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As filed with the Securities and Exchange Commission on February 4, 2000
Securities Act of 1933 Registration No. 33-4296
Investment Company Act of 1940 File No. 811-4624
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. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 27 [X]
----------------------------
STATE STREET RESEARCH EQUITY 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, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place, Boston, Massachusetts 02109
It is proposed that this filing will become effective under Rule 485:
[ ] Immediately upon filing [ ] 75 days after filing pursuant
pursuant to paragraph (b). to paragraph (c)(2).
[ ] On ________________ pursuant [ ] On _______________ pursuant
to paragraph (b). to paragraph (a)(2).
[X] 60 days after filing pursuant If appropriate, check the
to paragraph (a)(1). following box:
[ ] On ________________ pursuant to
paragraph (a)(1).
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
--------------------------------------
<PAGE>
The Prospectus and Statement of Additional Information of the Class J
shares of the State Street Research Athletes Fund series of State Street
Research Equity Trust (the "Registrant") are included herein.
The Prospectus and Statement of Additional Information of the State Street
Research Alpha Fund, State Street Research Argo Fund, State Street Research
Global Resources Fund and State Street Research Athletes Fund series of the
Registrant are included in Post-Effective Amendment No. 25 to this Registration
Statement.
<PAGE>
Prospectus for Class J Shares
Dated April ____, 2000
State Street Research Athletes Fund
A Series of State Street Research Equity Trust
This prospectus describes the fund's Class J shares. Certain information in
the currently effective prospectus for the fund's Class A shares, Class B(1)
shares, Class B shares, Class C shares and Class S shares (the "U.S.
Prospectus") is incorporated by reference. This prospectus consists of the
following information and the U.S. Prospectus. The captions used in this
prospectus correspond to the captions used in the U.S. Prospectus.
Class J shares are available for purchase by Japanese investors only. Class
J shares must be offered or sold outside of the United States and use of this
prospectus is not considered to be an offer of Class J shares to any U.S.
resident.
Investor Expenses
- -----------------
In the U.S. Prospectus section captioned "Investor Expenses", information
for Class J shares is added to the table as follows:
<TABLE>
<CAPTION>
Shareholder Fees (% of offering price) Class J
- ---------------------------------------------------------------------------------
<S> <C>
Maximum front-end sales charge 3.00%
Maximum deferred sales charge None
<CAPTION>
Annual Fund Operating Expenses (% of average net assets)
- ---------------------------------------------------------------------------------
<S> <C>
Management fee 0.65%
Service/distribution (12b-1) fees 1.00%
Other expenses 0.35%
Total annual fund operating expenses 2.00%
</TABLE>
<TABLE>
<CAPTION>
Example Year
- ---------------------------------------------------------------------------------
<S> <C> <C>
1 $497
3 $909
5 $1,345
10 $2,557
</TABLE>
Choosing a Share Class
- ----------------------
The first paragraph of the U.S. Prospectus section captioned "Choosing a
Share Class" is revised as follows:
The fund generally offers four share classes, each with its own sales
charge and expense structure: Class A, Class B(1), Class C and Class S. The fund
also offers Class B and Class J shares. Class B shares are only offered to
current Class B shareholders through reinvestment of dividends and distributions
or through exchanges from existing Class B accounts of the State Street Research
funds. Class J shares are only offered to Japanese investors through financial
institutions and professionals in Japan.
<PAGE>
The following is also added at the end of this section:
Class J Shares
--------------
o For Japanese investors only
o Initial sales charge of 3%
o Annual service/distribution (12b-1) fee of 1%
Sales Charges
- -------------
In the U.S. Prospectus section captioned "Sales Charges", the following is
added to this section:
Class J Shares -- For Japanese Investors Only
Class J Shares are offered exclusively to Japanese investors through
financial institutions in Japan. Class J shares are offered at net asset value
plus an initial sales charge as follows:
<TABLE>
<CAPTION>
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
- ------------------------------------------------------------------------------------------
<S> <C> <C>
All amounts 3.00% 3.09%
</TABLE>
Dealer Compensation
- -------------------
In the U.S. Prospectus section captioned "Dealer Compensation," the section
is revised to include a separate table for Class J shares as follows:
<TABLE>
<CAPTION>
Maximum Dealer Compensation (%) Class J
- --------------------------------------------------------------------------------
<S> <C>
Commission
All amounts 3.00%
Annual fee _____%
</TABLE>
In the same section, the following paragraph is added:
The fund has adopted a plan under Rule 12b-1 that permits it to pay
marketing and other fees to support the sale and distribution of Class J shares
and the services provided to you by your financial adviser. The Class J annual
distribution and service fees are equal to 1.00% (0.25% service fee and 0.75%
distribution fee), and are paid out of the assets of the Class J shares. These
fees are paid to the fund's distributor and the distributor in turn pays a
portion of these fees to financial professionals.
Buying and Selling Shares
- -------------------------
The U.S. Prospectus section captioned "Buying and Selling Shares" is
revised to include the following:
Instructions for Buying Shares
------------------------------
You can establish an account by having your financial professional process
your purchase. The minimum initial investment is 100 shares and the minimum
additional investment is 10 shares. Investments can only be made in increments
of 10 shares.
<PAGE>
Instructions for Selling Shares
-------------------------------
You can sell your shares by having your financial professional process the
redemption request. Your financial professional may charge you a fee.
Account Policies and Investor Services
- --------------------------------------
The U.S. Prospectus sections captioned "Account Policies" and "Investor
Services" are revised to include the following:
Exchange Privilege
------------------
You may exchange your Class J shares for Class J shares of another State
Street Research fund that is available in Japan. There is no fee to exchange
shares among State Street Research funds. Consult your financial professional.
The other account policies and investor services described in these
sections do not apply to Class J shares.
<PAGE>
[LOGO State Street Research]
<TABLE>
<CAPTION>
Supplement No. 1 Prospectus
dated November 18, 1999 to dated For
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
May 1, 1999 State Street Research Growth Fund
State Street Research Investment Trust
State Street Research New York Tax-Free Fund
State Street Research Tax-Exempt Fund
July 1, 1999 State Street Research IntelliQuant Portfolios:
Small-Cap Value
July 15, 1999 State Street Research High Income Fund
September 1, 1999 State Street Research Strategic Income Plus Fund
State Street Research Galileo Fund
State Street Research Legacy Fund
State Street Research Strategic Income Fund
October 1, 1999 State Street Research International Equity Fund
November 1, 1999 State Street Research Alpha Fund
State Street Research Argo Fund
State Street Research Global Resources Fund
State Street Research Athletes Fund
Supplement No. 2
dated November 18, 1999 to
- -----------------------------------------------------------------------------------------------------------------------
March 1, 1999 State Street Research Government Income Fund
Supplement No. 3
dated November 18, 1999 to
- -----------------------------------------------------------------------------------------------------------------------
February 1, 1999 State Street Research Aurora Fund
State Street Research Emerging Growth Fund
</TABLE>
<PAGE>
Subject to shareholder approval as described below, the following changes are
expected to be made:
Rule 12b-1 Plan for Class A Shares
The fund's Rule 12b-1 plan of distribution would be amended to allow the fund to
increase its Rule 12b-1 fees. These fees are used to pay for service,
distribution and marketing expenses related to Class A shares of the fund. The
current 25 basis point fee would be increased to 40 basis points (0.40% or
.0040) of the net assets attributable to Class A shares. The fund's distributor
anticipates that the fund's Trustees will authorize an initial increase of
substantially less than 15 basis points. However, shareholders are being asked
to provide the Trustees with the flexibility to adjust the payments in the
future within the authorized range.
For Further Information
The above changes will be effective upon, and subject to, shareholder approval
at a meeting scheduled for February 2000, or any continued session thereof. For
more detailed information about the changes, obtain a copy of the related Proxy
Statement by calling State Street Research Service Center at 1-800-562-0032
after November 26, 1999.
For State Street Research International Equity Fund Only
Under the caption "Investment Management" at page 8 of the Prospectus, the third
paragraph is revised in its entirety to read as follows:
Thomas P. Moore, Jr. has been solely responsible for the fund's day-to-day
portfolio management since October 1999. Previously he served as the fund's
co-portfolio manager beginning in October 1998. Mr. Moore is a senior vice
president and has worked as an investment professional for 20 years.
For State Street Research Investment Trust Only
Under the caption "Distributions and Taxes -- Income and Capital Gains
Distributions" at page 20 of the Prospectus, the first paragraph is revised in
its entirety to read as follows:
The fund typically distributes any net income and net capital gains to
shareholders around the end of the fund's fiscal year, which is December 31. To
comply with tax regulations, the fund may also be required to pay an additional
income or capital gains distribution.
For State Street Research Legacy Fund and State Street Research Galileo Fund
Only
The minimum initial and additional investments under the caption "Policies for
Buying Shares" are revised as follows:
<TABLE>
<CAPTION>
Minimum Initial Investments: Minimum Additional Investments:
<S> <C>
o $1,000 for accounts that use the o $50 for any account
Investamatic program(a)
o $2,000 for Individual Retirement (a) Except $500 for Individual Retirement
Accounts(a) Accounts during special promotional
o $2,500 for all other accounts periods.
</TABLE>
SSR-359G-1199
Control Number: (exp1100)SSR-LD
<PAGE>
[front cover]
[background photo: Custom House, Boston]
[Logo] STATE STREET RESEARCH
Athletes Fund
- ---------------------------------------------
A stock fund for
professional athletes
Prospectus
November 1, 1999
[begin sidebar]
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus will also be available in Spanish in December by calling the
State Street Research Service Center at 1-888-638-3193.
[end sidebar]
<PAGE>
Contents
- --------------------------------------------------------------------------------
1 The Fund
--------
1 Goal and Strategies
2 Principal Risks
4 Investor Expenses
6 Investment Management
7 Your Investment
---------------
7 Opening an Account
7 Choosing a Share Class
8 Sales Charges
11 Dealer Compensation
12 Buying and Selling Shares
16 Account Policies
18 Distributions and Taxes
19 Investor Services
20 Other Information
-----------------
20 Other Securities and Risks
23 Financial Highlights
24 Board of Trustees
Back Cover For Additional Information
<PAGE>
The Fund 1
- --------------------------------------------------------------------------------
[chesspiece graphic] Goal and Strategies
Fundamental Goal The fund seeks to provide long-term growth of capital.
Principal Strategies Under normal market conditions, the fund invests at least
65% of total assets in stocks and convertible securities of larger size
companies. The fund invests across a range of industries in companies that
appear to offer potential for long-term growth. The fund intends to invest in a
relatively moderate number of companies, as compared to many other funds in its
category. The fund presently expects to invest in fewer than 50 companies,
although the number of holdings will vary depending on the fund's asset size.
The fund believes that larger size companies generally have the broad resources
to adapt to changing business and economic conditions. The fund looks for those
companies whose competitive advantages and business strategies position them for
above-average earnings growth.
The fund reserves the right to invest up to 35% of total assets in other
securities (for example, bonds and small company stocks). The fund may also use
derivatives, particularly as a way of hedging.
For more information about the fund's investments and practices, see page 20.
[begin sidebar]
[Magnifying glass graphic]
Who May Want To Invest
State Street Research Athletes Fund is intended for professional athletes who
seek one or more of the following:
o an investment designed for long-term growth of career earnings
o a stock fund that emphasizes large-size companies
o a focused portfolio investing in a moderate number of stocks
The fund is not appropriate for investors who:
o are seeking either current investment income or aggressive growth
o are making short-term investments
o are investing emergency reserve money
[end sidebar]
<PAGE>
2 The Fund continued
- --------------------------------------------------------------------------------
[traffic sign graphic]
Principal Risks
Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden, unpredictable drops in value and the potential for
periods of lackluster performance.
The fund's portfolio is less diversified than those of many other funds in its
category. As a result, it is more sensitive to market conditions affecting a
single stock or group of stocks in its portfolio. The success of the fund's
investment strategy depends largely on the investment manager's skill in
assessing the potential of the stocks the fund buys.
The fund may underperform certain other stock funds (those emphasizing small
company stocks, for example) during periods when large company stocks in general
are out of favor.
Because the fund may invest in non-U.S. companies, as well as in U.S. companies
with some international business, it is subject to the risks associated with
international investing.
The fund's shares will rise and fall in value and there is a risk that you could
lose money by investing in the fund. Also, the fund cannot be certain that it
will achieve its goal. Finally, fund shares are not bank deposits and are not
guaranteed, endorsed or insured by any financial institution, government entity
or the FDIC.
Information on other securities and risks appears on page 20.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
<PAGE>
3
----
[begin sidebar]
[magnifying glass graphic]
Diversification and Stock Selection
Diversification describes a fund's exposure to particular securities, or to
particular types of securities. For example, a fund that invests in bonds and in
stocks of a variety of companies is generally more diversified than a fund that
invests only in large company stocks. Similarly, a fund that invests in a large
number of different stocks is generally more diversified than a fund that
invests in fewer stocks.
Investment professionals consider diversification to be one indication of the
potential risks and rewards of investing in a particular fund. While a portfolio
investing in a large number of stocks is less vulnerable to the impact of an
unsuccessful investment, it also benefits less from a single successful
investment. Although the fund is diversified, it seeks to outperform the broader
market by building a more concentrated portfolio using a moderate number of
selected stocks across a broad range of industries.
[end sidebar]
<PAGE>
4 Investor Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class descriptions begin on page 7
---------------------------------------------------
Shareholder Fees (% of offering price) Class A Class B(1) Class B Class C Class S
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Maximum front-end sales charge (load) 5.75 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) 0.00(a) 5.00 5.00 1.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (% of average net assets) Class A Class B(1) Class B Class C Class S
===================================================================================================================================
Management fee 0.65 0.65 0.65 0.65 0.65
- -----------------------------------------------------------------------------------------------------------------------------------
Distribution/service (12b-1) fees 0.25 1.00 1.00 1.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Other expenses 1.94 1.94 1.94 1.94 1.94
---- ---- ---- ---- ----
- -----------------------------------------------------------------------------------------------------------------------------------
Total annual fund operating expenses* 2.84 3.59 3.59 3.59 2.59
==== ==== ==== ==== ====
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
*Because some of the fund's expenses have been
subsidized or reduced through expense offset
arrangements, actual total operating expenses
for the prior year would have been: 1.25 2.00 2.00 2.00 1.00
The fund expects the expense subsidy to
continue through the current fiscal year,
although there is no guarantee that it will.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Example Year Class A Class B(1) Class B Class C Class S
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $846 $862/$362 $862/$362 $462/$362 $262
- -----------------------------------------------------------------------------------------------------------------------------------
3 $1,404 $1,400/$1,100 $1,400/$1,100 $1,100 $805
- -----------------------------------------------------------------------------------------------------------------------------------
5 $1,988 $2,059/$1,859 $2,059/$1,859 $1,859 $1,375
- -----------------------------------------------------------------------------------------------------------------------------------
10 $3,559 $3,688 $3,688 $3,854 $2,925
</TABLE>
(a) Except for investments of $1 million or more; see page 8.
<PAGE>
5
----
[magnifying glass graphic]
Understanding
Investor Expenses
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund:
o Shareholder Fees are costs that are charged to you directly. These fees are
not charged on reinvestments or exchanges.
o Annual Fund Operating Expenses are deducted from the fund's assets every year,
and are thus paid indirectly by all fund investors.
o The Example is designed to allow you to compare the costs of this fund with
those of other funds. It assumes that you invested $10,000 over the years
indicated, reinvested all distributions, earned a hypothetical 5% annual
return and paid the maximum applicable sales charges. For Class B(1) and Class
B shares, it also assumes the automatic conversion to Class A after eight
years.
Where two numbers are shown separated by a slash, the first one assumes you
sold all your shares at the end of the period, while the second assumes you
stayed in the fund. Where there is only one number, the costs would be the
same either way.
The figures in the Example assume full annual expenses, and would be lower if
they reflected the subsidy.
Investors should keep in mind that the example is for comparison purposes
only. The fund's actual performance and expenses may be higher or lower.
<PAGE>
6 The Fund continued
- --------------------------------------------------------------------------------
[thinker graphic]
Investment Management
The fund's investment manager is State Street Research & Management Company, One
Financial Center, Boston, MA 02111. The firm traces its heritage back to 1924
and the founding of one of America's first mutual funds. Today the firm has more
than $52 billion in assets under management (as of September 30, 1999),
including more than $17 billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.65% of fund average net assets,
annually) as compensation.
The investment manager is a subsidiary of Metropolitan Life Insurance Company.
F. Gardner Jackson, Jr. has had primary responsibility for the fund's day-to-day
portfolio management since its inception in March 1998. A senior vice president,
he has worked as an investment professional since 1971.
Brian O'Dell is the assistant portfolio manager, having assisted Mr. Jackson in
managing the fund since its inception in March 1998. He has worked as an
investment professional since 1991.
<PAGE>
Your Investment 7
- --------------------------------------------------------------------------------
[key graphic]
Opening an Account
The fund is intended primarily for professional athletes and associated persons
such as coaches, officials, agents, and relatives. Other investors who have an
investment management account with State Street Research & Management Company
are also eligible to purchase shares of the fund.
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To open an account without the help of a financial professional, please use the
instructions on these pages.
[checklist graphic]
Choosing a Share Class
The fund generally offers four share classes, each with its own sales charge and
expense structure: Class A, Class B(1), Class C and Class S. The fund also
offers Class B shares, but only to current Class B shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of State Street Research funds.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you may want to consider Class B(1) shares (if
investing for at least six years) or Class C shares (if investing for less than
six years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
brokers, you may be eligible to purchase Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
<PAGE>
8 Your Investment continued
- --------------------------------------------------------------------------------
Class A -- Front Load
o Initial sales charge of 5.75% or less
o Lower sales charges for larger investments; see sales charge schedule at right
o Lower annual expenses than Class B(1) or Class C shares because of lower
distribution/service (12b-1) fee of 0.25%
Class B(1) -- Back Load
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within six years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Class B -- Back Load
o Available only to current Class B shareholders; see page 9 for details
Class C -- Level Load
o No initial sales charge
o Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
o Lower deferred sales charge than Class B(1) shares
o Annual distribution/service (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do not
decrease
Class S -- Special Programs
o Available only through certain retirement accounts, advisory accounts of the
investment manager and other special programs, including broker programs
through financial professionals with recordkeeping and other services; these
programs usually involve special conditions and separate fees (consult your
financial professional or your program materials)
o No sales charges of any kind
o No distribution/service (12b-1) fees; annual expenses are lower than other
share classes
Sales Charges
Class A -- Front Load
<TABLE>
<CAPTION>
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
================================================
<S> <C> <C>
Up to $50,000 5.75 6.10
- ------------------------------------------------
$50,000 - $100,000 4.50 4.71
- ------------------------------------------------
$100,000 - $250,000 3.50 3.63
- ------------------------------------------------
$250,000 - $500,000 2.50 2.56
- ------------------------------------------------
$500,000 - $1 million 2.00 2.04
- ------------------------------------------------
$1 million or more see below
</TABLE>
With Class A shares, you pay a sales charge when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) of up to 1% if you sell any shares within one year of
purchasing them. See "Other CDSC Policies" on page 10.
<PAGE>
9
----
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
Class B(1) -- Back Load
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- --------------------------------------------------------
<S> <C>
First year 5.00
- --------------------------------------------------------
Second year 4.00
- --------------------------------------------------------
Third year 3.00
- --------------------------------------------------------
Fourth year 3.00
- --------------------------------------------------------
Fifth year 2.00
- --------------------------------------------------------
Sixth year 1.00
- --------------------------------------------------------
Seventh or eighth year None
- --------------------------------------------------------
</TABLE>
With Class B(1) shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for six years or less, as described in the table above. See "Other
CDSC Policies" on page 10.
Class B(1) shares automatically convert to Class A shares after eight years;
Class A shares have lower annual expenses.
Class B -- Back Load
Class B shares are available only to current shareholders through reinvestment
of dividends and distributions or through exchanges from existing Class B
accounts of the State Street Research funds. Other investments made by current
Class B shareholders will be in Class B(1) shares.
With Class B shares, you are charged a "contingent deferred sales charge" (CDSC)
when you sell shares you have held for five years or less. The CDSC is a
percentage of net asset value at the time of purchase (or of sale, if lower) and
is deducted from your proceeds. When you sell shares in the first year after you
bought them, the CDSC is 5.00%; second year, 4.00%; third year, 3.00%; fourth
year, 3.00%; fifth year, 2.00%; sixth year or later, none. See "Other CDSC
Policies" on page 10.
Class B shares automatically convert to Class A shares after eight years.
Class C -- Level Load
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- ---------------------------------------------------------
<S> <C>
First year 1.00
- ---------------------------------------------------------
Second year or later None
- ---------------------------------------------------------
</TABLE>
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. See "Other CDSC
Policies" on page 10.
Class C shares currently have the same annual expenses as Class B(1) shares, but
never convert to Class A shares.
<PAGE>
10 Your Investment continued
- --------------------------------------------------------------------------------
Class S -- No Load
Special Programs
Class S shares have no sales charges.
Other CDSC Policies
The CDSC will be based on the net asset value of the shares at the time of
purchase (or sale, if lower). Any shares acquired through reinvestment are not
subject to the CDSC. There is no CDSC on exchanges into other State Street
Research funds, and the date of your initial investment will continue to be used
as the basis for CDSC calculations when you exchange. To ensure that you pay the
lowest CDSC possible, the fund will always use the shares with the lowest CDSC
to fill your sell requests.
The CDSC is waived on shares sold for participant initiated distributions from
State Street Research prototype retirement plans. In other cases, the CDSC is
waived on shares sold for mandatory retirement distributions or for
distributions because of disability or death. Consult your financial
professional or the State Street Research Service Center for more information.
[begin sidebar]
[magnifying glass graphic]
Understanding
Distribution/Service
Fees
As noted in the descriptions on pages 8 to 10, all share classes except Class S
have an annual distribution/service fee, also called a 12b-1 fee.
Under its current 12b-1 plan, the fund may pay certain distribution and service
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class.
Some of the 12b-1 fee is used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on page
11 shows how these professionals' compensation is calculated.
The fund may continue to pay 12b-1 fees even if the fund is subsequently closed
to new investors.
[end sidebar]
<PAGE>
11
----
[check graphic] Dealer Compensation
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions, annual fees
and other compensation. These are paid by the fund's distributor, using money
from sales charges, distribution/service (12b-1) fees and its other resources.
Brokers and agents may charge a transaction fee on orders of fund shares placed
directly through them. The distributor may pay its affiliate MetLife Securities,
Inc. additional compensation of up to 0.25% of certain sales or assets.
<TABLE>
<CAPTION>
Dealer Commissions (%) Class A Class B(1) Class B Class C Class S
=========================================================================================
<S> <C> <C> <C> <C> <C>
Initial Commission See below 4.00 4.00 1.00 0.00
- -----------------------------------------------------------------------------------------
Investments up to $50,000 5.00 -- -- -- --
- -----------------------------------------------------------------------------------------
$50,000 to $100,000 4.00 -- -- -- --
- -----------------------------------------------------------------------------------------
$100,000 to $250,000 3.00 -- -- -- --
- -----------------------------------------------------------------------------------------
$250,000 to $500,000 2.00 -- -- -- --
- -----------------------------------------------------------------------------------------
$500,000 to $1 million 1.75 -- -- -- --
- -----------------------------------------------------------------------------------------
First $1-3 million 1.00(a) -- -- -- --
- -----------------------------------------------------------------------------------------
Next $2 million 0.75(a) -- -- -- --
- -----------------------------------------------------------------------------------------
Next $2 million 0.50(a) -- -- -- --
- -----------------------------------------------------------------------------------------
Next $1 and above 0.25(a) -- -- -- --
-----------------------------------------------------------------------------------------
Annual fee 0.25 0.25 0.25 1.00 0.00
- ------------------------------------------------------------------------------------------
</TABLE>
Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider the sale of shares of the State Street Research
funds by the broker.
(a) If your financial professional declines this commission, the one-year CDSC
on your investment is waived.
<PAGE>
12 Buying and Selling Shares
- --------------------------------------------------------------------------------
[cash register graphic]
Policies for
Buying Shares
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
Minimum Initial Investments:
o $1,000 for accounts that use the Investamatic program(a)
o $2,000 for Individual Retirement Accounts(a)
o $2,500 for all other accounts
Minimum Additional Investments:
o $50 for any account
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Orders received thereafter will be executed the following day, at that
day's closing share price.
Wire Transactions Funds may be wired between 8:00 a.m. and 4:00 p.m. eastern
time. To make a same-day wire investment, please notify State Street Research by
12:00 noon of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. If the New York Stock Exchange closes before 4:00 p.m. eastern time,
you may be unable to make a same-day wire investment. Your bank may charge a fee
for wiring money.
(a) Except $500 during special promotional periods.
<PAGE>
Instructions for Buying Shares 13
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
To Open an Account To Add to an Account
- -------------------------------------------------------------------------------------------------------------
[briefcase Through a Consult your financial Consult your financial professional or your
graphic] Professional professional or your program program materials.
or Program materials.
- -------------------------------------------------------------------------------------------------------------
By Mail [mailbox Make your check payable to Fill out an investment slip or indicate the
graphic] "State Street Research fund name and account number on your check.
Funds." Forward the check and Make your check payable to "State Street
your application to State Research Funds." Forward the check and slip to
Street Research. State Street Research.
- -------------------------------------------------------------------------------------------------------------
[Capitol By Federal Call to obtain an account Call State Street Research to obtain a control
Building Funds Wire number and forward your number. Instruct your bank to wire funds to:
graphic] application to State Street o State Street Bank and Trust Company, Boston, MA
Research. Wire funds using o ABA: 011000028
the instructions at right. o BNF: fund name and share class you want to buy
o AC: 99029761
o OBI: your name and your account number
o Control: the number given to you by State
Street Research
- -------------------------------------------------------------------------------------------------------------
By [plug Verify that your bank is a Call State Street Research to verify that the
Electronic graphic] member of the ACH (Automated necessary bank information is on file for your
Funds Clearing House) system. account. If it is, you may request a transfer
Transfer Forward your application to with the same phone call. If not, please ask
(ACH) State Street Research. Please State Street Research to provide you with an
be sure to include the EZ Trader application.
appropriate bank information.
Call State Street Research to
request a purchase.
- -------------------------------------------------------------------------------------------------------------
[calendar By Forward your application, Call State Street Research to verify that
graphic] Investamatic with all appropriate sections Investamatic is in place on your account, or
completed, to State Street to request a form to add it. Investments are
Research, along with a check automatic once Investamatic is in place.
for your initial investment
payable to "State Street
Research Funds."
- -------------------------------------------------------------------------------------------------------------
By Exchange [exchange Call State Street Research or Call State Street Research or visit our Web
graphic] visit our Web site. site.
- -------------------------------------------------------------------------------------------------------------
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408 Internet www.ssrfunds.com
Call toll-free: 1-800-521-6548 (business days 8:00 a.m. - 8:00 p.m., eastern time)
</TABLE>
<PAGE>
14 Your Investment continued
- --------------------------------------------------------------------------------
[receipt graphic]
Policies for
Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
o you are selling more than $100,000 worth of shares
o the name or address on the account has changed within the last 30 days
o you want the proceeds to go to a name or address not on the account
registration
o you are transferring shares to an account with a different registration or
share class
o you are selling shares held in a corporate or fiduciary account; for these
accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Requests received thereafter, will be executed the following day, at that
day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) for those shares has been collected, you will
not receive the proceeds until your initial payment has cleared. This may take
up to 15 days after your purchase was recorded (in rare cases, longer). If you
open an account with shares purchased by wire, you cannot sell those shares
until your application has been processed.
<PAGE>
Instructions for Selling Shares 15
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
[briefcase Through a Consult your financial professional or your program materials.
graphic] Professional
or Program
- ----------------------------------------------------------------------------------------------------------
By Mail [mailbox Send a letter of instruction, an endorsed stock power or share certificates
graphic] (if you hold certificate shares) to State Street Research. Specify the
fund, the account number and the dollar value or number of shares. Be sure
to include all necessary signatures and any additional documents, as well
as signature guarantees if required (see facing page).
- ----------------------------------------------------------------------------------------------------------
[Capitol By Federal Check with State Street Research to make sure that a wire redemption
Building Funds Wire privilege, including a bank designation, is in place on your account. Once
graphic] this is established, you may place your request to sell shares with State
Street Research. Proceeds will be wired to your pre-designated bank
account. (See "Wire Transactions" on facing page.)
- ----------------------------------------------------------------------------------------------------------
By [plug Check with State Street Research to make sure that the EZ Trader feature,
Electronic graphic] including a bank designation, is in place on your account. Once this is
Funds established, you may place your request to sell shares with State Street
Transfer Research. Proceeds will be sent to your pre-designated bank account.
(ACH)
- ----------------------------------------------------------------------------------------------------------
[telephone By As long as the transaction does not require a written request (see facing
graphic] Telephone page), you or your financial professional can sell shares by calling State
Street Research. A check will be mailed to your address of record on the
following business day.
- ----------------------------------------------------------------------------------------------------------
By Exchange [exchange Read the prospectus for the fund into which you are exchanging. Call State
graphic] Street Research or visit our Web site.
- ----------------------------------------------------------------------------------------------------------
[calendar By See plan information on page 19.
graphic] Systematic
Withdrawal
Plan
- ----------------------------------------------------------------------------------------------------------
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408 Internet www.ssrfunds.com
Call toll-free: 1-800-521-6548 (business days 8:00 a.m. - 8:00 p.m., eastern time)
</TABLE>
<PAGE>
16 Your Investment continued
- --------------------------------------------------------------------------------
[policies graphic]
Account Policies
Telephone Requests When you open an account you automatically receive telephone
privileges, allowing you to place requests for your account by telephone. Your
financial professional can also use these privileges to request exchanges on
your account and, with your written permission, redemptions. For your
protection, all telephone calls are recorded.
As long as State Street Research takes certain measures to authenticate
telephone requests on your account, you may be held responsible for unauthorized
requests. Unauthorized telephone requests are rare, but if you want to protect
yourself completely, you can decline the telephone privilege on your
application. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class as your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
You must hold Class A shares of any fund for at least 30 days before you may
exchange them at net asset value for Class A shares of a different fund with a
higher applicable sales charge.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's exchange privilege and may refuse to accept
any exchange request, particularly those associated with "market timing"
strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or may deduct an annual maintenance fee (currently $18).
<PAGE>
17
----
The Fund's Business Hours The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are available
from 8:00 a.m. to 8:00 p.m. eastern time on these days.
Calculating Share Price
The fund calculates its net asset value every business day at the close of
regular trading on the New York Stock Exchange (but not later than 4:00 p.m.
eastern time). NAV is calculated by dividing the fund's net assets by the number
of its shares outstanding.
