr., Kennard Vice President State Street Research Exchange Trust Boston, MA
Senior Vice Vice President State Street Research Growth Trust Boston, MA
President (until 2/96)
C-15
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
</TABLE>
C-16
<PAGE>
Item 29. Principal Underwriters
(a) State Street Research Investment Services, Inc. serves as principal
underwriter for State Street Research Equity Trust, State Street Research
Financial Trust, State Street Research Income Trust, State Street Research Money
Market Trust, State Street Research Tax-Exempt Trust, State Street Research
Capital Trust, State Street Research Master Investment Trust,
State Street Research Growth Trust, State Street Research Securities Trust and
State Street Research Portfolios, Inc.
(b) Directors and Officers of State Street Research Investment Services,
Inc. are as follows:
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------------
<S> <C> <C>
Ralph F. Verni Chairman of the Chairman of the
One Financial Center Board Board, President,
Boston, MA 02111 and Director Chief Executive Officer and
Trustee
C. Troy Shaver, Jr. President and None
One Financial Center Chief Executive
Boston, MA 02111 Officer
Peter C. Bennett Director None
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice Treasurer
One Financial Center President, Treasurer,
Boston, MA 02111 Chief Financial
Officer and Director
Thomas A. Shively Director None
One Financial Center
Boston, MA 02111
Dennis C. Barghann Senior Vice President None
One Financial Center
Boston, MA 02111
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-17
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------------
<S> <C> <C>
Paul V. Daly Senior Vice None
One Financial Center President
Boston, MA 02111
Susan M.W. DiFazio Senior Vice None
One Financial Center President
Boston, MA 02111
Gordon Evans Senior Vice None
One Financial Center President
Boston, MA 02111
Robert Haeusler Senior Vice None
One Financial Center President
Boston, MA 02111
Francis J. McNamara, III Senior Vice Secretary
One Financial Center President and Clerk
Boston, MA 02111
Gregory R. McMahan Senior None
One Financial Center Vice President
Boston, MA 02111
Joan D. Miller Senior None
One Financial Center Vice President
Boston, MA 02111
Richard P. Samartin Senior
One Financial Center Vice President None
Boston, MA 02111
Darman A. Wing Senior Vice Assistant Secretary
One Financial Center President and
Boston, MA 02111 Assistant Clerk
Donald Doherty Vice President None
One Financial Center
Boston, MA 02111
Linda Grasso Vice President None
One Financial Center
Boston, MA 02111
Robert Gunville Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-18
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------------
<S> <C> <C>
Frederick H. Jamieson Vice President None
One Financial Center and Assistant
Boston, MA 02111 Treasurer
Susan V. Martin Vice President None
One Financial Center
Boston, MA 02111
Amy L. Simmons Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-19
<PAGE>
Item 30. Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
(a) Inapplicable.
(b) Inapplicable.
(c) The Registrant has elected to include the information required by Item
5A of Form N-1A in its annual report to shareholders. The Registrant undertakes
to furnish each person to whom a prospectus is delivered with a copy of the
applicable fund's latest annual report to shareholders upon request and without
charge.
(d) The Registrant undertakes to hold a special meeting of shareholders for
the purpose of voting upon the question of removal of any trustee or trustees
when requested in writing to do so by the record holders of not less than 10 per
centum of the outstanding shares of the Registrant, and, in connection with such
meeting, to comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 relating to shareholder communications.
C-20
<PAGE>
Notice
A copy of the 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.
C-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 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 3rd 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
C-22
<PAGE>
* Trustee
- -------------------------
Dean O. Morton
* Trustee
- -------------------------
Thomas L. Phillips
* Trustee
- -------------------------
Toby Rosenblatt
* Trustee
- -------------------------
Michael S. Scott Morton
* Trustee
- -------------------------
Jeptha H. Wade
*By: /s/ Francis J. McNamara, III
-----------------------------
Francis J. McNamara, III
Attorney-in-Fact under
Powers of Attorney
filed July 3, 1997.
C-23
<PAGE>
1933 Act Registration No. 33-2697
1940 Act File No. 811-4559
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT [ ]
OF 1933
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 17 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ ]
Amendment No. 18 [X]
--------------------
STATE STREET RESEARCH INCOME TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
--------------------
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(2)(a) By-Laws of the Registrant*
(2)(b) Amendment No. 1 to By-Laws effective September 30, 1992*
(5)(a) Advisory Agreement with MetLife-State Street Investment Services, Inc.*
(5)(c) Letter Agreement with respect to the Advisory Agreement relating to
MetLife-State Street Managed Assets*
(5)(e) Transfer and Assumption of Responsibilities and Rights relating to the
Advisory Agreement between State Street Financial Services, Inc. and
State Street Research & Management Company*
(6)(a) Distribution Agreement with MetLife-State Street Investment Services,
Inc.*
(6)(d) Letter Agreement with respect to the Distribution Agreement relating to
MetLife-State Street Managed Assets*
(8)(a) Custodian Contract with State Street Bank and Trust Company*
(8)(b) Letter Agreement with respect to the Custodian Contract relating to
MetLife-State Street Managed Assets*
(8)(c) Amendment to the Custodian Contract with State Street Bank and Trust
Company dated January 12, 1989.*
(8)(d) Amendment to the Custodian Contract with State Street Bank and Trust
Company dated November 2, 1995.
(10)(a) Opinion and Consent of Goodwin, Procter & Hoar with respect to
MetLife-State Street High Income Fund*
(10)(b) Opinion and Consent of Goodwin, Procter & Hoar with respect to
MetLife-State Street Managed Assets*
(11) Consent of Price Waterhouse LLP
(13)(a) Purchase Agreement and Investment Letter*
(13)(b) Purchase Agreement and Investment Letter*
(13)(c) Purchase Agreement and Investment Letter--MetLife-State Street Managed
Assets*
(14)(b) State Street Research 403(b) Materials
(15) First Amended and Restated Plan of Distribution Pursuant to Rule 12b-1*
(16)(a) Calculation of Performance Data with respect to MetLife-State Street
High Income Fund*
(16)(b) Calculation of Performance Data with respect to MetLife-State Street
Managed Assets*
(16)(c) Calculation of Distribution Rate*
(18) Powers of Attorney
(19) Certificate of Board Resolution
(20) Application Forms
(27) Financial Data Schedules
*Restated in electronic format
Exhibit (2)(a)
BY-LAWS
OF
METLIFE - STATE STREET INVESTMENT TRUST
ARTICLE 1
Agreement and Declaration
of Trust; Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject
to the Agreement and Declaration of Trust (also referred to as the Master Trust
Agreement), as from time to time in effect (the "Declaration of Trust"), of
MetLife - State Street Investment Trust, the Massachusetts business trust
established by the Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust
shall be located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2 Specia1 Meetings. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the Chairman of the Board of Trustees, the President or the Treasurer or by two
or more Trustees, sufficient notice thereof being given to each Trustee by the
Secretary or an Assistant Secretary or by the officer or the Trustees calling
the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the Trustee at his usual
or last known business or residence address or to give notice to him in person
or by telephone at least twenty-four hours before the meeting. Notice of a
meeting need not be given to any Trustee if a written waiver of notice, executed
by him before or after the meeting, is filed with the records of the meeting, or
to any Trustee who attends the meeting without protesting prior thereto or at
the commencement thereof the lack of notice to
<PAGE>
him. Neither notice of a meeting nor a waiver of a notice need specify the
purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees one-half of the Trustees then
in office shall constitute a quorum. Any meeting may be adjourned from time to
time by a majority of the votes cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned without further notice.
2.5 Participation by Telephone. One or more of the Trustees or of any
committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a
President, a Treasurer, a Secretary and such other officers, including a
Chairman of the Board of Trustees, one or more Vice Presidents, one or more
Assistant Treasurers and one or more Assistant Secretaries, if any, as the
Trustees from time to time may in their discretion elect. The Trust may also
have such agents as the Trustees from time to time may in their discretion
appoint. The Chairman of the Board of Trustees shall be a Trustee and may, but
need not be, a shareholder of the Trust; and any other officer may, but need not
be, a Trustee or shareholder of the Trust. Any two or more offices may be held
by the same person.
3.2 Election. The President, the Treasurer and the Secretary shall be
elected annually by the Trustees at a meeting held within the first four months
of the Trust's fiscal year. The meeting at which the officers are elected shall
be known as the annual meeting of Trustees. Other officers, if any, may be
elected or appointed by the Trustees at said meeting or at any other time.
Vacancies in any office may be filled at any time.
3.3 Tenure. The President, the Treasurer and the Secretary shall hold
office until the next annual meeting of the Trustees and until their respective
successors are chosen and qualified, or in each case until he sooner dies,
resigns, is removed or becomes disqualified. Each other officer shall hold
office and each agent shall retain authority at the pleasure of the Trustees.
2
<PAGE>
3.4 Powers. Subject to the other provisions of these By-Laws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.5 Chairman of the Board of Trustees. The Chairman of the Board of
Trustees, if any, shall preside at all meetings of the shareholders and of the
Trustees unless otherwise provided by the Trustees, and shall perform such other
duties and shall have such other powers as the Trustees may determine from time
to time.
3.6 President. The President shall be the chief executive officer of the
Trust. In the absence of the Chairman of the Board of Trustees, the President
shall preside at meetings of the shareholders and of the Trustees unless
otherwise provided by the Trustees.
3.7 Vice President. The Vice President, or if there be more than one
Vice President, the Vice Presidents in the order determined by the Trustees (or
if there be no such determination, then in the order of their election), shall
in the absence of the President or in the event of his inability or refusal to
act, perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall perform such other duties and have such other powers as the
Board of Trustees may from time to time prescribe.
3.8 Treasurer. The Treasurer shall be the chief financial and accounting
officer of the Trust, and shall, subject to the provisions of the Declaration of
Trust and to any arrangement made by the Trustees with a custodian, investment
adviser or manager, or transfer, shareholder servicing or similar agent, be in
charge of the valuable papers, books of account and accounting records of the
Trust, and shall have such other duties and powers as may be designated from
time to time by the Trustees or by the President.
3.9 Assistant Treasurer. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Trustees
(or if there be no such determination, then in the order of their election),
shall, in the absence of the Treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Trustees may from time to time prescribe.
3
<PAGE>
3.10 Secretary. The Secretary shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of the shareholders or Trustees, an Assistant
Secretary, or if there be none or if he is absent, a temporary secretary chosen
at such meeting, shall record the proceedings thereof in the aforesaid books.
3.11 Assistant Secretary. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Trustees (or
if there be no determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Trustees may from
time to time prescribe.
3.12 Resignations and Removals. Any Trustee or officer may resign at any
time by written instrument signed by him and delivered to the Chairman of the
Board of Trustees, the President or the Secretary or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. The Trustees may remove any officer elected by
them with or without cause. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee or officer resigning and no officer removed
shall have any right to any compensation for any period following his
resignation or removal, or any right to damages on account of such removal.
ARTICLE 4
Committees
4.1 General. The Trustees, by vote of a majority of the Trustees then in
office, may elect from their number an Executive Committee or other committees
and may delegate thereto some or all of their powers except those which by law,
by the Declaration of Trust, or by these By-Laws may not be delegated. Except as
the Trustees may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Trustees or in
such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-Laws for the Trustees themselves. All members
of such committees shall hold such offices at the pleasure of the Trustees. The
Trustees may abolish any such committee at any time. Any committee to which the
Trustees delegate any of their powers or duties shall keep
4
<PAGE>
records of its meetings and shall report its action to the Trustees. The
Trustees shall have power to rescind any action of any committee, but no such
rescission shall have retroactive effect.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. The fiscal year of the Trust shall be fixed by resolution of
the Trustees.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die
with the word "Massachusetts", together with the name of the Trust and the year
of its organization cut or engraved thereon, but, unless otherwise required by
the Trustees, the seal shall not be necessary to be placed on, and its absence
shall not impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President, any Vice President, or by the Treasurer and need not bear the
seal of the Trust.
5
<PAGE>
ARTICLE 9
Issuance of Share Certificates
9.1 Share Certificates. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates either in limited cases or to all shareholders. In that event, a
shareholder may receive a certificate stating the number of shares owned by him,
in such form as shall be prescribed from time to time by the Trustees. Such
certificate shall be signed by the President or a Vice President and by the
Treasurer or Assistant Treasurer. Such signatures may be facsimiles if the
certificate is signed by a transfer agent, or by a registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed or
whose facsimile signature has been placed on such certificate shall cease to be
such officer before such certificate is issued, it may be issued by the Trust
with the same effect as if he were such officer at the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificate to Pledgee. A pledgee of shares
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificate shall express on its face that it is
held as collateral security, and the name of the pledgor shall be stated
thereon, who alone shall be liable as a shareholder, and entitled to vote
thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of shares certificates to the Trust
for cancellation. Such surrender and cancellation shall not affect the ownership
of shares in the Trust.
6
<PAGE>
ARTICLE 10
Dealings with Trustees and Officers
10.1 General. Any Trustee, officer or other agent of the Trust may
acquire, own and dispose of shares of the Trust to the same extent as if he were
not a Trustee, officer or agent; and the Trustees may accept subscriptions to
shares or repurchase shares from any firm or company in which any Trustee,
officer or other agent of the Trust may have an interest.
ARTICLE 11
Amendments to the By-Laws
11.1 General. These By-Laws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
The foregoing By-Laws were adopted by the Board of Trustees on December
23, 1985.
/s/Constantine Hutchins, Jr.
------------------------------
Constantine Hutchins, Jr.
Secretary
7
Exhibit (2)(b)
MetLife - State Street Income Trust
Amendment No. 1 to the By-Laws
That the first sentence of Section 3.6 of Article III of the By-Laws be
the MetLife - State Street Income Trust is hereby amended to read as follows:
"Unless otherwise determined by the Trustees, the President shall be the
Chief Executive Officer of the Trust."
Effective as of :
September 30, 1992 /s/ Constantine Hutchins, Jr.
------------------------------
Constantine Hutchins, Jr.
Secretary
Exhibit (5)(a)
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this day of July, 1986, by and between
METLIFE - STATE STREET INVESTMENT SERVICES, INC., a corporation organized under
the laws of the Commonwealth of Massachusetts having its principal place of
business in Boston, Massachusetts (the "Manager"), and METLIFE - STATE STREET
INCOME TRUST, a Massachusetts business trust having its principal place of
business in Boston, Massachusetts (the "Trust").
WHEREAS, the Trust is engaged in business as an open-end diversified
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Manager is engaged principally in the business of rendering
investment management services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
in separate series with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust has established two series, the MetLife - State
Street High Income Fund and the MetLife - State Street Government Securities
Fund, such series (the "Initial Funds"), together with all other series
subsequently established by the Trust with respect to which the Manager renders
management and investment advisory services pursuant to the terms of this
Agreement, being herein collectively referred to as the "Funds" and individually
as a "Fund."
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
1. APPOINTMENT OF MANAGER.
(a) Initial Funds. The Trust hereby appoints the Manager to act as
manager and investment adviser to each of the Initial Funds for the period and
on the terms herein set forth. The Manager accepts such appointment and agrees
to render the services herein set forth, for the compensation herein provided.
(b) Additional Funds. In the event that the Trust establishes one or
more series of shares other than the Initial Funds with respect to which it
desires to retain the Manager to render management and investment advisory
services hereunder, it shall so notify the
<PAGE>
Manager in writing, indicating the advisory fee to be payable with respect to
the additional series of shares. If the Manager is willing to render such
services, it shall so notify the Trust in writing, whereupon such series of
shares shall become a Fund hereunder. In such event a writing signed by both the
Trust and the Manager shall be annexed hereto as a part hereof indicating that
such additional series of shares has become a Fund hereunder and reflecting the
agreed upon fee schedule for such Fund to the extent the provisions of Section 4
shall not apply with respect thereto.
2. DUTIES OF MANAGER.
The Manager, at its own expense, shall furnish the following services
and facilities to the Trust:
(a) Investment Program. The Manager shall (i) furnish continuously an
investment program for each Fund, (ii) determine (subject to the overall
supervision and review of the Board of Trustees of the Trust) what investments
shall be purchased, held, sold or exchanged by each Fund and what portion, if
any, of the assets of each Fund shall be held uninvested, and (iii) make changes
on behalf of the Trust in the investments of each Fund. The Manager shall also
manage, supervise and conduct the other affairs and business of the Trust and
each Fund thereof and matters incidental thereto, subject always to the control
of the Board of Trustees of the Trust and to the provisions of the Master Trust
Agreement and By-laws of the Trust, as amended, and the Prospectus of the Trust
as from time to time amended and in effect and the 1940 Act. Subject to the
foregoing, the Manager shall have the authority to engage one or more
sub-advisers in connection with the management of the Funds, which sub-advisers
may be affiliates of the Manager.
(b) Regulatory Reports. The Manager shall furnish to the Trust necessary
assistance in:
(i) the preparation of all reports now or hereafter required by
federal or other laws; and
(ii) the preparation of prospectuses, registration statements and
amendments thereto that may be required by federal or other laws or by the rules
or regulations of any duly authorized commission or administrative body.
(c) Office Space and Facilities. The Manager shall furnish the Trust
office space in the offices of the Manager, or in such other place or places as
may be agreed upon from time to time, and all necessary office facilities,
simple business equipment, supplies, utilities, and telephone service for
managing the affairs and investments of the Trust.
(d) Services of Personnel. The Manager shall provide all necessary
executive and administrative personnel for managing the affairs of the Trust,
including personnel to perform clerical, bookkeeping, accounting and other
office functions. These services are exclusive of the bookkeeping and accounting
services of any dividend disbursing agent,
<PAGE>
transfer agent, registrar or custodian. The Manager shall compensate all
personnel, officers and Trustees of the Trust if such persons are also employees
of the Manager or its affiliates.
(e) Fidelity Bond. The Manager shall arrange for providing and
maintaining a bond issued by a reputable insurance company authorized to do
business in the place where the bond is issued against larceny and embezzlement
covering each officer and employee of the Trust and/or the Manager who may
singly or jointly with others have access to funds or securities of the Trust,
with direct or indirect authority to draw upon such funds or to direct generally
the disposition of such funds. The bond shall be in such reasonable amount as a
majority of the Trustees who are not "interested persons" of the Trust, as
defined in the 1940 Act, shall determine, with due consideration given to the
aggregate assets of the Trust to which any such officer or employee may have
access. The premium for the bond shall be payable by the Trust in accordance
with paragraph 3(o).
(f) Portfolio Transactions. The Manager shall place all orders for the
purchase and sale of portfolio securities for the account of each Fund with
brokers or dealers selected by the Manager, although the Trust will pay the
actual brokerage commissions on portfolio transactions in accordance with
paragraph 3(d).
3. ALLOCATION OF EXPENSE
Except for the services and facilities to be provided by the Manager as
set forth in paragraph 2 above, the Trust assumes and shall pay all expenses for
all other Trust operations and activities and shall reimburse the Manager for
any such expenses incurred by the Manager (it being understood that the Trust
shall allocate such expenses between or among its Funds to the extent
contemplated by its Master Trust Agreement). The expenses to be borne by the
Trust shall include, without limitation:
(a) all expenses of organizing the Trust or forming any Fund thereof;
(b) the charges and expenses of any registrar, stock transfer or
dividend disbursing agent, shareholder servicing agent, custodian, or depository
appointed by the Trust for the safekeeping of its cash, portfolio securities and
other property, including the costs of servicing shareholder investment accounts
and bookkeeping, accounting and pricing services;
(c) the charges and expenses of auditors;
(d) brokerage commissions and other costs incurred in connection with
transactions in the portfolio securities of the Trust, including any portion of
such commissions attributable to brokerage and research services as defined in
Section 28(e) of the Exchange Act;
<PAGE>
(e) taxes, including issuance and transfer taxes, and corporate
registration, filing or other fees payable by the Trust to federal, state or
other governmental agencies;
(f) expenses, including the cost of printing certificates, relating to
the issuance of shares of the Trust;
(g) expenses involved in registering and maintaining registrations of
the Trust and of its shares with the Securities and Exchange Commission and
various states and other jurisdictions, including reimbursement of actual
expenses incurred by the Manager in performing such functions for the Trust, and
including compensation of persons who are employees of the Manager, in
proportion to the relative time spent on such matters;
(h) expenses related to the redemption of shares of the Trust, including
expenses attributable to any program of periodic redemption;
(i) expenses of shareholders' and Trustees' meetings, including meetings
of committees, and of preparing, printing and mailing proxy statements,
quarterly reports, semi-annual reports, annual reports and other communications
to existing shareholders;
(j) expenses of preparing and setting in type prospectuses, and expenses
of printing and mailing the same to existing shareholders (but not expenses of
printing and mailing of prospectuses and literature used for promotional
purposes);
(k) compensation and expenses of Trustees who are not "interested
persons" within the meaning of the 1940 Act;
(l) expense of maintaining shareholder accounts and furnishing, or
causing to be furnished, to each shareholder a statement of his account,
including the expense of mailing;
(m) charges and expenses of legal counsel in connection with matters
relating to the Trust, including, without limitation, legal services rendered in
connection with the Trust's corporate and financial structure and relations with
its shareholders, issuance of shares of the Trust, and registration and
qualification of securities under federal, state and other laws;
(n) the cost and expense of maintaining the books and records of the
Trust, including general ledger accounting;
(o) insurance premiums on fidelity, errors and omissions and other
coverages including the expense of obtaining and maintaining a fidelity bond as
required by Section 17(g) of the 1940 Act;
(p) interest payable on Trust borrowings; and
<PAGE>
(q) such other non-recurring expenses of the Trust as may arise,
including expenses of actions, suits, or proceedings to which the Trust is a
party and expenses resulting from the legal obligation which the Trust may have
to provide indemnity with respect thereto.
4. ADVISORY FEE.
For the services and facilities to be provided by the Manager as set
forth in paragraph 2 hereof, the Trust agrees that each Fund shall pay to the
Manager a monthly fee as soon as practical after the last day of each calendar
month, which fee shall be paid at a rate equal to sixty-five one hundredths of
one percent (.65%) on an annual basis of the average daily net asset value of
such Fund for such calendar month, commencing as of the date on which this
Agreement becomes effective with respect to such Fund.
In the case of commencement or termination of this Agreement with
respect to any Fund during any calendar month, the fee with respect to such Fund
for that month shall be reduced proportionately based upon the number of
calendar days during which this Agreement is in effect with respect to such
Fund, and the fee shall be computed based upon the average daily net asset value
of such Fund during such period.
5. EXPENSE LIMITATION.
The Manager agrees that if the total expenses of any Fund (exclusive of
interest, taxes, payments to fund certain distribution expenses pursuant to the
Trust's 12b-1 Distribution Plan, brokerage expenses and extraordinary items such
as litigation expenses) for any fiscal year of the Trust exceed the lowest
expense limitation imposed in any jurisdiction in which that Fund is then making
sales of its shares or in which its shares are then qualified for sale, if any,
the Manager will pay or reimburse such Fund for that excess up to the amount of
its advisory fees payable with respect to that Fund during that fiscal year. The
amount of the monthly advisory fee payable by any Fund under paragraph 4 hereof
shall be reduced to the extent that the monthly expenses of that Fund, on an
annualized basis, would exceed the foregoing limitation. At the end of each
fiscal year of the Trust, if the aggregate annual expenses chargeable to any
Fund for that year exceed the foregoing limitation based upon the average of the
monthly average net asset value of that Fund for the year, the Manager will
promptly reimburse that Fund for the amount of such excess to the extent not
already reimbursed by reduction of the monthly advisory fee, but if such
expenses are within the foregoing limitation, any excess amount previously
withheld from the monthly advisory fee during that fiscal year will be promptly
paid over to the Manager.
In the event that this Agreement (i) is terminated with respect to any
one or more Funds as of a date other than the last day of the fiscal year of the
Trust or (ii) commences with respect to one or more Funds as of a date other
than the first day of the fiscal year of the Trust, then the expenses of such
Fund or Funds shall be annualized and the Manager shall pay to, or receive from,
the applicable Fund or Funds a pro rata portion of the
<PAGE>
amount that the Manager would have been required to pay or would have been
entitled to receive, if any, had this Agreement been in effect with respect to
such Fund or Funds for the full fiscal year.
6. RELATIONS WITH TRUST.
Subject to and in accordance with the Master Trust Agreement and By-laws
of the Trust and the Articles of Organization and By-laws of the Manager, it is
understood that Trustees, officers, agents and shareholders of the Trust are or
may be interested in the Manager (or any successor thereof) as directors,
officers or otherwise, that directors, officers, agents and shareholders of the
Manager (or any successor thereof) are or may be interested in the Trust as
Trustees, officers, agents, shareholders or otherwise, that the Manager (or any
such successor thereof) is or may be interested in the Trust as a shareholder or
otherwise and that the effect of any such adverse interests shall be governed by
said Master Trust Agreement, Articles of Organization and By-laws.
7. LIABILITY OF MANAGER.
The Manager shall not be liable to the Trust for any error of judgment
or mistake of law or for any loss suffered by the Trust in connection with the
matters to which this Agreement relates; provided, however, that no provision of
this Agreement shall be deemed to protect the Manager against any liability to
the Trust or its shareholders to which it might otherwise be subject by reason
of any willful misfeasance, bad faith or gross negligence in the performance of
its duties or the reckless disregard of its obligations and duties under this
Agreement, nor shall any provision hereof be deemed to protect any Trustee or
officer of the Trust against any such liability to which he might otherwise be
subject by reason of any willful misfeasance, bad faith or gross negligence in
the performance of his duties or the reckless disregard of his obligations and
duties. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
8. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to each
Initial Fund on the later of (i) the date on which a Registration Statement with
respect to its shares under the Securities Act of 1933, as amended, is first
declared effective by the Securities and Exchange Commission or (ii) the date on
which such Initial Fund commences offering its shares to the public, and, with
respect to any additional Fund, on the date of receipt by the Trust of notice
from the Manager in accordance with paragraph 1(b) hereof that the Manager is
willing to serve as Manager with respect to such Fund. Unless terminated as
herein provided, this Agreement shall remain in full force and effect with
respect to each Initial Fund until the date which is two years after the
effective date of this Agreement, with respect to such Initial Fund and, with
respect to each additional Fund, for two years from the date on which such Fund
becomes a Fund hereunder. Subsequent to such initial periods of effectiveness
this Agreement shall continue in full
<PAGE>
force and effect, subject to Section 8(c), for successive one-year periods with
respect to each Fund so long as such continuance with respect to such Fund is
approved at least annually (a) by either the Trustees of the Trust or by vote of
a majority of the outstanding voting securities (as defined in the 1940 Act) of
such Fund, and (b) in either event, by the vote of a majority of the Trustees of
the Trust who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such approval. Notwithstanding the foregoing
provisions of this Section 8(a), the continuance of this Agreement with respect
to the Initial Funds or any additional Fund is subject to the approval of this
Agreement by a majority of the outstanding voting securities thereof (as defined
in the 1940 Act) at the initial meeting of shareholders after this Agreement
becomes effective with respect thereto.
(b) Amendment. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendments of this Agreement shall be effective
with respect to any Fund until approved by vote of the holders of a majority of
that Fund's outstanding voting securities (as defined in the 1940 Act).
(c) Termination. This Agreement may be terminated with respect to any
Fund at any time, without payment of any penalty, by vote of the Trustees or by
vote of a majority of the outstanding voting securities (as defined in the 1940
Act) of that Fund, or by the Manager, in each case on sixty (60) days' prior
written notice to the other party.
(d) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment (as defined in the 1940
Act).
(e) Approval, Amendment or Termination by Individual Fund. Any approval,
amendment or termination of this Agreement shall be effective to continue, amend
or terminate this Agreement with respect to such Fund notwithstanding (i) that
such action has not been approved by the holders of a majority of the
outstanding voting securities of any other Fund affected thereby, and (ii) that
such action has not been approved by the vote of a majority of the outstanding
voting securities of the Trust, unless such action shall be required by any
applicable law or otherwise.
9. SERVICES NOT EXCLUSIVE.
The services of the Manager to the Trust hereunder are not to be deemed
exclusive, and the Manager shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
10. NAME OF TRUST.
It is understood that the names "State Street" and "MetLife" and any
logos associated with those names are the valuable property of, respectively,
State Street
<PAGE>
Research & Management Company ("SSRM"), the parent company of the Manager, and
Metropolitan Life Insurance Company, the ultimate parent company of SSRM, and
that the Trust has the right to include such names as a part of its name and the
names of its Funds only so long as this Agreement shall continue. Upon
termination of this Agreement the Trust shall forthwith cease to use the State
Street and MetLife names and logos and shall submit to its shareholders an
amendment to its Master Trust Agreement changing the Trust's name and the names
of any Funds then utilizing such name or names or any portion thereof.
11. PRIOR AGREEMENTS SUPERSEDED.
This Agreement supersedes any prior agreement relating to the subject
matter hereof between the parties hereto.
12. NOTICES.
Notices under this Agreement shall be in writing and shall be addressed,
and delivered or mailed postage prepaid, to the other party at such address as
such other party may designate from time to time for the receipt of such
notices. Until further notice to the other party, the address of each party to
this Agreement for this purpose shall be One Financial Center, Boston,
Massachusetts 02111.
