As filed with the Securities and Exchange Commission on December 28, 1995
Securities Act of 1933 Registration No. 33-10327
Investment Company Act of 1940 File No. 811-4911
================================================================================
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. 15 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 16 [X]
____________________
METLIFE - STATE STREET FINANCIAL TRUST
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 357-1200
Francis J. McNamara, III
Senior Vice President, Secretary & General Counsel
State Street Research & Management Company
One Financial Center
Boston, Massachusetts 02111
(Name and Address of Agent for Service)
Copies of Communications To:
Donald J. Evans, P.C.
Edward T. O'Dell, P.C.
Goodwin, Procter & Hoar
Exchange Place
Boston, Massachusetts 02109
It is proposed that this filing will become effective under Rule 485:
[ ] Immediately upon filing pursuant to paragraph (b),
[ ] On ___________ pursuant to paragraph (b),
[ ] 60 days after filing pursuant to paragraph (a)(1),
[X] On March 1, 1996 pursuant to paragraph (a)(1).
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] On ___________ pursuant to paragraph (a)(2).
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
The Registrant hereby declares that, pursuant to Rule 24f-2 promulgated under
the Investment Company Act of 1940, as amended, it has registered an indefinite
number of shares of beneficial interest, par value $.001 per share, in each of
the State Street Research Government Income Fund, State Street Research
Strategic Portfolios: Conservative, State Street Strategic Portfolios: Moderate
and State Street Strategic Portfolios: Aggressive series of the Registrant,
which shares are designated as Class A shares, Class B shares, Class C shares
and Class D shares of beneficial interest, par value $.001 per share, in such
series.
A Rule 24f-2 Notice for the most recent fiscal year ended October 31, 1995 was
filed by the Registrant on or about December 21, 1995.
===============================================================================
<PAGE>
The Registrant, MetLife-State Street Financial Trust, expects to change its name
to State Street Research Financial Trust immediately prior to the effectiveness
of this Post-Effective Amendment.
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Part A
<TABLE>
<CAPTION>
CAPTION OR LOCATION
IN PROSPECTUS FOR STATE
STREET RESEARCH STRATEGIC
PORTFOLIOS: CONSERVATIVE,
STATE STREET RESEARCH
CAPTION OR LOCATION STRATEGIC PORTFOLIOS:
IN PROSPECTUS FOR MODERATE AND STATE STREET
STATE STREET RESEARCH RESEARCH STRATEGIC
FORM N-1A ITEM NO. GOVERNMENT INCOME FUND PORTFOLIOS: AGGRESSIVE
<S> <C> <C>
1. Cover Page............ Same Same
2. Synopsis.............. Table of Expenses Table of Expenses
3. Condensed Financial
Information........... Financial Highlights; Financial Highlights; Calculation of
Calculation of Performance Performance Data
Data
4. General Description
of Registrant......... The Fund's Investments; The Funds' Investments and Asset
The Fund and its Shares Allocation; The Funds and Their
Shares
5. Management of the
Fund.................. Management of the Fund; Management of the Funds;
Purchase of Shares Purchase of Shares
5A. Management's Discussion
of Fund Performance... [To be included in [To be included in
Financial Statements] Financial Statements]
6. Capital Stock and
Other Securities...... Shareholder Services; The Shareholder Services; The
Fund and Its Shares; Funds and Their Shares;
Management of the Management of the
Fund; Dividends Funds; Dividends and
and Distributions; Taxes Distributions; Taxes
7. Purchase of
Securities Being
Offered............... Purchase of Shares; Purchase of Shares;
Shareholder Services Shareholder Services
8. Redemption or
Repurchase............ Redemption of Shares; Redemption of Shares;
Shareholder Services Shareholder Services
9. Legal Proceedings..... Not Applicable Not Applicable
i
<PAGE>
Part B
CAPTION OR LOCATION
IN STATEMENT OF ADDITIONAL
INFORMATION FOR STATE
STREET RESEARCH STRATEGIC
PORTFOLIOS: CONSERVATIVE,
CAPTION OR LOCATION STATE STREET RESEARCH
IN STATEMENT OF ADDITIONAL STRATEGIC PORTFOLIOS:
INFORMATION FOR STATE MODERATE AND STATE
STREET RESEARCH STREET RESEARCH STRATEGIC
FORM N-1A ITEM NO. GOVERNMENT INCOME FUND PORTFOLIOS: AGGRESSIVE
10. Cover Page.......... Same Same
11. Table of Contents... Same Same
12. General Information
and History......... Not Applicable Not Applicable
13. Investment
Objectives
and Policies........ Additional Investment Additional Investment
Policies and Restrictions; Policies and Restrictions;
Additional Information Additional Information
Concerning Certain Concerning Certain
Investment Techniques; Investment Techniques;
Debt Instruments and Debt Instruments and
and Permitted Cash Investments; Permitted Cash Investments;
Portfolio Transactions Portfolio Transactions
14. Management of the
Registrant.......... Trustees and Officers Trustees and Officers
15. Control Persons and
Principal Holders of
Securities.......... Trustees and Officers; Trustees and Officers;
Investment Advisory Services Investment Advisory Services
16. Investment
Advisory and
Other Services...... Investment Advisory Services; Investment Advisory
Custodian; Independent Services; Custodian;
Accountants; Distribution of Independent Accountants;
Shares of the Fund Distribution of Shares of the
Funds
17. Brokerage
Allocation.......... Portfolio Transactions Portfolio Transactions
18. Capital Stock and
Other Securities.... Not Applicable (Description in Not Applicable (Description
Prospectus) in Prospectus)
ii
<PAGE>
CAPTION OR LOCATION
IN STATEMENT OF ADDITIONAL
INFORMATION FOR STATE
STREET RESEARCH STRATEGIC
PORTFOLIOS: CONSERVATIVE,
CAPTION OR LOCATION STATE STREET RESEARCH
IN STATEMENT OF ADDITIONAL STRATEGIC PORTFOLIOS:
INFORMATION FOR STATE MODERATE AND STATE
STREET RESEARCH STREET RESEARCH STRATEGIC
FORM N-1A ITEM NO. GOVERNMENT INCOME FUND PORTFOLIOS: AGGRESSIVE
19. Purchase, Redemption
and Pricing of
Securities Being
Offered............. Purchase and Redemption of Purchase and Redemption
Shares; Net Asset Value of Shares; Net Asset Value
20. Tax Status.......... Certain Tax Matters Certain Tax Matters
21. Underwriters........ Distribution of Shares of the Distribution of Shares of the
Fund Funds
22. Calculation of
Performance
Data.............. Calculation of Performance Data Calculation of Performance Data
23. Financial
Statements........ Financial Statements Financial Statements
</TABLE>
50847.c3
1/25/95
iii
<PAGE>
State Street Research
Government Income Fund
Prospectus
March 1, 1996
The investment objective of State Street Research Government Income Fund (the
"Fund") is to seek high current income. In seeking to achieve its investment
objective, the Fund invests primarily in U.S. Government securities.
State Street Research & Management Company serves as investment adviser for
the Fund (the "Investment Manager"). As of December 31, 1995, the Investment
Manager had assets of approximately $ billion under management. State
Street Research Investment Services, Inc. serves as distributor (the
"Distributor") for the Fund.
Shareholders may have their shares redeemed directly by the Fund at net
asset value plus the applicable contingent deferred sales charge, if any;
redemptions processed through securities dealers may be subject to processing
charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Fund will
achieve its investment objective. The net asset value of a share of the Fund
will fluctuate as market conditions change.
This Prospectus sets forth concisely the information a prospective investor
ought to know about the Fund before investing. It should be retained for future
reference. A Statement of Additional Information about the Fund dated March 1,
1996 has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus. It is available, at no charge,
upon request to the Fund at the address indicated on the back cover or by
calling 1-800-562-0032.
The Fund is a diversified series of State Street Research Financial Trust
(the "Trust"), an open-end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Table of Contents Page
- ---------------------------------------
Table of Expenses 2
Financial Highlights 4
The Fund's Investments 6
Limiting Investment Risk 9
Purchase of Shares 10
Redemption of Shares 18
Shareholder Services 20
The Fund and its Shares 24
Management of the Fund 25
Dividends and Distributions; Taxes 26
Calculation of Performance Data 27
- ---------------------------------------
<PAGE>
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5% and
(ii) an annual service fee of 0.25% of the average daily net asset value of
the Class A shares.
Class B shares are subject to (i) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees
of 1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution
and service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
<TABLE>
<CAPTION>
Class A Class B Class C Class D
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) 4.5% None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a percentage
of original purchase price or
redemption proceeds, as applicable) None(2) 5% None 1%
Redemption Fees (as a percentage of amount
redeemed, if applicable) None None None None
Exchange Fees None None None None
</TABLE>
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
thereafter and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the sale.
Long-term investors in a class of shares with a distribution fee may, over a
period of years, pay more than the economic equivalent of the maximum sales
charge permissible under applicable rules. See "Purchase of Shares." The
contingent deferred sales charge may also be imposed on shares involuntarily
redeemed for accounts which have not maintained requisite minimum balances.
See "Redemption of Shares--Additional Information."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class D
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.65% 0.65% 0.65% 0.65%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.20% 0.20% 0.20% 0.20%
------ ------ ------ --------
Total Fund Operating Expenses 1.10% 1.85% 0.85% 1.85%
====== ====== ====== ========
</TABLE>
Example:
You would pay the following expenses on a $1,000 investment including, for
Class A shares, the maximum applicable initial sales charge and assuming (1) 5%
annual return and (2) redemption of the entire investment at the end of each
time period:
1 Year 3 Years 5 Years 10 Years
------- --------- --------- ---------
Class A shares $56 $78 $103 $173
Class B shares (1) $69 $88 $120 $197
Class C shares $ 9 $27 $ 47 $105
Class D shares $29 $58 $100 $217
You would pay the following expenses on the same investment, assuming no
redemption:
1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
Class B shares (1) $19 $58 $100 $197
Class D shares $19 $58 $100 $217
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense levels shown in the table above are based
on experience with expenses for the fiscal year ended October 31, 1995;
actual expense levels for the current fiscal year and future years may vary
from the amounts shown. The table does not reflect charges for optional
services elected by certain shareholders, such as the $7.50 fee for
remittance of redemption proceeds by wire. For further information on sales
charges, see "Purchase of Shares--Alternative Purchase Program"; for further
information on management fees, see "Management of the Fund"; and for further
information on 12b-1 fees, see "Purchase of Shares--Distribution Plan."
3
<PAGE>
Financial Highlights
The data set forth below has been audited by Price Waterhouse LLP,
independent accountants, and their report thereon for the latest five years
is included in the Statement of Additional Information. For further
information about the performance of the Fund, see the Fund's Annual Report,
which appears under the caption "Financial Statements" in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------------------------------------
March 23, 1987
(commencement of
Year ended October 31 operations) to
--------------------------------------------------------------------------------
1995* 1994* 1993 1992 1991 1990 1989 1988 October 31, 1987
----- ------ ------ ------ ------ ------ -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year $ 11.68 $ 12.92 $ 12.38 $ 12.14 $ 11.28 $ 11.63 $ 11.64 $ 11.66 $ 12.50
Net investment
income .83 .81 .84 .90 .93 .96 1.05 1.12 .65
Net realized and
unrealized gain
(loss) on
investments,
forward
contracts
and foreign
currency .88 (1.26) .56 .26 .84 (.35) -- (.03) (.84)
Dividends from
net investment
income (.81) (.79) (.84) (.91) (.91) (.96) (1.06) (1.11) (.65)
Distributions
from net
realized gains -- -- (.02) (.01) -- -- -- -- --
----- ------- ------- -------- -------- -------- --------- ---------- -----------
Net asset value,
end of year $ 12.58 $ 11.68 $ 12.92 $ 12.38 $ 12.14 $ 11.28 $ 11.63 $ 11.64 $ 11.66
===== ======= ======= ======== ======== ======== ========= ========== ===========
Total return 15.07%+ (3.58)%+ 11.63%+ 9.86%+ 16.25%+ 5.54%+ 9.62%+ 9.77%+ (2.43)%+++
Net assets at
end of year
(000s) $655,045 $638,418 $868,556 $798,705 $762,517 $894,074 $1,134,786 $1,529,640 $2,009,853
Ratio of
operating
expenses to
average
net assets 1.10% 1.07% 1.05% 1.05% 1.05% 1.03% 1.06% 1.04% 1.03%++
Ratio of net
investment
income to
average
net assets 6.83% 6.54% 6.59% 7.25% 7.98% 8.53% 9.26% 9.54% 8.93%++
Portfolio
turnover
rate 105.57% 134.41% 103.49% 97.33% 29.20% 63.30% 65.48% 59.63% 148.69%
</TABLE>
++ Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
*Per-share figures have been calculated using the average shares method.
4
<PAGE>
<TABLE>
<CAPTION>
Class B Class C Class D
--------------------------------- --------------------------------- -----------------------------------
June 1, 1993 June 1, 1993 June 1, 1993
(Commencement (Commencement (Commencement
of Share Class of Share Class of Share Class
Designations) to Designations) to Designations) to
Year ended October 31, October 31, Year ended October 31 October 31, Year ended October 31, October 31,
1995* 1994* 1993 1995* 1994* 1993 1995* 1994* 1993
----- ------ ---- ----- ------ ---- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year $ 11.66 $ 12.91 $ 12.67 $ 11.67 $ 12.92 $ 12.67 $ 11.66 $ 12.91 $ 12.67
Net investment
income .73 .72 .30 .90 .84 .19 .74 .72 .30
Net realized and
unrealized gain
(loss) on
investments,
forward
contracts
and foreign
currency .87 (1.27) .24 .84 (1.27) .42 .87 (1.27) .24
Dividends from
net investment
income (.71) (.70) (.30) (.84) (.82) (.36) (.71) (.70) (.30)
---- ------- --------- ----- ------- --------- ----- ------- ----------
Net asset value,
end of year $ 12.55 $ 11.66 $ 12.91 $ 12.57 $ 11.67 $ 12.92 $ 12.56 $ 11.66 $ 12.91
==== ======= ========= ==== ======= ========= ==== ======= ==========
Total return 14.15%+ (4.38)%+ 4.32%+++ 15.37%+ (3.42)%+ 4.82%+++ 14.24%+ (4.38)%+ 4.31%+++
Net assets
at end
of year
(000s) $87,908 $52,319 $26,578 $5,036 $203 $36 $13,033 $13,425 $12,101
Ratio of
operating
expenses to
average net
assets 1.85% 1.82% 1.81%++ 0.85% 0.82% 0.80%++ 1.85% 1.82% 1.88%++
Ratio of net
investment
income to
average net
assets 6.01% 5.86% 5.67%++ 6.79% 8.01% 6.59%++ 6.08% 5.84% 5.59%++
Portfolio
turnover rate 105.57% 134.41% 103.49% 105.57% 134.41% 103.49% 105.57% 134.41% 103.49%
</TABLE>
++ Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
*Per-share figures have been calculated using the average shares method.
5
<PAGE>
The Fund's Investments
The Fund's investment objective is to seek high current income; this
investment objective cannot be changed without approval of the Fund's
shareholders.
The Fund will seek to attain its investment objective by following the
investment policies described below. These may be changed by the Board of
Trustees without shareholder approval.
The Fund invests primarily in U.S. Government securities. The Fund may also
invest in mortgage-related securities of private entities which are
collateralized or supported by the U.S. Government or its agencies or
instrumentalities as described below. Under normal circumstances, the Fund
will invest at least 65% of the value of its total assets in U.S. Government
securities (not including mortgage-related securities).
U.S. Government securities are securities which are issued or guaranteed by
the U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S.
Government securities in which the Fund invests include, among others:
(bullet) direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
(bullet) obligations of U.S. Government agencies or instrumentalities such
as the Federal Home Loan Banks, the Farmers Home Administration,
the Federal Farm Credit Banks, the Federal National Mortgage
Association, the Government National Mortgage Association and the
Federal Home Loan Mortgage Corporation; and
(bullet) obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a variety of
ways by the U.S. Government, its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S. Treasury. Other
obligations, such as those of the Federal National Mortgage Association, are
backed by the discretionary authority of the U.S. Government to purchase
certain obligations of agencies or instrumentalities. Obligations such as those
of the Federal Home Loan Banks, the Federal Farm Credit Banks, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation
are backed by the credit of the agency or instrumentality issuing the
obligations. Certain obligations of Resolution Funding Corporation, a
mixed-ownership Government corporation, are backed with respect to interest
payments by the U.S. Treasury, and with respect to principal payments by
U.S. Treasury obligations held in a segregated account with a Federal Reserve
Bank. Except for certain mortgage-related securities, the Fund will only
invest in obligations issued by mixed-ownership Government corporations
where such securities are guaranteed as to payment of principal or interest
by the U.S. Government or a U.S. Government agency or instrumentality, and any
unguaranteed principal or interest is otherwise supported by U.S. Government
obligations held in a segregated account.
In addition, the Fund may invest in mortgage-related securities which
represent interests in pools of mortgage loans and provide the Fund with a
flow-through of interest and principal payments as such payments are
received with respect to the mortgages in the pool. Mortgage-related
securities may be issued by U.S. Government agencies, instrumentalities or
mixed-ownership corporations, and the securities may or may not be supported
by the credit of such entities. Mortgage-related securities may also be
issued by private entities such as investment banking firms and insurance
companies. An issuer may offer senior or subordinated securities backed by
the same pool of mortgages. The senior securities have priority to the
interest and/or principal payments on the mortgages in the pool; the
subordinate securities have less priority to such payments on the mortgages
in the pool. The mortgage-related securities in which the Fund invests will
be rated AAA by Standard & Poor's Corporation ("S&P") or Aaa by Moody's
Investor's Service, Inc. ("Moody's") or not rated but considered by the
Investment Manager to be of equivalent investment quality to comparably rated
securities.
6
<PAGE>
Mortgage-related securities currently offer yields higher than those
available from other kinds of government securities, but because of the
possibility of prepayment of the underlying mortgages, they may be less
effective than other types of securities as a means of locking in attractive
long-term interest rates. This is caused by the need to reinvest prepayments
of principal generally and the possibility of significant unscheduled
payments resulting from a decline in mortgage rates. As a result, mortgage-
related securities may have less potential for capital appreciation during
periods of declining interest rates than other securities with comparable
maturities, while having a comparable risk of decline during periods of
rising interest rates.
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, which issue, for example, government trust certificates that are
backed by pools of assets such as U.S. Government securities or loans. Other
asset-backed securities in which the Fund can invest may be supported by
consumer credit card or other receivables.
The U.S. Government securities in which the Fund invests do not, in general,
have as high a yield as more speculative securities or securities not
supported by the U.S. Government or its agencies or instrumentalities. When
interest rates increase, the value of debt securities and shares of the Fund
can be expected to decline.
Portfolio Maturity and Turnover
The Fund's holdings may include issues across the maturity spectrum.
Ordinarily the Fund will emphasize investments in instruments that have
stated or remaining maturities that are medium or long-term; the weighted
average maturity of portfolio holdings, however, may be shortened or
lengthened through a mix of securities depending primarily upon the Investment
Manager's outlook for interest rates.
The Fund reserves full freedom with respect to portfolio turnover. In periods
when there are rapid changes in economic conditions or security price levels or
when investment strategy is changed significantly, portfolio turnover may be
significantly higher than during times of economic and market price stability or
when investment strategy remains relatively constant. A high rate of portfolio
turnover will result in increased transaction costs for the Fund and may also
result in an increase in realization of short-term capital gains.
Other Investment Policies
Fixed income securities in which the Fund may invest include zero or step
coupon securities. Zero or step coupon securities may pay no interest for all
or a portion of their life but are purchased at a discount to face value at
maturity. Their return consists of the amortization of the discount between
their purchase price and their maturity value, plus, in the case of a step
coupon, any fixed rate interest income. Zero 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 or such amounts annually to
its shareholders. These distributions may cause the Fund to liquidate
portfolio assets
7
<PAGE>
in order to make such distributions at a time when the Fund
may have otherwise chosen not to sell such securities. The amount of the
discount fluctuates with the market value of such securities, which may be
more volatile than that of securities which pay interest at regular
intervals.
The Fund reserves the right to invest varying amounts of its total assets in
securities of foreign issuers such as foreign corporate, government, or
government agency securities consistent with its investment objective and
policies. Under current policy, however, the Fund limits such investments to
a maximum of 20% of its total assets. It is anticipated that most of the
foreign investments of the Fund will consist of securities of issuers in
countries with developed economies. However, the Fund may also invest in the
securities of issuers in countries with new or developing capital markets as
deemed appropriate by the Investment Manager, although the Fund does not
presently expect to invest more than 5% of its total assets in issuers in
such less developed countries. Such countries include countries that have an
emerging stock market that trades a small number of securities; countries
with low- to middle-income economies; and/or countries with economies that
are based on only a few industries. Eastern European countries are considered
to have less developed capital markets.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments including the risks of
nationalization or expropriation, the possible imposition of currency
exchange blockages, higher operating expenses, foreign withholding and other
taxes which may reduce investment return, reduced availability of public
information concerning issuers, the difficulties in obtaining and enforcing a
judgment against a foreign issuer and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to
those applicable to domestic issuers. Moreover, securities of many foreign
issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers. Investments in foreign securities
also involve the additional cost of converting the foreign currency into U.S.
dollars.
In order to protect against the effect of uncertain future exchange rates on
securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions such as spot (i.e., cash) transactions at the rate
prevailing in the currency exchange market or by entering into forward
contracts to purchase or sell currencies. Although such contracts tend to
minimize the risk of loss resulting from a correctly predicted decline in
value of hedged currency, they tend to limit any potential gain that might
result should the value of such currency increase. In entering a forward
currency transaction, the Fund is dependent upon the creditworthiness and
good faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by a counterparty by dealing only with established, reputable
institutions with which the Investment Manager has done substantial business
in the past.
For further information regarding foreign investments, see the Statement of
Additional Information.
The Fund may lend portfolio securities with a value of up to 33-1/3% of its
total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of
the current market value of the loaned securities plus accrued interest.
Collateral recieved by the Fund will generally be held in the form tendered,
although cash may be invested in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, irrevocable stand-by letters
of credit issued by a bank, or any combination thereof. The investing of cash
collateral received from loaning portfolio securities involves leverage which
magnifies the potential for gain or loss on monies invested and, therefore,
results in an increase in the volatility of the Fund's outstanding securities.
Such loans may be terminated at any time.
The Fund will retain most rights of ownership including rights to dividends,
interest or other distributions on the loaned securities. Voting rights pass
with the lending, although the Fund may call loans to vote proxies if desired.
Should the borrower of the securities fail financially, there is a risk of
delay in recovery of the securities or loss of rights in the col-
8
<PAGE>
lateral. Loans are made only to borrowers which are deemed by the Investment
Manager to be of good financial standing.
The Fund may, subject to certain limitations, buy and sell options, futures
contracts and options on futures contracts on securities and securities indices,
enter into repurchase agreements and purchase securities on a "when-issued" or
forward commitment basis. The Fund may not establish a position in a commodity
futures contract or purchase or sell a commodity option contract for other than
bona fide hedging purposes if immediately thereafter the sum of the amount of
initial margin deposits and premiums required to establish such positions for
such nonhedging purposes would exceed 5% of the market value of the Fund's net
assets; similar policies apply to options which are not commodities. The Fund
may enter various forms of swap arrangements which have simultaneously the
characteristics of a security and a futures contract, although the Fund does not
presently expect to invest more than 5% of its total assets in such items. These
swap arrangements include interest rate swaps, currency swaps and index swaps.
See the Statement of Additional Information.
Limiting Investment Risk
In seeking to lessen investment risk, the Fund operates under certain
fundamental and nonfundamental investment restrictions.
Under the fundamental investment restrictions, the Fund may not (a)
purchase a security of any one issuer (other than securities issued or
guaranteed as to principal or interest by the U.S. Government or its agencies
or instrumentalities or mixed-ownership Government corporations) if such
purchase would, with respect to 75% of the Fund's total assets, cause more
than 5% of the Fund's total assets to be invested in the securities of such
issuer or cause more than 10% of the voting securities of such issuer to be
held by the Fund or (b) invest more than 25% of the Fund's total assets in
securities of issuers principally engaged in any one industry, except this
restriction does not apply to investments in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. Under the
nonfundamental investment restrictions, the Fund may not invest more than 15%
of its total assets in illiquid securities including repurchase agreements
extending for more than seven days and may not invest more than 5% of its
total assets in restricted securities excluding securities eligible for
resale under Rule 144A under the Securities Act of 1933. Although many
illiquid securities may also be restricted, and vice versa, compliance with
each of these policies will be determined independently.
The foregoing fundamental investment restrictions may not be changed
except by vote of the holders of a majority of the outstanding voting
securities of the Fund. The foregoing nonfundamental investment restriction
may be changed without a shareholder vote. For further information on the
above and other fundamental and nonfundamental investment restrictions, see
the Statement of Additional Information.
The Fund may not lend money; however, the Fund may purchase bonds,
debentures, notes and similar obligations (and enter into repurchase
agreements with respect thereto).
The Fund may hold up to 100% of its assets in cash or short-term, fixed
income securities for temporary defensive purposes. The Fund will adopt a
temporary defensive position when, in the opinion of the Investment Manager,
such a position is more likely to provide protection against adverse market
conditions than adherence to the Fund's other investment policies. The types
of short-term instruments in which the Fund may invest for such purposes are
described in the Statement of Additional Information and include short-term
money market securities such as repurchase agreements, securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances of certain
qualified financial institutions and corporate commercial paper rated at
least "A" by S&P or "Prime" by Moody's (or, if not rated, issued by companies
having an outstanding long-term unsecured debt issue rated at least "A" by
S&P or Moody's). See the Statement of Additional Information.
9
<PAGE>
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 10 to 24 below.
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers, Individual
Retirement Accounts ("IRAs"), trusts, corporations, individuals, etc. The
applicability of the general information and administrative procedures set
forth below accordingly will vary depending on the investor and the
recordkeeping system established for a shareholder's investment in the Fund.
Participants in 401(k) and other plans should first consult with the
appropriate person at their employer or refer to the plan materials before
following any of the procedures below. For more information or assistance,
anyone may call 1-800-562-0032.
Purchase of Shares
Methods of Purchase
Through Dealers
Shares of the Fund are continuously offered through securities dealers who
have entered into sales agreements with the Distributor. Purchases through
dealers are confirmed at the offering price, which is the net asset value
plus the applicable sales charge, next determined after the order is duly
received by State Street Research Shareholder Services ("Shareholder
Services"), a division of State Street Research Investment Services, Inc.,
from the dealer. ("Duly received" for purposes herein means in accordance
with the conditions of the applicable method of purchase as described below.)
The dealer is responsible for transmitting the order promptly to Shareholder
Services in order to permit the investor to obtain the current price. See
"Purchase of Shares--Net Asset Value" herein.
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's securities dealer a completed Application (accompanying this
Prospectus), together with a check for the total purchase price payable to
the Fund. The dealer must forward the Application and check in accordance
with the instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a check
payable to the Fund in the amount of the total purchase price together with
any one of the following: (i) an Application; (ii) the stub from a
shareholder's account statement; or (iii) a letter setting forth the name of
the Fund, the class of shares and the shareholder's account name and number.
Shareholder Services will deliver the purchase order to the transfer agent
and dividend paying agent, State Street Bank and Trust Company (the "Transfer
Agent").
If a check is not honored for its full amount, the purchaser could be subject
to additional charges to cover collection costs and any investment loss, and
the purchase may be cancelled.
By Wire
An investor may purchase shares by wiring Federal Funds of not less than
$5,000 to State Street Bank and Trust Company, which also serves as the
Trust's custodian (the "Custodian"), as set forth below. Prior to making an
investment by wire, an investor must notify Shareholder Services at
1-800-521-6548 and obtain a control number and instructions. Following such
notification, Federal Funds should be wired through the Federal Reserve
System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research Government
Income Fund and class of shares
(A, B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street
Research Shareholder Services)
10
<PAGE>
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make
such investment by 12 noon Boston time on the day of his or her investment;
and (ii) the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete the
Application accompanying this Prospectus and deliver it to his or her
securities dealer, who should forward it as required. No redemptions will be
effected until the Application has been duly processed.
The Fund may in its discretion discontinue, suspend or change the practice of
accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by the Fund. The Fund reserves
the right to reject any purchase order, including orders in connection with
exchanges, for any reason which the Fund in its sole discretion deems
appropriate. The Fund reserves the right to suspend the sale of shares.
Minimum Investment
Class of Shares
-------------------------------
A B C D
----- ----- -- -------
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent
Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $ 50 $ 50 (a) $ 50
By Investamatic $ 50 $ 50 (a) $ 50
All other $ 50 $ 50 (a) $ 50
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments under various retirement and employee benefit plans, sponsored
arrangements involving group solicitations of the members of an organization
or other investment plans such as for reinvestment of dividends and
distributions or for periodic investments (e.g., Investamatic Check Program).
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding Fund shares, or
the flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in the Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, securities dealers are paid differing
amounts of commission and other compensation depending on which class of
shares they sell.
11
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------------------ ---------------------------- -------- ----------------------
<S> <C> <C> <C> <C>
Sales Charges Initial sales charge Contingent deferred None Contingent deferred
at time of investment sales charge of 5% to sales charge of 1%
of up to 4.5% 2% applies to any applies to any
depending shares redeemed shares redeemed
on amount of within first five years within one year
investment following their purchase; following their
no contingent deferred purchase
sales charge after
five years
On investments of $1
million or more, no
initial sales charge;
but contingent
deferred
sales charge of 1%
applies to any
shares redeemed within
one year following
their purchase
Distribution Fee None 0.75% for first eight None 0.75% each year
years;
Class B shares convert
automatically to Class A
shares after eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Above described 4% None 1%
Commission initial
Received by sales charge less
Selling 0.25%
Securities to 0.50% retained by
Dealer Distributor
On investments of
$1 million or more,
0.25% to 0.70% paid
to dealer by
Distributor
</TABLE>
12
<PAGE>
In deciding which class of shares to purchase, the investor should consider
the amount of the investment, the length of time the investment is expected
to be held, and the ongoing service fee and distribution fee, among other
factors.
Class A shares are sold at net asset value plus an initial sales charge of
up to 4.5% of the public offering price. Because of the sales charge, not all
of an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class D shareholders also pay no
initial sales charge, but a contingent deferred sales charge of 1% generally
applies to redemptions made within one year of purchase. For Class B and
Class D shareholders, therefore, the entire purchase amount is immediately
invested in the Fund.
An investor who qualifies for a significantly reduced initial sales charge,
or a complete waiver of the sales charge on investments of $1,000,000 or
more, on the purchase of Class A shares might elect that option to take
advantage of the lower ongoing service and distribution fees that
characterize Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual
distribution fee of 0.75% of daily net assets for an eight-year period
following the date of purchase and are then automatically converted to Class
A shares. Class D shares are assessed an annual distribution fee of 0.75% of
daily net assets for as long as the shares are held. The prospective investor
should consider these fees plus the initial or contingent deferred sales
charges in estimating the costs of investing in the various classes of the
Fund's shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are also allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its
expense, provide additional cash and noncash incentives to securities dealers
that sell shares. Such incentives may be extended only to those dealers that
have sold or may sell significant amounts of shares and/or meet other
conditions established by the Distributor; for example, the Distributor may
sponsor special promotions to develop particular distribution channels or to
reach certain investor groups. The incentives may include merchandise and
trips to and attendance at sales seminars at resorts.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar
amount of the shares purchased as set forth in the table below. A major
portion of this sales charge is reallowed by the Distributor to the
securities dealer responsible for the sale.
Sales Sales
Charge Charge
Paid by Paid by Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
Less than $100,000 4.50% 4.71% 4.00%
$100,000 or above but less than $250,000 3.50% 3.63% 3.00%
$250,000 or above but less than $500,000 2.50% 2.56% 2.00%
$500,000 or above but less than $1 million 2.00% 2.04% 1.75%
See
following
$1 million and above 0% 0% discussion
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
a commission based on the aggregate of such sales as follows:
13
<PAGE>
Amount of Sale Commission
- --------------- -----------
(a) $1 million to $3 million 0.70%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed
within one year of the sale. However, such redeemed shares will not be
subject to the contingent deferred sales charge to the extent that their
value represents (1) capital appreciation or (2) reinvestment of dividends or
capital gains distributions. In addition, the contingent deferred sales
charge will be waived for certain other redemptions as described under
"Contingent Deferred Sales Charge Waivers" below (as otherwise applicable to
Class B shares).
Class A shares of the Fund that are purchased without a sales charge may be
exchanged for Class A shares of certain other Eligible Funds, as described
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption
within one year of the Class A shares which are acquired through such
exchange. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption. The amount of any contingent
deferred sales charge will be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement
of Additional Information, of $100,000 or more of Class A shares of the Fund
or a combination of "Eligible Funds." "Eligible Funds" include the Fund and
other funds so designated by the Distributor from time to time. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Securities dealers should call Shareholder Services
for details concerning the other Eligible Funds and any persons who may
qualify for reduced sales charges and related information. See the Statement
of Additional Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Fund and any other Eligible Funds within a 13-month period.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of shares
of the Fund and other Eligible Funds at reduced sales charges pursuant to a
Right of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call
Shareholder Services for details concerning the Right of Accumulation.
Other Programs
Class A shares of the Fund may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored
arrangements, which include programs under which a company, employee benefit
plan or other organization makes recommendations to, or permits group
solicitation of, its employees, members or participants, except any
organization created primarily for the purpose of obtaining shares of the
Fund at a reduced sales charge or without a sales charge. Sales without a
sales charge, or with a reduced sales charge, may also be made through
brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor, in the event
the Distributor determines to implement such arrangements. Information on
such arrangements and further conditions and limitations is available from
the Distributor.