In calculating its NAV, the fund uses the last reported sale price or quotation
for portfolio securities. However, in cases where these are unavailable, or when
the investment manager believes that subsequent events have rendered them
unreliable, the fund may use fair-value estimates instead.
Because foreign securities markets are sometimes open on different days from
U.S. markets, there may be instances when the value of the fund's portfolio
changes on days when you cannot buy or sell fund shares.
Reinstating Recently Sold Shares
For 120 days after you sell shares, you have the right to "reinstate" your
investment by putting some or all of the proceeds into any currently available
State Street Research fund at net asset value. Any CDSC you paid on the amount
you are reinstating will be credited to your account. You may only use this
privilege once in any twelve-month period with respect to your shares of a given
fund.
Additional Policies Please note that the fund maintains additional policies and
reserves certain rights, including:
o Requirements for initial or additional investments, reinvestments, periodic
investment plans, retirement and employee benefit plans, sponsored
arrangements and other similar programs, may be changed from time to time
without further notice
o All orders to purchase shares are subject to acceptance by the fund
o At any time, the fund may change or discontinue its sales charge waivers and
any of its order acceptance practices, and may suspend the sale of its shares
o The fund may delay sending you redemption proceeds for up to seven days, or
longer if permitted by the SEC
o To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the State Street Research Service Center promptly
<PAGE>
18 Your Investment continued
- --------------------------------------------------------------------------------
[begin sidebar]
[magnifying glass graphic] Tax Considerations
Unless your investment is in a tax deferred account, you may want to avoid:
o investing a large amount in the fund close to the end of the fiscal year or
calendar year (if the fund makes a distribution, you will receive some of your
investment back as a taxable distribution)
o selling shares at a loss for tax purposes and investing in a substantially
identical investment within 30 days before or after that sale (such a
transaction is usually considered a "wash sale," and you will not be allowed
to claim a tax loss in the current year)
[end sidebar]
[Uncle Sam graphic]
Distributions and Taxes
Income and Capital Gains Distributions The fund typically distributes any net
income and net capital gains to shareholders after the end of the fund's fiscal
year, which is June 30. To comply with tax regulations, the fund may be required
to pay an additional income or capital gains distribution in December.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gain distributions you receive from the fund are taxable as
ordinary income. Distributions of long-term capital gains are generally taxable
as capital gains -- in most cases, at a different rate from those that apply
to ordinary income.
The tax you pay on a given capital gains distribution generally depends on how
long the fund has held the portfolio securities it sold. It does not depend on
how long you have owned your fund shares or whether you reinvest your
distributions.
<PAGE>
19
----
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
Backup Withholding By law, the fund must withhold 31% of your distributions and
proceeds if you have not provided complete, correct taxpayer information.
[shaking hands graphic]
Investor Services
Investamatic Program Use Investamatic to set up regular automatic investments in
the fund from your bank account. You determine the frequency and amount of your
investments.
Systematic Withdrawal Plan This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 12% of your fund assets a year (minimum $50 per
withdrawal) without incurring any contingent deferred sales charges. Certain
terms and minimums apply.
EZTrader This service allows you to purchase or sell fund shares over the
telephone through the ACH (Automated Clearing House) system.
Dividend Allocation Plan This plan automatically invests your distributions from
the fund into another fund of your choice, without any fees or sales charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.
Retirement Plans State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
Call 1-800-521-6548 for information on any of the services described above.
<PAGE>
20 Other Information
- --------------------------------------------------------------------------------
[stock certificates graphic]
Other Securities
and Risks
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 1. Below are brief
descriptions of other securities and practices, along with their associated
risks.
Restricted and Illiquid Securities Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and price.
Some of these securities are new and complex, and trade only among institutions;
the markets for these securities are still developing, and may not function as
efficiently as established markets. Owning a large percentage of restricted and
illiquid securities could hamper the fund's ability to raise cash to meet
redemptions. Also, because there may not be an established market price for
these securities, the fund may have to estimate their value, which means that
their valuation (and, to a much smaller extent, the valuation of the fund) may
have a subjective element.
Foreign Investments Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable information and fluctuations in currency exchange rates.
These risks are usually higher in less developed countries. The fund may use
foreign currencies and related instruments to hedge its foreign investments.
In addition, foreign securities may be more difficult to resell and the markets
for them less efficient than for comparable U.S. securities. Even where a
foreign security increases in price in its local currency, the appreciation may
be diluted by the negative effect of exchange rates when the security's value is
converted to U.S. dollars. Foreign withholding taxes also may apply and errors
and delays may occur in the settlement process for foreign securities.
<PAGE>
21
----
International Exposure Many U.S. companies in which the fund may invest generate
significant revenues and earnings from abroad. As a result, these companies and
the prices of their securities may be affected by weaknesses in global and
regional economies and the relative value of foreign currencies to the U.S.
dollar. These factors, taken as a whole, could adversely affect the price of
fund shares.
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from another security, indices or
currencies. The fund may use certain derivatives for hedging (attempting to
offset a potential loss in one position by establishing an interest in an
opposite position). This includes the use of currency-based derivatives for
hedging its positions in foreign securities. The fund may also use certain
derivatives for speculation (investing for potential income or capital gain).
While hedging can guard against potential risks, it adds to the fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected.
The main risk with derivatives is that some types can amplify a gain or loss,
potentially earning or losing substantially more money than the actual cost of
the derivative.
With some derivatives, whether used for hedging or speculation, there is also
the risk that the counterparty may fail to honor its contract terms, causing a
loss for the fund.
When-issued Securities The fund may invest in securities prior to their date of
issue. These securities could fall in value by the time they are actually
issued, which may be any time from a few days to over a year.
Securities Lending The fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the fund could lose money.
Short-term Trading While the fund ordinarily does not trade securities for
short-term profits, it will sell any
<PAGE>
22 Other Information continued
- --------------------------------------------------------------------------------
security at the time it believes best, which may result in short-term trading.
Short-term trading can increase the fund's transaction costs, and may increase
your tax liability.
Bonds The value of any bonds held by the fund is likely to decline when interest
rates rise; this risk is greater for bonds with longer maturities. A less
significant risk is that a bond issuer could default on principal or interest
payments, causing a loss for the fund. However, junk bonds (those in rating
categories below BBB/Baa) have a higher risk of default than investment grade
bonds, and their market prices can be more volatile.
Defensive Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the fund does this, it is not pursuing its goal.
Year 2000 The investment manager does not currently anticipate that computer
problems related to the year 2000 will have a material effect on the fund.
However, there can be no assurances in this area, including the possibility that
year 2000 computer problems could negatively affect communication systems,
investment markets or the economy in general.
<PAGE>
Financial Highlights 23
- --------------------------------------------------------------------------------
These highlights are intended to help you understand the fund's performance
since its inception. The information in these tables has been audited by
PricewaterhouseCoopers LLP, the fund's independent accountants. Their report and
the fund's financial statements are included in the fund's annual report, which
is available upon request. Total return figures assume reinvestment of all
distributions.
<TABLE>
<CAPTION>
Class A Class B(1) Class B
------------------------------------------------------------
Years ended Period Ended Years ended
June 30 June 30 June 30
Per Share Data 1998(a)(b) 1999(b) 1999(b)(f) 1998(a)(b) 1999(b)
==============================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 7.00 7.36 8.34 7.00 7.34
----- ----- ----- ----- -----
Net investment income (loss) ($)* 0.00 (0.03) (0.05) (0.01) (0.09)
Net realized and unrealized gain
on investments ($) 0.36 1.97 0.91 0.35 1.95
----- ----- ----- ----- -----
- ----------------------------------------------------------------------------------------------
Total from investment operations ($) 0.36 1.94 0.86 0.34 1.86
----- ----- ----- ----- -----
- ----------------------------------------------------------------------------------------------
Dividend from net investment income ($) -- (0.01) -- -- --
- ----------------------------------------------------------------------------------------------
Total distributions ($) -- (0.01) -- -- --
- ----------------------------------------------------------------------------------------------
Net asset value, end of year ($) 7.36 9.29 9.20 7.34 9.20
===== ===== ===== ===== =====
- ----------------------------------------------------------------------------------------------
Total return (%)(c) 5.14(d) 26.32 10.31(d) 4.86(d) 25.34
- ----------------------------------------------------------------------------------------------
Ratios/Supplemental Data
==============================================================================================
Net assets at end of year ($ thousands) 797 2,336 634 530 795
- ----------------------------------------------------------------------------------------------
Expense ratio (%)* 1.25(e) 1.25 2.00(e) 2.00(e) 2.00
- ----------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)* 0.25(e) (0.41) (1.27)(e) (0.44)(e) (1.12)
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 30.76 141.92 141.92 30.76 141.92
- ----------------------------------------------------------------------------------------------
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.07 0.06 0.08 0.07 0.15
</TABLE>
<TABLE>
<CAPTION>
Class C Class S
------------------------------------------
Years ended Years ended
June 30 June 30
Per Share Data 1998(a)(b) 1999(b) 1998(a)(b) 1999(b)
===================================================================================
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 7.00 7.34 7.00 7.36
----- ----- ---- -----
Net investment income (loss) ($)* (0.01) (0.09) 0.01 (0.01)
Net realized and unrealized gain
on investments ($) 0.35 1.96 0.35 1.97
----- ----- ---- -----
- -----------------------------------------------------------------------------------
Total from investment operations ($) 0.34 1.87 0.36 1.96
----- ----- ---- -----
- -----------------------------------------------------------------------------------
Dividend from net investment income ($) -- -- -- (0.01)
- -----------------------------------------------------------------------------------
Total distributions ($) -- -- -- (0.01)
- -----------------------------------------------------------------------------------
Net asset value, end of year ($) 7.34 9.21 7.36 9.31
===== ===== ==== =====
- -----------------------------------------------------------------------------------
Total return (%)(c) 4.86(d) 25.48 5.14(d) 26.62
- -----------------------------------------------------------------------------------
Ratios/Supplemental Data
===================================================================================
Net assets at end of year ($ thousands) 525 673 8,070 14,343
- -----------------------------------------------------------------------------------
Expense ratio (%)* 2.00(e) 2.00 1.00(e) 1.00
- -----------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)* (0.43)(e) (1.12) 0.46(e) (0.14)
- -----------------------------------------------------------------------------------
Portfolio turnover rate (%) 30.76 141.92 30.76 141.92
- -----------------------------------------------------------------------------------
*Reflects voluntary reduction of expense
per share of these amounts ($) 0.07 0.16 0.06 0.13
</TABLE>
(a) March 27, 1998 (commencement of operations) to June 30, 1998.
(b) Per-share figures have been calculated using the average shares method.
(c) 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 reduced the fund's expenses.
(d) Not annualized.
(e) Annualized.
(f) January 1, 1999 (commencement of share class) to June 30, 1999
<PAGE>
24 Board of Trustees
- --------------------------------------------------------------------------------
[column graphic]
The Board of Trustees is responsible for the operation of the fund. They
establish the fund's major policies, review investments, and provide guidance to
the investment manager and others who provide services to the fund. The Trustees
have diverse backgrounds and substantial experience in business and other areas.
Ralph F. Verni
Chairman of the Board, President,
Chief Executive Officer and Director,
State Street Research & Management Company
Bruce R. Bond
Chairman of the Board, Chief Executive
Officer and President,
PictureTel Corporation
Steve A. Garban
Former Senior Vice President for Finance
and Operations and Treasurer,
The Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the Board
and Chief Financial Officer,
St. Regis Corp.
Dean O. Morton
Former Executive Vice President,
Chief Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and Public
Management, George Washington
University; former Member of the Board of
Governors of the Federal Reserve System
and Chairman and Commissioner of the
Commodity Futures Trading Commission
Toby Rosenblatt
President, Founders Investment Ltd.,
President, The Glen Ellen Company
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
<PAGE>
Notes 25
- --------------------------------------------------------------------------------
<PAGE>
For Additional Information
- --------------------------------------------------------------------------------
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
<TABLE>
<CAPTION>
Ticker Symbols
=======================================
<S> <C>
Class A (proposed) SAAFX
- ---------------------------------------
Class B(1) (proposed) SAFPX
- ---------------------------------------
Class B (proposed) SBAFX
- ---------------------------------------
Class C (proposed) SCAFX
- ---------------------------------------
Class S (proposed) SSAFX
- ---------------------------------------
</TABLE>
Statement of Additional Information (SAI) A supplement to the prospectus, the
SAI contains further information about the fund and its investment limitations
and policies. A current SAI for this fund is on file with the Securities and
Exchange Commission and is incorporated by reference (is legally part of this
prospectus).
[begin sidebar]
If you have questions about the fund or would like to request a free copy of the
current annual/semiannual report or SAI, contact State Street Research or your
financial professional.
[logo STATE STREET RESEARCH]
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
You can also obtain information about the fund, including the SAI and certain
other fund documents, on the Internet at www.sec.gov, in person at the SEC's
Public Reference Room in Washington, DC (telephone 1-800-SEC-0330) or by mail by
sending your request, along with a duplicating fee, to the SEC's Public
Reference Section, Washington, DC 20549-6009.
prospectus
- ---------------------------------------
SEC File Number: 811-4624
AT-191G-1100
Control Number: (exp 1199)SSR-LD
<PAGE>
Class J Shares Statement of Additional Information
for
State Street Research Athletes Fund
A series of State Street Research Equity Trust
April ___, 2000
This Statement of Additional Information relates to the Class J shares of
State Street Research Athletes Fund. The currently effective Statement of
Additional Information for the fund's Class A shares, Class B shares, Class B(1)
shares, Class C shares and Class S shares (the "U.S. SAI") is incorporated by
reference to this Statement of Additional Information for the fund's Class J
shares. This Statement of Additional Information consists of the following
information and the U.S. SAI.
In connection with an offering of Class J shares of the Athletes Fund in
Japan, the Fund has adopted the following non-fundamental operating policies
(which may be changed without shareholder approval). These non-fundamental
policies will remain in effect only so long as (i) they are required in
accordance with standards of the Japanese Securities Dealers Association and
(ii) shares of the Fund are being offered in Japan.
1. The Fund will not borrow money in an amount which would cause, at the
time of such borrowing, the aggregate amount of borrowing by the Fund
to exceed 10% of the value of the Fund's total assets; and
2. The Fund may not acquire more than 50% of the outstanding shares of
any issuer together with other mutual funds managed by State Street
Research & Management Company, provided this provision shall not apply
to the fund's investment in shares of such other funds; and
3. The Fund may not purchase any security or enter into a repurchase
agreement if as a result more than 15% of its net assets would be
invested in securities that are illiquid (including repurchase
agreements not entitling the holder to payment of principal and
interest within seven days); and
4. The Fund may not sell, purchase or loan securities (excluding shares
in the Fund) or grant or receive a loan or loans to or from the
adviser, corporate and domicilary agent, or paying agent, the
distributors and the authorized agents or any of the directors,
officers or employees or any of their major shareholders (meaning a
shareholder who holds in his own or other name (as well as a nominee's
name), more than 10% of the total issued and outstanding shares of
stock of such company) acting as principal, or for their own account,
unless the transaction is made within the other restrictions set forth
above and either (i) at a price determined by current publicly
available quotations, or (ii) at competitive prices or interest rates
prevailing from time to time on internationally recognized money
markets; and
5. The Fund may not purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (for the purpose of restriction, escrow or custodian
receipts or letters, margin or safekeeping accounts, or similar
arrangements used in the industry in connection with the trading of
futures, options and forward commitments are not deemed to involve the
use of margin).
<PAGE>
If any of the foregoing standards shall, at any time when shares of the
Athletes Fund are being offered for subscription in Japan or thereafter, no
longer be required in accordance with the standards of the Japanese Securities
Dealers Association, then such standards shall no longer apply.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
STATE STREET RESEARCH ALPHA FUND
STATE STREET RESEARCH ARGO FUND
STATE STREET RESEARCH GLOBAL RESOURCES FUND
STATE STREET RESEARCH ATHLETES FUND
Series of State Street Research Equity Trust
November 1, 1999
This Statement of Additional Information is divided into three
sections. Section One contains definitions that are used in the Statement of
Additional Information. Section Two contains information which is specific to
each fund identified above. Section Three contains information which generally
is shared by certain mutual funds of the State Street Research complex,
including the funds specified above.
The Statement of Additional Information is not a Prospectus. It should
be read in conjunction with current Prospectuses of each fund specified above.
The date of the current prospectus of each fund specified above is:
<TABLE>
<S> <C>
State Street Research Alpha Fund November 1, 1999
State Street Research Argo Fund November 1, 1999
State Street Research Global Resources Fund November 1, 1999
State Street Research Athletes Fund November 1, 1999
</TABLE>
Each Prospectus may be obtained without charge from State Street
Research Investment Services, Inc., One Financial Center, Boston, Massachusetts
02111-2690 or by calling 1-800-562-0032.
Financial statements for each fund specified above, as of and for the
most recently completed fiscal year are included in its Annual Report to
Shareholders for that year. Such financial statements include the Schedule of
the Investment Portfolio, Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets, including any notes thereto,
Financial Highlights, Report of Independent Accountants and Management's
Discussion of Fund Performance. Such financial statements are hereby
incorporated by reference from the following Annual Reports. Shareholder reports
are available without charge upon request. For more information, call the State
Street Research Service Center at 1- 800-562-0032.
<TABLE>
<CAPTION>
EDGAR
Fund Fiscal Year Ended Accession Number
- ---- ----------------- ----------------
<S> <C> <C>
State Street Research Alpha Fund June 30, 1999 0000950146-99-001481
State Street Research Argo Fund June 30, 1999 0000950146-99-001481
State Street Research Global Research Fund June 30, 1999 0000950146-99-001481
State Street Research Athletes Fund June 30, 1999 0000950146-99-001481
</TABLE>
Control Number: (EXP01100) SSR-LD SSR-494G-1199
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION I....................................................................................................I, 1-1
Definitions.........................................................................................I, 1-1
SECTION II..................................................................................................II, 1-1
1. STATE STREET RESEARCH ALPHA FUND..........................................................II, 1-1
A. The Fund.........................................................................II, 1-1
B. Investment Objective.............................................................II, 1-1
C. Fundamental and Nonfundamental Restrictions......................................II, 1-1
D. Restricted Securities............................................................II, 1-4
E. Foreign Investments..............................................................II, 1-4
F. Industry Classifications.........................................................II, 1-5
G. Control Persons and Principal Holders of Securities..............................II, 1-6
H. Trustee Compensation.............................................................II, 1-8
I. Investment Advisory Fee..........................................................II, 1-9
J. Portfolio Turnover...............................................................II, 1-9
K. Brokerage Commissions............................................................II, 1-9
L. Sales Charges on Shares.........................................................II, 1-10
M. Rule 12b-1 Fees.................................................................II, 1-11
N. Performance.....................................................................II, 1-13
2. STATE STREET RESEARCH ARGO FUND...........................................................II, 2-1
A. The Fund.........................................................................II, 2-1
B. Investment Objective.............................................................II, 2-1
C. Fundamental and Nonfundamental Restrictions......................................II, 2-1
D. Restricted Securities............................................................II, 2-4
E. Foreign Investments..............................................................II, 2-4
F. Industry Classifications.........................................................II, 2-4
G. Control Persons and Principal Holders of Securities..............................II, 2-6
H. Trustee Compensation.............................................................II, 2-7
I. Investment Advisory Fee..........................................................II, 2-7
J. Portfolio Turnover...............................................................II, 2-8
K. Brokerage Commissions............................................................II, 2-8
L. Sales Charges on Shares..........................................................II, 2-9
M. Rule 12b-1 Fees.................................................................II, 2-10
N. Performance.....................................................................II, 2-11
3. STATE STREET RESEARCH GLOBAL RESOURCES FUND...............................................II, 3-1
A. The Fund.........................................................................II, 3-1
B. Investment Objective.............................................................II, 3-1
C. Fundamental and Nonfundamental Restrictions......................................II, 3-1
D. Restricted Securities............................................................II, 3-4
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
E. Foreign Investments..............................................................II, 3-4
F. Transactions in Precious Metals..................................................II, 3-5
G. Industry Classifications.........................................................II, 3-5
H. Control Persons and Principal Holders of Securities..............................II, 3-5
I. Trustee Compensation.............................................................II, 3-6
J. Investment Advisory Fee..........................................................II, 3-7
K. Portfolio Turnover...............................................................II, 3-8
L. Brokerage Commissions............................................................II, 3-8
M. Sales Charges on Shares..........................................................II, 3-9
N. Rule 12b-1 Fees.................................................................II, 3-10
O. Performance.....................................................................II, 3-11
4. STATE STREET RESEARCH ATHLETES FUND.......................................................II, 4-1
A. The Fund.........................................................................II, 4-1
B. Investment Objective.............................................................II, 4-1
C. Fundamental and Nonfundamental Restrictions......................................II, 4-1
D. Restricted Securities............................................................II, 4-4
E. Foreign Investments..............................................................II, 4-4
F. Industry Classifications.........................................................II, 4-4
G. Control Persons and Principal Holders of Securities..............................II, 4-6
H. Trustee Compensation.............................................................II, 4-7
I. Investment Advisory Fee..........................................................II, 4-7
J. Portfolio Turnover...............................................................II, 4-8
K. Brokerage Commissions............................................................II, 4-8
L. Sales Charges on Shares..........................................................II, 4-9
M. Rule 12b-1 Fees.................................................................II, 4-10
N. Performance.....................................................................II, 4-11
SECTION III...................................................................................................III-1
A. Additional Information Concerning Investment Restrictions, Certain Risks and
Investment Techniques.......................................................................III-1
B. Debt Instruments and Permitted Cash Investments............................................III-13
C. The Trusts, the Trustees and Officers and Fund Shares......................................III-22
D. Investment Advisory Services...............................................................III-31
E. Purchase and Redemption of Shares..........................................................III-32
F. Shareholder Accounts.......................................................................III-39
G. Net Asset Value............................................................................III-44
H. Portfolio Transactions.....................................................................III-45
I. Certain Tax Matters........................................................................III-48
J. Distribution of Fund Shares................................................................III-52
K. Calculation of Performance Data............................................................III-55
L. Custodian..................................................................................III-58
M. Independent Accountants....................................................................III-58
N. Financial Statements.......................................................................III-58
</TABLE>
(ii)
<PAGE>
SECTION I
Definitions
Each of the following terms used in this Statement of Additional
Information has the meaning set forth below.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Distributor" means State Street Research Investment Services, Inc., One
Financial Center, Boston, Massachusetts 02111-2690.
"Investment Manager" means State Street Research & Management Company, One
Financial Center, Boston, Massachusetts 02111-2690.
"Metropolitan" means Metropolitan Life Insurance Company.
"NYSE" means the New York Stock Exchange, Inc.
"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 the 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.
I, 1-1
<PAGE>
SECTION II
1. STATE STREET RESEARCH ALPHA FUND
The information in this part 1 of Section II relates only to State
Street Research Alpha Fund (the "Alpha Fund"). For information on other funds,
see the Table of Contents.
A. The Fund
The Fund was organized in 1986 as a separate series of State Street
Research Equity Trust, a Massachusetts business trust (the "Trust"). A "series"
is a separate pool of assets of the Trust which is separately managed and may
have a different investment objective and different investment policies from the
objective and policies of another series. The Trust currently is comprised of
the following series: State Street Research Alpha Fund, State Street Research
Argo Fund (formerly State Street Research Equity Investment Fund), State Street
Research Global Resources Fund and State Street Research Athletes Fund.
The Fund is an "open-end" management investment company and is a
"diversified company" as those terms are defined in the 1940 Act. Among other
things, a diversified fund must, with respect to 75% of its total assets, not
invest more than 5% of its total assets in any one issuer.
B. Investment Objective
The investment objective of State Street Research Alpha Fund is a
fundamental policy and may only be changed by the affirmative vote of a majority
of the outstanding voting securities of the Fund.
C. Fundamental and Nonfundamental Restrictions
The Alpha Fund has adopted the following investment restrictions, and
those investment restrictions are either fundamental or not fundamental.
Fundamental restrictions may not be changed except by the affirmative vote of a
majority of the outstanding voting securities of the Alpha Fund. Restrictions
that are not fundamental may be changed without a shareholder vote.
II, 1-1
<PAGE>
Fundamental Investment Restrictions.
It is the Alpha Fund's policy:
(1) to invest at least 65% of its assets in equity securities and
equity convertibles into equity securities;
(2) not to purchase a security of any one issuer (other than
securities of other investment companies, and U.S. Government
securities as defined under the Investment Company Act of 1940,
as amended, and as interpreted from time to time by the
Securities and Exchange Commission) if such purchase would, with
respect to 75% of the Alpha Fund's total assets, cause more than
5% of the Alpha Fund's total assets to be invested in the
securities of such issuer or cause more than 10% of the
outstanding voting securities of such issuer to be held by the
Alpha Fund;
(3) not to issue senior securities;
(4) not to underwrite or participate in the marketing of securities
of other issuers, except (a) the Alpha 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 Alpha Fund's securities,
the Alpha Fund may be a selling shareholder in an offering or
deemed to be an underwriter under certain federal securities
laws;
(5) not to purchase or sell real estate in fee simple or real estate
mortgage loans;
(6) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Alpha 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,
futures contracts and options on futures contracts on securities,
securities indices, interest rates and currencies shall not be
deemed investments in commodities or commodities contracts;
(7) not to lend money; however, the Alpha Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (and enter into repurchase agreements with respect
thereto);
(8) not to conduct arbitrage transactions (provided that investments
in futures and options for hedging purposes shall not be deemed
arbitrage transactions);
II, 1-2
<PAGE>
(9) not to invest in oil, gas or other mineral exploration or
development programs (provided that the Alpha Fund may invest in
securities issued by or which are based, directly or indirectly,
on the credit of companies which invest in or sponsor such
programs);
(10) not to make any investment which would cause more than 25% of the
value of the Alpha Fund's total assets to be invested in the
securities of issuers principally engaged in any one industry, as
described in the Alpha Fund's Prospectus or Statement of
Additional Information, as amended from time to time; and
(11) 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 additional investments will be suspended during any
period when borrowings exceed 5% of the Alpha Fund's total
assets, and provided further that reverse repurchase agreements
shall not exceed 5% of the Alpha Fund's total assets. Reverse
repurchase agreements occur when the Alpha Fund sells money
market securities and agrees to repurchase such securities at an
agreed-upon price, date and interest payment. The Alpha 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.
II, 1-3
<PAGE>
Nonfundamental Investment Restrictions.
It is the Alpha 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 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 Alpha Fund's Prospectus and this Statement of Additional
Information;
(3) 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 Alpha 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); and
(4) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or except by
purchases in the open market involving only customary brokers'
commissions, or securities acquired as dividends or distributions
or in connection with a merger consolidation or similar
transaction or other exchange.
D. Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including Rule 144A Securities, if, as a result, more than 35% of
the Fund's total assets are invested in restricted securities, provided not more
than 10% of the Fund's total assets are invested in restricted securities other
than Rule 144A Securities.
E. Foreign Investments
The Fund reserves the right to invest without limitation in securities
of non-U.S. issuers directly, or indirectly in the form of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs"). Under current policy, however, the Fund limits such
investments, including ADRs, EDRs and GDRs, to a maximum of 35% of its total
assets
II, 1-4
<PAGE>
F. Industry Classifications
In determining how much of the portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. 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 and credit card receivables. "Asset-backed-Mortgages" includes
private pools of nongovernment backed mortgages.
<TABLE>
<S> <C> <C>
Autos & Transportation Consumer Discretionary Financial Services
- ---------------------- ---------------------- ------------------
Air Transport Advertising Agencies Banks & Savings and Loans
Auto Parts Casino/Gambling, Financial Data Processing
Automobiles Hotel/Motel Services & Systems
Miscellaneous Commercial Services Insurance
Transportation Communications, Media & Miscellaneous Financial
Railroad Equipment Entertainment Real Estate Investment
Railroads Consumer Electronics Trusts
Recreational Vehicles & Consumer Products Rental & Leasing Services:
Boats Consumer Services Commercial
Tires & Rubber Household Furnishings Securities Brokerage &
Truckers Leisure Time Services
Photography
Printing & Publishing Health Care
Restaurants -----------
Retail Drugs & Biotechnology
Shoes Health Care Facilities
Textile Apparel Health Care Services
Manufacturers Hospital Supply
Toys Service Miscellaneous
Consumer Staples
----------------
Beverages
Drug & Grocery Store
Chains
Foods
Household Products
Tobacco
</TABLE>
II, 1-5
<PAGE>
<TABLE>
<CAPTION>
Integrated Oils Other Energy Technology
- --------------- ------------ ----------
<S> <C> <C>
Oil: Integrated Domestic Gas Pipelines Communications Technology
Oil: Integrated International Miscellaneous Energy Computer Software
Offshore Drilling Computer Technology
Materials & Processing Oil and Gas Producers Electronics
- ---------------------- Oil Well Equipment & Electronics: Semi-
Agriculture Services Conductors/Components
Building & Construction Miscellaneous Technology
Chemicals
Containers & Packaging Producer Durables Utilities
Diversified Manufacturing ---------------- ---------
Engineering & Contracting Aerospace Miscellaneous Utilities
Services Electrical Equipment & Utilities: Cable TV & Radio
Fertilizers Components Utilities: Electrical
Forest Products Electronics: Industrial Utilities: Gas Distribution
Gold & Precious Metals Homebuilding Utilities:
Miscellaneous Material & Industrial Products Telecommunications
Processing Machine Tools Utilities: Water
Non-Ferrous Metals Machinery
Office Supplies Miscellaneous Equipment
Paper and Forest Products Miscellaneous Producer
Real Estate & Construction Durables
Steel Office Furniture & Business
Textile Products Pollution Control and
Environmental Services
Other Production Technology
- ----- Equipment
Trust Certificates -- Telecommunications
Government Related Equipment
Lending
Asset-backed--Mortgages
Asset-backed--Credit Card
Receivables
Miscellaneous
Multi-Sector Companies
Miscellaneous
Multi-Sector Companies
</TABLE>
G. Control Persons and Principal Holders of Securities
Trustees and Officers
The Trustees and principal officers of State Street Research Equity Trust
as a group owned approximately 1.3% of the Alpha Fund's outstanding Class A
shares and owned no shares of the Fund's outstanding Class B, Class B(1), Class
C or Class S shares. All information is as of July 31, 1999.
II, 1-6
<PAGE>
Other Persons
The following persons or entities were the record and/or beneficial
owners of the following approximate percentages of the Alpha Fund's outstanding
shares. Except as otherwise stated, the Alpha Fund believes that each named
record holder does not have beneficial ownership of such shares. All information
is as of July 31, 1999.