13. GOVERNING LAW; COUNTERPARTS.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
14. LIMITATION OF LIABILITY.
The term "MetLife - State Street Income Trust" means and refers to the
Trustees from time to time serving under the Master Trust Agreement of the Trust
dated December 23, 1985 as the same may subsequently hereto have been, or
subsequently hereto may be, amended. It is expressly agreed that the obligations
of the Trust hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Trust as
individuals or personally, but shall bind only the trust property of the Trust,
as provided in the Master Trust Agreement of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust and
signed by the President of the Trust, acting as such, and neither such
authorization nor such execution and delivery shall be deemed to have been made
individually or to impose any personal liability, but shall bind only the trust
property of the Trust as provided in its Master Trust Agreement. The Master
Trust Agreement of the Trust provides, and it is
<PAGE>
expressly agreed, that each Fund of the Trust shall be solely and exclusively
responsible for the payment of its debts, liabilities and obligations, and that
no other Fund shall be responsible for the same.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
METLIFE - STATE STREET
Attest: INVESTMENT SERVICES, INC.
/s/ Constantine Hutchins, Jr. By: /s/ Herbert P. Hess
- ------------------------------ ------------------------------
Constantine Hutchins, Jr., Senior Vice President
Clerk
METLIFE - STATE STREET
INCOME TRUST
Attest:
/s/ Constantine Hutchins, Jr. By: /s/ Charles L. Smith, Jr.
- ------------------------------ ------------------------------
Constantine Hutchins, Jr., Charles L. Smith, Jr.,
Secretary President
Exhibit (5)(c)
METLIFE - STATE STREET INCOME TRUST
One Financial Center
Boston, MA 02111
December 24, 1988
MetLife - State Street
Investment Services, Inc.
One Financial Center
Boston, MA 02111-2690
Gentlemen:
This letter is to confirm to you that MetLife - State Street Income
Trust (the "Trust") has created a new series of shares to be known as MetLife -
State Street Managed Assets (the "Fund"), and that pursuant to Section 1(b) of
the Advisory Agreement dated as of July 17, 1986 between the Trust and you (the
"Agreement"), the Trust desires to retain you to render management and
investment advisory services under the Advisory Agreement to the Fund as a
"Series" thereunder for a monthly fee equal to .75% on an annual basis of the
average daily net asset value of the Fund.
Please indicate your acceptance of this responsibility in accordance
with the terms of the Agreement by signing this letter as indicated below:
The term "MetLife - State Street Income Trust" means and refers to the
Trustees from time to time serving under the Master Trust Agreement of the Trust
dated December 23, 1985 as the same may subsequently hereto have been, or
subsequently hereto may be, amended. It is expressly agreed that the obligations
of the Trust hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Trust as
individuals or personally, but shall bind only the trust property of the Trust,
as provided in the Master Trust Agreement of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust and
signed by the President of the Trust, acting as such, and neither such
authorization nor such execution and delivery shall be deemed to have been made
individually or to impose any personal liability, but shall bind only the trust
property of the Trust as provided in its Master Trust Agreement. The Master
Trust Agreement
<PAGE>
of the Trust provides, and it is expressly agreed, that each Fund of the Trust
shall be solely and exclusively responsible for the payment of its debts,
liabilities and obligations, and that no other fund shall be responsible for the
same.
METLIFE - STATE STREET INCOME
TRUST
By: /s/ Charles L. Smith, Jr.
-------------------------
President
ACCEPTED AND AGREED TO:
METLIFE - STATE STREET
INVESTMENT SERVICES, INC.
By: /s/ David P. McLean
------------------------
Exhibit (5)(e)
TRANSFER AND ASSUMPTION OF RESPONSIBILITIES AND RIGHTS
In accordance with the vote unanimously adopted by all of the Trustees of
MetLife - State Street Income Trust ("Trust") who were present at a meeting of
such Trustees duly called and held on September 14, 1992, being a majority of
such Trustees, including a majority of Trustees who are not parties to the
attached Advisory Agreement dated July 17, 1986, by and between State Street
Financial Services, Inc. (formerly MetLife - State Street Investment Services,
Inc.) and the Trust ("Advisory Agreement"), or "interested persons" (as defined
in the Investment Company Act of 1940) of any such party, effective as of the
commencement of business on July 1, 1992, all of the duties and responsibilities
of the Manager to provide services and facilities to the Trust as set forth in
the Advisory Agreement and all the rights of the Manager, including but not
limited to the right to be compensated by the Trust as described in the Advisory
Agreement, are hereby transferred from State Street Financial Services, Inc., a
Massachusetts corporation, to State Street Research & Management Company, a
Delaware corporation, formerly sub-adviser to the Trust, and State Street
Research & Management Company hereby assumes such responsibilities and rights,
all of the foregoing transactions being effected in reliance on Rule 2a-6 under
the Investment Company Act of 1940, as amended.
STATE STREET FINANCIAL
SERVICES, INC.
by /s/ Donald E. Webber
---------------------
Donald E. Webber, President and
Chief Executive Officer
STATE STREET RESEARCH &
MANAGEMENT COMPANY
by /s/ Ralph F. Verni
---------------------
Ralph F. Verni, Chairman and
Chief Executive Officer
Dated: October 6, 1992.
Exhibit (6)(a)
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT made as of this day of July, 1986, by and
between METLIFE - STATE STREET INVESTMENT SERVICES, INC., a corporation
organized under the laws of the Commonwealth of Massachusetts having its place
of business in Boston, Massachusetts (the "Distributor"), and METLIFE - STATE
STREET INCOME TRUST, a Massachusetts business trust having its principal place
of business in Boston, Massachusetts (the "Trust"), which Trust proposes to
offer shares of beneficial interest in different series representing interests
in separate portfolios of assets (each series being referred to herein as a
"Fund" and such series being referred to herein collectively as the "Funds").
WITNESSETH:
In consideration of the agreements herein contained and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, it is agreed:
1. Appointment of Distributor.
(a) Appointment. The Trust hereby appoints the Distributor as its
exclusive agent to sell and distribute shares of each Fund in existence as of
the date hereof (the "Initial Funds") and the Distributor hereby accepts such
appointment and agrees during the term of this Agreement to provide the services
and to assume the obligations herein set forth. In the event that the Trust
establishes one or more series of shares other than the Initial Funds with
respect to which it desires to retain the Distributor to serve as distributor
and principal underwriter hereunder, it shall so notify the Distributor in
writing, indicating the advisory fee to be payable with respect to the
additional series of shares. If the Distributor is willing to render such
services, it shall so notify the Trust in writing, whereupon such series of
shares shall become a Fund hereunder. In such event a writing signed by both the
Trust and the Distributor shall be annexed hereto as a part hereof indicating
that such additional series of shares has become a Fund hereunder.
(b) Sale of Shares. Shares of each Fund shall be sold at the offering
price thereof as from time to time determined in the manner herein provided. The
Trust agrees that it will not, without the Distributor's consent, sell or agree
to sell any shares of a Fund otherwise than through the Distributor, except that
the Trust may (a) sell shares for not less than the net asset value thereof as
an investment to such persons or classes of persons as may be indicated in the
Prospectus of the Trust as amended and in effect from time to time; (b) issue or
sell shares for not less than the net asset value thereof directly to holders of
shares of any Fund upon such terms and for such consideration, if any, as it may
determine, whether in connection with the distribution of subscription or
purchase rights, the payment or reinvestment of distributions or
<PAGE>
dividends, the exercise of any applicable retirement privilege, or otherwise;
(c) issue or sell shares for not less than the net asset value thereof of any
Fund to the shareholders of any other Fund or investment company for which the
Trust's investment adviser acts as investment adviser in connection with the
exercise of exchange privileges offered by the Trust; and (d) issue shares for
not less than the net asset value thereof in connection with a merger,
consolidation or acquisition of assets on such basis as may be authorized or
permitted under the Investment Company Act of 1940, as amended (the "1940 Act").
2. Basis of Sale of Shares; Selected Dealers. The Distributor does not
agree to sell any specific number of shares. Shares will be sold by the
Distributor as agent for the Funds and the Trust only against orders therefor.
The Distributor will not purchase shares except as agent for the Trust.
Notwithstanding anything herein to the contrary, the Trust may terminate,
suspend or withdraw the offering of shares whenever, in its sole discretion, it
deems such action desirable. In connection with its performance of services
hereunder, the Distributor may engage other members in good standing of the
National Association of Securities Dealers, Inc., to act as selected dealers in
accordance with the terms of a selected dealer agreement in substantially the
form attached hereto.
3. Compensation.
(a) Offering Price/Sales Charge. The offering price for shares of any
Fund of the Trust shall be the "net asset value per share" for that Fund
determined in accordance with the Master Trust Agreement of the Trust, as
amended (the "Master Trust Agreement"), plus a sales charge payable to the
Distributor as set forth in the Trust's Prospectus as from time to time amended
and in effect. The Distributor may reallow such portions of such sales charges
as dealer concessions to dealers through whom sales are made as the Distributor
may determine consistent with and as contemplated by the terms of the Trust's
Prospectus as from time to time amended and in effect; provided, however, that
the sales charge to each purchaser of shares shall not exceed that set forth for
such category of purchaser in the Trust's Prospectus as from time to time
amended and in effect. The Distributor may also pay from its own funds a monthly
commission, if any, with respect to sales to the extent consistent with and as
contemplated by the Trust's Prospectus as from time to time amended and in
effect. The net asset value per share for each Fund shall be determined at such
time and on such days as are established by the Board of Trustees of the Trust
from time to time.
(b) 12b-1 Expenses. The Trust has adopted a Distribution Plan pursuant
to Rule 12b-1 under the 1940 Act (the "12b-1 Plan"), pursuant to which the
Distributor shall receive quarterly payments from each Fund during such periods
as the 12b-1 Plan shall be in effect with respect to it, commencing as of the
date on which the 12b-1 becomes effective with respect to such Fund. The
Distributor shall use such 12b-1 payments to promote and foster sales of the
shares of the Funds in such manner as it shall determine consistent with the
Prospectus of the Trust as from time to time amended and in effect.
4. Manner of Offering. The Distributor will conform to the securities
laws of any jurisdiction in which it sells, directly or indirectly, any shares
of the Trust. The Distributor
<PAGE>
also agrees to furnish to the Trust sufficient copies of any sales literature it
intends to use in connection with any sales of shares in adequate time for the
Trust to review such sales literature. The Distributor agrees that it will be
responsible for filing and clearing all such sales literature with the proper
authorities before the same is put in use to the extent required by applicable
law, and not to use the same until so filed and cleared.
The Distributor and the Trust each shall have the right to accept or
reject orders for the purchase of shares of the Trust. Any consideration which
the Distributor may receive in connection with a rejected purchase order will be
returned promptly to the prospective purchaser. The Distributor agrees promptly
to issue confirmations of all accepted purchase orders and to transmit a copy of
such confirmations to the Trust, or, if so directed, to any duly appointed
transfer or shareholder servicing agent of the Trust. If the originating dealer
shall fail to make timely settlement of its purchase order in accordance with
the rules of the National Association of Securities Dealers, Inc., the
Distributor shall have the right to cancel such purchase order and to hold the
originating dealer responsible. The Distributor agrees promptly to reimburse the
Trust for any amount by which the Trust's losses attributable to any such
cancellations or to accepted purchase orders exceed gains realized by the Trust
for either of such reasons in respect of other purchase orders. The Trust shall
register or cause to be registered all shares sold by the Distributor pursuant
to the provisions hereof in such name or names and amounts as the Distributor
may request from time to time.
The Distributor agrees that if any person tenders to the Trust for
redemption any shares purchased from the Trust within seven days of the
redemption request, the Distributor will promptly pay to the Trust the full
sales commission paid with respect to the shares so tendered for redemption (in
the case of sales by selected dealers, such payment shall be made promptly after
the Distributor's receipt of the same from the selected dealer responsible for
the sale), and no 12b-1 or other payments shall be payable with respect thereto.
The Distributor hereby agrees to act as agent for the Trust in
connection with any share repurchase arrangements from time to time offered by
the Trust in accordance with the terms of the Trust's Prospectus as from time to
time amended.
5. Securities Laws. The Trust has delivered to the Distributor a copy
of its current Prospectus. The Trust agrees that it will use its best efforts to
continue the effectiveness of its Registration Statement under the Securities
Act of 1933, as amended (the "Securities Act"), and the 1940 Act. The Trust
further agrees to prepare and file any amendments to such Registration Statement
and any supplemental data as may be necessary in order to comply with the
Securities Act and the 1940 Act. The Trust is presently registered under the
1940 Act as an investment company, and it will use its best efforts to maintain
such registration and to comply with the requirements of said Act.
At the Distributor's request, the Trust will take such steps as may be
necessary and feasible to qualify shares of the Funds for sale in states,
territories or dependencies of the United States of America, in the District of
Columbia and in foreign countries, in accordance with the laws thereof, and to
renew or extend any such qualification; provided, however, that
<PAGE>
the Trust shall not be required to qualify shares or to maintain the
qualification of shares in any state, territory, dependency, district or country
where it shall deem such qualification disadvantageous to the Trust.
The Distributor agrees that it will (i) not use, distribute or
disseminate or authorize the use, distribution or dissemination by others in
connection with the sale of shares of the Funds, any statement, other than those
contained in the Trust's current Prospectus, except such supplemental literature
or advertising as shall be approved by the Trust, (ii) conform to the
requirements of all state and federal laws and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. relating to the sale of shares
of the Trust (including, without limitation, the maintenance of effective
broker-dealer registrations as required), and (iii) observe and be bound by all
the provisions of the Master Trust Agreement (and of any fundamental policies
adopted by the Trust pursuant to the 1940 Act, notice of which shall have been
given to the Distributor) which at the time in any way require, limit, restrict
or prohibit or otherwise regulate any action on the part of the Distributor.
The Distributor further agrees that:
(a) the Distributor shall furnish to the Trust any information with
respect to the Distributor within the purview of any reports or registrations
required to be filed with any governmental authority; and
(b) the Distributor will not make any representations inconsistent with
the Registration Statement of the Trust filed under the Securities Act, as from
time to time amended and in effect.
6. Allocation of Expenses.
(a) The Funds, either directly or through their investment adviser or
investment advisers, will be responsible for, and shall pay their allocable
portions of the expenses of:
(i) providing all necessary services, including fees and
disbursements of counsel, related to the preparation, setting in type, printing
and filing of any registration statement and/or prospectus required under the
Securities Act or the 1940 Act or under state securities laws covering their
shares, and all amendments and supplements thereto, the mailing of any such
prospectus to existing shareholders, and preparing, setting in type, printing
and mailing of periodic reports to existing shareholders;
(ii) the cost of all registration or qualification fees relating to
the Funds' shares, including the fees or expenses of qualifying the Trust as a
broker or dealer under laws of any state, if any;
(iii) the cost of preparing temporary and permanent share
certificates for shares, if any; and
<PAGE>
(iv) any and all federal and state issue and/or transfer taxes
payable upon the issue by or (in the case of treasury shares) transfer from a
Fund of the shares distributed hereunder.
(b) The Distributor agrees that, after the Trust's Prospectus and
periodic reports have been set in type, it will bear the expense of printing and
distributing any copies thereof which are to be used in connection with the
offering of shares to prospective investors. The Distributor further agrees that
it will bear the expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use in connection with
the offering of the shares for sale to the public, and any expenses of
advertising in connection with such offering. The Distributor will also pay fees
and expenses related to its registrations as a broker-dealer and fees for
services rendered by the Trust's transfer agent on behalf of the Distributor.
(c) The Funds will be responsible for, and shall pay the expenses of,
maintaining shareholder accounts and furnishing or causing to be furnished to
each shareholder a statement of his account.
7. Distributor Is Independent Contractor. The Distributor shall be an
independent contractor. The Distributor is responsible for its own conduct, for
the employment, control and conduct of its agents and employees and for injury
to such agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees under
applicable laws and agrees to pay all employer taxes relating thereto.
8. Term and Termination; Amendment.
(a) Term and Termination. This Agreement shall become effective with
respect to each Initial Fund as of the later of (i) the date on which a
Registration Statement with respect to its shares becomes effective under the
Securities Act or (ii) the date on which such Initial Fund commences offering
its shares to the public, and, with respect to any additional Fund, on the date
of receipt by the Trust of notice from the Distributor in accordance with
Section 1(a) hereof that the Distributor is willing to serve as Distributor with
respect to such Fund. Unless terminated as herein provided, this Agreement shall
remain in full force and effect with respect to each Initial Fund until the date
which is two years after the effective date of this Agreement with respect to
such Initial Fund, and, with respect to each additional Fund, for twelve months
from the date on which such Fund becomes a Fund hereunder. Subsequent to such
initial periods of effectiveness this Agreement shall continue in full force and
effect, subject to the last sentence of this Section 8(a), for successive
one-year periods with respect to each Fund so long as such continuance with
respect to such Fund is approved at least annually (a) by either the Trustees of
the Trust or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of such Fund, and (b) in either event, by the vote of a
majority of the Trustees of the Trust who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of any such party or the Trust
and who have no direct or indirect financial interest in the question of the
12b-1 Plan or this Agreement, cast in person at a meeting called for the purpose
of voting on such approval. This Agreement may be terminated with respect to
<PAGE>
the Trust or any Fund at any time, without payment of any penalty, by a vote of
(a) a majority of the Trustees who are not "interested persons" of the Trust (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of the 12b-1 Plan or this Agreement or (b) a majority of the
outstanding voting securities of the Trust or that Fund, or by the Distributor,
as the case may be, in each case on sixty (60) days' prior written notice to the
other party.
(b) Amendment. Any amendment to this Agreement shall become effective
with respect to a Fund upon approval in writing of the Distributor and the Trust
(subject in the latter case to approval by a majority of the Trustees and a
majority of the Trustees who are not "interested persons" of the Trust (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of the 12b-1 Plan; provided, however, that amendments relating
to the Trust's 12b-1 Plan shall not require the consent of the Distributor.
(c) Approval, Amendment or Termination by Individual Fund. Any
approval, amendment or termination of this Agreement with respect to any Fund
shall be effective to continue, amend or terminate this Agreement with respect
to such Fund notwithstanding (i) that such action has not been approved with
respect to any other Fund affected thereby, and (ii) that such action has not
been approved by the shareholders of such Fund, unless such action shall be
required by any applicable law or otherwise.
9. Assignment. This Distribution Agreement may not be assigned by the
Distributor and shall automatically terminate in the event of an attempted
assignment by the Distributor; provided, however, that the Distributor may
employ or enter into agreements with such other person, persons, corporation or
corporations, as it shall determine in order to assist it in carrying out this
Agreement, including, without limitation, selected dealers as contemplated by
Section 2.
10. Indemnification by Distributor. The Distributor agrees to indemnify and
hold harmless the Trust or any other person who has been, is, or may hereafter
be an officer, Trustee, employee or agent of the Trust against any loss, damage
or expense reasonably incurred by any of them in connection with any claim or in
connection with any action, suit or proceeding to which any of them may be a
party, which arises out of or is alleged to arise out of or is based upon any
violation of any of its representations or covenants herein contained or any
untrue statement or alleged untrue statement of a material fact, or the omission
or alleged omission to state a material fact necessary to make the statements
made not misleading, on the part of the Distributor or any agent or employee of
the Distributor or any other person for whose acts the Distributor is
responsible or is alleged to be responsible (such as any selected dealer or
person through whom sales are made pursuant to an agreement with the
Distributor), whether made orally or in writing, unless such statement or
omission was made in or in reliance upon written information furnished by the
Trust. The term "expenses" for purposes of this and the next paragraph includes
reasonable attorneys' fees and amounts paid in satisfaction of judgments or in
settlements which are made with the Distributor's consent. The foregoing rights
of indemnification shall be in addition to any other rights to which any of the
foregoing indemnified parties may be entitled as a matter of law.
<PAGE>
11. Indemnification by Trust. The Trust agrees to indemnify and hold harmless
the Distributor and each person who has been, is, or may hereafter be an
officer, director, employee or agent of the Distributor against any loss, damage
or expense reasonably incurred by any of them in connection with any claim or in
connection with any action, suit or proceeding to which any of them may be a
party, which arises out of or is alleged to arise out of or is based upon a
violation of any of its covenants herein contained or any untrue or alleged
untrue statement of material fact, or the omission or alleged omission to state
a material fact necessary to make the statements made not misleading, in a
Registration Statement or Prospectus of the Trust, or any amendment or
supplement thereto, unless such statement or omission was made in reliance upon
written information furnished by the Distributor. The foregoing rights of
indemnification shall be in addition to any other rights to which any of the
foregoing indemnified parties may be entitled as a matter of law. Nothing
contained herein shall relieve the Distributor of any liability to the Trust or
its shareholders to which the Distributor would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of its
duties or reckless disregard of its obligations and duties hereunder.
12. Non-Exclusive Agreement. The services of the Distributor to the Trust
hereunder shall not be deemed to be exclusive, and the Distributor shall be free
to (a) render similar services to, and act as underwriter or distributor in
connection with the distribution of shares of, other investment companies, and
(b) engage in any other businesses and activities from time to time.
13. Governing Law; Counterparts. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts. This Agreement
may be executed in any number of counterparts, each of which shall be deemed to
be an original, but such counterparts shall, together, constitute only one
instrument.
14. Prior Agreements Superseded; Construction. This Agreement supersedes any
prior agreement relating to the subject matter hereof between the parties
hereto. Where the context of this Agreement so permits, each of the masculine,
feminine and neuter genders shall be deemed to denote the other two genders, the
singular to denote the plural and the plural to denote the singular. Without
limiting the generality of the foregoing, all references to the Trust's
Prospectus shall include all Prospectuses thereunder.
15. Notices. Notices under this Agreement shall be in writing and shall be
addressed, and delivered or mailed postage prepaid, to the other party at such
address as such other party may designate from time to time for the receipt of
such notices. Until further notice to the other party, the address of each party
to this Agreement for this purpose shall be One Financial Center, Boston,
Massachusetts 02111.
16. Limitation of Liability. The term "MetLife - State Street Income Trust"
means and refers to the Trustees from time to time serving under the Master
Trust Agreement of the Trust dated December 23, 1985 as the same may
subsequently hereto have been, or subsequently hereto may be, amended. It is
expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
<PAGE>
employees of the Trust as individuals or personally, but shall bind only the
trust property of the Trust, as provided in the Master Trust Agreement of the
Trust. The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust and signed by the President of the Trust, acting as such,
and neither such authorization nor such execution and delivery shall be deemed
to have been made individually or to impose any personal liability, but shall
bind only the trust property of the Trust as provided in its Master Trust
Agreement. The Master Trust Agreement of the Trust further provides, and it is
expressly agreed, that each Fund of the Trust shall be solely and exclusively
responsible for the payment of its debts, liabilities and obligations and that
no other Fund shall be responsible or liable for the same.
IN WITNESS WHEREOF, this Agreement has been executed for the
Distributor and the Trust by their duly authorized officers, as of the date
first set forth above.
METLIFE - STATE STREET
INVESTMENT SERVICES, INC.
By: /s/ David P. McLean
-----------------------
President
Attest:
/s/ Constantine Hutchins, Jr.
- -----------------------------
Constantine Hutchins, Jr.,
Clerk
METLIFE - STATE STREET
INCOME TRUST
By: /s/ Charles L. Smith, Jr.
-------------------------
President
Attest:
/s/ Constantine Hutchins, Jr.
- -----------------------------
Constantine Hutchins, Jr.,
Secretary
Exhibit (6)(d)
METLIFE - STATE STREET INCOME TRUST
One Financial Center
Boston, MA 02111
December 24, 1988
MetLife - State Street
Investment Services, Inc.
One Financial Center
Boston, MA 02111-2690
Gentlemen:
This letter is to confirm to you that MetLife - State Street Income
Trust (the "Trust"), has created a new series of shares to be known as MetLife -
State Street Managed Assets (the "Fund") which will pay an advisory fee equal to
.75% on an annual basis of its average daily net asset value, and that pursuant
to the Distribution Agreement between the Trust and you dated as of July 17,
1986 (the "Agreement"), you will serve as distributor and principal underwriter
of the Fund (which shall be deemed a "Fund" under the Agreement) with respect to
the sale of its shares. Shares of the Fund will be sold at the "net asset value
per share" of the Fund plus the applicable sales charge in accordance with the
then current prospectus and statement of additional information of the Fund, as
from time to time amended.
This will also confirm that the Plan of Distribution Pursuant to Rule
12b-1 adopted by the Trust and dated August 11, 1986 (the "Plan") shall apply
with respect to the Fund as a "Series" thereunder under the terms set forth in
the then current prospectus and statement of additional information of the Fund,
as from time to time amended (including the provisions of Section 3 thereof
relating to payments under the Plan).
Please indicate your acceptance of the above in accordance with the
terms of the Agreement and the Plan by signing this letter as indicated below.
The term "MetLife - State Street Income Trust" means and refers to the
Trustees from time to time serving under the Master Trust Agreement of the Trust
dated December 23, 1985 as the same may subsequently hereto have been, or
subsequently hereto may be, amended. It is expressly agreed that the obligations
of the Trust hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Trust as
individuals or personally, but shall bind only the trust property of the Trust,
as provided in the Master Trust Agreement of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust and
signed by the President of the Trust, acting as such, and neither such
authorization nor such execution and delivery shall be deemed to have
<PAGE>
been made individually or to impose any personal liability, but shall bind only
the trust property of the Trust as provided in its Master Trust Agreement. The
Master Trust Agreement of the Trust provides, and it is expressly agreed, that
each Fund of the Trust shall be solely and exclusively responsible for the
payment of its debts, liabilities and obligations, and that no other fund shall
be responsible for the same.
METLIFE - STATE STREET INCOME
TRUST
By: /s/ Charles L. Smith, Jr.
-----------------------------
President
ACCEPTED AND AGREED TO:
METLIFE - STATE STREET
INVESTMENT SERVICES, INC.
By: /s/ David P. McLean
--------------------------
Exhibit (8)(a)
CUSTODIAN CONTRACT
Between
METLIFE - STATE STREET INCOME TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property to be Held By It.....................2
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States.......................3
2.1 Holding Securities...................................................3
2.2 Delivery of Securities...............................................3
2.3 Registration of Securities...........................................7
2.4 Bank Accounts........................................................8
2.5 Investment and Availability of Federal Funds.........................9
2.6 Collection of Income.................................................9
2.7 Payment of Fund Moneys..............................................10
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased.....................................12
2.9 Appointment of Agents...............................................13
2.10 Deposit of Securities in Securities System..........................13
2.11 Segregated Account..................................................16
2.12 Ownership Certificates for Tax Purposes.............................18
2.13 Proxies.............................................................18
2.14 Communications Relating to Fund Portfolio Securities................18
2.15 Reports to Fund by Independent Public Accountants...................l9
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States...............................20
3.1 Appointment of Foreign Sub-Custodians...............................20
3.2 Assets to be Held...................................................20
3.3 Foreign Securities Depositories.....................................21
3.4 Segregation of Securities...........................................21
3.5 Agreements with Foreign Banking Institutions........................21
3.6 Access of Independent Accountants of the Fund.......................22
3.7 Reports by Custodian................................................22
3.8 Transactions in Foreign Custody Account.............................23
3.9 Liability of Foreign Sub-Custodians.................................24
3.10 Liability of Custodian..............................................25
3.11 Monitoring Responsibilities.........................................25
3.12 Branches of U.S. Banks..............................................26
4. Payments for Repurchases or Redemptions and Sales of
Shares of the Fund........................................................26
5. Proper Instructions.......................................................27
6. Actions Permitted Without Express Authority...............................28
7. Evidence of Authority.....................................................28
<PAGE>
8. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and
Net Income..............................................................29
9. Records.................................................................29
10. Opinion of Fund's Independent Accountant................................30
11. Compensation of Custodian...............................................30
12. Responsibility of Custodian.............................................31
13. Effective Period, Termination and Amendment.............................32
14. Successor Custodian.....................................................33
15. Interpretive and Additional Provisions..................................35
16. Additional Funds........................................................35
17. Massachusetts Law to Apply..............................................35
18. Prior Contracts.........................................................36
<PAGE>
CUSTODIAN CONTRACT
This Contract between MetLife - State Street Income Trust, a
business trust organized and existing under the laws of Massachusetts, having
its principal place of business at One Financial Center, Boston, Massachusetts,
02111, hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts corporation, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate
series, with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series,
the MetLife - State Street High Income Fund, and MetLife - State Street
Government Securities Fund (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 12);
NOW, THEREFORE, That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
<PAGE>
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its
assets, including securities it desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside the
United States ("foreign securities") pursuant to the provisions of the
Declaration of Trust. The Fund agrees to deliver to the Custodian all securities
and cash owned by it, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Fund from time to time, and the cash consideration received by it for such new
or treasury shares of its beneficial interest, ("Shares") of the Fund as may be
issued or sold from time to time. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (within the meaning of
Article 5), the Custodian shall from time to time employ one or more
sub-custodians located in the United States, but only in accordance with an
applicable vote by the Trustees of the Fund, and provided that the Custodian
shall have no more or less responsibility or liability to the Fund on account of
any actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodians
for the Fund's securities and other assets the foreign banking institutions and
foreign securities depositories designated in Schedule "A" hereto but only in
accordance with the provisions of Article 3.