14
<PAGE>
In addition, no sales charge is imposed in connection with the sale of Class
A shares of the Fund to the following entities and persons: (A) the
Investment Manager, Distributor, or any affiliated entities, including any
direct or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated
Companies, any relatives of any such individuals whose relationship is
directly verified by such individuals to the Distributor, or any beneficial
account for such relatives or individuals; and (C) employees, officers, sales
representatives or directors of dealers and other entities with a selling
agreement with the Distributor to sell shares of any aforementioned
investment company, any spouse or child of such person, or any beneficial
account for any of them. The purchase must be made for investment and the
shares purchased may not be resold except through redemption. This purchase
program is subject to such administrative policies, regarding the
qualification of purchasers and any other matters, as may be adopted by the
Distributor from time to time.
Class B Shares--Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Fund. However, a
contingent deferred sales charge may be imposed upon redemptions of Class B
shares as described below.
The Distributor will pay securities dealers at the time of sale a 4%
commission for selling Class B shares. The proceeds of the contingent
deferred sales charge and the distribution fee are used to offset
distribution expenses and thereby permit the sale of Class B shares without
an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets or (2) reinvestment of dividends or capital gains distributions.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
Contingent Deferred
Sales Charge
As A Percentage Of
Net Asset Value
Redemption During At Redemption
- ----------------- -------------------
1st Year Since Purchase 5%
2nd Year Since Purchase 4
3rd Year Since Purchase 3
4th Year Since Purchase 3
5th Year Since Purchase 2
6th Year Since Purchase and Thereafter None
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first
of those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of the Fund acquired through an exchange from
another Eligible Fund will be measured from the date that such shares were
initially acquired in the other Eligible Fund, and Class B shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gains distribution reinvestments in such other
Eligible Fund. These determinations will result in any contingent deferred
sales charge being imposed at the lowest possible rate. For federal income
tax purposes, the amount of the contingent deferred sales charge will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid
to the Distributor.
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain
conditions. In addition, the contingent deferred sales charge will be
15
<PAGE>
waived for: (i) redemptions made within one year of the death or total
disability, as defined by the Social Security Administration, of all
shareholders of an account; (ii) redemptions made after attainment of a
specific age in an amount which represents the minimum distribution required
at such age under Section 401(a)(9) of the Internal Revenue Code for
retirement accounts or plans (e.g., age 70-1/2 for IRAs and Section 403(b)
plans), calculated solely on the basis of assets invested in the Fund or
other Eligible Funds; and (iii) a redemption resulting from a tax-free return
of an excess contribution to an IRA. (The foregoing waivers do not apply to a
tax-free rollover or transfer of assets out of the Fund.) The Fund may
modify or terminate the waivers described above at any time; for example,
the Fund may limit the application of multiple waivers.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to
Class A shares of the Fund at the end of eight years following the issuance
of such Class B shares; consequently, they will no longer be subject to the
higher expenses borne by Class B shares. The conversion rate will be
determined on the basis of the relative per share net asset values of the two
classes and may result in a shareholder receiving either a greater or fewer
number of Class A shares than the Class B shares so converted. As noted
above, holding periods for Class B shares received in exchange for Class B
shares of other Eligible Funds will be counted toward the eight-year period.
Class C Shares--Institutional; No Sales Charge
The purchase price of a Class C share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
Class C shares are only available for new investments by certain employee
benefit plans and large institutions. See the Statement of Additional
Information. Information on the availability of Class C shares and further
conditions and limitations with respect thereto is available from the
Distributor.
Class C shares may be also issued in connection with mergers and acquisitions
involving the Fund, and under certain other circumstances as described in
this Prospectus (e.g., see "Shareholder Services--Exchange Privilege").
Class C shares may have also been issued directly or through exchanges to
those shareholders of the Fund or other Eligible Funds who previously held
shares which are not subject to any future sales charge or service fees or
distribution fees.
Class D Shares--Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays securities dealers a 1% commission for selling Class D shares at the
time of purchase. The proceeds of the contingent deferred sales charge and
the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not be
subject to the contingent deferred sales charge to the extent that the value
of such shares represents (1) capital appreciation of Fund assets or (2)
reinvestment of dividends or capital gains distributions. In addition, the
contingent deferred sales charge will be waived for certain other redemptions
as described under "Contingent Deferred Sales Charge Waivers" above (as
otherwise applicable to Class B shares). For federal income tax purposes, the
amount of the contingent deferred sales charge will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemp-
16
<PAGE>
tion. The amount of any contingent deferred sales charge will be paid to the
Distributor.
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of regular trading of the New York Stock Exchange (the "NYSE")
exclusive of days on which the NYSE is closed. The NYSE ordinarily closes at
4 P.M. New York City time. The Fund uses one or more pricing services to
value its portfolio securities. The pricing services utilize information with
respect to market transactions, quotations from dealers and various
relationships among securities in determining value and may provide prices
determined as of times prior to the close of the NYSE. Assets for which
quotations are readily available are valued as of the close of business on
the valuation date. Securities for which there is no pricing service
valuation or last reported sale price are valued as determined in good faith
by or under the authority of the Trustees of the Trust. The Trustees have
authorized the use of the amortized cost method to value short-term debt
instruments issued with a maturity of one year or less and having a remaining
maturity of 60 days or less when the value obtained is fair value. Further
information with respect to the valuation of the Fund's assets is included in
the Statement of Additional Information.
Distribution Plan
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, the Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class
of shares as follows:
Class Service Fee Distribution Fee
- -- ----------- ----------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. A portion
of any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance of
shareholder accounts by such dealers. Dealers who have sold Class A shares
are eligible for further reimbursement commencing as of the time of such
sale. Dealers who have sold Class B and Class D shares are eligible for
further reimbursement after the first year during which such shares have been
held of record by such dealer as nominee for its clients (or by such clients
directly). Any service fees received by the Distributor and not allocated to
dealers may be applied by the Distributor in reduction of expenses incurred
by it directly for personal services and the maintenance of shareholder
accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling such shares. Any
distribution fees received by the Distributor and not allocated to dealers
may be applied by the Distributor in connection with sales or marketing
efforts, including special promotional fees and cash and noncash incentives
based upon sales by securities dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers, to
the extent payable out of the general profits, revenues or other sources of
the Distributor (including the advisory fees paid by the Fund), have also
been authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the
Distribution Plan to 1%, of which 0.75% may be used to pay distribution
expenses and 0.25% may be used to pay shareholder service fees. The NASD rule
also limits the aggregate amount which the Fund may pay for such
distribution
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costs to 6.25% of gross share sales of a class since the inception of any
asset-based sales charge plus interest at the prime rate plus 1% on unpaid
amounts thereof (less any contingent deferred sales charges). Such limitation
does not apply to shareholder service fees. Payments to the Distributor or to
dealers funded under the Distribution Plan may be discontinued at any time by
the Trustees of the Trust.
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day
the NYSE is open for business. Redemptions will be effective at the net asset
value per share next determined (see "Purchase of Shares--Net Asset Value"
herein) after receipt of the redemption request, in accordance with the
requirements described below, by Shareholder Services and delivery of the
request by Shareholder Services to the Transfer Agent. To allow time for the
clearance of checks used for the purchase of any shares which are tendered
for redemption shortly after purchase, the remittance of the redemption
proceeds for such shares could be delayed for 15 days or more after the
purchase. Shareholders who anticipate a potential need for immediate access
to their investments should, therefore, purchase shares by wire. Except as
noted, redemption proceeds from the Fund are normally remitted within seven
days after receipt of the redemption request by the Fund and any necessary
documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By Wire"
below), by sending to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408: (1) a written request for redemption signed by
the registered owner(s) of the shares, exactly as the account is registered; (2)
an endorsed stock power in good order with respect to the shares or, if issued,
the share certificates for the shares endorsed for transfer or accompanied by an
endorsed stock power; (3) any required signature guarantees (see "Redemption of
Shares-- Signature Guarantees" below); and (4) any additional documents which
may be required for redemption in the case of corporations, trustees, etc., such
as certified copies of corporate resolutions, governing instruments, powers of
attorney, and the like. The Transfer Agent will not process requests for
redemption until it has received all necessary documents in good order. A
shareholder will be notified promptly if a redemption request cannot be
accepted. Shareholders having any questions about the requirements for
redemption should call Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Fund
may revoke or suspend the telephone redemption privilege at any time and
without notice. See "Shareholder Services--Telephone Services" for a
discussion of the conditions and risks associated with Telephone Privileges.
Request By Check (Class A Shares Only)
Shareholders of Class A shares of the Fund may redeem shares by checks drawn
on State Street Bank and Trust Company. Checks may be made payable to the
order of any person or organization designated by the shareholder and must be
for amounts of at least $500 but not more than $100,000. Shareholders will
continue to earn dividends on the shares to be redeemed until the check
clears. Checkbooks are supplied for a $2 fee. Checks will be sent only to the
registered owner at the address of record. A $10 fee will be charged against
an account in the event a redemption check is presented for payment and not
honored pursuant to the terms and conditions established by State Street Bank
and Trust Company.
Shareholders can request the checkwriting privilege by completing the
signature card which is part of the
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Application. In order to arrange for redemption-by-check after an account has
been opened, a revised Application with signature card and signatures guaranteed
must be sent to Shareholder Services. Cancelled checks will be returned to
shareholders at the end of each month.
The redemption-by-check service is subject to State Street Bank and Trust
Company's rules and regulations applicable to checking accounts (as amended
from time to time), and is governed by the Massachusetts Uniform Commercial
Code. All notices with respect to checks drawn on State Street Bank and Trust
Company must be given to State Street Bank and Trust Company. Stop payment
instructions with respect to checks must be given to State Street Bank and
Trust Company by calling 1-617-985-8543. Shareholders may not close out an
account by check.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800-521-6548 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge
is subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor
as its agent to accept orders from dealers by wire or telephone for the
repurchase of shares by the Distributor from the dealer. The Fund may revoke
or suspend this authorization at any time. The repurchase price is the net
asset value for the applicable shares next determined following the time at
which the shares are offered for repurchase by the dealer to the Distributor.
The dealer is responsible for promptly transmitting a shareholder's order to
the Distributor. Payment of the repurchase proceeds is made to the dealer who
placed the order promptly upon delivery of certificates for shares in proper
form for transfer or, for Open Accounts, upon the receipt of a stock power
with signatures guaranteed as described below, and, if required, any
supporting documents. Neither the Fund nor the Distributor imposes any charge
upon such a repurchase. However, a dealer may impose a charge as agent for a
shareholder in the repurchase of his or her shares.
The Fund has reserved the right to change, modify or terminate the services
described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder
accounts, the Fund reserves the right to involuntarily redeem at its option
any shareholder account which remains below $1,500 for a period of 60 days
after notice is mailed to the applicable shareholder, or to impose a
maintenance fee on such account after 60 days' notice. Such involuntary
redemptions will be subject to applicable sales charges, if any. The Fund may
increase such minimum account value above such amount in the future after
notice to affected shareholders. Involuntarily redeemed shares will be priced
at the net asset value on the date fixed for redemption by the Fund, and the
proceeds of the redemption will be mailed promptly to the affected
shareholder at the address of record. Currently, the maintenance fee is $18
annually, which is paid to the Transfer Agent. The fee does not apply to
certain retirement accounts or if the shareholder has more than an aggregate
$50,000 invested in the Fund and other Eligible Funds combined. Imposition of
a maintenance fee on a small account could, over time, exhaust the assets of
such account.
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
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period in which an emergency exists as a result of which disposal of portfolio
securities is not reasonably practicable or it is not reasonably practicable to
fairly determine the Fund's net asset value; or (3) during such other periods as
the Securities and Exchange Commission may by order permit for the protection of
investors; and (b) the payment of redemption proceeds may be postponed as
otherwise provided under "Redemption of Shares" herein.
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees help the Transfer
Agent determine that the person who has authorized a redemption from the
account is, in fact, the shareholder. Signature guarantees are required for,
among other things: (1) written requests for redemptions for more than $50,000;
(2) written requests for redemptions for any amount if the proceeds are
transmitted to other than the current address of record (unchanged in the past
30 days); (3) written requests for redemptions for any amount submitted by
corporations and certain fiduciaries and other intermediaries; (4) requests to
transfer the registration of shares to another owner; and (5) authorizations
to establish the checkwriting privilege. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived in certain
instances. Please contact Shareholder Services at 1-800-562-0032 for specific
requirements relating to your account.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of the Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing Class B or Class D shares will not be
issued, while certificates representing Class A or Class C shares will only
be issued if specifically requested in writing and, in any case, will only be
issued for full shares, with any fractional shares to be carried on the
shareholder's account. Shareholders will receive periodic statements of
transactions in their 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 the Fund, to Shareholder Services
under the terms set forth above under "Purchase of Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
(b) All income dividends in cash; all capital gains distributions reinvested
in additional shares of the Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in any one
available Eligible Fund designated by the shareholder as described below.
See "Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will automatically be coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for available shares with
corresponding characteristics of any of the other Eligible Funds at any time
on the basis of the relative net asset values of the respective
20
<PAGE>
shares to be exchanged, subject to compliance with applicable securities laws.
Shareholders of any other Eligible Fund may similarly exchange their shares for
Fund shares with corresponding characteristics. Prior to making an exchange,
shareholders should obtain the Prospectus of the Eligible Fund into which they
are exchanging. Under the Direct Program, subject to certain conditions,
shareholders may make arrangements for regular exchanges from the Fund into
other Eligible Funds. To effect an exchange, Class A, Class B and Class D shares
may be redeemed without the payment of any contingent deferred sales charge that
might otherwise be due upon an ordinary redemption of such shares. The State
Street Research Money Market Fund issues Class E shares which are sold without
any sales charge. Exchanges of State Street Research Money Market Fund Class E
shares into Class A shares of the Fund or any other Eligible Fund are subject to
the initial sales charge or contingent deferred sales charge applicable to an
initial investment in such Class A shares, unless a prior Class A sales charge
has been paid directly or indirectly with respect to the shares redeemed. For
purposes of computing the contingent deferred sales charge that may be payable
upon disposition of any acquired Class A, Class B and Class D shares, the
holding period of the redeemed shares is "tacked" to the holding period of the
acquired shares. The period any Class E shares are held is not tacked to the
holding period of any acquired shares. No exchange transaction fee is currently
imposed on any exchange.
For the convenience of its shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or
his or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-521-6548. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares of
the relevant other Eligible Fund may legally be sold. For tax purposes, each
exchange actually represents the sale of shares of one fund and the purchase
of shares of another. Accordingly, exchanges may produce a capital gain or
loss for tax purposes. The exchange privilege may be terminated or suspended
or its terms changed at any time, subject, if required under applicable
regulations, to 60 days' prior notice. New accounts established for
investments upon exchange from an existing account in another fund will have
the same Telephone Privileges as the existing account, unless Shareholder
Services is instructed otherwise. Related administrative policies and
procedures may also be adopted with regard to a series of exchanges, street
name accounts, sponsored arrangements and other matters.
The exchange privilege is not designed for use in connection with short-term
trading or market timing strategies. To protect the interests of shareholders,
the Fund reserves the right to temporarily or permanently terminate the exchange
privilege for any person who makes more than six exchanges out of or into the
Fund per calendar year. Accounts under common ownership or control, including
accounts with the same taxpayer identification number, may be aggregated for
purposes of the six exchange limit. Notwithstanding the six exchange limit, the
Fund reserves the right to refuse exchanges by any person or group if, in the
Investment Manager's judgment, the Fund would be unable to invest effectively
in accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. Exchanges may be restricted or refused if
the Fund receives or anticipates simultaneous orders affecting significant
portions of the Fund's assets. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to the Fund.
The Fund may impose these restrictions at any time. The exchange limit may be
modified for accounts in certain institutional retirement plans because of
plan exchange limits, Department of Labor regulations or administrative and
other considerations. Subject to the foregoing, if an exchange request in good
order is received by Shareholder Services and delivered by Shareholder Services
to the Transfer Agent by 12 noon Boston time on any business day, the exchange
usually will occur that day. Consult Shareholder Services before requesting an
exchange or for further information.
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<PAGE>
Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares repurchased
at his or her request may reinvest all or any portion of the proceeds (plus
that amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and
without subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 120 calendar days after a redemption or
repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal income tax
purposes, a sale on which the shareholder may realize a gain or loss. If a
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once per 12-month period with
respect to his or her shares of the Fund. No charge is imposed by the Fund
for such reinvestments; however, dealers may charge fees in connection with
the reinvestment privilege. The reinvestment privilege may be exercised with
respect to an Eligible Fund only in those states where shares of the relevant
other Eligible Fund may legally be sold.
Investment Plans
The Investamatic Check Program is available to Class A, Class B and Class D
shareholders. Under this Program, shareholders may make regular investments
by authorizing withdrawals from their bank accounts each month or quarter on
the Application available from Shareholder Services.
The Distributor also offers tax-sheltered retirement plans, including
prototype and other employee benefit plans for employees, sole proprietors,
partnerships and corporations. Details of these investment plans and their
availability may be obtained from securities dealers or from Shareholder
Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Fund's Systematic Withdrawal Plan,
to have periodic checks issued for specified amounts. These amounts may not
be less than certain minimums, depending on the class of shares held. The
Plan provides that all income dividends and capital gains distributions of
the Fund shall be credited to participating shareholders in additional shares
of the Fund. Thus, the withdrawal amounts paid can only be realized by
redeeming shares of the Fund under the Plan. To the extent such amounts paid
exceed dividends and distributions from the Fund, a shareholder's investment
will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales charges,
no such sales charges will be imposed on withdrawals of up to 8% annually of
either (a) the value, at the time the Plan is initiated, of the shares then
in the account or (b) the value, at the time of a withdrawal, of the same
number of shares as in the account when the Plan was initiated, whichever is
higher.
Expenses of the Plan are borne by the Fund. A participating shareholder may
withdraw from the Plan, and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is
receiving payments under a Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate
in the Investamatic Check Program and the Systematic Withdrawal Plan at the
same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all their
dividends and any other distri-
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butions from the Fund or any Eligible Fund automatically invested at net asset
value in one other such Eligible Fund designated by the shareholder, provided
the account into which the investment is made is initially funded with the
requisite minimum amount. The number of shares purchased will be determined as
of the dividend payment date. The Dividend Allocation Plan is subject to state
securities law requirements, to suspension at any time, and to such policies,
limitations and restrictions, as, for instance, may be applicable to street name
or master accounts, that may be adopted from time to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by
the Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions for
amounts up to $50,000 to be mailed to the shareholder's address of record is
available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically; and
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not previously
request such telephone wire privilege on his or her original Application may
request the privilege by completing a Telephone Redemption-by-Wire Form
which may be obtained by calling 1-800-521-6548. The Telephone Redemption-
by-Wire Form requires a signature guarantee.
(4) the privilege allowing the shareholder to make telephone purchases or
redemptions transmitted via an electronic funds transfer system between
the shareholder's bank and the Fund, is available upon completion of the
requisite initial documentation. For details and forms, call 1-800-521-6548.
The documentation requires a signature guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in (1)
and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by advising
Shareholder Services that the shareholder wishes to discontinue the use of
such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account; and (2) honor any written instructions for
a change of address regardless of whether such request is accompanied by a
signature guarantee. All telephone calls will be recorded. None of the Fund,
the other Eligible Funds, the Transfer Agent, the Investment Manager or the
Distributor will be liable for any loss, expense or cost arising out of any
request, including any fraudulent or unauthorized requests. Shareholders
assume the risk to the full extent of their accounts that telephone requests
may be unauthorized. Reasonable procedures will be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not be
liable for any losses arising from unauthorized or fraudulent instructions if
such procedures are not followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is unlikely, during periods of extraordinary
market conditions, a shareholder may have difficulty in reaching Shareholder
Services at such telephone number. In that event, the shareholder should
contact Shareholder Services at 1-800-562-0032, 1-617-357-7805 or otherwise
at its main office at One Financial Center, Boston, Massachusetts 02111-2690.
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Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your
account, including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made
in writing to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408. A fee of up to $10 will be charged against
an account for providing additional account transcripts or photocopies of
paid redemption checks or for researching records in response to special
requests.
Shareholder Telephone Transactions:
Please call 1-800-521-6548
Call this number for assistance in purchasing shares by wire, and for
telephone redemptions or telephone exchange transactions. Shareholder
Services will require some form of personal identification prior to acting
upon instructions received by telephone. Written confirmation of each
transaction will be provided.
The Fund and its Shares
The Fund was organized in 1986 as a series of State Street Research
Financial Trust (formerly: MetLife-State Street Financial Trust), a
Massachusetts business trust. The Trustees have authorized shares of the
Fund to be issued in four classes: Class A, Class B, Class C and Class D. The
Trust is registered with the Securities and Exchange Commission as an open-end
management investment company. The fiscal year end of the Fund is October 31.
Except for those differences between the classes of shares described below
and elsewhere in the Prospectus, each share of a Fund has equal dividend,
redemption and liquidation rights with other shares of the Fund and when
issued is fully paid and nonassessable. In the future, certain classes may be
redesignated, for administrative purposes only, to conform to standard class
designations and common usage of terms which may develop in the mutual fund
industry. For example, Class C shares may be redesignated as Class Y shares
and Class D shares may be redesignated as Class C shares. Any redesignation
would not affect any substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class D shares
bear the expenses of the deferred sales arrangement and any expenses
(including the higher service and distribution fees) resulting from such
sales arrangement, and certain other incremental expenses related to a class.
Each class will have exclusive voting rights with respect to provisions of
the Rule 12b-1 distribution plan pursuant to which the service and
distribution fees, if any, are paid. Although the legal rights of holders of
each class of shares are identical, it is likely that the different expenses
borne by each class will result in different net asset values and dividends.
The different classes of shares of the Fund also have different exchange
privileges.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material adverse effect on
the rights of any shareholder. Under the Master Trust Agreement, the Trustees
may reorganize, merge or liquidate the Fund without prior shareholder
approval. On any matter submitted to the shareholders, the holder of shares
of the Fund is entitled to one vote per share (with proportionate voting for
fractional shares) regardless of the relative net asset value thereof.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder
meetings unless required by the 1940 Act. Except as otherwise provided under
said Act, the Board of Trustees will be a self-perpetuating body until fewer
than two thirds of the Trustees serving as such are Trustees who were elected
by shareholders of the Trust. In the event less than a majority of the
Trustees serving as such were elected by shareholders of the Trust, a meeting
of shareholders will be called to elect Trustees. Under the Master Trust
Agreement, any Trustee may be removed by vote of two thirds of the
outstanding Trust shares; holders of 10% or more of the
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<PAGE>
outstanding shares of the Trust can require that the Trustees call a meeting of
shareholders for purposes of voting on the removal of one or more Trustees. In
connection with such meetings called by shareholders, shareholders will be
assisted in shareholder communications to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for
indemnification for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations. The Investment Manager believes that, in view of the above, the
risk of personal liability to shareholders is remote.
Management of the Fund
Under the provisions of the Trust's Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
The Fund's investment manager is State Street Research & Management
Company. The Investment Manager is charged with the overall responsibility
for managing the investments and business affairs of the Fund, subject to the
authority of the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first
mutual funds, presently known as State Street Research Investment Trust,
which they had formed in 1924. Their investment management philosophy, which
continues to this day, emphasized comprehensive fundamental research and
analysis, including meetings with the management of companies under
consideration for investment. The Investment Manager's portfolio management
group has extensive investment industry experience managing equity and debt
securities. In managing debt securities for a portfolio, the Investment Manager
may consider yield curve positioning, sector rotation and duration, among
other factors.
The Investment Manager and the Distributor are indirect wholly-owned
subsidiaries of Metropolitan Life Insurance Company and both are located at
One Financial Center, Boston, Massachusetts 02111-2690.
The Investment Manager has entered into an Advisory Agreement with the
Trust pursuant to which investment research and management, administrative
services, office facilities and personnel are provided for the Fund in
consideration of a fee from the Fund.
Under its Advisory Agreement with the Trust, the Investment Manager receives
a monthly investment advisory fee equal to 0.65% (on an annual basis) of the
average daily value of the net assets of the Fund. The Fund bears all costs of
its operation other than those incurred by the Investment Manager under the
Advisory Agreement. In particular, the Fund pays, among other expenses,
investment advisory fees, certain distribution expenses under the Fund's
Distribution Plan and the compensation and expenses of the Trustees who are not
otherwise currently affiliated with the Investment Manager or any of its
affiliates. The Investment Manager will reduce its management fee payable by the
Fund up to the amount of any expenses (excluding permissible items, such as
brokerage commissions, Rule 12b-1 payments, interest, taxes and litigation
expenses) paid or incurred in any year in excess of the most restrictive expense
limitation imposed by any state in which the Fund sells shares, if any. The
Investment Manager compensates Trustees of the Trust if such persons are
employees or affiliates of the Investment Manager or its affiliates.
The Fund is managed by John H. Kallis. Mr. Kallis has managed the Fund
since May 1987. Mr. Kallis's principal occupation currently is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as portfolio manager for State Street Research &
Management Company.
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Subject to the policy of seeking best overall price and execution, sales
of shares of the Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for the Fund's portfolio transactions.
The Investment Manager has a Code of Ethics governing personal securities
transactions of certain of its employees; see the Statement of Additional
Information.
Dividends and Distributions; Taxes
The Fund qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code for its most recent
fiscal year and intends to qualify as such in future fiscal years, although
it cannot give complete assurance that it will do so. As long as it so
qualifies and satisfies certain distribution requirements, it will not be
subject to federal income tax on its income (including capital gains, if any)
distributed to its shareholders. Consequently, the Fund intends to distribute
annually to its shareholders substantially all of its net investment income
and any capital gain net income (capital gains net of capital losses).
Dividends from net investment income will be declared daily during each
calendar month and paid monthly; distributions of long-term and short-term
capital gain net income will generally be made on an annual basis (or as
otherwise required for compliance with applicable tax regulations), except to
the extent that net short-term gains, if any, are included in the monthly
income dividends for the purpose of stabilizing, to the extent possible, the
amount of net monthly distributions as described below. Both dividends from
net investment income and distributions of capital gain net income will be
paid to shareholders in additional shares of the Fund at net asset value
(except in the case of shareholders who elect a different available
distribution method). The Fund will provide its shareholders with annual
information on a timely basis concerning the federal tax status of dividends
and distributions during the preceding calendar year.
The Fund has adopted distribution procedures which differ from those which
have been customary for investment companies in general. The Fund will
declare a dividend each day in an amount based on monthly projections of its
future net investment income and will pay such dividends monthly as described
above. Consequently, the amount of each daily dividend may differ from actual
net investment income as determined under generally accepted accounting
principles. The purpose of these distribution procedures is to attempt to
eliminate, to the extent possible, fluctuations in the level of monthly
dividend payments that might result if the Fund declared dividends in the
exact amount of its daily net investment income.
Each daily dividend is payable to shareholders of record at the time of
its declaration (for this purpose, including only holders of shares purchased
for which payment has been received by the Transfer Agent and excluding
holders of shares redeemed on that day).
Although not contemplated, it is possible that total distributions in a year
could exceed the total of the Fund's current and accumulated earnings and
profits as calculated for federal income tax purposes, because of technical tax
and accounting considerations and the distribution procedures described above,
among other reasons. This excess would first be treated as a "return of capital"
for federal income tax purposes and would reduce by its amount the shareholder's
cost or other basis in his or her shares. After the shareholder's cost or other
basis is reduced to zero, which is highly unlikely, the distribution will be
treated as gain from the sale of Fund shares.
Dividends paid by the Fund from taxable net investment income and
distributions of net short-term capital gains, whether they are paid in cash or
reinvested in additional shares, will be taxable for federal income tax purposes
to shareholders as ordinary income. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital losses) which
are designated as capital gains distributions, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax purposes
to shareholders as long-term capital gains, regardless of how long shareholders
have held their shares. If shares of the Fund which are sold at a loss have been
held six months or less, the loss will be considered as a long-term capital loss
to the extent of any capital gains distributions received.
26
<PAGE>
Dividends and other distributions and proceeds of redemption of Fund
shares paid to individuals and other nonexempt payees will be subject to a
31% federal backup withholding tax if the Transfer Agent is not provided with
the shareholder's correct taxpayer identification number and certification
that the shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus.
Distributions from the Fund that represent interest income from U.S.
Government securities may not be tax-exempt at some state and local levels.
Therefore, prospective shareholders are urged to consult their own tax
advisers regarding tax matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders
or prospective investors, the Fund may compare the performance of its Class
A, Class B, Class C or Class D shares to that of other mutual funds with
similar investment objectives, to certificates of deposit and/or to other
financial alternatives, such as 5-, 10- and 30-year U.S. Treasury notes and
bonds. The Fund may also compare its performance to appropriate indices such
as the Merrill Lynch Government Master Index, Consumer Price Index,
Shearson-Lehman Government Bond Index, and 5-, 10- and 30-Year Government
Bond Indices; and/or to appropriate rankings or averages such as the U.S.
Government Funds Average compiled by Lipper Analytical Services, Inc. or to
those compiled by Morningstar, Inc., Money Magazine, Business Week, Forbes
Magazine, The Wall Street Journal and Investor's Daily.
Total return is computed separately for each class of shares of the Fund.
The average annual total return ("standard total return") for shares of the
Fund is computed by determining the average annual compounded rate of return
for a designated period that, if applied to a hypothetical $1,000 initial
investment (less the maximum initial or contingent deferred sales charges, if
applicable) would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions and
with recognition of all recurring charges. Standard total return may be
accompanied with nonstandard total return information, but for differing
periods and computed in the same manner with or without annualizing the total
return.
The Fund's yield is computed separately for each class of shares by
dividing the net investment income, after recognition of all recurring
charges, per share earned during the most recent month or other specified
30-day period by the applicable maximum offering price per share on the last
day of such period and annualizing the result. For purposes of the yield
calculation, interest income is computed based on the yield to maturity of
each debt obligation in the Fund's portfolio, and all recurring charges are
recognized.
The standard total returns and yield results take sales charges into
account, if applicable, but do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders
elect and which involve nominal fees, such as the $7.50 fee for remittance of
redemption proceeds by wire. Where sales charges are not applicable and
therefore not taken into account in the calculation of standard total return
and yield, the results will be increased.
The Fund's distribution rate is calculated separately for each class of
shares by annualizing the latest distribution and dividing the result by the
maximum offering price per share as of the end of the period to which the
distribution relates. The distribu
tion rate is not computed in the same manner as the above described yield,
and therefore can be significantly different from it. In its supplemental
sales literature, the Fund may quote its distribution rate together with the
above described standard total return and yield information. The use of such
distribution rates would be subject to an appropriate explanation of how the
components of the distribution rate differ from the above described yield.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of the Fund varies in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
27
<PAGE>
performance quotation should be considered a representation as to the Fund's
performance for any future period. In addition, the net asset value of shares
of the Fund will fluctuate, with the result that shares of the Fund, when
redeemed, may be worth more or less than their original cost. Neither an
investment in the Fund nor its performance is insured or guaranteed; such
lack of insurance or guarantees should accordingly be given appropriate
consideration when comparing the Fund to financial alternatives which have
such features.
Shares of the Fund had no class designations until June 1, 1993, when
designations were assigned based on the pricing and Rule 12b-1 fees
applicable to shares sold thereafter. Performance data for a specified class
includes periods prior to the adoption of class designations.
Performance data for periods prior to June 1, 1993 will not reflect
additional Rule 12b-1 Distribution Plan fees, if any, of up to 1% per year
depending on the class of shares, which will adversely affect performance
results for periods after such date. Performance data or rankings for a given
class of shares should be interpreted carefully by investors who hold or may
invest in a different class of shares.
28
<PAGE>
Cover Page
(Logo State Street)
State Street Research
Government Income Fund
March 1, 1996
PROSPECTUS
STATE STREET RESEARCH
GOVERNMENT INCOME FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research &
Managtement Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266
800-562-0032
CUSTODIAN
State Street Bank and
Turst Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Proctor & Hoar
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
GI-609D-396IBS CONTROL NUMBER:
<PAGE>
Supplement No. 1 dated
March 1, 1996
to
Prospectus dated March 1, 1996
for
STATE STREET RESEARCH
STRATEGIC PORTFOLIOS: CONSERVATIVE
STATE STREET RESEARCH
STRATEGIC PORTFOLIOS: MODERATE
STATE STREET RESEARCH
STRATEGIC PORTFOLIOS: AGGRESSIVE
series of State Street Research Financial Trust
Shares of the Funds are available as set forth below:
Class A for Strategic Portfolios: Conservative and Strategic Portfolios:
Aggressive: Prior approval must be obtained from the Distributor before Class A
shares are offered to anyone. Subject to such advance approval, Class A shares
are only currently available in certain designated states for investments of
$1,000,000 or more. Contact the Distributor for details.
Class A shares are not currently available for acquisition through exchanges
from another fund.
Class A for Strategic Portfolios: Moderate: Class A shares are not currently
offered.
Class B: Class B shares of all three Funds are not currently offered.
CLASS C: CLASS C SHARES OF ALL THREE FUNDS ARE CURRENTLY OFFERED AND
AVAILABLE FOR INVESTMENT BY CERTAIN EMPLOYEE BENEFIT PLANS AND LARGE
INSTITUTIONS.
CLASS D: Class D shares of all three Funds are not currently offered.
CONTROL NUMBER: SP-396E-396IBS
<PAGE>
State Street Research
Strategic Portfolios: Conservative
Strategic Portfolios: Moderate
Strategic Portfolios: Aggressive
Prospectus
March 1, 1996
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE ("Strategic Portfolios:
Conservative" or the "Fund") seeks to provide, primarily, a high level of
current income and, secondarily, long-term growth of capital, consistent with
the preservation of capital and reasonable investment risk, by allocating assets
across an actively managed diversified mix of debt and equity securities.