<TABLE>
<CAPTION>
Shareholder %
<S> <C> <C>
Class B(1) Merrill Lynch 10.8
Class B Merrill Lynch 18.1
Class C Merrill Lynch 43.7
Class S Chase Manhattan, Trustee 73.4
MetLife Defined 14.3
Contributions Group
</TABLE>
The full name and address of each of the above persons or entities are as
follows:
Merrill Lynch, Pierce, Fenner & Smith(b)
4800 Deerlake Drive East
Jacksonville, FL 32246
Chase Manhattan Bank, NA(a)
4 New York Plaza
New York, NY 10004
MetLife Defined Contribution Group
72 Eagle Rock Ave.
East Hanover, NJ 07936
- ----------------
(a) Chase Manhattan Bank, N.A. holds such shares as trustee under certain
employee benefit plans serviced by Metropolitan Life Insurance Company
("Metropolitan").
(b) The Fund believes that each named recordholder does not have beneficial
ownership of such 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 of that class.
II, 1-7
<PAGE>
H. Trustee Compensation
The Trustees of State Street Research Equity Trust were compensated as
follows:
<TABLE>
<CAPTION>
Total Total Compensation
Compensation From All State
Aggregate From All Street Research Funds
Compensation State Street and Metropolitan
From Alpha Research Funds Series Fund, Inc.
Name of Trustee Fund(b) Paid to Trustees (c) Paid to Trustees (d)
- --------------- ---------------- -------------------- --------------------
<S> <C> <C> <C>
Bruce R. Bond(a) $ 1,400 $ 0 $ 0
Steven A. Garban $ 4,500 $ 81,300 $ 110,300
Malcolm T. Hopkins $ 3,700 $ 69,700 $ 97,200
Dean O. Morton $ 4,500 $ 84,700 $ 110,700
Susan M. Phillips(a) $ 0 $ 12,145 $ 12,145
Toby Rosenblatt $ 3,500 $ 72,600 $ 72,600
Michael S. Scott Morton $ 4,825 $ 89,500 $ 115,500
Ralph F. Verni $ 0 $ 0 $ 0
</TABLE>
- ---------------
(a) Bruce Bond and Susan Phillips were elected as Trustees of State Street
Research Equity Trust on January 1, 1999 and September 14, 1999,
respectively, and therefore did not receive any compensation from the
Alpha Fund for the year ended December 31, 1998.
(b) For the Alpha Fund's fiscal year ended June 30, 1999. The Alpha Fund
does not provide any pension or retirement benefits for the Trustees.
(c) Includes compensation on behalf of all series of 11 investment
companies for which the Investment Manager serves as sole investment
adviser. The figure in this column is for the 12 months ended December
31, 1998.
(d) Includes compensation on behalf of all series of 11 investment
companies for which the Investment Manager serves as sole investment
adviser and all series of Metropolitan Series Fund, Inc. The primary
adviser to Metropolitan Series Fund, Inc. is Metropolitan Life
Insurance Company, which has retained State Street Research &
Management Company as sub-adviser to certain series of Metropolitan
Series Fund, Inc. The figure in this column includes compensation
relating to series of Metropolitan Series Fund, Inc. which are not
advised by State Street Research & Management Company. The figure is
for the 12 months ended December 31, 1998.
For more information on the Trustees and officers of State Street
Research Equity Trust, see Section III, C of this Statement of Additional
Information.
II, 1-8
<PAGE>
I. Investment Advisory Fee
The advisory fee payable monthly by the Alpha Fund to the Investment
Manager is computed as a percentage of the average of the value of the net
assets of the Alpha Fund as determined at the close of regular trading on the
NYSE on each day the NYSE is open for trading. 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 Alpha Fund.
The annual percentage rate: 0.65%.
<TABLE>
<CAPTION>
Fees Waived
Advisory Fees Paid or Expenses Assumed
<S> <C> <C>
Fiscal year ended June 30, 1999 $ 2,332,465 $ 161,385
Fiscal year ended June 30, 1998 $ 1,949,340 $ 51,193
Fiscal year ended June 30, 1997 $ 975,669 $ 181,305
</TABLE>
For more information on the investment advisory arrangements, see
Section III, D of this Statement of Additional Information.
J. Portfolio Turnover
The Alpha 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 Alpha Fund (excluding, for purposes of this
determination, securities the maturities of which as of the time of their
acquisition were one year or less).
<TABLE>
<CAPTION>
Portfolio Turnover Rates
<S> <C>
Fiscal year ended June 30, 1999 56.04%
Fiscal year ended June 30, 1998 52.99%
</TABLE>
For more information on portfolio turnover, see Section III, H of this
Statement of Additional Information.
K. Brokerage Commissions
Brokerage commissions paid by the Alpha Fund in secondary trading were
as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal year ended June 30, 1999 $ 964,720
Fiscal year ended June 30, 1998 $ 651,704
Fiscal year ended June 30, 1997 $ 362,454
</TABLE>
During and at the end of its most recent fiscal year, the Alpha Fund
held the securities of no entity that might be deemed to be a regular
broker-dealer of the Alpha Fund, as defined under the 1940 Act.
II, 1-9
<PAGE>
For more information on brokerage commissions, see Section III, H of
this Statement of Additional Information.
L. Sales Charges on Shares
Front-end Sales Charges (Class A)
<TABLE>
<CAPTION>
Retained by Distributor
After Reallowance of
Total Sales Charges Concessions to Dealers
<S> <C> <C>
Fiscal year ended June 30, 1999 $ 420,942 $ 55,547
Fiscal year ended June 30, 1998 $ 861,312 $ 105,756
Fiscal year ended June 30, 1997 $ 438,175 $ 54,328
</TABLE>
Contingent Deferred Sales Charges (Classes A, B(1), B and C)
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 1999 June 30, 1998 June 30, 1997
---------------------------- ----------------------------- ----------------------------
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 $ 365,395 $ 0 $ 755,556 $ 0 $ 383,847
Class B(1)* $ 1,236 $ 106,226 $ N/A $ N/A $ N/A $ N/A
Class B $ 378,752 $ 932,343 $ 95,196 $ 2,522,370 $ 68,306 $ 1,239,062
Class C $ 10,287 $ 86,846 $ 1,122 $ 147,587 $ 2,402 $ 50,310
</TABLE>
- --------------
*Class B(1) was introduced January 1, 1999.
For more information about sales charges, see Section III, J of this
Statement of Additional Information.
II, 1-10
<PAGE>
M. Rule 12b-1 Fees
The Fund has adopted plans of distribution pursuant to Rule 12b-1 under
the 1940 Act ("Distribution Plan(s)"). Under the Distribution Plans, the Fund
may engage, directly or indirectly, in financing any activities primarily
intended to result in the sale of shares of the Fund. Under the Distribution
Plans, the Fund provides the Distributor with a service fee at an annual rate of
0.25% on the average daily net assets of Class A, Class B(1), Class B and Class
C shares. The Fund also provides a distribution fee at an annual rate of 0.75%
on the average daily net assets of Class B(1), Class B and Class C shares. The
service and distribution fees are used to cover personal services and/or the
maintenance of shareholder accounts provided by the Distributor, brokers,
dealers, financial professionals or others, and sales, promotional and marketing
activities relating to the respective classes.
Under the Distribution Plan covering Class A, Class B and Class C
shares, the Fund's payments are intended to reimburse the Distributor for
expenditures incurred under the plan, and any unused payments are returnable to
the Fund.
Under the Distribution Plan covering Class B(1) shares, the Fund's
payments compensate the Distributor for services and expenditures incurred under
the plan, and none of the payments are returnable to the Fund.
During the fiscal year ended June 30, 1999, the Alpha Fund paid fees
under the Distribution Plan and the fees were used as set forth below. The
Distributor may have also used additional resources of its own for further
expenses.
II, 1-11
<PAGE>
<TABLE>
<CAPTION>
Class A Class B(1) Class B Class C
<S> <C> <C> <C> <C>
Advertising $ 0 $ 1,264 $ 16,787 $ 13,585
Printing and mailing of prospectuses to 0 342 2,493 2,771
other than current shareholders
Compensation to dealers 284,079 9,196 1,316,025 176,509
Compensation to sales personnel 0 3,938 38,919 35,543
Interest 0 0 0 0
Carrying or other financing charges 0 0 0 0
Other expenses: marketing; general 0 4,437 55,666 29,528
-------- -------- ---------- -----------
Total Fees $284,079 $ 19,177 $ 153,626 $ 257,936
Difference* ======== ======== ========== ===========
$ 113,736
</TABLE>
- ---------------
*Net fees result from the timing of expenditures and are used against future
expenses.
For more information about Rule 12b-1 fees, see Section III, J of this
Statement of Additional Information.
II, 1-12
<PAGE>
N. Performance
All calculations of performance data in this section reflect voluntary
measures, if any, by the Investment Manager or its affiliates to reduce fees or
expenses relating to the Alpha Fund.
Performance data for a specified class includes periods prior to the
adoption of class designations on June 1, 1993, when designations were assigned
based on the pricing applicable to shares sold thereafter. The application of
the additional Rule 12b-1 fees, if any, of up to 1% will, for periods after June
1, 1993, adversely affect Fund performance results. Thus, performance data or
rankings for a given class of shares should be interpreted carefully.
Performance for Class B(1) shares reflects Class B performance through December
31, 1998. Class B(1) shares were introduced on January 1, 1999.
Standard Total Return
The average annual total return ("standard total return") of each class
of shares of the Alpha Fund was as follows:
<TABLE>
<CAPTION>
Ten Years Five Years One Year
Ended Ended Ended
June 30, 1999 June 30, 1999 June 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Class A 12.79% 16.95% -5.79%
Class B(1) 12.98% 17.27% -5.60%
Class B 12.99% 17.30% -5.50%
Class C 12.99% 17.50% -1.72%
Class S 13.68% 18.68% 0.15%
</TABLE>
Nonstandard Total Return
The nonstandard total return of each class of shares of the Alpha Fund
for the six months ended June 30, 1999, without taking sales charges into
account, was as follows:
<TABLE>
<S> <C>
Class A 6.31%
Class B(1) 5.81%
Class B 5.93%
Class C 5.94%
Class S 6.45%
</TABLE>
Yield
The annualized yield of each class of shares of the Alpha Fund, based
on the month of June 1999, was as follows:
II, 1-13
<PAGE>
<TABLE>
<S> <C>
Class A 1.35%
Class B(1) 0.52%
Class B 0.51%
Class C 0.52%
Class S 1.74%
</TABLE>
Distribution Rates
The distribution rate of each class of shares of the Alpha Fund, based
on the month of June 1999, was as follows:
<TABLE>
<S> <C>
Class A 1.67%
Class B(1) 1.40%
Class B 1.02%
Class C 1.02%
Class S 2.03%
</TABLE>
For more information about performance, see Section III, K of this
Statement of Additional Information.
II, 1-14
<PAGE>
2. STATE STREET RESEARCH ARGO FUND
The information in this part 2 of Section II relates only to State
Street Research Argo Fund (the "Argo Fund"). For information on other Funds, see
the Table of Contents.
A. The Fund
The Fund was organized in 1986 as a separate series of State Street
Research Equity Trust, a Massachusetts business trust (the "Trust"). A "series"
is a separate pool of assets of the Trust which is separately managed and may
have a different investment objective and different investment policies from the
objective and policies of another series. The Trust currently is comprised of
the following series: State Street Research Alpha Fund, State Street Research
Argo Fund (formerly State Street Research Equity Investment Fund), State Street
Research Global Resources Fund and State Street Research Athletes Fund.
The Fund is an "open-end" management investment company and is a
"diversified company" as those terms are defined in the 1940 Act. Among other
things, a diversified fund must, with respect to 75% of its total assets, not
invest more than 5% of its total assets in any one issuer.
B. Investment Objective
The investment objective of State Street Research Argo Fund is a
fundamental policy and may only be changed by the affirmative vote of a majority
of the outstanding voting securities of the Fund.
C. Fundamental and Nonfundamental Restrictions
The Argo Fund has adopted the following investment restrictions, and
those investment restrictions are either fundamental or not fundamental.
Fundamental restrictions may not be changed except by the affirmative vote of a
majority of the outstanding voting securities of the Argo Fund. Restrictions
that are not fundamental may be changed without a shareholder vote.
Fundamental Investment Restrictions.
It is the Argo Fund's policy:
(1) to invest at least 65% of its assets in equity securities and
equity convertibles into equity securities;
II, 2-1
<PAGE>
(2) not to purchase a security of any one issuer (other than
securities of other investment companies, and U.S. Government
securities as defined under the Investment Company Act of 1940,
as amended, and as interpreted from time to time by the
Securities and Exchange Commission) if such purchase would, with
respect to 75% of the Argo Fund's total assets, cause more than
5% of the Argo Fund's total assets to be invested in the
securities of such issuer or cause more than 10% of the
outstanding voting securities of such issuer to be held by the
Argo Fund;
(3) not to issue senior securities;
(4) not to underwrite or participate in the marketing of securities
of other issuers, except (a) the Argo 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 Argo Fund's securities,
the Argo Fund may be a selling shareholder in an offering or
deemed to be an underwriter under certain federal securities
laws;
(5) not to purchase or sell real estate in fee simple or real estate
mortgage loans;
(6) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Argo 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,
futures contracts and options on futures contracts on securities,
securities indices, interest rates and currencies shall not be
deemed investments in commodities or commodities contracts;
(7) not to lend money; however, the Argo Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (and enter into repurchase agreements with respect
thereto);
(8) not to conduct arbitrage transactions (provided that investments
in futures and options for hedging purposes shall not be deemed
arbitrage transactions);
(9) not to invest in oil, gas or other mineral exploration or
development programs (provided that the Argo Fund may invest in
securities issued by or which are based, directly or indirectly,
on the credit of companies which invest in or sponsor such
programs);
(10) not to make any investment which would cause more than 25% of the
value of the Argo Fund's total assets to be invested in the
securities of issuers principally
II, 2-2
<PAGE>
engaged in any one industry, as described in the Argo Fund's
prospectus or Statement of Additional Information, as amended
from time to time; and
(11) 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 additional investments will be suspended during any
period when borrowings exceed 5% of the Argo Fund's total assets,
and provided further that reverse repurchase agreements shall not
exceed 5% of the Argo Fund's total assets. Reverse repurchase
agreements occur when the Argo Fund sells money market securities
and agrees to repurchase such securities at an agreed-upon price,
date and interest payment. The Argo 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.
Nonfundamental Investment Restrictions.
It is the Argo 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 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;
(3) 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 Argo 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); and
(4) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or except by
purchases in the open market involving only customary brokers'
commissions, or securities acquired as
II, 2-3
<PAGE>
dividends or distributions or in connection with a merger
consolidation or similar transaction or other exchange.
D. Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including Rule 144A Securities, if, as a result, more than 35% of
the Fund's total assets are invested in restricted securities, provided not more
than 10% of the Fund's total assets are invested in restricted securities other
than Rule 144A Securities.
E. Foreign Investments
The Fund reserves the right to invest without limitation in securities
of non-U.S. issuers directly, or indirectly in the form of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs"). Under current policy, however, the Fund limits such
investments, including ADRs, EDRs and GDRs, to a maximum of 35% of its total
assets
F. Industry Classifications
In determining how much of the portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. 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 and credit card receivables. "Asset-backed-Mortgages" includes
private pools of nongovernment backed mortgages.
<TABLE>
<S> <C>
Autos & Transportation Consumer Discretionary
- ---------------------- ----------------------
Air Transport Advertising Agencies
Auto Parts Casino/Gambling,
Automobiles Hotel/Motel
Miscellaneous Commercial Services
Transportation Communications, Media &
Railroad Equipment Entertainment
Railroads Consumer Electronics
Recreational Vehicles & Consumer Products
Boats Consumer Services
Tires & Rubber Household Furnishings
Truckers Leisure Time
Photography
Printing & Publishing
Restaurants
</TABLE>
II, 2-4
<PAGE>
<TABLE>
<S> <C> <C>
Retail Materials & Processing Producer Durables
Shoes ---------------------- -----------------
Textile Apparel Agriculture Aerospace
Manufacturers Building & Construction Electrical Equipment &
Toys Chemicals Components
Consumer Staples Containers & Packaging Electronics: Industrial
- ---------------- Diversified Manufacturing Homebuilding
Beverages Engineering & Contracting Industrial Products
Drug & Grocery Store Serv. Machine Tools
Chains Fertilizers Machinery
Foods Forest Products Miscellaneous Equipment
Household Products Gold & Precious Metals Miscellaneous Producer
Tobacco Miscellaneous Materials & Durables
Processing Office Furniture & Business
Financial Services Non-Ferrous Metals Equipment
- ------------------ Office Supplies Pollution Control and
Banks & Savings and Loans Paper and Forest Products Environmental Services
Financial Data Processing Real Estate & Construction Production Technology
Services & Systems Steel Equipment
Insurance Textile Products Telecommunications
Miscellaneous Financial Equipment
Real Estate Investment Other
Trusts ----- Technology
Rental & Leasing Services: Trust Certificates -- ----------
Commercial Government Related Communications
Securities Brokerage & Lending Technology
Services Asset-backed-Mortgages Computer Software
Asset-backed-Credit Card Computer Technology
Health Care Receivables Electronics
- ----------- Miscellaneous Electronics: Semi-
Drugs & Biotechnology Multi-Sector Companies Conductors/Components
Health Care Facilities Miscellaneous Technology
Health Care Services Other Energy
Hospital Supply ------------ Utilities
Service Miscellaneous Gas Pipelines ---------
Miscellaneous Energy Miscellaneous Utilities
Integrated Oils Offshore Drilling Utilities: Cable TV & Radio
- --------------- Oil and Gas Producers Utilities: Electrical
Oil: Integrated Domestic Oil Well Equipment & Utilities: Gas distribution
Oil: Integrated International Services Utilities: Telecommunications
Utilities: Water
</TABLE>
II, 2-5
<PAGE>
G. Control Persons and Principal Holders of Securities
Trustees and Officers
The Trustees and principal officers of State Street Research Equity Trust
as a group owned less than 1% of the Argo Fund's outstanding Class A shares and
owned no shares of the Fund's outstanding Class B, Class B(1), Class C or Class
S shares. All information is as of July 31, 1999.
Other Persons
The following persons or entities were the record and/or beneficial
owners of the following approximate percentages of the Argo Fund's outstanding
shares. Except as otherwise stated, the Argo Fund believes that each named
record holder does not have beneficial ownership of such shares. All information
is as of July 31, 1999.
<TABLE>
<CAPTION>
Shareholder %
----------- -
<S> <C> <C>
Class C Merrill Lynch 25.8
Class S Chase Manhattan, Trustee 67.3
Bank of New York, 15.4
Cust. FBO AFM & EPW
Bank of New York, 6.6
Cust. Equity League
Pension Trust Fund
</TABLE>
The full name and address of each of the above persons or entities are as
follows:
Merrill Lynch, Pierce, Fenner & Smith(b)
4800 Deerlake Dr. East
Jacksonville, FL 32246
Chase Manhattan Bank, NA(a)(b)
4 New York Plaza
New York, NY 10004
Bank of New York(b)
52 William St.
New York, NY 10005
- --------------------------
(a) Chase Manhattan Bank and Banco de Ponce hold such shares as trustee
under certain employee benefit plans serviced by Metropolitan.
(b) The Fund believes that such entity does not have beneficial ownership
of such 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 of that class.
II, 2-6
<PAGE>
H. Trustee Compensation
The Trustees of State Street Research Equity Trust were compensated as
follows:
<TABLE>
<CAPTION>
Total Total Compensation
Compensation From All State
Aggregate From All Street Research Funds
Compensation State Street and Metropolitan
From Argo Research Funds Series Fund, Inc.
Name of Trustee Fund(b) Paid to Trustees (c) Paid to Trustees (d)
- --------------- ---------------- -------------------- --------------------
<S> <C> <C> <C>
Bruce R. Bond(a) $ 1,400 $ 0 $ 0
Steven A. Garban $ 4,500 $ 81,300 $ 110,300
Malcolm T. Hopkins $ 4,000 $ 69,700 $ 97,200
Dean O. Morton $ 4,500 $ 84,700 $ 110,700
Susan M. Phillips(a) 0 $ 12,145 $ 12,145
Toby Rosenblatt $ 3,500 $ 72,600 $ 72,600
Michael S. Scott Morton $ 4,700 $ 89,500 $ 115,500
Ralph F. Verni $ 0 $ 0 $ 0
</TABLE>
- ---------------
(a) Bruce Bond and Susan Phillips were elected as Trustees of State Street
Research Equity Trust on January 1, 1999 and September 14, 1999,
respectively, and therefore did not receive any compensation from the
Argo Fund for the year ended December 31, 1998.
(b) For the Argo Fund's fiscal year ended June 30, 1999. The Argo Fund does
not provide any pension or retirement benefits for the Trustees.
(c) Includes compensation on behalf of all series of 11 investment
companies for which the Investment Manager serves as sole investment
adviser. The figure in this column is for the 12 months ended December
31, 1998.
(d) Includes compensation on behalf of all series of 11 investment
companies for which the Investment Manager serves as sole investment
adviser and all series of Metropolitan Series Fund, Inc. The primary
adviser to Metropolitan Series Fund, Inc. is Metropolitan Life
Insurance Company, which has retained State Street Research &
Management Company as sub-adviser to certain series of Metropolitan
Series Fund, Inc. The figure in this column includes compensation
relating to series of Metropolitan Series Fund, Inc. which are not
advised by State Street Research & Management Company. The figure is
for the 12 months ended December 31, 1998.
For more information in the Trustees and officers of State Street
Research Equity Trust, see Section III, C of this Statement of Additional
Information.
I. Investment Advisory Fee
The advisory fee payable monthly by the Argo Fund to the Investment
Manager is computed as a percentage of the average of the value of the net
assets of the Argo Fund as determined at the close of regular trading on the
NYSE on each day the NYSE is open for
II, 2-7
<PAGE>
trading. 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 Argo Fund.
The annual percentage rate: 0.65%.
<TABLE>
<CAPTION>
Fees Waived
Advisory Fees Paid or Expenses Assumed
------------------ -------------------
<S> <C> <C>
Fiscal year ended June 30, 1999 $ 1,348,049 $ 102,408
Fiscal Year ended June 30, 1998 $ 1,286,894 $ 54,400
Fiscal Year ended June 30, 1997 $ 869,656 $ 202,837
</TABLE>
For more information on the investment advisory arrangements, see
Section III, D of this Statement of Additional Information.
J. Portfolio Turnover
The Argo 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 Argo Fund (excluding, for purposes of this
determination, securities the maturities of which as of the time of their
acquisition were one year or less).
<TABLE>
<CAPTION>
Portfolio Turnover Rates
<S> <C>
Fiscal year ended June 30, 1999 118.91%
Fiscal year ended June 30, 1998 81.53%
</TABLE>
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended June 30, 1999 was significantly higher than for the previous
year because of modifications made to streamline the portfolio and to add more
large-cap value stocks.
For more information on portfolio turnover, see Section III, H of this
Statement of Additional Information.
K. Brokerage Commissions
Brokerage commissions paid by the Argo Fund in secondary trading were
as follows:
<TABLE>
<S> <C>
Fiscal year ended June 30, 1999 $ 689,772
Fiscal year ended June 30, 1998 $ 334,414
Fiscal year ended June 30, 1997 $ 259,735
</TABLE>
During and at the end of its most recent fiscal year, the Argo Fund
held the securities of the no entity that might be deemed to be a regular
broker-dealer of the Argo Fund, as defined under the 1940 Act.
For more information on brokerage commissions, see Section III, H of
this Statement of Additional Information.
II, 2-8
<PAGE>
L. Sales Charges on Shares
Front-end Sales Charges (Class A)
<TABLE>
<CAPTION>
Retained by Distributor
After Reallowance of
Total Sales Charges Concessions to Dealers
------------------ -----------------------
<S> <C> <C>
Fiscal year ended June 30, 1999 $ 203,118 $ 26,029
Fiscal year ended June 30, 1998 $ 272,121 $ 33,460
Fiscal year ended June 30, 1997 $ 172,953 $ 21,636
</TABLE>
Contingent Deferred Sales Charges (Classes A, B(1), B and C)
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 1999 June 30, 1998 June 30, 1997
----------------------------- --------------------------- ---------------------------
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 $ 177,089 $ 0 $ 238,661 $ 0 $ 151,317
Class B(1)* $ 385 $ 60,521 $ N/A $ N/A $ N/A $ N/A
Class B $ 91,437 $ 351,865 $ 38,284 $ 642,387 $ 39,421 $ 297,680
Class C $ 273 $ 2,794 $ 71 $ 6,672 $ 0 $ 2,577
</TABLE>
- --------------
*Class B(1) was introduced January 1, 1999.
For more information about sales charges, see Section III, J of this
Statement of Additional Information.
II, 2-9
<PAGE>
M. Rule 12b-1 Fees
The Fund has adopted plans of distribution pursuant to Rule 12b-1 under
the 1940 Act ("Distribution Plan(s)"). Under the Distribution Plans, the Fund
may engage, directly or indirectly, in financing any activities primarily
intended to result in the sale of shares of the Fund. Under the Distribution
Plans, the Fund provides the Distributor with a service fee at an annual rate of
0.25% on the average daily net assets of Class A, Class B(1), Class B and Class
C shares. The Fund also provides a distribution fee at an annual rate of 0.75%
on the average daily net assets of Class B(1), Class B and Class C shares. The
service and distribution fees are used to cover personal services and/or the
maintenance of shareholder accounts provided by the Distributor, brokers,
dealers, financial professionals or others, and sales, promotional and marketing
activities relating to the respective classes.
Under the Distribution Plan covering Class A, Class B and Class C
shares, the Fund's payments are intended to reimburse the Distributor for
expenditures incurred under the plan, and any unused payments are returnable to
the Fund.
Under the Distribution Plan covering Class B(1) shares, the Fund's
payments compensate the Distributor for services and expenditures incurred under
the plan, and none of the payments are returnable to the Fund.
During the fiscal year ended June 30, 1999, the Argo Fund paid fees
under the Distribution Plans and the fees were used as set forth below. The
Distributor may have also used additional resources of its own for further
expenses.
II, 2-10
<PAGE>
<TABLE>
<CAPTION>
Class A Class B(1) Class B Class C
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Advertising $ 221 $ 895 $ 12,078 $ 1,047
Printing and mailing of prospectuses to 45 242 1,794 213
other than current shareholders
Compensation to dealers 179,558 4,662 407,213 11,004
Compensation to sales personnel 589 2,719 27,317 2,634
Interest 0 0 0 0
Carrying or other financing charges 0 0 0 0
Other expenses: marketing; general 499 2,772 33,968 2,109
----------- -------- --------- --------
Total Fees $ 180,912 $ 11,290 $ 551,185 $ 17,007
=========== ========= ========= ========
Difference* $ 68,815
</TABLE>
- ---------------
*Net fees result from the timing of expenditures and are used against future
expenses.
For more information about Rule 12b-1 fees, see Section III, J of this
Statement of Additional Information.
N. Performance
All calculations of performance data in this section reflect voluntary
measures, if any, by the Investment Manager or its affiliates to reduce fees or
expenses relating to the Argo Fund.
Performance data for a specified class includes periods prior to the
adoption of class designations on June 1, 1993, when designations were assigned
based on the pricing applicable to shares sold thereafter. The application of
the additional Rule 12b-1 fees, if any, of up to 1% will, for periods after
June 1, 1993, adversely affect Fund performance results. Thus, performance data
or rankings for a given class of shares should be interpreted carefully.
Performance for Class B(1) shares reflects Class B performance through December
31, 1998. Class B(1) shares were introduced on January 1, 1999.
II, 2-11
<PAGE>
Standard Total Return
The average annual total return ("standard total return") of each class
of shares of the Argo Fund was as follows:
<TABLE>
<CAPTION>
Ten Years Five Years One Year
Ended Ended Ended
June 30, 1999 June 30, 1999 June 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Class A 14.94% 20.68% 3.30%
Class B(1) 15.14% 21.07% 3.92%
Class B 15.14% 21.07% 3.93%
Class C 15.15% 21.25% 7.83%
Class S 15.83% 22.44% 9.84%
</TABLE>
Nonstandard Total Return
The nonstandard total return of each class of shares of the Argo Fund
for the six months ended June 30, 1999, without taking sales charges into
account, was as follows:
<TABLE>
<S> <C>
Class A 11.72%
Class B(1) 11.30%
Class B 11.31%
Class C 11.30%
Class S 11.83%
</TABLE>
For more information about performance, see Section III, K of this
Statement of Additional Information.
II, 2-12
<PAGE>
3. STATE STREET RESEARCH GLOBAL RESOURCES FUND
The information in this part 3 of Section II relates only to State
Street Research Global Resources Fund (the "Global Resources Fund"). For
information on other Funds, see the Table of Contents.
A. The Fund
The Fund was organized in 1990 as a separate series of State Street
Research Equity Fund Trust, a Massachusetts business trust (the "Trust"). A
"series" is a separate pool of assets of the Trust which is separately managed
and may have a different investment objective and different investment policies
from the objective and policies of another series. The Trust currently is
comprised of the following series: State Street Research Alpha Fund, State
Street Research Argo Fund (formerly, State Street Research Equity Investment
Fund), State Street Research Global Resources Fund and State Street Research
Athletes Fund.
The Fund is an "open-end" management investment company, but it is not
a "diversified company" as those terms are defined in the 1940 Act. Among other
things, a diversified fund must, with respect to 75% of its total assets, not
invest more than 5% of its total assets in any one issuer. As a nondiversified
fund, the fund will not be subject to this limit. The Fund, therefore, could
invest in fewer issuers, which could increase the relative adverse effect on the
portfolio that one or a few poor performing investments could potentially have.
However, under the federal tax law, with respect to 50% of its total assets, the
fund may not invest more than 5% of its total assets in any single issuer.
B. Investment Objective
The Investment objective of State Street Research Global Resources Fund
is a fundamental policy and may only be changed by the affirmative vote of a
majority of the outstanding voting securities of the Fund.
C. Fundamental and Nonfundamental Restrictions
The Global Resources Fund has adopted the following investment
restrictions, and those investment restrictions are either fundamental or not
fundamental. Fundamental restrictions may not be changed except by the
affirmative vote of a majority of the outstanding voting securities of the
Global Resources Fund. Restrictions that are not fundamental may be changed
without a shareholder vote.
II, 3-1
<PAGE>
Fundamental Investment Restrictions.