-2-
<PAGE>
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of the Fund all non-cash property, to be held by it in the
United States, including all domestic securities owned by the Fund, other
than securities which are maintained pursuant to Section 2.10 in a clearing
agency which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively referred to
herein as "Securities System".
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian only upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
-3-
<PAGE>
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) To the broker selling the same for examination in accordance with
the "street delivery" custom;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions
-4-
<PAGE>
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Fund, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund,
which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral is
to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the delivery
of securities owned by the Fund prior to the receipt of such
collateral;
-5-
<PAGE>
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "Exchange Act")
and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar
organization or organizations; regarding account deposits in
connection with transactions by the Fund;
-6-
<PAGE>
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the Fund's currently
effective prospectus and statement of additional information
("prospectus"), in satisfaction of requests by holders of Shares
for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purposes to be proper corporate purposes, and
naming the person or persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the Fund
or in the name of any nominee of the Fund or of any nominee of the
Custodian
-7-
<PAGE>
which nominee shall be assigned exclusively to the Fund, unless the Fund
has authorized in writing the appointment of a nominee to be used in common
with other registered investment companies having the same investment
adviser as the Fund, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Fund under the terms of this Contract shall be in "street
name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund, subject
only to draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of the
Fund, other than cash maintained by the Fund in a bank account established
and used in accordance with Rule 17f-3 under the Investment Company Act of
1940. Funds held by the Custodian for the Fund may be deposited by it to
its credit as Custodian in the Banking Department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the Investment
Company Act of 1940 and that each such bank or trust company and the funds
to be
-8-
<PAGE>
deposited with each such bank or trust company shall be approved by vote of
a majority of the Trustees of the Fund. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Investment and Availability of Federal Funds. Upon mutual agreement between
the Fund and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
2.6 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to United States registered
securities held hereunder to which the Fund shall be entitled either by law
or pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to United States
bearer securities if, on the date of payment by the issuer, such securities
are held by the Custodian or agent thereof and shall credit such income, as
collected, to the Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring
-9-
<PAGE>
presentation as and when they become due and shall collect interest when
due on securities held hereunder. Income due the Fund on United States
securities loaned pursuant to the provisions of Section 2.2 (10) shall be
the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund with
such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which
the Fund is properly entitled.
2.7 Payment of Fund Moneys. Upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out moneys of the Fund in the following cases only:
l) Upon the purchase of domestic securities, futures contracts or
options on futures contracts for the account of the Fund but only
(a) against the delivery of such securities, or evidence of title
to futures contracts or options on futures contracts, to the
Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under
the Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its agent
for this purpose) registered in the name of the Fund
-10-
<PAGE>
or in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b) in the
case of a purchase effected through a Securities System, in
accordance with the conditions set forth in Section 2.10 hereof
or (c) in the case of repurchase agreements entered into between
the Fund and the Custodian, or another bank, or a broker-dealer
which is a member of NASD, (i) against delivery of the securities
either in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian along
with written evidence of the agreement by the Custodian to
repurchase such securities from the Fund;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as
set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not
-11-
<PAGE>
limited to the following payments for the account of the Fund:
interest, taxes, management, accounting, transfer agent and legal
fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as
deferred expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instruction, a certified copy of a resolution
of the Trustees or of the Executive Committee of the Fund signed
by an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. In any
and every case where payment for purchase of domestic securities for the
account of the
-12-
<PAGE>
Fund is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund to
so pay in advance, the Custodian shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been received
by the Custodian, except that in the case of repurchase agreements entered
into by the Fund with a bank which is a member of the Federal Reserve
System, the Custodian may transfer funds to the account of such bank prior
to the receipt of written evidence that the securities subject to such
repurchase agreement have been transferred by book-entry into a segregated
non-proprietary account of the Custodian maintained with the Federal
Reserve Bank of Boston or of the safe-keeping receipt, provided that such
securities have in fact been so transferred by book-entry.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in Securities Systems. The Custodian may deposit
and/or maintain domestic securities
-13-
<PAGE>
owned by the Fund in a clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and certain federal
agencies, collectively referred to herein as "Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to domestic securities
of the Fund which are maintained in a Securities System shall
identify by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased for the
account of the Fund upon (i) receipt of advice from the
Securities System that such securities have
-14-
<PAGE>
been transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer domestic securities sold for the account of the Fund
upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian
to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System of transfers of
domestic securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian
shall furnish the Fund confirmation of each transfer to or from
the account of the Fund in the form of a written advice or notice
and shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for
the account of the Fund.
4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the Securities System's accounting system,
-15-
<PAGE>
internal accounting control and procedures for safeguarding
domestic securities deposited in the Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce effectively
such rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such lose or
damage.
2.11 Segregated Account. The Custodian shall upon receipt of Proper Instructions
establish and maintain a segregated account or accounts for and on behalf
of the Fund, into
-16-
<PAGE>
which account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance with
the rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading Commission
or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or written
by the Fund or commodity futures contracts or options thereon purchased or
sold by the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in the
case of clause (iv), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Trustees or of the Executive
Committee signed by an officer of the Fund and
-17-
<PAGE>
certified by the Secretary or an Assistant Secretary, setting forth the
purpose or purposes of such segregated account and declaring such purposes
to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of the Fund held by it and in connection
with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Fund or a nominee of the Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver to
the Fund such proxies, all proxy soliciting materials and all notices
relating to such securities.
2.14 Communications Relating to Fund Portfolio Securities. The Custodian shall
transmit promptly to the Fund all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise of
call and put options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the Custodian from
-18-
<PAGE>
issuers of the domestic securities being held for the Fund. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the
Fund all written information received by the Custodian from issuers of the
domestic securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Fund desires to
take action with respect to any tender offer, exchange offer or any other
similar transaction, the Fund shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
2.15 Reports to Fund by Independent Public Accountants. The Custodian shall
provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including domestic
securities deposited and/or maintained in a Securities System, relating to
the services provided by the Custodian under this Contract; such reports,
which shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund, to provide reasonable assurance that
any material inadequacies would be disclosed by such examination, and, if
there are no such inadequacies, shall so state.
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<PAGE>
3. Duties of the Custodian with Respect to Property of the Fund Held Outside of
the United States
3.1 Appointment of Foreign Sub-Custodians. The Custodian is authorized and
instructed to employ as sub-custodians for the Fund's securities and other
assets maintained outside of the United States the foreign banking
institutions and foreign securities depositories designated on Schedule A
hereto ("foreign sub-custodians"). Upon receipt of "Proper Instructions",
together with a certified resolution of the Fund's Trustees, the Custodian
and the Fund may agree to amend Schedule A hereto from time to time to
designated additional foreign banking institutions and foreign securities
depositories to act as sub-custodians. Upon receipt of Proper Instructions
from the Fund the Custodian shall cease the employment of any one or more
of such sub-custodians for maintaining custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(l) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to reasonably
necessary to effect the Fund's foreign securities transactions.
-20-
<PAGE>
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian. Each agreement pursuant to which the Custodian
employs a foreign banking institution shall require that such institution
establish a custody account for the Custodian on behalf of the Fund and
physically segregate in that account, securities and other assets of the
Fund, and, in the event that such institutions deposits the Fund's
securities in a foreign securities depository, that it shall identify on
its books as belonging to the Custodian, as agent for the Fund, the
securities so deposited (all collectively referred to as the "Account").
3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign
banking institution shall be substantially in the form set forth in Exhibit
1 hereto and shall provide that: (a) the Fund's assets will not be subject
to any right, charge, security interest, lien or claim of any kind in favor
of the foreign banking institutions or its creditors, except a claim of
payment
-21-
<PAGE>
for their safe custody or administration; (b) beneficial ownership for the
Fund's assets will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to the Fund; (d) officers
of or auditors employed by, or other representatives of the Custodian,
including to the extent permitted under applicable law the independent
public accounts for the Fund, will be given access to the books and records
of the foreign banking institution relating to its actions under its
agreement with the Custodian; and (e) assets of the Fund held by the
foreign sub-custodian will be subject only to the instructions of the
Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian insofar
as such books and records relate to the performance of such foreign banking
institutions under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having
-22-
<PAGE>
possession of the Fund's securities and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of the Fund indicating, as to securities acquired for the Fund, the
identity of the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate
by the parties, the Custodian shall make or cause its foreign sub-custodian
to transfer, exchange or deliver foreign securities owned by the Fund, but
except to the extent explicitly provided herein only in one of the
circumstances specified in Section 2.2
(b) Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties the Custodian shall pay
out or cause its foreign sub-custodians to pay out monies of the Fund, but
except to the extent explicitly provided herein only in one of the
circumstances specified in Section 2.8.
(c) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the Fund
and delivery of securities maintained for the account of the Fund may be
effected in accordance with the customary or established securities trading
or securities processing practices and procedures
-23-
<PAGE>
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such securities
from such purchaser or dealer. (d) Securities maintained in the custody of
a foreign sub-custodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Section 2.3 of this Contract and
the Fund agrees to hold any such nominee harmless from any liability as a
holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and each Account from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the Fund,
it shall be entitled to be subrogated to the rights of the Custodian with
respect to any claims against a foreign banking institution as a
consequence of any such loss, damage, cost, expense, liability or claim if
and to the extent that the Fund has not been made whole for any such loss,
damage, coat, expense, liability or claim.
-24-
<PAGE>
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in Section 1 of the Custodian
Contract and, regardless of whether assets are maintained in the custody of
a foreign banking institution, a foreign securities depository or a branch
of a U.S. bank as contemplated by paragraph 3.12 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund
to maintain custody of any securities or cash of the Fund in a foreign
country including, but not limited to, losses resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be similar
in kind and scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian will promptly
inform the Fund in the event that the Custodian learns of a material
adverse change in the financial condition of a foreign sub-custodian or is
notified by a foreign banking institution employed as a foreign
sub-custodian that there appears to be a substantial likelihood that its
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<PAGE>
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that is shareholders' equity has declined below
$200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.12 Branches of U.S. Banks. Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Fund assets maintained in a foreign branch of a banking institution which
is a "bank" as defined by Section 2(a) (5) of the Investment Company Act of
1940 which meets the qualification set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be governed by
Article 1 of this Contract.
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of the Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or
-26
<PAGE>
repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the
Custodian by a holder of Shares, which checks have been furnished by the Fund to
the holder of Shares, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to time between
the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. Proper Instructions
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the Trustees shall have from time to time
authorized. Each such writing shall set forth the specific transaction or type
of transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Trustees of the Fund accompanied by a detailed
description of procedures approved by the Trustees,
-27-
<PAGE>
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Trustees and the
Custodian are satisfied that such procedures afford adequate safeguards for the
Fund's assets.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Fund except as otherwise directed by the Trustees
of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Trustees of
the Fund as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any
-28-
<PAGE>
determination or of any action by the Trustees pursuant to the Declaration
of Trust as described in such vote, and such vote may be considered as in full
force and effect until receipt by the Custodian of written notice to the
contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Trustees of the Fund to keep the books of
account of the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also calculate daily the net income
of the Fund as described in the Fund's currently effective prospectus and shall
advise the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of the Fund shall be made at the time or times described from
time to time in the Fund's currently effective prospectus.
9. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to
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<PAGE>
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable federal and
state tax laws and any other law or administrative rules or procedures which may
be applicable to the Fund. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by the Fund and held by the Custodian and shall, when requested
to do so by the Fund and for such compensation as shall be agreed upon between
the Fund and the Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
-30-
<PAGE>
12. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties. Except as otherwise
provided herein, the Custodian shall be held to the exercise of reasonable care
in carrying out the provisions of this Contract, but shall be kept indemnified
by and shall be without liability to the Fund for any action taken or omitted by
it in good faith without negligence. It shall be entitled to rely on and may
act upon advice of reputable legal counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. Notwithstanding the foregoing, the
responsibility of the Custodian with respect to redemptions effected by check
shall be in accordance with a separate Agreement entered into between the
Custodian and the Fund.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
-31-
<PAGE>
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement.
13. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
Custodian shall not act under Section 2.10 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the
Trustees of the Fund have approved the initial use of a particular Securities
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Trustees have reviewed the use by the Fund of such Securities
System, as required in each case by Rule 17f-4 under the
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<PAGE>
Investment Company Act of 1940, as amended; provided fur [COPY MISSING]
however, that the Fund shall not amend or terminate this C [COPY MISSING]
in contravention of any applicable federal or state regulation
or any provision of the Declaration of Trust, and further provided, that the
Fund may at any time by action of its Trustees (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian shall be appointed by the Trustees of the Fund,
the Custodian shall, upon termination, deliver to such successor custodian at
the office of the Custodian, duly endorsed and in the form for transfer, all
securities then held by it hereunder and shall transfer to an account of the
successor custodian all of the Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Trustees of the
Fund, deliver at the office of
-33-
<PAGE>
the Custodian and transfer such securities, funds and other properties in
accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Trustees shall have been delivered to the
Custodian on or before the date when such termination shall become effective,
then the Custodian shall have the right to deliver to a bank or trust company,
which is a "bank" as defined in the Investment Company Act of 1940, doing
business in Boston, Massachusetts, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
the Custodian and all instruments held by the Custodian relative thereto and all
other property held by it under this Contract and to transfer to an account of
such successor custodian all of the Fund's securities held in any Securities
System. Thereafter, such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of vote referred to or of the
Trustees to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian retains
possession of such securities, funds and other properties and the provisions of
this Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
-34-
<PAGE>
15. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Declaration of Trust of the Fund. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment of
this Contract.
16. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the MetLife - State Street High Income Fund, and the MetLife - State
Street Government Securities Fund with respect to which it desires to have the
Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Fund hereunder.
17. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
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<PAGE>
18. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 30th day of June, 1986.
ATTEST METLIFE - STATE STREET INCOME TRUST
/s/ Constantine Hutchins, Jr. By /s/ Charles A. Austin, III
- ------------------------------- ------------------------------------
Secretary Treasurer
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ K.M. Kubit By /s/ E. D. Hawkes, Jr.
- ------------------------------- ------------------------------------
Assistant Secretary Vice President
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<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Trustees of MetLife - State Street Income
Trust for use as sub-custodians for the Fund's securities and other assets:
Girozentrale Der Sparbanken (Austria)
ANZ Banking Group Ltd. (Australia)
Banque Bruxelles Lambert (Belgium)
Canada Permanent Trust Company (Canada)
Den Danske Bank (Denmark)
Kansallis-Osake-Pankki (Finland)
Credit Commercial De France (France)
BHF Bank (Germany)
Standard Chartered Bank (Hong Kong)
Credito Italiano (Italy)
Sumitomo Trust and Banking Co. Ltd. (Japan)
Citibank, N.A. (Mexico)
Bank Mees & Hope N.W. (Netherlands)
Christiania Bank og Kreditkasse (Norway)
DBS Bank (Singapore)
Barclays National Bank Ltd. (Barclays Trustees)
(South Africa)
Banco Hispano Americano (Spain)
Skandinaviska Enskilda Banken (Sweden)
Union Bank of Switzerland (Switzerland)
State Street London Limited (United Kingdom)
State Street Bank and Trust Company
(United States)
Exhibit (8)(b)
METLIFE - STATE STREET INCOME TRUST
One Financial Center
Boston, MA 02111
December 24, 1988
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Gentlemen:
This letter is to confirm to you that MetLife - State Street Income
Trust (the "Trust") has created a new series of shares to be known as MetLife -
State Street Managed Assets (the "Fund"), and that pursuant to paragraph 16 of
the Custodian Contract dated as of June 30, 1986 between the Trust and you (the
"Agreement"), the Trust desires to retain you to act as Custodian of the assets
of the Fund as set forth in the Custodian Contract.
Please indicate your acceptance of the above in accordance with the
terms of the Agreement and the Plan by signing this letter as indicated below.
The term "MetLife - State Street Income Trust" means and refers to the
Trustees from time to time serving under the Master Trust Agreement of the Trust
dated December 23, 1985 as the same may subsequently hereto have been, or
subsequently hereto may be, amended. It is expressly agreed that the obligations
of the Trust hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Trust as
individuals or personally, but shall bind only the trust property of the Trust,
as provided in the Master Trust Agreement of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust and
signed by the President of the Trust, acting as such, and neither such
authorization nor such execution and delivery shall be deemed to have been made
individually or to impose any personal liability, but shall bind only the trust
property of the Trust as provided in its Master Trust Agreement. The Master
Trust Agreement of the Trust provides, and it is expressly agreed, that each
Fund of the Trust shall be solely
<PAGE>
and exclusively responsible for the payment of its debts, liabilities and
obligations, and that no other fund shall be responsible for the same.
METLIFE - STATE STREET INCOME
TRUST
By: /s/ Charles L. Smith, Jr.
-----------------------------
President
ACCEPTED AND AGREED TO:
STATE STREET BANK AND TRUST
COMPANY
By: /s/ W. J. Hayes
-------------------------------
Vice President
Exhibit (8)(c)
Amendment
To
Custodian Contract
AGREEMENT made this 12th day of January, 1989 by and between STATE STREET BANK
AND TRUST COMPANY ("Custodian") and METLIFE - STATE STREET INCOME TRUST (the
FUND").
WITNESSETH THAT:
WHEREAS, the Custodian and the Fund are parties to a Custodian Contract
dated June 30, 1986 (as amended to date, the "Contract") which governs the terms
and conditions under which the Custodian maintains custody of the securities and
other assets of the Fund:
NOW THEREFORE, the Custodian and the Fund hereby amend the terms of the
Custodian Contract and mutually agree to the following:
I. Section 2.1 is hereby amended to read in its entirety as follows:
"Holding Securities. The Custodian shall hold and physically segregate for
the account of the Fund all noncash property, to be held by it in the
United States, including all domestic securities owned by the Fund, other
<PAGE>
than (a) securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a book-entry
system authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System" and (b) commercial paper of an
issuer for which State Street Bank and Trust Company acts as issuing and
paying agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian pursuant to Section 2.10.A."
II. Section 2.2 is hereby amended to read in its entirety as follows:
"Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper
book-entry system account ("Direct Paper System Account") only upon receipt
of Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such
-2-
<PAGE>
securities entered into by the Fund;
3) In the case of a sale effected through a Securities System,
including in the Direct Paper System Account, in accordance with
the provisions of Section 2.10 or 2.10.A hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) To the broker selling the same for examination
-3-
<PAGE>
in accordance with the "street delivery" custom;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Fund, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund,
which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral
-4-
<PAGE>
is to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the delivery
of securities owned by the Fund prior to the receipt of such
collateral;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "Exchange Act")
and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with the transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to
-5-
<PAGE>
compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the Fund's currently
effective prospectus and statement of additional information
("prospectus"), in satisfaction of requests by holders of Shares
for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purposes to be proper corporate purposes, and
naming the person or persons to whom delivery of such
-6-
<PAGE>
securities shall be made."
III. Section 2.7 (1) is amended to read in its entirety as follows:
"Payment of Fund Moneys. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out moneys of the Fund in the following cases only:
1) Upon the purchase of domestic securities, futures contracts or
options on futures contracts for the account of the Fund but only
(a) against the delivery of such securities, or evidence of title
to futures contracts or options on futures contracts, to the
Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under
the Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its agent
for this purpose) registered in the name of the Fund or in the
name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System,
-7-
<PAGE>
in accordance with the conditions set forth in Section 2.10
hereof or (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.10.A or (d) in the case of repurchase agreements
entered into between the Fund and the Custodian, or another bank,
or a broker dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form or through
an entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the receipt
evidencing purchase by the Fund of securities owned by the
Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Fund;"
IV. Following Section 2.10 there is inserted a new Section 2.10.A to read as
follows:
"Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by the Fund in the Direct Paper
System of the Custodian subject to the following provisions:
-8-
<PAGE>
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which
shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account
of the Fund upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to
the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt
of payment for the account of the Fund;
-9-
<PAGE>
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund copies
of daily transaction sheets reflecting each day's transaction in
the Securities System for the account of the Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may reasonably
request from time to time."
V. Section 13 is hereby amended in its entirety to read as follows:
"Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or
-10-
<PAGE>
mailing; provided, however that the Custodian shall not act under Section 2.10
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Trustees of the Fund have approved the initial
use of a particular Securities System and the receipt of an annual certificate
of the Secretary or an Assistant Secretary that the Trustees have reviewed the
use by the Fund of such Securities System, as required in each case by Rule
17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not act under Section 2.10.A hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the
Trustees of the Fund have approved the initial use of the Direct Paper System
and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Trustees have reviewed the use by the Fund of the Direct
Paper System; provided further, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Master Trust Agreement, and further
provided, that the Fund may at any time by action of its Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
-11-
<PAGE>
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements."
VI. Following Section 18, there is inserted a new Section 19 to read as
follows:
"Disclaimer
It is expressly agreed that the obligations of the Fund hereunder, and the
authorization, execution and delivery of this document, shall not be binding
upon any of the Trustees, shareholders, nominees, officers, agents or employees
of the Fund as individuals or personally, but shall bind only the property of
the Portfolios of the Fund, as provided in the Master Trust Agreement of the
Fund. The Master Trust Agreement of the Fund provides, and it is expressly
agreed, that the Portfolios of the Fund shall be solely and exclusively
responsible for the payment of any direct or indirect debts, liabilities and
obligations relating to the Portfolios, and that no other portfolios shall be
responsible for the same."
Except as otherwise expressly amended and modified herein, the provisions
of the Custodian Contract shall remain in full force and effect.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the 12th day of January, 1989.
Attest MetLife - State Street
Income Trust
/s/ Darman A. Wing By /s/ Constantine Hutchins, Jr.
- ---------------------------- -------------------------------
Assistant Secretary Secretary
Attest State Street Bank and Trust Company
/s/ Richard P. Vandale By /s/ W. J. Hayes
- ---------------------------- -------------------------------
Assistant Secretary Vice President
-13-
Exhibit (8)(d)
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and MetLife-State Street Income Trust (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian
contract dated June 30, 1986 as amended January 12, 1989 (the "Custodian
Contract") governing the terms and conditions under which the Custodian
maintains custody of the securities and other assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in conformity
with the requirements of Rule 17f-5 under the Investment Company Act of 1940, as
amended;
NOW THEREFORE, in consideration of the premises and covenants
contained herein, the Custodian and the Fund hereby amend the Custodian Contract
by the addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non cash property
of the Fund which are maintained in such account shall identify by book-entry
those securities and other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed as a sealed instrument in its name and behalf by its duly authorized
representative this 2nd day of November, 1995.
METLIFE - STATE STREET INCOME TRUST
(Currently State Street Research Income Trust)
By: /s/ Gerard P. Maus
------------------------------------------
Title: Treasurer
---------------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Timothy Pandro
------------------------------------------
Title: Vice President
---------------------------------------
Exhibit (10)(a)
August 11, 1986
MetLife - State Street Income Trust
One Financial Center
Boston, Massachusetts 02111
Gentlemen:
As counsel to MetLife - State Street Income Trust, a voluntary
association of the type commonly known as a business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust"), we have been asked to
render our opinion in connection with the proposed issuance by the Trust of
shares of MetLife - State Street High Income Fund and MetLife - State Street
Government Securities Fund, the two series of the Trust which have been
established and designated in Section 4.2 of Article IV of the Trust's Agreement
and Declaration of Trust (also referred to as the Master Trust Agreement) dated
December 23, 1985 (the "Declaration"), all as more fully described in the
Prospectus and Statement of Additional Information contained in the Registration
Statement on Form N-1A filed by the Trust, as amended (the "Registration
Statement").
We have examined the Declaration and By-Laws of the Trust, the records
of the meetings and written consents of the Board of Trustees and shareholders
of the Trust, the Prospectus and Statement of Additional Information contained
in the Registration Statement and such other documents, records and certificates
as we deemed necessary for purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Trust has been
duly organized and is validly existing pursuant to the laws of the Commonwealth
of Massachusetts, and that the shares of beneficial interest of the Trust which
are the subject of the foregoing Registration Statement will, when sold in
accordance with the terms of the Prospectus and Statement of Additional
Information in effect at the time of the sale, be legally issued, fully paid and
non-assessable by the Trust.
<PAGE>
- --------------------
Page 2
We consent to being named in the Prospectus and Statement of Additional
Information and to a copy of this opinion being filed as an exhibit to the
foregoing Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar
GOODWIN, PROCTER & HOAR
Exhibit (10)(b)
December 22, 1988
MetLife - State Street Income Trust
One Financial Center
Boston, MA 02111
Gentlemen:
As counsel to MetLife - State Street Income Trust, a voluntary
association of the type commonly known as a business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust"), we have been asked to
render our opinion in connection with the proposed issuance by the Trust of
shares of MetLife - State Street Managed Assets, a series of the Trust which has
been established and designated pursuant to a Certificate of Amendment dated
December 16, 1988 to the Trust's Agreement and Declaration of Trust (also
referred to as the Master Trust Agreement) dated December 23, 1985, as amended
(collectively the "Declaration"), all as more fully described in the Prospectus
and Statement of Additional Information contained in the Registration Statement
on Form N-1A filed by the Trust, as amended (the "Registration Statement").
We have examined the Declaration and By-Laws of the Trust, the records
of the meetings and written consents of the Board of Trustees and shareholders
of the Trust, the Prospectus and Statement of Additional Information contained
in the Registration Statement and such other documents, records and certificates
as we deemed necessary for purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Trust has been
duly organized and is validly existing pursuant to the laws of the Commonwealth
of Massachusetts, and that the shares of beneficial interest of the Trust which
are the subject of the foregoing Registration Statement will, when sold in
accordance with the terms of the Prospectus and Statement of Additional
Information in effect at the time of the sale, be legally issued, fully paid and
non-assessable by the Trust.
We consent to being named in the Prospectus and Statement of Additional
Information and to a copy of this opinion being filed as an exhibit to the
foregoing Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar
GOODWIN, PROCTER & HOAR
Exhibit (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statements of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the registration
statement (No. 33-2697) on Form N-1A (the "Registration Statement") of our
reports dated May 9, 1997 relating to the financial statements and financial
highlights of State Street Research High Income Fund and State Street Research
Managed Assets (each a series of State Street Research Income Trust), which
appear in such Statements of Additional Information and to the incorporation by
reference of our reports into the Prospectuses which constitute part of this
Registration Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statements of Additional Information and to
the reference to us under the heading "Financial Highlights" in such
Prospectuses.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
July 3, 1997
Exhibit (13)(a)
PURCHASE AGREEMENT
------------------
MetLife-State Street Investment Trust, an unincorporated association of
the type commonly referred to as a business trust organized under the laws of
the Commonwealth of Massachusetts (the "Trust"), and State Street Research &
Management Company, a Delaware corporation ("SSRM"), hereby agree with each
other as follows:
1. The Trust hereby offers SSRM and SSRM hereby purchases: one (1)
share of beneficial interest (no par value) in the Trust's High Income Fund and
one (1) share of beneficial interest (no par value) in the Trust's Government
Securities Fund (collectively, the "Shares"), in each case at a price of $10.00
per Share. The Trust hereby acknowledges receipt from SSRM of payment in full
for the Shares.
2. SSRM represents and warrants to the Trust that the Shares are being
acquired for investment purposes and not with a view to the distribution
thereof, except that it is understood that SSRM may transfer the Shares to
MetLife-State Street Management Company, Inc., its wholly-owned subsidiary (the
"Adviser"), upon the organization of the Adviser and receipt from the Adviser of
appropriate investment representations.
3. The names "MetLife-State Street Investment Trust" and "Trustees of
MetLife-State Street Investment Trust" refer, respectively, to the Trust and the
Trustees of the Trust, as trustees but not individually or personally, acting
from time
<PAGE>
to time under the Trust's Agreement and Declaration of Trust dated December 23,
1985, as amended (the "Declaration"), which is hereby referred to and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and the principal office of the Trust. The obligations of
"MetLife-State Street Investment Trust" entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents of the Trust are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, holders of shares of beneficial interest or representatives of the
Trust personally, but bind only the trust estate, and all persons dealing with
the Trust must look solely to the trust property for the enforcement of any
claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 23rd day of December, 1985.
METLIFE-STATE STREET
INVESTMENT TRUST
ATTEST:
/s/ Constantine Hutchins, Jr. By: /s/ Charles L. Smith, Jr.
- --------------------------------------- ---------------------------
Constantine Hutchins, Jr. Charles L. Smith, Jr.
Secretary President
STATE STREET RESEARCH &
MANAGEMENT COMPANY
ATTEST:
/s/ Constantine Hutchins, Jr. By: /s/ Robert A. Lawrence
- --------------------------------------- ---------------------------
Constantine Hutchins, Jr.