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE ("Strategic Portfolios:
Moderate" or the "Fund") seeks to provide both current income and capital
appreciation, consistent with the preservation of capital and reasonable
investment risk, by allocating assets across an actively managed, diversified
mix of equity and debt securities.
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE ("Strategic Portfolios:
Aggressive" or the "Fund") seeks to provide high total return from, primarily,
growth of capital and, secondarily, current income, consistent with reasonable
investment risk, by allocating assets across an actively managed diversified mix
of equity and debt securities.
In seeking to achieve their respective investment objectives, Strategic
Portfolios: Conservative aims at investing 70% of its net assets in debt
securities and 30% of its net assets in equity securities; Strategic Portfolios:
Moderate aims at investing 55% of its net assets in equity securities and 45% of
its net assets in debt securities; and Strategic Portfolios: Aggressive aims at
investing 80% of its net assets in equity securities and 20% of its net assets
in debt securities.
State Street Research & Management Company serves as investment adviser for
the Funds (the "Investment Manager"). As of December 31, 1995, the Investment
Manager had assets of approximately $____ billion under management. State Street
Research Investment Services, Inc. serves as distributor (the Distributor)
for the Funds.
Shareholders may have their shares redeemed directly by the Funds at net asset
value plus the applicable contingent deferred sales charge, if any; redemptions
processed through securities dealers may be subject to processing charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Funds will
achieve their investment objectives. The net asset value of a share of a Fund
will fluctuate as market conditions change.
This Prospectus sets forth concisely the information a prospective investor
ought to know about the Funds before investing. It should be retained for future
reference. A Statement of Additional Information about the Funds dated March
1, 1996 has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus. It is available, at no charge,
upon request to the Funds at the address indicated on the back cover or by
calling 1-800-562-0032.
Each Fund is a diversified series of State Street Research Financial Trust
(the "Trust"), an open- end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Table of Contents Page
Table of Expenses 2
Financial Highlights 5
The Funds' Investments and Asset Allocation 7
Investment Practices 11
Limiting Investment Risk 13
Purchase of Shares 14
Redemption of Shares 22
Shareholder Services 24
The Funds and Their Shares 27
Management of the Funds 29
Dividends and Distributions; Taxes 30
Calculation of Performance Data 30
Appendix--Description of Debt/Bond Ratings 31
<PAGE>
The Funds offer four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a deferred
basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5% and
(ii) an annual service fee of 0.25% of the average daily net asset value of the
Class A shares.
Class B shares are subject to (i) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made within
five years of purchase and (ii) annual distribution and service fees of 1% of
the average daily net asset value of such shares. Class B shares automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years after purchase. No contingent deferred sales charge applies after
the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or redemption
of Class C shares. Class C shares do not pay any distribution or service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1% if
redeemed within one year following purchase and (ii) annual distribution and
service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
<TABLE>
<CAPTION>
Class A Class B Class C Class D
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on Purchases (as
a percentage of offering price) 4.5% None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable) None(2) 5% None 1%
Redemption Fees (as a percentage of amount
redeemed, if applicable) None None None None
Exchange Fees None None None None
</TABLE>
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
thereafter and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the sale.
Long-term investors in a class of shares with a distribution fee may, over a
period of years, pay more than the economic equivalent of the maximum sales
charge permissible under applicable rules. See "Purchase of Shares." The
contingent deferred sales charge may also be imposed on shares involuntarily
redeemed for accounts which have not maintained requisite minimum balances.
See "Redemption of Shares--Additional Information."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Strategic Portfolios: Conservative Class A Class B Class C Class D
- --------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.60% 0.60% 0.60% 0.60%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.75% 0.75% 0.75% 0.75%
Less Voluntary Reduction (0.45%) (0.45%) (0.45%) (0.45%)
------ ------ ------ --------
Total Fund Operating Expenses
(after voluntary reduction) 1.15% 1.90% 0.90% 1.90%
====== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Strategic Portfolios: Moderate Class A Class B Class C Class D
- --------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.65% 0.65% 0.65% 0.65%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 1.09% 1.09% 1.09% 1.09%
Less Voluntary Reduction (0.74%) (0.74%) (0.74%) (0.74%)
------ ------ ------ --------
Total Fund Operating Expenses
(after voluntary reduction) 1.25% 2.00% 1.00% 2.00%
====== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Strategic Portfolios: Aggressive Class A Class B Class C Class D
- --------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.75% 0.75% 0.75% 0.75%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.55% 0.55% 0.55% 0.55%
Less Voluntary Reduction (0.20%) (0.20%) (0.20%) (0.20%)
------ ------ ------ ------
Total Fund Operating Expenses
(after voluntary reduction) 1.35% 2.10% 1.10% 2.10%
====== ====== ====== ======
</TABLE>
3
<PAGE>
Example:
You would pay the following expenses on a $1,000 investment including, for
Class A shares, the maximum applicable initial sales charge and assuming (1) 5%
annual return and (2) redemption of the entire investment at the end of each
time period:
<TABLE>
<CAPTION>
Strategic Portfolios: Conservative
1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Class A shares $56 $80 $105 $178
Class B shares(1) $69 $90 $123 $203
Class C shares $ 9 $29 $ 50 $111
Class D shares $29 $60 $103 $222
</TABLE>
<TABLE>
<CAPTION>
Strategic Portfolios: Moderate
1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Class A shares $57 $83 $111 $189
Class B shares (1) $70 $93 $128 $213
Class C shares $10 $32 $ 55 $122
Class D shares $30 $63 $108 $233
</TABLE>
<TABLE>
<CAPTION>
Strategic Portfolios: Aggressive
1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Class A shares $58 $86 $116 $200
Class B shares (1) $71 $96 $133 $224
Class C shares $11 $35 $ 61 $134
Class D shares $31 $66 $113 $243
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
Strategic Portfolios: Conservative
1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Class B (1) $19 $60 $103 $203
Class D $19 $60 $103 $222
</TABLE>
<TABLE>
<CAPTION>
Strategic Portfolios: Moderate
1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Class B (1) $20 $63 $108 $213
Class D $20 $63 $108 $233
</TABLE>
<TABLE>
<CAPTION>
Strategic Portfolios: Aggressive
1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Class B $21 $66 $113 $224
Class D $21 $66 $113 $243
</TABLE>
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than shown.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses that an investor will bear directly or indirectly.
The percentage expense levels shown in the table above are based on experience
with expenses during the fiscal year ended October 31, 1995; actual expense
levels for the current fiscal year and future years may vary from the amounts
shown. The table does not reflect charges for optional services elected by
certain shareholders, such as the $7.50 fee for remittance of redemption
proceeds by wire. For further information on sales charges, see "Purchase of
Shares--Alternative Purchase Program"; for further information on management
fees, see "Management of the Funds"; and for further information on 12b-1 fees,
see "Purchase of Shares--Distribution Plan."
The Funds have been advised that the Distributor and its affiliates may from
time to time and in varying amounts voluntarily assume some portion of fees or
expenses relating to a Fund. Each Fund presently expects such assistance to be
provided for the next 12 months or until such Fund's net assets reach $100
million, whichever first occurs. However, no Fund has received any firm
commitment that such assistance will in fact be provided.
For the period ended October 31, 1995, Total Fund Operating Expenses as a
percentage of average
4
<PAGE>
net assets of Class A and Class C shares, respectively, would have been 1.60%
and 1.35% of the Strategic Portfolios: Conservative; and 1.55% and 1.30% of the
Strategic Portfolios: Aggressive; and would have been 1.74% for Class C shares
of the Strategic Portfolios: Moderate, in the absence of the voluntary
assumption of expenses by the Distributor and its affiliates. Such assumption of
fees or expenses, as a percentage of average net assets, amounted to 0.45% and
0.45% of the Class A and Class C shares of the Strategic Portfolios:
Conservative, respectively; 0.20% and 0.20% of the Class A and Class C shares of
the Strategic Portfolios: Aggressive, respectively; and 0.74% of the Class C
shares of the Strategic Portfolios: Moderate.
Financial Highlights
The data set forth below has been audited by Price Waterhouse LLP, independent
accountants, and their reports thereon are included in the Statement of
Additional Information. For further information about the performance of the
Funds, see the Funds' Annual Reports which appear under the caption "Financial
Statements" in the Statement of Additional Information. Financial information is
not presented for Class B and Class D shares of the Strategic Portfolios:
Conservative and the Strategic Portfolios: Aggressive and for Class A, Class B
and Class D shares of the Strategic Portfolios: Moderate because no shares of
those classes were outstanding during the periods presented.
Strategic Portfolios: Conservative
<TABLE>
<CAPTION>
Class A Class C
------------------------------------ --------------------------------------
May 16, 1994 May 16, 1994
Year ended (Commencement of Year ended (Commencement of
October 31, Operations) to October 31, Operations) to
1995** October 31, 1994 1995** October 31, 1994
--------------- ----------------- --------------- -------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.56 $ 9.55 $ 9.56 $ 9.55
Net investment income* .47 .20 .52 .21
Net realized and unrealized gain (loss)
on investments, foreign currency and
forward contracts 1.00 (.09) .97 (.09)
Dividends from net investment income (.47) (.10) (.49) (.11)
------------- --------------- ------------- -----------------
Net asset value, end of year $ 10.56 $ 9.56 $ 10.56 $ 9.56
============= =============== ============= =================
Total return 15.84%+ 1.15%+++ 16.11%+ 1.25%+++
Net assets at end of year (000s) $27,637 $25,014 $ 1,433 $ 100
Ratio of operating expenses to average
net assets* 1.15% 1.15%++ 0.90% 0.90%++
Ratio of net investment income to average
net assets* 4.74% 4.48%++ 4.91% 4.73%++
Portfolio turnover rate 132.50% 70.35% 132.50% 70.35%
*Reflects voluntary assumption of fees or
expenses per share in each year $ .05 $ .03 $ .05 $ .03
</TABLE>
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does not
reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
**Per-share figures have been calculated using the average shares method.
5
<PAGE>
Strategic Portfolios: Moderate
<TABLE>
<CAPTION>
Class C
----------------------------------------------
September 28, 1993
(commencement of
Year ended October 31 operations) to
---------------------
1995** 1994 October 31, 1993
-------- --------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 9.18 $ 9.57 $ 9.55
Net investment income* .36 .28 .02
Net realized and unrealized gain (loss) on investments, foreign
currency and forward contracts 1.01 (.45) --
Dividends from net investment income (.29) (.22) --
------ ------- -------
Net asset value, end of year $ 10.26 $ 9.18 $ 9.57
====== ======= =======
Total return 15.24%+ (1.81)%+ 0.21%+++
Net assets at end of year (000s) $39,821 $28,494 $25,040
Ratio of operating expenses to average net assets* 1.00% 1.00% 1.00%++
Ratio of net investment income to average net assets* 3.68% 3.05% 2.32%++
Portfolio turnover rate 120.62% 142.86% 0.00%
*Reflects voluntary assumption of fees or expenses per share in each
year $ .07 $ .05 $ .00
</TABLE>
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
**Per-share figures have been calculated using the average shares method.
Strategic Portfolios: Aggressive
<TABLE>
<CAPTION>
Class A Class C
-------------------------------- --------------------------------
May 16, 1994 May 16, 1994
Year ended (Commencement of Year ended (Commencement of
October 31, Operations) to October 31, Operations) to
1995** October 31, 1994 1995** October 31, 1994
----------- ----------------- ----------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.74 $ 9.55 $ 9.74 $ 9.55
Net investment income* .20 .09 .22 .10
Net realized and unrealized gain on investments, foreign
currency and forward contracts 1.19 .14 1.20 .14
Dividends from net investment income (.20) (.04) (.22) (.05)
--------- --------------- --------- ------
Net asset value, end of year $ 10.93 $ 9.74 $ 10.94 $ 9.74
========= =============== ========= ======
Total return 14.49%+ 2.41%+++ 14.85%+ 2.50%+++
Net assets at end of year (000s) $39,555 $50,999 $20,809 $ 102
Ratio of operating expenses to average net assets* 1.35% 1.35%++ 1.10% 1.10%++
Ratio of net investment income to average net assets* 1.98% 2.01%++ 2.13% 2.26%++
Portfolio turnover rate 127.44% 37.75% 127.44% 37.75%
*Reflects voluntary assumption of fees or expenses per share
in each year $ .02 $ .01 $ .02 $ .01
</TABLE>
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does not
reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
**Per-share figures have been calculated using the average shares method.
6
<PAGE>
The Funds' Investments and Asset Allocation
Each of Strategic Portfolios: Conservative, Strategic Portfolios: Moderate
and Strategic Portfolios: Aggressive has its own investment objective and
policies, as described below. Each Fund's investment objective is a
fundamental policy of that Fund and may not be changed without approval of
the shareholders of that Fund.
In seeking to achieve its investment objective, each Fund follows certain
investment strategies and policies which are described below and which may be
changed without shareholder approval.
Each Fund will generally allocate its net assets over the long term between
equity and debt securities in accordance with the percentage targets set forth
for each Fund below. Each Fund, however, may vary from its target from time to
time within the ranges specified, based on the Investment Manager's view of
economic and market conditions. In addition, each Fund may at any given point in
time hold up to 15% of its net assets in cash or cash items for reasons of
liquidity or for managing the duration of its debt securities. In the event
that, owing to market action or for other reasons, the allocation of a Fund's
net assets falls outside its specified percentage ranges for any significant
length of time, the Investment Manager will rebalance such Fund's portfolio so
that it falls within the specified ranges.
State Street Research Strategic Portfolios: Conservative
The investment objective of Strategic Portfolios: Conservative is to provide,
primarily, a high level of current income and, secondarily, long-term growth of
capital, consistent with the preservation of capital and reasonable investment
risk.
In seeking to achieve this investment objective the Fund allocates assets
across an actively managed diversified mix of debt and equity securities, which
the Fund intends, under normal conditions, to allocate, as percentages of net
assets, as follows:
<TABLE>
<CAPTION>
Security Type Target Range
- ------------------ ----- ------
<S> <C> <C>
Debt 70 60-80
Equity 30 20-40
</TABLE>
The Fund will attempt to limit risk by allocating a substantial majority of
the debt portion of its portfolio to investment grade securities. The Fund will
not invest more than 5% of its net assets in non- investment grade debt
securities. Equity securities will generally be stocks of larger, well
established companies, i.e. companies with a market capitalization in excess of
$2 billion whose securities are traded on a national securities exchange.
State Street Research Strategic Portfolios: Moderate
The investment objective of Strategic Portfolios: Moderate is to provide both
current income and capital appreciation, consistent with the preservation of
capital and reasonable investment risk.
In seeking to achieve this investment objective the Fund allocates assets
across an actively managed diversified mix of equity and debt securities, which
the Fund intends, under normal conditions, to allocate, as percentages of net
assets, as follows:
<TABLE>
<CAPTION>
Security Type Target Range
- ------------------ ----- ------
<S> <C> <C>
Equity 55 45-65
Debt 45 35-55
</TABLE>
The Fund will attempt to prudently moderate risk by investing in a broad
spectrum of equity and debt securities selected primarily from established
companies and investment grade securities. The equity securities will generally
be traded on either a national securities exchange or the National Association
of Securities Dealers Automated Quotation ("NASDAQ") system.
State Street Research Strategic Portfolios: Aggressive
The Investment objective of Strategic Portfolios: Aggressive is to provide high
total return from, primarily, growth of capital and secondarily, current income,
consistent with reasonable investment risk.
In seeking to achieve this investment objective the Fund allocates assets
across an actively managed diversified mix of equity and debt securities, which
the Fund intends, under normal conditions, to allocate, as percentages of net
assets, as follows:
7
<PAGE>
<TABLE>
<CAPTION>
Security Type Target Range
- ------------------ ----- ------
<S> <C> <C>
Equity 80 70-90
Debt 20 10-30
</TABLE>
The Fund may invest in stocks of smaller and emerging companies and lower
quality bonds and other securities that management believes will provide higher
returns over the long-term. The equity securities will generally be traded on
either a national securities exchange or the NASDAQ system; however, emphasis
will likely be on securities traded on the NASDAQ system. Since this strategy
involves a higher degree of market risk compared to Strategic Portfolios:
Moderate and Strategic Portfolios: Conservative, this Fund may be more
appropriate for investors who have greater tolerance for market fluctuations.
Equity Securities
Each Fund's equity investments will consist of common stocks, or securities
convertible into common stocks (e.g. preferred stocks, bonds and debentures), or
which carry the right to acquire common stocks (e.g., warrants), primarily
having long-term growth potential. Each Fund invests in a broad range of
industries and a diversified list of companies whose earnings and/or assets are
expected to grow at a rate above the average of the Standard & Poor's 500 Stock
Index (the "S&P 500") over the long term. Consequently, the Investment Manager
seeks to identify those industries offering the greatest possibilitiesfor
profitable expansion. Each Fund also invests in those equity securities which
the Investment Manager believes to be selling below their intrinsic values or
equity securities of cyclical companies at low points in their cycles.
Each Fund may invest in securities of non-U.S. issuers directly or
indirectly, as for example, in American Depositary Receipts and European
Depositary Receipts. See "Investment Practices" herein.
Each Fund to a lesser or greater degree may invest in equity securities of
companies with a smaller or intermediate market capitalization and companies in
the emerging growth stage of development. Such securities generally will
constitute no more than 10% of the net assets of Strategic Portfolios:
Conservative, but may constitute in the range of 10% to 30% and 15% to 40%,
respectively, of Strategic Portfolios: Moderate and Strategic Portfolios:
Aggressive. A company's market capitalization, i.e., the total market value of
its publicly traded equity securities, is currently regarded by the Investment
Manager as small or intermediate if it is $2 billion or less; the specific
dollar amount of capitalization may vary over time and is dependent to some
extent on market conditions. The Investment Manager considers emerging growth
companies to be those companies which are less mature and have the potential to
grow substantially faster than the economy. Investments in these securities may
involve greater than average risks because of the possible limited marketability
of such securities and the possibility that their prices may fluctuate more
widely than the securities of larger more established companies or than the
market as a whole.
For further information regarding equity investments, see "Investment
Practices" herein and the Statement of Additional Information.
Debt Securities
Each Fund's debt investments consist of a broad range of short-term or long-term
corporate bonds and notes, and U.S. Government securities, and may also include
mortgage-related securities, including jumbo mortgage pools, and asset-backed
securities, both senior and subordinated, zero coupon securities, pay in kind
(PIK) securities, stripped securities, indexed securities, and debt securities
of foreign issuers, governments or agencies.
Strategic Portfolios: Conservative will invest 55% or more, and Strategic
Portfolios: Moderate will invest 25% or more, of net assets in debt securities
that are considered investment grade by either Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's" ), i.e. rated BBB or
higher by S&P or Baa or higher by Moody's, or which are not rated but considered
by the Investment Manager to be equivalent to investment grade. Strategic
Portfolios: Aggressive may invest but is not required to invest any particular
percentage of net assets in such debt securities.
Strategic Portfolios:
8
<PAGE>
Conservative may invest up to 5%, and Strategic Portfolios: Moderate and
Strategic Portfolios: Aggressive may invest up to 15%, of net assets in
non-investment grade debt securities, including securities rated as low as D by
S&P or C by Moody's.
In seeking debt investments for the Funds, including any in the lower rated
categories, the Investment Manager seeks to identify those securities the
returns on which are appropriate within the context of the risks involved. In
doing so, the Investment Manager will consider both its own credit analysis and
the ratings of S&P and Moody's. In the event the rating of a security held by a
Fund 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. When interest rates increase, the value of debt
securities and shares of a Fund can be expected to decline.
For debt rated BBB by S&P, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal. Bonds rated Baa by Moody's lack outstanding investment
characteristics and in fact have speculative characteristics as well. Lower
rated high yield, high risk securities (i.e., bonds rated BB or lower by S&P or
Ba or lower by Moody's or equivalent as determined by the Investment Manager)
commonly known as "junk bonds" generally involve more credit risk than higher
rated securities and are considered by S&P and Moody's to be predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Such securities may also be subject
to greater market price fluctuations than lower yielding, higher rated debt
securities; credit ratings do not reflect this market risk. In addition, these
ratings may not reflect the effect of recent developments on an issuer's ability
to make interest and principal payments. Bonds rated in the lowest category and
in default may never resume interest payments or repay principal, and their
market value may be difficult to determine. Additional risks of such securities
include (i) limited liquidity and secondary market support, particularly in the
case of securities that are not rated or are subject to restrictions on resale,
which may limit the availability of securities for purchase by the Funds, limit
the ability of the Funds to sell portfolio securities either to meet redemption
requests or in response to changes in the economy or the financial markets,
heighten the effect of adverse publicity and investor perceptions and make
selection and valuation of portfolio securities more subjective and dependent
upon the Investment Manager's credit analysis; (ii) substantial market price
volatility and/or the potential for the insolvency of issuers during periods of
changing interest rates and economic difficulty, particularly with respect to
securities that do not pay interest currently in cash; (iii) subordination to
the prior claims of banks and other senior lenders; (iv) the possibility that
earnings of the issuer may be insufficient to meet its debt service; and (v) the
realization of taxable income for shareholders without the corresponding receipt
of cash in connection with investments in "zero coupon" or "pay-in-kind"
securities. Growth in the market for lower rated high yield, high risk
securities has parallelled a general expansion in certain sectors in the U.S.
economy, and the effects of adverse economic changes (including recessions) are
unclear.
For further information concerning the ratings of debt securities, see the
Appendix to this Prospectus.
Strategic Portfolios: Conservative, Strategic Portfolios: Moderate and
Strategic Portfolios: Aggressive may invest up to 40%, 30% and 15%,
respectively, of total assets in mortgage-related securities which the
Investment Manager considers to be investment grade securities.
Mortgage-related securities represent interests in pools of mortgage loans and
provide the Funds with a flow-through of interest and principal payments as such
payments are received with respect to the mortgages in the pool.
Mortgage-related securities may be issued by U.S. Government agencies,
instrumentalities or mixed ownership corporations, and the securities may or may
not be supported by such entities. Mortgage-related securities may also be
issued by private entities such as investment banking firms, insurance
companies, mortgage bankers and home builders. An issuer may offer senior or
subordinated securities related to the same pool of mortgages. The senior
securities have priority to the interest and/or principal payments on the
mortgages in the pool; the subordinate securities have less priority to such
payments. The possibility of prepayment of underlying
9
<PAGE>
mortgages, which might be motivated, for instance, by declining interest rates,
could lessen the potential for total return in mortgage-related securities.
Under such conditions it may not be possible to reinvest the proceeds at the
prior interest rate levels.
U.S. Government agency and private label mortgage-related securities in which
the Funds may invest include: collateralized mortgage obligations which may be
sequential, planned amortization class or tactical amortization class;
adjustable rate mortgage, used primarily for defensive purposes, which may be
constant-maturity treasuries or 11th District (California) cost-of-funds; and
whole or jumbo loans which are loans in excess of an agency's maximum mortgage
size.
Jumbo mortgage pools are backed by mortgages on single family residential
homes for a dollar amount higher than mortgages underwritten by
government-backed agency mortgage programs. Investments in these pools are
subject to the additional risks entailed by the geographic and economic
concentration of a majority of the mortgages in these pools being in large
metropolitan centers on the East and West coasts and on homes owned by high
income individuals and the adverse effect of possible recessions in these areas
resulting in potential defaults in mortgage payments and consequent losses to
the pool.
Each Fund may also invest in stripped securities issued by governmental or
private issuers. Stripped securities include mortgage-backed securities which
have been divided into separate interest and principal components. Holders of
the interest components will receive payments of the interest, and holders of
the principal components will receive payments of the principal, on the
mortgages. Issuers may issue combinations of interest components and principal
components. "Interest only" securities are known as IOs; "principal only"
securities are known as POs. The risks inherent in IOs and POs, or variations
thereof, stem from the effects of declining interest rates and the resultant
prepayments of the mortgages. For example, if the underlying mortgage securities
experience greater than anticipated prepayments of principal, a Fund may fail to
fully recoup its initial investment in an IO, even though the IO is rated in the
highest rating category by a nationally recognized statistical rating
organization. In the case of a PO, a Fund may have difficulty reinvesting
receipts of prepayments of principal for an attractive return. The market for
IOs and POs is new and there is no assurance it will operate efficiently or
provide liquidity in the future.
Asset-backed (other than mortgage-related) securities represent interests in
pools of consumer loans such as credit card receivables, auto loans and leases,
loans 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. These
securities are subject to the risks of non-payment of the underlying loans as
well as the risks of pre-payment. An interest in a bank sponsored master trust
which holds the receivables for a major international credit card is an example
of an asset-backed security; an interest in a trust which holds the customer
receivables for a large consumer products company is another example.
Strategic Portfolios: Conservative, Strategic Portfolios: Moderate and
Strategic Portfolios: Aggressive may invest up to 35%, 25%, and 10%,
respectively, of total assets in stripped and asset-backed (other than
mortgage-related) securities which the Investment Manager considers to be
investment grade.
Zero or step coupon securities may pay no interest for all or a portion of
their life but are purchased at a discount to face value at maturity. Their
return consists of the amortization of the discount between their purchase price
and their maturity value, plus, in the case of a step coupon, any fixed rate
interest income. Zero coupon securities pay no interest to holders prior to
maturity even though interest on these securities is reported as income to a
Fund. The reporting of interest for PIK securities is similar to the reporting
of interest for zero coupon securities. Each Fund will be required to distribute
all or substantially all of such amounts annually to its shareholders. These
distributions may cause a Fund to liquidate portfolio assets in order to make
such distributions at a time when the Fund may have otherwise chosen not to sell
such securities. The amount of the discount fluctuates with the market value of
such securities, which may
10
<PAGE>
be more volatile than that of securities which pay interest at regular
intervals. PIK debt securities permit the issuer to pay the interest thereon
either in cash or as additional debt obligations and generally provide a higher
rate of overall return than obligations which pay interest on a regular basis
although they may experience greater market volatility than the latter.
Excluding U.S. Treasury strip securities (zero coupon securities), none of the
Funds expect to invest more than 5% of its net assets in zero or step coupon
securities.
Investment Practices
Foreign Investments
Each Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or indices or
baskets of securities of foreign issuers. Under current policy, however,
Strategic Portfolios: Conservative limits such investments to a maximum of 15%,
Strategic Portfolios: Moderate to a maximum of 20%, and Strategic Portfolios:
Aggressive to a maximum of 25%, of its total assets excluding ADRs.
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. Generally, ADRs in registered form are designed for use
in U.S. securities markets and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of ADRs or EDRs
facilitates trading in foreign securities, it does not mitigate 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 communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the issuer
than are unsponsored ADRs. More and higher fees are generally charged in an
unsponsored program compared to a sponsored facility. Only sponsored ADRs may be
listed on the New York or American Stock Exchanges. Unsponsored ADRs may prove
to be more risky due to (a) the additional costs involved to the Fund; (b) the
relative illiquidity of the issue in U.S. markets; and (c) the possibility of
higher trading costs in the over-the-counter market as opposed to exchange-based
tradings. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or expropriation, the possible imposition of currency exchange
blockages, higher operating expenses, foreign withholding and other taxes which
may reduce investment return, reduced availability of public information
concerning issuers, the difficulties in obtaining and enforcing a judgment
against a foreign issuer and the fact that foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of securities of comparable
domestic issuers. Investments in foreign securities also involve the additional
cost of converting foreign currency into U.S.
dollars.
It is anticipated that a majority of the foreign investments by each Fund will
consist of securities of issuers in countries with developed economies. However,
each Fund may also invest in the securities of issuers in countries with less
developed economies as deemed appropriate by the Investment Manager. Such
countries include countries that have an emerging stock market that trade a
small number of securities; countries with low- to middle-income economies;
and/or countries with economies that are based on only a few industries. Eastern
European countries are considered to have less developed capital markets. Some
of the risks set forth above may be heightened for investments in those
countries.
11
<PAGE>
For further information regarding foreign investments, see the Statement of
Additional Information.
Currency Transactions
In order to protect against the effect of uncertain future exchange rates on
securities denominated in foreign currencies, each Fund may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the rate prevailing
in the currency exchange market or by entering into forward contracts to
purchase or sell currencies. Although such contracts tend to minimize the risk
of loss resulting from a correctly predicted decline in value of hedged
currency, they tend to limit any potential gain that might result should the
value of such currency increase. In entering a forward currency transaction, the
Funds are dependent upon the creditworthiness and good faith of the
counterparty. The Funds will attempt to reduce the risks of nonperformance by a
counterparty by dealing only with established, reputable institutions with which
the Investment Manager has done substantial business in the past. For further
information, see the Statement of Additional Information.
Securities Lending
A Fund may lend portfolio securities with a value of up to 33-1/3% of its total
assets. A Fund will receive cash or cash equivalents (e.g., U.S. Government
obligations) as collateral in an amount equal to at least 100% of the current
market value of the loaned securities plus accrued interest. Collateral received
by a Fund will generally be held in the form tendered, although cash may be
invested in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, irrevocable stand-by letters of credit issued by
a bank, or any combination thereof. The investing of cash collateral received
from loaning portfolio securities involves leverage which magnifies the
potential for gain or loss on monies invested and, therefore, results in an
increase in the volatility of a Fund's outstanding securities.
Such loans may be terminated at any time.
A Fund will retain most rights of ownership including rights to dividends,
interest or other distributions on the loaned securities. Voting rights pass
with the lending, although a Fund may call loans to vote proxies if desired.
Should the borrower of the securities fail financially, there is a risk of delay
in recovery of the securities or loss of rights in the collateral. Loans are
made only to borrowers which are deemed by the Investment Manager to be of good
financial standing.
Other Considerations
Certain Derivative Securities
Each Fund may, subject to certain limitations, buy and sell options, futures
contracts and options on futures contracts on securities, securities indices and
currencies. A Fund may not establish a position in a commodity futures contract
or purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of the Fund's net assets; similar
policies apply to options which are not commodities. Each Fund may enter various
forms of swap arrangements which have simultaneously the characteristics of a
security and a futures contract, although none of the Funds presently expect to
invest more than 5% of its total assets in such items. These swap arrangements
include interest rate swaps, currency swaps and index swaps. See the Statement
of Additional Information.
Other Investments
Each Fund may invest in restricted securities including restricted securities
available in accordance with Rule 144A under the Securities Act of 1933 ("Rule
144A Securities"), which allows for the resale of such securities among certain
qualified institutional buyers. Rule 144A Securities may be determined to be
liquid by or in accordance with guidelines established by the Board of Trustees
for purposes of complying with a Fund's investment restrictions applicable to
investments in illiquid securities. Each Fund may invest up to 15% of its net
assets in Rule 144A Securities. Because the market for such securities is still
developing, such securities could possibly become illiquid in particular
circumstances. See the Statement of Additional Information.
12
<PAGE>
Each Fund may enter into repurchase agreements and purchase securities on a
"when-issued" or forward commitment basis. See the Statement of Additional
Information.
Portfolio Turnover
Strategic Portfolios: Conservative anticipates that its portfolio turnover rate
will generally not exceed 75%, while each of Strategic Portfolios: Moderate and
Strategic Portfolios: Aggressive anticipates that its portfolio turnover rate
will generally not exceed 125%, under normal conditions. Each Fund does,
however, reserve full freedom with respect to portfolio turnover. In periods
when there are rapid changes in economic conditions or security price levels or
when investment strategy changes significantly, portfolio turnover may be higher
than during times of economic and market price stability or when investment
strategy remains relatively constant. A higher portfolio turnover rate may
result in greater transaction costs relative to other funds, and may have tax
and other consequences as well. See the Statement of Additional Information.
Limiting Investment Risk
In seeking to lessen investment risk, each Fund operates under certain
investment restrictions which may not be changed except by a vote of the
shareholders of the Fund. Under these restrictions none of the Funds may (a)
purchase a security of any one issuer (other than securities issued or
guaranteed as to principal or interest by the U.S. Government or its agencies or
instrumentalities or mixed-ownership Government corporations) if such purchase
would, with respect to 75% of the Fund's total assets, cause more than 5% of the
Fund's total assets to be invested in the securities of such issuer or, with
respect to 100% of the Fund's total assets, cause more than 10% of the voting
securities of such issuer to be held by the Fund, or (b) invest more than 25%
of the Fund's total assets in securities of issuers principally engaged in any
one industry, except this restriction does not apply to investments in U.S.
Government securities. In addition, each Fund may borrow money (through
reverse repurchase agreements or otherwise) only for extraordinary and
emergency purposes, and then not in an amount in excess of 25% of the value
of its total assets. (As a matter of current policy which may be changed
without shareholder approval, a Fund will not purchase additional securities
if borrowings, including reverse repurchase agreements, exceed 5% of its
total assets.)
Each Fund operates under other investment restrictions which may be changed
without shareholder approval. Under these restrictions none of the Funds may
invest more than 15% of its total assets in illiquid securities including
repurchase agreements extending for more than seven days. An illiquid portfolio
may affect the ability of a Fund to sell securities either to meet redemption
requests or in response to changes in the economy or the financial markets.
For further information on the above and other investment restrictions,
including additional investment restrictions which may be changed without a
shareholder vote, see the Statement of Additional Information.
A Fund may not lend money; however, a Fund may purchase bonds, debentures,
notes and similar obligations (and enter into repurchase agreements with
respect thereto).