It is the Global Resources Fund's policy:
(1) not to invest in a security if the transaction would result in
the Global Resources Fund owning more than 10% of any class of
voting securities of an issuer, except that this restriction does
not apply to investments in securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities or
backed by the U.S. Government;
(2) not to issue senior securities;
(3) not to underwrite or participate in the marketing of securities
of other issuers, except (a) the Global Resources Fund may
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 Global Resources Fund's securities, the Global
Resources 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 or
illiquid interests in limited partnerships that invest in real
estate, although the Global Resources Fund may purchase and sell
other interests in real estate including readily marketable
interests in real estate investment trusts or 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 Global Resources
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, futures contracts and options on futures contracts on
securities, securities indices, interest rates and currencies
shall not be deemed investments in commodities or commodities
contracts;
(6) not to make loans, except that the Global Resources 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 directly as a joint venturer or general partner in
oil, gas or other mineral exploration or development joint
ventures or general partnerships
II, 3-2
<PAGE>
(provided that the Global Resources 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 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. The Global Resources Fund will not purchase additional
portfolio securities at any time when it has outstanding money
borrowings in excess of 5% of the Global Resources Fund's total
assets (taken at current value); and
(10) not to make any investment which would cause more than 25% of the
value of the Global Resources Fund's total assets to be invested
in securities of issuers principally engaged in any one industry
other than any energy industry [for purposes of this restriction,
(a) energy and nonenergy industries will be divided according to
their services, so that, for example, in the case of (i)
utilities, gas, gas transmission, electric and telephone
companies each will be deemed to be in a separate industry, and
(ii) oil and oil related companies will be divided by types, with
oil production companies, oil service companies and marketing
companies each deemed to be in a separate industry, (b) finance
companies will be classified according to the industries of their
parent companies and (c) securities issued or guaranteed by the
U.S. Government, or its agencies or instrumentalities (including
repurchase agreements involving such U.S. Government securities
to the extent excludable under relevant regulatory
interpretations) shall be excluded].
II, 3-3
<PAGE>
Nonfundamental Investment Restrictions.
It is Global Resources Fund's policy:
(1) not to engage in transactions in options except in connection
with options on securities, securities indices and currencies,
and options on futures contracts on securities, securities
indices and currencies;
(2) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box";
(3) 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);
(4) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or except by
purchases in the open market involving only customary brokers'
commissions, or securities acquired as dividends or distributions
or in connection with a merger consolidation or similar
transaction or other exchange; and
(5) 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).
D. Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including Rule 144A Securities, if, as a result, more than 35% of
the Fund's total assets are invested in restricted securities, provided not more
than 10% of the Fund's total assets are invested in restricted securities other
than Rule 144A Securities.
E. Foreign Investments
The Fund reserves the right to invest without limitation in securities
of non-U.S. issuers directly, or indirectly in the form of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs").
II, 3-4
<PAGE>
F. Transactions in Precious Metals
The Fund may invest in precious metals but 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.
G. Industry Classifications
In determining how much of the portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guarenteed 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 and credit card receivables. "Asset-backed-Mortgages" includes
private pools of nongovernment backed mortgages.
<TABLE>
<CAPTION>
Autos & Transportation Emergy & Natural Resources Materials & Processing Technology
- ---------------------- ---------------------- ---------------------- -----------------
<S> <C> <C> <C>
Air Transport Oil Service Agriculture Communications
Auto Parts Exploration & Production Building & Construction Technology
Automobiles Oil & Gas Producers Chemicals Computer Software
Miscellaneous Oil: Integrated Domestic Containers & Packaging Computer Technology
Transportation Oil: Integrated International Diversified Manufacturing Electronics
Railroad Equipment Mining Engineering & Contracting Electronics: Semi-
Railroads Gold & Precious Metals Serv. Conductors/Components
Recreational Vehicles & Non-Ferrous Metals Fertilizers Miscellaneous Technology
Boats Utility Miscellaneous Materials &
Tires & Rubber Utilities: Electrical Processing Utilities-nonenergy related
Truckers Utilities: Gas Distribution Office Supplies ----------------------------
Utilities: Water Real Estate & Construction Miscellaneous Utilities
Consumer Discretionary Gas Pipelines Steel Utilities: Cable TV & Radio
- ---------------------- Miscellaneous Utilities Textile Products Utilities: Telecommunications
Advertising Agencies Refining
Casino/Gambling, Contract Drilling Other
Hotel/Motel Offshore Drilling -----
Commercial Services Oil Well Equipment & Services Trust Certificates --
Communications, Media & Miscellaneous Government Related
Entertainment Forest Products Lending
Consumer Electronics Paper and Forest Products Asset-backed-Mortgages
Consumer Products Miscellaneous Energy Asset-backed-Credit Card
Consumer Services Receivables
Household Furnishings Financial Services Miscellaneous
Leisure Time ------------------ Multi-Sector Companies
Photography Banks & Savings and Loans
Printing & Publishing Financial Data Processing Producer Durables
Restaurants Services & Systems -----------------
Retail Insurance Aerospace
Shoes Miscellaneous Financial Electrical Equipment &
Textile Apparel Real Estate Investment Components
Manufacturers Trusts Electronics: Industrial
Toys Rental & Leasing Services: Homebuilding
Commercial Industrial Products
Consumer Staples Securities Brokerage & Machine Tools
- ---------------- Services Machinery
Beverages Miscellaneous Equipment
Drug & Grocery Store Health Care Miscellaneous Producer
Chains ----------- Durables
Foods Drugs & Biotechnology Office Furniture & Business
Household Products Health Care Facilities Equipment
Tobacco Health Care Services Pollution Control and
Hospital Supply Environmental Services
Service Miscellaneous Production Technology
Equipment
Telecommunications
Equipment
</TABLE>
II, 3-5
<PAGE>
H. Control Persons and Principal Holders of Securities
Trustees and Officers
The Trustees and principal officers of State Street Research Equity Trust
as a group owned less than 1% of the Global Resources Fund's outstanding Class A
shares and owned no shares of the Fund's outstanding Class B, Class B(1), Class
C or Class S shares. All information is as of July 31, 1999.
Other Persons
The following persons or entities were the record and/or beneficial
owners of the following approximate percentages of the Global Resources Fund's
outstanding shares. Except as otherwise stated, the Global Resources Fund
believes that each named record holder does not have beneficial ownership of
such shares. All information is as of July 31, 1999.
<TABLE>
<CAPTION>
Shareholder %
----------- -
<S> <C> <C>
Class A Merrill Lynch 12.7
Schwab Capital Trust 7.1
Class B(1) Merrill Lynch 13.4
Class B Merrill Lynch 22.6
Class C Merrill Lynch 25.8
Class S Chase Manhattan, Trustee 88.7
</TABLE>
The full name and address of each of the above persons or entities are as
follows:
Merrill Lynch, Pierce, Fenner & Smith(a)
4800 Deerlake Drive East
Jacksonville, FL 32246
Chase Manhattan Bank, NA(a)(b)
4 New York Plaza
New York, NY 10004
Schwab Capital Trust
101 Montgomery St.
San Francisco, CA 94104
- -----------
(a) The Fund believes that the named record holder does not have beneficial
ownership of such shares.
(b) Chase Manhattan Bank holds such shares as a trustee under certain employee
benefit plans serviced by Metropolitan Life Insurance Company.
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 of that class.
I. Trustee Compensation
The Trustees of State Street Research Equity Trust were compensated as
follows:
II, 3-6
<PAGE>
<TABLE>
<CAPTION>
Total Total Compensation
Compensation From All State
Aggregate From All Street Research Funds
Compensation State Street and Metropolitan
From Global Research Funds Series Fund, Inc.
Name of Trustee Resources Fund(b) Paid to Trustees (c) Paid to Trustees (d)
- --------------- ----------------- -------------------- --------------------
<S> <C> <C> <C>
Bruce R. Bond(a) $ 1,075 $ 0 $ 0
Steven A. Garban $ 2,925 $ 81,300 $ 110,300
Malcolm T. Hopkins $ 2,425 $ 69,700 $ 97,200
Dean O. Morton $ 2,925 $ 84,700 $ 110,700
Susan M. Phillips(a) $ 0 $ 12,145 $ 12,145
Toby Rosenblatt $ 2,125 $ 72,600 $ 72,600
Michael S. Scott Morton $ 3,125 $ 89,500 $ 115,500
Ralph F. Verni $ 0 $ 0 $ 0
</TABLE>
- ---------------
(a) Bruce Bond and Susan Phillips were elected as Trustees of State Street
Research Equity Trust on January 1, 1999 and September 14, 1999,
respectively, and therefore did not receive any compensation from the
Fund for the year ended December 31, 1998.
(b) For the Global Resources Fund's fiscal year ended June 30, 1999. The
Global Resources Fund does not provide any pension or retirement
benefits for the Trustees.
(c) Includes compensation on behalf of all series of 11 investment
companies for which the Investment Manager serves as sole investment
adviser. The figure in this column is for the 12 months ended December
31, 1998.
(d) Includes compensation on behalf of all series of 11 investment
companies for which the Investment Manager serves as sole investment
adviser and all series of Metropolitan Series Fund, Inc. The primary
adviser to Metropolitan Series Fund, Inc. is Metropolitan Life
Insurance Company, which has retained State Street Research &
Management Company as sub-adviser to certain series of Metropolitan
Series Fund, Inc. The figure in this column includes compensation
relating to series of Metropolitan Series Fund, Inc. which are not
advised by State Street Research & Management Company. The figure is
for the 12 months ended December 31, 1998.
For more information on the Trustees and officers of State Street
Research Equity Trust, see Section III, C of this Statement of Additional
Information.
J. Investment Advisory Fee
The advisory fee payable monthly by the Global Resources Fund to the
Investment Manager is computed as a percentage of the average of the value of
the net assets of the Global Resources Fund as determined at the close of
regular trading on the NYSE on each day the NYSE is open for trading. 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 Global
Resources Fund.
II, 3-7
<PAGE>
The annual percentage rate: 0.75%.
<TABLE>
<CAPTION>
Fees Waived
Advisory Fees Paid or Expenses Assumed
------------------ -------------------
<S> <C> <C>
Fiscal year ended June 30, 1999 $ 1,116,563 $ 0
Fiscal year ended June 30, 1998 $ 1,812,714 $ 0
Fiscal year ended June 30, 1997 $ 940,108 $ 3,933
</TABLE>
For more information on investment advisory arrangements, see Section
III, D of this Statement of Additional Information.
K. Portfolio Turnover
The Global Resources 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 Global Resources Fund (excluding, for
purposes of this determination, securities the maturities of which as of the
time of their acquisition were one year or less).
<TABLE>
<CAPTION>
Portfolio Turnover Rates
------------------------
<S> <C>
Fiscal year ended June 30, 1999 55.89%
Fiscal year ended June 30, 1998 68.69%
</TABLE>
For more information on portfolio turnover, see Section III, H of this
Statement of Additional Information.
L. Brokerage Commissions
Brokerage commissions paid by the Global Resources Fund in secondary
trading were as follows:
<TABLE>
<S> <C>
Fiscal year ended June 30, 1999 $ 694,298
Fiscal year ended June 30, 1998 $ 1,012,532
Fiscal year ended June 30, 1997 $ 539,481
</TABLE>
During and at the end of its most recent fiscal year, the Global
Resources Fund held the securities of the no entity that might be deemed to be a
regular broker-dealer of the Global Resources Fund, as defined under the 1940
Act.
For more information on brokerage commissions, see Section III, H of
this Statement of Additional Information.
II, 3-8
<PAGE>
M. Sales Charges on Shares
Front-end Sales Charges (Class A)
<TABLE>
<CAPTION>
Retained by Distributor
After Reallowance of
Total Sales Charges Concessions to Dealers
------------------- ------------------------
<S> <C> <C>
Fiscal year ended June 30, 1999 $ 708,240 $ 86,354
Fiscal year ended June 30, 1998 $ 1,286,267 $ 157,465
Fiscal year ended June 30, 1997 $ 1,357,717 $ 169,805
</TABLE>
Contingent Deferred Sales Charges (Classes A, B(1), B and C)
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 1999 June 30, 1998 June 30, 1997
----------------------------- ---------------------------- ---------------------------
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 $ 621,886 $ 0 $ 1,128,802 $ 0 $ 1,187,912
Class B(1)* $ 6,745 $ 80,897 $ N/A $ N/A $ N/A $ N/A
Class B $ 126,973 $ 590,634 $ 204,258 $ 2,179,718 $ 109,834 $ 2,384,944
Class C $ 7,664 $ 90,532 $ 16,639 $ 288,460 $ 33,827 $ 255,818
</TABLE>
- --------------
*Class B(1) was introduced January 1, 1999.
For more information on sales charges, see Section III, J of this
Statement of Additional Information.
II, 3-9
<PAGE>
N. Rule 12b-1 Fees
The Fund has adopted plans of distribution pursuant to Rule 12b-1 under
the 1940 Act ("Distribution Plan(s)"). Under the Distribution Plans, the Fund
may engage, directly or indirectly, in financing any activities primarily
intended to result in the sale of shares of the Fund. Under the Distribution
Plans, the Fund provides the Distributor with a service fee at an annual rate of
0.25% on the average daily net assets of Class A, Class B(1), Class B and Class
C shares. The Fund also provides a distribution fee at an annual rate of 0.75%
on the average daily net assets of Class B(1), Class B and Class C shares. The
service and distribution fees are used to cover personal services and/or the
maintenance of shareholder accounts provided by the Distributor, brokers,
dealers, financial professionals or others, and sales, promotional and marketing
activities relating to the respective classes.
Under the Distribution Plan covering Class A, Class B and Class C
shares, the Fund's payments are intended to reimburse the Distributor for
expenditures incurred under the plan, and any unused payments are returnable to
the Fund.
Under the Distribution Plan covering Class B(1) shares, the Fund's
payments compensate the Distributor for services and expenditures incurred under
the plan, and none of the payments are returnable to the Fund.
During the fiscal year ended June 30, 1999, the Global Resources Fund
paid fees under the Distribution Plan and the fees were used as set forth below.
The Distributor may have also used additional resources of its own for further
expenses.
II, 3-10
<PAGE>
<TABLE>
<CAPTION>
Class A Class B(1) Class B Class C
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Advertising $ 0 $ 1,180 $ 0 $ 10,807
Printing and mailing of prospectuses to 0 320 0 2,207
other than current shareholders
Compensation to dealers 148,925 6,241 0 179,234
Compensation to sales personnel 0 3,607 592,566 28,671
Interest 0 0 0 0
Carrying or other financing charges 0 0 0 0
Other expenses: marketing; general 0 3,749 0 24,118
--------- --------- ---------- ---------
Total Fees $ 148,925 $ 15,097 $ 592,566 $ 245,037
========= ========= ========== =========
</TABLE>
For more information in Rule 12b-1 fees, see Section III, J of this
Statement of Additional Information.
II, 3-11
<PAGE>
O. Performance
All calculations of performance data in this section reflect voluntary
measurers, if any, by the Investment Manager or its affiliates to reduce fees or
expenses relating to the Global Resources Fund.
Performance data for a specified class includes periods prior to the
adoption of class designations on June 1, 1993, when designations were assigned
based on the pricing and Rule 12b-1 fees, if any, of up to 1% will, for periods
after June 1, 1993, adversely affect Fund performance results. Thus, 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. Performance for
Class B(1) shares reflects Class B performance through December 31, 1998.
Class B(1) shares were introduced on January 1, 1999.
Standard Total Return
The average annual total return ("standard total return") of each class
of shares of the Fund was as follows:
<TABLE>
<CAPTION>
Commencement of
Operations Five Years One Year
(March 2, 1990) Ended Ended
to June 30, 1999 June 30, 1999 June 30, 1999
---------------- ------------- -------------
<S> <C> <C> <C>
Class A 1.89% 3.60% -28.90%
Class B(1) 2.07% 3.72% -28.69%
Class B 2.09% 3.76% -28.56%
Class C 2.06% 4.05% -25.86%
Class S 2.75% 5.13% -24.33%
</TABLE>
Nonstandard Total Return
The nonstandard total return of each class of shares of the Global
Resources Fund for the six months ended June 30, 1999, without taking sales
charges into account, was as follows:
<TABLE>
<S> <C>
Class A 22.98%
Class B(1) 22.46%
Class B 22.67%
Class C 22.51%
Class S 23.19%
</TABLE>
For more information about performance, see Section III, K of this
Statement of Additional Information.
II, 3-12
<PAGE>
4. STATE STREET RESEARCH ATHLETES FUND
The information in this part 4 of Section II relates only to State
Street Research Athletes Fund (the "Athletes Fund"). For information on other
Funds, see the Table of Contents.
A. The Fund
The Fund was organized in 1988 as a separate series of State Street
Research Equity Trust, a Massachusetts business trust (the "Trust"). A "series"
is a separate pool of assets of the Trust which is separately managed and may
have a different investment objective and different investment policies from the
objective and policies of another series. The Trust currently is comprised of
the following series: State Street Research Alpha Fund, State Street Research
Argo Fund (formerly State Street Research Equity Investment Fund), State Street
Research Global Resources Fund and State Street Research Athletes Fund.
The Fund is an "open-end" management investment company and is a
"diversified company" as those terms are defined in the 1940 Act. Among other
things, a diversified fund must, with respect to 75% of its total assets, not
invest more than 5% of its total assets in any one issuer.
Under the Trust's Master Trust Agreement, the Trustees may reorganize,
merge or liquidate the Fund without prior shareholder approval.
B. Investment Objective
The investment objective of State Street Research Athletes Fund is a
fundamental policy and may only be changed by the affirmative vote of a majority
of the outstanding voting securities of the Fund.
C. Fundamental and Nonfundamental Restrictions
The Athletes Fund has adopted the following investment restrictions,
and those investment restrictions are either fundamental or not fundamental.
Fundamental restrictions may not be changed except by the affirmative vote of a
majority of the outstanding voting securities of the Athletes Fund. Restrictions
that are not fundamental may be changed without a shareholder vote.
The fundamental and nonfundamental policies of the Athletes Fund do not
apply to any matters involving the issuance of multiple classes of shares of the
Athletes Fund or the creation or use of structures (e.g. fund of funds,
master-feeder structure) allowing the Athletes Fund to invest any or all of its
assets in collective investment vehicles or allowing the Athletes Fund to serve
as such a collective investment vehicle for other funds, to the extent permitted
by law and regulatory authorities.
II, 4-1
<PAGE>
Fundamental Investment Restrictions.
It is the Athletes Fund's policy:
(1) not to purchase a security of any one issuer (other than
securities of other investment companies, and U.S. Government
securities as defined under the Investment Company Act of 1940,
as amended, and as interpreted from time to time by the
Securities and Exchange Commission) if such purchase would, with
respect to 75% of the Athletes Fund's total assets, cause more
than 5% of the Athletes Fund's total asset 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 Athletes Fund;
(2) not to issue senior securities, as defined in the 1940 Act,
except as permitted by that 1940 Act and the rules thereunder or
as permitted by the Securities and Exchange Commission (the
creation of general lines or security interests under industry
practices for transactions in portfolio assets are not deemed to
involve the issuance of senior securities);
(3) not to underwrite or participate in the marketing of securities
of other issuers, except (a) the Athletes Fund may, acting alone
or in syndicates or groups, 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 Athletes
Fund's securities, the Athletes Fund may be a selling shareholder
in an offering or deemed to be an underwriter under certain
federal securities laws;
(4) not to purchase fee simple interest in real estate unless
acquired as a result of ownership of securities or other
instruments, although the Athletes Fund may purchase and sell
other interests in real estate including securities which are
secured by real estate, or securities of companies which make
real estate loans or 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 Athletes 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 futures contracts on securities,
securities indices, interest rates and currencies shall not be
deemed investments in commodities or commodities contracts;
(6) not to lend money directly to natural persons; however, the
Athletes Fund may lend portfolio securities and purchase bonds,
debentures, notes, bills and any other
II, 4-2
<PAGE>
debt related instruments or interests directly from the issuer
thereof or in the open market and may enter into repurchase
transactions collateralized by obligations of the U.S. Government
or its agencies and instrumentalities or other high quality
securities;
(7) not to make any investment which would cause more than 25% of the
value of the Athletes Fund's total assets to be invested in
securities of issuers principally engaged in any one industry,
except securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities or mixed-ownership Government
Corporations or sponsored enterprises, as described in the
Athletes Fund's Prospectus or Statement of Additional Information
as amended from time to time; and
(8) not to borrow money, including reverse repurchase agreements in
so far as such agreements may be regarded as borrowings, except
for borrowings not in an amount in excess of 33 1/3% of the value
of its total assets.
Nonfundamental Investment Restrictions.
It is Athletes 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 engage in transactions in options except in connection
with options on securities, securities indices, currencies and
interest rates, and options on futures on securities, securities
indices, currencies and interest rates;
(3) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (for the purpose of this restriction, escrow or
custodian receipts or letters, margin or safekeeping accounts or
similar arrangements used in the industry in connection with the
trading of futures, options and forward commitments are not
deemed to involve the use of margin); and
(4) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or except by
purchases in the open market involving only customary brokers'
commissions, or securities acquired as dividends or distributions
or in connection with a merger, consolidation or similar
transaction or other exchange.
II, 4-3
<PAGE>
D. Restricted Securities
It is each Fund's policy not to make an investment in restricted
securities, including Rule 144A Securities, if, as a result, more than 35% of
the Fund's total assets are invested in restricted securities, provided not more
than 10% of the Fund's total assets are invested in restricted securities other
than Rule 144A Securities.
E. Foreign Investments
The Fund reserves the right to invest without limitation in securities
of non-U.S. issuers directly, or indirectly in the form of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs"). Under current policy, however, the Fund limits such
investments, including ADRs, EDRs and GDRs, to a maximum of 35% of its total
assets
F. Industry Classifications
In determining how much of the portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. 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 and credit card receivables. "Asset-backed-Mortgages" includes
private pools of nongovernment backed mortgages.
<TABLE>
<CAPTION>
Autos & Transportation Consumer Staples Health Care
- ---------------------- ---------------- -----------
<S> <C> <C>
Air Transport Beverages Drugs & Biotechnology
Auto Parts Drug & Grocery Store Health Care Facilities
Automobiles Chains Health Care Services
Miscellaneous Foods Hospital Supply
Transportation Household Products Service Miscellaneous
Railroad Equipment Tobacco
Railroads
Recreational Vehicles & Financial Services
Boats ------------------
Tires & Rubber Banks & Savings and Loans
Truckers Financial Data Processing
Services & Systems
Consumer Discretionary Insurance
- ---------------------- Miscellaneous Financial
Advertising Agencies Real Estate Investment
Casino/Gambling, Trusts
Hotel/Motel Rental & Leasing Services:
Commercial Services Commercial
Communications, Media & Securities Brokerage &
Entertainment Services
Consumer Electronics
Consumer Products
Consumer Services
Household Furnishings
Leisure Time
Photography
Printing & Publishing
Restaurants
Retail
Shoes
Textile Apparel
Manufacturers
Toys
</TABLE>
II, 4-4
<PAGE>
<TABLE>
<CAPTION>
Integrated Oils Other Energy Technology
- --------------- ------------ ----------
<S> <C> <C>
Oil: Integrated Domestic Gas Pipelines Communications Technology
Oil: Integrated International Miscellaneous Energy Computer Software
Offshore Drilling Computer Technology
Materials & Processing Oil and Gas Producers Electronics
- ---------------------- Oil Well Equipment & Electronics: Semi-
Agriculture Services Conductors/Components
Building & Construction Miscellaneous Technology
Chemicals
Containers & Packaging Producer Durables
Diversified Manufacturing ----------------- Utilities
Engineering & Contracting Aerospace ---------
Services Electrical Equipment & Miscellaneous Utilities
Fertilizers Components Utilities: Cable TV & Radio
Forest Products Electronics: Industrial Utilities: Electrical
Gold & Precious Metals Homebuilding Utilities: Gas Distribution
Miscellaneous Material & Industrial Products Utilities:
Processing Machine Tools Telecommunications
Non-Ferrous Metals Machinery Utilities: Water
Office Supplies Miscellaneous Equipment
Paper and Forest Products Miscellaneous Producer
Real Estate & Construction Durables
Steel Office Furniture & Business
Textile Products Equipment
Pollution Control and
Other Environmental Services
- ----- Production Technology
Trust Certificates -- Equipment
Government Related Telecommunications
Lending Equipment
Asset-backed--Mortgages
Asset-backed--Credit Card
Receivables
Miscellaneous
Multi-Sector Companies
</TABLE>
6 II, 4-5
<PAGE>
G. Control Persons and Principal Holders of Securities
Trustees and Officers
The Trustees and principal officers of State Street Research Equity Trust
as a group owned approximately 49.4% of the Athletes Fund's outstanding Class A
shares and owned no shares of the Fund's outstanding Class B, Class B(1), Class
C or Class S shares. All information is as of July 31, 1999.
Other Persons
The following persons or entities were the record and/or beneficial
owners of the following approximate percentages of the Athletes Fund's
outstanding shares. Except as otherwise stated, the Athletes Fund believes that
each named record holder does not have beneficial ownership of such shares. All
information is as of July 31, 1999.
<TABLE>
<CAPTION>
Shareholder %
----------- -
<S> <C> <C>
Class A F. G. Jackson, Jr. 34.4
Metropolitan Life 28.3
C. Smith & G. Jackson, Trustees 15.1
MetLife Securities 7.8
Class B(1) Metropolitan Life 81.3
Merrill Lynch 7.2
CIBC World Markets Corp. 6.1
Class B Metropolitan Life 81.9
Merrill Lynch 8.5
J. R. Locke 5.5
Class C Metropolitan Life 97.8
Class S Turtle & Co. 71.7
Metropolitan Life 28.3
</TABLE>
The full name and address of each of the above persons or entities are as
follows:
Metropolitan Life Insurance Company(a)
One Madison Avenue
New York, NY 10001
MetLife Securities Inc.(b)
485 E. U.S. Highway 1 South
Iselin, NJ 08830
Merrill Lynch, Pierce, Fenner & Smith
4800 Deerlake Dr. East
Jacksonville, FL 32246
CIBC World Markets Corp.
P.O. Box 3484
Church Street Station
New York, NY 10008
Turtle & Co.
P.O. Box 9427
Boston, MA 02209
F. G. Jackson, Jr.
C. Smith and G. Jackson, Treas.
J. R. Locke
c/o State Street Research Service Center
One Financial Center
Boston, MA 02111
- -------------
(a) Metropolitan Life Insurance Company, a New York Corporation, was the record
and/or beneficial owner, directly or indirectly through its subsidiaries or
affiliates of such shares.
(b) The Fund believes such entity does not have beneficial ownership of such
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 of that class.
II, 4-6
<PAGE>
H. Trustee Compensation
The Trustees of State Street Research Equity Trust were compensated as
follows:
<TABLE>
<CAPTION>
Total Total Compensation
Compensation From All State
Aggregate From All Street Research Funds
Compensation State Street and Metropolitan
From Research Funds Series Fund, Inc.
Name of Trustee Athletes Fund(b) Paid to Trustees (c) Paid to Trustees (d)
- --------------- ---------------- -------------------- --------------------
<S> <C> <C> <C>
Bruce R. Bond(a) $ 750 $ 0 $ 0
Steven A. Garban $ 2,400 $ 81,300 $ 110,300
Malcolm T. Hopkins $ 1,900 $ 69,700 $ 97,200
Dean O. Morton $ 2,500 $ 84,700 $ 110,700
Susan M. Phillips(a) $ 0 $ 12,145 $ 12,145
Toby Rosenblatt $ 1,800 $ 72,600 $ 72,600
Michael S. Scott Morton $ 2,700 $ 89,500 $ 115,500
Ralph F. Verni $ 0 $ 0 $ 0
</TABLE>
- ---------------
(a) Bruce Bond and Susan Phillips were elected as Trustees of State Street
Research Equity Trust on January 1, 1999 and September 14, 1999,
respectively, and therefore did not receive any compensation from the
Athletes Fund for the year ended December 31, 1998.
(b) For the Athletes Fund's fiscal year ended June 30, 1999. The Athletes
Fund does not provide any pension or retirement benefits for the
Trustees.
(c) Includes compensation on behalf of all series of 11 investment
companies for which the Investment Manager serves as sole investment
adviser. The figure in this column is for the 12 months ended December
31, 1998.
(d) Includes compensation on behalf of all series of 11 investment
companies for which the Investment Manager serves as sole investment
adviser and all series of Metropolitan Series Fund, Inc. The primary
adviser to Metropolitan Series Fund, Inc. is Metropolitan Life
Insurance Company, which has retained State Street Research &
Management Company as sub-adviser to certain series of Metropolitan
Series Fund, Inc. The figure in this column includes compensation
relating to series of Metropolitan Series Fund, Inc. which are not
advised by State Street Research & Management Company. The figure is
for the 12 months ended December 31, 1998.
For more information on the Trustees and officers of State Street
Research Equity Trust, see Section III, C of this Statement of Additional
Information.
I. Investment Advisory Fee
The advisory fee payable monthly by the Athletes Fund to the Investment
Manager is computed as a percentage of the average of the value of the net
assets of the Athletes Fund as determined at the close of regular trading on the
NYSE on each day the NYSE is open for
II, 4-7
<PAGE>
trading. 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 Athletes Fund.
The annual percentage rate: 0.65%.
<TABLE>
<CAPTION>
Fees Waived
Advisory Fees Paid or Expenses Assumed
------------------ -------------------
<S> <C> <C>
Fiscal year ended June 30, 1999 $ 88,232 $ 215,232
March 27, 1998 to June 30, 1998 $ 14,588 $ 82,369
</TABLE>
For more information on investment advisory arrangements, see Section
III, D of this Statement of Additional Information.
J. Portfolio Turnover
The Athletes 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 Athletes Fund (excluding, for purposes of this
determination, securities the maturities of which as of the time of their
acquisition were one year or less).
<TABLE>
<CAPTION>
Portfolio Turnover Rates
------------------------
<S> <C>
Fiscal year ended June 30, 1999 141.92%
March 27, 1998 to June 30, 1998 30.76%
</TABLE>
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended June 30, 1999 was significantly higher than the date for the
previous year because the year ended June 30, 1999 was a full fiscal year
compared to the shorter, initial year ended June 30, 1998.
For more information on portfolio turnover, see Section III, H of this
Statement of Additional Information.
K. Brokerage Commissions
Brokerage commissions paid by the Athletes Fund in secondary trading.
<TABLE>
<S> <C>
Fiscal year ended June 30, 1999 $ 32,836
March 27, 1998 to June 30, 1998 $ 7,404
</TABLE>
During and at the end of its most recent fiscal year, the Athletes Fund
held the securities of the [no entity] that might be deemed to be a regular
broker-dealer of the Athletes Fund, as defined under the 1940 Act.
For more information on brokerage commissions, see Section III, H of
this Statement of Additional Information.
II, 4-8
<PAGE>
L. Sales Charges on Shares
Front-end Sales Charges (Class A)
<TABLE>
<CAPTION>
Retained by Distributor
After Reallowance of
Total Sales Charges Concessions to Dealers
------------------- ----------------------
<S> <C> <C>
Fiscal year ended June 30, 1999 $ 831 $ 91
March 27, 1998 to June 30, 1998 $ 6,023 $ 920
</TABLE>
Contingent Deferred Sales Charges (Classes A, B(1), B and C)
<TABLE>
<CAPTION>
Fiscal Year Ended March 27, 1998 to
June 30, 1999 June 30, 1998
-------------------------------- --------------------------------
Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers
-------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Class A $ 0 $ 740 $ 0 $ 5,103
Class B(1)* $ 0 $ 426 $ N/A $ N/A
Class B $ 5 $ 4,496 $ 0 $ 200
Class C $ 0 $ 0 $ 0 $ 0
</TABLE>
- --------------
*Class B(1) was introduced January 1, 1999.