Secretary
<PAGE>
December 23, 1985
MetLife-State Street Investment Trust
One Financial Center
Boston, Massachusetts 02111
Gentlemen:
In connection with your sale to us today of two (2) shares of
beneficial interest in MetLife-State Street Investment Trust (the "Shares")
(representing one (1) share of the MetLife-State Street High Income Fund and one
(1) share of the MetLife-State Street Government Securities Fund), we understand
that: (i) the Shares have not been registered under the Securities Act of 1933,
as amended (the "1933 Act"); (ii) your sale of the Shares to us is made in
reliance on such sale being exempt under Section 4(2) of the 1933 Act as not
involving any public offering; and (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby confirm, that we
are acquiring the Shares for investment for our own account as the sole
beneficial owner thereof, and not with a view to or in connection with any
resale or distribution of any or all of the Shares or of any interest therein,
except that it is understood that we may transfer the Shares to MetLife-State
Street Management Company, Inc., our wholly-owned subsidiary (the "Adviser"),
upon the organization of the Adviser and receipt of investment representations
from the Adviser identical in substance to the foregoing. We hereby agree that
we will not sell, assign or transfer the Shares or any interest therein, except
upon repurchase or redemption by MetLife-State Street Investment Trust or as
contemplated by the immediately preceding sentence, unless and until the Shares
have been registered under the 1933 Act or you have received an opinion of your
counsel indicating to your satisfaction that said sale, assignment or transfer
will not violate the provisions of the 1933 Act or any rules or regulations
promulgated thereunder.
This letter is intended to take effect as an instrument under seal,
shall be construed under the laws of the Commonwealth of Massachusetts, and is
delivered at Boston, Massachusetts, as of the date above written.
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Charles L. Smith, Jr.
-------------------------
Charles L. Smith, Jr.
President
<PAGE>
July 16, 1986
MetLife-State Street Income Trust
One Financial Center
Boston, Massachusetts 02111
Gentlemen:
In connection with your transfer to us today of two (2) shares of
beneficial interest in MetLife-State Street Income Trust (the "Shares")
(representing one (1) share of the MetLife-State Street High Income Fund series
and one (1) share of the MetLife-State Street Government Securities Fund
series), we understand that: (i) the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"); (ii) your transfer of the
Shares to us is made in reliance on such transfer being exempt under Section
4(2) of the 1933 Act as not involving any public offering; and (iii) in part,
your reliance on such exemption is predicated on our representation, which we
hereby confirm, that we are acquiring the Shares for investment for our own
account as the sole beneficial owner thereof, and not with a view to or in
connection with any sale or distribution of any or all of the Shares or of any
interest therein. We hereby agree that we will not sell, assign or transfer the
Shares or any interest therein, except upon repurchase or redemption by
MetLife-State Street Income Trust, unless and until the Shares have been
registered under the 1933 Act or you have received an opinion of your counsel
indicating to your satisfaction that said sale, assignment or transfer will not
violate the provisions of the 1933 Act or any rules or regulations promulgated
thereunder.
This letter is intended to take effect as an instrument under seal,
shall be construed under the laws of the Commonwealth of Massachusetts, and is
delivered at Boston, Massachusetts, as of the date above written.
METLIFE-STATE STREET
INVESTMENT SERVICES, INC.
By: /s/ Herbert P. Hess
------------------------
Exhibit (13)(b)
PURCHASE AGREEMENT
MetLife - State Street Income Trust (the "Trust"), an unincorporated
association of the type commonly referred to as a business trust organized under
the laws of the Commonwealth of Massachusetts, and MetLife State Street
Investment Services, Inc., a Massachusetts corporation ("MLSSIS"), hereby agree
with each other as follows:
1. The Trust hereby offers MLSSIS and MLSISS hereby purchases:
6,756.757 shares of beneficial interest (par value $.001) in the Trust's High
Income Fund and 6,756.757 shares of beneficial interest (par value $.001) in the
Trust's Government Securities Fund (collectively, the "Shares"), in each case at
a price of $7.40 per share. The Trust hereby acknowledges receipt from MLSSIS of
payment in full for the Shares.
2. MLSSIS represents and warrants to the Trust that the Shares are
being acquired for investment purposes and not with a view to the distribution
thereof.
3. The names "MetLife - State Street Income Trust" and "Trustees of
MetLife - State Street Income Trust" refer, respectively, to the Trust and the
Trustees of the Trust, as trustees but not individually or personally, acting
from time to time under the Trust's Agreement and Declaration of Trust dated
December 23, 1985, as amended, which is hereby referred to and a copy of which
is on file at the office of the Secretary of the Commonwealth of Massachusetts
and the principal office of the Trust. The obligations of "MetLife - State
Street Income Trust" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents of the Trust are made not individually, but
in such capacities, and are not binding upon any of the Trustees, holders of
shares of beneficial interest or representatives of the trustees personally, but
bind only the trust estate, and all persons dealing with the Trust must look
solely to the trust property for the enforcement of any claims against the
Trust. The
<PAGE>
Agreement and Declaration of Trust of the Trust further provides, and it is
expressly agreed, that each Fund of the Trust shall be solely and exclusively
responsible for the payment of its debts, liabilities and obligations and that
no other Fund shall be responsible or liable for the same.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 16th day of July, 1986.
METLIFE - STATE STREET
ATTEST: INCOME TRUST
/s/ Constantine Hutchins, Jr. By: /s/ Charles L. Smith, Jr.
- ----------------------------- -----------------------------
Secretary President
METLIFE - STATE STREET
ATTEST: INVESTMENT SERVICES, INC.
/s/ Constantine Hutchins, Jr. By: /s/ Herbert P. Hess
- ----------------------------- -----------------------------
Clerk Senior Vice President
<PAGE>
July 16, 1986
MetLife - State Street Income Trust
One Financial Center
Boston, Massachusetts 02111
Gentlemen:
In connection with your sale to us today of 13,513.514 shares of
beneficial interest in MetLife - State Street Income Trust (the "Shares")
(representing 6,756.757 shares of the MetLife - State Street High Income Fund
series and 6,756.757 shares of the MetLife - State Street Government Securities
Fund series), we understand that: (i) the Shares have not been registered under
the Securities Act of 1933, as amended (the "1933 Act"); (ii) your sale of the
Shares to us is made in reliance on such sale being exempt under Section 4(2) of
the 1933 Act as not involving any public offering; and (iii) in part, your
reliance on such exemption is predicated on our representation, which we hereby
confirm, that we are acquiring the Shares for investment for our own account as
the sole beneficial owner thereof, and not with a view to or in connection with
any resale or distribution of any or all of the Shares or of any interest
therein. We hereby agree that we will not sell, assign or transfer the Shares or
any interest therein, except upon repurchase or redemption by MetLife - State
Street Income Trust, unless and until the Shares have been registered under the
1933 Act or you have received an opinion of your counsel indicating to your
satisfaction that said sale, assignment or transfer will not violate the
provisions of the 1933 Act or any rules or regulations promulgated thereunder.
This letter is intended to take effect as an instrument under seal,
shall be construed under the laws of the Commonwealth of Massachusetts, and is
delivered at Boston, Massachusetts, as of the date above written.
METLIFE - STATE STREET
INVESTMENT SERVICES, INC.
By: /s/ Herbert P. Hess
-----------------------
Exhibit (13)(c)
PURCHASE AGREEMENT
MetLife - State Street Income Trust (the "Trust"), an unincorporated
association of the type commonly referred to as a business trust organized under
the laws of the Commonwealth of Massachusetts, and MetLife - State Street
Investment Services, Inc., a Massachusetts corporation ("MLSSIS"), hereby agree
with each other as follows:
1. The Trust hereby offers MLSSIS and MLSSIS hereby purchases: one
shares of beneficial interest (par value $.001) in the Trust's Managed Assets
series (the "Shares"), at a price of $7.40 per share. The Trust hereby
acknowledges receipt from MLSSIS of payment in full for the Shares.
2. MLSSIS represents and warrants to the Trust that the Shares are
being acquired for investment purposes and not with a view to the distribution
thereof.
3. The names "MetLife - State Street Income Trust" and "Trustees of
MetLife - State Street Income Trust" refer, respectively, to the Trust and the
Trustees of the Trust, as trustees but not individually or personally, acting
from time to time under the Trust's Agreement and Declaration of Trust dated
December 23, 1985, as amended, which is hereby referred to and a copy of which
is on file at the office of the Secretary of the Commonwealth of Massachusetts
and the principal office of the Trust. The obligations of "MetLife State Street
Income Trust" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents of the Trust are made not individually, but
in such capacities, and are not binding upon any of the Trustees, holders of
shares of beneficial interest or representatives of the Trustees personally, but
bind only the trust estate, and all persons dealing with the Trust must look
solely to the trust property for the enforcement of any claims
<PAGE>
against the Trust. The Agreement and Declaration of Trust of the Trust further
provides, and it is expressly agreed, that each Fund of the Trust shall be
solely and exclusively responsible for the payment of its debts, liabilities and
obligations and that no other Fund shall be responsible or liable for the same.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 16th day of December, 1988.
METLIFE - STATE STREET
INCOME TRUST
ATTEST:
/s/ Darman A. Wing By: /s/ Charles L. Smith, Jr.
- -------------------------------- ---------------------------
METLIFE - STATE STREET
INVESTMENT SERVICES, INC.
ATTEST:
/s/ Darman A. Wing By: /s/ David P. McLean
- -------------------------------- ---------------------------
<PAGE>
December 16, 1988
MetLife - State Street Income Trust
One Financial Center
Boston, Massachusetts 02110-2690
Gentlemen:
In connection with your sale to us today of one share(s) of beneficial
interest of MetLife - State Street Managed Assets (the "Shares"), we understand
that: (i) the Shares have not been registered under the Securities Act of 1933,
as amended (the "1933 Act"); (ii) your sale of the Share to us is made in
reliance on such sale being exempt under Section 4(2) of the 1933 Act as not
involving any public offering; and (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby confirm, that we
are acquiring the Shares for investment for our own account as the sole
beneficial owner thereof, and not with a view to or in connection with any
resale or distribution of the Shares or of any interest therein. We hereby agree
that we will not sell, assign or transfer the Shares or any interest therein,
except upon repurchase or redemption by MetLife - State Street Managed Assets,
unless and until the Shares have been registered under the 1933 Act or you have
received an opinion of your counsel indicating to your satisfaction that said
sale, assignment or transfer will not violate the provisions of the 1933 Act or
any rules or regulations promulgated thereunder.
METLIFE - STATE STREET
INVESTMENT SERVICES, INC.
By: /s/ David P. McLean
-----------------------
President
Exhibit (14)(b)
[FRONT COVER]
[State Street Research logo]
Your Window of Opportunity
State Street Research 403(b)
[Graphic: 3 windows, one slightly open]
Inside
---------------------------------------------
State Street Research Makes It Easy page 1
Use a 403(b) Before An IRA page 3
403(b) Tax Savings page 4
The State Street Research Advantage page 5
How to Open An Account page 9
<PAGE>
RETIREMENT PLANNING TAKES TIME
A comfortable retirement is the number one reason most people invest. And,
today, successful retirement planning is more important than ever. Not only are
we retiring earlier, but we're living longer. That means your retirement nest
egg needs to last for 20 or 30 years.
Fortunately, the key to success in retirement planning isn't necessarily how
much you invest. It's giving your money time to grow and making the right
choices with your investments. This is why it pays to have a dedicated
investment representative who understands your investment goals and can help you
take advantage of investment opportunities.
STATE STREET RESEARCH 403(B) MAKES IT EASY
A 403(b) plan is your window of opportunity. It allows you to take personal
control of your retirement, deciding what to invest in, how much and when. The
State Street Research 403(b) account offers you distinct advantages:
[bullet] Tax benefits. You enjoy pre-tax contributions
and tax-deferred investing.
[bullet] A convenient loan privilege that lets you borrow against your
403(b) account.
[bullet] Convenience. Your contributions are made by
payroll deduction. [Graphic:
Window]
[bullet] The cost advantages of State Street Research
mutual funds.
[bullet] A wide range of investment options--stock funds, bond funds,
international and money market funds.
[bullet] The investment expertise of State Street Research--the result of
managing mutual funds for more than 70 years.
1
<PAGE>
IT PAYS TO START EARLY
It stands to reason that the more you invest, the more money you may have when
you retire. But one of the wonders of investing is how time, and the power of
compounding, can make your money grow faster. Consider the examples below.
[LINE CHARTS]
Chart 1 Chart 2
Year $(in thousands) Year $(in thousands)
1 5,406 1 5,406
2 10,812 2 10,812
3 16,650 3 16,650
4 22,956 4 22,956
5 29,766 5 29,766
6 37,120 6 37,120
7 45,064 7 45,064
8 53,642 8 53,642
9 62,907 9 62,907
10 72,913 10 72,913
11 83,720 11 83,720
12 95,391 12 95,391
13 107,996 13 107,996
14 121,610 14 121,610
15 136,312 15 136,312
16 152,191 16 152,191
17 169,340 17 169,340
18 187,861 18 187,861
19 207,863 ` 19 207,863
20 229,068 20 229,068
21 247,393
22 267,185
23 288,560
24 311,644
25 336,576
26 363,502
27 392,582
28 423,989
29 457,908
30 494,541
31 534,104
32 576,832
33 622,979
34 672,817
35 726,642
Linda Late began putting money away for retirement when she was 45. After 20
years of investing $400 each month--a total of $96,000--she accumulated $229,068
at age 65.
Ellen Early got a head start on her retirement planning, beginning at age 30.
She also invested $400 per month for 20 years, and then let her investment grow
for fifteen more years. After 35 years, her account grew to $726,643.
Ellen Early invested the same amount as Linda Late, yet had more than $497,000
extra to make her retirement a success. The real difference was the added time
her investment had to grow, and that's why it pays to start early.
These charts illustrate the growth of $400 monthly investments at an 8% annual
rate of return. Results are hypothetical and are for illustrative purposes only;
they are not intended to imply or guarantee a rate of return on any mutual fund
or other investment. All distributions are reinvested; sales charges are not
reflected.
How Investments Grow Over Time
Use this table as a guide in determining how your investments might grow. Choose
a number of years and an average annual rate of return. The table assumes a $100
monthly investment; but you can use it as a guide for nearly any amount. For
example, if you invest $200 (twice as much), just multiply the result in the
table by 2.
average annual rate of return
years 8% 10% 12%
5 $ 7,341 $ 7,717 $ 8,110
10 18,128 20,146 22,404
15 33,978 40,162 47,593
20 57,267 72,398 91,986
25 91,485 124,315 170,220
30 141,763 207,928 308,098
35 215,639 342,588 551,083
40 324,086 559,358 979,211
2
<PAGE>
THE BENEFITS OF 403(B)
A 403(b) retirement plan gives you the opportunity to save on taxes while you
invest. It is designed specifically for employees of public educational
institutions and certain tax-exempt organizations, such as hospitals and
colleges. The name "403(b)" refers to the part of the tax code that created the
plan.
A 403(b) is similar to the popular 401(k) plans available at many corporate
workplaces. Both allow you to invest by payroll deduction (before taxes), which
reduces the income taxes you pay. And both let your account grow free from taxes
until you withdraw money after age 59-1/2.
Why Use a State Street Research 403(b) BEFORE an IRA
For most investors, it's better to maximize contributions to a 403(b) plan
before contributing to an individual retirement account (IRA). Here's why:
- --------------------------------------------------------------------------------
State Street Research 403(b) IRA
- --------------------------------------------------------------------------------
Pre-tax contributions reduce
income taxes paid [checkmark] [checkmark](1)
- --------------------------------------------------------------------------------
Account is tax deferred until
money is withdrawn [checkmark] [checkmark]
- --------------------------------------------------------------------------------
You can invest by payroll deduction
[checkmark] [checkmark]
- --------------------------------------------------------------------------------
You can potentially invest up to
$9,500 maximum per year [checkmark]
- --------------------------------------------------------------------------------
You can take a loan against
your account [checkmark]
- --------------------------------------------------------------------------------
(1)In some cases, IRA contributions may be tax deductible.
3
<PAGE>
403(B) TAX SAVINGS
A 403(b) retirement plan helps you save on taxes in two ways. First, it reduces
your current taxable income because your contributions are made before taxes.
Pay Less Taxes Up Front
Saving with a 403(b) Plan Saving without a 403(b) Plan
- ---------------------------------- --------------------------------
Salary $50,000 Salary $50,000
403(b) savings $ 5,000 Non-403(b) savings $ 5,000
(pre-tax) (after tax)
Gross taxable income $45,000 Gross taxable income $50,000
Federal income taxes $ 7,815 Federal income taxes $ 9,215
(28% federal tax bracket) (28% federal tax bracket)
- ------------------------------------------------------------------------
Income after savings Income after savings
and taxes $37,185 and taxes $35,785
Pre-tax contributions mean you're currently taxed on less income, so your taxes
are lower!
Avoid Taxes While You Invest
Second, your 403(b) account is not taxed until you withdraw money, usually after
you reach age 59-1/2. Your account can grow tax deferred, which helps it to grow
faster! Taxes are paid when money is withdrawn from the 403(b) account.
The Advantages of Tax Deferral
(for monthly investments of $400)
[LINE CHART]
Taxable Line Tax-defered Line
Year Year
1 5,348 1 5,406
2 10,582 2 10,812
3 16,117 3 16,650
4 21,971 4 22,956
5 28,162 5 29,766
6 34,709 6 37,120
7 41,634 7 45,064
8 48,957 8 53,642
9 56,703 9 62,907
10 64,894 10 72,913
11 73,558 11 83,720
12 82,720 12 95,391
13 92,410 13 107,996
14 102,659 14 121,610
15 113,497 15 136,312
16 124,960 16 152,191
17 137,083 17 169,340
18 149,905 18 187,861
19 163,465 19 207,863
20 177,406 20 229,068
This chart illustrates general advantages of tax deferral. The chart shows
investments of $400 per month over a 20-year period. The taxable line reflects
annual taxes in the 28% tax bracket. Returns reflect hypothetical 8% annual
rates of return and are for illustrative purposes only; they are not intended to
imply or guarantee a rate of return on any mutual fund or other investment. All
distributions are reinvested; sales charges and deferred income taxes are not
reflected.
4
<PAGE>
THE MUTUAL FUND ADVANTAGE
State Street Research's mutual funds offer several advantages over other types
of investments or plans for 403(b) accounts.
Convenient loan privilege. If you have a short-term need for money, you can take
a loan against your account balance and pay the interest on the loan to your own
account.(2)
Wide range of investment options--stock, bond, international, and money market
funds. If your investment strategy changes, you can exchange your money from one
fund to another.(3)
Higher potential returns than fixed accounts. Investing in stock and bond mutual
funds can provide higher potential returns than fixed-rate investments. Of
course, the investment value and returns of mutual funds will fluctuate with
changes in market conditions.
Daily fund prices. Fund prices are reported daily in most newspapers, so it is
easy for you to keep track of your investment.
Flexible withdrawal options. When you are ready to retire, you have several
options for accessing your money.
[bullet] A lump-sum payment.
[bullet] A lump-sum payment made into another mutual fund account or
other investment.
[bullet] Regular monthly or quarterly payments from your account.
See page 7 for details on withdrawals.
(2)Subject to IRS penalty for non-repayment.
(3)The exchange privilege may be changed or discontinued at any time.
WHY STATE STREET RESEARCH
Since 1924, State Street Research has been respected by institutions and
knowledgeable individual investors. The firm has delivered exceptional results
to its clients:
[bullet] A history of selecting good stocks in both rising and falling markets.
State Street Research has successfully managed investor portfolios
throughout this century's best and worst market cycles since 1924.
[bullet] The choice of today's most demanding investors. Eight of the 10 largest
corporate pension plans and one of every four Fortune 100 companies is
a State Street Research client.
[bullet] Proprietary research. We built our reputation on the strength of our
in-house proprietary research.
[bullet] Institutional investment quality to individual investors. State Street
Research mutual fund investors receive the same distinctive portfolio
direction as our institutional clients.
[bullet] The important role of client service. State Street Research has been
recognized for providing quality shareholder service.
5
<PAGE>
RETIREMENT INVESTMENT STRATEGIES
To make it easier to develop a long-term plan,
State Street Research offers two special automatic investment strategies.
Direct Your Investment
Use our DIRECT strategy to invest gradually, moving money in pre-set amounts
from a conservative fund into a more aggressive fund.
HERE'S HOW IT WORKS:
[bullet] You transfer a lump-sum investment from an existing 403(b) plan into a
State Street Research mutual fund.(4)
[bullet] On a monthly or quarterly basis, money is "directed" from that fund
into another State Street Research fund that you select.
[bullet] You benefit from dollar cost averaging, which helps you invest in a
disciplined way whether the markets go up or down.(5)
DAP Your Dividends
Use DAP--Dividend Allocation Plan--to diversify dividends from a conservative
fund into a more aggressive fund.
HERE'S HOW IT WORKS:
[bullet] You make a lump-sum investment (plus any additional investments) in a
State Street Research mutual fund that pays regular dividend income.
[bullet] Your initial investment remains untouched, but the Fund's dividends are
transferred (or allocated) to another State Street Research fund that
you select.
[bullet] You benefit from diversification and dollar cost averaging.(5)
If you are interested in either of these automatic investing strategies, please
call 1-800-562-0032.
(4) Specific IRS rules apply to transfers. See the Transfer of 403(b) Assets
Form for more information.
(5) Dollar cost averaging will not assure that you will make a profit; neither
can it protect against losses in declining markets. Dollar cost averaging
involves continuous investment regardless of fluctuating prices, and
investors should consider their ability to purchase shares through high and
low markets.
What Has Performed Best Over the Long Term?
When investing for a long-term goal such as retirement, you may want to consider
stock funds for at least a portion of your investment. A longer time frame could
give you the time to ride out fluctuations in the market. Plus, you want your
investments to outpace inflation, and stocks have done that in the past 30
years.
[BAR CHART]
30 Years of Performance(6)
10.7% Large-company stocks
8.2% Long-term government bonds
6.9% U.S. Treasury bills
5.4% Inflation
(6) Source: Lipper Analytical Services, Johnson Charts
Average annual total returns for the years 1966-1995. All indices listed are
unmanaged and do not take sales charges into consideration. Direct investment in
the indices is not possible; results are for illustrative purposes only. Past
performance should not be considered indicative of the future performance of any
index or any available funds managed by State Street Research or its affiliates.
The Large-Company Stock data reflects the performance of the Standard & Poor's
500 Composite Index (S&P 500), which includes 500 widely traded common stocks
and is a commonly used measure of U.S. stock market performance. The Long-Term
Government Bond data are based on the performance of a one bond portfolio, which
includes a debt obligation issued by the U.S. Treasury with a 20-year maturity.
The U.S. Treasury Bill data are based on the performance of a one bill
portfolio, which includes a U.S. Treasury bill with a 30-day maturity. The
Consumer Price Index (CPI) is a measure of change in the prices of goods and
services as determined by the U.S. Bureau of Labor Statistics.
More information about stocks: Stocks are neither guaranteed nor tax advantaged.
The value of stocks will fluctuate, based on a variety of variables, including
market conditions.
More information about U.S. debt obligations: U.S. Treasury bonds and bills
offer a government guarantee as to the repayment of principal and/or interest if
held to maturity; income from these securities is tax exempt at the state and
local level. U.S. government agency securities are not direct obligations of the
U.S. government and, with some exceptions, are not guaranteed by the U.S.
government; many are exempt from state and local taxes.
6
<PAGE>
QUESTIONS AND ANSWERS
About Your 403(b) Account
Eligibility Who can have a 403(b) account?
Generally, employees of non-profit charitable, educational, scientific or
religious organizations, such as hospitals or colleges, may have a 403(b)
account. Also eligible are employees of state or local governments who are
employed by schools. Check with your employer to determine whether you qualify
for a 403(b) account.
Contributions
How do I make contributions to my 403(b) account?
Usually, you enter into a salary reduction agreement with your employer that
specifies the amount you want to contribute. Your compensation will be reduced
by this amount. Your employer may have a salary reduction agreement for you to
use. If not, a salary reduction agreement is attached.
What about fees? Is it expensive to open a 403(b) with State Street Research?
State Street Research offers some of the most competitive pricing for 403(b)s
that you'll find. You'll pay a $10 annual account administration (trustee) fee.
This $10 fee (per 403(b) plan) allows you to choose any number of our available
mutual funds. You pay per plan, not per fund. Remember though, sales charges may
also apply to the mutual funds that you invest in for your 403(b).
Maximum Contribution
How much can be contributed each year to my 403(b) account?
Determining your maximum 403(b) contribution is complex because several
different tax law limits apply depending on your individual situation. For most
employees, the maximum salary reduction contribution for a calendar year will be
the smaller of 20% of your compensation or $9,500. In the future, the $9,500
limit will be indexed for inflation. Employees of certain kinds of qualified
employers (for example, public schools, colleges, and hospitals) and
long-service employees (15 or more years of service) of such employers may have
different limits.
Your employer may be able to calculate your maximum contribution. If not, use
the attached worksheet. You may wish to consult an accountant or tax adviser to
confirm your maximum contribution, as penalties may apply if you exceed your
maximum.
Transfers
May I transfer all or part of my existing 403(b) to State Street Research? Yes.
Complete the attached Transfer of 403(b) Assets Form. Be sure to note the
requirements for a tax-free transfer described in the Form.
Withdrawals From Your Account
When will I begin to receive retirement benefits from my account?
You choose when to make withdrawals from your 403(b) account. However,
withdrawals may not begin until you have retired or terminated employment with
your employer or reached age 59-1/2. Earlier withdrawals are permitted only if
you become disabled or suffer a financial hardship (as defined by IRS
regulations).
You must begin making withdrawals by April 1 of the year following the year when
you reach age 70-1/2 or retire from your employer (if later).
7
<PAGE>
What happens to my account if I die?
Your account balance goes to the beneficiary(ies) you designate on the 403(b)
application or on another written document you send to State Street Research
Shareholder Services. Naming a beneficiary(ies) can have estate and tax-planning
implications, so consult a qualified professional. Any contingent deferred sales
charges (Class B shares) are waived if withdrawals are made within one year of
your death or disability.
Taxes
How will I be taxed on withdrawals from my 403(b)?
Generally, amounts withdrawn from your account are taxed as ordinary income in
the year when received. In addition, with limited exceptions, such as
disability, amounts withdrawn before age 59-1/2 are subject to an additional 10%
penalty tax.
If you withdraw an amount from your State Street Research 403(b) Account that is
eligible for rollover (see next question), mandatory 20% federal income tax
withholding will apply unless the withdrawn amount is rolled over directly to
another 403(b) arrangement or to an IRA. If the amount you withdraw is not
eligible for rollover to another 403(b) arrangement or IRA, 10% withholding of
federal income tax will apply unless you elect no withholding on your Withdrawal
Form.
Can I postpone federal income tax on a withdrawal from my 403(b) account?
You can defer income taxes on withdrawals from your 403(b) account if all or
part of the withdrawal is rolled over to another 403(b) account or into an IRA
either directly by State Street Research (direct rollover) or by you (regular
rollover) within 60 days. All withdrawals are eligible for rollover except
minimum required withdrawals after age 70-1/2 or retirement from your employer
and withdrawals over a period of at least 10 years or over your life expectancy
(or that of you and your designated beneficiary(ies)).
Caution: Rollovers must meet technical IRS requirements that cannot be described
in detail here.
Important: The preceding questions and answers are general and are provided for
informative purposes only. Some rules are not covered. Always consult your tax
adviser for advice on how the tax laws apply to you and how a State Street
Research 403(b) account will affect your tax situation or for advice on specific
matters such as contribution limits or rollover requirements. More information
is available in IRS Publication 571, Tax-Sheltered Annuity Plans for Employees
of Public Schools and Certain Tax-Exempt Organizations; this publication is
available from the IRS.
[Graphic: 3 diamond-shaped windows]
8
<PAGE>
How To Open Your
STATE STREET RESEARCH 403(B) ACCOUNT
1. Carefully read the material describing the State Street Research 403(b)
Account and the prospectus(es) for the fund(s) in which you plan to invest.
You may want to review the material with your accountant, lawyer or other tax
adviser because the rules under Section 403(b) are complex and subject to
change.
2. If you are transferring your current 403(b) assets to State Street Research,
complete and sign the Transfer of 403(b) Assets Form.
3. Complete and sign the State Street Research 403(b) Account Application. Be
sure to complete the beneficiary and employer (even if you are retired)
sections of the Application.
4. If contributions to your 403(b) Account will be made by salary reduction, you
should fill out a salary reduction agreement and you and your employer should
sign it. A sample Salary Reduction Agreement is attached.
5. Mail the completed and signed Application (and the Transfer of 403(b) Assets
Form, if used) to State Street Research Shareholder Services.
9
<PAGE>
[The following 2 pages make up the Transfer of Assets form that is inserted in
the booklet]
[Tab on right edge of page: TRANSFER OF 403(b) ASSETS FORM]
State Street Research 403(b)
TRANSFER OF 403(B) ASSETS FORM
How to transfer your existing 403(b) Account to State Street Research
[bullet] If you don't have a State Street Research 403(b) Account yet, complete
this transfer form and a State Street Research 403(b) Account
Application.