Each Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. A Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against adverse market conditions
than adherence to the Fund's other investment policies. The types of short-term
instruments in which a Fund may invest for such purposes include short-term
money market securities such as repurchase agreements, U.S. Government
securities, certificates of deposit, time deposits and bankers' acceptances of
certain qualified financial institutions and corporate commercial paper rated at
the time of purchase at least "A" by S&P or "Prime" by Moody's (or, if not
rated, issued by companies having an outstanding long- term unsecured debt issue
rated at least "A" by S&P or Moody's). See the Statement of Additional
Information. When a Fund adopts a temporary defensive position, its investment
objective may not be achieved.
13
<PAGE>
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth below on pages 14 to 27.
The Funds are available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers, Individual
Retirement Accounts ("IRAs"), trusts, corporations, individuals, etc. The
applicability of the general information and administrative procedures set forth
below under Purchase of Shares, Redemption of Shares and Shareholder Services
accordingly will vary depending on the investor and the recordkeeping system
established for a shareholder's investment in a Fund. Participants in 401(k) and
other plans should first consult with the appropriate person at their employer
or refer to the plan materials before following any of the procedures below. For
more information or assistance, anyone may call 1-800-562-0032.
Purchase of Shares
Methods of Purchase
Through Dealers
Shares of the Funds are continuously offered through securities dealers who have
entered into sales agreements with the Distributor. Purchases through dealers
are confirmed at the offering price, which is the net asset value plus the
applicable sales charge, next determined after the order is duly received by
State Street Research Shareholder Services ("Shareholder Services"), a division
of State Street Research Investment Services, Inc., from the dealer. ("Duly
received" for purposes herein means in accordance with the conditions of the
applicable method of purchase as described below.) The dealer is responsible for
transmitting the order promptly to Shareholder Services in order to permit the
investor to obtain the current price. See "Purchase of Shares--Net Asset Value"
herein.
By Mail
Initial investments in a Fund may be made by mailing or delivering to the
investor's securities dealer a completed Application (accompanying this
Prospectus), together with a check for the total purchase price payable to the
Fund. The dealer must forward the Application and check in accordance with the
instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a check
payable to a Fund in the amount of the total purchase price together with any
one of the following: (i) an Application; (ii) the stub from a shareholder's
account statement; or (iii) a letter setting forth the name of the Fund, the
class of shares and the shareholder's account name and number. Shareholder
Services will deliver the purchase order to the transfer agent and dividend
paying agent, State Street Bank and Trust Company (the "Transfer Agent").
If a check is not honored for its full amount, the purchaser could be subject
to additional charges to cover collection costs and any investment loss, and the
purchase may be cancelled.
By Wire
An investor may purchase shares by wiring Federal Funds of not less than $5,000
to State Street Bank and Trust Company, which also serves as the Trust's
custodian (the "Custodian"), as set forth below. Prior to making an investment
by wire, an investor must notify Shareholder Services at 1-800-521-6548 and
obtain a control number and instructions. Following such notification, Federal
Funds should be wired through the Federal Reserve System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = Name of Fund and class of shares
(A, B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street
Research Shareholder Services)
14
<PAGE>
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make such
investment by 12 noon Boston time on the day of his or her investment; and (ii)
the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete the
Application accompanying this Prospectus and deliver it to his or her securities
dealer, who should forward it as required. No redemptions will be effected until
the Application has been duly processed.
A Fund may in its discretion discontinue, suspend or change the practice of
accepting orders by any of the methods described above. Orders for the purchase
of shares are subject to acceptance by a Fund. Each Fund reserves the right to
reject any purchase order, including orders in connection with exchanges, for
any reason which the Fund in its sole discretion deems appropriate. Each Fund
reserves the right to suspend the sale of shares.
Minimum Investment
<TABLE>
<CAPTION>
Class of Shares
-------------------------------
A B C D
----- ----- -- -------
<S> <C> <C> <C> <C>
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $ 50 $ 50 (a) $ 50
By Investamatic $ 50 $ 50 (a) $ 50
All other $ 50 $ 50 (a) $ 50
(a) Special conditions apply; contact the Distributor.
</TABLE>
Each Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments under various retirement and employee benefit plans, sponsored
arrangements involving group solicitations of the members of an organization or
other investment plans such as for reinvestment of dividends and distributions
or for periodic investments (e.g., Investamatic Check Program).
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount of
their purchase, the length of time they anticipate holding Fund shares, or the
flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances it
is more advantageous to incur an initial sales charge and not be subject to
certain ongoing charges or to have their entire initial purchase price invested
in a Fund with the investment being subject thereafter to ongoing service fees
and distribution fees.
As described in greater detail below, securities dealers are paid differing
amounts of commission and other compensation depending on which class of shares
they sell.
15
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------------------- -------------------- -------- ------------------
<S> <C> <C> <C> <C>
Sales Charges Initial sales Contingent None Contingent
charge at time of deferred sales deferred sales
investment of up to charge of 5% to 2% charge of 1%
4.5% depending on applies to any applies to any
amount of shares redeemed shares redeemed
investment within first five within one year
years following following their
their purchase; no purchase
contingent
deferred sales
charge after five
years
On investments of
$1 million or more,
no initial sales
charge; but
contingent deferred
ales charge of 1%
applies to any
shares redeemed
within one year
following their
purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years; Class
B shares convert
automatically to
Class A shares
after eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Above described 4% None 1%
Commission initial sales
Received by charge
Selling less 0.25% to 0.50%
Securities retained by
Dealer Distributor
On investments of
$1 million or more,
0.25% to 0.70% paid
to dealer by
Distributor
</TABLE>
16
<PAGE>
In deciding which class of shares to purchase, the investor should consider
the amount of the investment, the length of time the investment is expected to
be held, and the ongoing service fee and distribution fee, among other factors.
Class A shares are sold at net asset value plus an initial sales charge of up
to 4.5% of the public offering price. Because of the sales charge, not all of an
investor's purchase amount is invested unless the purchase equals $1,000,000 or
more. Class B shareholders pay no initial sales charge, but a contingent
deferred sales charge of up to 5% generally applies to shares redeemed within
five years of purchase. Class D shareholders also pay no initial sales charge,
but a contingent deferred sales charge of 1% generally applies to redemptions
made within one year of purchase. For Class B and Class D shareholders,
therefore, the entire purchase amount is immediately invested in a Fund.
An investor who qualifies for a significantly reduced initial sales charge, or
a complete waiver of the sales charge on investments of $1,000,000 or more, on
the purchase of Class A shares might elect that option to take advantage of the
lower ongoing service and distribution fees that characterize Class A shares
compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual
distribution fee of 0.75% of daily net assets for an eight-year period following
the date of purchase and are then automatically converted to Class A shares.
Class D shares are assessed an annual distribution fee of 0.75% of daily net
assets for as long as the shares are held. The prospective investor should
consider these fees plus the initial or contingent deferred sales charges in
estimating the costs of investing in the various classes of a Fund's shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its expense,
provide additional cash and noncash incentives to securities dealers that sell
shares. Such incentives may be extended only to those dealers that have sold or
may sell significant amounts of shares and/or meet other conditions established
by the Distributor; for example, the Distributor may sponsor special promotions
to develop particular distribution channels or to reach certain investor groups.
The incentives may include merchandise and trips to and attendance at sales
seminars at resorts.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of a Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar amount
of the shares purchased as set forth in the table below. A major portion of this
sales charge is reallowed by the Distributor to the securities dealer
responsible for the sale.
<TABLE>
<CAPTION>
Sales
Sales Charge
Charge Paid
Paid By By Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
<S> <C> <C> <C>
Less than
$100,000 4.50% 4.71% 4.00%
$100,000 or
above but less
than $250,000 3.50% 3.63% 3.00%
$250,000 or
above but less
than $500,000 2.50% 2.56% 2.00%
$500,000 or
above but less
than $1 million 2.00% 2.04% 1.75%
See
$1 million and following
above 0% 0% discussion
</TABLE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor
17
<PAGE>
will pay the authorized securities dealer a commission based on the aggregate
of such sales as follows:
<TABLE>
<CAPTION>
Amount of Sale Commission
-------------- -----------
<S> <C>
(a) $1 million to $3 million 0.70%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
</TABLE>
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed within
one year of the sale. However, such redeemed shares will not be subject to the
contingent deferred sales charge to the extent that their value represents (1)
capital appreciation or (2) reinvestment of dividends or capital gains
distributions. In addition, the contingent deferred sales charge will be waived
for certain other redemptions as described under "Contingent Deferred Sales
Charge Waivers" below (as otherwise applicable to Class B shares).
Class A shares of a Fund that are purchased without a sales charge may be
exchanged for Class A shares of certain other Eligible Funds, as described
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption within
one year of the Class A shares which are acquired through such exchange. For
federal income tax purposes, the amount of the contingent deferred sales charge
will reduce the gain or increase the loss, as the case may be, on the amount
realized on redemption. The amount of any contingent deferred sales charge will
be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement of
Additional Information, of $100,000 or more of Class A shares of a Fund or a
combination of "Eligible Funds." "Eligible Funds" include the Funds and other
funds so designated by the Distributor from time to time. Class B, Class C and
Class D shares may also be included in the combination under certain
circumstances. Securities dealers should call Shareholder Services for details
concerning the other Eligible Funds and any persons who may qualify for reduced
sales charges and related information. See the Statement of Additional
Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A shares
of a Fund and any other Eligible Funds within a 13- month period. Class B, Class
C and Class D shares may also be included under certain circumstances.
Additional information on a Letter of Intent is available from dealers, or from
the Distributor, and also appears in the Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of a Fund or a combination of shares of
the Funds and other Eligible Funds at reduced sales charges pursuant to a Right
of Accumulation. Under the Right of Accumulation, the sales charge is determined
by combining the current purchase with the value of the Class A shares of other
Eligible Funds held at the time of purchase. Class B, Class C and Class D shares
may also be included in the combination under certain circumstances. See the
Statement of Additional Information and call Shareholder Services for details
concerning the Right of Accumulation.
Other Programs
Class A shares of the Funds may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored
arrangements, which include programs under which a company, employee benefit
plan or other organization makes recommendations to, or permits group
solicitation of, its employees, members or participants, except any organization
created primarily for the purpose of obtaining shares of the Funds at a reduced
sales charge or without a sales charge. Sales without a sales charge, or with a
reduced sales charge, may also be made through brokers, financial planners,
institutions, and others, under managed fee-based programs (e.g., "wrap fee" or
similar programs) which meet certain requirements established from time to time
by the Distributor, in the event the Dis-
18
<PAGE>
tributor determines to implement such arrangements. Information on such
arrangements and further conditions and limitations is available from the
Distributor.
In addition, no sales charge is imposed in connection with the sale of Class A
shares of a Fund to the following entities and persons: (A) the Investment
Manager, Distributor, or any affiliated entities, includ- ing any direct or
indirect parent companies and other subsidiaries of such parents (collectively
"Affiliated Companies"); (B) employees, officers, sales representatives or
current or retired directors or trustees of the Affiliated Companies or any
investment company managed by any of the Affiliated Companies, any relatives of
any such individuals whose relationship is directly verified by such individuals
to the Distributor, or any beneficial account for such relatives or individuals;
and (C) employees, officers, sales representatives or directors of dealers and
other entities with a selling agreement with the Distributor to sell shares of
any aforementioned investment company, any spouse or child of such person, or
any beneficial account for any of them. The purchase must be made for investment
and the shares purchased may not be resold except through redemption. This
purchase program is subject to such administrative policies, regarding the
qualification of purchasers and any other matters, as may be adopted by the
Distributor from time to time.
Class B Shares--Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein. No
sales charge is imposed at the time of purchase; thus the full amount of the
investor's purchase payment will be invested in the Funds. However, a contingent
deferred sales charge may be imposed upon redemptions of Class B shares as
described below.
The Distributor will pay securities dealers at the time of sale a 4%
commission for selling Class B shares. The proceeds of the contingent deferred
sales charge and the distribution fee are used to offset distribution expenses
and thereby permit the sale of Class B shares without an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the extent
that the value of such shares represents (1) capital appreciation of Fund assets
or (2) reinvestment of dividends or capital gains distributions. The amount of
any applicable contingent deferred sales charge will be calculated by
multiplying the net asset value of such shares at the time of redemption or at
the time of purchase, whichever is lower, by the applicable percentage shown in
the table below:
<TABLE>
<CAPTION>
Contingent
Deferred Sales
Charge As
A Percentage Of
Net Asset Value
Redemption During At Redemption
- ---------------- ---------------
<S> <C>
1st Year Since Purchase 5%
2nd Year Since Purchase 4
3rd Year Since Purchase 3
4th Year Since Purchase 3
5th Year Since Purchase 2
6th Year Since Purchase and Thereafter None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first of
those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of a Fund acquired through an exchange from another
Eligible Fund will be measured from the date that such shares were initially
acquired in the other Eligible Fund, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gains distribution reinvestments in such other Eligible Fund. These
determinations will result in any contingent deferred sales charge being imposed
at the lowest possible rate. For federal income tax purposes, the amount of the
contingent deferred sales charge will reduce the gain or increase the loss, as
the case may be, on the amount realized on redemption. The amount of any
contingent deferred sales charge will be paid to the Distributor.
19
<PAGE>
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain conditions.
In addition, the contingent deferred sales charge will be waived for: (i)
redemptions made within one year of the death or total disability, as defined by
the Social Security Administration, of all shareholders of an account; (ii)
redemptions made after attainment of a specific age in an amount which
represents the minimum distribution required at such age under Section 401(a)(9)
of the Internal Revenue Code for retirement accounts or plans (e.g., age 70-1/2
for IRAs and Section 403(b) plans), calculated solely on the basis of assets
invested in a Fund or other Eligible Funds; and (iii) a redemption resulting
from a tax-free return of an excess contribution to an IRA. (The foregoing
waivers do not apply to a tax-free rollover or transfer of assets out of a
Fund.) The Funds may modify or terminate the waivers described above at any
time; for example, the Funds may limit the application of multiple waivers.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to Class A
shares of a Fund at the end of eight years following the issuance of the Class B
shares; consequently, they will no longer be subject to the higher expenses
borne by Class B shares. The conversion rate will be determined on the basis of
the relative per share net asset values of the two classes and may result in a
shareholder receiving either a greater or fewer number of Class A shares than
the Class B shares so converted. As noted above, holding periods for Class B
shares received in exchange for Class B shares of other Eligible Funds will be
counted toward the eight-year period.
Class C Shares--Institutional; No Sales Charge
The purchase price of a Class C share of a Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Funds will receive the full amount of the investor's purchase
payment.
Class C shares are only available for new investments by certain employee
benefit plans and large institutions. See the Statement of Additional
Information. Information on the availability of Class C shares and further
conditions and limitations with respect thereto is available from the
Distributor.
Class C shares may be also issued in connection with mergers and acquisitions
involving a Fund, and under certain other circumstances as described in this
Prospectus (e.g., see "Shareholder Services-- Exchange Privilege").
Class D Shares--Spread Sales Charges
The purchase price of a Class D share of a Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Funds.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays securities dealers a 1% commission for selling Class D shares at the time
of purchase. The proceeds of the contingent deferred sales charge and the
distribution fee are used to offset distribution expenses and thereby permit the
sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not be
subject to the contingent deferred sales charge to the extent that the value of
such shares represents (1) capital appreciation of Fund assets or (2)
reinvestment of dividends or capital gains distributions. In addition, the
contingent deferred sales charge will be waived for certain other redemptions as
described under "Contingent Deferred Sales Charge Waivers" above (as otherwise
applicable to Class B shares). For federal income tax purposes, the amount of
the contingent deferred sales charge will reduce the gain or increase the loss,
as
20
<PAGE>
the case may be, on the amount realized on redemption. The amount of any
contingent deferred sales charge will be paid to the Distributor.
Net Asset Value
Each Fund's per share net asset values are determined Monday through Friday as
of the close of regular trading on the New York Stock Exchange (the "NYSE")
exclusive of days on which the NYSE is closed. The NYSE ordinarily closes at 4
P.M. New York City time. Assets held by a Fund are valued on the basis of the
last reported sale price or quotation as of the close of business on the
valuation date, except that securities and assets for which market quotations
are not readily available are valued as determined in good faith by or under the
authority of the Trustees of the Trust. In determining the value of certain
assets for which market quotations are not readily available, the Funds may use
one or more pricing services. The pricing services utilize information with
respect to market transactions, quotations from dealers and various
relationships among securities in determining value and may provide prices
determined as of times prior to the close of the NYSE. The Trustees have
authorized the use of the amortized cost method to value short-term debt
instruments issued with a maturity of one year or less and having a remaining
maturity of 60 days or less when the value obtained is fair value. Further
information with respect to the valuation of the Funds' assets is included in
the Statement of Additional Information.
Distribution Plan
Each Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, each Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class of
shares as follows:
<TABLE>
<CAPTION>
Class Service Fee Distribution Fee
- -------- ------------ -------------------
<S> <C> <C>
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
</TABLE>
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of a Fund
represents payment for personal services and/or the maintenance of shareholder
accounts by such dealers. Dealers who have sold Class A shares are eligible for
reimbursement commencing as of the time of such sale. Dealers who have sold
Class B and Class D shares are eligible for reimbursement after the first year
during which such shares have been held of record by such dealer as nominee for
its clients (or by such clients directly). Any service fees received by the
Distributor and not allocated to dealers may be applied by the Distributor in
reduction of expenses incurred by it for personal services and the maintenance
of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling such shares. Any distribution
fees received by the Distributor and not allocated to dealers may be applied by
the Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by securities
dealers.
The Distributor provides distribution services on behalf of other funds having
distribution plans and receives similar payments from, and incurs similar
expenses on behalf of, such other funds. When expenses of the Distributor cannot
be identified as relating to a specific fund, the Distributor allocates expenses
among the funds in a manner deemed fair and equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers, to
the extent payable out of the general profits, revenues or other sources of the
Distributor (including the advisory fees paid by the Funds), have also been
authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures
21
<PAGE>
which a Fund may incur under the Distribution Plan to 1%, of which 0.75% may be
used to pay distribution expenses and 0.25% may be used to pay shareholder
service fees. The NASD rule also limits the aggregate amount which a Fund may
pay for such distribution costs to 6.25% of gross share sales of a class since
the inception of any asset-based sales charge plus interest at the prime rate
plus 1% on unpaid amounts thereof (less any contingent deferred sales charges).
Such limitation does not apply to shareholder service fees. Payments to the
Distributor or to dealers funded under the Distribution Plan may be discontinued
at any time by the Trustees of the Trust.
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the NYSE
is open for business. Redemptions will be effective at the net asset value per
share next determined (see "Purchase of Shares-- Net Asset Value" herein) after
receipt of the redemption request, in accordance with the requirements described
below, by Shareholder Services and delivery of the request by Shareholder
Services to the Transfer Agent. To allow time for the clearance of checks used
for the purchase of any shares which are tendered for redemption shortly after
purchase, the remittance of the redemption proceeds for such shares could be
delayed for 15 days or more after the purchase. Shareholders who anticipate a
potential need for immediate access to their investments should, therefore,
purchase shares by wire. Except as noted, redemption proceeds from a Fund are
normally remitted within seven days after receipt of the redemption request by
the Fund and any necessary documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By Wire"
below), by sending to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408: (1) a written request for redemption signed by
the registered owner(s) of the shares, exactly as the account is registered; (2)
an endorsed stock power in good order with respect to the shares or, if issued,
the share certificates for the shares endorsed for transfer or accompanied by an
endorsed stock power; (3) any required signature guarantees (see "Redemption of
Shares--Signature Guarantees" below); and (4) any additional documents which may
be required for redemption in the case of corporations, trustees, etc., such as
certified copies of corporate resolutions, governing instruments, powers of
attorney, and the like. The Transfer Agent will not process requests for
redemption until it has received all necessary documents in good order. A
shareholder will be notified promptly if a redemption request cannot be
accepted. Shareholders having any questions about the requirements for
redemption should call Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be transmitted
by check or by wire (see "Proceeds By Wire" below). A shareholder can request a
redemption for $50,000 or less to be transmitted by check. Such check for the
proceeds will be made payable to the shareholder of record and will be mailed to
the address of record. There is no fee for this service. It is not available if
the address of record has been changed within 30 days of the redemption request.
The Funds may revoke or suspend the telephone redemption privilege at any time
and without notice. See "Shareholder Services-- Telephone Services" for a
discussion of the conditions and risks associated with Telephone Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800- 521-6548 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be
22
<PAGE>
imposed for each wire redemption. This charge is subject to change without
notice. The shareholder's bank may also impose a charge for receiving wires of
redemption proceeds. The minimum redemption by wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, each Fund has authorized the Distributor as
its agent to accept orders from dealers by wire or telephone for the repurchase
of shares by the Distributor from the dealer. The Funds may revoke or suspend
this authorization at any time. The repurchase price is the net asset value for
the applicable shares next determined following the time at which the shares are
offered for repurchase by the dealer to the Distributor. The dealer is
responsible for promptly transmitting a shareholder's order to the Distributor.
Payment of the repurchase proceeds is made to the dealer who placed the order
promptly upon delivery of certificates for shares in proper form for transfer
or, for Open Accounts, upon the receipt of a stock power with signatures
guaranteed as described below, and, if required, any supporting documents.
Neither the Fund nor the Distributor imposes any charge upon such a repurchase.
However, a dealer may impose a charge as agent for a shareholder in the
repurchase of his or her shares.
The Funds have reserved the right to change, modify or terminate the services
described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder accounts,
each Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable sales charges, if any. Each 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 a Fund, and the proceeds of the
redemption will be mailed promptly to the affected shareholder at the address of
record. Currently, the maintenance fee is $18 annually, which is paid to the
Transfer Agent. The fee does not apply to certain retirement accounts or if the
shareholder has more than an aggregate $50,000 invested in a 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.
A Fund may not suspend the right of redemption or postpone the date of payment
of redemption proceeds for more than seven days, except that (a) it may elect to
suspend the redemption of shares or postpone the date of payment of redemption
proceeds: (1) during any period that the NYSE is closed (other than customary
weekend and holiday closings) or trading on the NYSE is restricted; (2) during
any period in which an emergency exists as a result of which disposal of
portfolio securities is not reasonably practicable or it is not reasonably
practicable to fairly determine the Fund's net asset value; or (3) during such
other periods as the Securities and Exchange Commission may by order permit for
the protection of investors; and (b) the payment of redemption proceeds may be
postponed as otherwise provided under "Redemption of Shares" herein.
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Funds, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees help the Transfer Agent
determine that the person who has authorized a redemption from the account is,
in fact, the shareholder. Signature guarantees are required for, among other
things: (1) written requests for redemptions for more than $50,000; (2)
written requests for redemptions for any amount if the proceeds are transmitted
to other than the current address of record (unchanged in the past 30 days);
(3) written requests for redemptions for any amount submitted by corpo-
23
<PAGE>
rations and certain fiduciaries and other intermediaries; and (4) requests to
transfer the registration of shares to another owner. Signatures must be
guaranteed by a bank, a member firm of a national stock exchange, or other
eligible guarantor institution. The Transfer Agent will not accept guarantees
(or notarizations) from notaries public. The above requirements may be waived in
certain instances. Please contact Shareholder Services at 1-800-562-0032 for
specific requirements relating to your account.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of each Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110.
Certificates representing shares will not be issued. Shareholders will receive
periodic statements of transactions in their accounts.
The Funds' Open Account System provides the following options:
1. Additional purchases of shares of a Fund may be made through dealers, by wire
or by mailing a check, payable to the Fund, to Shareholder Services under the
terms set forth above under "Purchase of Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the applicable Fund.
(b) All income dividends in cash; all capital gains distributions reinvested
in additional shares of the applicable Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in any one
available Eligible Fund designated by the shareholder as described
below. See "Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will automatically be coded for reinvestment of all
dividends and distributions in additional shares of the same class of the
applicable Fund. Selections may be changed at any time by telephone or written
notice to Shareholder Services. Dividends and distributions are reinvested at
net asset value without a sales charge.
Exchange Privilege
Shareholders of a Fund may exchange their shares for available shares with
corresponding characteristics of any of the other Eligible Funds at any time on
the basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws. Shareholders
of any other Eligible Fund may similarly exchange their shares for 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 a Fund into other
Eligible Funds. To effect an exchange, Class A, Class B and Class D shares may
be redeemed without the payment of any contingent deferred sales charge that
might otherwise be due upon an ordinary redemption of such shares. The State
Street Research Money Market Fund issues Class E shares which are sold without
any sales charge. Exchanges of State Street Research Money Market Fund Class E
shares into Class A shares of a Fund or any other Eligible Fund are subject to
the initial sales charge or contingent deferred sales charge applicable to an
initial investment in such Class A shares, unless a prior Class A sales charge
has been paid directly or indirectly with respect to the shares redeemed. For
purposes of computing the contingent deferred sales charge that may be payable
upon disposition of any acquired Class A, Class B and Class D shares, the
holding period of the redeemed shares is "tacked" to the holding period of
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the acquired shares. The period any Class E shares are held is not tacked to the
holding period of any acquired shares. No exchange transaction fee is currently
imposed on any exchange.
For the convenience of the shareholders who have Telephone Privileges, the
Funds permit exchanges by telephone request from either the shareholder or his
or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for exchanges
is 1-800-521-6548. See "Telephone Services" herein for a discussion of
conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares of
the relevant other Eligible Fund may legally be sold. For tax purposes, each
exchange actually represents the sale of shares of one fund and the purchase of
shares of another. Accordingly, exchanges may produce a capital gain or loss for
tax purposes. The exchange privilege may be terminated or suspended or its terms
changed at any time, subject, if required under applicable regulations, to 60
days' prior notice. New accounts established for investments upon exchange from
an existing account in another fund will have the same Telephone Privileges as
the existing account, unless Shareholder Services is instructed otherwise.
Related administrative policies and procedures may also be adopted with regard
to a series of exchanges, street name accounts, sponsored arrangements and other
matters.
The exchange privilege is not designed for use in connection with short-term
trading or market timing strategies. To protect the interests of shareholders,
each 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 such 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, each 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 a 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 a Fund. Each Fund may impose these restrictions at any time. The exchange
limit may be modified for accounts in certain institutional retirement plans
because of plan exchange limits, Department of Labor regulations or
administrative and other considerations. Subject to the foregoing, if an
exchange request in good order is received by Shareholder Services and
delivered by Shareholder Services to the Transfer Agent by 12 noon Boston
time on any business day, the exchange usually will occur that day. Consult
Shareholder Services before requesting an exchange or for further
information.
Reinvestment Privilege
A shareholder of a Fund who has redeemed shares or had shares repurchased at his
or her request may reinvest all or any portion of the proceeds (plus that amount
necessary to acquire a fractional share to round off his or her reinvestment to
full shares) in shares, of the same class as the shares redeemed, of the Fund or
any other Eligible Fund at net asset value and without subjecting the
reinvestment to an initial sales charge, provided such reinvestment is made
within 120 calendar days after a redemption or repurchase. Upon such
reinvestment, the shareholder will be credited with any contingent deferred
sales charge previously charged with respect to the amount reinvested. The
redemption of shares is, for federal income tax purposes, a sale on which the
shareholder may realize a gain or loss. If a redemption at a loss is followed by
a reinvestment within 30 days, the transaction may be a "wash sale" resulting in
a denial of the loss for federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to any
applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase
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request and delivery of the request by Shareholder Services to the Transfer
Agent. A shareholder may exercise this reinvestment privilege only once per
12-month period with respect to his or her shares of a Fund. No charge is
imposed by the Funds for such reinvestments; however, dealers may charge fees in
connection with the reinvestment privilege. The reinvestment privilege may be
exercised with respect to an Eligible Fund only in those states where shares of
the relevant other Eligible Fund may legally be sold.
Investment Plans
The Investamatic Check Program is available to Class A, Class B and Class D
shareholders. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Application available from Shareholder Services.
The Distributor also offers tax-sheltered retirement plans, including
prototype and other employee benefit plans for employees, sole proprietors,
partnerships and corporations. Details of these investment plans and their
availability may be obtained from securities dealers or from Shareholder
Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value of
$5,000 or more, or Class B or Class D shares with a value of $10,000 or more,
may elect, by participating in a 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 a Fund shall be credited
to participating shareholders in additional shares. Thus, the withdrawal amounts
paid can only be realized by redeeming shares of a Fund under the Plan. To the
extent such amounts paid exceed dividends and distributions from a Fund, a
shareholder's investment will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales charges,
no such charges will be imposed on withdrawals of up to 8% annually of either
(a) the value, at the time the Plan is initiated, of the shares then in the
account or (b) the value, at the time of a withdrawal, of the same number of
shares as in the account when the Plan was initiated, whichever is higher.
Expenses of the Plan are borne by a Fund. A participating shareholder may
withdraw from the Plan, and a Fund may terminate the Plan at any time on written
notice. Purchase of additional shares while a shareholder is receiving payments
under a Plan is ordinarily disadvantageous because of duplicative sales charges.
For this reason, a shareholder may not participate in the Investamatic Check
Program and the Systematic Withdrawal Plan at the same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all their
dividends and any other distributions from a Fund or any Eligible Fund
automatically invested at net asset value in one other such Eligible Fund
designated by the shareholder, provided the account into which the investment is
made is initially funded with the requisite minimum amount. The number of shares
purchased will be determined as of the dividend payment date. The Dividend
Allocation Plan is subject to state securities law requirements, to suspension
at any time, and to such policies, limitations and restrictions, as, for
instance, may be applicable to street name or master accounts, that may be
adopted from time to time.
Automatic Bank Connection
A shareholder may elect, by participating in a Fund's Automatic Bank Connection
("ABC"), to have dividends and other distributions, including Systematic
Withdrawal Plan payments, automatically deposited in the shareholder's bank
account by electronic funds transfer. Some contingent deferred sales charges may
apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for each Fund will be sent to shareholders of record of that Fund at
least semiannually. These reports will include a list of the securities owned by
the Fund as well as the Fund's financial statements.
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Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make redemptions for amounts up to
$50,000 to be mailed to the shareholder's address of record is available
automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically; and
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not previously
request such telephone wire privilege on his or her original Application may
request the privilege by completing a Telephone Redemption-by-Wire Form
which may be obtained by calling 1-800- 521-6548. The Telephone
Redemption-by-Wire Form requires a signature guarantee.
(4) the privilege allowing the shareholder to make telephone purchases or
redemptions transmitted via an electronic funds transfer system between the
shareholder's bank and a Fund, is available upon completion of the
requisite initial documentation. For details and forms, call 1-800-521-6548.
The documentation requires a signature guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in (1)
and (2) above by so indicating on the Application accompanying this Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by advising
Shareholder Services that the shareholder wishes to discontinue the use of such
privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to redeem,
or purporting to be the shareholder or the shareholder's dealer to exchange,
shares from any account; and (2) honor any written instructions for a change of
address regardless of whether such request is accompanied by a signature
guarantee. All telephone calls will be recorded. None of the Funds, the other
Eligible Funds, the Transfer Agent, the Investment Manager or the Distributor
will be liable for any loss, expense or cost arising out of any request,
including any fraudulent or unauthorized requests. Shareholders assume the risk
to the full extent of their accounts that telephone requests may be
unauthorized. Reasonable procedures will be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not be
liable for any losses arising from unauthorized or fraudulent instructions if
such procedures are not followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is unlikely, during periods of extraordinary market
conditions, a shareholder may have difficulty in reaching Shareholder Services
at such telephone number. In that event, the shareholder should contact
Shareholder Services at 1-800-562-0032, 1-617-357-7805 or otherwise at its main
office at One Financial Center, Boston, Massachusetts 02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your account,
including account balance, available shareholder services, statement information
and performance of the applicable Fund. Account inquiries may also be made in
writing to State Street Research Shareholder Services, P.O. Box 8408, Boston,
Massachusetts 02266-8408. A fee of up to $10 will be charged against an account
for providing additional account transcripts or photocopies of paid redemption
checks or for researching records in response to special requests.
Shareholder Telephone Transactions:
Please call 1-800-521-6548
Call this number for assistance in purchasing shares by wire and for telephone
redemptions or telephone exchange transactions. Shareholder Services will
require some form of personal identification prior to acting upon instructions
received by telephone. Written confirmation of each transaction will be
provided.
The Funds and Their Shares
Strategic Portfolios: Conservative and Strategic Portfolios: Aggressive were
organized in 1994 and Strategic Portfolios: Moderate was organized in 1993,
all
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as series of State Street Research Financial Trust (formerly: MetLife-State
Street Financial Trust), a Massachusetts business trust. The Trustees have
authorized shares of each Fund to be issued in four classes: Class A, Class B,
Class C and Class D shares. The Trust is registered with the Securities and
Exchange Commission as an open-end management investment company. The fiscal
year end of each Fund is October 31.
Except for those differences between the classes of shares described below and
elsewhere in the Prospectus, each share of a Fund has equal dividend, redemption
and liquidation rights with other shares of the Fund and when issued is fully
paid and nonassessable. In the future, certain classes may be redesignated, for
administrative purposes only, to conform to standard class designations and
common usage of terms which may develop in the mutual fund industry. For
example, Class C shares may be redesignated as Class Y shares and Class D shares
may be redesignated as Class C shares. Any redesignation would not affect any
substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest in
the same portfolio of investments of a Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class D shares bear
the expenses of the deferred sales arrangement and any expenses (including the
higher service and distribution fees) resulting from such sales arrangement, and
certain other incremental expenses related to a class. Each class will have
exclusive voting rights with respect to provisions of the Rule 12b-1
distribution plan pursuant to which the service and distribution fees, if any,
are paid. Although the legal rights of holders of each class of shares are
identical, it is likely that the different expenses borne by each class will
result in different net asset values and dividends. The different classes of
shares of the Funds also have different exchange privileges.