For more information on sales charges, see Section III, J of this
Statement of Additional Information.
II, 4-9
<PAGE>
M. Rule 12b-1 Fees
The Fund has adopted Plans of Distribution Pursuant to Rule 12b-1 under
the 1940 Act ("Distribution Plan(s)"). Under the Distribution Plans, the Fund
may engage, directly or indirectly, in financing any activities primarily
intended to result in the sale of shares of the Fund. Under the Distribution
Plans, the Fund provides the Distributor with a service fee at an annual rate of
0.25% on the average daily net assets of Class A, Class B(1), Class B and Class
C shares. The Fund also provides a distribution fee at an annual rate of 0.75%
on the average daily net assets of Class B(1), Class B and Class C shares. The
service and distribution fees are used to cover personal services and/or the
maintenance of shareholder accounts provided by the Distributor, brokers,
dealers, financial professionals or others, and sales, promotional and marketing
activities relating to the respective classes.
Under the Distribution Plan covering Class A, Class B and Class C
shares, the Fund's payments are intended to reimburse the Distributor for
expenditures incurred under the plan, and any unused payments are returnable to
the Fund.
Under the Distribution Plan covering Class B(1) shares, the Fund's
payments compensate the Distributor for services and expenditures incurred under
the plan, and none of the payments are returnable to the Fund.
During the fiscal year ended June 30, 1999, the Athletes Fund paid fees
under the Distribution Plans and the fees were used for expenses incurred on
behalf of the Athletes Fund as follows. The Distributor may have also used
additional resources of its own for further expenses on behalf of the Athletes
Fund.
<TABLE>
<CAPTION>
Class A Class B(1) Class B Class C
------- --------- ------- -------
<S> <C> <C> <C> <C>
Advertising $ 78 $ 19 $ 9 $ 0
Printing and mailing of prospectuses to 16 5 0 0
other than current shareholders
Compensation to dealers 498 99 460 10
Compensation to sales personnel 1,764 1,278 3,038 3,078
Interest 0 0 0 0
Carrying or other financing charges 0 0 0 0
Other expenses: marketing; general 1,515 1,362 1,579 2,627
-------- -------- --------- -------
Excess 1,287
--------
Total Fees $ 3,871 $ 2,763 $ 6,373 $ 5,715
======== ======== ======== ========
</TABLE>
For more information in Rule 12b-1 fees, see Section III, J of this
Statement of Additional Information.
II, 4-10
<PAGE>
N. Performance
All calculations of performance data in this section reflect voluntary
measurers, if any, by the Investment Manager or its affiliates to reduce fees or
expenses relating to the Athletes Fund.
Performance for Class B(1) shares reflects Class B performance through
December 31, 1998. Class B(1) shares were introduced January 1, 1999.
Standard Total Return
The average annual total return ("standard total return") of each class
of shares of the Fund was as follows:
<TABLE>
<CAPTION>
One Year March 27, 1998
Ended (commencement of operations) to
June 30, 1999 June 30, 1999
------------- -------------
<S> <C> <C>
Class A 19.06% 19.46%
Class B(1) 20.34% 21.16%
Class B 20.34% 21.16%
Class C 24.48% 24.26%
Class S 26.62% 25.43%
</TABLE>
Nonstandard Total Return
The nonstandard total return of each class of shares of the Athletes
Fund for the six months ended June 30, 1999, without taking sales charges into
account, was as follows:
<TABLE>
<S> <C>
Class A 10.86%
Class B(1) 10.31%
Class B 10.31%
Class C 10.43%
Class S 10.83%
</TABLE>
For more information about performance, see Section III, K of this
Statement of Additional Information.
II, 4-11
<PAGE>
SECTION III
This Section III contains general information which generally is
applicable to the funds identified on the cover page of this Statement of
Additional Information.
A. Additional Information Concerning Investment Restrictions,
Certain Risks and Investment Techniques
Each Fund follows certain fundamental and nonfundamental investment
restrictions. The fundamental and nonfundamental investment restrictions for
those Funds identified on the cover page of this Statement of Additional
Information are included in Section II of this Statement of Additional
Information.
In addition, each Fund may invest in the following instruments, use the
following investment techniques or be exposed to the following investment risks.
Please note that not all of the instruments, techniques and risks described in
this part apply uniformly to the Funds identified on the cover page of this
Statement of Additional Information. The extent to which a Fund may engage in
the following practices depends on the investment strategy of the Fund. Some
practices are more applicable to equity investments and would be used more by
Funds with substantial equity portions. For example, American Depository
Receipts ("ADRs") generally involve the stocks of foreign issuers and are used
more by Funds which invest in foreign securities. Similarly, some practices are
more applicable to debt securities and would be used more in Funds with
substantial debt positions, for example, techniques to manage the interest rate
volatility of bonds. However, since all Funds generally reserve the flexibility
to invest to sum degree in ways which are outside their primary focus, it is
possible for each Fund to engage in all the described practices.
Derivatives
The Fund may buy and sell certain types of derivatives, such as options
futures contracts, options on futures contracts, and swaps under circumstances
in which such instruments are expected by the Investment Manager to aid in
achieving the Fund's investment objective. The Fund 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.
Derivatives, such as options, futures contracts, options on futures
contracts, and swaps enable the Fund to take both "short" positions (positions
which anticipate a decline in the market value of a particular asset or index)
and "long" positions (positions which anticipate an increase in the market value
of a particular asset or index). The Fund may also use strategies which involve
simultaneous short and long positions in response to specific market conditions,
such as where the Investment Manager anticipates unusually high or low market
volatility.
III-1
<PAGE>
The Investment Manager may enter into derivative positions for the Fund
for either hedging or non-hedging purposes. The term hedging is applied to
defensive strategies designed to protect the Fund from an expected decline in
the market value of an asset or group of assets that the Fund owns (in the case
of a short hedge) or to protect the Fund from an expected rise in the market
value of an asset or group of assets which it intends to acquire in the future
(in the case of a long or "anticipatory" hedge). Non-hedging strategies include
strategies designed to produce incremental income (such as the option writing
strategy described below) or "speculative" strategies which are undertaken to
profit from (i) an expected decline in the market value of an asset or group of
assets which the Fund does not own or (ii) expected increases in the market
value of an asset which it does not plan to acquire. Information about specific
types of instruments is provided below.
Futures Contracts.
Futures contracts are publicly traded contracts to buy or sell an
underlying asset or group of assets, such as a currency 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 an equity security or an index of
equity 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 securities, as permitted under applicable regulatory
policies.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when the Fund has taken a long
position in a futures contract and the value of the underlying asset has risen,
that position will have increased in value and the Fund will receive from the
broker a maintenance margin payment equal to the increase in value of the
underlying asset. Conversely, when the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position would be less valuable, and the Fund would be required to make a
maintenance margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will terminate
the Fund's position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain. While
III-2
<PAGE>
futures contracts with respect to securities do provide for the delivery and
acceptance of such securities, such delivery and acceptance are seldom made.
In transactions establishing a long position in a futures contract,
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, assets 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 utilize such
assets and methods of cover as appropriate under applicable exchange and
regulatory policies.
Options.
The Fund may use options to implement its investment strategy. There
are two basic types of options: "puts" and "calls." Each type of option can
establish either a long or a short position, depending upon whether the Fund is
the purchaser or the writer of the option. 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, that is, 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. In general, a purchased put increases in value
as the value of the underlying security falls and a purchased call increases in
value as the value of the underlying security rises.
The principal reason to write options is to generate extra income (the
premium paid by the buyer). 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,
that is, 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, that is, 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
its 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.
Among the options which the Fund may enter are options on securities
indices. In general, options on indices of securities are similar to options on
the securities themselves
III-3
<PAGE>
except that delivery requirements are different. For example, a put option on an
index of securities does not give the holder the right to make actual delivery
of a basket of securities but instead 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 securities or futures 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. In
connection with the use of such options, the Fund may cover its position by
identifying assets having a value equal to the aggregate face value of the
option position taken.
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.
Limitations and Risks of Options and Futures Activity.
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 non-hedging
purposes would exceed 5% of the market value of the Fund's net assets. The Fund
applies a similar policy to options that are not commodities.
As noted above, the Fund may engage in both hedging and nonhedging
strategies. 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.
Non-hedging strategies typically involve special risks. The
profitability of the Fund's non-hedging strategies will depend on the ability of
the Investment Manager to analyze both the applicable derivatives market and the
market for the underlying asset or group of assets. Derivatives markets are
often more volatile than corresponding securities markets and a relatively small
change in the price of the underlying asset or group of assets can have a
magnified effect upon the price of a related derivative instrument.
III-4
<PAGE>
Derivatives markets also are often less liquid than the market for the
underlying asset or group of assets. 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 to effectively carry out their derivative
strategies and might, in some cases, require a 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.
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.
Lower Quality Fixed Income Securities
In addition to those risks set forth in the Fund's Prospectus, lower
quality securities involve risks (i) that the limited liquidity and secondary
market support for such securities will heighten the effect of adverse publicity
and investor perceptions and make selection and valuation of portfolio
securities more subjective and dependent upon the Investment Manager's credit
analysis; (ii) of substantial market price volatility and/or the potential for
the insolvency of issuers during periods of changing interest rates and economic
difficulty, particularly with respect to securities that do not pay interest
currently in cash; (iii) of subordination to the prior claims of banks and other
senior lenders; (iv) of the possibility that earnings of an issuer may be
insufficient to meet its debt service; and (v) of realization of taxable income
for shareholders without the corresponding receipt of cash in connection with
investments in "zero coupon" or "pay-in-kind" securities. Growth in the market
for this type of security has paralleled a general expansion in certain sectors
in the U.S. economy, and the effects of adverse economic changes (including a
recession) are unclear.
Swap Arrangements
Each 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, although the
Fund does not presently expect to invest more than
III-5
<PAGE>
5% of its net assets in such items. 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.
The Fund may enter credit protection swap arrangements involving the
sale by the Fund of a put option on a debt security which is exercisable by the
buyer upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
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 portion of the Fund's portfolio.
However, the Fund may, as noted above, enter into such arrangements for income
purposes to the extent permitted by the Commodities Futures Trading Commission
(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 of the counterparty. The Fund attempts to reduce
the risks of nonperformance by the counterparty by dealing only with
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 or 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.
III-6
<PAGE>
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 net 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 15% of the
Fund's net 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.
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.
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 when corporate securities
to be created by a merger of companies are 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 custodian holding Fund assets 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.
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<PAGE>
Securities transactions involving delayed deliveries or forward commitments are
frequently characterized as when-issued transactions and are similarly treated
by the Fund.
Restricted Securities
The Fund may invest in restricted securities, including restricted
securities sold in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Securities may be resold pursuant to Rule 144A under
certain circumstances only to qualified institutional buyers as defined in the
rule, and the markets and trading practices for such securities are relatively
new and still developing; depending on the development of such markets, Rule
144A Securities may be deemed to be liquid as determined by or in accordance
with methods adopted by the Trustees for the Fund. 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, market making 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 subjective valuation of such securities in
the absence of a market for them. Restricted securities that are not resalable
under Rule 144A may be subject to risks of illiquidity and subjective valuations
to a greater degree than Rule 144A Securities.
Mortgage-Related Securities
Each Fund may invest in mortgage-related securities. Mortgage-related
securities represent interests in pools of commercial or residential 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. Mortgage-related securities may be issued by private
entities such as investment banking firms, insurance companies, mortgage bankers
and home builders. Mortgage-related securities may be issued by U.S. Government
agencies, instrumentalities or mixed-ownership corporations or sponsored
enterprises, and the securities may or may not be supported by the credit of
such entities. An issuer may offer senior or subordinated securities backed by
the same pool of mortgages. The senior securities have priority to the interest
and/or principal payments on the mortgages in the pool; the subordinate
securities have a lower priority with respect to such payments on the mortgages
in the pool. The Fund does not presently expect to invest in mortgage pool
residuals.
Mortgage-related securities also include stripped securities which have
been divided into separate interest and principal components. Holders of the
interest components of mortgage related securities will receive payments of the
interest only on the current face amount of the mortgages and holders of the
principal components will receive payments of the principal on the mortgages.
"Interest only" securities are known as IOs; "principal only" securities are
known as POs.
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<PAGE>
In the case of mortgage-related securities, the possibility of
prepayment of the underlying mortgages which might be motivated, for instance,
by declining interest rates, could lessen the potential for total return in
mortgage-related securities. When prepayments of mortgages occur during periods
of declining interest rates, the Fund will have to reinvest the proceeds in
instruments with lower effective interest rates.
In the case of stripped securities, in periods of low interest rates
and rapid mortgage prepayments, the value of IOs for mortgage-related securities
can decrease significantly. The market for IOs and POs is new and there is no
assurance it will operate efficiently or provide liquidity in the future.
Stripped securities are extremely volatile in certain interest rate
environments.
Asset-Backed Securities
The Fund may invest in asset-backed, which are securities that
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.
Foreign Investments
The Fund may invest in securities of non-U.S. issuers directly, or
indirectly in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs").
ADRs are receipts, typically issued by a U.S. bank or trust company,
which evidence ownership of underlying securities issued by a foreign
corporation or other entity. EDRs are receipts issued in Europe which evidence a
similar ownership arrangement. GDRs are receipts issued in one country which
also 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. GDRs are designed for use when the issuer is
raising capital in more than one market simultaneously, such as the issuer's
local market and the U.S., and have been used to overcome local selling
restrictions to foreign investors. In addition, many GDRs are eligible for
book-entry settlement through Cedel, Euroclear and DTC. The underlying
securities are not always denominated in the same currency as the ADRs, EDRs or
GDRs. Although investment in the form of ADRs, EDRs or GDRs facilitates trading
in foreign securities, it does not mitigate all 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
III-9
<PAGE>
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.
These risks are usually higher in less-developed countries. Such
countries include countries that have an emerging stock market on which trade a
small number of securities and/or countries with economies that are based on
only a few industries. The Fund may invest in the securities of issuers in
countries with less developed economies as deemed appropriate by the Investment
Manager. However, it is anticipated that a majority of the foreign investments
by the Fund will consist of securities of issuers in countries with developed
economies.
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<PAGE>
Currency Transactions
The Fund may engage in currency exchange transactions in order to
protect against the effect of uncertain future exchange rates on securities
denominated in foreign currencies. The Fund will conduct its currency exchange
transactions either on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, or by entering into forward contracts to purchase or
sell currencies. The Fund's dealings in forward currency exchange contracts will
be limited to hedging involving either specific transactions or aggregate
portfolio positions. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are 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, reputable
institutions. Although spot and forward contracts will be used primarily to
protect the Fund from adverse currency movements, they also involve the risk
that anticipated currency movements will not be accurately predicted, which may
result in losses to the Fund. This method of protecting the value of the Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange that can be achieved at some future point in
time. Although such contracts tend to minimize the risk of loss due to a decline
in the value of hedged currency, they tend to limit any potential gain that
might result should the value of such currency increase.
Indexed Securities
Each Fund may purchase securities the value of which is indexed to
interest rates, foreign currencies and various indices and financial
indications, although the Fund does not presently intend to invest more than 5%
of its assets in such securities. These securities are generally short-to
intermediate-term debt securities. The interest rates or values at maturity
fluctuate with the index to which they are connected and may be more volatile
than such index.
Securities Lending
The Fund may lend portfolio securities with a value of up to 33 1/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in unaffiliated mutual funds with quality short-term portfolios,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or certain unaffiliated mutual funds, repurchase agreements or
other similar investments. The investing of cash collateral received from
loaning portfolio securities involves leverage which magnifies the potential for
gain or loss on monies invested and,
III-11
<PAGE>
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 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 or its agents to be of good financial
standing.
Short-Term Trading
The Fund may engage in short-term trading of securities and reserves
full freedom with respect to portfolio turnover. In periods where there are
rapid changes in economic conditions and security price levels or when
reinvestment strategy changes significantly, portfolio turnover may be higher
than during times of economic and market price stability or when investment
strategy remains relatively constant. The Fund's portfolio turnover rate may
involve greater transaction costs, relative to other funds in general, and may
have tax and other consequences.
Temporary and Defensive Investments
The Fund may hold up to 100% of its assets in cash or high-quality debt
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
high-quality instruments in which the Fund may invest for such purposes include
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, which at the
time of purchase are rated at least within the "A" major rating category by
Standard & Poor's Corporation ("S&P") or the "Prime" major rating category by
Moody's Investor's Service, Inc. ("Moody's"), or, if not rated, issued by
companies having an outstanding long-term unsecured debt issued rated at least
within the "A" category by S&P or Moody's.
Other Investment Companies
Each Fund may invest in securities of other investment companies,
including affiliated investment companies, such as open- or closed-end
management investment companies, hub and spoke (master/feeder) funds, pooled
accounts or other similar, collective investment vehicles. As a shareholder of
an investment company, the Fund may indirectly bear service and other fees in
addition to the fees the Fund pays its service providers. Similarly, other
investment companies may invest in the Fund. Other investment companies that
invest in the
III-12
<PAGE>
Fund may hold significant portions of the Fund and materially affect the sale
and redemption of Fund shares and the Fund's portfolio transactions.
Computer-Related Risks
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates.
The Investment Manager currently is in the process of reviewing its
internal computer systems as they relate to the Fund, as well as the computer
systems of those service providers upon which the Fund relies, in order to
obtain reasonable assurances that the Fund will not experience a material
adverse impact related to the problem. The Fund does not currently anticipate
that the problem will have a material adverse impact on its portfolio
investments, taken as a whole. There can be no assurances in the area, however,
including the possibility that the problem could negatively affect the
investment markets or the economy generally.
B. Debt Instruments and Permitted Cash Investments
Each Fund may invest in the following long-term and short-term debt
securities and money market instruments, except as provided below. Please note
that not all of the instruments, techniques and risks described in this part
apply to the Funds identified on the cover page of this Statement of Additional
Information.
Managing Volatility
In administering the Fund's investments, the Investment Manager
attempts to manage the volatility of the Fund's portfolio of debt securities by
managing the duration and weighted average maturity of those securities.
Duration is an indicator of the expected volatility of a bond
portfolio's net asset value in response to changes in interest rates. In
calculating duration, the fund measures the average time required to receive all
cash flows associated with those debt securities -- representing payments of
principal and interest -- by considering the timing, frequency and amount of
payment expected from each portfolio debt security. The higher the duration, the
greater the gains and losses when interest rates change. Duration generally is a
more accurate measure of potential volatility with a portfolio composed of
high-quality debt securities, such as U.S. government securities, municipal
securities and high-grade U.S. corporate bonds, than with lower-grade
securities.
The Investment Manager may use several methods to manage the duration
of the Fund's portfolio of debt securities in order to increase or decrease its
exposure to changes in interest rates. First, the Investment Manager may adjust
duration by adjusting the mix of debt
III-13
<PAGE>
securities held by the Fund. For example, if the Investment Manager intends to
shorten duration, it may sell debt instruments that individually have a long
duration and purchase other debt instruments that individually have a shorter
duration. Among the factors that will affect a debt security's duration are the
length of time to maturity, the timing of interest and principal payments, and
whether the terms of the security give the issuer of the security the right to
call the security prior to maturity. Second, the Investment Manager may adjust
duration using derivative transactions, especially with interest rate futures
and options contracts. For example, if the Investment Manager wants to lengthen
the duration of a Fund's portfolio of debt securities, it could purchase
interest rate futures contracts instead of buying longer-term bonds or selling
shorter-term bonds. Similarly, during periods of lower interest rate volatility,
the Investment Manager may use a technique to extend duration in the event rates
rise by writing an out-of-the-money put option and receiving premium income with
the expectation that the option could be exercised. In managing duration, the
use of such derivatives may be faster and more efficient than trading specific
portfolio securities.
Weighted average maturity is another indicator of potential volatility
used by the Investment Manager with respect to the Fund's portfolio of debt
securities, although for certain types of debt securities, such as high quality
debt securities, it is not as accurate as duration in quantifying potential
volatility. Weighted average maturity is the average of all maturities of the
individual debt securities held by the Fund, weighted by the market value of
each security. Generally, the longer the weighted average maturity, the more
Fund price will vary in response to changes in interest rates.
U.S. Government and Related Securities
U.S. Government securities are securities which are issued or
guaranteed as to principal or interest by the U.S. Government, a U.S. Government
agency or instrumentality, or certain mixed-ownership Government corporations as
described herein. The U.S. Government securities in which the Fund invests
include, among others:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
o obligations of U.S. Government agencies or instrumentalities such as
the Federal Home Loan Banks, the Federal Farm Credit Banks, the Federal
National Mortgage Association, the Government National Mortgage
Association and the Federal Home Loan Mortgage Corporation; and
o obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a
variety of ways by the U.S. Government, its agencies or instrumentalities. Some
of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full
III-14
<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, although the U.S. Government has no legal obligation to do
so. Obligations such as those of the Federal Home Loan Bank, the Federal Farm
Credit Bank, 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.
Foreign Government Debt
The obligations of foreign governmental entities have various kinds of
government support and include obligations issued or guaranteed by foreign
governmental entities with taxing powers. These obligations may or may not be
supported by the full faith and credit of a foreign government. Each Fund may
invest in foreign government securities of issuers
III-15
<PAGE>
considered stable by the Investment Manager, based on its analysis of factors
such as general political or economic conditions relating to the government and
the likelihood of expropriation, nationalization, freezes or confiscation of
private property. The Investment Manager does not believe that the credit risk
inherent in the obligations of stable foreign governments is significantly
greater than that of U.S. Government securities.
Supranational Debt
Supranational debt may be denominated in U.S. dollars, a foreign
currency or a multi-national currency unit. Examples of supranational entities
include the World Bank, the European Investment Bank, the Asian Development Bank
and the Inter-American Development Bank. The governmental members, or
"stockholders", usually make initial capital contributions to the supranational
entity and in many cases are committed to make additional capital contributions
if the supranational entity is unable to repay its borrowings.
Foreign Currency Units
The Fund may invest in securities denominated in a multi-national
currency unit. An illustration of a multi-national currency unit is the European
Currency Unit (the "ECU"), which is a "basket" consisting of specified amounts
of the currencies of the member states of the European Community, a Western
European economic cooperative organization that includes France, Germany, The
Netherlands and the United Kingdom. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community to reflect changes in relative values of the underlying currencies.
The Sub-Investment Manager does not believe that such adjustments will adversely
affect holders of ECU-denominated obligations or the marketability of such
securities. European supranational entities, in particular, issue
ECU-denominated obligations. The Fund may invest in securities denominated in
the currency of one nation although issued by a governmental entity, corporation
or financial institution of another nation. For example, the Fund may invest in
a British pound sterling-denominated obligation issued by a United States
corporation. Such investments involve credit risks associated with the issuer
and currency risks associated with the currency in which the obligation is
denominated.
Synthetic Non-U.S. Money Market Positions
Money market securities denominated in foreign currencies are
permissible investments of the Fund. In addition to, or in lieu of direct
investment in such securities, the Fund may construct a synthetic non-U.S. money
market position by (i) purchasing a money market instrument denominated in U.S.
dollars and (ii) concurrently entering into a forward currency contract to
deliver a corresponding amount of U.S. dollars in exchange for a foreign
currency on a future date and a specified rate of exchange. Because of the
availability of a variety of highly liquid short-term U.S. dollar-denominated
money market instruments, a synthetic money market position utilizing such U.S.
dollar-denominated instruments may offer greater
III-16
<PAGE>
liquidity than direct investment in a money market instrument denominated in a
foreign currency.
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 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, among others, (a) corporations and (b) domestic or foreign bank
holding companies or their subsidiaries or affiliates where the debt instrument
is guaranteed by the bank holding company or an affiliated
III-17
<PAGE>
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.
Lower Rated Debt Securities
The Fund may invest in debt securities within the BB major rating
category or lower by S&P or the Ba major rating category or lower by Moody's or
debt securities that are unrated but considered by the Investment Manager to be
of equivalent investment quality to comparable rated securities. Such securities
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. Further, such securities may be subject to greater market
fluctuations and risk of loss of income and principal than lower yielding,
higher rated debt securities. Risks of lower quality debt securities include (i)
limited liquidity and secondary market support, (ii) substantial market price
volatility resulting from changes in prevailing interest rates an/or investor
perception, (iii) subordination to the prior claims of banks and other senior
lenders, (iv) the operation of mandatory sinking fund or call/redemption
provisions during periods of declining interest rates when the fund may be
required to reinvest premature redemption proceeds in lower yielding portfolio
securities; (v) the possibility that earnings of the issuer may be insufficient
to meet its debt service; and (vi) the issuer's low creditworthiness and
potential for insolvency during periods of rising interest rates and economic
downturn. For further information concerning the ratings of debt securities, see
"--Commercial Paper Ratings" and "--Rating Categories of Debt Securities,"
below. 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.
Zero and Step Coupon Securities
Zero and step coupon securities are debt securities that 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 and step 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.
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<PAGE>
Certain Ratings Categories
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" major rating
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 within the "A" category 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.
Rating Categories of Debt Securities.
Set forth below is a description of S&P corporate bond and debenture
rating categories:
AAA: An obligation rated within the AAA category has the highest rating
assigned by S&P. Capacity to meet the financial commitment on the obligation is
extremely strong.
AA: An obligation rated within the AA category differs from the highest
rated obligation only in small degree. Capacity to meet the financial obligation
is very strong.
III-19
<PAGE>
A: An obligation rated within the A category is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. However, capacity to meet the
financial commitment on the obligation is still strong.
BBB: An obligation rated within the BBB category exhibits adequate
protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to meet the
financial commitment on the obligation.
Obligations rated within the BB, B, CCC, CC and C categories are
regarded as having significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated within the BB category is less vulnerable to
nonpayment 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 the financial commitment on the
obligation. The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB rating.
B: An obligation rated within the B category is more vulnerable to
nonpayment than obligations rated within the BB category, but currently has the
capacity to meet the financial commitment on the obligation. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
meet the financial commitment on the obligation. 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: An obligation rated within the CCC category is vulnerable to
nonpayment and is dependent upon favorable business, financial and economic
conditions to meet the financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to meet the financial commitment on the obligation.
CC: An obligation rated within the CC category is currently highly
vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy
petition has been filed, but payments on this obligation are being continued.
D: An obligation rated within the D category is in payment default. The
D rating category is used when payments on an obligation are not made on the
date due 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 or the taking of a
similar action if payments on an obligation are jeopardized.
III-20
<PAGE>
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 the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayments risks-such as interest only (IO) and
principal only (PO) mortgage securities; and obligations with unusually risky
terms, such as inverse floaters.
Set forth below is a description of Moody's corporate bond and
debenture rating categories:
Aaa: Bonds which are rated within the Aaa category 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 within the Aa category 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 within the A category 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 within the Baa category 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 within the Ba category 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.
III-21
<PAGE>
B: Bonds which are rated within the B category 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 within the Caa category 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 within the Ca category 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 within the C category 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.
Ratings Downgrades.
In the event the lowering of ratings of debt instruments held by the
Fund by applicable rating agencies results in a material decline in the overall
quality of the Fund's portfolio, the Trustees of the Trust will review the
situation and take such action as they deem in the best interests of the Fund's
shareholders, including, if necessary, changing the composition of the
portfolio.
C. The Trusts, the Trustees and Officers and Fund Shares
The Trustees of a Trust have authority to issue an unlimited number of
shares of beneficial interest of separate series, $.001 par value per share. The
Trustees also 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 classes. The Trustees have
authorized shares of each Fund to be issued in five classes:
Class A, Class B(1), Class B, Class C and Class S shares.
Each share of each class of shares represents an identical legal
interest in the same portfolio of investments of a Fund, has the same rights and
is identical in all respects, except that Class A, Class B(1), Class B and Class
C 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
III-22
<PAGE>
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.
Except for those differences between classes of shares described above, in the
Fund's Prospectus and otherwise this Statement of Additional Information, 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 by
the Fund.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have an adverse effect on the rights
of any shareholder. On any matter submitted to the shareholders, the holder of a
Fund share is entitled to one vote per share (with proportionate voting for
fractional shares) regardless of the relative net asset value thereof.
Under each Trust's Master Trust Agreement, no annual or regular meeting
of shareholders is required. Thus, there ordinarily will be no shareholder
meetings unless required by the 1940 Act. Except as otherwise provided under the
1940 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 a Trust could, under
certain circumstances, be held personally liable for the obligations for the
Trust. However, each Master Trust Agreement 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.
The Trustees and officers of each Trust are identified below, together
with biographical information.
III-23
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
STATE STREET Capital Equity Exchange Financial Growth Income
RESEARCH: Trust Trust Trust Trust Trust Trust
------- ------ ------- -------- ----- ------
TRUSTEES AND
PRINCIPAL
OFFICERS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Peter C. Bennett Vice Vice Vice Vice Vice Vice
President President President President President President
- ------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
Paul J. Clifford, Jr.
- ------------------------------------------------------------------------------------------------------
Thomas J. Dillman
- ------------------------------------------------------------------------------------------------------
Catherine Dudley Vice
President
- ------------------------------------------------------------------------------------------------------
Steve A. Garban Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
Bartlett R. Geer Vice Vice
President President
- ------------------------------------------------------------------------------------------------------
Lawrence J. Haverty, Jr. Vice
President
- ------------------------------------------------------------------------------------------------------
Malcolm T. Hopkins Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
F. Gardner Jackson, Jr. Vice
President
- ------------------------------------------------------------------------------------------------------
John H. Kallis Vice Vice
President President
- ------------------------------------------------------------------------------------------------------
Dyann H. Kiessling
- ------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Master Money
STATE STREET Investment Market Portfolios, Securities Tax-Exempt
RESEARCH: Trust Trust Inc. Trust Trust
---------- ----- ----------- ---------- ----------
TRUSTEES AND
PRINCIPAL
OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Peter C. Bennett Vice President Vice President Vice President
- --------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Trustee Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
Paul J. Clifford, Jr. Vice President
- --------------------------------------------------------------------------------------------------------------------------
Thomas J. Dillman Vice President
- --------------------------------------------------------------------------------------------------------------------------
Catherine Dudley
- --------------------------------------------------------------------------------------------------------------------------
Steve A. Garban Trustee Trustee Director Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
Bartlett R. Geer Vice President
- --------------------------------------------------------------------------------------------------------------------------
Lawrence J. Haverty, Jr.