[bullet] If you already have a State Street Research 403(b) Account, just
complete this transfer form.
[bullet] When completed, send this transfer form (and if necessary, your 403(b)
Account Application) to: State Street Research Shareholder Services,
P.O. Box 8408, Boston, MA 02266-8408.
Information about you
_______________________________________________________________________________
Name Social Security #
_______________________________________________________________________________
Telephone (day) Telephone (night)
_______________________________________________________________________________
Account number (if you already have a State Street Research 403(b) Account)
Where is your 403(b) Account now?
_______________________________________________________________________________
Name of current Custodian/Insurer
_______________________________________________________________________________
Address
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
Account number Name of mutual fund or fund family (if applicable)
_______________________________________________________________________________
Maturity date (if applicable)
[ ] This is a new State Street Research 403(b) Account. My investment choices
are on my 403(b) Account Application.
[ ] I already have a State Street Research 403(b) Account. Please invest the
amount transferred as follows:
Please tell us which Fund(s) you have selected for your 403(b) investment
_______________________________________________________________________________
Fund name Account number %
_______________________________________________________________________________
Fund name Account number %
_______________________________________________________________________________
Fund name Account number %
By signing below, I acknowledge that I have received a current prospectus(es) of
the Fund(s) selected.
[State Street Research logo] OVER >
<PAGE>
Please authorize transfer of your current 403(b) account to State Street
Research
To my current Custodian/Insurer: Please redeem [ ] ALL or [ ] PART ($ )
of my current 403(b) and transfer the proceeds in cash to my State Street
Research 403(b) Account. (For partial transfers, indicate which investments are
to be liquidated.)
_______________________________________________________________________________
Your signature Date
Note: Under current IRS rulings, a transfer from another 403(b) account to a
State Street Research 403(b) Account will be a tax-free transaction as long as
the withdrawal restrictions under your existing 403(b) are not more severe than
those under the State Street Research 403(b) Account (see Section 5.2 of the
State Street Research 403(b) Agreement). Also, amounts required to be
distributed to you under the minimum distribution rules of Code Section
403(b)(10) may not be transferred or rolled over. By signing this form, you are
certifying that this transfer will be a tax-free transaction under the preceding
two sentences.
Signature Guarantee
A signature guarantee may be required. Call your current Custodian/Insurer for
requirements.
_______________________________________________________________________________
Signature guaranteed by (name of bank or dealer firm)
_______________________________________________________________________________
Signature and title of officer
Directions to Current
Custodian/Insurer
PLEASE DO NOT FILL OUT THE FOLLOWING PORTION OF THIS FORM
Please liquidate and transfer on a fiduciary-to-fiduciary basis all or part of
the designated account as instructed above. Make check payable to State Street
Bank and Trust Company, Custodian.
Include the following account number and FBO on the check.
_______________________________________________________________________________
Account number Name
Mail to: State Street Research Shareholder Services,
P.O. Box 8408, Boston, MA 02266-8408
Include a copy of this Transfer of 403(b) Assets Form with the check for proper
credit to the customer's account. State Street Research Shareholder Services
will deliver the items to Boston Financial Data Services, Inc., which serves as
Agent for the Custodian.
Successor Custodian
State Street Bank and Trust Company will accept the transfer described above
once this form has been completed by you and the transfer has been completed by
your current 403(b) Custodian/Insurer.
_______________________________________________________________________________
Authorized signature of acceptance by Date
State Street Research Shareholder
Services on behalf of State Street Bank
and Trust Company, Custodian
<PAGE>
[The following 4 pages make up the Account Applicaiton form that is inserted
in the booklet]
[Tab on right edge of page: ACCOUNT APPLICATION]
-----------------------------------
Accompanying this form is a:
[ ] Transfer of 403(b) Assets Form
[ ] A check for a regular rollover
-----------------------------------
State Street Research 403(b)
ACCOUNT APPLICATION
How to open your State Street Research 403(b) Account
1. To open a State Street Research 403(b) Account, please complete this side
of the Application.
2. Your investment dealer must complete the dealer information section of
the Application.
What type of State Street Research 403(b) are you opening?
[ ] Regular 403(b) [ ] Transfer of Assets [ ] Regular Rollover
with Salary Reduction or Direct Rollover
Amount of investment accompanying this Application $___________________________
(Enclose a check for your contribution only if this is a regular rollover
403(b).)
Employee information
Complete the following information about yourself. Your account will be
registered in your name.
_______________________________________________________________________________
Name Birth date
_______________________________________________________________________________
Street
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
Social Security #
_______________________________________________________________________________
Daytime telephone #
Employer information
Complete the following information about your employer.
_______________________________________________________________________________
Name
_______________________________________________________________________________
Street
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
Name of contact person Daytime telephone #
Which Fund(s) have you selected for your 403(b)?
See relevant prospectus(es) for Fund details.
Name of Fund Class of Shares Percentage
A B D
[ ] [ ] [ ] %
____________________________________________________ ____________________
[ ] [ ] [ ] %
____________________________________________________ ____________________
[ ] [ ] [ ] %
____________________________________________________ ____________________
[ ] [ ] [ ] %
____________________________________________________ ____________________
[ ] [ ] [ ] %
____________________________________________________ ____________________
Total 100%
For information on the Direct or DAP(Dividend Allocation Plan) automatic
investing strategies, please call 1-800-562-0032.
[State Street Research logo]
<PAGE>
Who is the beneficiary of your State Street Research 403(b) Account?
1. Primary Beneficiary
_______________________________________________________________________________
Name Birth date
_______________________________________________________________________________
Relationship to you
_______________________________________________________________________________
Street
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
Social Security #
2. Secondary Beneficiary
_______________________________________________________________________________
Name Birth date
_______________________________________________________________________________
Relationship to you
_______________________________________________________________________________
Street
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
Social Security #
Important
Naming a beneficiary(ies) can have estate and tax-planning implications. Also,
if you are married and live in a community property state (AZ, CA, ID, LA, NM,
NV, TX or WA), you may need your spouse's consent to designate someone else as
beneficiary for more than half of your Account. Consult your attorney, or other
qualified professional, for additional advice.
Keep a copy of this account application with your other important papers (such
as your will).
Telephone exchange
The Telephone Exchange Privilege is available only for shares held on deposit
with the Transfer Agent. None of the Transfer Agent, any of the Funds, State
Street Research Shareholder Services, the Investment Manager or the Distributor
will be liable for any loss, injury, damage or expense as a result of acting
upon, and will not be responsible for the authenticity of, any telephone
instructions. I understand that all telephone calls are tape recorded. I am
liable for unauthorized telephone instructions unless reasonable procedures are
not used to confirm that instructions communicated by telephone are genuine.
<PAGE>
Telephone Exchange
by Shareholder or Dealer
The Transfer Agent may effect exchanges for my account according to telephone
instructions from me or my Dealer as set forth in the prospectus, and may
register the shares of the Fund to be acquired exactly the same as my existing
account. Authorizing an exchange constitutes an acknowledgment that Ihave
received the current prospectus of the Fund to be acquired. The account will
automatically have this privilege unless I expressly decline by providing my
initials in the space below.
I DO NOT WANT THE TELEPHONE EXCHANGE PRIVILEGE.
___ (Initial here.)
Sign here to establish the 403(b) Account
I hereby establish a State Street Research 403(b) Account, the terms of which
are contained in this Application and the State Street Research 403(b) Agreement
(which I have received and which is incorporated herein by reference) and
appoint State Street Bank and Trust Company as Custodian. I direct that
contributions to my 403(b) Account be invested as specified above in this
Application (until changed by me in accordance with the Agreement), designate
the individual(s) named above as my beneficiary(ies) (unless I have filed a
separate written designation with the Custodian or its agent), acknowledge that
I have received a current prospectus(es) of the Fund(s) indicated above, and
acknowledge that there is a $10 annual maintenance fee per plan (in addition to
any fees and charges described in the prospectus(es)).
Under penalties of perjury, I certify that (1) the number shown on this
Application is my correct taxpayer identification number (or I am waiting for a
number to be issued to me), and (2) I am not subject to backup withholding
because (a) I am exempt from backup withholding, or (b) I have not been notified
by the Internal Revenue Service that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
Certification Instructions--You must cross out item (2) above if you have been
notified by the IRSthat you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return.
The Internal Revenue Service does not require your consent to any provision of
this document other than certification required to avoid backup withholding.
_______________________________________________________________________________
Employee signature Date
<PAGE>
Signature Guarantee and Dealer Information
(Complete section (a) or (b) as applicable.)
The undersigned guarantees the signature and legal capacity of the
shareholder.
a. Signature Guarantee (fill out if your dealer does not complete section (b)
below)
__________________________________________________ _________________________
Name of Bank or Eligible Guarantor Street Address
__________________________________________________ _________________________
Authorized Signature of Bank or Eligible Guarantor City State ZIP
b. Dealer Information and Signature Guarantee (for Dealer use only)
______________________________ ______________________________________________
Dealer Name Branch Office Number
______________________________ ______________________________________________
Street Address of Home Office Address of Branch Office Serving Account
______________________________ ______________________________________________
City State ZIP City State ZIP
______________________________ ______________________________________________
Authorized Signature of Dealer Registered Representative's Name and Number
If this application is for an account introduced through the above-named Dealer,
the Dealer agrees to all applicable provisions in this application and in the
Prospectus(es), and represents that it has provided a current Prospectus for
each fund selected to the Applicant and that the application is properly
executed by a person authorized by the Dealer to guarantee signatures. The
Dealer warrants that this application is completed in accordance with the
shareholder's instructions and agrees to indemnify the Fund(s), any other
Eligible Funds, the Distributor, the Investment Manager, State Street Research
Shareholder Services and the Transfer Agent for any loss or liability from
acting or relying upon such instructions and information. The terms and
conditions of the Distributor's currently effective Selected Dealer Agreement or
sales agreement are included by reference in this section. The Dealer represents
that it has a currently effective Selected Dealer Agreement or sales agreement
with the Distributor authorizing the Dealer to sell shares of the Fund(s) and
the other Eligible Funds, and that it may lawfully sell shares of the designated
Fund(s) in the state designated as the Applicant's address of record.
State Street Bank and Trust Company, Custodian
You are hereby authorized and appointed on behalf of the above-signed dealer to
execute purchase transactions in accordance with the terms and conditions of
this Application, and to confirm each purchase.
Acceptance by the Custodian
This Account will be deemed to have been accepted by the Custodian, State Street
Bank and Trust Company, after all necessary forms, properly completed, are
received by State Street Research Shareholder Services and delivered by
Shareholder Services to the Transfer Agent.
Send completed application to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
<PAGE>
[The following 2 pages make up the Salary Reduction Agreement form that is
inserted in the booklet]
[Tab on right edge of page: SALARY REDUCTION AGREEMENT]
State Street Research 403(b)
SALARY REDUCTION AGREEMENT
Parties
Complete the information about the Employee and the Employer.
_______________________________________________________________________________
Employee name Social Security #
_______________________________________________________________________________
Employer name
Check one box.
[ ] Original Agreement [ ] Modification
AGREEMENTS The Employee and the Employer agree as follows:
1. The Employee has signed the State Street Research 403(b) Account Application
establishing the Account for the benefit of the Employee. The Employee and the
Employer are entering into this salary reduction agreement ("this Agreement") to
provide for contributions to the Account.
Fill in the dollar amount or percentage that you want to contribute in
section 2.
2. The Employee requests, and the Employer agrees, to reduce the compensation of
the Employee by $__________ or by ________% per pay period, starting with the
first pay period that begins after the Employee and the Employer have signed
this Agreement.
3. As soon as possible after each pay day, the Employer will transmit the amount
by which the Employee's compensation is reduced for that pay period to the agent
for the Custodian of the Employee's Account, to be credited to the Employee's
Account in accordance with the State Street Research 403(b) Account Agreement.
For federal income tax purposes, such amounts are considered Employer
contributions to the Employee's Account.
Where to send contributions.
Checks should be made payable to "State Street Bank and Trust Company,
Custodian, FBO [insert name of Employee] 403(b) Account." Mail checks to State
Street Research, P.O. Box 8408, Boston, MA 02266-8408.
[State Street Research logo] OVER >
<PAGE>
4. This Agreement will be effective only with respect to compensation not yet
earned by the Employee, and not with respect to compensation already earned by
the Employee on the date this Agreement is signed.
This Agreement is binding and irrevocable with respect to compensation earned by
the Employee while this Agreement is in effect. The Employer or the Employee may
terminate this Agreement at any time with respect to compensation not yet earned
by the Employee at the date of termination, by giving written notice to the
other party. After termination, the Employee may reinstate this Agreement (with
the same or a different salary reduction amount).
The Employee may modify the amount of salary reduction elected in Paragraph 2
above at any time by giving the Employer signed instructions specifying the new
salary reduction amount.
Notwithstanding the preceding two paragraphs, the Employer may impose reasonable
restrictions on the frequency with which the Employee may terminate, reinstate
or modify this Agreement and the number of days of advance notice required. Any
termination, reinstatement or modification will relate only to compensation not
yet earned, and not to compensation already earned, by the Employee as of the
effective date of such termination, reinstatement or modification.
5. Unless the Employer agrees to calculate the Employee's maximum 403(b)
contribution, the Employer has no responsibility for determining that the amount
by which the Employee's compensation is reduced, as set forth in Paragraph 2
above, does not exceed the limitations applicable to the Employee under the
Internal Revenue Code. The Employee agrees to indemnify the Employer, State
Street Research Investment Services, Inc., the State Street Research Funds, and
their affiliates and agents for any and all charges, expenses, taxes, interest
or penalties imposed on the Employer as a result of any reduction in
compensation in excess of such limitations.
Signatures
In witness whereof, the parties hereto have signed this Agreement
on___________________________ ,19_____.
Employee Employer
_________________________________________ ________________________________
(Signature) (Name of employer)
By:________________________________
(Signature and title of
authorized official)
<PAGE>
[Tab on right edge of page: SALARY REDUCTION WORKSHEET]
State Street Research 403(b)
MAXIMUM SALARY REDUCTION WORKSHEET
If your Employer's benefits or personnel department or business office does not
calculate your 403(b) maximum, use this worksheet to compute the maximum amount
by which you can reduce your salary to make 403(b) contributions. This worksheet
covers the main 403(b) rules and limits, but does not cover certain exceptions
and special rules that might permit larger contributions than the main rules. If
your employer will make contributions on your behalf as an addition to your
salary, or if you will contribute by foregoing an increase in compensation,
there are different rules to determine your maximum. Be sure to consult a tax
adviser to help you apply the rules to your personal situation. This worksheet
and the questions and answers following it are not intended to be tax advice.
You are responsible for meeting the tax law limits on contributions to your
403(b) account.
In the example, a college teacher will earn $40,000 in 1996. She will have
worked for the college 15 years at the end of 1996. The college has previously
contributed $20,000 on her behalf to its 403(b) retirement plan. The college
will contribute 10% of her salary ($4,000) to its retirement plan for 1996. In
addition, the employee reduced her salary in prior years by a total of $10,000
for contribution to her 403(b) account. The example shows how much this employee
can reduce her salary for 1996. Use the spaces for your own calculations.
Step 1--Determine Your Exclusion Allowance
(example)(your calculations)
(a) Expected salary for the current year
before reduction for 403(b)
contributions. $40,000 ________
(b) Number of whole and fractional years of
service as of the end of the current
year. 15 ________
(c) Multiply (a) by (b) by .20. $120,000 ________
(d) Your salary reduction contributions and
employer contributions for you to a
403(b) plan or to a tax-qualified plan
in prior years. $30,000 ________
(e) Your employer's contributions for you to
a 403(b) retirement plan for the current
year. $ 4,000 ________
(f) Subtract (d) and (e) from (c). $ 86,000 ________
(g) Multiply your years of service in (b) by
.20 and add 1. 4 ________
(h) Divide (f) by (g) to determine your
exclusion allowance for the year. $ 21,500 ________
Step 2--Determine Your Section 415 Limitation*
(a) Multiply your expected current year
salary (before reduction for 403(b)
contributions) by .20. $8,000 ________
(b) Multiply your employer's expected
current year contributions for you to a
403(b) plan by .80. $3,200 ________
(c) Subtract (b) from (a) to determine your
Section 415 general limitation (but not
in excess of $30,000). $4,800 ________
Step 3--Apply the $9,500 Limit*
Enter $9,500 (reduced by any salary
reduction contributions you make during the
same calendar year to other salary reduction
arrangements, such as a 401(k) plan). $9,500 ________
Step 4--Salary Reduction Agreement
Your maximum salary reduction amount is the smallest of the amounts determined
in Steps 1, 2 and 3. In the example, that amount was $4,800. Enter a salary
reduction agreement with your Employer, which reduces your compensation each pay
period so that the correct amount is contributed to your 403(b) account.
*See questions and answers for alternative ways to calculate the Section 415
limits and possible increases in the $9,500 limit.
[State Street Research logo]
<PAGE>
QUESTIONS AND ANSWERS
on calculating your maximum
1. What is the maximum annual contribution to my 403(b) account?
The maximum contribution you can exclude from your taxable income is the smaller
of your "403(b) exclusion allowance" (Questions 2 and 3) or your "415 limit"
(Question 4). Finally, your salary reduction contributions for a year cannot
exceed $9,500 (Question 5).
2. How do I compute my 403(b) "exclusion allowance"?
Follow these steps (see Step 1 of the worksheet) to compute your 403(b)
exclusion allowance.
(a) Take your expected salary for the current year (before reduction for your
403(b) contributions, but after reduction for salary reduction contributions
under a cafeteria or flexible benefits plan or 401(k) plan if your employer
maintains such a plan).
(b) Multiply (a) by your number of years of service with your current employer
as of the end of the current year, and then multiply the results by .20.
(c) Subtract the following total from (b):
[bullet] your total 403(b) salary reduction contributions in previous years
(which you excluded from your income).
[bullet] your employer's contributions in previous years on your behalf to a
403(b) retirement plan or to a qualified retirement plan, plus your
employer's expected contributions to a 403(b) retirement plan for
you for the current year.
(d) Divide (c) by the sum of one plus 20 percent of your years of service as of
the end of the current year.
The resulting figure is the amount of your exclusion allowance for the
current year.
For Step 1(d) of the worksheet, you need to know how much your employer has
contributed to a tax-qualified plan in prior years for you. If you cannot learn
this from your employer's benefits or personnel office, IRS regulations provide
a way to determine your employer's prior contributions. Consult your employer or
tax adviser for further information.
3. How do I determine my years of service?
Count one year of service for each full year you were a full-time employee.
Count a fraction of a year of service for years in which you were a part-time
employee or did not work a full year. (For additional information, see your
employer or your tax adviser). Add your full and fractional years of service
together to determine your total years of service. Only service with your
current employer can be counted. You may compute your exclusion allowance based
on one year of service even if you have worked for your employer for less than a
year or if your fractional years total less than a year.
4. What is my 415 limit?
Certain limits from Internal Revenue Code section 415 apply even though your
403(b) exclusion allowance for the year is greater. Section 415 has a general
limit and certain alternatives that may permit a larger 415 maximum.
Your 415 general limit is the smaller of (a) or (b) (see Step 2 of the
worksheet).
(a) 20 percent of your compensation for the year (before reduction for
contributions to your 403(b) account, but after reduction for salary
reduction contributions under any cafeteria or flexible benefits plan or
401(k) plan your employer maintains); this amount must be reduced by 80% of
your employer's contribution for the year to the 403(b) retirement plan; or
(b) $30,000. (This $30,000 figure will eventually be indexed for cost-of-living
changes. However, the indexing will not begin for some years depending on
future inflation.)
There are three section 415 alternative limits, which are available only to
employees of an educational organization, a hospital, a home health service
agency, a health and welfare service agency, or a church or association of
churches. If you do not work for such an employer, the alternatives do not apply
to you.
<PAGE>
Only one alternative may be used; in other words, if you elect to use one of the
alternatives in a year, you may not use either other alternative in any other
year. This means that choosing an alternative is an important decision.
The specific limits available under the different alternatives and the rules for
electing an alternative are complex. Consult your employer or your tax adviser
for additional information.
5. How does the $9,500 limit work?
Your salary reduction contributions for any calendar year are limited to $9,50 0
(indexed for future cost-of-living increases). This $9,500 cap applies as a
maximum salary reduction contribution even though your 403(b) exclusion
allowance or 415 limit is higher. This cap applies only to salary reduction
contributions, including your contributions to another 403(b) or 401(k) plan,
not to employer contributions to a 403(b) retirement plan for you.
An increased cap is available to certain employees who meet two requirements.
First, your employer must be one of the types listed in Answer 4 (eligibility
for 415 alternatives). Second, you must have 15 or more years of service with
your employer. If you qualify, consult your employer or tax adviser for more
information.
6. If for the current year my employer or any other employer contributes to
another 403(b) account or annuity for me, must such contributions be added to
my salary reduction contributions when determining my maximum contribution?
Yes. To determine your 403(b) exclusion allowance, your 415 limit or one of the
alternatives, your employer's current contributions to a 403(b) plan or
arrangement for you must be included. (See the worksheet for an example of this
situation). If your employer has a retirement plan, you should find out whether
it is a 403(b) plan.
7. If for the current year my employer makes contributions for me to a
retirement plan that is "qualified" under section 401(a) of the Code must
such contributions be counted when determining my maximum contributions?
The rules governing the limits for combinations of plans are very difficult and
can easily be violated unless you have expert professional guidance. This is
especially important if you "control" another employer (by owning a 50% or
greater interest), for example your own consulting business, which maintains a
plan covering you in addition to your employer's 403(b) plan.
<PAGE>
State Street Research 403(b)
ACCOUNT AGREEMENT [State Street Research logo]
Article 1: Introduction
1.1 Establishment of Account. This Agreement is intended to establish a 403(b)
Custodial Account meeting the requirements of Code Section 403(b)(7) and any
other applicable requirements of the Code or ERISA. This Agreement and the
Application will be interpreted and administered so as to carry out such intent.
The Application signed by the Employee and accepted by the Custodian (or its
agent) and this Agreement (which is incorporated by reference into the
Application), as either may be amended from time to time, are the legal
documents governing the Account.
1.2 Effective Date. This Agreement will become effective on the date on which
the Custodian accepts the Application signed by the Employee. Such acceptance
may be indicated in writing by the Custodian (or its agent) or by the
Custodian's opening the Account for the benefit of the Employee. The Account
will be opened on the date, coinciding with or after the date when this
Agreement is effective, when the Custodian receives and accepts a contribution
to the Account.
Article 2: Definition
2.1 Account or Employee's Account means the account established and maintained
by the Custodian under this Agreement for the benefit of the Employee.
2.2 Agreement means this State Street Research 403(b) Account Agreement, as it
may be amended from time to time.
2.3 Application means the State Street Research 403(b) Account Application
signed by the Employee as it may be amended from time to time.
2.4 Code means the Internal Revenue Code of 1986, as it may be amended from time
to time or any successor statute enacted in lieu thereof. Reference to any
provision of the Code includes reference to a similar provision in a successor
Statute.
2.5 Custodian means the Custodian named in the Application as Custodian, and any
party serving as successor Custodian in accordance with this Agreement.
2.6 Employee means the individual who is employed by the Employer and who signed
the Application.
The Employee must be an employee of an employer described in subsection 2.7(a),
or an employee of an employer described in subsection 2.7(b) who performs
services for an educational organization (as defined in Code Section
170(b)(1)(A)(ii)).
2.7 Employer means the Employer of the Employee. The Employer must be:
(a) an organization described in Code Section 501(c)(3) exempt from taxation
under Code Section 501(a), or
(b) a state, political subdivision of a state, or an agency or
instrumentality of a state or political subdivision of a state.
2.8 ERISA means the Employee Retirement Income Security Act of 1974, as it may
be amended from time to time.
2.9 Fund or Funds means one or more mutual funds designated from time to time by
the Sponsor as available for investment by the Account under this Agreement,
provided however that shares of the Fund may legally be offered for sale in the
state where the Employee resides.
2.10 Sponsor means State Street Research Investment Services, Inc., or its
successor.
Article 3: Contributions To Account
3.1 Establishment of Account. The Custodian will open and maintain the Account
in the name of the Employee. The Employee's interest in the Account will be
nonforfeitable at all times.
3.2 Contributions to Account.
(a) Salary Reduction Contributions. The Employee and the Employer may enter
into a salary reduction agreement, and the Employer will contribute to
the Employee's Account all amounts by which the Employee's salary is
reduced under such salary reduction agreement. Any salary reduction
agreement between the Employer and the Employee will be effective only
as to amounts earned by the Employee after such agreement becomes
effective. A salary reduction agreement may not be retroactively revoked
or modified with respect to amounts already earned by the Employee.
Either the Employee or the Employer may terminate a salary reduction
agreement at the end of any payroll period, and such agreement will not
apply to compensation subsequently earned by the Employee. The Employee
may modify his salary reduction agreement at any time, but such
modification will be effective only with respect to amounts earned by
the Employee after the effective date of the modification.
Contributions on behalf of the Employee pursuant to a salary reduction
agreement for any calendar year may not exceed the amount specified in
Code Section 402(g).
(b) Employer Contributions. The Employer may make contributions to the
Account other than under a salary reduction agreement with the Employee.
(c) Transfers or Rollovers. The Employee may by appropriate instructions
direct a transfer or direct rollover to the Account from an existing
custodial account described in Code Section 403(b)(7) or any annuity
contract described in Code Section 403(b)(1). Transfers must be in cash.
The Custodian will accept cash rollover contributions from the Employee
provided such amounts constitute rollover amounts under Code Section
403(b)(8) or rollover contributions under Code Section
408(d)(3)(A)(iii).
Transfers or rollovers will be accepted only if the Employee verifies
that the 403(b) account or annuity from which the transfer or rollover
is being made does not contain withdrawal or distribution restrictions
that are more restrictive than those contained herein. The Employee will
be responsible for insuring such a transfer or rollover satisfies the
applicable provisions of the Code in order to be a tax-free transaction.
Article 4:Investment Of Contributions
4.1 Purchase of Shares. As soon as is practicable after the Custodian receives a
contribution under Section 3.2, it will invest such contribution in shares or
fractional shares of one or more Funds in accordance with the Employee's
investment instructions. The Account may be invested in the shares of more than
one Fund provided that any applicable minimum investment requirements are met.
The Employee's initial investment instructions for the investment of
contributions to his Account will be specified in the Application for the
Account, and such instructions will remain in effect until the Custodian
receives new instructions, in writing or (if permitted)by telephone or other
electronic means, acceptable to the Custodian. If any instructions received by
the Custodian are incomplete or ambiguous in the judgment of the Custodian, the
Custodian may continue to invest contributions to the Account in accordance with
the Employee's most recent investment instructions (if any) until such
incompleteness or ambiguity has been resolved to the Custodian's satisfaction;
alternatively, the Custodian may return any contributions received for the
Employee's Account or may hold such contributions in a money market fund or
uninvested until such incompleteness or ambiguity has been resolved. In either
event, the Custodian will have no liability for interest or for loss or changes
in investment values of Fund shares which occur.
<PAGE>
Any shares of a Fund held hereunder for the Employee's Account may be registered
in the name of the Custodian or its nominee and will be held in uncertificated
form.
4.2 Reports and Voting of Securities. The Custodian will deliver to the
Employee or, if applicable, his or her Beneficiary, all notices or reports to
shareholders, prospectuses, financial statements, proxies and proxy solicitation
materials received by it with respect to shares of a Fund held in the Employee's
Account. The Custodian will vote shares in accordance with the timely
instructions of the Employee (or, if applicable, Beneficiary) as expressed in a
proxy, if received. If no timely instructions are received from the Employee (or
Beneficiary), the Custodian may vote such shares in such manner as it deems
appropriate, including "present" or in accordance with the instructions of the
Sponsor (provided that the Custodian will not take any action with respect to
voting which would render it an "affiliated person" as defined in the Investment
Company Act of 1940, as amended).
4.3 Dividends. The Custodian will invest all dividends and capital gains or
other distributions received on the shares of a Fund held in the Account in
additional shares and fractional shares of that Fund.
4.4 Change of Investments. Subject to any minimum investment requirement
applicable to a Fund, an Employee (or his or her Beneficiary, if the Employee is
deceased) may at any time direct the Custodian to exchange all or a specified
portion of the shares of a Fund in the Employee's Account for shares and
fractional shares of one or more other Funds.
The Employee (or Beneficiary) shall give such directions, by written or (if
permitted) telephonic notice or other electronic means, acceptable to the
Custodian, and the Custodian will process such directions as soon as practicable
after receipt thereof. If any such exchange instructions are incomplete or
ambiguous in the judgment of the Custodian, the Custodian may refrain from
carrying out any exchange until such incompleteness or ambiguity has been
resolved to its satisfaction, without liability for any loss or change in
investment values which occur.
Any sales or redemption fee or other charge payable in connection with such
exchange will be paid from the Employee's Account.