The rights of holders of shares may be modified by the Trustees at any time,
so long as such modifications do not have a material adverse effect on the
rights of any shareholder. Under the Master Trust Agreement, the Trustees may
reorganize, merge or liquidate a Fund without prior shareholder approval. 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 the Trust's Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder meetings
unless required by the 1940 Act. Except as otherwise provided under said Act,
the Board of Trustees will be a self-perpetuating body until fewer than two
thirds of the Trustees serving as such are Trustees who were elected by
shareholders of the Trust. In the event less than a majority of the Trustees
serving as such were elected by shareholders of the Trust, a meeting of
shareholders will be called to elect Trustees. Under the Master Trust Agreement,
any Trustee may be removed by vote of two thirds of the outstanding Trust
shares; holders of 10% or more of the outstanding shares of the Trust can
require that the Trustees call a meeting of shareholders for purposes of voting
on the removal of one or more Trustees. In connection with such meetings called
by shareholders, shareholders will be assisted to the extent required by
applicable law.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement of the Trust disclaims shareholder liability
for acts or obligations of the Trust and provides for indemnification for all
losses and expenses of any shareholder of a Fund held personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which a
Fund would be unable to meet its obligations. The Investment Manager believes
that, in view of the above, the risk of personal liability to shareholders is
remote.
As of November 30, 1995 Metropolitan Life Insurance Company ("Metropolitan"),
was the record and/or beneficial owner of 100% of the outstanding Class A
shares of Strategic Portfolios: Conservative and 100% and 83.1%, respectively,
of the outstanding Class A and Class C shares of the Strategic Portfolios:
Aggressive and of approximately 66.7% of the out-
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standing Class C shares of Strategic Portfolios: Moderate and may be deemed to
be in control of such shares of the Funds. Ownership of 25% or more of a voting
security is deemed "control" as defined in the 1940 Act. So long as 25% of a
class of shares is so owned, such owners will be presumed to be in control of
such class of shares for purposes of voting on certain matters, such as any
Distribution Plan for a given class.
Management of the Funds
Under the provisions of the Trust's Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Funds
rests with the Trustees. The Funds' investment manager is State Street Research
& Management Company. The Investment Manager is charged with the overall
responsibility for managing the investments and business affairs of the Funds,
subject to the authority of the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first mutual
funds, presently known as State Street Research Investment Trust, which they had
formed in 1924. Their investment management philosophy, which continues to this
day, emphasized comprehensive fundamental research and analysis, including
meetings with the management of companies under consideration for investment.
The Investment Manager's portfolio management group has extensive investment
industry experience managing equity and debt securities. In managing debt
securities, if any, for a portfolio, the Investment Manager may consider yield
curve positioning, sector rotation and duration, among other factors.
The Investment Manager and the Distributor are indirect wholly-owned
subsidiaries of Metropolitan and both are located at One Financial Center,
Boston, Massachusetts 02111-2690.
The Investment Manager has entered into an Advisory Agreement with the Trust
pursuant to which investment research and management, administrative services,
office facilities and personnel are provided for each Fund in consideration of a
fee from each Fund.
Under its Advisory Agreement with the Trust, the Investment Manager receives a
monthly investment advisory fee equal to a percentage (on an annual basis) of
the average daily value of the net assets of each Fund as follows: Strategic
Portfolios: Conservative, 0.60%; Strategic Portfolios: Moderate, 0.65% and
Strategic Portfolios: Aggressive, 0.75%. The fee charged to Strategic
Portfolios: Aggressive is higher than that charged to most mutual funds but is
believed by the Trustees to be justified given the considerable analysis and
research necessary to manage this Fund in light of its investment objective and
policies. Each Fund bears all costs of its operation other than those incurred
by the Investment Manager under the Advisory Agreement. In particular, the Funds
pay, among other expenses, investment advisory fees, certain distribution
expenses under the Funds' Distribution Plan and the compensation and expenses of
the Trustees who are not otherwise currently affiliated with the Investment
Manager or any of its affiliates. The Investment Manager will reduce its
management fee payable by each Fund up to the amount of any expenses (excluding
permissible items, such as brokerage commissions, Rule 12b-1 payments, interest,
taxes and litigation expenses) paid or incurred in any year in excess of the
most restrictive expense limitation imposed by any state in which the Funds sell
shares, if any. The Investment Manager compensates Trustees of the Trust if such
persons are employees or affiliates of the Investment Manager or its affiliates.
Michael R. Yogg is primarily responsible for the day-to-day management of
the Funds' portfolios. Mr. Yogg has investment discretion over the entire
portfolio of each Fund, makes investment decisions as to specific securities
holdings, allocates and continually adjusts such allocations of investments
among equity and fixed income securities and among different industry or
other sectors, and may delegate purchase and sale authority for defined
portions of the portfolios to others. Mr. Yogg has managed Strategic
Portfolios: Conservative and Strategic Portfolios: Aggressive since
commencement of operations in May 1994
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and has managed Strategic Portfolios: Moderate since commencement of
operations in September 1993. He is a Vice President of the Trust. Mr. Yogg's
principal occupation currently is Senior Vice President of State Street
Research & Management Company. During the past five years he has also served
as Vice President of State Street Research & Management Company.
Subject to the policy of seeking best overall price and execution, sales of
shares of a Fund may be considered by the Investment Manager in the selection of
broker or dealer firms for the Funds portfolio transactions.
The Investment Manager has a Code of Ethics governing personal securities
transactions of certain of its employees; see the Statement of Additional
Information.
Dividends and Distributions; Taxes
Each Fund qualified and elected to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code, although it cannot give
complete assurance that it will do so. As long as a Fund so qualifies and
satisfies certain distribution requirements, it will not be subject to federal
income tax on its taxable income (including capital gains, if any) distributed
to its shareholders. Consequently, each Fund intends to distribute annually to
its shareholders substantially all of its net investment income and any capital
gain net income (capital gains net of capital losses).
Dividends from net investment income of each Fund normally will be paid four
times each year. Distributions of capital gain net income, if any, will
generally be made after the end of the fiscal year or as otherwise required for
compliance with applicable tax regulations. Both dividends from net investment
income and distributions of capital gain net income will be declared and paid to
shareholders in additional shares of a Fund at net asset value (except in the
case of shareholders who elect a different available distribution method).
Each Fund will provide its shareholders of record with annual information on a
timely basis concerning the federal tax status of dividends and distributions
during the preceding calendar year.
Dividends paid by a Fund from taxable net investment income and distributions
of net short-term capital gains, whether paid in cash or reinvested in
additional shares, will be taxable for federal income tax purposes to
shareholders as ordinary income, and a portion may be eligible for the 70%
dividends- received deduction for corporations. The percentage of a 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. Distributions of net capital gains (the excess of net
long- term capital gains over net short-term capital losses) which are
designated as capital gains distributions, whether paid in cash or reinvested in
additional shares, will be taxable for federal income tax purposes to
shareholders as long-term capital gains, regardless of how long shareholders
have held their shares, and are not eligible for the dividends-received
deduction. If shares of a Fund which are sold at a loss have been held six
months or less, the loss will be considered as a long-term capital loss to the
extent of any capital gains distributions received.
Dividends and other distributions and the proceeds of redemption of Fund
shares paid to individuals and other nonexempt payees will be subject to a 31%
federal backup withholding tax if the Transfer Agent is not provided with the
shareholder's correct taxpayer identification number and certification that the
shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal income
tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisers regarding
tax matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, a Fund may compare the performance of its Class A, Class
B, Class C or Class D shares to that of other mutual funds with similar
investment objectives, to certificates of deposit and/or to other financial
alternatives and/or to appropriate indices, rankings and
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averages such as those compiled by Lipper Analytical Services, Inc. for the
category in which such Fund is placed, Morningstar, Inc., Money Magazine,
Business Week, Forbes Magazine, The Wall Street Journal and Investor's Daily.
Total return is computed separately for each class of shares of each Fund. The
average annual total return ("standard total return") for shares of each Fund is
computed by determining the average annual compounded rate of return for a
designated period that, if applied to a hypothetical $1,000 initial investment
(less the maximum initial or contingent deferred sales charge, if applicable),
would produce the redeemable value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions and with recognition of
all recurring charges. Standard total return may be accompanied with nonstandard
total return information computed in the same manner, but for differing periods
and with or without annualizing the total return or taking sales charges into
account.
A Fund's yield is computed separately for each class of shares by dividing the
net investment income, after recognition of all recurring charges, per share
earned during the most recent month or other specified thirty-day period by the
applicable maximum offering price per share on the last day of such period and
annualizing the result.
The standard total returns and yield results take sales charges into account,
if applicable, but do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for remittance of redemption proceeds by
wire. Where sales charges are not applicable and therefore not taken into
account in the calculation of standard total return and yield, the results will
be increased. Any voluntary waiver of fees or assumption of expenses by the
Funds' affiliates will also increase performance results.
A Fund's distribution rate is calculated separately for each class of shares
by annualizing the latest distribution and dividing the result by the maximum
offering price per share as of the end of the period to which the distribution
relates. The distribution rate is not computed in the same manner as the above
described yield, and, therefore, can be significantly different from it. In its
supplemental sales literature, each Fund may quote its distribution rate
together with the above described standard total return and yield information.
The use of such distribution rates would be subject to an appropriate
explanation of how the components of the distribution rate differ from the above
described yield.
Performance information may be useful in evaluating a Fund and for providing a
basis for comparison with other financial alternatives. Since the performance of
a Fund varies in response to fluctuations in economic and market conditions,
interest rates and Fund expenses, among other things, no performance quotation
should be considered a representation as to the Fund's performance for any
future period. In addition, the net asset value of shares of a Fund will
fluctuate, with the result that shares of a Fund, when redeemed, may be worth
more or less than their original cost. Neither an investment in a Fund nor its
performance is insured or guaranteed; such lack of insurance or guarantees
should accordingly be given appropriate consideration when comparing a Fund to
financial alternatives which have such features. 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.
Appendix
Description of Debt/Bond Ratings
Standard & Poor's Corporation
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more
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susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakend capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the due date even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to noncredit risks created by the terms of the
obligation, such as securities whose principal or interest return is indexed to
equities, commodities or currencies, certain swaps and options, and interest
only (IO) and principal only (PO) mortgage securities.
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa
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group they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obliga-
tions which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
1, 2 or 3: The ratings from Aa through Baa may be modified by the addition of
a numeral indicating a bond's rank within its rating category.
33
<PAGE>
Cover Page
(Logo State Street)
State Street Research
Strategic Portfolios:
Conservative, Moderate, Aggressive
March 1, 1996
PROSPECTUS
STATE STREET RESEARCH
STRATEGIC PORTFOLIOS:
Conservative
Moderate
Aggressive
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02110
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
SP-007E-396IBS CONTROL NUMBER:
<PAGE>
State Street Research Government Income Fund
a Series of
State Street Research Financial Trust
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1996
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS 2
ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT TECHNIQUES 5
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS 15
TRUSTEES AND OFFICERS 18
INVESTMENT ADVISORY SERVICES 22
PURCHASE AND REDEMPTION OF SHARES 23
NET ASSET VALUE 25
PORTFOLIO TRANSACTIONS 26
CERTAIN TAX MATTERS 28
DISTRIBUTION OF SHARES OF THE FUND 31
CALCULATION OF PERFORMANCE DATA 35
CUSTODIAN 39
INDEPENDENT ACCOUNTANTS 39
FINANCIAL STATEMENTS 39
The following Statement of Additional Information is not a Prospectus. It
should be read in conjunction with the Prospectus of State Street Research
Government Income Fund (the "Fund") dated March 1, 1996, which may be obtained
without charge from the offices of State Street Research Financial Trust (the
"Trust") or State Street Research Investment Services, Inc. (the "Distributor"),
One Financial Center, Boston, Massachusetts 02111-2690.
GI-879D-295 1285F-950210(0396)SSR-LD
<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Fund's Investments" and "Limiting Investment Risk"
in the Fund's Prospectus, the Fund has adopted certain investment restrictions.
All of the Fund's fundamental investment restrictions are set forth below.
These fundamental restrictions may not be changed by the Fund except by the
affirmative vote of a majority of the outstanding voting securities of the Fund
as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(Under the 1940 Act, a "vote of the majority of the outstanding voting
securities" means the vote, at the annual or a special meeting of security
holders duly called, (i) of 67% or more of the voting securities present at 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.) Under these restrictions, it is the
Fund's policy:
(1) not to purchase a security of any one issuer (other than securities
issued or guaranteed as to principal or interest by the U.S.
Government or its agencies or instrumentalities or mixed-ownership
Government corporations) if such purchase would, with respect to 75%
of the Fund's total assets, cause more than 5% of the Fund's total
assets to be invested in the securities of such issuer or cause more
than 10% of the voting securities of such issuer to be held by the
Fund;
(2) not to issue senior securities, except that the Fund may borrow money
and engage in reverse repurchase agreements in amounts up to
one-third of the value of the Fund's net assets including the amounts
borrowed (provided that reverse repurchase agreements shall be
limited to 5% of the Fund's total assets);
(3) not to underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment
objective, policies and limitations;
(4) not to purchase or sell real estate, although it may invest in
securities of companies whose business involves the purchase or sale
of real estate or in securities which are secured by real estate or
interests in real estate;
(5) not to invest in physical commodities or physical commodity contracts
or options in excess of 10% of the Fund's total assets, except that
investments in essentially financial items or arrangements such as,
but not limited to, swap arrangements, hybrids, currencies, currency
and other forward contracts, futures contracts and options on futures
contracts on securities, securities
2
<PAGE>
indices, interest rates and currencies shall not be deemed
investments in commodities or commodities contracts;
(6) not to lend money; however, the Fund may lend portfolio securities
and purchase bonds, debentures, notes and similar obligations (and
enter into repurchase agreements with respect thereto);
(7) not to sell securities short;
(8) not to invest in oil, gas or other mineral exploration or development
programs (provided that the 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);
(9) not to make any investment which would cause more than 25% of the
value of the Fund's total assets to be invested in securities of
issuers principally engaged in any one industry (for purposes of this
restriction, (a) utilities will be divided according to their
services so that, for example, gas, gas transmission, electric and
telephone companies will each be deemed in a separate industry, (b)
oil and oil related companies will be divided by type so that, for
example, oil production companies, oil service companies and refining
and marketing companies will each be deemed in a separate industry,
(c) finance companies will be classified according to the industry of
their parent companies, and (d) securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities (including
repurchase agreements collateralized by U.S. Government securities)
shall be excluded); and
(10) not to borrow money (through reverse repurchase agreements or
otherwise) except for emergency purposes or to facilitate management
of the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio accounts is determined to be
inconvenient or disadvantageous, provided that additional investments
will be suspended during any period when borrowings exceed 5% of the
Fund's net assets, and provided further that reverse repurchase
agreements shall not exceed 5% of the Fund's total assets; (during
the period in which any reverse repurchase agreements are
outstanding, the Fund will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements. Such purchases
will be made only to the extent necessary to assure completion of the
reverse repurchase agreement);
3
<PAGE>
(11) not to purchase securities on margin other than in connection with
the purchase of put options on financial futures contracts, but the
fund may obtain such short-term credits as are necessary for
clearance of transactions;
(12) not to hypothecate, mortgage or pledge any of its assets except to
secure permitted borrowings and then not in excess of 10% of such
Fund's total assets, at the time of the borrowing; (as a matter of
interpretation which is not part of the fundamental policy, futures,
options and forward commitments, 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
such investments, are not deemed to involve a hypothecation, mortgage
or pledge of assets);
The following investment restrictions may be changed by a vote of a
majority of the Trustees. Under these restrictions, it is the Fund's policy:
(1) not to purchase any security or enter into a repurchase agreement if
as a result more than 15% of its net assets would be invested in
securities that are illiquid (including repurchase agreements not
entitling the holder to payment of principal and interest within
seven days); and
(2) not to invest more than 15% of its net assets in restricted
securities of all types (including not more than 5% of its net assets
in restricted securities which are not eligible for resale pursuant
to Rule 144A, Regulation S or other exemptive provisions under the
Securities Act of 1933);
(3) not to invest more than 5% of its total assets in securities of
private companies including predecessors with less than three years'
continuous operations except (a) securities guaranteed or backed by
an affiliate of the issuer with three years of continuous operations,
(b) securities issued or guaranteed as to principal or interest by
the U.S. Government, or its agencies or instrumentalities, or a
mixed-ownership Government corporation, (c) securities of issuers
with debt securities rated at least "BBB" by Standard & Poor's
Corporation or "Baa" by Moody's Investor's Service, Inc. (or their
equivalent by any other nationally recognized statistical rating
organization) or securities of issuers considered by the Investment
Manager to be equivalent, (d) securities issued by a holding company
with at least 50% of its assets invested in companies with three
years of continuous operations including predecessors, and (e)
securities which generate income which is exempt from local, state
or federal taxes; provided that the fund may invest up to 15% in
such issuers so long as such investments plus investments in
restricted securities (other than those which are eligible for
resale under Rule
4
<PAGE>
144A, Regulation S or other exemptive provisions) do not exceed 15%
of the Fund's total assets;
(4) not to acquire any security issued by any other investment company
(the "acquired company") if immediately after such acquisition the
Fund and all companies controlled by the Fund, if any, would own in
the aggregate (i) more than 3% of the outstanding voting stock of the
acquired company, (ii) securities issued by the acquired company
having an aggregate value in excess of 5% of the Fund's total assets
or (iii) securities issued by the acquired company and all other
investment companies (other than treasury stock of the Fund) having
an aggregate value in excess of 10% of the Fund's total assets,
except to complete a merger, consolidation or other acquisition of
assets;* and
(5) not to purchase or retain any security of an issuer if, to the
knowledge of the Trust, those of its officers and Trustees and
officers and directors of its investment advisers who individually
own more than 1/2 of 1% of the securities of such issuer, when
combined, own more than 5% of the securities of such issuer taken at
market.
* In connection with clause (4), the Fund has undertaken with a state
securities authority that, for so long as its shares are required to be
registered in such state and such investment restriction remains in effect, the
Fund will not acquire any security issued by another investment company, except
by purchase in the open market involving only customary broker's commissions, or
except when the securities are acquired as dividends or distributions or when
the purchase is part of a plan of merger, consolidation, reorganization or
acquisition.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Among other investments described below, the Fund may buy and sell options,
futures contracts and options on futures contracts with respect to securities,
securities indices, currencies, and may enter into closing transactions with
respect to each of the foregoing under circumstances in which such instruments
and techniques are expected by State Street Research & Management Company (the
"Investment Manager') to aid in achieving the investment objectives of the Fund.
The Fund on occasion may also purchase instruments with characteristics of both
futures and securities (e.g., debt instruments with interest and principal
payments determined by reference to the value of a commodity or a currency at a
future time) and which, therefore, possess the risks of both future and
securities investments.
Futures Contracts
5
<PAGE>
Futures contracts are publicly traded contracts to buy or sell underlying
assets, such as certain securities, currencies, 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 transactions an amount of "initial
margin" in cash or U.S. Treasury obligations.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when the Fund has taken a long
position in a futures contract and the value of the underlying asset has risen,
that position will have increased in value and the Fund will receive from the
broker a maintenance margin payment equal to the increase in value of the
underlying asset. conversely, when the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position would be less valuable, and the Fund would be required to make a
maintenance margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will terminate the
Fund's position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of such
securities, such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus protect the Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and thus to participate
in an expected rise in market value of securities which the Fund intends to
purchase. In transactions establishing a long position in a futures contract,
money market instruments equal to the face value of the futures contract will be
identified by the Fund to the Trust's custodian for maintenance in a separate
account to insure that the use of such futures contracts is unleveraged.
Similarly, a representative portfolio of securities having a value equal to the
aggregate face value of the futures contract will be identified with respect to
each short position. The Fund will employ any
6
<PAGE>
other appropriate method of cover which is consistent with applicable regulatory
and exchange requirements.
Options on Securities
The Fund may use options on equity securities to implement its investment
strategy. A call option on a security, for example, gives the purchaser of the
option the right to buy, and the writer the obligation to sell, the underlying
asset at the exercise price during the option period. Conversely, a put option
on a security gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying asset at the exercise price during the option
period.
Purchased options have defined risk, i.e., the premium paid for the option,
no matter how adversely the price of the underlying asset moves, while affording
an opportunity for gain corresponding to the increase or decrease in the value
of the optioned asset.
Written options have varying degrees of risk. An uncovered written call
option theoretically carries unlimited risk, as the market price of the
underlying asset could rise far above the exercise price before its expiration.
The risk is tempered when the call option is covered, i.e., when the option
writer owns the underlying asset. In this case, the writer runs the risk of the
lost opportunity to participate in the appreciation in value of the asset rather
than the risk of an out-of-pocket loss. A written put option has defined risk,
i.e., the difference between the agreed-upon price that the Fund must pay to the
buyer upon exercise of the put and the value, which could be zero, of the asset
at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
his obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Options on Securities Indices
The Fund may engage in transactions in call and put options on securities
indices. For example, the Fund may purchase put options on indices of securities
in anticipation of or during a market decline to attempt to offset the decrease
in market value of its equity securities that might otherwise result.
Put options on indices of securities are similar to put options on the
securities themselves except that the delivery requirements are different.
Instead of giving the right
7
<PAGE>
to make delivery of a security at a specified price, a put option on an index of
securities gives the holder the right to receive an amount of cash upon exercise
of the option if the value of the underlying index has fallen below the exercise
price. The amount of cash received will be equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple. As with options on equity securities or
futures contracts, the Fund may offset its position index options prior to
expiration by entering into a closing transaction on an exchange or it may let
the option expire unexercised.
A securities index assigns relative values to the securities included in
the index and the index options are based on a broad market index. Although
there are at present few available options on indices of fixed income
securities, other than tax-exempt securities, or futures and related options
based on such indices such instruments may become available in the future. In
connection with the use of such options the Fund may cover its position by
identifying a representative portfolio of securities having a value equal to
the aggregate face value of the option position taken. However, the Fund may
employ any appropriate method to cover its positions that is consistent with
applicable regulatory and exchange requirements.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the period of the option.
Options Strategy
A basic option strategy for protecting the Fund against a decline in
securities prices could involve (a) the purchase of a put -- thus "locking in"
the selling price of the underlying securities or securities indices -- or (b)
the writing of a call on securities or securities indices held by the Fund --
thereby generating income (the premium paid by the buyer) by giving the holder
of such call the option to buy the underlying asset at a fixed price. The
premium will offset, in whole or in part, a decline in portfolio value; however,
if prices of the relevant securities or securities indices rose instead of
falling, the call might be exercised thereby resulting in a potential loss of
appreciation in the underlying securities or securities indices.
A basic option strategy when a rise in securities prices is anticipated is
the purchase of a call -- thus, "locking in" the purchase price of the
underlying security or other asset. In transactions involving the purchase of
call options by the Fund, money market instruments equal to the aggregate
exercise price of the options will be identified by the Fund to the Trust's
custodian to insure that the use of such investments is unleveraged.
8
<PAGE>
The Fund may write options in connection with buy-and-write transactions;
that is, the Fund may purchase a security and concurrently write a call option
against that security. If the call option is exercised in such a transaction,
the Fund' maximum gain will be the premium received by it for writing the
option, adjusted upward or downward by the difference between the Fund's
purchase price of the security and the exercise price of the option. If the
option is not exercised and the price of the underlying security declines, the
amount of such decline will be offset in part, or entirely, by the premium
received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund's return will be the premium received from
writing the put option minus the amount by which the market price of the
security is below the exercise price.
Limitations and Risks of Options and Futures Activity
The Fund will engage in transactions in futures contracts or options only
as a hedge against changes resulting from market conditions which produce
changes in the values of its securities or the securities which it intends to
purchase (e.g., to replace portfolio securities which will mature in the near
future) and, subject to the limitations described below, to enhance return. The
Fund will not purchase any futures contract or purchase any call option if,
immediately thereafter, more than one third of the Fund's net assets would be
represented by long futures contracts or call options. The Fund will not write a
covered call or put option if, immediately thereafter, the aggregate value of
the assets (securities in the case of written calls and cash or cash equivalents
in the case of written puts) underlying all such options, determined as of the
dates such options were written, would exceed 25% of the Fund's net assets. In
addition, the Fund may not establish a position in a commodity futures contract
or purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of the Fund's net assets.
Although effective hedging can generally capture the bulk of a desired risk
adjustment, no hedge is completely effective. The Fund's ability to hedge
effectively through transactions in futures and options depends on the degree to
which price movements in its holdings correlate with price movements of the
futures and options.
Some positions in 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,
9
<PAGE>
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 hedge their securities
and might, in some cases, require the Fund to deposit cash to meet applicable
market requirements. The Fund will enter into an option or futures position only
if it appears to be a liquid investment.
U.S. Government Securities
In addition to direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, certificates and bonds), the types of U.S. Government
securities in which the Fund may invest generally include obligations issued or
guaranteed by U.S. Government agencies or instrumentalities or mixed ownership
Government corporations, whose securities are backed by:
- the full faith and credit of the U.S. Treasury (such as instruments of
the Government National Mortgage Association);
- the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities (such as instruments of the
Federal National Mortgage Association);
- the credit of the agency or instrumentality issuing the obligations
(such as instruments of a Federal Home Loan Bank, Federal Farm Credit
Banks, the Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation); or
- a guarantee of principal or interest by the U.S. Government or a U.S.
Government agency or instrumentality and, with respect to any
unguaranteed principal or interest, U.S. Government obligations held in
a segregated account.
Mortgage-Related Securities
Mortgage-related securities generally represent an ownership interest in a
pool of residential mortgage loans. The majority of these loans is made to
purchasers of 1-4 family homes. The terms and characteristics of the mortgage
instruments are generally uniform within a pool, but may vary among pools.
When-Issued Securities
The Fund may purchase "when-issued" securities, which are traded on a price
or yield basis prior to actual issuance. Such purchases will be made only to
achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs in the U.S.
10
<PAGE>
Treasury market when dealers begin to trade a new issue of bonds or notes
shortly after a Treasury financing is announced, but prior to the actual sale of
the securities. Similarly, securities to be created by a merger of companies may
also be traded prior to the actual consummation of the merger. Such transactions
may involve a risk of loss if the value of the securities falls below the price
committed to prior to actual issuance. The Trust's custodian will establish a
segregated account for the Fund when it purchases securities on a when-issued
basis consisting of cash or liquid securities equal to the amount of the
when-issued commitments. Securities transactions involving delayed deliveries
or forward commitments are frequently characterized as when-issued transactions
and are similarly treated by the Fund.
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. Repurchase
agreements could involve certain risks in the event of default or insolvency of
the other party, including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities. Repurchase agreements will be
limited to 30% of the Fund's total assets, except that repurchase agreements
extending for more than seven days and other illiquid securities will be limited
to 10% of the Fund's total assets.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. In a reverse
repurchase agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker or dealer, in return for
a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed-upon rate.
The ability to use reverse repurchase agreements may enable, but does not ensure
the ability of, the Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous.
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.
Foreign Investments
11
<PAGE>
The Fund reserves the right to invest varying amounts in securities of
non-U.S. issuers. To the extent the Fund invests in securities of issuers in
less developed countries or emerging foreign markets, it will be subject to a
variety of additional risks, including risks associated with political
instability, economies based on relatively few industries, lesser market
liquidity, high rates of inflation, significant price volatility of portfolio
holdings and high levels of external debt in the relevant country.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in the local markets.
Currency Transactions
The Fund 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.
Rule 144A Securities
12
<PAGE>
Subject to the restrictions on illiquid and restricted securities noted
above, the Fund may buy or sell restricted securities in accordance with Rule
144A under the Securities Act of 1933 ("Rule 144A Securities"). Securities may
be resold pursuant to Rule 144A under certain circumstances only to be qualified
institutional buyers as defined in the rule, and the markets and trading
practices for such securities are relatively new and still developing; depending
on the development of such markets, such Rule 144A Securities may be deemed to
be liquid as determined by or in accordance with methods adopted by the
Trustees. Under such methods the following factors are considered, among others:
the frequency of trades and quotes for the security, the number of dealers and
potential purchasers in the market, marketmaking activity, and the nature of
the security and marketplace trades. Investments in Rule 144A Securities could
have the effect of increasing the level of the Fund's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing such securities. Also, the Fund may be adversely impacted by the
possible illiquidity and subjective valuation of such securities in the absence
of a market for them.
Swap Arrangements
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap, the Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap, the Fund would agree with the other party to exchange cash flows based on
the relative differences in values of a notional amount of two (or more)
currencies; in an index swap, the Fund would agree to exchange cash flows on a
notional amount based on changes in the values of the selected indices. Purchase
of a cap entitles the purchaser to receive payments from the seller on a
notional amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an
agreed-upon interest rate or amount. A collar combines a cap and a floor.
Most swaps entered into by the Fund will be on a net basis; for example, in
an interest rate swap, amounts generated by application of the fixed rate and
the floating rate to the notional principal amount would first offset one
another, with the Fund either receiving or paying the difference between such
amounts. In order to be in a position to meet any obligations resulting from
swaps, the Fund will set up a segregated custodial account to hold appropriate
liquid assets, including cash; for swaps entered into on a net basis, assets
will be segregated having a daily net asset value equal to any excess of the
Fund's accrued obligations over the accrued obligations of the other party,
while for swaps on other than a net basis assets will be segregated having a
value equal to the total amount of the Fund's obligations.
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<PAGE>
These arrangements will be made primarily for hedging purposes, to preserve
the return on an investment or on a part of the Fund's portfolio. However, the
Fund may enter into such arrangements for income purposes to the extent
permitted by the CFTC for entities which are not commodity pool operators, such
as the Fund. In entering a swap arrangement, the Fund is dependent upon the
creditworthiness and good faith 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.
Industry Classification
In determining how much of the Fund's portfolio is invested in a given
industry, the industry classifications set forth below, grouped by sectors, are
currently used. Companies engaged in the business of financing will be
classified according to the industries of their parent companies or industries
that otherwise most affect such financing companies. Issuers of asset-backed
pools will be classified as separate industries based on the nature of the
underlying assets, such as mortgages, credit card receivables, etc.
Basic Industries Consumer Staple Science & Technology
Chemical Business Service Aerospace
Diversified Container Computer Software &
Service
Electrical Equipment Drug Electronic Components
Forest Products Food & Beverage Electronic Equipment
Machinery Hospital Supply Office Equipment
Metal & Mining Personal Care
Railroad Printing & Publishing
Truckers Tobacco
Utility Energy Consumer Cyclical
Electric Oil Refining and Marketing Airline
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<PAGE>
Gas Oil Production Automotive
Gas Transmission Oil Service Building
Telephone Hotel & Restaurant
Photography
Other Finance Recreation
Retail Trade
Trust Certificates -- Bank Recreation
Government Related Financial Service Retail Trade
Lending Financial Service Recreation
Asset-backed--Mortgages Insurance Textile & Apparel
Asset-backed--Credit
Card Receivables
Other Investment Limitations
The Fund has undertaken with a state securities authority that, for so
long as the Fund's shares are required to be registered for sale in such state,
the Fund will not purchase real estate limited partnerships or make investments
in oil, gas or mineral leases.
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
As indicated in the Fund's Prospectus, the Fund may invest in long-term
and short-term debt securities. The Fund may invest in cash and short-term
securities for temporary defensive purposes when, in the opinion of Investment
Manager, such a position is more likely to provide protection against
unfavorable market conditions than adherence to other investment policies.
Certain debt securities and money market instruments in which the Fund may
invest are described below.
U.S. Government Securities. U.S. Government securities consist of
various types of marketable securities issued by the U.S. Treasury, i.e.,
bills, notes and bonds. Such securities are direct obligations of the U.S.
Government and differ mainly in the lengths of their maturities. Treasury
bills, the most frequently issued marketable government security, have a
maturity of up to one year and are issued on a discount basis. U.S.
Government securities also include securities issued under the U.S.
Department of Treasury's STRIPS program, which is described in the Fund's
Prospectus. Government agency securities are also U.S. Government
securities. Government agency securities consist of fixed income securities
issued or guaranteed by agencies and instrumentalities of the U.S.
Government, including the various types of instruments currently outstanding
or which may be offered in the future. See prior discussion of U.S.
Government Securities.
15
<PAGE>
Custodial Receipts. Custodial receipts evidencing the ownership of future
interest payments, principal payments or both on U.S. Treasury notes or bonds
may be purchased in the form of "Treasury Receipts" ("TRs"), "Treasury
Investment Growth Receipts" ("TIGRs") and "Certificates of Accrual on Treasury
Securities" ("CATS") and in connection with similar programs as
described in the Fund's Prospectus.
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 corporations including but not
limited to (a) domestic or foreign bank holding companies or (b) their
subsidiaries or affiliates where the debt instrument is
16
<PAGE>
guaranteed by the bank holding company or an affiliated bank or where the bank
holding company or the affiliated bank is unconditionally liable for the debt
instrument. Commercial paper is usually sold on a discounted basis and has a
maturity at the time of issuance not exceeding nine months.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated A by Standard & Poor's Corporation ("S&P") or Prime by
Moody's Investors Service, Inc. ("Moody's"), or, if not rated, issued by
companies having an outstanding long-term unsecured debt issue rated at least A
by S&P or by Moody's. The money market investments in corporate bonds and
debentures (which must have maturities at the date of settlement of one year or
less) must be rated at the time of purchase at least A by S&P or by Moody's.
Commercial paper rated A (highest quality) by S&P is issued by entities
which have liquidity ratios which are adequate to meet cash requirements.
Long-term senior debt is rated A or better, although in some cases BBB credits
may be allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1, A-2
or A-3. (Those A-1 issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
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<PAGE>
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their addresses, and their
principal occupations and positions with certain affiliates of Investment
Manager are set forth below.
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 55. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as portfolio manager for State Street Research &
Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 69. He is engaged principally in
private investments and civic affairs, and is an author of business history.