- --------------------------------------------------------------------------------------------------------------------------
Malcolm T. Hopkins Trustee Trustee Director Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
F. Gardner Jackson, Jr.
- --------------------------------------------------------------------------------------------------------------------------
John H. Kallis Vice President Vice President Vice President
- --------------------------------------------------------------------------------------------------------------------------
Dyann H. Kiessling Vice President
- --------------------------------------------------------------------------------------------------------------------------
III-24
<PAGE>
<CAPTION>
STATE STREET Capital Equity Exchange Financial Growth Income
RESEARCH: Trust Trust Trust Trust Trust Trust
------- ------ ------- --------- ------- -------
TRUSTEES AND
PRINCIPAL
OFFICERS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rudoph K. Kluiber Vice
President
- ------------------------------------------------------------------------------------------------------
Francis J. McNamara, III Secretary Secretary Secretary Secretary Secretary Secretary
- ------------------------------------------------------------------------------------------------------
Gerard P. Maus Treasurer Treasurer Treasurer Treasurer Treasurer Treasurer
- ------------------------------------------------------------------------------------------------------
Thomas P. Moore, Jr. Vice Vice
President President
- ------------------------------------------------------------------------------------------------------
Dean O. Morton Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
Christopher P. Nicholas
- ------------------------------------------------------------------------------------------------------
Brian P. O'Dell Vice
President
- ------------------------------------------------------------------------------------------------------
Kim M. Peters
- ------------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
E.K. Easton Ragsdale, Jr. Vice
President
- ------------------------------------------------------------------------------------------------------
Daniel J. Rice III Vice
President
- ------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
Michael S. Scott Morton Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Master Money
STATE STREET Investment Market Portfolios, Securities Tax-Exempt
RESEARCH: Trust Trust Inc. Trust Trust
--------- ------ ---------- ---------- ----------
TRUSTEES AND
PRINCIPAL
OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rudoph K. Kluiber
- --------------------------------------------------------------------------------------------------------------------------
Francis J. McNamara, III Secretary Secretary Secretary Secretary Secretary
- --------------------------------------------------------------------------------------------------------------------------
Gerard P. Maus Treasurer Treasurer Treasurer Treasurer Treasurer
- --------------------------------------------------------------------------------------------------------------------------
Thomas P. Moore, Jr. Vice President
- --------------------------------------------------------------------------------------------------------------------------
Dean O. Morton Trustee Trustee Director Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
Christopher P. Nicholas Assistant
Secretary
- --------------------------------------------------------------------------------------------------------------------------
Brian P. O'Dell
- --------------------------------------------------------------------------------------------------------------------------
Kim M. Peters Vice President
- --------------------------------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Trustee Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
E.K. Easton Ragsdale, Jr.
- --------------------------------------------------------------------------------------------------------------------------
Daniel J. Rice III
- --------------------------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Trustee Director Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
Michael S. Scott Morton Trustee Trustee Director Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
III-25
<PAGE>
<CAPTION>
STATE STREET Capital Equity Exchange Financial Growth Income
RESEARCH: Trust Trust Trust Trust Trust Trust
------- ------ -------- --------- ------ ------
TRUSTEES AND
PRINCIPAL
OFFICERS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Shively Vice Vice
President President
- ------------------------------------------------------------------------------------------------------
Ralph F. Verni Trustee, Trustee, Trustee, Trustee, Trustee, Trustee,
Chairman Chairman Chairman Chairman of Chairman of Chairman of
of the of the of the the Board, the Board, the Board,
Board, Board, Board, President President President
President President President and Chief and Chief and Chief
and Chief and Chief and Chief Executive Executive Executive
Executive Executive Executive Officer Officer Officer
Officer Officer Officer
- ------------------------------------------------------------------------------------------------------
Tucker Walsh Vice
President
- ------------------------------------------------------------------------------------------------------
James M. Weiss Vice Vice Vice Vice Vice Vice
President President President President President President
- ------------------------------------------------------------------------------------------------------
Elizabeth M. Westvold
- ------------------------------------------------------------------------------------------------------
John T. Wilson Vice
President
- ------------------------------------------------------------------------------------------------------
Kennard P. Woodworth, Jr. Vice Vice
President President
- ------------------------------------------------------------------------------------------------------
Peter A. Zuger Vice
President
- ------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Master Money
STATE STREET Investment Market Portfolios, Securities Tax-Exempt
RESEARCH: Trust Trust Inc. Trust Trust
---------- ----- ---------- ---------- ----------
TRUSTEES AND
PRINCIPAL
OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Thomas A. Shively Vice President Vice President Vice President
- ----------------------------------------------------------------------------------------------------------------------------
Ralph F. Verni Trustee, Trustee, Director, Trustee, Trustee,
Chairman of the Chairman of the Chairman of the Chairman of the Chairman of the
Board, President Board, President Board, President Board, President Board, President
and Chief and Chief and Chief and Chief and Chief
Executive Officer Executive Officer Executive Officer Executive Officer Executive Officer
- ----------------------------------------------------------------------------------------------------------------------------
Tucker Walsh
- ----------------------------------------------------------------------------------------------------------------------------
James M. Weiss Vice President Vice President Vice President
- ----------------------------------------------------------------------------------------------------------------------------
Elizabeth M. Westvold Vice President
- ----------------------------------------------------------------------------------------------------------------------------
John T. Wilson Vice President
- ----------------------------------------------------------------------------------------------------------------------------
Kennard P. Woodworth, Jr. Vice President
- ----------------------------------------------------------------------------------------------------------------------------
Peter A. Zuger
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
III-26
<PAGE>
Additional information on the Trustees, Directors and principal
officers of the State Street Research Funds is provided below. (Unless otherwise
indicated, the address for each person is One Financial Center, Boston,
Massachusetts 02111.)
*Peter C. Bennett: He is 61 and his principal occupation is currently,
and during the past five years has been, Executive Vice President of the
Investment Manager. Mr. Bennett is also a Director and Chief Investment
Officer-Equity of the Investment Manager. Mr. Bennett's other principal business
affiliations include Director, State Street Research Investment Services, Inc.
Bruce R. Bond (100 Minuteman Road, Andover, MA 01810): He is 53. During
the past five years, Mr. Bond has also served as Chairman of the Board, Chief
Executive Officer and President of PictureTel Corporation, Chief Executive
Officer of ANS Communications (a communications networking company) and as
managing director of British Telecommunications PLC.
*Paul J. Clifford, Jr.: He is 37 and his principal occupation is
currently, and during the past five years has been, Vice President of the
Investment Manager.
*Thomas J. Dillman: He is 50 and his principal occupation is Senior
Vice President of the Investment Manager. During the past five years he has also
served as research director at Bank of New York.
*Catherine Dudley: She is 39 and her principal occupation is Senior
Vice President of the Investment Manager. During the past five years she has
also served as a portfolio manager at Chancellor Capital Management. Previously,
she held investment management positions at Phoenix Investment Council.
+Steve A. Garban (The Pennsylvania State University, 210 Old Main,
University Park, PA 16802): He is 62 and he is retired and was formerly Senior
Vice President for Finance and Operations and Treasurer of The Pennsylvania
State University. Mr. Garban is also a Director of Metropolitan Series Fund,
Inc. (an investment company).
*Bartlett R. Geer: He is 44 and his principal occupation is currently,
and during the past five years has been, Senior Vice President of the Investment
Manager.
*Lawrence J. Haverty, Jr.: He is 55 and his principal occupation is
currently, and during the past five years has been, Senior Vice President of the
Investment Manager.
+Malcolm T. Hopkins (14 Brookside Road, Biltmore Forest, Asheville, NC
28803): He is 71 and he is engaged principally in private investments.
Previously, he was Vice Chairman of the Board and Chief Financial Officer of St.
Regis Corp. Mr. Hopkins is also a Director of Metropolitan Series Fund, Inc. (an
investment company).
III-27
<PAGE>
*John H. Kallis: He is 58 and his principal occupation is currently,
and during the past five years has been, Senior Vice President of the Investment
Manager.
*Dyann H. Kiessling: She is 36 and her principal occupation is Vice
President of the Investment Manager. During the past five years she has also
served as a fixed income trader for the Investment Manager.
*Rudolph K. Kluiber: He is 40 and his principal occupation currently is
Senior Vice President of the Investment Manager. During the past five years he
has also served as a Vice President of the Investment Manager.
*Gerard P. Maus: He is 48 and his principal occupation is Executive
Vice President, Treasurer, Chief Financial Officer, Chief Administrative
Officer, and Director of the Investment Manager. Mr. Maus's other principal
business affiliations include Executive Vice President, Chief Financial Officer,
Chief Administrative Officer, Treasurer and Director of State Street Research
Investment Services, Inc.; Treasurer and Chief Financial Officer of SSRM
Holdings, Inc.; and Director of SSR Realty Advisors, Inc.
*Francis J. McNamara, III: He is 44 and his principal occupation is
Executive Vice President, General Counsel and Secretary of the Investment
Manager. During the past five years he has also served as Senior Vice President
of the Investment Manager and as Senior Vice President and General Counsel 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 Executive Vice President, General Counsel and Clerk of State Street
Research Investment Services, Inc.; and Secretary and General Counsel of SSRM
Holdings, Inc.
+Dean O. Morton (3200 Hillview Avenue, Palo Alto, CA 94304): He is 67
and he is retired and was formerly Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company. Mr. Morton is also a Director
of Metropolitan Series Fund, Inc. (an investment company).
*Kim M. Peters: He is 46 and his principal occupation is Senior Vice
President of the Investment Manager. During the past five years he has also
served as Vice President of the Investment Manager.
Susan M. Phillips (The George Washington University, 710 21st Street,
Suite 206, Washington, DC 20052): She is 54 and her principal occupation is
currently Dean of the School of Business and Public Management at George
Washington University and Professor of
III-28
<PAGE>
Finance. Previously, she was a member of the Board of Governors of the
Federal Reserve System and Chairman and Commissioner of the Commodity Futures
Trading Commission.
*E.K. Easton Ragsdale, Jr.: He is 48 and his principal occupation is
Senior Vice President of the Investment Manager. During the past five years he
has also served as Vice President of the Investment Manager and as Senior Vice
President and Chief Quantitative Analyst for Kidder Peabody & Co.
*Daniel J. Rice III: He is 47 and his principal occupation is currently
Senior Vice President of the Investment Manager. During the past five years he
has also served as Vice President of the Investment Manager.
Toby Rosenblatt (3409 Pacific Avenue, San Francisco, CA 94118): He is
61 and his principal occupations during the past five years have been President
of Founders Investments Ltd. and President of The Glen Ellen Company, a private
investment company.
+Michael S. Scott Morton (Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139): He is 62 and 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.
Dr. Scott Morton is also a Director of Metropolitan Series Fund, Inc. (an
investment company).
*Thomas A. Shively: He is 45 and his principal occupation is currently,
and during the past five years has been, Executive Vice President of the
Investment Manager. Mr. Shively is also a Director and Chief Investment
Officer-Fixed Income of the Investment Manager. Mr. Shively's other principal
business affiliations include Director of State Street Research Investment
Services, Inc.
*Tucker Walsh: He is 30 and his principal occupation is Vice President
of the Investment Manager. During the past five years he has also served as an
analyst at State Street Research & Management Company and Chilton Investment
Partners. Prior to that, he was employed at Merrill Lynch and Cowen Asset
Management.
*Ralph F. Verni: He is 56 and his principal occupation is currently,
and during the past five years has been, Chairman of the Board, President, Chief
Executive Officer and Director of State Street Research & Management 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).
*James M. Weiss: He is 53 and his principal occupation is Executive
Vice President of the Investment Manager. During the past five years he has also
served as Senior Vice President of the Investment Manager and as President and
Chief Investment Officer of IDS Equity Advisors.
*Elizabeth M. Westvold: She is 39 and her principal occupation is
Senior Vice President of the Investment Manager. During the past five years she
has also served as Vice President and as an analyst for the Investment Manager.
III-29
<PAGE>
*John T. Wilson: He is 36 and his principal occupation is Senior Vice
President of the Investment Manager. During the past five years he has also
served as a Vice President of the Investment Manager, as an analyst and
portfolio manager at Phoenix Home Life Mutual Insurance Company and as a Vice
President of Phoenix Investment Counsel Inc.
*Kennard Woodworth, Jr.: He is 61 and his principal occupation is
currently, and during the past five years has been, Senior Vice President of the
Investment Manager.
*Peter A. Zuger: He is 51 and 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 American Century Investment
Management Company.
- -----------------
* These Trustees and/or Officers are 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 Director of Metropolitan Series Fund, Inc., which has an
advisory relationship with the Investment Manager or its parent,
Metropolitan Life Insurance Company ("Metropolitan")
III-30
<PAGE>
D. Investment Advisory Services
Under the provisions of each Trust's Master Trust Agreement and the
laws of Massachusetts, responsibility for the management and supervision of the
Fund rests with the Trustees.
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 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.
The Investment Manager is charged with the overall responsibility for
managing the investments and business affairs of each Fund, subject to the
authority of the Board of Trustees. Each Advisory Agreement provides that the
Investment Manager shall furnish the applicable Funds 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 each
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly owned subsidiary of Metropolitan.
Each Advisory Agreement provides that it shall continue in effect with
respect to a Fund for a period of two years after its initial effectiveness and
will continue from year to year thereafter 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 the Code of Ethics of the Investment Manager, personnel 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 personnel
must report their personal securities transactions quarterly and supply broker
confirmations of such transactions to the Investment Manager.
III-31
<PAGE>
Information about rates at which fees are calculated under the Advisory
Agreement with respect to the Funds identified on the cover page of the
Statement of Additional Information, as well as the fees paid to the Investment
Manager in previous years, is included in Section II of this Statement of
Additional Information.
E. Purchase and Redemption of Shares
Shares of each Fund are distributed by State Street Research Investment
Services, Inc., the Distributor. The Fund generally offers four classes of
shares. Class A, Class B(1), Class C and Class S shares are available to all
eligible investors. Each Fund also offers Class B shares, which are available
only to current Class B shareholders through reinvestment of dividends and
capital gains distributions or through exchanges from existing Class B accounts
of the State Street Research Funds. Class A, Class B(1), Class B, Class C and
Class S shares of the Fund may be purchased at the next determined net asset
value per share plus, in the case of all classes except Class S 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(1), Class
B and Class C shares). General information on how to buy shares of the Fund, as
well as sales charges involved, are set forth under "Your Investment" 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 regular
trading on the NYSE on the day the purchase order is received by State Street
Research Service Center (the "Service Center"), provided that the order is
received prior to the close of regular trading on 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 the Service Center 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.
Alternative Purchase Program. 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 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, financial professionals are paid
differing amounts of compensation depending on which class of shares they sell.
[REST OF PAGE INTENTIONALLY OMITTED]
III-32
<PAGE>
The major differences among the various classes of shares are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class A Class B(1) Class B Class C Class S
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales Charges Paid by Initial sales Contingent Contingent Contingent None
Investor to Distributor charge at time of deferred sales deferred sales deferred sales
investment of up to charge of 5% to charge of 5% to charge of 1%
5.75%* depending 1% applies to any 2% applies to any applies to any
on amount of shares redeemed shares redeemed shares redeemed
investment within first six within first five within one year
years following years following following their
their purchase; no their purchase; no purchase
contingent deferred contingent deferred
sales charge after sales charge after
six years five years
- ------------------------------------------------------------------------------------------------------------------------------
On investments of
$1 million or
more, no initial
sales charge; but
contingent deferred
sales charge of up
to 1% may apply
to any shares
redeemed within
one year following
their purchase
- ------------------------------------------------------------------------------------------------------------------------------
Initial Commission Paid by Above described 4% 4% 1% None
Distributor to Financial initial sales charge
Professional less 0.25% to
0.75% retained by
distributor
On investments of
$1 million or
more, 0.25% to
1% paid to dealer
by Distributor
- ------------------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Service Fee
- ------------------------------------------------------------------------------------------------------------------------------
Paid by Fund to 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
Distributor
- ------------------------------------------------------------------------------------------------------------------------------
Paid by Distributor to 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
Financial Professional commencing after commencing after commencing after
one year following one year following one year following
purchase purchase purchase
- ------------------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Distribution
Fee
- ------------------------------------------------------------------------------------------------------------------------------
Paid by Fund to None 0.75% for first 0.75% for first 0.75% each year None
Distributor eight years; Class eight years; Class
B(1) shares convert B shares convert
automatically to automatically to
Class A shares Class A shares
after eight years after eight years
- ------------------------------------------------------------------------------------------------------------------------------
Paid by Distributor to None None None 0.75% each year None
Financial Professional commencing after
one year following
purchase
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* or up to 4.50% for State Street Research Government Income Fund, State
Street Research High Income Fund, State Street Research Strategic Income
Fund, State Street Research Tax-Exempt Fund and State Street Research New
York Tax-Free Fund.
III-33
<PAGE>
Class A Shares--Reduced Sales Charges. The reduced sales charges set
forth under "Your Investment--Choosing a Share Class" in the Prospectus apply to
purchases made at any one time by any "person," which 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"
(which include the Fund and other funds as designated by the Distributor from
time to time) 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(1), Class B, Class C and Class S 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 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
III-34
<PAGE>
herein as eligible to join with the investor in a single purchase. Class B(1),
Class B, Class C and Class S 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.
Other Programs Related to Class A Shares. 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 for designated classes
of investors. These arrangements include programs sponsored by the Distributor
or others under which, for example, a company, employee benefit plan or other
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants to purchase Fund shares. (These arrangements
are not available to any organization created primarily for the purpose of
obtaining shares of the Fund at a reduced sales charge or without a sales
charge.) Sponsored arrangements may be established for non-profit organizations,
holders of individual retirement accounts or participants in limited promotional
campaigns, such as a special offering to shareholders of funds in other
complexes that may be liquidating. Sales without a sales charge, or with a
reduced sales charge, may also be made through brokers, registered investment
advisers, financial planners, institutions, and others, under managed fee-based
programs (e.g., "wrap fee" or similar programs) which meet certain requirements
established by the Distributor. Information on such arrangements and further
conditions and limitations is available from the Distributor.
The entire sales charge on Class A shares may be reallowed to financial
professionals who sell shares during certain special promotional periods which
may be instituted from time to time. The Fund reserves the right to have such
promotions without further supplement to the Prospectus or Statement of
Additional Information. The financial professionals who receive the entire sales
charge may be deemed to be underwriters of the Fund's shares under the
Securities Act of 1933 during such promotions.
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; (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; and (D)
others who because of their business relationship with the Fund, the Distributor
or its affiliates, and because of their knowledge of the Fund, do not require
any significant sales effort or expense to educate them about the Fund. 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
III-35
<PAGE>
policies, regarding the qualification of purchasers and any other matters, as
may be adopted by the Distributor from time to time.
Conversion of Class B(1) and Class B Shares to Class A Shares. A
shareholder's Class B(1) and Class B shares of the Fund, 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(1) and 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(1) shares received in
exchange for Class B(1) shares of other Eligible Funds and for Class B shares
received in exchange for Class B shares of other Eligible Funds, will be counted
toward the eight-year period.
Contingent Deferred Sales Charges. The amount of any contingent
deferred sales charge paid on Class A shares (on sales of $1 million or more and
which do not involve an initial sales charge) or on Class B(1), Class B or Class
C shares of the Fund will be paid to the Distributor. The Distributor will pay
dealers at the time of sale a 4% commission for selling Class B(1) and Class B
shares and a 1% commission for selling Class C shares. In certain cases, a
dealer may elect to waive the 4% commission on Class B(1) and Class B shares and
receive in lieu thereof an annual fee, usually 1%, with respect to such
outstanding shares. The proceeds of the contingent deferred sales charges and
the distribution fees are used to offset distribution expenses and thereby
permit the sale of Class B(1), Class B and Class C shares without an initial
sales charge.
In determining the applicability and rate of any contingent deferred
sales charge of Class B(1), Class B or Class C shares, it will be assumed that a
redemption of the 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 shareholder
for the longest period of time. Class B(1) shares that are redeemed within a
six-year period after purchase, Class B shares that are redeemed within a
five-year period after their purchase, and Class C shares that are redeemed
within a one-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 holding period for purposes of
applying a contingent deferred sales charge for a particular class of 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 shares of the same class 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.
III-36
<PAGE>
Contingent Deferred Sales Charge Waivers. With respect to Class A
shares (on sales of $1 million or more and which do not involve an initial sales
charge), and Class B(1), Class B and Class C shares of the Fund, the contingent
deferred sales charge does not apply to exchanges or to redemptions under a
systematic withdrawal plan which meets certain conditions. The contingent
deferred sales charge will be waived for participant initiated distributions
from State Street Research prototype employee retirement plans. 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 of 1986, as amended, for retirement accounts or plans (e.g., age 70
1/2 for Individual Retirement Accounts 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 Individual Retirement Account. (The foregoing waivers do not apply to a
tax-free rollover or transfer of assets out of the Fund). The contingent
deferred sales charge may also be waived on Class A shares under certain
exchange arrangements for selected brokers with substantial asset allocation
programs. The Fund may modify or terminate the waivers at any time; for example,
the Fund may limit the application of multiple waivers and establish other
conditions for employee benefit plans. Certain employee benefit plans sponsored
by a financial professional may be subject to other conditions for waivers under
which the plans may initially invest in Class B(1) or Class B shares and then
Class A shares of certain funds upon meeting specific criteria.
Class S Shares. Class S shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants, service arrangements, or similar factors;
insurance companies; investment companies; advisory accounts of the Investment
Manager; endowment funds of nonprofit organizations with substantial minimum
assets (currently a minimum of $10 million); and other similar institutional
investors. Class S shares may be acquired through programs or products sponsored
by Metropolitan, its affiliates, or both for which Class S shares have been
designated. In addition, Class S shares are available through programs under
which, for example, investors pay an asset-based fee and/or a transaction fee to
intermediaries. Class S share availability is determined by the Distributor and
intermediaries based on the overall direct and indirect costs of a particular
program, expected assets, account sizes and similar considerations.
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
III-37
<PAGE>
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.
Systematic Withdrawal Plan. A shareholder who owns noncertificated
Class A or Class S shares with a value of $5,000 or more, or Class B(1), Class B
or Class C 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 12% annually
(minimum $50 per withdrawal) of either (a) the value, at the time the Systematic
Withdrawal 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 Systematic Withdrawal Plan was initiated, whichever is higher.
Expenses of the Systematic Withdrawal Plan are borne by the Fund. A
participating shareholder may withdraw from the Systematic Withdrawal Plan, and
the Fund may terminate the Systematic Withdrawal Plan at any time on written
notice. Purchase of additional shares while a shareholder is receiving payments
under a Systematic Withdrawal Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate in
the Investamatic Program (see "Your Investment--Investor Services--Investamatic
Program" in the Fund's Prospectus) and the Systematic Withdrawal Plan at the
same time.
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.
Signature Guarantees. Signature guarantees are required for, among
other things: (1) written requests for redemptions for more than $100,000; (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
III-38
<PAGE>
by corporations and certain fiduciaries and other intermediaries; and (4)
requests to transfer the registration of shares to another owner. Signatures
must be guaranteed by a bank, a member firm of a national stock exchange, or
other eligible guarantor institution. The Transfer Agent will not accept
guarantees (or notarizations) from notaries public. The above requirements may
be waived in certain instances.
Dishonored Checks. If a purchaser's 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 canceled.
Processing Charges. Purchases and redemptions processed through
securities dealers may be subject to processing charges imposed by the
securities dealer in addition to sales charges that may be imposed by the Fund
or the Distributor.
F. Shareholder Accounts
General information on shareholder accounts is included in the Fund's
Prospectus under "Your Investment." The following supplements that information.
Maintenance Fees and Involuntary Redemption. Because of the relatively
high cost of maintaining small shareholder accounts, the Fund reserves the right
to 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
involuntarily 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 $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 values; or (3) during such
other periods as
III-39
<PAGE>
the Securities and Exchange Commission (the "SEC") may by order permit for the
protection of investors; and (b) the payment of redemption proceeds may be
postponed as otherwise provided under "Purchase and Redemption of Shares" in
this Statement of Additional Information.
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(1), Class B or Class C shares will not be issued, while certificates
representing Class A or Class S 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 accounts.
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 "State Street
Research Funds" under the terms set forth above under "Purchase
and Redemption of Shares" in this Statement of Additional
Information.
2. The following methods of receiving dividends from investment
income and distributions from capital gains generally are
available:
(a) All income dividends and capital gains distributions
reinvested in additional shares of the Fund.
(b) All income dividends and capital gains distributions in
cash.
(c) 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 the
Service Center. Dividends and distributions are reinvested at net asset value
without a sales charge.
Exchange Privileges. Shareholders of the Fund may exchange their shares
for available shares with corresponding characteristics of any of the other
Eligible Funds on the basis of the relative net asset values of the respective
shares to be exchanged, and subject to compliance with applicable securities
laws. Shareholders of any other Eligible Fund may
III-40
<PAGE>
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(1), Class B and Class C 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. Class A shares
acquired through a new investment after January 1, 1999, are subject to an
incremental sales charge if exchanged within 30 days of acquisition for Class A
shares of a Fund with a higher applicable sales charge. For purposes of
computing the contingent deferred sales charge that may be payable upon
disposition of any acquired Class A, Class B(1), Class B and Class C shares, the
holding period of the redeemed shares is "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(1), Class B or Class C 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.
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 with
respect to the Fund (see "Your Investment--Account Policies--Telephone Requests"
in the Fund's Prospectus and "--Telephone Privileges," below) as the existing
account unless the Service Center 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.
III-41
<PAGE>
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. The exchange limit
may also be modified under certain exchange arrangements for selected brokers
with substantial asset allocation programs. Subject to the foregoing, if an
exchange request in good order is received by the Service Center and delivered
by the Service Center 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 the Service
Center.
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 the Service
Center of such shareholder's written purchase request and delivery of the
request by the Service Center 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.
III-42
<PAGE>
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.
Telephone Privileges. The following telephone privileges are available:
o Telephone Exchange Privilege for Shareholder and Shareholder's
Financial Professional
o Shareholders automatically receive this privilege unless
declined.
o This privilege allows a shareholder or a shareholder's
financial professional to request exchanges into other
State Street Research funds.
o Telephone Redemption Privilege for Shareholder
o Shareholders automatically receive this privilege unless
declined.
o This privilege allows a shareholder to phone requests to
sell shares, with the proceeds sent to the address of
record.
o Telephone Redemption Privilege for Shareholder's Financial
Professional (This privilege is not automatic; a shareholder must
specifically elect it)
o This privilege allows a shareholder's financial
professional to phone requests to sell shares, with the
proceeds sent to the address of record on the account.
A shareholder with the above telephone privileges is deemed to
authorize the Service Center and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be any of the shareholders of
an account or a shareholder's financial professional; 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.
Neither the Fund, the other Eligible Funds, the Transfer Agent, the Investment
Manager nor 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.
Alternative Means of Contacting a Fund. It is unlikely, during periods
of extraordinary market conditions, that a shareholder may have difficulty in
reaching the Service Center. In that event, however, the shareholder should
contact the Service Center at 1-800-562-0032, 1-617-357-7800 or otherwise at its
main office at One Financial Center, Boston, Massachusetts 02111-2690.
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G. Net Asset Value
The net asset value of the shares of each Fund is determined once daily
as of the close of regular trading on the NYSE, but no later than 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, Martin
Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of each 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 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 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.
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, Inc.'s (the "NASD") NASDAQ 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 of such pricing services as may be deemed appropriate or
methodologies authorized by the Trustees. The Trustees also reserve the right to
adopt other valuations based on fair value in pricing in unusual circumstances
where use of other methods as discussed in part above, could otherwise have a
material adverse effect on the Fund as a whole.
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, 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. Under the amortized cost method of valuation, the
security is
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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.
H. Portfolio Transactions
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).
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Fund occur. Against this background, the Investment Manager
evaluates the reasonableness of a commission or a net price with respect to a
particular transaction by considering such factors as difficulty of execution or
security positioning by the executing firm. The Investment Manager may or may
not solicit competitive bids based on its judgment of the expected benefit or
harm to the execution process for that transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given by the Investment Manager 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
III-45
<PAGE>
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 contained in certain trading
systems and used for portfolio analysis and modeling and also 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 or its affiliates, 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
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 regularly reviews and evaluates the services
furnished by broker-dealers. The Investment Manager's investment management
personnel seek to evaluate the quality of the research and other services
provided by various broker-dealer firms, and the results of these efforts are
made available to the equity trading department, which uses this information as
consideration to the extent described above 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 the services to determine the proportion which is allocable to research or
investment decision-making and the proportion allocable to other purposes. The
Investment Manager pays directly from its own funds for that portion allocable
to uses other than research or investment decision-making. 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 providing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which the 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
III-46
<PAGE>
certain services, they need to receive an 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.
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 commissions 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.
In some instances, certain clients of the Investment Manager request it
to place all or part of the orders for their account with certain brokers or
dealers, which in some cases provide services to those clients. The Investment
Manager generally agrees to honor these requests to the extent practicable.
Clients may request that the Investment Manager only effect transactions with
the specified broker-dealers if the broker-dealers are competitive as to price
and execution. Where the request is not so conditioned, the Investment Manager
may be unable to negotiate commissions or obtain volume discounts or best
execution. In cases where the Investment Manager is requested to use a
particular broker-dealer, different commissions may be charged to clients making
the requests. A client who requests the use of a particular broker-dealer should
understand that it may lose the possible advantage which non-requesting clients
derive from aggregation of orders for several clients as a single transaction
for the purchase or sale of a particular security. Among other reasons why best
execution may not be achieved with directed brokerage is that, in an effort to
achieve orderly execution of transactions, execution of orders that have
designated particular brokers may, at the discretion of the trading desk, be
delayed until execution of other non-designated orders has been completed.
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 size of the order, 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
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<PAGE>
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.
Information about portfolio turnover rates and certain brokerage
commissions paid by the Funds identified on the cover page of this Statement of
Additional Information is included in Section II of this Statement of Additional
Information.
I. Certain Tax Matters
Federal Income Taxation of the Fund--In General
Each 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 qualify to 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"); and (b) satisfy certain
diversification requirements on a quarterly basis.
If in any year the Fund derives 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.
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 the Fund's current or
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<PAGE>
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 to the extent thereof. Any distribution in excess of a shareholder's basis
in the shareholder's shares would be taxable as gain realized from the sale of
such shares.
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. For that purpose, any income or gain retained by the Fund that is
subject to corporate tax will be considered to have been distributed by
year-end. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
Taxation of the Fund's Investments
Original Issue Discount; Market 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 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 federal
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 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 or
continued 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.
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<PAGE>
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, and require
inclusion of unrealized gains in the Fund's income for the purposes of 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 and long-term gain,
irrespective of the holding period of the investment. Such provisions generally
apply to, among other investments, options on debt securities, indices on
securities and futures contracts. The Fund will monitor its transactions and may
make certain tax elections available to it in order to mitigate the impact of
these rules and prevent disqualification of the Fund as a regulated investment
company.