Article 5: Withdrawals
5.1 Instructions to Custodian. The Custodian will process written directions
from the Employee to make withdrawals. However, the Employee must insure that
withdrawals directed by the Employee comply with the requirements of this
article. No withdrawals will be processed upon the death of the Employee unless
the Custodian has been notified in writing of the Employee's death, and the
Custodian has been provided with verification of such death and of the due
authority of the person requesting the withdrawal which is adequate in the
Custodian's opinion.
5.2 Withdrawals by Employee. The Employee may make withdrawals from his Account
at the time(s) directed by the Employee on a form filed with the Custodian,
subject to the provisions of this section.
(a) Events Permitting Withdrawal. No withdrawal may be made before the
earliest of:
(i) the date the Employee reaches age 59-1/2;
(ii) the date the Employee terminates service with the Employer for any
reason, including retirement;
(iii) the date the Employee becomes disabled; as used in this subsection
(iii), "disabled" means unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of
long-continued and indefinite duration; the Custodian may require the
Employee to furnish a certificate of a licensed physician stating that
the Employee is so disabled or may require the Employee to provide
satisfactory evidence that the Employee has been awarded Social
Security disability benefits before processing any withdrawals on
account of the Employee's disability; or
(iv) the date the Employee encounters financial hardship within the meaning
of Code Section 403(b)(7)(A)(ii); before processing a hardship
withdrawal, the Custodian may require the Employer to provide a
certificate of an independent person appointed by the Employer,
stating that the Employee has a financial hardship and the amount
needed to meet the financial hardship, or the Custodian may rely upon
the representations and statements of the Employee. Hardship
withdrawals are limited to the Employee's salary reduction
contributions (no earnings).
(b) Withdrawal of Excess Contributions or Deferrals. If for any taxable
year, contributions to the Employee's Account include an amount that
is an excess contribution under Code Section 4973, the Employee may
notify the Custodian to pay such amount (plus earnings) to the Em
ployee and the Custodian will process such withdrawal. Alternatively
the Employee may designate such amount as a contribution for a
subsequent taxable year.
If, on or before March 1 following the close of a calendar year, the Employee
notifies the Custodian in writing that an amount in the Account constitutes a
deferral (including salary reduction contributions) in excess of the limit set
forth in Code Section 402(g) (generally, $9,500, indexed as provided in such
Code section) and requests to withdraw such amount (plus earnings), the
Custodian will process such withdrawal and pay such amount (and any earnings
allocable to such amount) on or before the next following April 15.
(c) Required Start of Withdrawals. An Employee must begin taking
withdrawals from his Account no later than the April 1 of the year
following the year in which the Employee reaches age 70-1/2 or
(effective January 1, 1997), if later, the Employee's date of
retirement from the Employer, in accordance with the minimum
withdrawal rules applicable to 403(b) custodial accounts (compliance
with such rules is the responsibility of the Employee or Beneficiary).
5.3 Form of Distribution. The Employee may elect to receive the assets of his
Account in cash or in shares, in either or any combination of the following
forms (as directed by the Employee):
(a) a single sum;
(b) in monthly, quarterly or annual installment payments over a period
certain specified by the Employee, but not exceeding the life
expectancy of the Employee or the joint life and last survivor
expectancy of the Employee and his designated beneficiary or such
shorter period as is necessary to meet any applicable minimum
distribution requirement under Code Section 403(b)(10) and regulations
thereunder. The life expectancy of the Employee or the joint life and
last survivor expectancy of the Employee and his designated
beneficiary will be determined at the time of the first mandatory
distribution from the Account; life expectancies of the Employee and
his spouse will not be recalculated annually thereafter (unless the
Employee or spouse elects to recalculate--which election may be made
by calculating the amount of the required withdrawal using
recalculated life expectancies). Only life expectancies of the
Employee or spouse (not any other Beneficiary) may be recalculated.
Life expectancies will be determined in accordance with applicable
regulations. If the Employee elects to receive installments in
accordance with this subsection (b), the amount of any installment
will be calculated by dividing the value of the assets in the Account
by the number of installments remaining in the specified period
certain.
The Custodian will not be required to make any distributions, in the absence of
written instructions from the Employee. However, if the Employee does not make
an election specifying the form of payment within the prescribed time, the
Custodian may either assume that the Employee is satisfying all applicable
requirements through withdrawals from another 403(b) account or annuity, or may
distribute the assets of the Employee's Account to the Employee beginning as
soon as practicable thereafter in annual installments for ten years or, if
shorter, for the number of years in the Employee's life expectancy.
5.4 Distributions at the Employee's Death. At the Employee's death,
distributions will be made in the form elected by the Beneficiary unless the
Employee has specified the form of distribution. The Beneficiary must notify the
Custodian in writing of the Employee's death and provide such evidence of the
Employee's death as the Custodian requests. To the extent the Beneficiary may
elect the form of distribution, the Beneficiary must provide written notice to
the Custodian listing the date on which distribution will commence, and the
manner in which and the period over which distribution will be made. Any form of
distribution must comply with the following requirements, and it is the
responsibility of the Beneficiary (or other person directing distributions) to
insure that all distributions do so comply:
(a) Death While Receiving Withdrawals Under An Installment Program. If the
Employee had already begun taking withdrawals in a program of periodic
installments from the Account after the required beginning date, the
balance remaining in the Account at the time of the Employee's
<PAGE>
death must continue to be withdrawn at least as rapidly as under the
installment schedule in effect at the time of the Employee's death.
(b) Death Before Starting Required Installment Withdrawals.
(i) If the Employee dies before starting to take installment
withdrawals from the Account or before the required beginning
date, and the Employee's spouse is not the Beneficiary, the
Employee's Account must be withdrawn by the Beneficiary either (A)
within five years after the Employee's death, or (B) if the
Beneficiary was designated by the Employee and withdrawals by the
Beneficiary begin within one year after the Employee's death, in
substantially equal annual or more frequent installments over a
period not exceeding the life expectancy of the Beneficiary (as
determined as of the date of the Employee's death using applicable
regulations).
(ii) If the Employee dies before starting to take installment
withdrawals from the Account or before the required beginning
date, and the Em ployee's spouse is the Beneficiary, the
Employee's entire Account must be distributed to the Employee's
spouse either (A) within five years after the Employee's death, or
(B) in substantially equal annual or more frequent installments
over a period not longer than the spouse's life expectancy as
determined as of the time distribution is commenced (without
annual recalculation thereafter unless the spouse elects to
recalculate), using applicable regulations, provided that
withdrawals under this clause (B) must begin on or before the
later of the date on which the Employee would have attained age
70-1/2 or one year after the Employee's death.
5.5 Incompetent Recipient. If an amount is payable to a person known by the Cus
todian to be a minor or under a legal disability, the Custodian may, in its ab
solute discretion, pay all or any part of such amount to (a) a parent of such
person, (b) the guardian, committee or other legal representative, wherever
appointed, of such person, including a custodian for such person under a Uniform
Gifts to Minors Act or similar act, (c) any person having the control and
custody of such person, or (d) to such person directly.
5.6 Distributions Pursuant to Domestic Relations or Other Court Orders. Where
required by law, the Custodian will make payments pursuant to any "qualified
domestic relations order" (as defined in ERISA) or any other domestic relation s
or other order issued by a court having authority over the Account, where
applicable. The Employer will determine whether any domestic relations order m
eets the requirements of a qualified domestic order and will notify the
Custodian.
The Employee will direct the Custodian whether or not to contest or defend
against any such order and the Custodian will do so, provided that the Custodian
will have no responsibility to so contest or defend unless it has first been
indemnified to its satisfaction by the Employee against its costs, expenses
(including attorney's fees) and other liabilities arising therefrom.
5.7 Withdrawals Payable in Cash or in Shares. All withdrawals will be paid in
cash or in shares of one or more Funds, as designated in writing by the Employ
ee or Beneficiary. When required to pay a withdrawal in cash, the Custodian will
redeem sufficient shares of one or more Funds in the Employee's Account t o
provide the amount necessary; any such redemptions will be in accordance with
the Employee's instructions (or, in the absence of such instruction, in
proportion to the value of the shares of each Fund held in the Account). Payment
in shares will be carried out by reregistering the appropriate number of shares
in the name of the Employee.
5.8 Transfer of Account. At the written direction of the Employee, the Custod
ian will redeem a portion or all of the shares of one or more Funds in the
Employee's Account and will transfer the cash received, less any charges, to the
custodian or insurer of another custodial account or annuity contract esta
blished for the benefit of the Employee under Code Section 403(b) or to the
trustee or custodian of a rollover individual retirement account specified by
the Employee. Neither the Custodian nor the Sponsor will have any responsibili
ty to determine whether such other custodial account or annuity contract or
individual retirement account or annuity meets the requirements of Code Section
403(b) or 408 or whether the transfer or rollover will constitute a tax-free
transaction.
5.9 Loans. Loans may be made to Employees on the following basis:
(a) Upon receipt of a properly completed and signed written application and
promissory note payable to the Custodian from the Employee, the
Custodian may make a loan to the Employee from his or her Account. The
minimum loan will be $1,000, or such smaller amount as the Custodian may
specify in its rules and procedures for loans. In no event will the
total of any outstanding loan or loans to the Employee exceed the lesser
of $50,000 or 50% of the balance of his or her Account. The $50,000
limitation is reduced by the excess, if any, of the highest outstanding
balance of loans from the Account during the one-year period ending on
the day before the date of the current loan over the outstanding balance
of loans from the Account on the date of the current loan. All loans
will be secured by one-half of the Employee's Account balance. Interest
and principal repayments on the loan will be credited to the Employee's
Account and will be invested in shares and fractional shares of one or
more Funds in accordance with the Employee's investment instructions
under Section 4.1 in effect at the time each loan repayment is received
by the Custodian.
(b) All loans from the Employee's 403(b) Account will bear a reasonable rate
of interest; and the manner of determining such reasonable interest rate
may be specified in the Custodian's rules and procedures.
(c) If Section 12.2 is applicable, loans will be made available to all
Employees on a reasonably equivalent basis.
(d) Any loan or loans to an Employee from his or her 403(b) Account will be
repaid by the Employee over a specified period of time, in the form and
manner specified in the Note signed by the Employee, but in no event
over a longer period than five years from the date of borrowing. Any
loan must be amortized on a substantially level basis with payments not
less frequently than monthly. In the event the Employee does not repay
all or a portion of the principal amount on such loan within the time
prescribed, he or she will continue to be liable for any balance on the
loan not paid in addition to interest owed on principal payments not
made. Any default in the payment of principal or interest on a loan from
the Employee's account will reduce the amount available in such Account
for distribution to the Employee (or the Employee's beneficiary in the
event of the Employee's death). In addition, any default which is not
cured within the period of time provided in the Custodian's rules and
procedures will be treated as a taxable distribution to the Employee (or
beneficiary, if applicable).
(e) The Custodian may prescribe such rules and procedures as are deemed
proper in order to administer the provisions of this Section 5.9, and
reserves the right to charge an administration fee for processing and
maintaining such loans.
5.10 Direct Rollovers. Notwithstanding any provision of this Agreement to the
contrary that would otherwise limit a distributee's election under this section,
effective for distributions or withdrawals from the Employee's Account on or
after January 1, 1993, a distributee may elect (at the time and in the manner
specified by the Custodian) to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
For purposes of this section, the following terms have the meaning given.
(a) Eligible rollover distribution means any withdrawal or distribution of
all or any portion of the amount in the Employee's Account, except that
an eligible rollover distribution does not include: any withdrawal or
distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any
withdrawal or distribution to the extent such distribution is required
under Code Section 403(b)(10); and the portion (if any) of any
withdrawal or distribution that is not includable in gross income.
(b) Eligible retirement plan means an individual retirement account
described in Code Section 408(a), an individual retirement annuity
described in Code Section 408(b), or an arrangement described in Code
Section 403(b), that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(c) Distributee means the Employee. In addition, the Employee's surviving
spouse and the Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code
Section 4l4(p) (if applicable), are distributees with regard to the
interest of the spouse or former spouse.
(d) Direct rollover means a payment from the Employee's account to the
eligible retirement plan specified by the distributee.
Article 6: Custodian
6.1 Duties. The Custodian will perform the following duties related to the
administration of the Employee's Account:
(a) Receive contributions under Section 3.2 (or, if applicable, loan
repayments), invest such contributions (or repayments) in shares of one
or more Funds in accordance with the Employee's investment instructions,
and credit such shares to the Employee's Account;
(b) Maintain custody of the assets in the Account;
(c) Collect income and reinvest such income as provided in this Agreement;
(d) Execute orders for purchase, sale or exchange of shares of Funds in
accordance with the Employee's instructions and make settlements in
accordance with general practice;
(e) Maintain records of all transactions in the Account;
(f) Not less frequently than annually, provide the Employee appropriate
statements of the Account showing all transactions of the Account;
(g) File with the Internal Revenue Service and/or any other government
agency such returns, reports, forms, and other information as may be
required of it as Custodian;
(h) Perform such other duties and services as may be necessary under this
Agreement.
The Custodian may appoint one or more agents, attorneys or contractors,
including the Sponsor (or a contractor or affiliate of the Sponsor), to carry
out any of its duties hereunder.
6.2 Share Redemptions. If cash is needed to pay taxes, fees, or other expenses
properly chargeable to the Account or to make payments to the Employee or his
Beneficiary under Article 5, the Employee (or Beneficiary, if applicable) will
instruct the Custodian in writing (or, if applicable, by telephone or other
electronic means) which Fund should be redeemed or sold if the Account is
invested in more than one Fund. In the absence of such written instructions, the
Custodian will redeem shares of all Funds in the Account in proportion to the
value of the shares of each such Fund held in the Account.
6.3 Limitations on Liabilities and Duties.
(a) The Custodian will be fully protected in acting in accordance with and
in reliance upon any document, order or other direction believed by the
Custodian to be genuine and properly given. Conversely, the Custodian
will be fully protected in not acting in the absence of proper
instructions or when it believes that any document, order or other
direction either is not genuine or was not properly given.
(b) To the extent permitted by law, 30 days after providing to the Employee
any statement (whether required under Section 6.1(f), or otherwise), the
Custodian will be released and discharged from all liability to the
Employee and any other person as to the matters contained in such
statement unless the Employee files written objections with the
Custodian within such 30-day period.
(c) The Employee (or Beneficiary) will be solely responsible for his
investment directions and the selection of Fund(s). The Custodian and
the Sponsor will not be under any fiduciary duty to the Employee (or
Beneficiary) with respect to the selection of investments (or otherwise)
or be liable for any loss or diminution in value incurred on account of
a selected investment.
(d) Neither the Custodian nor the Sponsor will have any responsibility for
determining the proper amount of any contribution or for collecting any
contribution (or, if applicable, loan repayment) from the Employer or
the Employee. Neither will have any responsibility for determining
whether the amount of any contribution is within any applicable
limitation under the Code. The Employee will have sole responsibility
for the computation of the Employee's exclusion allowance under Code
Section 403(b)(2), the limitation(s) on contributions under Code Section
415(c), any election available to the Employee under Code Section 415,
any limit on elective deferrals (including salary reduction
contributions) under Code Section 402(g), and all matters relating to
any tax consequences with respect to contributions, earnings,
withdrawals, loans or loan repayments, transfers or rollovers to or from
the Account (whether on account of the amount or time thereof or
otherwise).
(e) Neither the Custodian nor the Sponsor will be responsible for
determining the propriety, amount or timing of any withdrawal by the
Employee (or Beneficiary); in particular, neither the Custodian nor the
Sponsor will be responsible for compliance with the minimum withdrawal
rules of Code Section 403(b)(10) and will be entitled to assume that the
Employee (or Beneficiary) is satisfying such requirements from another
403(b) arrangement if the Employee (or Beneficiary) does not comply with
such requirements by withdrawals from the Account.
(f) The Custodian will not be required to carry out any instructions not
given in accordance with this Agreement. Neither the Custodian nor the
Sponsor will be liable for loss of income, or for appreciation or
depreciation in share value resulting from the Custodian's failure to
follow instructions not given in accordance with this Agreement.
(g) The Custodian will have no responsibility to pay any withdrawal unless
directed by the Employee or Beneficiary and unless the Employee's or
Beneficiary's written withdrawal instructions state the reason for the
withdrawal and contain all signature guarantees and other documents
(including proof of any legal representative's authority) requested by
the Custodian.
(h) Neither the Custodian nor the Sponsor will have any liability to the
Employee or Beneficiary for any tax penalty or other damages resulting
from any inadvertent failure by the Custodian to pay a withdrawal when
requested.
(i) To the extent permitted by law, the Employee agrees to indemnify the
Custodian, Sponsor and Funds ("Indemnitees") and hold them harmless from
any and all liability whatsoever which may arise either (i) in
connection with this Agreement and the Employee's Account (except
liability arising from the gross negligence or willful misconduct of any
Indemnitee) or (ii) with respect to making or failing to pay any
withdrawal, other than for failure to make any distribution in
accordance with instructions therefor which are in full compliance with
this Agreement.
(j) The Custodian will not be obligated to commence or to defend a legal
action or proceeding in connection with this Agreement unless the
Custodian agrees to do so and is indemnified to its satisfaction.
(k) Neither the Employer nor the Sponsor will have any responsibility or
liability for any acts or omissions of the Custodian hereunder.
6.4 Compensation. The Custodian will receive the fees specified in its then c
urrent fee schedule. The Custodian may substitute a revised fee schedule from
time to time upon 30 days written notice to the Employee. The Custodian will be
entitled to such reasonable additional fees as it may from time to time
determine for services required of it in addition to those reflected in the fee
schedule.
6.5 Resignation and Removal. The Custodian may resign by giving at least 30 d
ays written notice to the Employee at his last known address as shown on the
Custodian's records. The Sponsor may remove the Custodian hereunder by giving at
least 30 days written notice to the Custodian and the Employee at his last known
address as shown on the records of the Custodian or Sponsor. In each case, the
Sponsor will designate a successor custodian which successor custodian accepts
such appointment. Any Custodian appointed hereunder must be a bank or other
person who meets the requirements of Code Section 401(f)(2). If the Sponsor
fails to appoint a successor custodian in accordance with the preceding two
sentences, the Custodian may do so, or will have the right to apply to a court
of competent jurisdiction for the appointment of a successor.
On the effective date of its resignation or removal, the incumbent Custodian
will transfer to the successor custodian the assets and records (or copies
thereof) of the Account; provided, however, that the Custodian may retain
whatever assets it deems necessary for payment of its fees, costs, expenses,
compensation, and any other liabilities which constitute a charge on or against
the assets of the Account or on or against the Custodian.
<PAGE>
Article 7: Fees, Taxes, And Other Expenses
Any income or other taxes that may be levied or assessed upon the Account
(including any transfer taxes incurred in connection with the investment and
reinvestment of Account assets), expenses, fees and administrative costs
incurred by the Custodian in the performance of its duties (including fees for
legal services rendered to the Custodian), and the Custodian's compensation
under Section 6.4, will constitute a charge upon the assets of the Account. If
not paid by the Employee within 30 days after being billed therefor by the
Custodian, the Custodian will withdraw such fee, tax or expense from the Account
and may redeem sufficient shares of any Fund held in the Account to effect such
payment without liability for any loss incurred thereby.
Article 8: Protection Of Account
Except as specifically
permitted hereunder, no part of the Account will be used for purposes other than
for the exclusive benefit of the Employee. No right or benefit under this
Agreement will be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any attempt at such
will be void. No right or benefit hereunder will be subject to the debts,
contracts, liabilities, engagements or torts of the person who is entitled to
such right or benefit, and no such right or benefit shall be subject to
attachment or legal process for or against such person. However, the Custodian
will carry out the requirements of any qualified domestic relations or other
court order relating to the Account.
Article 9: Beneficiary Designation
Each Employee may submit to the Custodian a signed written designation of bene
ficiary acceptable to the Custodian. Any such designation of beneficiary will be
effective when filed with the Custodian during the Employee's lifetime. Whether
or not fully dispositive of the Account, the most recently filed designation of
beneficiary accepted by the Custodian will revoke all previously filed
designations. Any amount payable as a result of the Employee's death that is not
disposed of by a designation of beneficiary, for any reason whatsoever, will be
paid to the Employee's estate. If a Beneficiary dies while receiving
distributions, the portion of the Account to which the Beneficiary would have
been entitled (had he or she survived) shall be paid to the Beneficiary's
beneficiary or beneficiaries (or to the Beneficiary's estate) in a lump sum
within 90 days after the Custodian receives notification and evidence acceptable
to it of the Beneficiary's death.
Article 10: Amendment
10.1 Amendment. The Sponsor may amend this Agreement in its entirety or any por
tion thereof. The Sponsor will provide copies of such amendment to the Employer
and/or Employee. Nothing in this Agreement will impose on the Sponsor an
affirmative obligation to amend the Agreement.
10.2 Limitations. No amendment will be made:
(a) Which would cause or permit any part of the Account to be diverted to
purposes other than for the exclusive benefit of the Employee (or
Beneficiary), or cause or permit any portion of such assets to revert to
or become the property of the Employer,
(b) Which would increase the duties or responsibilities of the Custodian
without its written consent, or
(c) Which would retroactively deprive any Employee of any benefit to which
he or she was entitled under the Agreement, unless such amendment is
necessary, in the opinion of counsel to the Sponsor, to conform the
Agreement to, or satisfy the conditions of, Code Section 403(b) or any
other applicable law.
Article 11: Termination
11.1 Automatic Termination on
Distribution. This Agreement will terminate when all the assets held in the
Account have been distributed or otherwise transferred out of the Account.
11.2 Termination on Disqualification. This Agreement will terminate if, after
notification by the Internal Revenue Service that the Employee's Account does
not qualify under Code Section 403(b)(7), the Sponsor does not make such
amendments as are necessary to so qualify the Account. On such termination of
this Agreement, the Custodian will distribute all assets in an Account to the
Employee or, in the event of the Employee's death, to the Beneficiary, subject
to the Custodian's right to reserve funds as provided in Section 6.5.
11.3 Survival of Indemnification. Notwithstanding Sections 11.1 and 11.2,
Section 6.3(i) will survive the termination of this Agreement.
Article 12: Miscellaneous
12.1 Applicable Law. This Agreement will be construed, administered and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
Any action concerning the Account or this Agreement must be brought in a state
or federal court located in such Commonwealth.
12.2 Employer Plan. In any instance where the Account is part of an employee
pension benefit plan within the meaning of Section 3(2) of ERISA (and
regulations thereunder) maintained by the Employer, the following provisions
will apply:
(a) The Employer will be the "plan administrator" within the meaning of
ERISA and will be responsible for compliance with the reporting and
disclosure and other responsibilities imposed on the plan administrator
under ERISA.
(b) If the Employee is married on the date that any distributions are made
from the Account to the Employee, such distribution will be made by
purchasing an annuity contract from an insurance company and
distributing such contract to the Employee; the form of payment under
such contract will meet the requirements of a joint and survivor annuity
under Section 205 of ERISA. However, the preceding sentence will not
apply if the Employee elects another form of payment permitted under
Section 5.3 of this Agreement and the Employee's spouse consents thereto
in writing. Notifications concerning such an election and consent by the
Employee's spouse will be in accordance with Section 205 of ERISA and
regulations thereunder.
If an Employee dies before the commencement of distributions to the Em
ployee from the Account, the Beneficiary will be the Employee's spouse
if the Employee is married, and the form of payment to the spouse will
be the purchase from an insurance company and delivery to the spouse of
an annuity contract providing for periodic payments to the spouse for
the spouse's lifetime. However, the Employee may designate a different
Beneficiary or the Employee or spouse may designate a different form of
payment provided that the notifications and procedures for spousal
consent under Section 205 of ERISA and regulations thereunder are
complied with.
No loan under Section 5.9 will be made from the Account in the case of a
married Employee unless the Employee's spouse consents to the loan.
(c) The plan administrator will determine whether any domestic relations
order purporting to award all or any portion of the Account to anyone
other than the Employee is a "qualified domestic relations order"within
the meaning of Section 206 of ERISA.
(d) The limitation provided in the third paragraph of Section 3.2(a) will be
applied taking into account salary reduction contributions on behalf of
the employee under all plans or arrangements maintained by the Employer.
(e) Contributions to an Employee's Account must be in accordance with the
plan document adopted by the Employer (which may be a separate plan
document, or may be this Agreement with such additional provisions
relating to eligibility, participation, contributions and other matters
as the Employer may adopt); the Employer will be responsible for the
plan's compliance with all applicable provisions (including those
relating to nondiscrimination) of the Code and ERISA.
12.3 Change of Address. The Employer or the Employee will notify the Custodian
in writing of any change of address within 30 days of such change.
12.4 Notice. Any notice from the Custodian or Sponsor to the Employee under this
Agreement will be effective when sent by U.S. mail to the address of the
Employer or Employee as then shown on the Custodian's or Sponsor's records. Any
notice to the Custodian under this Agreement will be by first class mail
addressed to its home office.
12.5 Successors. This Agreement will be binding upon and inure to the benefit of
the successors in interest of the parties hereto.
12.6 Separability. If any provision of this Agreement is held invalid or illegal
for any reason, such determination will not affect any remaining provisions of
this Agreement, but this Agreement will be construed and enforced as if such
invalid or illegal provision has never been included in this Agreement.
<PAGE>
[Graphic: Window slightly open]
<PAGE>
[State Street Research logo]
A MetLife Company
This brochure must be preceded or accompanied by the relevant fund
prospectus(es), which include(s) investment policies, sales charges and
expenses. Please read the prospectus(es) carefully before investing.
Control Number: 3494-961107(1297) SSR-LD 403B-447E-1096
#
Exhibit (15)
METLIFE - STATE STREET INCOME TRUST
FIRST AMENDED AND RESTATED PLAN OF
DISTRIBUTION PURSUANT TO RULE 12b-1
WHEREAS, the MetLife - State Street Income Trust, an unincorporated
association of the type commonly known as a business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust"), engages in business as
an open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust is authorized (i) to issue shares of beneficial
interest (the "Shares") in separate series, with the Shares of each such series
representing the interests in a separate portfolio of securities and other
assets, and (ii) to divide the Shares within each such series into two or more
classes;
WHEREAS, the Trust has established three portfolio series, including
the MetLife - State Street Government Securities Fund, the MetLife - State
Street High Income Fund and the MetLife - State Street Managed Assets portfolio
(the MetLife - State Street Government Securities Fund, the MetLife - State
Street Income Fund and the MetLife - State Street Managed Assets portfolio being
referred to herein as the "Initial Series" - such series, together with any
previously established series made subject to this Plan and all other series
subsequently established by the Trust and made subject to this Plan, being
referred to herein individually as a "Series" and collectively as the "Series");
WHEREAS, the Trust may be deemed a distributor of the Shares within the
meaning of Rule 12b-1 under the Act, and desires to adopt a Plan of Distribution
and has adopted a related Distribution Agreement with State Street Research
Investment Services, Inc., the Trust's principal underwriter (the "Distributor")
pursuant to such Rule (respectively, the "Plan" and the "Agreement"); and
WHEREAS, the Board of Trustees as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the Act) and who have no direct
or indirect financial interest in the operation of this Plan or the Agreement
and any agreements relating to it (the "Qualified Trustees"), having determined,
in the exercise of their reasonable business judgment and in light of their
fiduciary duties under state law and under Section 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan and the Agreement will
benefit the Initial Series and its shareholders, have accordingly approved this
Plan and the Agreement by votes cast in person at a meeting called for the
purpose of voting on this Plan and the Agreement and any agreements related
thereto.
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with
Rule 12b-1 under the Act, on the following terms and conditions:
<PAGE>
SECTION 1. DISTRIBUTION ACTIVITIES
Subject to the supervision of the Board of Trustees, the Trust may
engage, directly or indirectly, in financing any activities primarily intended
to result in the sale of Shares, including, but not limited to, the following:
(1) payment of commissions and/or reimbursement to underwriters, securities
dealers and others engaged in the sale of Shares, including payments to the
Distributor to be used to pay commissions and/or reimbursement to securities
dealers and others (including affiliates of the Distributor) engaged in the
distribution and marketing of Shares or furnishing assistance to investors on an
ongoing basis, (2) reimbursement of direct out-of-pocket expenditures incurred
by the Distributor in connection with the distribution and marketing of Shares,
including expenses relating to the formulation and implementation of marketing
strategies and promotional activities such as direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising, the
preparation, printing and distribution of sales literature, the preparation,
printing and distribution of Prospectuses of the Trust and reports for
recipients other than existing shareholders of the Trust, and obtaining such
information, analyses and reports with respect to marketing and promotional
activities and investor accounts as the Trust may, from time to time, deem
advisable, and (3) reimbursement of expenses incurred by the Distributor in
connection with the servicing of shareholder accounts, including payments to
securities dealers and others in consideration of the provision of personal
service to investors and/or the maintenance of shareholder accounts and expenses
associated with the provision of personal service by the Distributor directly to
investors. In addition, the Plan shall be deemed to authorize the Distributor
and State Street Research & Management Company (the "Adviser") to make payments
out of general profits, revenues and other sources to underwriters, securities
dealers and others in connection with sales as described in the Prospectus of
the Trust as from time to time amended and in effect (for purposes hereof,
references to the Prospectus of the Trust shall be deemed to include all
Prospectuses of the Trust), to the extent, if any, that such payments may be
deemed to be within the scope of Rule 12b-1 under the Act.