Previously, he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109 serves as Trustee of the Trust. He is 69. His principal occupation during
the past five years has been Partner, Saltonstall & Co., a private investment
firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 44. His principal occupation is Executive Vice
President, Treasurer and Director of State Street Research & Management Company.
During the past five years he has also served as Executive Vice President and
Chief Financial Officer of New England Investment Companies and as Senior Vice
President and Vice President of New England Mutual Life Insurance Company. Mr.
Maus's other principal business affiliations include Executive Vice President,
Treasurer, Chief Financial Officer and Director of State Street Research
Investment Services, Inc.
*+Francis J. McNamara, III has served as Secretary and General Counsel of
the Trust since May, 1995. He is 40. His principal occupation is Senior Vice
President, Secretary and General Counsel of the Investment Manager. During the
past five years he has also served as Senior Vice President, General Counsel and
Assistant Secretary of The Boston Company, Inc., Boston Safe Deposit and Trust
Company and The Boston Company Advisors, Inc. Mr. McNamara's other principal
business affiliations include Senior Vice President, Clerk and General Counsel
of State Street Research Investment Services, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 63. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
- ------------------------
* or +, See footnotes on page 20.
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<PAGE>
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173, serves as
Trustee of the Trust. He is 71. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves as
Trustee of the Trust. He is 57. His principal occupations during the past five
years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology,
77 Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the
Trust. He is 58. His principal occupation during the past five years has
been Jay W. Forrester Professor of Management at Sloan School of Management,
Massachusetts Institute of Technology.
*+Thomas A. Shively, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 41. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President of State
Street Research & Management Company. Mr. Shively's other principal business
affiliations include Director of State Street Research Investment Services, Inc.
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. He is 52. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and as Chief Investment
Officer of New England Mutual Life Insurance Company. Mr. Verni's other
principal business affiliations include Chairman of the Board, President, Chief
Executive Officer and Director of State Street Research Investment Services,
Inc.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 71. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
- ------------------------
* or +, See footnotes on page 20.
19
<PAGE>
*Michael R. Yogg, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 49. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
As of November 30, 1995, the Trustees and officers of the Trust as a group
owned less than 1% of the Fund's outstanding Class A shares and owned none of
the Fund's outstanding Class B, Class C and Class D shares.
As of November 30, 1995, the following persons or entities were the record
and/or beneficial owners of the approximate amounts of each class of shares of
the Fund as set forth beside their names:
Shareholder %
----------- ---
Class A Merrill Lynch 40.4
Class B Merrill Lynch 12.6
Class C State Street Bank 50.0
Amalgamated Bank 34.7
Class D Merrill Lynch 54.6
The full name and address of each of the above persons or entities are as
follows:
Merrill Lynch, Pierce, Fenner & Smith, Inc. (a)
One Liberty Plaza, 165 Broadway, New York, NY 10080
State Street Bank and Trust Company (b)
225 Franklin Street, Boston, MA 02111
Amalgamated Bank of New York (c)
P.O. Box 370, Cooper Station, New York, NY 10003
(a) The Fund believes that Merrill Lynch does not have beneficial ownership of
such shares.
- ------------------------
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the Investment Company Act of 1940 because of
their affiliations with the Fund's investment adviser.
+ Serves as a Trustee and/or officer of one or more of the following
investment companies, each of which has an advisory relationship with
the Investment Manager or its affiliates: State Street Research Equity
Trust, State Street Research Financial Trust, State Street Research
Income Trust, State Street Research Money Market Trust, State Street
Research Tax-Exempt Trust, State Street Research Capital Trust, State
Street Research Exchange Trust, State Street Research Growth Trust,
State Street Research Master Investment Trust, State Street Research
Portfolios, Inc. and Metropolitan Series Fund, Inc.
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<PAGE>
(b) State Street Bank and Trust Company holds such shares as custodian for
individual retirement accounts and the Fund believes that State Street Bank
does not have beneficial ownership of such shares.
(c) Amalgamated Bank holds such shares as custodian for various retirement
accounts and the Fund believes that Amalgamated Bank 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, such as any
Distribution Plan for a given class.
During the fiscal year ended October 31, 1995, the Trustees were
compensated as follows:
- --------------------------------------------------------------------------------
(1) (2) (3)
Name of Aggregate Total
Trustee Compensation Compensation
From Trust (a) From Trust and
Complex Paid
to Trustees(b)
- --------------------------------------------------------------------------------
Edward M. Lamont $10,300 $61,271
Robert A. Lawrence $10,300 $88,435
Dean O. Morton $11,100 $97,085
Thomas L. Phillips $10,100 $67,285
Toby Rosenblatt $10,300 $61,271
Michael S. Scott Morton $11,900 $98,535
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $10,500 $70,285
(a) Includes compensation from multiple Series of the Trust. See
"Distribution of Shares" for a listing of series.
(b) Includes compensation from Metropolitan Series Fund, Inc., for which the
Investment Manager serves as sub-investment adviser, State Street Research
Portfolios, Inc., for which State Street Research Investment Services, Inc.
serves as distributor, and all investment companies for which the
Investment Manager serves as primary investment adviser, (comprising a
total of ___ series as of the date hereof). The Trust does not provide any
pension or retirement benefits for the Trustees.
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<PAGE>
INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Advisory
Agreement provides that the Investment Manager shall furnish the Fund with an
investment program, office facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of the
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly-owned subsidiary of Metropolitan
Life Insurance Company ("Metropolitan").
The advisory fee payable monthly by the Fund to the Investment Manager is
computed as a percentage of the average of the value of the net assets of the
Fund as determined at the close of the New York Stock Exchange (the "NYSE") on
each day the NYSE is open for trading, at the annual rate of 0.65% of the net
assets of the Fund. For the fiscal years ended October 31, 1995, 1994 and 1993,
the Trust paid the Investment Manager investment advisory fees of $4,651,813,
$5,266,797 and $5,748,473, respectively.
Further, to the extent required under applicable state regulatory
requirements, the Investment Manager will reduce its management fee for the Fund
up to the amount of any expenses (excluding permissible items, such as Rule
12b-1 Distribution Plan payments, brokerage commissions, interest, taxes and
litigation expenses) paid or incurred by the Fund in any fiscal year which
exceed specified percentages of the average daily net assets of the Fund for
such fiscal year. The most restrictive of such percentage limitations is
currently 2.5% of the first $30 million of average net assets, 2.0% of the next
$70 million of average net assets and 1.5% of the remaining average net assets.
These commitments may be amended or rescinded in response to changes in the
requirements of the various states by the Trustees without shareholder approval.
The Advisory Agreement provides that it shall continue in effect with
respect to the Fund from year to year as long as it is approved at least
annually both (i) by a vote of a majority of the outstanding voting securities
of the Fund (as defined in the Investment Company Act of 1940) 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. The Advisory Agreement terminates 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 to be an assignment.
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<PAGE>
Under a Funds Administration Agreement between the Investment Manager and
the Distributor, the Distributor provides assistance to the Investment Manager
in performing certain fund administration services for the Trust, such as
assistance in determining the daily net asset value of shares of series of the
Trust and in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the Trust
and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Fund, and is entitled to
reimbursements of its costs for providing such services. Under certain
arrangements for Metropolitan to provide subadministration services,
Metropolitan may receive a fee for the maintenance of certain share ownership
records for participants in sponsored arrangements, employee benefit plans, and
similar programs or plans, through or under which Fund shares may be purchased.
Under the Code of Ethics of the Investment Manager, its employees in
Boston, where investment management operations are conducted, are only permitted
to engage in personal securities transactions in accordance with certain
conditions relating to an employee's position, the identity of the security, the
timing of the transaction, and similar factors. Such employees must report their
personal securities transactions quarterly and supply broker confirmations of
such transactions to the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by the Distributor. The Fund offers four
classes of shares which may be purchased at the next determined net asset value
per share plus, in the case of all classes except Class C shares, a sales charge
which, at the election of the investor, may be imposed (i) at the time of
purchase (the Class A shares) or (ii) on a deferred basis (the Class B and Class
D shares). General information on how to buy shares of the Fund, as well as
sales charges involved, is set forth under "Purchase of Shares" in the
Prospectus. The following supplements that information.
Public Offering Price - The public offering price for each class of shares
of the Fund is based on their net asset value determined as of the close of
regular trading of the NYSE on the day the purchase order is received by State
Street Research Shareholder Services provided that the order is received prior
to the close of the NYSE on that day; otherwise the net asset value used is that
determined as of the close of the NYSE on the next day it is open for
unrestricted trading. When a purchase order is placed through a dealer, that
dealer is responsible for transmitting the order promptly to State Street
Research Shareholder Services in order to permit the investor to obtain the
current price. Any loss suffered by an investor which results from a dealer's
failure to transmit an order promptly is a matter for settlement between the
investor and the dealer.
23
<PAGE>
Reduced Sales Charges - For purposes of determining whether a purchase of
Class A shares qualifies for reduced sales charges, the term "person" includes:
(i) an individual, or an individual combining with his or her spouse and their
children and purchasing for his, her or their own account; (ii) a "company" as
defined in Section 2(a)(8) of the 1940 Act; (iii) a trustee or other fiduciary
purchasing for a single trust estate or single fiduciary account (including a
pension, profit sharing or other employee benefit trust created pursuant to a
plan qualified under Section 401 of the Internal Revenue Code); (iv) a
tax-exempt organization under Section 501(c)(3) or (13) of the Internal Revenue
Code; and (v) an employee benefit plan of a single employer or of affiliated
employers.
Investors may purchase Class A shares of the Fund at reduced sales charges
by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds" as
designated by the Distributor within a 13-month period. The sales charge
applicable to each purchase made pursuant to a Letter of Intent will be that
which would apply if the total dollar amount set forth in the Letter of Intent
were being bought in a single transaction. Purchases made within a 90-day period
prior to the execution of a Letter of Intent may be included therein; in such
case the date of the earliest of such purchases marks the commencement of the
13-month period.
An investor may include toward completion of a Letter of Intent the value
(at the current public offering price) of all of his or her Class A shares of
the Fund and of any of the other Class A shares of Eligible Funds held of record
as of the date of his or her Letter of Intent, plus the value (at the current
offering price) as of such date of all of such shares held by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class D
24
<PAGE>
shares may also be included in the combination under certain circumstances.
Investors must submit to the Distributor sufficient information to show that
they qualify for this Right of Accumulation.
Class C Shares - Class C shares are currently available to certain benefit
plans such as qualified retirement plans, which meet criteria relating to level
of assets, number of participants, service agreements, or similar factors; banks
and insurance companies; endowment funds of nonprofit organizations with
substantial minimum assets; and other similar institutional investors.
Reorganizations - In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined 1940 Act, as amended, the Fund may issue its shares at net asset
value (or more) to such entities or to their security holders.
Redemptions - The Fund reserves the right to pay redemptions in kind with
portfolio securities in lieu of cash. In accordance with its election pursuant
to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of redemption
proceeds paid in cash. Although it has no present intention to do so, the Fund
may, under unusual circumstances, limit redemptions in cash with respect to each
shareholder during any ninety-day period to the lesser of (i) $250,000 or (ii)
1% of the net asset value of the Fund at the beginning of such period. In
connection with any redemptions paid in kind with portfolio securities,
brokerage and other costs may be incurred by the redeeming shareholder in the
sale of the securities received.
NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily as
of the close of the NYSE, ordinarily 4 P.M. New York City time, Monday through
Friday, on each day during which the NYSE is open for unrestricted trading. The
NYSE is currently closed on New Year's Day, Presidents Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of the Fund is computed by dividing the sum
of the value of the securities held by the Fund plus any cash or other assets
minus all liabilities by the total number of outstanding shares of the Fund at
such time. Any expenses, except for extraordinary or nonrecurring expenses,
borne by the Fund, including the investment management fee payable to the
Investment Manager, are accrued daily.
In determining the values of portfolio assets, the Trustees may utilize one
or more pricing services to value certain securities for which market quotations
are not readily available on a daily basis. Most debt securities are valued on
the basis of data provided by
25
<PAGE>
such pricing services. Since the Fund is comprised substantially of debt
securities under normal circumstances, most of the Fund's assets are therefore
valued on the basis of such data from the pricing services. The pricing services
may provide prices determined as of times prior to the close of the NYSE.
In general, securities are valued as follows. Securities which are listed
or traded on the New York or American Stock Exchange are valued at the price of
the last quoted sale on the respective exchange for that day. Securities which
are listed or traded on a national securities exchange or exchanges, but not on
the New York or American Stock Exchange, are valued at the price of the last
quoted sale on the exchange for that day prior to the close of the NYSE.
Securities not listed on any national securities exchange which are traded "over
the counter" and for which quotations are available on the National Association
of Securities Dealers' NASDAQ System, or other system, are valued at the closing
price supplied through such system for that day at the close of the NYSE. Other
securities are, in general, valued at the mean of the bid and asked quotations
last quoted prior to the close of the NYSE if there are market quotations
readily available, or in the absence of such market quotations, then at the fair
value thereof as determined by or under authority of the Trustees of the Trust
utilizing such pricing services as may be deemed appropriate as described above.
Securities deemed restricted as to resale are valued at the fair value thereof
as determined by or in accordance with methods adopted by the Trustees of the
Trust.
Short-term debt instruments issued with a maturity of one year or less
which have a remaining maturity of 60 days or less are valued using the
amortized cost method, provided that during any period in which more than 25% of
the Fund's total assets is invested in short-term debt securities the current
market value of such securities will be used in calculating net asset value per
share in lieu of the amortized cost method. The amortized cost method is used
when the value obtained is fair value. Under the amortized cost method of
valuation, the security is initially valued at cost on the date of purchase (or
in the case of short-term debt instruments purchased with more than 60 days
remaining to maturity, the market value on the 61st day prior to maturity), and
thereafter a constant amortization to maturity of any discount or premium is
assumed regardless of the impact of fluctuating interest rates on the market
value of the security.
PORTFOLIO TRANSACTIONS
Portfolio Turnover
The Fund's portfolio turnover rate is determined by dividing the lesser of
securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The portfolio turnover rates for the fiscal years ended October
31, 1994 and 1995 were 134.41% and 105.57%, respectively. The
26
<PAGE>
Investment Manager believes the portfolio turnover rate for the fiscal year
ended October 31, 1995 was significantly lower than that for the previous fiscal
year because of rapidly falling interest rates during the year, leading to
re-structuring of the Fund's portfolio. Lower interest rates led to the
pre-payment of mortgages, thus, reducing the amount of mortgages held by the
Fund. Additionally, the yield curve of the portfolio was shifted by reducing the
number of long-term Treasury notes held. The Fund reserves full freedom with
respect to portfolio turnover, as described in the Prospectus.
Brokerage Allocation
The Fund and the Investment Manager seek the best overall execution of
purchase or sale orders and the most favorable net price in securities
transactions consistent with their judgment as to the business qualifications of
the various broker or dealer firms with which the Fund may do business.
Decisions with respect to the market in which the transaction is to be
completed, 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 the performance, integrity and financial
responsibility of the various firms as well as to their demonstrated execution
experience and capability generally and in regard to particular markets or
securities and, in agency transactions, to the competitiveness of the commission
rates (or in principal transactions of the net prices) they charge. The
Investment Manager keeps current as to the range of rates or prices charged by
various firms and against this background evaluates the reasonableness of a
commission or price charged with respect to a particular transaction by
considering such factors as difficulty of execution or security positioning by
the executing firm.
When it appears that a number of firms can satisfy the required standards
in respect of a particular transaction, consideration may also be given to
services other than execution services which such firms have provided in the
past or may provide in the future. Among such other services are the supplying
of supplemental investment research, general and economic and political
information, analytical and statistical data, relevant market information and
daily market quotations for computation of net asset value. In this connection
it should be noted that a substantial portion of brokerage commissions paid, or
principal transactions entered, by the Fund may be with brokers and investment
banking firms which, in the normal course of business, publish statistical,
research and other material which is received by the Investment Manager and
which may or may not prove useful to the Investment Manager, the Fund or other
clients of the Investment Manager.
Neither the Fund nor the Investment Manager has any definite agreements
with any firm as to the amount of business which that firm may expect to receive
for services supplied or otherwise. There may be, however, understandings with
certain firms that in order for such firms to be able to continuously supply
certain services, they need to receive allocation of a specified amount of
business. These understandings are honored to the extent possible in accordance
with the policy set forth above. Neither the Fund nor the Investment Manager
intends to pay a firm in excess of that which another would charge for handling
the same
27
<PAGE>
transaction in recognition of services (other than execution services) provided.
However, the Fund and the Investment Manager are aware that this is an area
where differences of opinion as to fact and circumstances may exist, and in such
circumstances, if any, rely on the provisions of Section 28(e) of the Securities
Exchange Act of 1934, to the extent applicable. For the fiscal years ended
October 31, 1995, 1994 and 1993, the Fund paid no brokerage commissions in
secondary trading.
Occasions may arise when the Investment Manager determines that an
investment in a particular security, or the disposition of a particular
security, is simultaneously a proper investment decision for the Fund as well as
for the portfolio of one or more of its other clients. In this event, a purchase
or sale, as the case may be, of any such security on any given day will be
normally averaged as to price and allocated as to amount among the several
clients in a manner deemed equitable to each client.
On occasions when the Investment Manager deems the purchase or sale of a
security to be in the best interests of the Fund, as well as other clients of
the Investment Manager, the Investment Manager, to the extent permitted by
applicable laws and regulations, may aggregate such securities to be sold or
purchased for the Fund with those to be sold or purchased for other customers in
order to obtain best execution and lower brokerage commissions, if any. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Investment Manager in
the manner it considers to be most equitable and consistent with its fiduciary
obligations to all such customers, including the Fund. In some instances, this
procedure may affect the price and size of the positions obtainable for the
Fund.
CERTAIN TAX MATTERS
Federal Income Taxation of the Fund -- In General
As stated in the Prospectus, the Fund intends to qualify and elect to be
treated each taxable year as a "regulated investment company" under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), although it
cannot give complete assurance that it will do so. Accordingly, the Fund must,
among other things, (a) derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to securities loans, gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "90% test"); (b) derive less than 30% of
its gross income in each taxable year from the sale or other disposition of any
of the following held for less than three months (the "30% test"): (i) stock or
securities; (ii) options, futures, or forward contracts (other than options,
futures, or forward contracts on foreign currencies), or (iii) foreign
currencies (or options, futures, or forward contracts on foreign currencies) but
only if such currencies (or options, futures, or
28
<PAGE>
forward contracts) are not directly related to the Fund's principal business of
investing in stocks or securities (or options and futures with respect to stocks
or securities); (c) satisfy certain diversification requirements; and (d) in
order to be entitled to utilize the dividends paid deduction, distribute
annually at least 90% of its investment company taxable income (determined
without regard to the deduction for dividends paid).
The 30% test will limit the extent to which the Fund may sell securities
held for less than three months, write options which expire in less than three
months, and effect closing transactions with respect to call or put options that
have been written or purchased within the preceding three months. (If the Fund
purchases a put option for the purpose of hedging an underlying portfolio
security, the acquisition of the option is treated as a short sale of the
underlying security unless, for purposes only of the 30% test, the option and
the security are acquired on the same date.) Finally, as discussed below, this
requirement may also limit investments by the Fund in options on stock indices,
listed options on nonconvertible debt securities, futures contracts, options on
interest rate futures contracts and certain foreign currency contracts.
If the Fund should fail to qualify as a regulated investment company in any
year, it would lose the beneficial tax treatment accorded regulated investment
companies under Subchapter M of the Code and all of its taxable income would be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income or accumulated earnings and profits. Also, the
shareholders, if they received a distribution in excess of current or
accumulated earnings and profits, would receive a return of capital that would
reduce the basis of their shares of the Fund.
The Fund will be liable for a nondeductible 4% excise tax on amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement. To avoid the tax, during each calendar year the Fund must
distribute an amount equal to at least 98% of the sum of its ordinary income
(not taking into account any capital gains or losses) for the calendar year, and
its capital gain net income for the 12-month period ending on October 31, in
addition to any undistributed portion of the respective balances from the prior
year. The Fund intends to make sufficient distributions to avoid this 4% excise
tax.
Federal Income Taxation of the Fund's Investments
Original Issue Discount. For federal income tax purposes, debt securities
purchased by the Fund may be treated as having original issue discount. Original
issue discount represents interest for federal income tax purposes and can
generally be defined as the excess of the stated redemption price at maturity of
a debt obligation over the issue price. Original issue discount 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
29
<PAGE>
constant yield to maturity which takes into account the compounding of accrued
interest. Under section 1286 of the Code, an investment in a stripped bond or
stripped coupon may result in original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds the
original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for income tax
purposes. In the case of any debt security issued after July 18, 1984, having a
fixed maturity date of more than one year from the date of issue and having
market discount, the gain realized on disposition will be treated as interest
income to the extent it does not exceed the accrued market discount on the
security (unless the Fund elects to include such accrued market discount in
income in the tax year to which it is attributable). Generally, market discount
is accrued on a daily basis. The Fund may be required to capitalize, rather than
deduct currently, part or all of any direct interest expense incurred to
purchase or carry any debt security having market discount, unless the Fund
makes the election to include market discount currently. Because the Fund must
include original issue discount in income, it will be more difficult for the
Fund to make the distributions required for the Fund to maintain its status as a
regulated investment company under Subchapter M of the Code and to avoid the 4%
excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments may be
subject to provisions of the Code that (i) require inclusion of unrealized gains
or losses in the Fund's income for purposes of the 90% test, the 30% test, the
excise tax and the distribution requirements applicable to regulated investment
companies; (ii) defer recognition of realized losses; and (iii) characterize
both realized and unrealized gain or loss as short-term or long-term gain or
loss. Such provisions generally apply to, among other investments, options on
debt securities, indices on securities and futures contracts.
Federal Income Taxation of Shareholders
Distributions generally are taxable to shareholders for the taxable year in
which they are received. However, dividends declared by the Fund in October,
November or December and made payable to shareholders of record on a specified
date in such a month are treated as received by such shareholders on December
31, provided that the Fund pays the dividend during January of the following
calendar year.
Distributions, if any, 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 long-term capital gain, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a
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<PAGE>
taxable distribution will then receive a return of investment upon distribution
which will nevertheless be taxable to them.
DISTRIBUTION OF SHARES OF THE FUND
State Street Research Financial Trust (formerly: MetLife - State Street
Financial Trust) is currently comprised of the following series: State Street
Research Government Income Fund, State Street Research Strategic Portfolios:
Conservative, State Street Research Strategic Portfolios: Moderate and State
Street Research Strategic Portfolios: Aggressive. The Trustees of the Trust have
authorized the Fund to issue four classes of shares: Class A, Class B, Class C
and Class D shares. The Trustees of the Trust have authority to issue an
unlimited number of shares of beneficial interest of separate series, $.001 par
value per share. A "series" is a separate pool of assets of the Trust which is
separately managed and has a different investment objective and different
investment policies from those of any other series. The Trustees have authority,
without the necessity of a shareholder vote, to create any number of new series
or classes or to commence the public offering of shares of any previously
established series or class.
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B and Class D shares). The Distributor may reallow all or
portions of such sales charges as concessions to dealers. For the fiscal years
ended October 31, 1993, 1994 and 1995, total sales charges on Class A shares
paid to the Distributor amounted to $248,949, $1,134,461, and $572,439,
respectively. For the same periods, $26,051, $172,266, and $70,689,
respectively, was retained by the Distributor after reallowance of concessions
to dealers.
The differences in the price at which the Fund's Class A shares are offered
due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements and managed fee-based programs, the
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<PAGE>
amount of the sales charge reduction will similarly reflect the anticipated
reduction in sales expenses associated with such arrangements and managed
fee-based programs. The reduction in sales expenses, and therefore the reduction
in sales charge, will vary depending on factors such as the size and other
characteristics of the organization or program, and the nature of its membership
or the participants. The Fund reserves the right to make variations in, or
eliminate, sales charges at any time or to revise the terms of or to suspend or
discontinue sales pursuant to sponsored arrangements at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission on the shares sold. Such commission also is
payable to authorized securities dealers upon sales of Class A shares made
pursuant to a Letter of Intent to purchase shares having a net asset value of
$1,000,000 or more. Shares sold with such commissions payable are subject to a
one-year contingent deferred sales charge of 1.00% on any portion of such shares
redeemed within one year following their sale. After a particular purchase of
Class A shares is made under the Letter of Intent, the commission will be paid
only in respect of that particular purchase of shares. If the Letter of Intent
is not completed, the commission paid will be deducted from any discounts or
commissions otherwise payable to such dealer in respect of shares actually sold.
If an investor is eligible to purchase shares at net asset value on account of
the Right of Accumulation, the commission will be paid only in respect of the
incremental purchase at net asset value.
For the periods shown below, the Distributor received contingent deferred
sales charges upon redemption of Class A, Class B and Class D shares of the Fund
and paid initial commissions to securities dealers for sales of such Class B and
Class D shares as follows:
<TABLE>
<CAPTION>
June 1, 1993
(commencement of
Fiscal Year Fiscal Year share class
Ended Ended designations) to
October 31, 1995 October 31, 1994 October 31, 1993
---------------- ---------------- ----------------
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 $ 180 $ 0 $ 0 $ 0 $ 0 $ 0
Class B $262,267 $423,866 $155,134 $905,438 $4,296 $966,935
Class D $ 1,189 $ 0 $ 3,754 $ 480 $1,662 $120,988
</TABLE>
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1" (the
"Distribution Plan") under which the Fund may engage, directly or indirectly, in
financing any activities primarily intended to result in the sale of Class A,
Class B and Class D shares, including, but not limited to, (1) the payment of
commissions and/or reimbursement to
32
<PAGE>
underwriters, securities dealers and others engaged in the sale of shares,
including payments to the Distributor to be used to pay commissions and/or
reimbursement to securities dealers (which securities dealers may be affiliates
of the Distributor) engaged in the distribution and marketing of shares and
furnishing ongoing assistance to investors, (2) reimbursement of direct
out-of-pocket expenditures incurred by the Distributor in connection with the
distribution and marketing of shares and the servicing of investor accounts
including special promotional fees and cash and noncash incentives based upon
sales by securities dealers, expenses relating to the formulation and
implementation of marketing strategies and promotional activities such as direct
mail promotions and television, radio, newspaper, magazine and other mass media
advertising, the preparation, printing and distribution of Prospectuses of the
Fund and reports for recipients other than existing shareholders of the Fund,
and obtaining such information, analyses and reports with respect to marketing
and promotional activities and investor accounts as the Fund may, from time to
time, deem advisable, and (3) reimbursement of expenses incurred by the
Distributor in connection with the servicing of shareholder accounts including
payments to securities dealers and others in consideration of the provision of
personal services to investors and/or the maintenance of shareholder accounts
and expenses associated with the provision of personal services by the
Distributor directly to investors. In addition, the Distribution Plan is deemed
to authorize the Distributor and the Investment Manager to make payments out of
general profits, revenues or other sources to underwriters, securities dealers
and others in connection with sales of shares, to the extent, if any, that such
payments may be deemed to be within the scope of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class D shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class D
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class D shares (as the case may be) to make payments for personal
service and/or the maintenance of shareholder accounts. Proceeds from the
service fee will be used by the Distributor to compensate securities dealers and
others selling shares of the Fund for rendering service to shareholders on an
ongoing basis. Such amounts are based on the net asset value of shares of the
Fund held by such dealers as nominee for their customers or which are owned
directly by such customers for so long as such shares are outstanding and the
Distribution Plan remains in effect with respect to the Fund. Any amounts
received by the Distributor and not so allocated may be applied by the
Distributor as reimbursement for expenses incurred in connection with the
servicing of investor accounts. The distribution and servicing expenses of a
particular class will be borne solely by that class.
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<PAGE>
During the fiscal year ended October 31, 1995, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
Class A Class B Class D
------- ------- -------
Advertising $ 0 $ 0 $ 5,008
Printing and mailing
of prospectuses to
other than current
shareholders 0 0 2,184
Compensation to dealers 1,586,840 660,554 84,256
Compensation to sales
personnel 0 0 19,890
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses:
marketing; general 0 0 12,855
---------- -------- --------
Total fees $1,586,840 $660,554 $124,193
========== ======== ========
The Distributor may have also used additional resources of its own for further
expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Fund will attempt to make
alternative arrangements for such services for shareholders who acquired shares
through such institutions.
34
<PAGE>
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") and yield of the
Class A, Class B, Class C and Class D shares of the Fund will be calculated as
set forth below. Total return and yield are computed separately for each class
of shares of the Fund. Performance data for a specified class includes periods
prior to the adoption of class designations. Shares of the Fund had no class
designations until June 1, 1993 when designations were assigned based on the
pricing and 12b-1 fees applicable to shares sold thereafter. Performance data
for a specified class includes periods prior to the adoption of class
designations.
The performance data below reflects Rule 12b-1 fees and, where applicable,
sales charges as follows:
<TABLE>
<CAPTION>
Rule 12b-1 Fees Sales Charges
--------------- -------------
Current
Class Amount Period
- ----- ------ ------
<S> <C> <C> <C>
A 0.25% Since commencement of Maximum 4.5% sales charge reflected
operations to present
B 1.00% 0.25% until June 1, 1993; 1- and 5-year periods reflect a 5% and a
1.00% June 1, 1993 to present; 2% contingent deferred sales charge,
fee will reduce performance respectively
for periods after June 1, 1993
C None 0.25% until June 1, 1993; None
0% thereafter
D 1.00% 0.25% until June 1, 1993; 1-year period reflects a 1% contingent
1.00% June 1, 1993 to present; deferred sales charge
fee will reduce performance
for periods after June 1, 1993
</TABLE>
Total Return
The average annual total returns ("standard total return") of each class
of the Fund's shares were as follows:
35
<PAGE>
Commencement of
Operations Five Years One Year
(March 23, 1987) Ended Ended
Fund to October 31, 1995 October 31, 1995 October 31, 1995
- ---- ------------------- ---------------- ----------------
Class A 7.67% 8.60% 9.89%
Class B 7.99% 8.88% 9.15%
Class C 8.31% 9.72% 15.37%
Class D 8.00% 9.18% 13.24%
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 maximum
initial or contingent deferred sales charge applicable to the investment is
deducted, and that all dividends and distributions by the Fund are reinvested at
net asset value on the reinvestment dates during the periods. All accrued
expenses and recurring charges are also taken into account as described later
herein.
Yield
The annualized yield of each class of shares of the Fund based on the
month of October 1995 was as follows:
Class A 5.58%
Class B 5.10%
Class C 6.10%
Class D 5.09%
Yield for each of the Fund's Class A, Class B, Class C and Class D shares
is computed by dividing the net investment income per share earned during a
recent month or other specified 30-day period by the maximum offering price per
share on the last day of the period and annualizing the result in accordance
with the following formula:
36
<PAGE>
YIELD = 2[( a-b + 1)6 -1]
---
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net
of voluntary expense reductions by the Investment
Manager, if any)
c = the average daily number of shares
outstanding during the period that were entitled
to receive dividends
d = the maximum offering price per share
on the last day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, the Fund computes the yield to maturity of each obligation held by
the Fund based on the market value of the obligation (including actual accrued
interest) at the close of the last business day of the preceding period, or,
with respect to obligations purchased during the period, the purchase price
(plus actual accrued interest). The yield to maturity is then divided by 360 and
the quotient is multiplied by the market value of the obligation (including
actual accrued interest) to determine the interest income on the obligation for
each day of the period that the obligation is in the portfolio. Dividend income
is recognized daily based on published rates.
With respect to the treatment of discount and premium on mortgage or other
receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("paydowns"), the Fund accounts for gain or
loss attributable to actual monthly paydowns as a realized capital gain or loss
during the period. The Fund has elected not to amortize discount or premium on
such securities.
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 provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Fund's
portfolio, portfolio maturity and operating expenses and market conditions.
Accrued Expenses
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return and yield results take sales charges, if applicable, into
account, although the results do not take into account recurring and
nonrecurring
37
<PAGE>
charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Nonstandardized Total Return
The Fund may provide the above described standard total return results for
Class A, Class B, Class C and Class D shares for periods which end no earlier
than the most recent calendar quarter end and which begin twelve months before,
five years before and at the time of commencement of the Fund's operations. In
addition, the Fund may provide nonstandardized total return results for
differing periods, such as for the most recent six months, and/or without taking
sales charges into account. Such nonstandardized total return is computed as
otherwise described under "Total Return" except the result may or may not be
annualized and as noted, any applicable sales charge, if any, may not be taken
into account and therefore not deducted from the hypothetical initial payment of
$1,000. For example, the Fund's nonstandardized total returns for the six months
ended October 31, 1995, without taking sales charges into account, were as
follows:
Class A 7.89%
Class B 7.36%
Class C 7.89%
Class D 7.45%
Distribution Rates
The Fund may also quote its distribution rate for each class of shares.
The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the maximum
offering price per share as of the end of the period. A distribution can include
gross investment income from debt obligations purchased at a premium and in
effect include a portion of the premium paid. A distribution can also include
nonrecurring, gross short-term capital gains without recognition of any
unrealized capital losses. Further, a distribution can include income from the
sale of options by the Fund even though such option income is not considered
investment income under generally accepted accounting principles.
Because a distribution can include such premiums, capital gains and option
income, the amount of the distribution may be susceptible to control by the
Investment Manager through transactions designed to increase the amount of such
items. Also, because the distribution rate is calculated in part by dividing the
latest distribution by the offering price, which is based on net asset value
plus any applicable sales charge, the distribution rate will increase as the net
asset value declines. A distribution rate can be greater than the yield rate
calculated as described above.