Gains or losses attributable to foreign currency contracts or
fluctuations in exchange rates that occur between the time the Fund accrues
income or expenses denominated in a foreign currency and the time the Fund
actually collects such income or pays such expenses are treated as ordinary
income or loss. The portion of any gain or loss on the disposition of a debt
security denominated in a foreign currency that is attributable to fluctuations
in the value of the foreign currency during the holding period of the debt
security will likewise be treated as ordinary income or loss. Such ordinary
income or loss will increase or decrease the amount of the Fund's net investment
income.
If the Fund invests in the stock of certain "passive foreign investment
companies" ("PFICs"), the income of such companies may become taxable to the
Fund prior to its distribution to the Fund or, alternatively, ordinary income
taxes and interest charges may be imposed on the Fund on "excess distributions"
received by the Fund or on gain from the disposition of such investments by the
Fund. Alternatively, if the stock of a PFIC is marketable, the Fund may elect to
mark the stock of the PFIC to market annually, and to recognize gain or loss of
the appreciation or depreciation in the stock. Any gain so recognized would be
treated as ordinary income, and a loss would be recognized and treated as an
ordinary deduction to the extent of any prior, unreversed amounts of gain
recognized with respect to that stock. The Fund does not intend to invest in
PFICs. Because of the broad scope of the PFIC rules, however, there can be no
assurance that the Fund can avoid doing so.
Federal Income Taxation of Shareholders
Dividends paid by the Fund may be eligible for the 70%
dividends-received deduction for corporations. The percentage of the Fund's
dividends eligible for such tax treatment may be less than 100% to the extent
that less than 100% of the Fund's gross income may be from qualifying dividends
of domestic corporations. Any dividend declared in October, November or December
and made payable to shareholders of record in any such month is treated as
received by such shareholder on December 31, provided that the Fund pays the
dividend during January of the following calendar year.
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<PAGE>
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 may be taxable
to the shareholder as ordinary income or 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.
The Fund may be subject to foreign taxes, including foreign income
taxes. If so, the Fund intends to meet the requirements of the Code for passing
through to its shareholders the tax benefit of foreign income taxes paid,
although there is no assurance that it will be able to do so. Under this
provision, if more than half of the value of the total assets of the Fund at the
close of its taxable year consists of stock or securities of foreign
corporations, the fund will be eligible and intends to elect to pass through to
its shareholders the amount of foreign taxes it paid if such amounts are
material. Pursuant to this election, a United States shareholder will, in
general, be required to (i) include in gross income, in addition to taxable
distributions actually received, his or her pro rata share of the foreign taxes
paid by the Fund, (ii) treat that share of taxes as having been paid directly by
him or her, and (iii) either deduct such share of taxes or treat such share of
taxes as a credit against United State income tax liability. A tax-exempt
shareholder will ordinarily not benefit from this election.
Generally, a credit for foreign taxes paid by the Fund may not exceed a
shareholder's United States income tax attributable to the shareholder's foreign
source income. This limitation applies separately to different categories of
income, one of which is a foreign-source passive income, which is likely to
include all of the foreign-source income of the Fund. As a result of these
limitations, some shareholders may not be able to utilize fully any foreign tax
credits generated by an investment in the Fund. In addition, holding period
requirements apply so that, generally, the shareholder will be unable to take a
tax credit for any foreign withholding tax on a dividend payment unless (a) the
Fund held the stock in the foreign corporation for more than 15 days during the
30-day period beginning on the date that the stock becomes ex-dividend with
respect to the dividend on which the withholding tax is paid and (b) the
shareholder held his or her shares in the Fund during the same period. In the
case of certain preference dividends on foreign stock, the 15-day and 30-day
periods are extended to 45 days and 90 days, respectively. Shareholders also
will be unable to claim a credit for foreign withholding taxes on dividends if
the Fund has entered into certain hedging transactions with respect to the stock
of the foreign corporation. Shareholders may take a deduction to the extent of
any tax credits disallowed under the holding period and hedging rules. The Fund
will provide its shareholders with information about the source of its income
and the foreign taxes it has paid for use in preparing the shareholder's United
States income tax returns, including information about withholding taxes for
which a tax credit could be denied to the Fund under the holding period and
hedging rules described above.
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<PAGE>
The foregoing discussion of United States federal income tax law
relates solely to the application of that law to United States persons, that is,
United States citizens and residents and United States corporations,
partnerships, trusts and estates. Each shareholder who is not a United States
person should consider the United States and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to United States withholding tax at a rate of up to
30% (or at a lower rate under applicable treaty) on distributions from the Fund.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
J. Distribution of Fund Shares
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(1), Class B and Class C shares). The Distributor may
reallow all or portions of such sales charges as concessions to dealers. The
Distributor may also pay its affiliate MetLife Securities, Inc. additional sales
compensation of up to 0.25% of certain sales or assets.
The differences in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, or Class S shares are
offered, as described in the Fund's Prospectus, result from cost savings
inherent in economies of scale, among other factors. 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, managed fee-based programs and so-called "mutual fund
supermarkets," among other special programs, the amount of the sales charge
reduction will similarly reflect the anticipated reduction in sales expenses
associated with such arrangements. The reductions in sales expenses, and
therefore the reduction in sales charges, 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
or similar programs at any time.
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<PAGE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor may pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission may also be paid 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 up to 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.
Plans of Distribution Pursuant to Rule 12b-1
Under the Fund's Distribution Plans, the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of shares, including, but not limited to, (1) the payment of commissions to
underwriters, securities dealers and others engaged in the sale of shares,
including payments to the Distributor to be used to pay commissions to
securities dealers (which securities dealers may be affiliates of the
Distributor), (2) expenditures incurred by the Distributor in connection with
the distribution and marketing of shares and the servicing of investor accounts,
and (3) expenses incurred by the Distributor in connection with the servicing of
shareholder accounts including payments to securities dealers and others for the
provision of personal service to investors and/or the maintenance or servicing
of shareholder accounts. In addition, the Distribution Plans authorize the
Distributor and the Investment Manager to make payments out of management fees,
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 an indirect financing of any activity primarily
resulting in the sale of shares of the Fund within the scope of Rule 12b-1 under
the 1940 Act. Payments under the Distribution Plans may be discontinued at any
time.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits annual expenditures that the Fund may incur to 0.75% for distribution
expenses and 0.25% for service fees. The NASD Rule also limits the aggregate
amount that 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 the
service fees.
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 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
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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(1), Class B and Class C 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).
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares and for other sales and
marketing expenditures.
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.
The payment of service and distribution fees may continue even if the
Fund ceases, temporarily or permanently, to sell one or more classes of shares
to new accounts. During the period the Fund is closed to new accounts, the
distribution fee will not be used for promotion expenses. The service and
distribution fees are used during a closed period to cover services provided to
current shareholders and to cover the compensation of financial professionals in
connection with the prior sale of Fund shares, among other non-promotional
distribution expenditures.
The Distributor may pay certain dealers and other intermediaries
additional compensation for sales and administrative services. The Distributor
may provide cash and noncash incentives to intermediaries who, for example, sell
significant amounts of shares or develop particular distribution channels. The
Distributor may compensate dealers with clients who maintain their investments
in the Fund over a period of years. The incentives can include merchandise and
trips to, and attendance at, sales seminars at resorts. The Distributor may pay
for administrative services, such as technological and computer systems support
for the maintenance of pension plan participant records, for subaccounting and
for distribution through mutual fund supermarkets or similar arrangements.
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 General Distribution Plan, Special Distribution
Plan or Distribution Plan or any related agreements thereunder. The
Distributor's interest in the plans 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 plans described above, the Fund will
make alternative arrangements for such services for shareholders who acquired
shares through such institutions.
III-54
<PAGE>
K. Calculation of Performance Data
From time to time, in advertisements or in communications to
shareholders or prospective investors, each Fund may compare the performance of
its Class A, Class B(1), Class B, Class C or Class S shares to the performance
of other mutual funds with similar investment objectives, to certificates of
deposit and/or to other financial alternatives. The Fund may also compare its
performance to appropriate indices, such as Standard & Poor's 500 Index,
Consumer Price Index and Dow Jones Industrial Average and/or to appropriate
rankings and averages such as those compiled by Lipper Analytical Services,
Inc., Morningstar, Inc., Money Magazine, Business Week, Forbes Magazine, The
Wall Street Journal and Investor's Daily.
The average annual total return ("standard total return") of the Class
A, Class B(1), Class B, Class C and Class S shares of each Fund will be
calculated as set forth below. Total return is computed separately for each
class of shares of the Fund.
Total Return
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
Yield for each class of the Fund's shares is computed by dividing the
net investment income per share earned during a recent month or other specified
30-day period by the
III-55
<PAGE>
maximum offering price per share on the last day of the period and annualizing
the result in accordance with the following formula:
YIELD = 2[(a-b + 1)6 -1]
cd
Where a = dividends and interest earned during the period
b = expenses accrued for the period (net of voluntary expense
reductions by the Investment Manager)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
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
III-56
<PAGE>
instruments in the Fund's portfolio, portfolio maturity and operating expenses
and market conditions.
Accrued Expenses and Recurring Charges
Accrued expenses include all recurring charges 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
Each Fund may provide the above described standard total return results
for Class A, Class B(1), Class B, Class C and Class S shares for periods which
end no earlier than the most recent calendar quarter end and which begin twelve
months before, five years before and ten years before (or the commencement of
the Fund's operations, whichever is earlier). 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.
Distribution Rates
Each 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
III-57
<PAGE>
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.
L. Custodian
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian for Fund assets. 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 each Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
M. Independent Accountants
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as the Trusts' independent accountants, providing professional
services including (1) audits of each Fund's annual financial statements, (2)
assistance and consultation in connection with SEC filings and (3) review of the
annual income tax returns filed on behalf of each Fund.
N. 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 Service
Center.
III-58
<PAGE>
STATE STREET RESEARCH EQUITY TRUST
PART C
OTHER INFORMATION
Item 23. Exhibits
(1)(a) First Amended and Restated Master Trust Agreement, Amendment No.
1, Amendment No. 2 and Amendment No. 3(17)
(1)(b) Amendment No. 4 to First Amended and Restated Master Trust
Agreement(18)
(1)(c) Amendment No. 5 to First Amended and Restated Master Trust
Agreement(18)
(1)(d) Amendments No. 6 and 7 to First Amended and Restated Master
Trust Agreement (22)
(1)(e) Amendment No. 8 to First Amended and Restated Master Trust
Agreement (25)
(2)(a) By-Laws of the Registrant(1)***
(2)(b) Amendment No. 1 to By-Laws effective September 30, 1992(13)***
(3) Not Applicable
(4)(a) Deleted
(4)(b) Deleted
(4)(c) Deleted
(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 Energy Fund(11)*,***
(5)(d) Letter Agreement with respect to the Advisory Agreement
relating to State Street Research Athletes Fund(23)
(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(12)**,***
(6)(a) Distribution Agreement with MetLife - State Street Investment
Services, Inc.(2)**,***
(6)(b) Form of Selected Dealer Agreement(17)
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement
(6)(d) Letter Agreement with respect to the Distribution Agreement
relating to MetLife - State Street Energy Fund(11)*,***
(6)(e) Form of Supplement No. 1 to Selected Dealer Agreement(18)
(6)(f) Letter Agreement with respect to the Distribution
Agreement relating to State Street Research Athletes Fund(23)
(7) Not applicable
C-1
<PAGE>
(8)(a) Custodian Contract with State Street Bank and Trust Company(2)***
(8)(b) Amendment to Custodian Contract with State Street Bank and Trust
Company(6)***
(8)(e) Letter Agreement with respect to the Custodian Contract relating
to MetLife - State Street Energy Fund(11)*,***
(8)(f) Letter Agreement with respect to the Custodian(23)
Contract relating to State Street Research Athletes Fund (23)
(8)(g) Amendment to Custodian Contract(22)
(8)(h) Data Access Services Addendum to Custodian Contract(25)
(9) Not applicable
(10)(a) Opinion and Consent of Goodwin, Procter & Hoar with respect to
the MetLife - State Street Equity Income, MetLife - State Street
Equity Investment and MetLife - State Street Capital Appreciation
Funds(2)*,***
(10)(b) Opinion and Consent of Goodwin, Procter & Hoar with respect to
MetLife - State Street Energy Fund(7)*,***
(10)(c) Opinion and Consent of Goodwin, Procter & Hoar LLP with respect
to State Street Research Athletes Fund (21)
(11) Consent of PricewaterhouseCoopers LLP
(12) Not applicable
(13)(a) Purchase Agreement and Investment Letter(2)***
(13)(b) Purchase Agreement and Investment Letter(2)***
(13)(c) Subscription and Investment Letter -- MetLife - State Street
Energy Fund(11)*,***
(13)(d) Subscription and Investment Letter relating to State
Street Research Athletes Fund(23)
(14)(a) Deleted.
(14)(b) Deleted.
(14)(c) Deleted.
(15)(a) First Amended and Restated Plan of Distribution Pursuant to
Rule 12b-1(14)***
(15)(b) Amendment No. 1 to First Amended and Restated Plan of
Distribution Pursuant to Rule 12b-1(16)***
(15)(c) Letter Agreement with respect to Plan of Distribution
Pursuant to Rule 12b-1 relating to State Street Research
Athletes Fund(23)
(15)(d) Rule 12b-1 Plan for Distribution of Shares
(15)(e) Form of Letter amendment to Rule 12b-1 Plan for Distribution of
Shares with respect to Class J Shares
(16)(a) Deleted.
(16)(b) Deleted.
(16)(c) Deleted.
(16)(d) Deleted.
(17)(a) First Amended and Restated Multiple Class Expense Allocation Plan
(18)
(17)(b) Addendum to First Amended and Restated Multiple Class Allocation
Plan(25)
(18)(a) Powers of Attorney(19)
(18)(b) Power of Attorney for Bruce R. Bond(25)
(19) Certificate of Board Resolution respecting Powers of Attorney(25)
(20) Application Forms(19)
C-2
<PAGE>
- -----------------
* 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 such
Series.
** 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 relevant name change
accordingly refer to MetLife - State Street Investment Services, Inc. or
State Street Financial Services, Inc.
*** Restated in electronic format in Post-Effective Amendment No. 22 filed
on June 2, 1998.
C-3
<PAGE>
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
<TABLE>
<CAPTION>
Footnote Securities Act of 1933
Reference Registration/Amendment Date Filed
<S> <C> <C> <C>
1 Initial Registration March 25, 1986
2 Pre-Effective Amendment No. 1 July 18, 1986
3 Post-Effective Amendment No. 1 August 12, 1986
4 Post-Effective Amendment No. 3 October 29, 1987
5 Post-Effective Amendment No. 5 October 25, 1988
6 Post-Effective Amendment No. 6 October 30, 1989
7 Post-Effective Amendment No. 7 November 27, 1989
8 Post-Effective Amendment No. 8 July 24, 1990
9 Post-Effective Amendment No. 9 August 31, 1990
10 Post-Effective Amendment No. 10 October 30, 1990
11 Post-Effective Amendment No. 11 October 31, 1991
12 Post-Effective Amendment No. 12 October 30, 1992
13 Post-Effective Amendment No. 13 April 2, 1993
14 Post-Effective Amendment No. 14 October 27, 1993
15 Post-Effective Amendment No. 15 September 1, 1994
16 Post-Effective Amendment No. 16 April 28, 1995
17 Post-Effective Amendment No. 17 August 29, 1995
18 Post-Effective Amendment No. 18 October 16, 1996
19 Post-Effective Amendment No. 19 August 22, 1997
20 Post-Effective Amendment No. 20 October 29, 1997
21 Post-Effective Amendment No. 21 January 9, 1998
22 Post-Effective Amendment No. 22 June 2, 1998
23 Post-Effective Amendment No. 23 August 31, 1998
24 Post-Effective Amendment No. 24 October 30, 1998
25 Post-Effective Amendment No. 25 September 1, 1999
</TABLE>
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<PAGE>
Item 24. Persons Controlled by or Under Common Control with the Fund
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1998
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1998. Those entities which are listed at
the left margin (labelled with capital letters) are direct subsidiaries of
Metropolitan. Unless otherwise indicated, each entity which is indented under
another entity is a subsidiary of such indented entity and, therefore, an
indirect subsidiary of Metropolitan. Certain inactive subsidiaries have been
omitted from the Metropolitan Organizational listing. The voting securities
(excluding directors' qualifying shares, if any) of the subsidiaries listed are
100% owned by their respective parent corporations, unless otherwise indicated.
The jurisdiction of domicile of each subsidiary listed is set forth in the
parenthetical following such subsidiary.
A. Metropolitan Tower Corp. (Delaware)
1. Metropolitan Property and Casualty Insurance Company (Rhode Island)
a. Metropolitan Group Property and Casualty Insurance Company
(Rhode Island)
i. Metropolitan Reinsurance Company (U.K.) Limited (Great
Britain)
b. Metropolitan Casualty Insurance Company (Rhode Island)
c. Metropolitan General Insurance Company (Rhode Island)
d. Metropolitan Direct Property and Casualty Insurance Company
(Georgia)
e. Metropolitan P&C Insurance Services, Inc. (California)
f. Metropolitan Lloyds, Inc. (Texas)
g. Met P&C Managing General Agency, Inc. (Texas)
2. Metropolitan Insurance and Annuity Company (Delaware)
a. MetLife Europe I, Inc. (Delaware)
b. MetLife Europe II, Inc. (Delaware)
c. MetLife Europe III, Inc. (Delaware)
d. MetLife Europe IV, Inc. (Delaware)
e. MetLife Europe V, Inc. (Delaware)
3. MetLife General Insurance Agency, Inc. (Delaware)
a. MetLife General Insurance Agency of Alabama, Inc. (Alabama)
b. MetLife General Insurance Agency of Kentucky, Inc. (Kentucky)
c. MetLife General Insurance Agency of Mississippi, Inc.
(Mississippi)
d. MetLife General Insurance Agency of Texas, Inc. (Texas)
e. MetLife General Insurance Agency of North Carolina, Inc. (North
Carolina)
f. MetLife General Insurance Agency of Massachusetts, Inc.
(Massachusetts)
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<PAGE>
4. Metropolitan Asset Management Corporation (Delaware)
(a.) MetLife Capital, Limited Partnership (Delaware).
Partnership interests in MetLife Capital, Limited
Partnership are held by Metropolitan (90%) and
Metropolitan Asset Management Corporation (10%).
(i.) MetLife Capital Credit L.P. (Delaware).
Partnership interests in MetLife Capital Credit
L.P. are held by Metropolitan (90%) and
Metropolitan Asset Management Corporation (10%).
(1) MetLife Capital CFLI Holdings, LLC (DE)
(a.) MetLife Capital CFLI Leasing, LLC
(DE)
b. MetLife Financial Acceptance Corporation (Delaware).
MetLife Capital Holdings, Inc. holds 100% of the voting
preferred stock of MetLife Financial Acceptance Corporation.
Metropolitan Property and Casualty Insurance Company holds
100% of the common stock of MetLife Financial Acceptance
Corporation.
c. MetLife Investments Limited (United Kingdom). 23rd Street
Investments, Inc. holds one share of MetLife Investments
Limited.
d. MetLife Investments Asia Limited (Hong Kong). One share of
MetLife Investments Asia Limited is held by W&C Services, Inc.,
a nominee of Metropolitan Asset Management Corporation.
5. SSRM Holdings, Inc. (Delaware)
a. GFM Investments Limited (Delaware)
b. State Street Research & Management Company (Delaware). Is a
sub-investment manager for the Growth, Income, Diversified
and Aggressive Growth Portfolios of Metropolitan Series
Fund, Inc.
i. State Street Research Investment Services, Inc.
(Massachusetts)
C-6
<PAGE>
c. SSR Realty Advisors, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Property Management, Inc. (Delaware)
(1) Metric Realty (Delaware). SSR Realty Advisors, Inc.
and Metric Property Management, Inc. each hold 50% of
the common stock of Metric Realty.
(a) Metric Institutional Apartment Fund II, L.P.
(California). Metric Realty holds a 1% interest
as general partner and Metropolitan holds an
approximately 14.6% limited partnership interest
in Metric Institutional Apartment Fund II, L.P.
(2) Metric Colorado, Inc. (Colorado). Metric Property
Management, Inc. holds 80% of the common stock of
Metric Colorado, Inc.
iii. Metric Capital Corporation (California)
iv. Metric Assignor, Inc. (California)
v. SSR AV, Inc. (Delaware)
6. MetLife Holdings, Inc. (Delaware)
a. MetLife Funding, Inc. (Delaware)
b. MetLife Credit Corp. (Delaware)
7. Metropolitan Tower Realty Company, Inc. (Delaware)
8. Met Life Real Estate Advisors, Inc. (California)
9. Security First Group, Inc. (DE)
a. Security First Life Insurance Company (DE)
b. Security First Insurance Agency, Inc. (MA)
c. Security First Insurance Agency, Inc. (NV)
d. Security First Group of Ohio, Inc. (OH)
e. Security First Financial, Inc. (DE)
f. Security First Investment Management Corporation (DE)
g. Security First Management Corporation (DE)
h. Security First Real Estate, Inc. (DE)
i. Security First Financial Agency, Inc. (TX)
10. Natiloportem Holdings, Inc. (Delaware)
B. Metropolitan Tower Life Insurance Company (Delaware)
C. MetLife Security Insurance Company of Louisiana (Louisiana)
C-7
<PAGE>
D. MetLife Texas Holdings, Inc. (Delaware)
1. Texas Life Insurance Company (Texas)
a. Texas Life Agency Services, Inc. (Texas)
b. Texas Life Agency Services of Kansas, Inc. (Kansas)
E. MetLife Securities, Inc. (Delaware)
F. 23rd Street Investments, Inc. (Delaware)
G. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
H. Santander Met, S.A. (Spain). Shares of Santander Met, S.A. are held by
Metropolitan (50%) and by an entity (50%) unaffiliated with Metropolitan.
1. Seguros Genesis, S.A. (Spain)
2. Genesis Seguros Generales, Sociedad Anomina de Seguros y Reaseguros
(Spain)
I. MetLife Saengmyoung Insurance Company Ltd. (Korea).
J. Metropolitan Life Seguros de Vida S.A. (Argentina)
K. Metropolitan Life Seguros de Retiro S.A. (Argentina).
L. Met Life Holdings Luxembourg (Luxembourg)
M. Metropolitan Life Holdings, Netherlands BV (Netherlands)
N. MetLife International Holdings, Inc. (Delaware)
O. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
P. Metropolitan Marine Way Investments Limited (Canada)
Q. P.T. MetLife Sejahtera (Indonesia) Shares of P.T. MetLife Sejahtera are
held by Metropolitan (80%) and by an entity (20%) unaffiliated with
Metropolitan.
R. Seguros Genesis S.A. (Mexico) Metropolitan holds 85.49%, Metropolitan Tower
Corp. holds 7.31% and Metropolitan Asset Management Corporation holds 7.20%
of the common stock of Seguros Genesis S.A.
S. Metropolitan Life Seguros de Vida S.A. (Uruguay). One share of Metropolitan
Life Seguros de Vida S.A. is held by Alejandro Miller Artola, a nominee of
Metropolitan Life Insurance Company.
T. Metropolitan Life Seguros E Previdencia Privada S.A. (Brazil)
C-8
<PAGE>
U. Hyatt Legal Plans, Inc. (Delaware)
1. Hyatt Legal Plans of Florida, Inc. (Fl)
V. One Madison Merchandising L.L.C. (Connecticut) Ownership of membership
interests in One Madison Merchandising L.L.C. is as follows: Metropolitan
owns 99% and Metropolitan Tower Corp. owns 1%.
W. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. CBNJ, Inc. (New Jersey)
X. MetPark Funding, Inc. (Delaware)
Y. 2154 Trading Corporation (New York)
Z. Transmountain Land & Livestock Company (Montana)
AA. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
2. Farmers National Marketing Group, LLC (Iowa) Ownership of membership
interests in Farmers National Marketing Group, LLC is as follows:
Farmers National Company (50%) and an entity unaffiliated with
Metropolitan (50%).
A.B. MetLife Trust Company, National Association. (United States)
A.C. Benefit Services Corporation (Georgia)
A.D. G.A. Holding Corporation (MA)
A.E. TNE-Y, Inc. (DE)
A.F. CRH., Inc. (MA)
A.G. NELRECO Troy, Inc. (MA)
A.H. TNE Funding Corporation (DE)
A.I. L/C Development Corporation (CA)
A.J. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.K. CRB Co., Inc. (MA) AEW Real Estate Advisors, Inc. holds 49,000 preferred
non-voting shares of CRB Co., Inc. AEW Advisors, Inc. holds 1,000
preferred non-voting shares of CRB Co., Inc.
A.L. New England Life Mortgage Funding Corporation (MA)
A.M. Mercadian Capital L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian Capital
L.P.
A.N. Mercadian Funding L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian
Funding L.P.
A.O. Tower Resources Group, Inc. (DE)
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<PAGE>
A.P. MetLife New England Holdings, Inc. (DE)
1. Fulcrum Financial Advisors, Inc. (MA)
2. New England Life Insurance Company (MA)
a. New England Life Holdings, Inc. (DE)
i. New England Securities Corporation (MA)
(1) Hereford Insurance Agency, Inc. (MA)
(2) Hereford Insurance Agency of Alabama, Inc. (AL)
(3) Hereford Insurance Agency of Minnesota, Inc. (MN)
(4) Hereford Insurance Agency of Ohio, Inc. (OH)
(5) Hereford Insurance Agency of New Mexico, Inc. (NM)
ii. TNE Advisers, Inc. (MA)
iii. TNE Information Services, Inc. (MA)
(1) First Connect Insurance Network, Inc. (DE)
(2) Interative Financial Solutions, Inc. (MA)
iv. N.L. Holding Corp. (Del)(NY)
(1) Nathan & Lewis Securities, Inc. (NY)
(2) Nathan & Lewis Associates, Inc. (NY)
(a) Nathan and Lewis Insurance Agency of Massachusetts,
Inc. (MA)
(b) Nathan and Lewis Associates of Texas, Inc. (TX)
(3) Nathan & Lewis Associates--Arizona, Inc. (AZ)
(4) Nathan & Lewis of Nevada, Inc. (NV)
(5) Nathan and Lewis Associates Ohio, Incorporated (OH)
b. Exeter Reassurance Company, Ltd. (MA)
c. Omega Reinsurance Corporation (AZ)
d. New England Pension and Annuity Company (DE)
e. Newbury Insurance Company, Limited (Bermuda)
3. Nvest Corporation (MA)
a. Nvest, L.P. (DE) Nvest Corporation holds a 1.69% general partnership
interest and MetLife New England Holdings, Inc. 3.19% general
partnership interest in Nvest, L.P.
b. Nvest Companies, L.P. (DE) Nvest Corporation holds a 0.0002% general
partnerhship interest in Nvest Companies, L.P. Nvest, L.P. holds a
14.64% general partnership interest in Nvest Companies, L.P.
Metropolitan holds a 46.23% limited partnership interest in Nvest
Companies, L.P.
i. Nvest Holdings, Inc. (DE)
(1) Back Bay Advisors, Inc. (MA)
(a) Back Bay Advisors, L.P. (DE)
Back Bay Advisors, Inc.
holds a 1% general partner
interest and NEIC
Holdings, Inc. holds a 99%
limited partner interest
in Back Bay Advisors, L.P.
(2) R & T Asset Management, Inc. (MA)
(a) Reich & Tang Distributors, Inc. (DE)
(b) R & T Asset Management L.P.
R & T Asset Management, Inc.
holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited
partner interest in &
Asset Management, L.P.
(c) Reich & Tang Services, Inc. (DE)
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<PAGE>
(3) Loomis, Sayles & Company, Inc. (MA)
(a) Loomis Sayles & Company, L.P. (DE)
Loomis Sayles & Company, Inc.
holds a 1% general partner interest and
R & T Asset Management, Inc. holds a 99%
limited partner interest in Loomis Sayles &
Company, L.P.
(4) Westpeak Investment Advisors, Inc. (MA)
(a) Westpeak Investment Advisors, L.P. (DE)
Westpeak Investment Advisors, Inc.
holds a 1% general partner interest and
Reich & Tang holds a 99% limited
partner interest in Westpeak Investment
Advisors, L.P.
(i) Westpeak Investment Advisors Australia
Limited Pty.
(5) Vaughan, Nelson Scarborough & McCullough (DE)
(a) Vaughan, Nelson Scarborough & McCullough, L.P. (DE)
VNSM, Inc. holds a 1% general partner interest and
Reich & Tang Asset Management, Inc. holds a 99%
limited partner interest in Vaughan, Nelson
Scarborough & McCullough, L.P.
(i) VNSM Trust Company
(6) MC Management, Inc. (MA)
(a) MC Management, L.P. (DE)
MC Management, Inc. holds a 1% general partner
interest and R & T Asset Management, Inc.
holds a 99% limited partner interest in MC
Management, L.P.
(7) Harris Associates, Inc. (DE)
(a) Harris Associates Securities L.P. (DE)
Harris Associates, Inc. holds a 1% general partner
interest and Harris Associates L.P. holds a
99% limited partner interest in Harris Associates
Securities, L.P.
(b) Harris Associates L.P. (DE)
Harris Associates, Inc. holds a 0.33% general
partner interest and NEIC Operating Partnership,
L.P. holds a 99.67% limited partner interest in
Harris Associates L.P.
(i) Harris Partners, Inc. (DE)
(ii) Harris Partners L.L.C. (DE)
Harris Partners, Inc. holds a 1%
membership interest and
Harris Associates L.P. holds a 99%
membership interest in Harris Partners L.L.C.
(1) Aurora Limited Partnership (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
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<PAGE>
(2) Perseus Partners L.P. (DE) Harris Partners
L.L.C. holds a 1% general partner interest
(3) Pleiades Partners L.P. (DE) Harris
Partners L.L.C. holds a 1% general partner
interest
(4) Stellar Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(5) SPA Partners L.P. (DE) Harris Partners
L.L.C. holds a 1% general partner interest
(8) Graystone Partners, Inc. (MA)
(a) Graystone Partners, L.P. (DE)
Graystone Partners, Inc. holds a 1%
general partner interest and New England
NEIC Operating Partnership, L.P.
holds a 99% limited partner interest in
Graystone Partners, L.P.
(9) NEF Corporation (MA)
(a) New England Funds, L.P. (DE) NEF Corporation holds a
1% general partner interest and NEIC Operating
Partnership, L.P. holds a 99% limited
partner interest in New England Funds, L.P.
(b) New England Funds Management, L.P. (DE) NEF
Corporation holds a 1% general partner interest and
NEIC Operating Partnership, L.P. holds a 99%
limited partner interest in New England Funds
Management, L.P.