The Trust and the Series are authorized to engage in the activities
listed above, and in other activities primarily intended to result in the sale
of Shares, either directly or through other persons with which the Trust has
entered into agreements pursuant to the Plan.
SECTION 2. MAXIMUM EXPENDITURES
The expenditures to be made by the Initial Series pursuant to this Plan
and the basis upon which payment of such expenditures will be made shall be
determined by the Initial Series, but in no event may such expenditures exceed
the following: (i) with respect to Class A Shares of each Initial Series, an
annual rate of .25% of the average daily value of net assets represented by such
Class A shares, (ii) with respect to Class B Shares and Class D Shares of each
Initial Series, an annual rate of .75% of the average daily value of the net
assets represented by such Class B or Class D shares (as the case may be) to
finance sales or promotion expenses and an annual rate of .25% of the average
daily value of the net assets
<PAGE>
represented by such Class B or Class D shares (as the case may be) to make
payments for personal service and/or the maintenance of shareholder accounts,
and (iii) with respect to any Series subsequently established by the Trust and
made subject to this Agreement, the annual rate as agreed upon and specified in
an addendum hereto; plus such amounts as the Distributor and Adviser may expend
from general revenues, profits and other sources from time to time in accordance
with the last sentence of Section 1 and the second paragraph of Section 3. The
expenditures to be made pursuant to this Plan shall commence with respect to
each class of Shares of a Series as of the date on which this Plan becomes
effective with respect to each such class.
SECTION 3. PAYMENTS
Pursuant to this Plan, the Trust shall make periodic payments to the
Distributor at the annual rate provided for in Section 2 with respect to each
Series, or class of Shares thereof. The Distributor shall in turn remit to and
allocate among selected dealers (including those that are affiliates of the
Distributor) who have entered into selected dealer agreements with the
Distributor, in consideration of and as reimbursement for expenses incurred in
the provision of distribution and marketing services and furnishing assistance
to investors on an ongoing basis, such amounts as are required pursuant to such
selected dealer agreements and as indicated in the Prospectus of the Trust. Any
amounts received by the Distributor and not so allocated may be applied by the
Distributor as reimbursement for expenses incurred in connection with the
distribution and marketing of Shares of each class and the servicing of investor
accounts as contemplated by Section 1(2) hereof. The distribution and servicing
expenses of a particular class will be borne solely by that class and no Series
will use fees charged to one class within a Series to support the marketing or
servicing relating to any other class of Shares within that Series or any other
Series. Any amounts received by the Distributor hereunder and not applied as
provided herein shall be returned to the applicable class or Series of the
Trust.
The Distributor and the Adviser may also make payments to authorized
securities dealers as specified in the Prospectus of the Trust as from time to
time amended and in effect, from its general profits, revenues and other
sources. Amounts received by the Distributor from any Fund in respect of any
class of Shares shall not be used to pay any commission expenses related to the
sale of any other class of Shares of such Series.
Notwithstanding anything to the contrary herein, the aggregate of all
payments to the Distributor to finance sales or promotion expenses with respect
to the Class B or the Class D shares pursuant to this Section 3 together with
any contingent deferred sales charges received by the Distributor in connection
with the redemption of shares of the respective class shall not exceed the
amount expended by the Distributor to finance sales or promotion expenses of
such class.
<PAGE>
SECTION 4. TERM AND TERMINATION
(a) Initial Series. This Plan shall become effective with
respect to each class of the Initial Series as of the later of (i) the date on
which a Registration Statement with respect to such class of Shares becomes
effective under the Securities Act of 1933, as amended, or (ii) the date on
which such class of the Initial Series commences offering its Shares to the
public and shall continue in effect with respect to each Initial Series (subject
to Section 4(c) hereof) until one year from the date of such effectiveness,
unless the continuation of this Plan shall have been approved with respect to
the Initial Series in accordance with the provisions of Section 4(c) hereof.
(b) Additional Series. This Plan shall become effective with
respect to each additional Series or class thereof other than the Initial Series
established by the Trust after the date hereof and made subject to this Plan
upon commencement of the initial public offering thereof (provided that the Plan
has previously been approved for continuation by votes of a majority of both (i)
the Board of Trustees of the Trust and (ii) the Qualified Trustees, cast in
person at a meeting held before the initial public offering of such additional
Series or classes thereof and called for the purpose of voting on such
approval), and shall continue in effect with respect to each such additional
Series or Class (subject to Section 4(c) hereof) for one year thereafter, unless
the continuation of this Plan shall have been approved with respect to such
additional Series or Class in accordance with the provisions of Section 4(c)
hereof. The Distributor and the Trust on behalf of each such additional Series
or Class shall each sign an addendum hereto agreeing to be bound hereby and
setting forth such specific and different terms as the parties may agree upon,
including, without implied limitation, the amount and purpose of payments to be
made hereunder.
(c) Continuation. This Plan and the Agreement shall continue
in effect with respect to each Series or Class thereof subsequent to the initial
term specified in Section 4(a) and (b) for so long as such continuance is
specifically approved at least annually by votes of a majority of both (i) the
Board of Trustees of the Trust and (ii) the Qualified Trustees, cast in person
at a meeting called for the purpose of voting on this Plan, subject to any
shareholder approval requirements existing under applicable law.
(d) Termination. (i) This Plan may be terminated at any time
with respect to the Trust or any Series or Class thereof, as the case may be, by
vote of a majority of the Qualified Trustees, or by vote of a majority of the
outstanding voting securities of the Trust or that Series or Class, as the case
may be. The Plan may remain in effect with respect to a Series or Class thereof
even if it has been terminated in accordance with this Section 4(e) with respect
to such Series or one or more other Series of the Trust.
(ii) The Agreement may be terminated at any time, without
penalty, with respect to the Trust or any Series, as the case may be,
by vote of a majority of the Qualified Trustees or by vote of a
majority of the outstanding voting securities of the
<PAGE>
Trust or that Series, as the case may be, on sixty days' written notice
to the Distributor. In addition, the Agreement provides for automatic
termination in the event of its assignment.
SECTION 5. AMENDMENTS
This Plan may not be amended to increase materially the amount of
distribution expenditures provided for in Section 2 hereof unless such amendment
is approved by a vote of a majority of the outstanding voting securities of each
Series or class thereof with respect to which a material increase in the amount
of distribution expenditures is proposed, and no material amendment to the Plan
shall be made unless approved in the manner provided for annual renewal in
Section 4(c) hereof. Otherwise, this Plan may be amended with respect to the
Trust or a Series or class thereof by vote of a majority of the Qualified
Trustees or the outstanding voting securities of the Trust or that Series, as
the case may be.
SECTION 6. INDEPENDENT TRUSTEES
While this Plan is in effect with respect to any Series, the selection
and nomination of Trustees who are not interested persons (as defined in the
Act) of the Trust shall be committed to the discretion of the Trustees who are
not interested persons.
SECTION 7. QUARTERLY REPORTS
The Treasurer of the Trust and the Treasurer of the Distributor shall
provide to the Trustees of the Trust and the Trustees shall review, at least
quarterly, a written report of the amounts expended for distribution pursuant to
this Plan and the purposes for which such expenditures were made.
SECTION 8. RECORDKEEPING
The Trust shall preserve copies of this Plan, the Agreement and any
related agreements and all reports made pursuant to Section 7 hereof, for a
period of not less than six years from the date of this Plan and the Agreement,
the agreements or such reports, as the case may be, the first two years in an
easily accessible place.
SECTION 9. LIMITATION OF LIABILITY
The term "MetLife - State Street Income Trust" means and refers to the
Trustees from time to time serving under the First Amended and Restated Master
Trust Agreement dated June 1, 1993 (the "Master Trust Agreement") as the same
may subsequently thereto have been,
<PAGE>
or subsequently hereto be, amended. It is expressly agreed that the obligations
of the Trust hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Trust, personally,
but bind only the trust property of the Trust, as provided in the Master Trust
Agreement of the Trust. The execution and delivery of this Plan and the Plan
have been authorized by the Trustees and shareholder of the Trust and signed by
an authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees and shareholder nor such execution and delivery
by such officer shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in its Master Trust Agreement. The Master
Trust Agreement of the Trust further provides, and it is expressly agreed, that
each Series of the Trust shall be solely and exclusively responsible for the
payment of its debts, liabilities and obligations and that no other Series shall
be responsible or liable for the same.
IN WITNESS WHEREOF, the Trust and the Distributor have executed this
First Amended and Restated Plan of Distribution on the day and year set forth
below in Boston, Massachusetts.
ATTEST: METLIFE - STATE STREET
INCOME TRUST
/s/ Darman A. Wing By: /s/ Gerard P. Maus
- --------------------------------- -----------------------------
STATE STREET RESEARCH
ATTEST: INVESTMENT SERVICES, INC.
/s/ Constantine Hutchins, Jr. By: /s/ Donald E. Webber
- --------------------------------- -----------------------------
Date: June 1, 1993
Exhibit (16)(a)
Calculation of Yield
High Income Fund
The annualized yield based on the month of March 1988 was calculated
according to the following formula:
a-b
YIELD = 2[( ----- +1)((6))-1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
month
Therefore:
YIELD = 2[( 450,486 - 43,139 +1)((6))-1]
----------------
5,704,489 x 7.56
= 11.61%
See "Calculation of Performance Data" in the Statement of Additional
Information for a description of how interest earned ("a" above) is calculated.
Expenses accrued ("b" above) are net of expenses that the Investment
Manager reimbursed to the Fund.
Average daily number of shares outstanding ("c" above) is calculated by
summing the shares entitled to receive dividends on each day of the month and
dividing the total by the number of days in the month.
<PAGE>
HIGH INCOME FUND
Standard Total Return Computations - Since Inception
Original Amt. Invested $1,000.00
Commission at 4.5% $45.00
Net Amount to Fund $955.00
Purchase price $7.40
Shares acquired 129.054
<TABLE>
<CAPTION>
Beginning Monthly Reinvest Shares New Month-end Monthly ITD
Month Shares Income Dividend Price Purchased Shares NAV ERV Performance Performance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
09/30/86 129.054 0.0861 11.11 $7.43 1.495 130.550 $7.42 $968.68 -3.13 -3.13
10/31/86 130.550 0.0676 8.83 $7.58 1.164 131.714 $7.51 $989.17 2.12 -1.08
11/30/86 131.714 0.0657 8.65 $7.48 1.157 132.871 $7.48 $993.87 0.48 -0.61
12/31/86 132.871 0.0660 8.77 $7.50 1.169 134.040 $7.44 $997.26 0.34 -0.27
01/31/87 134.040 0.0658 8.82 $7.63 1.156 135.196 $7.62 $1,030.19 3.30 3.02
02/28/87 135.196 0.0670 9.06 $7.72 1.173 136.369 $7.71 $1,051.41 2.06 5.14
03/31/87 136.369 0.0656 8.95 $7.72 1.159 137.528 $7.73 $1,063.09 1.11 6.31
04/30/87 137.528 0.0736 10.12 $7.46 1.357 138.885 $7.47 $1,037.47 -2.41 3.75
05/31/87 138.885 0.0664 9.22 $7.37 1.251 140.136 $7.38 $1,034.20 -0.31 3.42
06/30/87 140.136 0.0664 9.31 $7.48 1.244 141.380 $7.48 $1,057.52 2.25 5.75
07/31/87 141.380 0.0664 9.39 $7.45 1.260 142.640 $7.46 $1,064.10 0.62 6.41
08/31/87 142.640 0.0713 10.17 $7.38 1.378 144.018 $7.44 $1,071.50 0.70 7.15
09/30/87 144.018 0.0713 10.27 $7.12 1.442 145.461 $7.15 $1,040.04 -2.94 4.00
10/31/87 145.461 0.0713 10.37 $6.94 1.494 146.955 $6.78 $996.35 -4.20 -0.36
11/30/87 146.955 0.0713 10.48 $6.91 1.516 148.471 $6.92 $1,027.42 3.12 2.74
12/31/87 148.471 0.0713 10.59 $7.04 1.504 149.975 $6.95 $1,042.33 1.45 4.23
01/31/88 149.975 0.0713 10.69 $7.21 1.483 151.458 $7.15 $1,082.93 3.90 8.29
02/29/88 151.458 0.0713 10.80 $7.29 1.481 152.939 $7.26 $1,110.34 2.53 11.03
03/31/88 152.939 0.0713 10.90 $7.23 1.508 154.448 $7.22 $1,115.11 0.43 11.51
</TABLE>
For the nineteen month period from commencement of operations on August 25, 1986
through March 31, 1988:
P(1 + T)((n)) = ERV
1000(1 + T)((19/12)) = 1,115.11
T = 7.12%
<PAGE>
HIGH INCOME FUND
Standard Total Return Computations - One Year
Original Amt. Invested $1,000.00
Commission at 4.5% $45.00
Net Amount to Fund $955.00
Purchase price $7.73
Shares acquired 123.545
<TABLE>
<CAPTION>
Beginning Monthly Reinvest Shares New Month-end Monthly ITD
Month Shares Income Dividend Price Purchased Shares NAV ERV Performance Performance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
04/30/87 123.545 0.0736 9.09 $7.46 1.219 124.764 $7.47 $931.98 -6.80 -6.80
05/31/87 124.764 0.0664 8.28 $7.37 1.124 125.888 $7.38 $929.05 -0.31 -7.09
06/30/87 125.888 0.0664 8.36 $7.48 1.118 127.005 $7.48 $950.00 2.25 -5.00
07/31/87 127.005 0.0664 8.43 $7.45 1.132 128.137 $7.46 $955.90 0.62 -4.41
08/31/87 128.137 0.0713 9.14 $7.38 1.238 129.375 $7.44 $962.55 0.70 -3.74
09/30/87 129.375 0.0713 9.22 $7.12 1.296 130.671 $7.15 $934.29 -2.94 -6.57
10/31/97 130.671 0.0713 9.32 $6.94 1.342 132.013 $6.78 $895.05 -4.20 -10.50
11/30/87 132.013 0.0713 9.41 $6.91 1.362 133.375 $6.92 $922.96 3.12 -7.70
12/31/87 133.375 0.0713 9.51 $7.04 1.351 134.726 $6.95 $936.35 1.45 -6.37
01/31/88 134.726 0.0713 9.61 $7.21 1.332 136.058 $7.15 $972.82 3.90 -2.72
02/29/88 136.058 0.0713 9.70 $7.29 1.331 137.389 $7.26 $997.44 2.53 -0.26
03/31/88 137.389 0.0713 9.80 $7.23 1.355 138.744 $7.22 $1,001.73 0.43 0.17
</TABLE>
For the twelve months ended March 31, 1988:
P(1 + T)((n)) = ERV
1000(1 + T)((1)) = 1,001.73
T = 0.17%
<PAGE>
HIGH INCOME FUND
Nonstandardized Total Return Computation
Original Amt. Invested $1,000.00
Commission at 0.0% $0.00
Net Amount to Fund $1,000.00
Purchase price $7.15
Shares acquired 139.860
<TABLE>
<CAPTION>
Beginning Monthly Reinvest Shares New Month-end Monthly ITD
Month Shares Income Dividend Price Purchased Shares NAV ERV Performance Performance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/31/87 139.860 0.0713 9.97 $6.78 1.471 141.331 $6.78 $958.22 -4.18 -4.18
11/30/87 141.331 0.0713 10.08 $6.92 1.456 142.787 $6.92 $988.09 3.12 -1.19
12/31/87 142.787 0.0713 10.18 $6.95 1.465 144.252 $6.95 $1,002.55 1.46 0.26
01/31/88 144.252 0.0713 10.29 $7.15 1.438 145.690 $7.15 $1,041.69 3.90 4.17
02/29/88 145.690 0.0713 10.39 $7.26 1.431 147.121 $7.26 $1,068.10 2.54 6.81
03/31/88 147.121 0.0713 10.49 $7.22 1.453 148.574 $7.22 $1,072.71 0.43 7.27
</TABLE>
Sales charges are not taken into account and dividends are reinvested at
month-end net asset value. Computation for the six months ended March 31, 1988:
P(1 + T)((n)) = ERV
1000(1 + T)((n)) = 1,072.71
T = 7.27%
Exhibit (16)(b)
Calculation of Yield
Managed Assets
The annualized yield based on the month of March 1989 was calculated
according to the following formula:
a-b
YIELD = 2[( ----- +1)((6))-1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last day
of the month
Therefore:
YIELD = 2[( 170,968 - 25,801 +1)((6))-1]
----------------
3,213,032 x 7.96
= 6.91%
See "Calculation of Performance Data" in the Statement of Additional
Information for a description of how interest earned ("a" above) is calculated.
Expenses accrued ("b" above) are net of expenses that the Investment
Adviser reimbursed to the Fund.
Average daily number of shares outstanding ("c" above) is calculated by
summing the shares entitled to receive dividends on each day of the month and
dividing the total by the number of days in the month.
<PAGE>
METLIFE - STATE STREET MANAGED ASSETS
Standard Total Return Computations - Since Inception
Original Amt. Invested $1,000.00
Commission at 4.5% $45.00
Net Amount to Fund $955.00
Purchase price $7.40
Shares acquired 129.054
<TABLE>
<CAPTION>
Beginning Monthly Reinvest Shares New Month-end Monthly Aggregate
Month Shares Income Dividend Price Purchased Shares NAV ERV Performance Performance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/30/88 129.054 0.0039 0.50 $7.39 0.068 129.122 $7.39 $954.21 -4.58 -4.58
01/31/89 129.122 0.0000 0.00 $7.62 0.000 129.122 $7.62 $983.91 3.11 -1.61
02/28/89 129.122 0.0000 0.00 $7.61 0.000 129.122 $7.61 $982.62 -0.13 -1.74
03/31/89 129.122 0.1115 14.40 $7.60 1.894 131.017 $7.60 $995.73 1.33 -0.43
</TABLE>
The average annual total return is computed as follows:
(1) Annualize the actual return of the Fund for the period December 29, 1988
through March 31, 1989:
955 (1 + T)((93/365)) = 995.73
T = 17.81%
(2) Calculate ERV based on annualized rate of return:
955 (1 + .1781) = 1,125.09
(3) Calculate average annual return since inception:
1,000 (1 + T) = 1,125.09
T = 12.51%
<PAGE>
METLIFE - STATE STREET MANAGED ASSETS
Nonstandardized Total Return Computation
Original Amt. Invested $1,000.00
Commission at 0.0% $0.00
Net Amount to Fund $1,000.00
Purchase price $7.39
Shares acquired 135.318
<TABLE>
<CAPTION>
Beginning Monthly Reinvest Shares New Month-end Monthly ITD
Month Shares Income Dividend Price Purchased Shares NAV ERV Performance Performance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
01/31/89 135.318 0.0000 0.00 $7.62 0.000 135.318 $7.62 $1,031.12 3.11 3.11
02/28/89 135.318 0.0000 0.00 $7.61 0.000 135.318 $7.61 $1,029.77 -0.13 2.98
03/31/89 135.318 0.1115 15.09 $7.60 1.985 137.303 $7.60 $1,043.50 1.33 4.35
</TABLE>
No annualization is made. Computation for the three months ended March 31, 1989.
Exhibit (16)(c)
Calculation of Distribution Rate
MetLife - State Street High Income Fund
The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the maximum
offering price per share as of the end of the period to which the distribution
relates.
The computation for the month ended March 31, 1990 is as follows:
.0725(a) x 12 = .87/6.16(b) = 14.12%
(a) distribution rate for the month ended March 31, 1990
(b) maximum offering price at March 31, 1990 ($6.16)
<PAGE>
Calculation of Distribution Rate
MetLife - State Street Managed Assets
The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the maximum
offering price per share as of the end of the period to which the distribution
relates.
The computation for the month ended March 31, 1990 is as follows:
.1200(a) x 4 = .480/8.18(b) = 5.87%
(a) distribution rate for the month ended March 31, 1990
(b) net asset value at March 31, 1990 ($7.81) multiplying by maximum sales
charge (100/95.5) = $8.18
Exhibit (18)
POWER OF ATTORNEY
We, the undersigned State Street Research Income Trust ("Trust"), a
Massachusetts business trust, its trustees, its principal executive officer and
its principal financial and accounting officer, hereby severally constitute and
appoint Francis J. McNamara, III and Darman A. Wing, as our true and lawful
attorneys, with full power to each of them alone to sign for us, in our names
and in the capacities indicated below, any Registration Statements and any and
all amendments thereto of the Trust filed with the Securities and Exchange
Commission and generally to do all such things in our names and in the indicated
capacities as are required to enable the Trust to comply with provisions of the
Securities Act of 1933, as amended, and/or the Investment Company Act of 1940,
as amended, and all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they have been and
may be signed by our said attorneys to said Registration Statements, and any and
all amendments thereto.
IN WITNESS WHEREOF, we have hereunto set our hands, on this 3rd day of
July, 1997.
SIGNATURES
STATE STREET RESEARCH INCOME TRUST
By: /s/ Ralph F. Verni
-------------------------------
Ralph F. Verni, Chief Executive
Officer and President
/s/ Ralph F. Verni /s/ Dean O. Morton
- ------------------------------------ -----------------------------------
Ralph F. Verni, Trustee and Dean O. Morton, Trustee
principal executive officer
/s/ Gerard P. Maus /s/ Thomas L. Phillips
- ------------------------------------ -----------------------------------
Gerard P. Maus, Principal financial Thomas L. Phillips, Trustee
and accounting officer
/s/ Steven A. Garban /s/ Toby Rosenblatt
- ------------------------------------ -----------------------------------
Steve A. Garban, Trustee Toby Rosenblatt, Trustee
/s/ Malcolm T. Hopkins /s/ Michael S. Scott Morton
- ------------------------------------ -----------------------------------
Malcolm T. Hopkins, Trustee Michael S. Scott Morton, Trustee
/s/ Edward M. Lamont /s/ Jeptha H. Wade
- ------------------------------------ -----------------------------------
Edward M. Lamont, Trustee Jeptha H. Wade, Trustee
/s/ Robert A. Lawrence
- ------------------------------------
Robert A. Lawrence, Trustee
Exhibit (19)
STATE STREET RESEARCH INCOME TRUST
Certificate of Resolution
I, the undersigned Amy L. Simmons, hereby certify that I am Assistant
Secretary of State Street Research Income Trust (the "Trust"), a Massachusetts
business trust duly authorized and validly existing under Massachusetts law, and
that the following is a true, correct and complete statement of a vote duly
adopted by the Trustees of said Trust on May 5, 1995:
"VOTED: That Francis J. McNamara III and Darman A. Wing be, and each
hereby is, authorized and empowered, for and on behalf of the
Trust, its principal financial and accounting officer, and in
their name, to execute, and file a Power of Attorney relating
to, the Trust's Registration Statements under the Investment
Company Act of 1940 and/or the Securities Act of 1933, and
amendments thereto, the execution and delivery of such Power
of Attorney, Registration Statements and amendments thereto,
to constitute conclusive proof of such authorization."
I further certify that said vote has not been amended or revoked and
the same is now in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of July,
1997.
/s/ Amy L. Simmons
-------------------------
Assistant Secretary
Exhibit (20)
[STATE STREET RESEARCH LOGO]
MUTUAL FUND ACCOUNT APPLICATION
Mail this application to State Street Research Shareholder Services,
P.O. Box 8408, Boston, MA 02266-8408
1 Type of Account (PLEASE PRINT FULL NAME(S) CONSISTENT WITH YOUR SIGNATURE(S)
IN SECTION 5.)
<TABLE>
<S> <C> <C>
[ ] Individual-complete (a) only [ ] Joint Tenant-complete (a & b) [ ] Gift to a Minor-complete (c) only
[ ] Trust(1)-complete (d) only [ ] Corporation(1)-complete (e) only [ ] Partnership/Other Entity-complete (e) only
</TABLE>
Note: If the investment is to be used for an Individual Retirement Account
(IRA), a separate IRA application must be used.
(1)Call 1-800-562-0032 for additional forms.
Individual or Joint Tenant
a _____________________________________________________________-______-_________
Name of Investor Social Security Number
b ______________________________________________________________________________
Name(s) of Joint Tenant(s)
Gift to a Minor
c _____________________________________ as custodian for _____________ under the
Name of Custodian (one only) Name of Minor (one only)
___________________________ "Uniform Gifts to Minors Act" _____-______-_________
Minor's State of Residence Minor's Social Security Number
Trust Account
d ______________________________________________________________________________
Trustee(s) Name(s)
_______________________________________________________________-______-_________
Name and Date of Trust Agreement Tax Identification
Number
Corporation, Partnership or Other Entity (Please include corporate resolution.)
e ______________________________________________________________________________
Name of Corporation or Other Entity
________________________________________________________________________________
Type of Business (specify corporation, Tax Identification Number
partnership, estate, guardian, etc.)
2 Your Mailing Address (PLEASE PRINT.)
( )
________________________________________________________________________________
Street Address Home Telephone Number
( )
________________________________________________________________________________
City State ZIP Business Telephone
Number
Residency [ ] U.S. (State _______________) [ ] Other __________________
Specify Country
3 Fund Selection(s) and Distribution Option(s) (Choose only one distribution
option per Fund; see Fund prospectus for minimum initial investment
requirements.)
[ ] By Mail-Make check payable to "State Street Research" [ ] By Dealer
[ ] By Federal Funds Wire (Control #__________)
<TABLE>
<CAPTION>
Wire Order
Fund Name Class Designation(2) Amount Distribution Option by Dealer
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends & Dividends in Dividends & Dividend
Capital Gains Cash; Capital Capital Gains Allocation Confirmation
A B D Reinvested Gains Reinvested(3) in Cash Plan (DAP)(4) Number
<S> <C> <C> <C> <C> <C> <C> <C>
_________________ [ ] [ ] [ ] $_____ [ ] [ ] [ ] [ ] ____________
_________________ [ ] [ ] [ ] $_____ [ ] [ ] [ ] [ ] ____________
_________________ [ ] [ ] [ ] $_____ [ ] [ ] [ ] [ ] ____________
_________________ [ ] [ ] [ ] $_____ [ ] [ ] [ ] [ ] ____________
</TABLE>
(2)All Money Market Fund investments will purchase Class E shares. Be sure to
designate share class for Money Market Fund DAP allocations.
(3)Does not apply to Money Market Fund.
(4)Dividend Allocation Plan: The Transfer Agent is authorized to invest all
dividends and distributions from________________________________________________
Fund Name
in the following Eligible Fund:_________________________________________________
Fund Name (Fund must meet Account
minimum investment requirements) Number (if
existing
account)
Authorization of Dividend Allocation Plan constitutes an acknowledgment that the
shareholder has received the current prospectus of the Fund to be acquired.
Except for Money Market Fund Class E, DAP must be allocated to same class
designation.
<PAGE>
4 Reduced Sales Charges (Applies to Class A shares only)
[ ] Right of Accumulation (ROA): I apply for Right of Accumulation reduced sales
charges subject to the Transfer Agent's confirmation of the following holdings
of certain designated persons, e.g. family members, in the Eligible Funds:
________________________________________________________________________________
Name on Account Account Number
________________________________________________________________________________
Name on Account Account Number
[ ] Letter of Intent (LOI): Although I am not obligated to purchase and the
Funds are not obligated to sell, I intend to invest over a 13-month period
beginning _______________, 19__ (purchase date not more than 90 days prior to
this letter) at least an aggregate of
[ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000 of Eligible Funds.
5 Your Signature (All registered shareholders must sign.)
I have received the current prospectus of the Fund and confirm that all the
information, instructions and agreements set forth hereon shall apply to the
account, and if applicable, shall also apply to any other fund account with
shares acquired upon exchange of shares of the Fund.
Under penalties of perjury, I certify that (1) the number shown on this form is
my correct taxpayer identification number (or I am waiting for a number to be
issued to me), and (2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the Internal
Revenue Service that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
Certification instructions: You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup withholding.
________________________________________________________________________________
Signature of Shareholder (exactly as your name appears in Section 1) Date
________________________________________________________________________________
Signature of Joint Tenant (if any) Date
6 Signature Guarantee and Dealer Information (Complete section (a) or (b) as
applicable.)