The distribution rates of the Fund, based on the month ended October 31,
1994, were as follows:
Class A 6.15%
Class B 5.66%
Class C 6.70%
Class D 5.68%
38
<PAGE>
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing professional services
including (1) an audit of the Fund's annual financial statements, (2) assistance
and consultation in connection with Securities and Exchange Commission filings
and (3) review of the annual income tax returns filed on behalf of the Fund.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a semiannual
basis, other supplementary financial reports may be made available from time to
time and holders of record may request a copy of the current supplementary
report, if any, by calling State Street Research Shareholder Services.
39
<PAGE>
The following financial statements are for the Fund's fiscal year ended
October 31, 1995:
40
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
Investment Portfolio
- --------------------------------------------------------------------------------
October 31, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES 79.3%
U.S. Treasury 41.0%
U.S. Treasury Bond, 10.75% $14,100,000 8/15/2005 $ 18,894,000
U.S. Treasury Bond, 10.375% 16,000,000 11/15/2012 21,517,440
U.S. Treasury Bond, 12.00% 27,150,000 8/15/2013 40,729,344
U.S. Treasury Bond, 9.25% 30,000,000 2/15/2016 39,693,600
U.S. Treasury Bond, 8.125% 18,225,000 8/15/2021 22,040,768
U.S. Treasury Bond, 6.25% 15,050,000 8/15/2023 14,708,967
U.S. Treasury Bond, 7.50% 28,000,000 11/15/2024 31,990,000
U.S. Treasury Note, 9.375% 37,000,000 4/15/1996 37,612,720
U.S. Treasury Note, 8.50% 35,000,000 5/15/1997 36,465,450
U.S. Treasury Note, 6.875% 13,600,000 3/13/2000 14,156,784
U.S. Treasury Note, 7.50% 13,300,000 11/15/2001 14,382,753
U.S. Treasury Note, 6.25% 1,750,000 2/15/2003 1,780,905
U.S. Treasury Note, 5.75% 18,050,000 8/15/2003 17,804,701
-----------
311,777,432
-----------
U.S. Agency Mortgage 36.1%
Federal Home Loan Mortgage
Corp. Gold, 6.50% 438,522 2/01/2009 435,234
Federal Home Loan Mortgage
Corp. Gold, 6.50% 17,936,952 5/01/2009 17,802,426
Federal Home Loan Mortgage
Corp. FHA- VA, 9.00% 7,615,246 12/01/2009 8,013,600
Federal Home Loan Mortgage
Corp. Gold, 7.50%+ 7,100,000 8/01/2022 7,175,438
Federal Home Loan Mortgage
Corp. Series 29-H PAC, 6.50% 5,525,000 3/25/2023 5,450,744
Federal Home Loan Mortgage
Corp. Gold 7.50% 1,115,638 8/01/2024 1,127,832
Federal Home Loan Mortgage
Corp. Gold, 7.00% 20,866,415 12/01/2024 20,703,240
Federal Home Loan Mortgage
Corp. Gold, 7.50% 17,241,916 1/01/2025 17,430,371
Federal Housing Administration
Court Yard Project, 10.75% 6,507,703 8/01/2032 7,286,594
Federal Housing Administration
East Bay Manor Project, 10.00% 6,784,187 3/01/2033 7,329,043
Federal Housing Administration
Charles River Project, 9.625% $ 9,510,886 12/01/2033 $ 9,995,347
Federal National Mortgage
Association FHA-VA, 8.00% 5,908,309 4/01/2008 6,113,742
Federal National Mortgage
Association FHA-VA, 8.00% 7,501,703 6/01/2008 7,762,538
Federal National Mortgage
Association FHA-VA, 8.50% 10,896,496 2/01/2009 11,591,584
Federal National Mortgage
Association FHA-VA, 9.00% 18,730,215 5/01/2009 19,813,010
Federal National Mortgage
Association FHA-VA, 9.00% 643,074 4/01/2016 680,251
Federal National Mortgage
Association, 7.00% 47,491 2/01/2024 47,090
Government National Mortgage
Association, 10.00% 17,126,253 6/15/2023 18,148,348
Government National Mortgage 9/15/2009-
Association, 9.50% 17,182,471 9/15/2019 18,555,835
Government National Mortgage
Association, 9.00% 2,410,002 4/15/2017 2,556,748
Government National Mortgage
Association, 8.00% 4,312,000 11/15/2017 4,435,970
Government National Mortgage 9/15/2021-
Association, 7.50% 34,316,380 4/15/2024 34,788,996
Government National Mortgage 9/15/2025-
Association, 7.00% 22,540,124 10/15/2025 22,385,048
Government National Mortgage
Association, 6.50% 18,709,570 7/15/2024 18,195,057
Government National Mortgage
Association, 6.00%+ 3,550,000 12/21/2025 3,553,328
Government National Mortgage
Association, 5.50%+ 3,775,000 12/21/2025 3,736,070
-----------
275,113,484
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Agency 2.2%
Federal Home Loan Mortgage
Corp., 7.24% $ 7,700,000 5/15/2002 $ 7,857,619
Guaranteed Export Trust Series
95-A, 6.28% 9,000,000 6/15/2004 9,009,720
-----------
16,867,339
-----------
Total U.S. Government Securities (Cost $584,606,408) 603,758,255
-----------
OTHER INVESTMENTS 19.0%
Trust Certificates 10.1%
Cooperative Utility Trust
Certificates, 9.52% 24,525,000 3/15/2019 27,062,357
Government Backed Trust, Class
T-2, 9.40% 511,864 11/15/1996 518,928
Government Backed Trust, Class
T-3, 9.625% 10,000,000 5/15/2002 11,031,600
Government Trust Certificates,
Class 2-D, 9.25% 11,797,197 11/15/1996 11,895,232
Government Trust Certificates,
Class 2-E, 9.40% 24,000,000 5/15/2002 26,513,280
-----------
77,021,397
-----------
Finance/Mortgage 3.9%
Prudential Home Mortgage Series
93-29 A-6 PAC, 6.75% 12,064,646 8/25/2008 12,109,889
Prudential Home Mortgage Series
93-54 A-21 PAC, 5.50% 5,700,000 1/25/2024 5,520,051
Residential Funding Corp.
Series 93-S95 A-1 PAC, 6.50% 12,134,107 7/25/2008 12,145,392
-----------
29,775,332
-----------
Foreign Government 5.0% Australian Dollar
Australian Government, 7.50% 10,200,000 7/15/2005 7,125,005
Canadian Dollar
Canadian Government, 7.50% 3,550,000 12/01/2003 2,652,511
Danish Krone
Kingdom of Denmark, 8.00% 54,650,000 3/15/2006 $ 10,061,831
French Franc
Government of France, 8.50% 22,500,000 11/25/2002 4,993,340
Deutsche Mark
Republic of Germany, 6.625% 5,350,000 7/09/2003 3,862,369
Italian Lira
Republic of Italy, 8.50% 3,190,000,000 4/01/1999 1,862,354
Republic of Italy, 10.00% 1,725,000,000 8/01/2003 1,004,588
Spanish Peseta
Government of Spain, 10.90% 302,500,000 8/30/2003 2,491,278
British Pounds
United Kingdom Treasury Stock,
8.00% 2,175,000 6/10/2003 3,474,195
-----------
37,527,471
-----------
Total Other Investments (Cost $140,405,586) 144,324,200
-----------
SHORT-TERM OBLIGATIONS 2.5%
Federal Home Loan Bank, 5.796% $19,220,000 11/01/1995 19,220,000
-----------
Total Short-Term Obligations (Cost $19,220,000) 19,220,000
-----------
Total Investments (Cost $744,231,994)--100.8% 767,302,455
Cash and Other Assets, Less Liabilities--(0.8)% (6,280,916)
-----------
Net Assets--100.0% $761,021,539
===========
Federal Income Tax Information:
At October 31, 1995, the net unrealized appreciation of investments based
on cost for Federal income tax purposes of $744,828,574 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost $ 26,986,132
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value (4,512,251)
-----------
$ 22,473,881
===========
</TABLE>
- --------------------------------------------------------------------------------
+Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the principal
value has not been finalized and may vary by no more than 2%.
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
Investment Portfolio (cont'd)
- --------------------------------------------------------------------------------
Forward currency exchange contracts outstanding at October 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation
Total Value Price (Depreciation) Delivery Date
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sell Australian dollars, buy U.S.
dollars 6,796,676 AUD .73840 AUD $ (154,515) 11/16/95
Sell Australian dollars, buy U.S.
dollars 1,881,123 AUD .73790 AUD (43,700) 11/16/95
Sell British pounds, buy U.S. dollars 666,000 GBP 1.57435 GBP (4,040) 11/16/95
Sell British pounds, buy U.S. dollars 2,169,200 GBP 1.53300 GBP (102,854) 11/16/95
Sell Canadian dollars, buy U.S. dollars 2,842,700 CAD .73330 CAD (32,292) 11/16/95
Sell Canadian dollars, buy U.S. dollars 767,477 CAD .73551 CAD (8,285) 11/16/95
Sell Danish krone, buy U.S. dollars 53,141,300 DKK .17960 DKK (183,131) 11/16/95
Sell Danish krone, buy U.S. dollars 2,250,000 DKK .17319 DKK (22,171) 11/16/95
Sell Danish krone, buy U.S. dollars 9,707,000 DKK .18299 DKK (1,255) 1/24/96
Sell U.S. dollars, buy Deutsche marks 3,408,000 DEM .67916 DEM 108,520 11/16/95
Sell Deutsche marks, buy U.S. dollars 10,188,300 DEM .67476 DEM (369,245) 11/16/95
Sell French franc, buy U.S. dollars 10,570,600 FRF .20173 FRF (25,899) 1/24/96
Sell French franc, buy U.S. dollars 18,207,300 FRF .20138 FRF (51,044) 1/24/96
Sell Italian lira, buy U.S. dollars 330,068,280 ITL .00062 ITL (3,035) 11/16/95
Sell Italian lira, buy U.S. dollars 2,826,207,065 ITL .00062 ITL (24,853) 5/16/95
Sell Italian lira, buy U.S. dollars 1,724,000,000 ITL .00061 ITL (22,304) 11/16/95
Sell Spanish peseta, buy U.S. dollars 180,000,000 ESP .00809 ESP (16,225) 11/16/95
Sell Spanish peseta, buy U.S. dollars 21,900,000 ESP .00785 ESP (7,298) 11/16/95
Sell Spanish peseta, buy U.S. dollars 138,900,000 ESP .00789 ESP (40,526) 11/16/95
---------
$(1,004,152)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
October 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments, at value (Cost $744,231,994) (Note 1) $767,302,455
Cash 4,205
Receivable for securities sold 17,708,319
Interest receivable 12,253,543
Receivable for fund shares sold 1,382,125
Receivable for open forward contracts 108,520
Other assets 164,502
-----------
798,923,669
Liabilities
Payable for securities purchased 31,718,457
Dividends payable 2,500,882
Payable for fund shares redeemed 1,432,857
Payable for open forward contracts 1,112,672
Accrued management fee (Note 2) 420,266
Accrued transfer agent and shareholder services (Note 2) 338,723
Accrued distribution fee (Note 3) 223,967
Accrued trustees' fees (Note 2) 7,984
Other accrued expenses 146,322
-----------
37,902,130
-----------
$761,021,539
===========
Net Assets
Net Assets consist of:
Undistributed net investment income $ 2,696,356
Unrealized appreciation of investments 23,070,461
Unrealized depreciation of forward contracts and
foreign currency (993,266)
Accumulated net realized loss (114,552,578)
Shares of beneficial interest 850,800,566
-----------
$761,021,539
===========
Net Asset Value and redemption price per share of Class
A shares ($655,044,825 / 52,079,516 shares of
beneficial interest) $12.58
===========
Maximum Offering Price per share of Class A shares
($12.58 / .955) $13.17
===========
Net Asset Value and offering price per share of
Class B shares ($87,908,060 / 7,002,674 shares
of beneficial interest)* $12.55
===========
Net Asset Value, offering price and redemption price per
share of Class C shares ($5,036,051 / 400,569 shares
of beneficial interest) $12.57
===========
Net Asset Value and offering price per share of
Class D shares ($13,032,603 / 1,037,903 shares
of beneficial interest)* $12.56
===========
</TABLE>
*Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
For the year ended October 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Investment Income
Interest, net of foreign taxes of $53,645 $56,714,977
Expenses
Management fee (Note 2) 4,651,813
Transfer agent and shareholder services (Note 2) 808,547
Custodian fee 249,313
Reports to shareholders 150,140
Distribution fee--Class A (Note 3) 1,586,840
Distribution fee--Class B (Note 3) 660,554
Distribution fee--Class D (Note 3) 124,193
Legal fees 72,974
Registration fees 69,657
Audit fee 42,757
Trustees' fees (Note 2) 20,305
Miscellaneous 51,654
-----------
8,488,747
-----------
Net investment income 48,226,230
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Realized and Unrealized Gain (Loss) on Investments,
Forward Contracts and
Foreign Currency
Net realized gain on investments (Notes 1 and 4) 2,544,407
Net realized gain on forward contracts and foreign
currency (Note 1) 39,585
-----------
Total net realized gain 2,583,992
-----------
Net unrealized appreciation of investments (Note 5) 48,343,731
Net unrealized depreciation of forward contracts and
foreign currency (342,460)
-----------
Total net unrealized appreciation 48,001,271
-----------
Net gain on investments, forward contracts and foreign
currency 50,585,263
-----------
Net increase in net assets resulting from operations $98,811,493
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended October 31
-----------------------------
1995 1994
- ------------------------------------ ----------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 48,226,230 $ 52,606,976
Net realized gain (loss) on
investments, forward contracts and
foreign currency* 2,583,992 (21,739,334)
Net unrealized appreciation
(depreciation) of investments,
forward contracts and foreign
currency 48,001,271 (61,623,124)
--------- ------------
Net increase (decrease) resulting
from operations 98,811,493 (30,755,482)
--------- ------------
Dividends from net investment
income:
Class A (42,302,801) (48,427,740)
Class B (3,875,565) (2,547,889)
Class C (166,657) (10,996)
Class D (735,022) (791,104)
--------- ------------
(47,080,045) (51,777,729)
--------- ------------
Net increase (decrease) from fund
share transactions (Note 6) 4,925,189 (120,373,081)
--------- ------------
Total increase (decrease) in net
assets 56,656,637 (202,906,292)
Net Assets
Beginning of year 704,364,902 907,271,194
--------- ------------
End of year (including undistributed
(overdistributed) net investment
income of $2,696,356 and
$(2,120,412), respectively) $761,021,539 $ 704,364,902
========= ============
*Net realized gain (loss) for
Federal income tax purposes (Note
1) $ 2,398,429 $ (17,196,293)
========= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
October 31, 1995
Note 1
State Street Research Government Income Fund (the "Fund") is a series of
MetLife-State Street Financial Trust (the "Trust"), which was organized as a
Massachusetts business trust in November, 1986 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund commenced operations in March, 1987. The Trust
consists presently of four separate funds: State Street Research Government
Income Fund, State Street Research Strategic Portfolios: Moderate, State
Street Research Strategic Portfolios: Conservative and State Street Research
Strategic Portfolios: Aggressive.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and annual service fees of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and
pay annual distribution and service fees of 1.00%. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after the issuance of the Class B shares. Class C
shares are only offered to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. Securities for which there is no such
valuation, if any, are valued at their fair value as determined in accordance
with established methods consistently applied. Short-term securities maturing
within sixty days are valued at amortized cost. Securities quoted in foreign
currencies are translated into U.S. dollars at the current exchange rate.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments.
45
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C. Net Investment Income
Net investment income is determined daily and consists of interest accrued
and discount earned, less the estimated daily expenses of the Fund. Interest
income is accrued daily as earned. Accretion of discount is computed under
the effective yield method. The Fund is charged for expenses directly
attributable to it, while indirect expenses are allocated among all funds in
the Trust.
D. Dividends
Dividends are declared daily based upon projected net investment income and
are paid or reinvested monthly. Net realized capital gains, if any, are
distributed annually, unless additional distributions are required for
compliance with applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing
treatments for foreign currency transactions and paydown gains and losses.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, if any, within the prescribed time periods. At October 31,
1995, the Fund had a capital loss carryforward of $111,857,131 available, to
the extent provided in regulations, to offset future capital gains, if any,
of which $29,348,263, $46,959,196, $18,353,379 and $17,196,293 expires on
October 31, 1996, 1997, 1998 and 2002, respectively. The Fund had a capital
loss carryforward of $43,841,365 expire on October 31, 1995. In addition, as
part of the transaction described in Note 5, the Fund acquired from
MetLife-State Street Research Government Securities Fund a capital loss
carryforward of $5,158,867, of which $3,074,207 and $2,084,660 expires on
October 31, 2001 and 2002, respectively. The Fund's use of such capital loss
carryforward may be limited under current tax laws.
F. Forward Contracts and Foreign Currencies
The Fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange
contract is an obligation by the Fund to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the origination
date of the contract. Forward foreign currency exchange contracts establish
an exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar. The aggregate principal amount of forward currency exchange
contracts is recorded in the Fund's accounts. All commitments are
marked-to-market at the applicable transaction rates resulting in unrealized
gains or losses. The Fund records realized gains or losses at the time the
forward contracts are extinguished by entry into a closing contract or by
delivery of the currency. Neither spot transactions nor forward currency
exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the
price of these securities should decline.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.65% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended October 31, 1995, the fees pursuant to
such agreement amounted to $4,651,813.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended October 31, 1995, the amount of
such expenses was $316,733.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $20,305 during the year ended October 31, 1995.
Note 3
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
pays annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class D shares. The Distributor uses such payments for personal
service and/or the maintenance of shareholder accounts, to reimburse
securities dealers for distribution and marketing services, to furnish
ongoing assistance to investors and to defray a portion of its distribution
and marketing expenses. For the year ended October 31, 1995, fees pursuant to
such plan amounted to $1,586,840, $660,554 and $124,193 for Class A, Class B
and Class D shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $70,689 and $389,958, respectively, on sales of Class A shares of
the Fund during the year ended October 31, 1995, and that MetLife Securities,
Inc. earned commissions aggregating $423,866 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$180, $262,267 and $1,189 on redemptions of Class A, Class B and Class D
shares, respectively, during the same period.
46
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
Notes (cont'd)
- --------------------------------------------------------------------------------
Note 4
For the year ended October 31, 1995, purchases and sales of securities,
exclusive of short-term obligations, aggregated $742,242,105 and $811,046,971
(including $676,644,494 and $700,199,072 of U.S. Government obligations),
respectively.
Note 5
On May 12, 1995, the Fund acquired the assets and liabilities of
MetLife-State Street Research Government Securities Fund (the "Acquired
Fund") in exchange for shares of each class of the Fund. The transaction was
approved by shareholders at a meeting held on April 21, 1995. The acquisition
was accounted for as a tax-free exchange of 6,442,754 Class A shares,
1,176,814 Class B shares, 17,825 Class C shares and 135,101 Class D shares of
the Fund for the net assets of the Acquired Fund which amounted to
$79,091,815, $14,418,139, $218,555 and $1,655,231 for Class A, Class B, Class
C and Class D shares, respectively. The net assets of the Acquired Fund
included $2,075,111 of unrealized appreciation at the close of business on
May 12, 1995. The net assets of the Fund immediately after the acquisition
were $769,912,156.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At October 31, 1995, the
Distributor owned 12,241 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended October 31
-----------------------------------------------------------
1995 1994
--------------------------- ----------------------------
Class A Shares Amount Shares Amount
- ------------------------------------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 8,692,870 $ 106,770,703 6,170,905 $ 77,734,621
Issued upon reinvestment of dividends 1,902,247 23,135,012 2,186,349 26,807,047
Shares repurchased (13,184,315) (159,163,704) (20,893,367) (258,154,243)
--------- ---------- --------- -----------
Net decrease (2,589,198) $ (29,257,989) (12,536,113) $(153,612,575)
========= ========== ========= ===========
Class B Shares Amount Shares Amount
- ------------------------------------- --------- ---------- --------- -----------
Shares sold 3,527,941 $ 42,934,470 3,319,858 $ 41,105,768
Issued upon reinvestment of dividends 209,008 2,591,060 132,376 1,596,624
Shares repurchased (1,222,045) (14,751,417) (1,023,504) (12,418,423)
--------- ---------- --------- -----------
Net increase 2,514,904 $ 30,774,113 2,428,730 $ 30,283,969
========= ========== ========= ===========
Class C Shares Amount Shares Amount
- ------------------------------------- --------- ---------- --------- -----------
Shares sold 435,479 $ 5,346,473 21,778 $ 271,759
Issued upon reinvestment of dividends 12,362 153,460 642 7,829
Shares repurchased (64,617) (809,530) (7,886) (96,943)
--------- ---------- --------- -----------
Net increase 383,224 $ 4,690,403 14,534 $ 182,645
========= ========== ========= ===========
Class D Shares Amount Shares Amount
- ------------------------------------- --------- ---------- --------- -----------
Shares sold 433,690 $ 5,281,361 763,127 $ 9,504,246
Issued upon reinvestment of dividends 43,377 526,125 47,389 577,618
Shares repurchased (590,308) (7,088,824) (596,772) (7,308,984)
--------- ---------- --------- -----------
Net increase (decrease) (113,241) $ (1,281,338) 213,744 $ 2,772,880
========= ========== ========= ===========
</TABLE>
47
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share outstanding throughout each year.
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------------- -------------------------------------
June 1, 1993
Year ended (Commencement of
Year ended October 31 October 31 Share Class
--------------------------------------------------- ----------------- Designations) to
1995* 1994* 1993 1992 1991 1995* 1994* October 31, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.68 $ 12.92 $ 12.38 $ 12.14 $ 11.28 $ 11.66 $ 12.91 $ 12.67
Net investment income .83 .81 .84 .90 .93 .73 .72 .30
Net realized and unrealized gain
(loss) on investments, forward
contracts and foreign currency .88 (1.26) .56 .26 .84 .87 (1.27) .24
Dividends from net investment
income (.81) (.79) (.84) (.91) (.91) (.71) (.70) (.30)
Distributions from net realized
gains -- -- (.02) (.01) -- -- -- --
----- ----- ----- ----- ----- ---- ----- -------
Net asset value, end of year $ 12.58 $ 11.68 $ 12.92 $ 12.38 $ 12.14 $ 12.55 $ 11.66 $ 12.91
===== ===== ===== ===== ===== ==== ===== =======
Total return 15.07%+ (3.58)%+ 11.63%+ 9.86%+ 16.25%+ 14.15%+ (4.38)%+ 4.32%+++
Net assets at end of year (000s) $655,045 $638,418 $868,556 $798,705 $762,517 $87,908 $52,319 $26,578
Ratio of operating expenses to
average net assets 1.10% 1.07% 1.05% 1.05% 1.05% 1.85% 1.82% 1.81%++
Ratio of net investment income to
average net assets 6.83% 6.54% 6.59% 7.25% 7.98% 6.01% 5.86% 5.67%++
Portfolio turnover rate 105.57% 134.41% 103.49% 97.33% 29.20% 105.57% 134.41% 103.49%
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
------------------------------------------- ------------------------------------------
June 1, 1993 June 1, 1993
(Commencement of (Commencement of
Year ended October 31 Share Class Year ended October 31 Share Class
--------------------- Designations) to ---------------------- Designations) to
1995* 1994* October 31, 1993 1995* 1994* October 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.67 $ 12.92 $ 12.67 $ 11.66 $ 12.91 $ 12.67
Net investment income .90 .84 .19 .74 .72 .30
Net realized and unrealized gain
(loss) on investments, forward
contracts and foreign currency .84 (1.27) .42 .87 (1.27) .24
Dividends from net investment income (.84) (.82) (.36) (.71) (.70) (.30)
------ ------- ----------------- ------- ------- -----------
Net asset value, end of year $ 12.57 $ 11.67 $ 12.92 $ 12.56 $ 11.66 $ 12.91
====== ======= ================= ======= ======= ===========
Total return 15.37%+ (3.42)%+ 4.82%+++ 14.24%+ (4.38)%+ 4.32%+++
Net assets at end of year (000s) $ 5,036 $ 203 $ 36 $13,033 $13,425 $12,101
Ratio of operating expenses to average
net assets 0.85% 0.82% 0.80%++ 1.85% 1.82% 1.88%++
Ratio of net investment income to
average net assets 6.79% 8.01% 6.59%++ 6.08% 5.84% 5.59%++
Portfolio turnover rate 105.57% 134.41% 103.49% 105.57% 134.41% 103.49%
</TABLE>
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
*Per-share figures have been calculated using the average shares method.
48
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of MetLife-State Street
Financial Trust and the Shareholders of
State Street Research Government Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research
Government Income Fund (a series of MetLife-State Street Financial Trust,
hereafter referred to as the "Trust") at October 31, 1995, and the results of
its operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at October 31, 1995 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 8, 1995
49
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance
- --------------------------------------------------------------------------------
In late 1994, after nine months of rising rates, we began to position the
Fund for stable or declining rates. We added longer-duration securities and
U.S. Treasury bonds, both of which tend to enjoy strong performance when
rates decline. This decision helped provide strong performance for the Fund.
On October 31, 1995, 41% of the portfolio was invested in U.S. Treasuries,
and 38% in mortgage securities (2% in non-U.S. Agency mortgages).
The Fund's position in European government bonds also performed well,
benefiting from a stronger U.S. dollar and falling interest rates overseas.
Our foreign holdings were "hedged" to protect the Fund from changes in
foreign currency exchange rates.
The Merrill Lynch Government Master Index and the Merrill Lynch Blended Index
are indicators of overall U.S. bond market performance. The indices are
unmanaged and do not take sales charges into consideration. Direct investment
in the indices is not possible; results are for illustrative purposes only.
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Investments in the Fund are not insured
or guaranteed by the U.S. government or any other entity. Performance
includes periods prior to the adoption of class designations. Performance
reflects up to maximum 4.5% front-end or 5% contingent deferred sales
charges. Performance for "B" and "D" shares prior to class designations in
1993 reflects annual 12b-1 fees of .25%, and performance thereafter reflects
12b-1 fees of 1%, which will reduce subsequent performance.
Comparison Of Change In Value Of A $10,000
Investment In Government Income Fund,
The Merrill Lynch Blended Index and
The Merrill Lynch Government Master Index
Class A Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+9.89% +8.60% +7.67%
Government ML Government
ML Blended Income Master
Index Fund Index
3/87 9550 10000 10000
10/87 9408 9935 9849
10/88 10328 11045 10807
10/89 11321 12316 12106
10/90 11948 13154 12825
10/91 13890 15171 14703
10/92 15259 16660 16223
10/93 17034 18553 18333
10/94 16424 17933 17539
10/95 18899 20669 20242
Class B Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+9.15% +8.88% +7.99%
Government ML Government
ML Blended Income Master
Index Fund Index
3/87 10000 10000 10000
10/87 9852 9935 9849
10/88 10814 11045 10807
10/89 11855 12316 12106
10/90 12511 13154 12825
10/91 14544 15171 14703
10/92 15978 16660 16223
10/93 17770 18553 18333
10/94 16992 17933 17539
10/95 19397 20669 20242
Class C Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+15.37% +9.72% +8.31%
Government ML Government
ML Blended Income Master
Index Fund Index
3/87 10000 10000 10000
10/87 9852 9935 9849
10/88 10814 11045 10807
10/89 11855 12316 12106
10/90 12511 13154 12825
10/91 14544 15171 14703
10/92 15978 16660 16223
10/93 17855 18553 18333
10/94 17244 17933 17539
10/95 19894 20669 20242
Class D Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+13.24% +9.18% +8.00%
Government ML Government
ML Blended Income Master
Index Fund Index
3/87 10000 10000 10000
10/87 9852 9935 9849
10/88 10814 11045 10807
10/89 11855 12316 12106
10/90 12511 13154 12825
10/91 14544 15171 14703
10/92 15978 16660 16223
10/93 17770 18553 18333
10/94 16992 17933 17539
10/95 19411 20669 20242
50
<PAGE>
Report on Special Meeting of Shareholders
A Special Meeting of Shareholders of the State Street Research Government
Income Fund ("Meeting") was held on April 21, 1995. The results of the Meeting
are set forth below.
<TABLE>
<CAPTION>
Votes (millions)
-------------------------------
For Against Abstain
--- ------ --------
<S> <C> <C> <C>
The Agreement and Plan of Reorganization and Liquidation providing for
the transfer of the assets (subject to its liabilities) of the
MetLife-State Street Research Government Securities Fund to the State
Street Research Government Income Fund was approved. 26.2 1.6 2.3
</TABLE>
51
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
SERIES OF STATE STREET RESEARCH FINANCIAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1996
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS..............................2
ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT TECHNIQUES..............6
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS.............................16
TRUSTEES AND OFFICERS.......................................................20
INVESTMENT ADVISORY SERVICES................................................24
PURCHASE AND REDEMPTION OF SHARES...........................................26
NET ASSET VALUE.............................................................28
PORTFOLIO TRANSACTIONS......................................................30
CERTAIN TAX MATTERS.........................................................33
DISTRIBUTION OF SHARES OF THE FUNDS.........................................35
CALCULATION OF PERFORMANCE DATA.............................................39
CUSTODIAN...................................................................44
INDEPENDENT ACCOUNTANTS.....................................................44
FINANCIAL STATEMENTS........................................................44
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
Strategic Portfolios: Conservative ("Strategic Portfolios: Conservative"),
State Street Research Strategic Portfolios: Moderate ("Strategic
Portfolios: Moderate") and State Street Research Strategic Portfolios:
Aggressive ("Strategic Portfolios: Aggressive") (individually, a "Fund" and
collectively, the "Funds"), dated March 1, 1996, which may be obtained
without charge from the offices of State Street Research Financial Trust (the
"Trust") or State Street Research Investment Services, Inc. (the
"Distributor"), One Financial Center, Boston, Massachusetts 02111.
SP-879D-295 1285P-950210(0396)SSR-LD
<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth in part under "The Funds' Investments and Asset Allocation,"
"Investment Practices" and "Limiting Investment Risk" in the Funds' Prospectus,
the Funds have adopted certain investment restrictions.
The fundamental and nonfundamental policies of the Funds do not apply to
any matters involving the issuance of multiple classes of shares of the Funds or
the creation of a structure allowing the Funds to invest substantially all its
assets in a related collective investment vehicle for similar funds or allowing
the Funds to serve as such a collective investment vehicle for other similar
funds, to the extent permitted by law and regulatory authorities.
All of the Funds' fundamental investment restrictions are set forth below.
These fundamental investment restrictions may not be changed except by the
affirmative vote of a majority of the Funds' outstanding voting securities as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(Under the 1940 Act, a "vote of the majority of the outstanding voting
securities" means the vote, at a meeting of security holders duly called, (i) of
67% or more of the voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy or (ii) of more than 50% of the outstanding voting securities whichever is
less.) Under these restrictions, it is each Fund's policy:
(1) not to purchase a security of any one issuer (other than securities
issued or guaranteed as to principal or interest by the U.S.
Government or its agencies or instrumentalities or mixed-ownership
Government corporations) if such purchase would, with respect to 75%
of the Fund's total assets, cause more than 5% of the Fund's total
assets to be invested in the securities of such issuer or , with
respect to 100% of the Fund's total assets, cause more than 10% of
the voting securities of such issuer to be held by the Fund;
(2) not to issue senior securities as defined in the 1940 Act, except as
permitted by Section 18(f)(2) of that Act and the rules thereunder
or as permitted by an order of the Securities and Exchange
Commission;
(3) not to underwrite or participate in the marketing of securities of
other issuers, except (a) the Fund may, acting alone or in
syndicates or groups, purchase or otherwise acquire securities of
other issuers for investment, either from the issuers or from
persons in a control relationship with the issuers or from
underwriters of such securities; and (b) to the extent that, in
connection with the disposition of the Fund's securities, the Fund
may be deemed to be an underwriter under certain federal securities
laws;
2
<PAGE>
(4) not to purchase or sell fee simple interests in real estate,
although the Fund may purchase and sell other interests in real
estate including securities which are secured by real estate, or
securities of companies which own or invest or deal in real estate;
(5) not to invest in commodities or commodity contracts in excess of 10%
of the Fund's total assets, except that investments in swap
arrangements, currencies, futures contracts and options on futures
contracts on securities, securities indices and currencies shall not
be deemed an investment in commodities or commodities contracts;*
(6) not to make loans, except that the Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (and enter into repurchase agreements with respect
thereto);
(7) not to make any investment which would cause more than 25% of the
value of the Fund's total assets to be invested in securities of
issuers principally engaged in any one industry [for purposes of
this restriction, (a) utilities may be divided according to their
services so that, for example, gas, gas transmission, electric and
telephone companies may each be deemed in a separate industry, (b)
oil and oil related companies may be divided by type so that, for
example, oil production companies, oil service companies and
refining and marketing companies may each be deemed in a separate
industry, (c) finance companies may be classified according to the
industries of their parent companies, and (d) securities issued or
guaranteed as to principal or interest 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) may be excluded]; and
(8) 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.
*In connection with clause (6), Strategic Portfolios: Aggressive and
Strategic Portfolios: Conservative have undertaken with a state securities
authority that, for so long as the relevant Fund's shares are required to be
registered for sale in that state, the Fund will restrict its investment in
those commodities which are subject to the 10% limit of a Fund's total assets,
to precious metals.