(10) New England Funds Service Corporation
(11) AEW Capital Management, Inc. (DE)
(a) AEW Securities, L.P. (DE) AEW Capital Management, Inc. holds
a 1% general partnership and AEW Capital Management, L.P.
holds a 99% limited partnership interest in AEW Securities,
L.P.
ii. Nvest Associates, Inc.
iii. Snyder Capital Management, Inc.
(1) Snyder Capital Management, L.P. NEIC Operating
Partnership holds a 99.5% limited partnership
interest and Snyder Capital Management Inc. holds a
0.5% general partnership interest.
iv. Jurika & Voyles, Inc.
(1) Jurika & Voyles, L.P NEIC Operating Partnership,
L.P. holds a 99% limited partnership interest and
Jurika & Voyles, Inc. holds a 1% general partnership
interest.
v. Capital Growth Management, L.P. (DE)
NEIC Operating Partnership, L.P. holds a 50% limited partner
interest in Capital Growth Management, L.P.
vi. Nvest Partnerships, LLC ( )
C-12
<PAGE>
vii. AEW Capital Management L.P. (DE)
New England Investment Companies, L.P. holds a 99% limited partner
interest and AEW Capital Management, Inc. holds a 1% general
partner interest in AEW Capital Management, L.P.
(1) AEW II Corporation ( )
(2) AEW Partners III, Inc. ( )
(3) AEW TSF, Inc. ( )
(4) AEW Exchange Management, LLC
(5) AEWPN, LLC ( )
(6) AEW Investment Group, Inc. (MA)
(a) Copley Public Partnership Holding, L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75%
limited partnership interest in Copley Public Partnership
Holding, L.P.
(b) AEW Management and Advisors L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75% limited
partnership interest in AEW Management and Advisors L.P.
ii. AEW Real Estate Advisors, Inc. (MA)
1. AEW Advisors, Inc. (MA)
2. Copley Properties Company, Inc. (MA)
3. Copley Properties Company II, Inc. (MA)
4. Copley Properties Company III, Inc. (MA)
5. Fourth Copley Corp. (MA)
6. Fifth Copley Corp. (MA)
7. Sixth Copley Corp. (MA)
8. Seventh Copley Corp. (MA).
9. Eighth Copley Corp. (MA).
10. First Income Corp. (MA).
11. Second Income Corp. (MA).
12. Third Income Corp. (MA).
13. Fourth Income Corp. (MA).
14. Third Singleton Corp. (MA).
15. Fourth Singleton Corp. (MA)
16. Fifth Singleton Corp. (MA)
17. Sixth Singleton Corp. (MA).
18. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general
partner interest in BCOP Associates L.P.
ii. CREA Western Investors I, Inc. (MA)
1. CREA Western Investors I, L.P. (DE)
CREA Western Investors I, Inc. holds a 24.28% general
partnership interest and Copley Public Partnership Holding,
L.P. holds a 57.62% limited partnership interest in CREA
Western Investors I, L.P.
iii. CREA Investors Santa Fe Springs, Inc. (MA)
(7) Copley Public Partnership Holding, L.P. (DE)
AEW Capital Management, L.P. holds a 75% limited partner interest and
AEW Investment Group, Inc. holds a 25% general partner interest and
CREA Western Investors I, L.P holds a 57.62% Limited Partnership
interest.
C-13
<PAGE>
(8) AEW Real Estate Advisors, Limited Partnership (MA)
AEW Real Estate Advisors, Inc. holds a 25% general partnership interest
and AEW Capital Management, L.P. holds a 75% limited partnership
interest in AEW Real Estate Advisors, Limited Partnership.
(9) AEW Hotel Investment Corporation (MA)
(a.) AEW Hotel Investment, Limited Partnership (MA)
AEW Hotel Investment Corporation holds a 1% general
partnership interest and AEW Capital Management, L.P. holds a
99% limited partnership interest in AEW Hotel Investment,
Limited Partnership.
(10) Aldrich Eastman Global Investment Strategies, LLC (DE)
AEW Capital Management, L.P. holds a 25% membership interest and an
unaffiliated third party holds a 75% membership interest in Aldrich
Eastman Global Investment Strategies, LLC.
In addition to the entities listed above, Metropolitan (or where indicated an
affiliate) also owns an interest in the following entities, among others:
1) CP&S Communications, Inc., a New York corporation, holds federal radio
communications licenses for equipment used in Metropolitan owned facilities and
airplanes. It is not engaged in any business.
2) Quadreal Corp., a New York corporation, is the fee holder of a parcel of
real property subject to a 999 year prepaid lease. It is wholly owned by
Metropolitan, having been acquired by a wholly owned subsidiary of Metropolitan
in 1973 in connection with a real estate investment and transferred to
Metropolitan in 1988.
3) Met Life International Real Estate Equity Shares, Inc., a Delaware
corporation, is a real estate investment trust. Metropolitan owns approximately
18.4% of the outstanding common stock of this company and has the right to
designate 2 of the 5 members of its Board of Directors.
4) Metropolitan Structures is a general partnership in which Metropolitan owns
a 50% interest.
5) Metropolitan owns, via its subsidiary, AFORE Genesis Metropolitan S.A. de
C.V., approximately 61.7% of SIEFORE Genesis S.A. de C.V., a mutual fund.
6) Metropolitan owns varying interests in certain mutual funds distributed by
its affiliates. These ownership interests are generally expected to decrease as
shares of the funds are purchased by unaffiliated investors.
7) Metropolitan Lloyds Insurance Company of Texas, an affiliated association,
provides homeowner and related insurance for the Texas market. It is an
association of individuals designated as underwriters. Metropolitan Lloyds,
Inc., a subsidiary of Metropolitan Property and Casualty Insurance Company ("MET
P&C"), serves as the attorney-in-fact and manages the association.
8) Metropolitan directly owns 100% of the non-voting preferred stock of Nathan
and Lewis Associates Ohio, Incorporated, an insurance agency. 100% of the voting
common stock of this company is held by an individual who has agreed to vote
such shares at the direction of N.L. Holding Corp. (DEL), an indirect wholly
owned subsidiary of Metropolitan.
C-14
<PAGE>
9) 100% of the capital stock of Hereford Insurance Agency of Oklahoma, Inc.
(OK) is owned by an officer. New England Life Insurance Company controls the
issuance of additional stock and has certain rights to purchase such officer's
shares.
10) 100% of the capital stock of Fairfield Insurance Agency of Texas, Inc. (TX)
is owned by an officer. New England Life Insurance Company controls the
issuance of additional stock and has certain rights to purchase such officer's
shares.
11) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited
partnerships, are investment vehicles through which investments in certain
entities are held. A wholly owned subsidiary of Metropolitan serves as the
general partner of the limited partnerships and Metropolitan directly owns a 99%
limited partnership interest in each MILP. The MILPs have various's ownership
interests in certain companies. The various MILPs own, directly or indirectly,
100% of the voting stock of the following company: Coating Technologies
International, Inc.
NOTE: THE METROPOLITAN LIFE ORGANIZATIONAL CHART DOES NOT INCLUDE REAL ESTATE
JOINT VENTURES AND PARTNERSHIPS OF WHICH METROPOLITAN LIFE AND/OR ITS
SUBSIDIARIES IS AN INVESTMENT PARTNER. IN ADDITION, CERTAIN INACTIVE
SUBSIDIARIES HAVE ALSO BEEN OMITTED.
C-15
<PAGE>
Item 25. Indemnification
Under Article VI of the Registrant's First Amended and Restated Master
Trust Agreement, as further amended ("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
being 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 Investment Services, Inc.
against any loss, damage or expense reasonably incurred by any of them in
connection with any claim or in connection with any action, suit or proceeding
to which any of them may be a party, which arises out of or is alleged to arise
out of or is based upon a violation of any of its covenants herein contained or
any untrue or alleged untrue statement of material fact, or the omission or
alleged omission to state a material fact necessary to make the statements made
not misleading, in a Registration Statement or Prospectus of the Registrant, or
any amendment or supplement thereto, unless such statement or omission was made
in reliance upon written information furnished by State Street Research
Investment Services, Inc.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act of 1933 may be permitted to trustees, officers,
underwriters and controlling persons of the Registrant, pursuant to Article VI
of the Registrant's Master Trust Agreement, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
C-16
<PAGE>
Item 26. 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 Research & Investment Adviser Various investment advisory Boston, MA
Management Company clients
Abbott, Christopher C. Senior Managing Pioneer Investment Mgmt. Boston, MA
Executive Vice Director
President (until 10/99)
Arpiarian, Tanya None
Vice President
Bangs, Linda L. None
Vice President
Barnwell, Amy F. Vice President State Street Research Investment Services, Inc. Boston, MA
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
Vice President State Street Research Institutional Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Director State Street Research Investment Services, Inc. Boston, MA
Director and Chairman Boston Private Bank & Trust Co. Boston, MA
of Exec. Comm.
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Bochman, Kathleen M. None
Vice President
Borzilleri, John Vice President State Street Research Financial Trust Boston, MA
Senior Vice President
(Vice President
until 4/98)
Bray, Michael J. None
Senior Vice President
(Vice President
until 4/98)
Brezinski, Karen None
Vice President
Brown, Susan H. None
Vice President
Buffum, Andrea L. None
Vice President
Burbank, John F. None
Senior Vice President
</TABLE>
C-17
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
Calame, Mara D. Vice President and State Street Research Energy, Inc. Boston, MA
Vice President and Assistant Counsel
Assistant Secretary Assistant Secretary State Street Research Institutional Trust Boston, MA
Canavan, Joseph W. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President Assistant Treasurer State Street Research Income Trust Boston, MA
until 4/98) 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 Institutional 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
Carstens, Linda C. Vice President State Street Research Investment Boston, MA
Vice President Services, Inc.
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Senior Vice President
Coleman, Thomas J. None
Vice President
Cullen, Terrence J. Vice President and State Street Research Investment Services, Inc. Boston, MA
Vice President Assistant Counsel
and Assistant Secretary
D'Vari, Ronald None
Senior Vice President
Depp, Maureen G. 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. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Drake, Susan W. None
Vice President
Dudley, Catherine Vice President State Street Research Capital Trust Boston, MA
Senior Vice President Vice President State Street Research Institutional Trust Boston, MA
Duggan, Peter J. None
Senior Vice President
Ebel, Bruce A.
Senior Vice President Vice President Loomis, Sayles & Company, L.P. Chicago, IL
(since 3/99)
Vice President State Street Research Institutitonal Trust Boston, MA
Egel, David J. Vice President Sun Life of Canada Boston, MA
Vice President (since 4/98)
Vice President State Street Research Investment Services, Inc. Boston, MA
Even, Karen L. None
Vice President
Fazo, Steven A. None
Vice President
Federoff, Alex G. None
Vice President
</TABLE>
C-18
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
Fee, Richard E. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Feliciano, Rosalina None
Vice President
Ficco, Bonnie A. None
Vice President
Fochtman, Jr., Leo None
Vice President
Frey, Kenneth Analyst The Boston Company Boston, MA
Vice President (until 10/99)
Gardner, Michael D. None
Senior Vice President
Geer, Bartlett R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Giroux, June M. None
Vice President
Goganian, David Vice President Scudder-Kemper Investments Boston, MA
Vice President (until 6/99)
Vice President State Street Research Investment Services, Inc. Boston, MA
Goodman, Stephanie B. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Govoni, Electra None
Vice President
Grace, Evan None
Vice President
Granger, Allison None
Vice President
Haggerty, Bryan D. 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
Hasson, Ira P. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Haverty, Jr., Lawrence J. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
Heineke, George R. None
Vice President
Hickman, Joanne Managing Director Zurich Investment Management Chicago, IL
Senior Vice President (until 1/98)
Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Holland, Thomas Senior Vice President Putnam Investments Boston, MA
Vice President (until 6/99)
Senior Vice President State Street Research Investment Services, Inc. Boston, MA
</TABLE>
C-19
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
Huang, Jesse C. None
Vice President
Jackson, Jr., Vice President State Street Research Equity Trust Boston, MA
F. Gardner Trustee Certain trusts of related and
Senior Vice President non-related individuals
Trustee and Chairman of the Vincent Memorial Hospital Boston, MA
Board
Jamieson, Frederick H. Vice President and
Senior Vice President Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Vice President and Asst.
Treasurer SSRM Holdings, Inc. Boston, MA
Joseph, Robert I. None
Vice President
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 Institutional Trust Boston, MA
Vice President State Street Research Money Market Trust Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Kasper, M. Katherine Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Kern, Stephen None
Vice President
Kiessling, Dyann H. Vice President State Street Research Money Market Trust Boston, MA
Vice President
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
(Vice President
until 4/98)
Kuhn, Stephen P. None
Vice President
Langholm, Knut Director State Street Research Luxembourg
Senior Vice President
Leary, Eileen M. None
Vice President
Lomasney, Mary T. None
Vice President
Marinella, Mark A. Portfolio Manager STW Fixed Income Management, Ltd. Boston, MA
Senior Vice President (Until 8/98)
Vice President State Street Research Institutional Trust Boston, MA
Markel, Gregory S. None
Vice President
Maurer, Jacqueline J. None
Vice President
McKown, Elizabeth Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
</TABLE>
C-20
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
McNamara, III, Francis J. Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Executive Vice Clerk and General Counsel
President, Secretary Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
and General Counsel Secretary and General Counsel State Street Research Capital Trust Boston, MA
Secretary and General Counsel State Street Research Exchange Trust Boston, MA
Secretary and General Counsel State Street Research Growth Trust Boston, MA
Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel State Street Research Equity Trust Boston, MA
Secretary and General Counsel State Street Research Financial Trust Boston, MA
Secretary and General Counsel State Street Research Income Trust Boston, MA
Secretary and General Counsel State Street Research Money Market Trust Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
Secretary and General Counsel State Street Research Institutional Trust Boston, MA
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
Treasurer, Chief Treasurer State Street Research Money Market Trust Boston, MA
Financial Officer and Treasurer State Street Research Tax-Exempt Trust Boston, MA
Chief Administrative Treasurer State Street Research Capital Trust Boston, MA
Officer 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 Institutional Trust Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice State Street Research Investment Services, Inc. Boston, MA
President, Treasurer and
Chief Financial Officer
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Treasurer and Chief SSRM Holdings, Inc. Boston, MA
Financial Officer
Director State Street Research Luxembourg
Moore, Jr., Thomas P. Vice President State Street Research Financial Trust Boston, MA
Senior Vice Vice President State Street Research Equity Trust Boston, MA
President Director Hibernia Savings Bank Quincy, MA
Governor on the Board Association for Investment Management Charlottesville, VA
of Governors and Research
Morey, Andrew None
Vice President
Mulligan, JoAnne C. None
Senior Vice President
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
Paddon, Steven W. None
Vice President
Pannell, James C. Vice President State Street Research Institutional Trust Boston, MA
Executive Vice President
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President Vice President State Street Research Institutional Trust Boston, MA
Pierce, James D. None
Vice President
Poritzky, Dean E. None
Vice President
Pyle, David J. None
Vice President
</TABLE>
C-21
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
Ragsdale, E.K. Easton Vice President State Street Research Financial Trust Boston, MA
Senior Vice President
Ransom, Clifford Director of NatWest Markets
Vice President Special Situations
Rawlins, Jeffrey A. Vice President State Street Research Institutional Trust Boston, MA
Senior Vice President
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Romich, Douglas A. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President Assistant Treasurer State Street Research Income Trust Boston, MA
until 4/98) 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 Institutional Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Ryan, Michael J. Vice President Delaware Management Philadelphia, PA
Senior Vice President (until 1/98)
Sanderson, Derek None
Senior Vice President
Schrage, Michael M. None
Vice President
Shaver, Jr. C. Troy President, Chief State Street Research Investment Services, Inc. Boston, MA
Executive Vice Executive Officer and
President Executive Vice President
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 Income Trust Boston, MA
Executive Vice Vice President State Street Research Money Market Trust Boston, MA
President Vice President State Street Research Tax-Exempt Trust Boston, MA
Director State Street Research Investment Services, Inc. Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Vice President State Street Research Institutional Trust Boston, MA
Shoemaker, Richard D. None
Senior Vice President
Simi, Susan None
Vice President
Stambaugh, Kenneth None
Vice President
Stolberg, Thomas None
Vice President
Strelow, Dan R. None
Senior Vice President
Swanson, Amy McDermott Vice President State Street Research Institutional Trust Boston, MA
Senior Vice President
Tice, Robyn S. None
Vice President
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
</TABLE>
C-22
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
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 Director
Chairman, President, and Chief State Street Research Institutional Trust Boston, MA
Executive Officer
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)
Chairman and Director Metric Holdings, Inc. San Francisco, CA
Director and Officer Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Chairman of the Board MetLife Securities, Inc. New York, NY
and Director (until 1/97)
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director Colgate University Hamilton, NY
Director State Street Research Luxembourg
Chairman and Director SSR Realty Advisors, Inc. San Francisco, CA
Wallace, Julie K. None
Vice President
Walsh, Denis J. None
Vice President
Walsh, Tucker Vice President State Street Research Capital Trust Boston, MA
Vice President
Watts, Evan D., Jr. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Weiss, James M. Vice President State Street Research Exchange Trust Boston, MA
Executive Vice President Vice President State Street Research Financial Trust Boston, MA
(Senior Vice President) Vice President State Street Research Growth Trust Boston, MA
until 6/98) Vice President State Street Research Institutional Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Vice President State Street Research Capital Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Welch, Timothy M. None
Vice President
Westvold, Vice President State Street Research Institutional Trust Boston, MA
Elizabeth McCombs Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Wilkins, Kevin Senior Vice President State Street Research Investment Boston, MA
Senior Vice President (Vice President until 9/98) Services, Inc.
(Vice President
until 9/98)
Wilson, John T. Vice President State Street Research Master Investment Trust Boston, MA
Senior Vice President Vice President State Street Research Institutional Funds Boston, MA
(Vice President
until 4/98)
</TABLE>
C-23
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Senior Vice President, Asst. Clerk
Assistant Secretary Assistant Secretary and State Street Research Capital Trust Boston, MA
and Assistant Assistant General Counsel
General Counsel Assistant Secretary and State Street Research Exchange Trust Boston, MA
(Vice President Assistant General Counsel
until 4/98) Assistant Secretary and State Street Research Growth Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Master Investment Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Securities Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Equity Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Financial Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Income Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Money Market Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Tax-Exempt Trust Boston, MA
Assistant General Counsel
Assistant Secretary and SSRM Holdings, Inc. Boston, MA
Assistant General Counsel
Woodbury, Robert S. None
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 Vice President State Street Research Institutional Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
Zuger, Peter A. Vice President State Street Research Equity Trust Boston, MA
Senior Vice Portfolio Manager American Century
President (until 9/98) Investment Management
</TABLE>
C-24
<PAGE>
Item 27: 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 Growth Trust, State Street Research Master
Investment Trust, State Street Research Securities Trust, State Street Research
Portfolios, Inc. and State Street Research Institutional Funds.
(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 Fund
<S> <C> <C>
Ralph F. Verni Chairman of Chairman of the
One Financial Center the Board and Board, President,
Boston, MA 02111 Director Chief Executive Officer
and Trustee
Peter C. Bennett Director Vice President
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice President, Treasurer
One Financial Center Chief Financial Officer,
Boston, MA 02111 Chief Administrative
Officer and Director
Thomas A. Shively Director None
One Financial Center
Boston, MA 02111
C. Troy Shaver, Jr. President, Chief None
One Financial Center Executive Officer
Boston, MA 02111 and Executive Vice
President
Francis J. McNamara, III Executive Vice President, Secretary
One Financial Center General Counsel
Boston, MA 02111 and Clerk
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
Paul V. Daly Senior Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-25
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Fund
<S> <C> <C>
Susan M.W. DiFazio Senior Vice President None
One Financial Center
Boston, MA 02111
Joanne Hickman Senior Vice President None
One Financial Center
Boston, MA 02111
Thomas Holland Senior Vice President None
One Financial Center
Boston, MA 02111
Joan D. Miller Senior Vice President None
One Financial Center
Boston, MA 02111
Kevin Wilkins Senior Vice President None
One Financial Center
Boston, MA 02111
Darman A. Wing Senior Vice President, Assistant Secretary
One Financial Center Assistant General Counsel
Boston, MA 02111 and Assistant Clerk
Amy F. Barnwell Vice President None
One Financial Center
Boston, MA 02111
Linda C. Carstons Vice President None
One Financial Center
Boston, MA 02111
Terrence J. Cullen Vice President, None
One Financial Center Counsel and
Boston, MA 02111 Assistant Clerk
David J. Egel Vice President None
One Financial Center
Boston, MA 02111
David Goganian Vice President None
One Financial Center
Boston, MA 02111
Stephanie B. Goodman Vice President None
One Financial Center
Boston, MA 02111
Ira P. Hasson Vice President None
One Financial Center
Boston, MA 02111
Frederick H. Jamieson Vice President None
One Financial Center and Assistant
Boston, MA 02111 Treasurer
M. Katharine Kasper Vice President None
One Financial Center
Boston, MA 02111
Elizabeth G. McKown Vice President None
One Financial Center
Boston, MA 02111
Amy L. Simmons Vice President Assistant Secretary
One Financial Center
Boston, MA 02111
Evan D. Watts, Jr. Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-26
<PAGE>
Item 28. Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 29. Management Services
Under a Shareholders' Administrative Services Agreement between the
Registrant 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 series of the Registrant, and received the amounts set forth
below:
<TABLE>
<CAPTION>
Estimated
Year-end Year-end Year-end
Fund June 30, 1997 June 30, 1998 June 30, 1999
---- ------------- ------------- -------------
<S> <C> <C> <C>
State Street Research
Argo Fund $71,588 $101,411 $169,065
State Street Research
Global Resources Fund $66,532 $118,381 $177,302
State Street Research
Alpha Fund $83,958 $152,721 $301,353
State Street Research
Athletes Fund $ 0 $ 33 $ 10,515
</TABLE>
Item 30. Undertakings
(a) Inapplicable.
(b) Deleted.
(c) Deleted.
(d) The Registrant undertakes to hold a special meeting of shareholders
of State Street Research Equity Trust for the purpose of voting upon the
question of removal of any trustee or trustees when requested in writing so to
do by the record holders of not less than 10 per centum of the outstanding
shares of State Street Research Equity Trust 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.
(e) Deleted.
(f) Deleted.
C-27
<PAGE>
Notice
A copy of the First Amended and Restated Master Trust Agreement, as
further amended ("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, assistant 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-28
<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. 26 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 4th day of February, 2000.
STATE STREET RESEARCH EQUITY 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 & Chief
_________________________________ Executive Officer
Ralph F. Verni (principal executive
officer)
* Treasurer (principal
_________________________________ financial and
Gerard P. Maus accounting officer)
*
_________________________________
Bruce R. Bond Trustee
*
_________________________________
Steve A. Garban Trustee
*
_________________________________
Malcolm T. Hopkins Trustee
<PAGE>
*
_________________________________ Trustee
Dean O. Morton
*
_________________________________ Trustee
Toby Rosenblatt
*
_________________________________ Trustee
Michael S. Scott Morton
*By: /s/ Francis J. McNamara, III
__________________________________
Francis J. McNamara, III,
Attorney-in-Fact under
Powers of Attorney dated
August 22, 1997, incorporated
by reference from Post-Effective
Amendment No. 19 and under Power
of Attorney dated August 31, 1999,
incorporated by reference from
Post-Effective Amendment No. 25
<PAGE>
1933 Act Registration No. 33-4296
1940 Act File No. 811-4624
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. 26 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 27 [X]
____________________
STATE STREET RESEARCH EQUITY TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
____________________
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(11) Consent of PricewaterhouseCoopers LLP
(15)(d) Rule 12b-1 Plan for Distribution of Shares
(15)(e) Form of Letter Amendment for Rule 12b-1 Plan for Distribution of
Shares with respect to Class J Shares
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 26
to the registration statement (No. 33-4296) on Form N-1A (the "Registration
Statement") of our report dated August 16, 1999 relating to the financial
statements and financial highlights appearing in the June 30, 1999 Annual Report
of State Street Research Athletes Fund (a series of State Street Research Equity
Trust), which report is also referenced in the Prospectus. We also consent to
the reference to us under the heading "Independent Accountants" in such
Statement of Additional Information and to the reference to us under the heading
"Financial Highlights" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 3, 2000
STATE STREET RESEARCH EQUITY TRUST
RULE 12b-1 PLAN FOR DISTRIBUTION OF SHARES
WHEREAS, State Street Research Equity 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 to (a) issue shares of beneficial interest
in separate series, with the shares of each such series representing the
interests in a separate portfolio of securities and other assets, and (b) divide
the shares within each such series into two or more classes;
WHEREAS, one such class has been designated as Class B(1) (the shares of
such class being hereinafter referred to as "Shares");
WHEREAS, the Trust has established the State Street Research Argo Fund, the
State Street Research Alpha Fund, the State Street Research Global Resources
Fund and the State Street Research Athletes Fund (each such portfolio, together
with all other series made subject to this Rule 12b-1 Plan (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 this Plan, and has
adopted a related Distribution Agreement (the "Agreement") with State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor") pursuant to such Rule; and
WHEREAS, the Board of Trustees as a whole, and the Trustees who are not
interested persons (as defined in the Act) of the Trust 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 each 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. PAYMENTS TO THE DISTRIBUTOR
(a) Service Fees. The Trust shall pay the Distributor a service fee at the
end of each month at the annual rate of 0.25% of average daily net assets
attributable to the Shares of each Series to compensate the Distributor and any
securities firms or other third parties who render personal services to and/or
maintain shareholder accounts for the holders of Shares of such Series.
(b) Distribution Fees. The Trust shall pay the Distributor a distribution
fee under the Plan at the end of each month at the annual rate of 0.75% of
average daily net assets attributable to the Shares of each Series to compensate
the Distributor for services provided and expenses incurred by it in connection
with sales, promotional and marketing activities relating to the Shares of such
Series.
Payment of the distribution fee described in this Paragraph 1(b) shall be
subject to any limitation set forth in any applicable regulation of the National
Association of Securities Dealers, Inc.
SECTION 2. PAYMENTS FROM OTHER SOURCES
To the extent that any payments made by the Trust to the Distributor or
State Street Research & Management Company (the "Adviser"), including payment of
investment management fees, should be deemed to be an indirect financing of any
activity primarily resulting in the sale of Shares within the scope of Rule
12b-1 under the Act, then such payments shall be deemed to be authorized by this
Plan.
SECTION 3. TERM AND TERMINATION
(a) Effectiveness. This Plan shall become effective with respect to each
Series as of the later of (i) the date on which a Registration Statement with
respect to Shares of such Series becomes effective under the Securities Act of
1933, as amended, or (ii) the date on which such Series commences offering its
Shares to the public. This Plan shall continue in effect with respect to each
Series until one (1) year from the date of such effectiveness, unless the
continuation of this Plan shall have been approved with respect to the Series in
accordance with the provisions of Section 3(b) hereof.
(b) Continuation. This Plan and the Agreement shall continue in effect with
respect to each Series thereof subsequent to the initial term specified in
Section 3(a) 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.
2
<PAGE>
(c) Termination.
(i) This Plan may be terminated at any time with respect to
the Trust or any Series 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, as the case
may be. This Plan may remain in effect with respect to a Series thereof
even if it has been terminated in accordance with this Section 3(c)
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 Trust or that
Series, as the case may be, on sixty (60) days' written notice to the
Distributor. In addition, the Agreement provides for automatic
termination in the event of its assignment.
SECTION 4. AMENDMENTS
This Plan may be amended with respect to the Trust or a Series thereof in
the manner provided for annual renewal in Section 3(b) hereof; provided,
however, that this Plan may not be amended to increase materially the amount of
distribution expenditures provided for in Section 1 hereof unless such amendment
is approved by a vote of a majority of the outstanding voting securities of each
Series thereof with respect to which a material increase in the amount of
distribution expenditures is proposed.
SECTION 5. 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 6. 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.
3
<PAGE>
SECTION 7. RECORD KEEPING
The Trust shall preserve copies of this Plan, the Agreement and any related
agreements and all reports made pursuant to Section 6 hereof, for a period of
not less than six (6) years from the date of this Plan, and the Agreement, the
agreements or such reports, as the case may be, for the first two (2) years in
an easily accessible place.
SECTION 8. LIMITATION OF LIABILITY
The term "State Street Research Equity Trust" means and refers to the
Trustees of the Trust 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, 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. This Plan and
its execution and delivery have been authorized by the Trustees of the Trust and
signed by an authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees 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 the Master Trust Agreement. The Master Trust Agreement
further provides, and it is expressly agreed, that each Series 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.
4
<PAGE>
IN WITNESS WHEREOF, the Trust and the Distributor have executed this Rule
12b-1 Plan on the day and year set forth below in Boston, Massachusetts.
ATTEST: STATE STREET RESEARCH
EQUITY TRUST
/s/ Darman A. Wing By: /s/ Gerard P. Maus
- ---------------------------------------- ---------------------------
Gerard P. Maus
Treasurer
ATTEST: STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
/s/ Darman A. Wing By: /s/ C. Troy Shaver, Jr.
- ---------------------------------------- ---------------------------
C. Troy Shaver, Jr.
President
Date: January 1, 1999
STATE STREET RESEARCH EQUITY TRUST
One Financial Center
Boston, Massachusetts 02111-2690
,2000
State Street Research Investment Services, Inc.
One Financial Center
Boston, MA 02111-2690
Ladies and Gentlemen:
This letter is to confirm to you that the Rule 12b-1 Plan for Distribution
of Shares (the "Plan") adopted by State Street Research Equity Trust shall apply
to Class J shares of State Street Research Athletes Fund (the "Fund") as a
"Series" thereunder and under the terms set forth in the then current prospectus
and statement of additional information of the Class J shares of the Fund, as
from time to time amended. No approval of the Plan in respect of the Class J
shares of the Fund shall be required on behalf of any initial public
shareholders, provided that prior to any initial public offering, no Class J
shares are sold to persons who are not affiliated persons of the Fund,
affiliated persons of such persons, promoters of the Fund, or affiliated persons
of such promoters.
The term "State Street Research Master Investment Trust" means and refers
to the Trustees from time to time serving under the First Amended and Restated
Master Trust Agreement ("Master Trust Agreement") of the Trust dated June 1,
1993 as the same may subsequently thereto 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,
assistant 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 theTrust. This Agreement has been authorized by
the Trustees of the Trust and signed by a duly authorized officer or assistant
officer of the Trust, acting as such, and neither such authorization nor such
execution 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 and exclusively responsible for the payment of its debts, liabilities and
obligations, and that no other fund shall be responsible for the same.
<PAGE>
Please indicate your acceptance of the above in accordance with the terms
of the Plan by signing this letter as indicated below. This letter shall
constitute an addendum to the Plan.
STATE STREET RESEARCH
EQUITY TRUST
By:______________________________________
Gerard P. Maus
Treasurer
ACCEPTED AND AGREED TO:
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By:______________________________
C. Troy Shaver, Jr.
President