The undersigned guarantees the signature and legal capacity of the shareholder.
a. Signature Guarantee (fill out if your Dealer does not complete section below)
_______________________________________ _______________________________________
Name of Bank or Eligible Guarantor Street Address
_______________________________________ _______________________________________
Authorized Signature of Bank or City State ZIP
Eligible Guarantor
b. Dealer Information and Signature Guarantee (for Dealer use only)
_______________________________________ _______________________________________
Dealer Name Branch Office Number
_______________________________________ _______________________________________
Street Address of Home Office Address of Branch Office
Servicing Account
_______________________________________ _______________________________________
City State ZIP City State ZIP
_______________________________________ _______________________________________
Authorized Signature of Dealer Registered Representative's
Name and Number
If this application is for an account introduced through the above-named Dealer,
the Dealer agrees to all applicable provisions in this application and in the
Prospectus, and represents that it has provided a current Prospectus to the
Applicant and that the application is properly executed by a person authorized
by the Dealer to guarantee signatures. The Dealer warrants that this application
is completed in accordance with the shareholder's instructions and agrees to
indemnify the Fund, any other Eligible Funds, the Distributor, the Investment
Manager, State Street Research Shareholder Services and the Transfer Agent for
any loss or liability from acting or relying upon such instructions and
information. The terms and conditions of the Distributor's currently effective
Selected Dealer Agreement or sales agreement are included by reference in this
section. The Dealer represents that it has a currently effective Selected Dealer
Agreement or sales agreement with the Distributor authorizing the Dealer to sell
shares of the Fund and the Eligible Funds, and that it may lawfully sell shares
of the designated Fund(s) in the state designated as the Applicant's address of
record.
<PAGE>
Application for Optional Shareholder Services
Your Bank Account (You must complete this section if you request Section A, B, D
or E.)
Type of Bank Account: [ ] Checking [ ] NOW or Money Market
________________________________________________________________________________
Account Title (print exactly as it Bank Routing Number
appears on bank records)
________________________________________________________________________________
Bank Account Number Bank Name
________________________________________________________________________________
Bank Address City State ZIP
________________________________________________________________________________
Depositor's Signature(s) (exactly Date
as it appears on bank records)
________________________________________________________________________________
Depositor's Address City State ZIP
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
A Telephone Redemption and Exchange Privileges (Service available only for
shares held on deposit with Transfer Agent)
None of the Transfer Agent, the Fund, any other Eligible Funds, State Street
Research Shareholder Services, the Investment Manager or the Distributor will be
liable for any loss, injury, damage or expense as a result of acting upon, and
will not be responsible for the authenticity of, any telephone instructions. I
understand that all telephone calls are tape recorded. My liability shall be
subject to the use of reasonable procedures to confirm that instructions
communicated by telephone are genuine.
Telephone Exchange By Shareholder OR DEALER
The Transfer Agent may effect exchanges for my account according to telephone
instructions FROM ME OR MY DEALER as set forth in the Prospectus, and may
register the shares of the fund to be acquired exactly the same as my existing
account. Authorizing an exchange constitutes an acknowledgment that the
shareholder has received the current prospectus of the fund to be acquired. The
account will automatically have this privilege unless it is expressly declined
by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE EXCHANGE PRIVILEGE. ______ (Initial here.)
Telephone Redemption By Shareholder Only
1. Proceeds to Shareholder's Address of Record. The Transfer Agent may effect
redemptions of shares from my account according to telephone instructions from
me, as set forth in the Prospectus, and send the proceeds to my address of
record. The account will automatically have this privilege unless it is
expressly declined by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE REDEMPTION PRIVILEGE (to address of record).
_____ (Initial here.)
2. Proceeds to Bank Designated by Shareholder. The Telephone Redemption
Privilege (to bank designated by shareholder) is not provided automatically;
please check the box below if you want this Privilege for the account. ATTACH A
BLANK CHECK MARKED "VOID" AND FILL OUT "YOUR BANK ACCOUNT" SECTION.
The Transfer Agent may effect redemptions of shares from my account according to
telephone instructions from me, as set forth in the Prospectus, and send the
proceeds to the bank named in "Your Bank Account." [ ] (Check here.)
B Investamatic Check Program (YOU MUST ATTACH A BLANK CHECK MARKED "VOID.")
I hereby request and authorize the bank named in "Your Bank Account" section to
pay and charge checks drawn on, or debits against, my account initiated by and
payable to the order of the mutual fund transfer agent designated by the
Distributor. I agree that the named Bank's rights in respect to each such check
or debit shall be the same as if it were a check drawn on or debit against my
account authorized personally by me. This authority is to remain in effect until
revoked by me in writing, and until the named Bank actually receives such
notice, I agree that the named Bank shall be fully protected in honoring any
such check or debit authorization. I further agree that if any check or debit
authorization be dishonored, whether with or without cause and whether
intentionally or inadvertently, the named Bank shall be under no liability
whatsoever, unless the nonpayment is because of insufficient funds. I understand
that this Program may be revoked by the Transfer Agent or the Distributor
without prior notice if any check is not paid upon presentation, and that this
Program may be discontinued by the Distributor, the Transfer Agent or me upon
thirty (30) business days' notice prior to the due date of any deposit.
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
_____________________________________
Total Amount of Investment: $______ Account Registration (exactly as it
appears on Fund records)
[ ] Monthly Investment Date: [ ] 5th or [ ] 20th If you do not choose a date,
[ ] Quarterly Investment Date: [ ] 5th or [ ] 20th the 5th will be chosen
automatically.
C Checkwriting Privilege
(Available for Class A shares and
Money Market Fund Class E shares only)
[ ] I request the checkwriting feature and have
completed the signature card to the right.
_______________________________________________
Account Number (if existing account)
_______________________________________________
Account Number (if existing account)
Signature Card Complete and sign this card and return it with your application
and investment. Do not detach.
Check applicable Fund(s) TO: State Street Bank and Trust Company ("Bank")
[ ]Government Income ________________________________________________
[ ]NY Tax-Free Name (please print)
[ ]Money Market, Class E ________________________________________________
[ ]High Income Name (please print)
[ ]Tax-Exempt ________________________________________________
[ ]Strategic Income Address City State ZIP
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Indicate the number of signatures required
______-_________________________________________
Tax Identification Number
Corporate and other accounts must include appropriate resolution forms. In
signing this signature card, the signator(s) signifies his/her or their
agreement to be subject to the rules and regulations of State Street Bank and
Trust Company pertaining thereto, as amended from time to time, and subject
to the conditions printed on the reverse side.
<PAGE>
D Automatic Bank Connection (ABC) Not available for retirement plan accounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate $___________ (minimum-$50) from
my fund account beginning the month of __________________ to provide
[ ] monthly, [ ] quarterly, [ ] semiannual or [ ] annual payments. I would like
the following payment to be deposited directly into the bank account named in
"Your Bank Account" section. (Choose only one.)
[ ] Income dividends only
[ ] Income dividends and capital gains
[ ] Systematic Withdrawal Plan payments (see below)
Specify Fund(s):
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
I hereby authorize the Fund and the Transfer Agent to effect the deposit of the
above indicated items by initiating credit entries to my account at the bank
named in "Your Bank Account" section. The named Bank shall not be responsible
for the correctness of the items, and the Transfer Agent is authorized to
correct and adjust any incorrect items to my bank account. This authorization
may be terminated at any time by written notification to the Fund, the Transfer
Agent and the Bank.
E Systematic Withdrawal Plan (SWP) Not available for retirement plan accounts.
See the prospectus for minimum account size and maximum withdrawal amounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate shares in and withdraw cash
(minimum-$50) from my fund account beginning the month of _____________ to
provide [ ] monthly, [ ] quarterly, [ ] semiannual or [ ] annual Systematic
Withdrawal Plan (SWP) payments in the amount of $________________ to [ ] me,
[ ] the bank named in "Your Bank Account" section, or [ ] the following payee.
(Note: If you authorize a SWP, you may not receive dividend or capital gain
distributions in cash.)
________________________________________________________________________________
Name of Payee
________________________________________________________________________________
Street Address City State ZIP
Specify Fund(s):
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
The payment of monies is authorized by the signature(s) on the reverse side.
If the shareholder's account with the Fund is joint, all checks drawn upon this
account must include the signatures of all persons named in the account, unless
the persons signing this card have indicated on the reverse side of this card
that the Bank is authorized to accept any one signature. Each person guarantees
the genuineness of the other's signature. Checks may not be for less than $500
or such other minimum or maximum amounts as may from time to time be established
by the Fund.
The Bank is hereby appointed agent by the person(s) signing this card (the
"Depositor(s)") and, as agent, is authorized and directed to present checks
drawn on this checking account to the Fund or its redemption agent as requests
to redeem shares of the Fund registered in the name of the Depositor(s) in the
amounts of such checks and to deposit the proceeds of such redemptions in this
checking account. The Bank shall be liable only for its own negligence.
Depositor(s) hereby authorize(s) the Fund or its redemption agent to honor
redemption requests presented in the above manner by the Bank. The Fund and its
redemption agent will not be liable for any loss, expense or cost arising out of
check redemptions. If shares of the Fund are purchased by check, redemption
proceeds will ordinarily be withheld until the Fund is reasonably assured that
payment has been collected on the check. The Bank has the right not to honor
checks in amounts exceeding the value of the depositor(s) shareholder account at
the time the check is presented for payment.
The Bank reserves the right to change, modify or terminate this checking account
at any time upon notification mailed to the address of record of the
Depositor(s).
SSR-543E-197
<PAGE>
[STATE STREET RESEARCH LOGO] [METLIFE SECURITIES LOGO]
MUTUAL FUND ACCOUNT APPLICATION
Mail this application to MetLife Securities, Inc., P.O. Box 30421, Tampa, FL
33630
[ ] New Application [ ] Change-Account #____________________________
Type of Account (PLEASE PRINT FULL NAME(S) CONSISTENT WITH YOUR SIGNATURE(S) IN
SECTION 6.)
<TABLE>
<S> <C> <C>
[ ] Individual-complete (a) only [ ] Joint Tenant-complete (a & b) only [ ] Gift to a Minor-complete (c) only
[ ] Trust(1)-complete (d) only [ ] Corporation(1)-complete (e) only [ ] Partnership/Other Entity-complete (e) only
</TABLE>
Note: If the investment is to be used for an Individual Retirement Account
(IRA), a separate IRA application must be used.
(1)Call 1-800-638-8378 for additional forms.
Do you have any other mutual fund accounts with State Street Research?
[ ] Yes [ ] No
Individual or Joint Tenant
a _____________________________________________________________-______-_________
Name of Investor Social Security Number
b ______________________________________________________________________________
Name(s) of Joint Tenant(s)
Gift to a Minor
c _____________________________________ as custodian for _____________ under the
Name of Custodian (one only) Name of Minor (one only)
___________________________ "Uniform Gifts to Minors Act" _____-______-_________
Minor's State of Residence Minor's Social Security Number
Trust Account
d ______________________________________________________________________________
Trustee(s) Name(s)
_______________________________________________________________-______-_________
Name and Date of Trust Agreement Tax Identification
Number
Corporation, Partnership or Other Entity (Please include corporate resolution.)
e ______________________________________________________________________________
Name of Corporation or Other Entity
________________________________________________________________________________
Type of Business (specify corporation, Tax Identification Number
partnership, estate, guardian, etc.)
2 Your Mailing Address (PLEASE PRINT.)
( )
________________________________________________________________________________
Street Address Home Telephone Number
( )
________________________________________________________________________________
City State ZIP Business Telephone
Number
Residency [ ] U.S. (State _______________) [ ] Other(2) __________________
Specify Country
(2)Call 1-800-638-8378 for additional forms.
3 Fund Selection(s) and Distribution Option(s) (Choose only one distribution
option per Fund; see Fund prospectus for minimum initial investment
requirements.)
[ ] By Mail-Make check payable to "State Street Research"
[ ] By Federal Funds Wire
<TABLE>
<CAPTION>
Fund Name Class Designation(3) Amount Distribution Option
- ---------------------------------------------------------------------------------------------------------------------
Dividends & Dividends in Dividends & Dividend
Capital Gains Cash; Capital Capital Gains Allocation
A B(4) Reinvested Gains Reinvested(5) in Cash Plan (DAP)(6)
<S> <C> <C> <C> <C> <C> <C>
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
</TABLE>
(3)All Money Market Fund investments will purchase Class E shares. Be sure to
designate Class A or B shares for Money Market Fund DAP allocations.
(4)For purchase of Class B shares of more than $250,000, I hereby acknowledge
that I am aware of the reduced front-end sales charges available to me for the
purchase of Class A shares, and have chosen to purchase Class B shares. I am
aware that Class B shares have higher asset-based charges than Class A shares
for the first eight years.
(5)Does not apply to Money Market Fund.
(6)Dividend Allocation Plan: The Transfer Agent is authorized to invest all
dividends and distributions from________________________________________________
Fund Name
in the following Eligible Fund:_________________________________________________
Fund Name (Fund must meet Account
minimum investment requirements) Number (if
existing
account)
Authorization of Dividend Allocation Plan constitutes an acknowledgment that the
shareholder has received the current prospectus of the Fund to be acquired.
Except for Money Market Fund Class E, DAP must be allocated to same class
designation.
<PAGE>
4 Reduced Sales Charges (Applies to Class A shares only)
[ ] Right of Accumulation (ROA): I apply for Right of Accumulation reduced sales
charges subject to the Transfer Agent's confirmation of the following holdings
of certain designated persons, e.g. family members, in the Eligible Funds:
________________________________________________________________________________
Name on Account Account Number
________________________________________________________________________________
Name on Account Account Number
[ ] Letter of Intent (LOI): Although I am not obligated to purchase and the
Funds are not obligated to sell, I intend to invest over a 13-month period
beginning _______________, 19__ (purchase date not more than 90 days prior to
this letter) at least an aggregate of
[ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000 of Eligible Funds.
5 Optional Shareholder Services
Your Bank Account (You must complete this section if you request Section A, B, C
or D below.)
Type of Bank Account: [ ] Checking [ ] NOW or Money Market
________________________________________________________________________________
Account Title (print exactly as it Bank Routing Number
appears on bank records)
________________________________________________________________________________
Bank Account Number Bank Name
________________________________________________________________________________
Bank Address City State ZIP
________________________________________________________________________________
Depositor's Signature(s) (exactly as it Date
appears on bank records)
________________________________________________________________________________
Depositor's Address City State ZIP
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
A Telephone Redemption and Exchange Privileges (Service available only for
shares held on deposit with Transfer Agent)
None of the Transfer Agent, the Fund, any other Eligible Funds, State Street
Research Shareholder Services, the Investment Manager or the Distributor will be
liable for any loss, injury, damage or expense as a result of acting upon, and
will not be responsible for the authenticity of, any telephone instructions. I
understand that all telephone calls are tape recorded. My liability shall be
subject to the use of reasonable procedures to confirm that instructions
communicated by telephone are genuine.
Telephone Exchange By Shareholder OR DEALER
The Transfer Agent may effect exchanges for my account according to telephone
instructions FROM ME OR MY DEALER as set forth in the Prospectus, and may
register the shares of the fund to be acquired exactly the same as my existing
account. Authorizing an exchange constitutes an acknowledgment that the
shareholder has received the current prospectus of the fund to be acquired. The
account will automatically have this privilege unless it is expressly declined
by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE EXCHANGE PRIVILEGE. _____ (Initial here.)
Telephone Redemption By Shareholder Only
1. Proceeds to Shareholder's Address of Record. The Transfer Agent may effect
redemptions of shares from my account according to telephone instructions from
me, as set forth in the Prospectus, and send the proceeds to my address of
record. The account will automatically have this privilege unless it is
expressly declined by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE REDEMPTION PRIVILEGE (to address of record).
_____ (Initial here.)
2. Proceeds to Bank Designated by Shareholder. The Telephone Redemption
Privilege (to bank designated by shareholder) is not provided automatically;
please check the box below if you want this Privilege for the account. ATTACH A
BLANK CHECK MARKED "VOID" AND FILL OUT "YOUR BANK ACCOUNT" SECTION.
The Transfer Agent may effect redemptions of shares from my account according to
telephone instructions from me, as set forth in the Prospectus, and send the
proceeds to the bank named in "Your Bank Account." [ ] (Check here.)
<PAGE>
B Investamatic Check Program (YOU MUST ATTACH A BLANK CHECK MARKED "VOID.")
I hereby request and authorize the bank named in "Your Bank Account" section to
pay and charge checks drawn on, or debits against, my account initiated by and
payable to the order of the mutual fund transfer agent designated by the
Distributor. I agree that the named Bank's rights in respect to each such check
or debit shall be the same as if it were a check drawn on or debit against my
account authorized personally by me. This authority is to remain in effect until
revoked by me in writing, and until the named Bank actually receives such
notice, I agree that the named Bank shall be fully protected in honoring any
such check or debit authorization. I further agree that if any check or debit
authorization be dishonored, whether with or without cause and whether
intentionally or inadvertently, the named Bank shall be under no liability
whatsoever, unless the nonpayment is because of insufficient funds. I understand
that this Program may be revoked by the Transfer Agent or the Distributor
without prior notice if any check is not paid upon presentation, and that this
Program may be discontinued by the Distributor, the Transfer Agent or me upon
thirty (30) business days' notice prior to the due date of any deposit.
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
_____________________________________
Total Amount of Investment: $______ Account Registration (exactly as it
appears on Fund records)
[ ] Monthly Investment Date: [ ] 5th or [ ] 20th If you do not choose a date,
[ ] Quarterly Investment Date: [ ] 5th or [ ] 20th the 5th will be chosen
automatically.
C Automatic Bank Connection (ABC) Not available for retirement plan accounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate $______________ (minimum-$50)
from my fund account beginning the month of to provide [ ] monthly,
[ ] quarterly, [ ] semiannual or [ ] annual payments. I would like the following
payment to be deposited directly into the bank account named in "Your Bank
Account" section. (Choose only one.)
[ ] Income dividends only [ ] Income dividends and capital gains
[ ] Systematic Withdrawal Plan payments (see below)
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
I hereby authorize the Fund and the Transfer Agent to effect the deposit of the
above indicated items by initiating credit entries to my account at the bank
named in "Your Bank Account" section. The named Bank shall not be responsible
for the correctness of the items, and the Transfer Agent is authorized to
correct and adjust any incorrect items to my bank account. This authorization
may be terminated at any time by written notification to the Fund, the Transfer
Agent and the Bank.
D Systematic Withdrawal Plan (SWP) Not available for retirement plan accounts.
See the prospectus for minimum account size and maximum withdrawal amounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate shares in and withdraw cash
(minimum-$50) from my fund account beginning the month of ____________________
to provide [ ] monthly, [ ] quarterly, [ ] semiannual or [ ] annual Systematic
Withdrawal Plan (SWP) payments in the amount of $_________________ to [ ] me
[ ] the bank named in "Your Bank Account" section, or [ ] the following payee.
(Note: If you authorize a SWP, you may not receive dividend or capital gain
distributions in cash.)
________________________________________________________________________________
Name of Payee
________________________________________________________________________________
Street Address City State ZIP
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
E Checkwriting Privilege
(Available for Class A shares and Money Market
Fund Class E shares only)
[ ] I request the checkwriting feature and have
completed the signature card below.
_______________________________________________
Account Number (if existing account)
_______________________________________________
Account Number (if existing account)
Signature Card Complete and sign this card and return it with your application
and investment. Do not detach.
Check applicable Fund(s) TO: State Street Bank and Trust Company ("Bank")
[ ] Money Market, Class E ________________________________________________
[ ] High Income Name (please print)
[ ] Tax-Exempt ________________________________________________
[ ] Government Income Name (please print)
[ ] NY Tax-Free ________________________________________________
[ ] Strategic Income Address City State ZIP
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Indicate the number of signatures required
______-_________________________________________
Tax Identification Number
Corporate and other accounts must include appropriate resolution forms. In
signing this signature card, the signator(s) signifies his/her or their
agreement to be subject to the rules and regulations of State Street Bank and
Trust Company pertaining thereto, as amended from time to time, and subject to
the conditions printed on the reverse side.
<PAGE>
MetLife Securities, Inc. Customer Profile
1
________________________________________________________________________________
Client's Name (or minor if U.G.M.A.) Age Social Security Number
________________________________________________________________________________
Joint Tenant Name (if any, or Age Social Security Number
custodian if U.G.M.A.)
Occupation ______________________ State of Residence ______________________
Name/Address of Employer _______________________________________________________
Is client an associated person of a broker/dealer? [ ] Yes [ ] No
If yes, furnish name and address _______________________________________________
2 Client's Estimated Annual Income (Not including income from this investment)
(N/A for UGMA, Trust, Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000+
3 Savings and Investments (Exclusive of personal residence, home furnishings,
personal automobiles, and the amount of this investment) (N/A for UGMA, Trust,
Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999 [ ] $400,000+
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000-399,999
4 Net Worth (Assets minus liabilities exclusive of assets and liabilities
relating to personal residence, home furnishings and automobiles) (N/A for
UGMA, Trust, Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999 [ ] $400,000+
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000-399,999
<TABLE>
<CAPTION>
5 Main Investment Objective (select one) Secondary Investment Objective (optional)
<S> <C> <C> <C> <C> <C>
[ ] Aggressive Growth [ ] Growth & Income [ ] Tax Advantages [ ] Aggressive Growth [ ] Growth & Income [ ] Tax Advantages
[ ] Growth [ ] Current Income [ ] Growth [ ] Current Income
</TABLE>
<TABLE>
<CAPTION>
6 Source of Funds for This Investment
<S> <C> <C>
[ ] CD (Certificate of Deposit) [ ] Savings [ ] Money Market Fund
[ ] Surrender Life/Annuity Contract [ ] Rollover/Transfer of Pension Assets [ ] Another MetLife Policy, Account or Contract
[ ] Discretionary Income [ ] Loan [ ] Other ___________________________________
</TABLE>
7 This account was: [ ] Solicited [ ] Unsolicited
8 Tax Status of These Funds: [ ] Qualified [ ] Non-Qualified
9 Prior Investment Experience: Stocks ___ yrs. Bonds ___ yrs.
(complete all that apply) Mutual Funds ___ yrs. Margin ___ yrs.
Limited Partnerships ___ yrs. Options ___ yrs.
Other __________________ None ___
Investor Receipt and Arbitration Agreement
1. Arbitration
(i) Arbitration is final and binding on the parties.
(ii) The parties are waiving their right to seek remedies in court, including
the right to jury trial.
(iii) Pre-arbitration discovery is generally more limited than and different
from court proceedings.
(iv) The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification of
rulings by the arbitrators is strictly limited.
(v) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
(vi) No person shall bring a putative or certified class action to
arbitration, nor seek to enforce any pre-dispute arbitration agreement
against any person who has initiated in court a putative class action; or who
is a member of a putative class who has not opted out of the class with
respect to any claims encompassed by the putative class action until: (i) the
class certification is denied; or (ii) the class is decertified; or (iii) the
customer is excluded from the class by the court. Such forbearance to enforce
an agreement to arbitrate shall not constitute a waiver of any rights under
this agreement except to the extent stated herein.
2. MetLife Securities, Inc. (hereinafter "MSI") and the purchaser of the
shares, who is the signatory below (hereinafter the "Customer"), agree that
any controversy between MSI, its employees, directors, agents, officers or
affiliates and the Customer arising out of or relating to any transactions
between such parties shall be determined by arbitration. Any arbitration
pursuant to this agreement shall be conducted before, and under the rules of,
the National Association of Securities Dealers, Inc. Judgment upon the award
of the arbitrators may be entered in any federal or state court having
jurisdiction.
3. This agreement and any arbitration hereunder shall be governed and
construed in accordance with the laws of the State of New York, United States
of America, including New York procedural and substantive arbitration laws
and rules, without giving effect to conflicts of law principles.
The predispute arbitration agreement located immediately above is accepted and
agreed to. I have also received the current prospectus of the fund and have
given a check in the amount of $___________________ on this, the ____________
day of ________________ 19__
_______________________________________ ________________________________________
Customer Signature (exactly as your Registered Representative's Signature
name appears in Section 1)
/s/ Elaine S. Stevenson
_______________________________________ ________________________________________
Customer Signature MetLife Securities, Inc.; by:
Elaine S. Stevenson, President
_______________________________________ ________________________________________
Capacity
<PAGE>
6 Your Signature (All registered shareholders must sign.)
The undersigned confirms that all the information, instructions and agreements
set forth hereon shall apply to the account, and if applicable, shall also apply
to any other fund account with shares acquired upon exchange of shares of the
Fund.
Under penalties of perjury, I certify that (1) the number shown on this form is
my correct taxpayer identification number (or I am waiting for a number to be
issued to me), and (2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the Internal
Revenue Service that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
Certification instructions: You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return.
1. Arbitration
(i) Arbitration is final and binding on the parties.
(ii) The parties are waiving their right to seek remedies in court, including
the right to jury trial.
(iii) Pre-arbitration discovery is generally more limited than and different
from court proceedings.
(iv) The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification of
rulings by the arbitrators is strictly limited.
(v) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
(vi) No person shall bring a putative or certified class action to
arbitration, nor seek to enforce any pre-dispute arbitration agreement
against any person who has initiated in court a putative class action; or who
is a member of a putative class who has not opted out of the class with
respect to any claims encompassed by the putative class action until (i) the
class certification is denied; or (ii) the class is decertified; or (iii) the
customer is excluded from the class by the court. Such forbearance to enforce
an agreement to arbitrate shall not constitute a waiver of any rights under
this agreement except to the extent stated herein.
2. MetLife Securities, Inc. (hereinafter "MSI") and the purchaser of the shares,
who is the signatory below (hereinafter the "Customer"), agree that any
controversy between MSI, its employees, directors, agents, officers or
affiliates and the Customer arising out of or relating to any transactions
between such parties shall be determined by arbitration. Any arbitration
pursuant to this agreement shall be conducted before, and under the rules of,
the National Association of Securities Dealers, Inc. Judgment upon the award of
the arbitrators may be entered in any federal or state court having
jurisdiction.
3. This agreement and any arbitration hereunder shall be governed and construed
in accordance with the laws of the State of New York, United States of America,
including New York procedural and substantive arbitration laws and rules,
without giving effect to conflicts of law principles.
The predispute arbitration agreement located immediately above is accepted and
agreed to. I have also received the current prospectus of the fund and have
given a check in the amount of $_________________ on this, the ______________
day of ___________________________ 19__
The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup withholding.
_______________________________________ ________________________________________
Customer Signature (exactly as your Registered Representative's Signature
name appears in Section 1)
/s/ Elaine S. Stevenson
_______________________________________ ________________________________________
Customer Signature MetLife Securities, Inc.;
by: Elaine S. Stevenson, President
_______________________________________
Capacity
7 Dealer Information and Signature Guarantee (For Dealer use only)
The Dealer agrees to all applicable provisions in this application and in the
Prospectus, guarantees the signature and legal capacity of the shareholder, and
represents that it has provided a current Prospectus to the Applicant and that
the application is properly executed by a person authorized by the Dealer to
guarantee signatures. The Dealer warrants that this application is completed in
accordance with the shareholder's instructions and information and agrees to
indemnify the Fund, any other Eligible Funds, the Investment Manager, the
Distributor, State Street Research Shareholder Services and the Transfer Agent
for any loss or liability from acting or relying upon such instructions and
information. Signature(s) Guaranteed By
MetLife Securities, Inc.
_______________________________________ ________________________________________
Dealer Name Branch Office Number
P.O. Box 30421
_______________________________________ ________________________________________
Address of Home Office Address of Branch Office
Servicing Account
Tampa, FL 33630
_______________________________________ ________________________________________
City State ZIP City State ZIP
_______________________________________ ________________________________________
Authorized Signature of Dealer Registered Representative's
- Tampa, FL Name and Number
_______________________________________
Signature Guarantee
The payment of monies is authorized by the signature(s) on the reverse side.
If the shareholder's account with the Fund is joint, all checks drawn upon this
account must include the signatures of all persons named in the account, unless
the persons signing this card have indicated on the reverse side of this card
that the Bank is authorized to accept any one signature. Each person guarantees
the genuineness of the other's signature. Checks may not be for less than $500
or such other minimum or maximum amounts as may from time to time be established
by the Fund.
The Bank is hereby appointed agent by the person(s) signing this card (the
"Depositor(s)") and, as agent, is authorized and directed to present checks
drawn on this checking account to the Fund or its redemption agent as requests
to redeem shares of the Fund registered in the name of the Depositor(s) in the
amounts of such checks and to deposit the proceeds of such redemptions in this
checking account. The Bank shall be liable only for its own negligence.
Depositor(s) hereby authorize(s) the Fund or its redemption agent to honor
redemption requests presented in the above manner by the Bank. The Fund and its
redemption agent will not be liable for any loss, expense or cost arising out of
check redemptions. If shares of the Fund are purchased by check, redemption
proceeds will ordinarily be withheld until the Fund is reasonably assured that
payment has been collected on the check. The Bank has the right not to honor
checks in amounts exceeding the value of the depositor(s) shareholder account at
the time the check is presented for payment.
The Bank reserves the right to change, modify or terminate this checking account
at any time upon notification mailed to the address of record of the
Depositor(s).
The terms and conditions of the Distributor's currently effective Selected
Dealer Agreement are included by reference in this section. The Dealer
represents that it has a currently effective Selected Dealer Agreement with the
Distributor authorizing the Dealer to sell shares of the Fund and the Eligible
Funds, and that it may lawfully sell shares of the designated Fund(s) in the
state designated as the Applicant's address of record.
- -------------------------------
DO NOT COMPLETE
MSI - Tampa
Dealer #__________ ST _____
Rep #______________________
Rep Name __________________
- -------------------------------
CONTROL NUMBER: 3672-970214(0398)SSR-LD
ML-598E-297
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