The following nonfundamental investment restrictions may be changed
without shareholder approval. Under these restrictions, it is each Fund's
policy:
3
<PAGE>
(1) not to purchase any security or enter into a repurchase agreement if
as a result more than 15% of its total assets would be invested in
securities that are illiquid because of the absence of a readily
available market and repurchase agreements not entitling the holder
to payment of principal and interest within seven days;
(2) not to invest more than 15% of its net assets in restricted
securities, of all types (including not more than 5% of its net
assets in restricted securities which are not eligible for resale
pursuant to Rule 144A, Regulation S or other exemptive provisions
under the Securities Act of 1933);*
(3) not to invest more than 5% of its total assets in securities of
private issuers including predecessors with less than three years
continuous operations (except (a) securities guaranteed or backed by
an affiliate of the issuer with three years of continuous
operations, (b) securities issued or guaranteed as to principal or
interest by the U.S. Government, or its agencies or
instrumentalities, or a mixed-ownership Government corporation, (c)
securities of issuers with debt securities rated either "BBB" by
Standard & Poor's Corporation or "Baa" by Moody's Investor's
Service, Inc. or equivalent by any other nationally recognized
statistical rating organization, or securities of issuers considered
by the Investment Manager to be equivalent, (d) securities issued by
a holding company with at least 50% of its assets invested in
companies with three years of continuous operations including
predecessors, and (e) securities which generate income which is
exempt from local, state or federal taxes); provided that a Fund may
invest up to 15% of its total assets in such issuers so long as such
investments plus investments in restricted securities (other than
those which are eligible for resale under Rule 144A, Regulation S or
other exemptive provisions as noted above) do not exceed 15% of the
Fund's total assets;
(4) not to engage in transactions in options except in connection with
options on securities, securities indices and currencies, and
options on futures on securities, securities indices and
currencies;*
(5) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (as a matter of current operating policy, the Fund
will not make short sales or maintain a short position unless not
more than 5% of the Fund's net assets (taken at current value) is
held as collateral for such sales at any time);
(6) not to hypothecate, mortgage or pledge any of its assets except as
may be necessary in connection with permitted borrowings (for the
purpose of this restriction, futures, options and forward
commitments, 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 such
4
<PAGE>
investments, are not deemed to involve a hypothecation, mortgage
or pledge of assets);
(7) 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;*
(8) not to purchase or retain any security of an issuer if, to the
knowledge of the Fund, those of its officers and Trustees and
officers and directors of its investment adviser who individually
own more than 1/2 of 1% of the securities of such issuer, when
combined, own more than 5% of the securities of such issuer taken at
market;
(9) not to invest directly as a joint venturer or general partner in
oil, gas or other mineral exploration or development joint ventures
or general partnerships (provided that the Fund may invest in
securities issued by companies which invest in or sponsor such
programs and in securities indexed to the price of oil, gas or other
minerals);*
(10) not to invest in warrants in excess of 5% of the value, at the lower
of cost or market, of its net assets, provided that warrants not
listed on the New York or American Stock Exchange shall be further
limited to 2% of the Fund's net assets (warrants initially attached
to securities and acquired by the Fund upon original issuance
thereof shall be deemed to be without value); and
(11) not to invest in companies for the purpose of exercising control
over their management, although the Fund may from time to time
present its views on various matters to the management of issuers in
which it holds investments.
* In connection with clauses (2) (4) (7) and (9), Strategic Portfolios:
Aggressive and Strategic Portfolios: Conservative have undertaken with a state
securities authority that, for so long as the relevant Fund's shares are
required to be registered for sale in that state, the Fund will notify
nonaccredited (as defined in Regulation 501(a) under the Securities Act of 1933)
recordholders of that state 30 days prior to changing said clauses.
Compliance with the above nonfundamental investment restrictions (1) and
(2) will be determined independently.
5
<PAGE>
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Among other investments described below, each Fund may buy and sell
domestic and foreign options, futures contracts, and options on futures
contracts with respect to securities, securities indices, and currencies, and
may enter into closing transactions with respect to each of the foregoing under
circumstances in which such instruments and techniques are expected by State
Street Research & Management Company (the "Investment Manager") to aid in
achieving the investment objective of a Fund. Each Fund on occasion may also
purchase instruments with characteristics of both futures and securities (e.g.,
debt instruments with interest and principal payments determined by reference to
the value of a commodity or a currency at a future time) and which, therefore,
possess the risks of both futures and securities investments.
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell underlying
assets, such as certain securities, currencies, or an index of securities, at a
future time at a specified price. A contract to buy establishes a "long"
position while a contract to sell establishes a "short" position.
The purchase of a futures contract on securities or an index of securities
normally enables a buyer to participate in the market movement of the underlying
asset or index after paying a transaction charge and posting margin in an amount
equal to a small percentage of the value of the underlying asset or index. Each
Fund will initially be required to deposit with the Trust's custodian or the
broker effecting the futures transaction an amount of "initial margin" in cash
or U.S. Treasury obligations.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when a 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 a 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, a Fund may elect
to close the position by taking an opposite position which will terminate the
Fund's position in the futures
6
<PAGE>
contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of such
securities, such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus protect a Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and thus to participate
in an expected rise in market value of securities or currencies which a Fund
intends to purchase. Subject to the limitations described below, a Fund may also
enter into futures contracts for purposes of enhancing return. In transactions
establishing a long position in a futures contract, money market instruments
equal to the face value of the futures contract will be identified by the Fund
to the Trust's custodian for maintenance in a separate account to insure that
the use of such futures contracts is unleveraged. Similarly, a representative
portfolio of securities having a value equal to the aggregate face value of the
futures contract will be identified with respect to each short position. Each
Fund will employ any other appropriate method of cover which is consistent with
applicable regulatory and exchange requirements.
Options on Securities
Each Fund may use options on securities to implement its investment
strategy. A call option on a security, for example, gives the purchaser of the
option the right to buy, and the writer the obligation to sell, the underlying
asset at the exercise price during the option period. Conversely, a put option
on a security gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying asset at the exercise price during the option
period.
Purchased options have defined risk, i.e., the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset.
Written options have varying degrees of risk. An uncovered written call
option theoretically carries unlimited risk, as the market price of the
underlying asset could rise far above the exercise price before its expiration.
This risk is tempered when the call option is covered, i.e., when the option
writer owns the underlying asset. In this case, the writer runs the risk of the
lost opportunity to participate in the appreciation in value of the asset rather
than the risk of an out-of-pocket loss. A written put option has defined risk,
i.e., the difference between the agreed-upon price that the Fund must pay to the
buyer upon exercise of the put and the value, which could be zero, of the asset
at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
his obligation to deliver the underlying asset in the case of a
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call option, or to pay for the underlying asset in the case of a put
option, a covered writer is required to deposit in escrow the underlying
security or other assets in accordance with the rules of the applicable clearing
corporation and exchanges.
Options on Securities Indices
Each Fund may engage in transactions in call and put options on securities
indices. For example, a Fund may purchase put options on indices of securities
in anticipation of or during a market decline to attempt to offset the decrease
in market value of its securities that might otherwise result.
Put options on indices of securities are similar to put options on the
securities themselves except that the delivery requirements are different.
Instead of giving the right to make delivery of a security at a specified price,
a put option on an index of securities gives the holder the right to receive an
amount of cash upon exercise of the option if the value of the underlying index
has fallen below the exercise price. The amount of cash received will be equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple. As with options
on securities or futures contracts, a Fund may offset its position in index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A securities index assigns relative values to the securities included in
the index and the index options are based on a broad market index. Although
there are at present few available options on indices of fixed income
securities, other than tax-exempt securities, or futures and related options
based on such indices, such instruments may become available in the future. In
connection with the use of such options, a Fund may cover its position by
identifying a representative portfolio of securities having a value equal to the
aggregate face value of the option position taken. However, the Fund may employ
any appropriate method to cover its positions that is consistent with applicable
regulatory and exchange requirements.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Options Strategy
A basic option strategy for protecting a Fund against a decline in
securities prices could involve (a) the purchase of a put -- thus "locking in"
the selling price of the underlying securities or securities indices -- or (b)
the writing of a call on securities or securities indices held by a Fund --
thereby generating income (the premium paid by the buyer) by giving the holder
of such call the option to buy the underlying asset at a fixed price. The
premium will
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offset, in whole or in part, a decline in portfolio value; however, if prices of
the relevant securities or securities indices rose instead of falling, the call
might be exercised, thereby resulting in a potential loss of appreciation in the
underlying securities or securities indices.
A basic option strategy when a rise in securities prices is anticipated is
the purchase of a call -- thus "locking in" the purchase price of the underlying
security or other asset. In transactions involving the purchase of call options
by a Fund, money market instruments equal to the aggregate exercise price of the
options will be identified by a Fund to the Trust's custodian to insure that the
use of such investments is unleveraged.
A Fund may write options in connection with buy-and-write transactions;
that is, a Fund may purchase a security and concurrently write a call option
against that security. If the call option is exercised in such a transaction,
the Fund's maximum gain will be the premium received by it for writing the
option, adjusted upward or downward by the difference between the Fund's
purchase price of the security and the exercise price of the option. If the
option is not exercised and the price of the underlying security declines, the
amount of such decline will be offset in part, or entirely, by the premium
received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund's return will be the premium received from
writing the put option minus the amount by which the market price of the
security is below the exercise price.
Limitations and Risks of Options and Futures Activity
The Funds will engage in transactions in futures contracts or options as a
hedge against changes resulting from market conditions which produce changes in
the values of their securities or the securities which it intends to purchase
(e.g., to replace portfolio securities which will mature in the near future)
and, subject to the limitations described below, to enhance return. None of the
Funds will purchase any futures contract or purchase any call option if,
immediately thereafter, more than one third of the Fund's net assets would be
represented by long futures contracts or call options. A Fund will not write a
covered call or put option if, immediately thereafter, the aggregate value of
the assets (securities in the case of written calls and cash or cash equivalents
in the case of written puts) underlying all such options, determined as of the
dates such options were written, would exceed 25% of that Fund's net assets. In
addition, a Fund may not establish a position in a commodity futures contract or
purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of the Fund's net assets.
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Although effective hedging can generally capture the bulk of a desired
risk adjustment, no hedge is completely effective. Each Fund's ability to hedge
effectively through transactions in futures and options depends on the degree to
which price movements in its holdings correlate with price movements of the
futures and options.
Some positions in 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 Funds' ability to
effectively hedge its securities and might in some cases require a Fund to
deposit cash to meet applicable margin requirements. Each Fund will enter into
an option or futures position only if it appears to be a liquid investment.
Foreign Investments
To the extent a Fund invests in securities of issuers in less developed
countries or emerging foreign markets, it will be subject to a variety of
additional risks, including risks associated with political instability,
economies based on relatively few industries, lesser market liquidity, high
rates of inflation, significant price volatility of portfolio holdings and high
levels of external debt in the relevant country.
Although the Funds may invest in securities denominated in foreign
currencies, each Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of a Fund's shares may fluctuate with U.S. dollar
exchange rates as well as with price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which a Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the prices
of the Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar will have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of a Fund's
securities in the local markets.
Currency Transactions
The Funds may engage in currency exchange transactions. Each 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. Each 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
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large commercial banks) and their customers. In transactions involving forward
currency exchange contracts, cash or marketable securities equal to the price of
the contract will be identified for segregation by a Fund to the Trust's
custodian to ensure that the use of such instruments is unleveraged. Although
spot and forward contracts will be used primarily to protect a 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 such
Fund. This method of protecting the value of a 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.
Repurchase Agreements
The Funds may enter into repurchase agreements. Repurchase agreements
occur when a Fund acquires a security and the seller, which may be either (i) a
primary dealer in U.S. Government securities or (ii) an FDIC-insured bank having
gross assets in excess of $500 million, simultaneously commits to repurchase it
at an agreed-upon price on an agreed-upon date within a specified number of days
(usually not more than seven) from the date of purchase. The repurchase price
reflects the purchase price plus an agreed-upon market rate of interest which is
unrelated to the coupon rate or maturity of the acquired security. While
repurchase agreements involve the purchase and sale of the subject securities
legally, the economic effect may be similar to loans by a Fund collateralized by
the underlying securities. The Funds 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
a Fund's ability to dispose of the underlying securities. Other risks include
possible litigation over the rights of the respective parties in the subject
securities and the uncertainties and costs with respect thereto. Repurchase
agreements will be limited to 30% of a Fund's total assets, except that
repurchase agreements extending for more than seven days when combined with
other illiquid securities will be limited to 15% of a Fund's total assets. None
of the Funds presently intend to engage in repurchase agreements in excess of 5%
of its total assets.
Reverse Repurchase Agreements
The Funds may enter into reverse repurchase agreements. However, none of
the Funds presently intend to engage in reverse repurchase agreements in excess
of 5% of each Fund's total assets. In a reverse repurchase agreement a 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 it will repurchase the portfolio instrument by remitting the original
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consideration plus interest at an agreed-upon rate. While reverse repurchase
agreements involve the purchase and sale of the subject securities legally, the
economic effect may be similar to borrowings by a Fund collateralized by the
underlying securities. The ability to use reverse repurchase agreements may
enable, but does not ensure the ability of, a 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 a Fund in a dollar
amount sufficient to make payment of the obligations to be purchased are
segregated on its records at the trade date and maintained until the transaction
is settled.
When-Issued Securities
Each Fund may purchase "when-issued" securities, which are traded on a price or
yield basis prior to actual issuance. However, none of the Funds presently
intend to purchase when-issued securities in an amount in excess of 5% of its
total assets. Such purchases will be made only to achieve a Fund's investment
objectives 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. No income accrues to a Fund prior
to the time it takes delivery. A frequent form of when-issued trading occurs in
the U.S. Treasury market when dealers begin to trade a new issue of bonds or
notes shortly after a Treasury financing is announced, but prior to the actual
sale of the securities. Similarly, corporate securities to be created by a
merger of companies may be traded prior to the actual consummation of the
merger. Such transactions may involve a risk of loss if the value of the
securities fall below the price committed to prior to the actual issuance. The
Trust's custodian will establish a segregated account for each Fund when it
purchases securities on a when-issued basis consisting of cash or liquid
securities equal to the amount of the when-issued commitments. Securities
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by a Fund.
Rule 144A Securities
Subject to the investment limitation of each Fund applicable to restricted
securities set forth above, each Fund may buy or sell restricted securities in
accordance with Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities"). Securities may be resold pursuant to Rule 144A under certain
circumstances only to qualified institutional buyers as defined in the rule, and
the markets and trading practices for such securities are relatively new and
still developing; depending on the development of such markets, Rule 144A
Securities may be deemed to be liquid as determined by or in accordance with
methods adopted by the Trustees. Under such methods the following factors are
considered, among others: the frequency of trades and quotes for the security,
the number of dealers and potential purchasers in the market, 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 a Fund's
illiquidity to the extent that qualified institutional buyers become, for a
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time, uninterested in purchasing such securities. Also, a Fund may be adversely
impacted by the possible illiquidity and subjective valuation of such securities
in the absence of a market for them.
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 none of the Funds presently intends 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.
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. In an
interest rate swap, a 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 such
Fund a fixed rate of interest on the notional principal amount. In a currency
swap, a 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, a Fund would agree to exchange cash flows on a
notional amount based on changes in the values of the selected indices. Purchase
of a cap entitles the purchaser to receive payments from the seller on a
notional amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an
agreed-upon interest rate or amount. A collar combines a cap and a floor.
Most swaps entered into by a 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 a Fund either receiving or paying the difference between such
amounts. In order to be in a position to meet any obligations resulting from
swaps, a 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 a
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 a Fund's obligations.
These arrangements will be made primarily for hedging purposes, to
preserve the return on an investment or on a portion of a Fund's portfolio.
However, a Fund may enter into such arrangements for income purposes to the
extent permitted by the CFTC for entities which are not commodity pool
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operators, such as the Fund. In entering a swap arrangement, a Fund is dependent
upon the creditworthiness and good faith of the counterparty. Each 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
non-standard 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 a 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.
Securities Lending
Collateral received by a Fund will generally be held in the form tendered,
although cash may be invested in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, irrevocable stand-by letters of
credit issued by a bank, or any other securities in which a Fund is authorized
to invest. The collateral will be reflected as an asset, with an offsetting
liability to the counterparty, on the records of each Fund.
Short Sales Against the Box
Each 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 a 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 a 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.
Industry Classifications
In determining how much of a Fund's portfolio is invested in a given
industry, the industry classifications set forth below, grouped by sectors, are
currently used. Companies engaged in the business of financing will be
classified according to the industries of their parent companies or industries
that otherwise most affect such financing companies. Issuers of asset-backed
pools will be classified as separate industries based on the nature of the
underlying assets, such as mortgages, credit card receivables, etc.
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Basic Industries Consumer Staple Science & Technology
Chemical Business Service Aerospace
Diversified Container Computer Software & Service
Electrical Equipment Drug Electronic Components
Forest Products Food & Beverage Electronic Equipment
Machinery Hospital Supply Office Equipment
Metal & Mining Personal Care
Railroad Printing & Publishing
Truckers Tobacco
Utility Energy Consumer Cyclical
Electric Oil Refining and Marketing Airline
Gas Oil Production Automotive
Gas Transmission Oil Service Building
Telephone Hotel & Restaurant
Photography
Recreation
Retail Trade
Recreation
Textile & Apparel
Other Finance
Trust Certificates -- Bank
Government Related Financial Service
Lending Financial Service
Asset-backed -- Mortgages Insurance
Asset-backed -- Credit
Card Receivables
Other Investment Limitations
Pursuant to the policies of certain state securities authorities, none of
the Funds will invest in real estate limited partnerships, oil, gas or mineral
development limited partnerships, or in oil, gas or mineral leases for so long
as its shares are required to be registered for sale in the relevant state.
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DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTSCASH INVESTMENTS
As indicated in the Funds' Prospectus, the Funds may invest in long-term
and short-term debt securities. The Funds may invest in cash and short-term
securities for temporary defensive purposes when, in the opinion of the
Investment Manager, such a position is more likely to provide protection against
unfavorable market conditions than adherence to other investment policies.
Certain debt securities and money market instruments in which the Funds may
invest are described below.
U.S. Government and Related Securities. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S.
Government securities in which the Funds invest 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 Funds may buy are backed in a variety of
ways by the U.S. Government, its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S. Treasury. Other
obligations, such as those of the Federal National Mortgage Association, are
backed by the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities, although the U.S. Government has
no legal obligation to do so. Obligations such as those of the Federal Home Loan
Banks, the Federal Farm Credit Banks, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation are backed by the credit of the
agency or instrumentality issuing the obligations. Certain obligations of
Resolution Funding Corporation, a mixed-ownership Government corporation, are
backed with respect to interest payments by the U.S. Treasury, and with respect
to principal payments by U.S. Treasury obligations held in a segregated account
with a Federal Reserve Bank. Except for certain mortgage-related securities, the
Funds will only invest in obligations issued by mixed-ownership Government
corporations where such securities are guaranteed as to payment of
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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 Funds 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 Funds 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 Funds may also invest from time to time in collective investment
vehicles, the assets of which consist principally of U.S. Government securities
or other assets substantially collateralized or supported by such securities,
such as Government trust certificates.
Bank Money Investments. Bank money investments include but are not limited
to certificates of deposit, bankers' acceptances and time deposits. Certificates
of deposit are generally short-term (i.e., less than one year), interest-bearing
negotiable certificates issued by commercial banks or savings and loan
associations against funds deposited in the issuing institution. A banker's
acceptance is a time draft drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods). A banker's acceptance may be obtained
from a domestic or foreign bank, including a U.S. branch or agency of a foreign
bank. The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. Time deposits are nonnegotiable deposits
for a fixed period of time at a stated interest rate. The Funds 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
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published financial statements) in excess of $50 million. The Funds will not
invest in time deposits maturing in more than seven days and will not invest
more than 10% of its total assets in time deposits maturing in two to seven
days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or
agencies of foreign banks are chartered and regulated by the Comptroller of
the Currency, while state branches and agencies are chartered and regulated
by authorities of the respective states or the District of Columbia. U.S.
branches of foreign banks may accept deposits and thus are eligible for FDIC
insurance; however, not all such branches elect FDIC insurance. Unlike U.S.
branches of foreign banks, U.S. agencies of foreign banks may not accept
deposits and thus are not eligible for FDIC insurance. Both branches and
agencies can maintain credit balances, which are funds received by the office
incidental to or arising out of the exercise of their banking powers and can
exercise other commercial functions, such as lending activities.
Short-Term Corporate Debt Instruments. Short-term corporate debt
instruments include commercial paper to finance short-term credit needs (i.e.,
short-term, unsecured promissory notes) issued by corporations including but not
limited to (a) domestic or foreign bank holding companies or (b) their
subsidiaries or affiliates where the debt instrument is guaranteed by the bank
holding company or an affiliated bank or where the bank holding company or the
affiliated bank is unconditionally liable for the debt instrument. Commercial
paper is usually sold on a discounted basis and has a maturity at the time of
issuance not exceeding nine months.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated A by Standard & Poor's Corporation ("S&P") or Prime by
Moody's Investor's Service, Inc. ("Moody's"), or, if not rated, issued by
companies having an outstanding long-term unsecured debt issue rated at least A
by S&P or by Moody's. The money market investments in corporate bonds and
debentures (which must have maturities at the date of settlement of one year or
less) must be rated at the time of purchase at least A by S&P or by Moody's.
Commercial paper rated A (highest quality) by S&P is issued by entities
which have liquidity ratios which are adequate to meet cash requirements.
Long-term senior debt is rated A or better, although in some cases BBB credits
may be allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1, A-2
or A-3. (Those A-1 issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign: A-1+.)
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The rating Prime is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
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TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their addresses, and their
principal occupations and positions with certain affiliates of the Investment
Manager are set forth below.
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 55. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as portfolio manager for State Street Research &
Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 69. He is engaged principally in
private investments and civic affairs, and is an author of business history.
Previously, he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Trustee of the Trust. He is 69. His principal occupation during
the past five years has been Partner, Saltonstall & Co., a private investment
firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 44. His principal occupation is Executive Vice
President, Treasurer and Director of State Street Research & Management Company.
During the past five years he has also served as Executive Vice President and
Chief Financial Officer of New England Investment Companies and as Senior Vice
President and Vice President of New England Mutual Life Insurance Company. Mr.
Maus's other principal business affiliations include Executive Vice President,
Treasurer, Chief Financial Officer and Director of State Street Research
Investment Services, Inc.
*+Francis J. McNamara, III has served as Secretary and General Counsel of
the Trust since May, 1995. He is 40. His principal occupation is Senior Vice
President, Secretary and General Counsel of the Investment Manager. During the
past five years he has also served as Senior Vice President, General Counsel and
Assistant Secretary of The Boston Company, Inc., Boston Safe Deposit and Trust
Company and The Boston Company Advisors, Inc. Mr. McNamara's other principal
business affiliations include Senior Vice President, Clerk and General Counsel
of State Street Research Investment Services, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 63. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173 serves as
Trustee of the Trust. He is 71. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves as
Trustee of the Trust. He is 57. His principal occupations during the past five
years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
- ------------------------
* or + See footnotes on page 21.
20
<PAGE>
+Michael S. Scott Morton, Massachusetts Institute of Technology,
77 Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the
Trust. He is 58. His principal occupation during the past five years has
been Jay W. Forrester Professor of Management at Sloan School of Management,
Massachusetts Institute of Technology.
*+Thomas A. Shively, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 41. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President of State
Street Research & Management Company. Mr. Shively's other principal business
affiliations include Director of State Street Research Investment Services, Inc.
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. His principal occupation is Chairman of the Board, President, Chief
Executive Officer and Director of State Street Research & Management Company. He
is 52. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and as Chief Investment
Officer of New England Mutual Life Insurance Company. Mr. Verni's other
principal business affiliations include Chairman of the Board, President, Chief
Executive Officer and Director of State Street Research Investment Services,
Inc.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 71. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
*+Michael R. Yogg, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 49. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
- -------------------------
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations
with the Funds' investment adviser.
+ Serves as a Trustee and/or officer of one or more of the following
investment companies, each of which has an advisory relationship with
the Investment Manager or its affiliates: State Street Research Equity
Trust, State Street Research Financial Trust, State Street Research
Income Trust, State Street Research Money Market Trust, State Street
Research Tax-Exempt Trust, State Street Research Capital Trust, State
Street Research Exchange Trust, State Street Research Growth Trust,
State Street Research Master Investment Trust, State Street Research
Securities Trust, State Street Research Portfolios, Inc. and
Metropolitan Series Fund, Inc.
21
<PAGE>
As of November 30, 1995, the Trustees and officers of the Trust as a group
owned none of the outstanding shares of each Fund.
As of November 30, 1995, Metropolitan Life Insurance Company
("Metropolitan"), a New York corporation having its principal offices at One
Madison Avenue, NY 10010, was the record and/or beneficial owner, directly or
indirectly through its subsidiaries or affiliates, of the amounts of the
outstanding shares of the Funds as set forth below:
Class A Class C
------- -------
Strategic Portfolios: Conservative 100 --
Strategic Portfolios: Moderate -- 66.7
Strategic Portfolios: Aggressive 100% 83.1
As of the same date, United States Trust Company, 770 Broadway, New York, NY
10003, was the record owner of approximately 20.8% of the Strategic Portfolios:
Moderate's Class C shares, 16.8% of the Strategic Portfolios: Aggessive's
Class C shares and 100% of the Strategic Portfolios: Conservative's Class C
shares. United States Trust Company holds such shares as trustee or custodian
under certain employee benefit plans serviced by Metropolitan. Strategic
Portfolios: Moderate believes that United States Trust Company does not have
beneficial ownership of such shares.
As of the same date, State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02110, was the record owner of approximately 11.6% of the Strategic
Portfolios: Moderate's Class C shares. State Street Bank holds such shares as
custodian for a retirement account and the Fund believes that State Street Bank
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 owner will
be presumed to be in control of such class of shares for purposes of voting on
certain matters submitted to a vote of shareholders, such as any Distribution
Plan for a given class.
During the fiscal year ended October 31, 1995, the Trustees were
compensated as follows:
(3)
Total
(2) Compensation
(1) Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Trust(a) to Trustees(b)
Edward M. Lamont $10,300 $61,271
Robert A. Lawrence $10,300 $88,435
Dean O. Morton $11,100 $97,085
Thomas L. Phillips $10,100 $67,285
Toby Rosenblatt $10,300 $61,271
Michael S. Scott Morton $11,900 $98,535
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $10,500 $70,285
22
<PAGE>
(a) Includes compensation from multiple Series of the Trust. See
"Distribution of Shares" for a listing of series.
(b) Includes compensation from Metropolitan Series Fund, Inc., for which the
Investment Manager serves as sub-investment adviser, State Street Research
Portfolios, Inc., for which State Street Research Investment Services,
Inc. serves as distributor, and all investment companies for which the
Investment Manager serves as primary investment adviser, (comprising a
total of __ series as of the date herewith). The Trust does not provide
any pension or retirement benefits for the Trustees.
23
<PAGE>
INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Funds. The Advisory
Agreement provides that the Investment Manager shall furnish the Funds with an
investment program, suitable office space and facilities and such investment
advisory, research and administrative services as may be required from time to
time. The Investment Manager compensates all executive and clerical personnel
and Trustees of the Trust if such persons are employees or affiliates of the
Investment Manager or its affiliates. The Investment Manager is an indirect
wholly-owned subsidiary of Metropolitan.
The advisory fee payable monthly by each Fund to the Investment Manager is
computed as a percentage of the average of the value of the net assets of such
Fund as determined at the close of the New York Stock Exchange (the "NYSE") on
each day the NYSE is open for trading, at the annual rate of 0.60% of the net
assets of Strategic Portfolios: Conservative, 0.65% of the net assets of
Strategic Portfolios: Moderate and 0.75% of the net assets of Strategic
Portfolios: Aggressive. The Funds have been advised that the Distributor and its
affiliates may from time to time and in varying amounts voluntarily assume some
portion of fees or expenses relating to each Fund.
The advisory fees paid by each Fund to the Investment Manager for the
periods shown below, prior to the assumption of fees or expenses, were as
follows:
September 28, 1993
(commencement
Year Ended of operations) to
October 31, October 31, 1993
----------- -----------------
1995 1994
---- ----
Strategic Portfolios: Moderate $216,199 $173,499 $15,175
May 16, 1994
(commencement
Year Ended of operations) to
October 31, 1995 October 31, 1994
---------------- -----------------
Strategic Portfolios: Conservative $ 162,835 69,793
Strategic Portfolios: Aggressive $ 414,353 174,306
24
<PAGE>
For the same period, the voluntary reduction of fees or expenses were as
follows:
September 28, 1993
(commencement
Year Ended of operations) to
October 31, October 31, 1993
----------- -------------------
1995 1994
---- ----
Strategic Portfolios: Moderate $244,843 $155,886 $11,289
May 16, 1994
(commencement
Year Ended of operations) to
October 31, 1995 October 31, 1994
---------------- -----------------
Strategic Portfolios: Conservative $ 124,191 81,035
Strategic Portfolios: Aggressive $ 119,174 32,452
Further, to the extent required under applicable state regulatory
requirements, the Investment Manager will reduce its management fee up to the
amount of any expenses (excluding permissible items, such as Rule 12b-1
Distribution Plan payments, brokerage commissions, interest, taxes and
litigation expenses) paid or incurred by a Fund in any fiscal year which exceed
specified percentages of the average daily net assets of such Fund for such
fiscal year. The most restrictive of such percentage limitations is currently
2.5% of the first $30 million of average net assets, 2.0% of the next $70
million of average net assets and 1.5% of the remaining average net assets.
These commitments may be amended or rescinded in response to changes in the
requirements of the various states by the Trustees without shareholder approval.
The Advisory Agreement provides that it shall continue in effect with
respect to each 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 such 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.
25
<PAGE>
Under a Funds Administration Agreement between the Investment Manager and
the Distributor, the Distributor provides assistance to the Investment Manager
in performing certain fund administrative services for the Trust, such as
assistance in determining the daily net asset value of shares of the Funds and
in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the Trust
and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Funds, and is entitled
to reimbursements of its costs for providing such services. Under certain
arrangements for Metropolitan to provide subadministration services,
Metropolitan may receive a fee for the maintenance of certain share ownership
records for participants in sponsored arrangements, employee benefit plans, and
similar programs or plans through or under which a Fund's shares may be
purchased.
Under the Code of Ethics of the Investment Manager, its employees in
Boston, where investment management operations are conducted, are only permitted
to engage in personal securities transactions in accordance with certain
conditions relating to an employee's position, the identity of the security, the
timing of the transaction, and similar factors. Such employees must report their
personal securities transactions quarterly and supply broker confirmations of
such transactions to the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Funds are distributed by the Distributor. The Funds offer
four classes of shares which may be purchased at the next determined net asset
value per share plus, in the case of all classes except Class C shares, a sales
charge which, at the election of the investor, may be imposed (i) at the time of
purchase (the Class A shares) or (ii) on a deferred basis (the Class B and Class
D shares). General information on how to buy shares of the Funds, as well as
sales charges involved, are set forth under "Purchase of Shares" in the
Prospectus. The following supplements that information.
Public Offering Price
The public offering price for each class of shares of the Funds is based
on their net asset value determined as of the close of regular trading of the
NYSE on the day the purchase order is received by State Street Research
Shareholder Services provided that the order is received prior to the close of
the NYSE on that day; otherwise the net asset value used is that determined as
of the close of the NYSE on the next day it is open for unrestricted trading.
When a purchase order is placed through a dealer, that dealer is responsible for
transmitting the order promptly to State Street Research Shareholder Services in
order to permit the investor to obtain the current price. Any loss suffered by
an investor which results from a
26
<PAGE>
dealer's failure to transmit an order promptly is a matter for settlement
between the investor and the dealer.
Reduced Sales Charges - For purposes of determining whether a purchase of
Class A shares qualifies for reduced sales charges, the term "person" includes:
(i) an individual, or an individual combining with his or her spouse and their
children and purchasing for his, her or their own account; (ii) a "company" as
defined in Section 2(a)(8) of the 1940 Act; (iii) a trustee or other fiduciary
purchasing for a single trust estate or single fiduciary account (including a
pension, profit sharing or other employee benefit trust created pursuant to a
plan qualified under Section 401 of the Internal Revenue Code); (iv) a
tax-exempt organization under Section 501(c)(3) or (13) of the Internal Revenue
Code; and (v) an employee benefit plan of a single employer or of affiliated
employers.
Investors may purchase Class A shares of the Funds at reduced sales
charges by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Funds or any combination of Class A shares of "Eligible Funds"
as designated by the Distributor within a 13-month period. The sales charge
applicable to each purchase made pursuant to a Letter of Intent will be that
which would apply if the total dollar amount set forth in the Letter of Intent
were being bought in a single transaction. Purchases made within a 90-day period
prior to the execution of a Letter of Intent may be included therein; in such
case the date of the earliest of such purchases marks the commencement of the
13-month period.
An investor may include toward completion of a Letter of Intent the value
(at the current public offering price) of all of his or her Class A shares of
the Funds and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class D shares may also be included in the
combination under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The 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 Funds 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
27
<PAGE>
Eligible Funds owned as of the purchase date by the investor plus the value (at
the current public offering price) of all such shares owned as of such date by
any "person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class D shares may also be included in the
combination under certain circumstances. Investors must submit to the
Distributor sufficient information to show that they qualify for this Right of
Accumulation.
Class C Shares - Class C shares are currently available to certain benefit plans
such as qualified retirement plans, which meet criteria relating to level of
assets, number of participants, service agreements or similar factors; banks and
insurance companies; endowment funds of nonprofit organizations with substantial
minimum assets; and other similar institutional investors.
Reorganizations - In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined in the 1940 Act, as amended, each Fund may issue its shares at net
asset value (or more) to such entities or to their security holders.
Redemptions - The Funds reserve 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, a Fund may limit the amount of redemption
proceeds paid in cash. Although it has no present intention to do so, a 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 such 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. If the Trustees determine that it is in the
best interests of a Fund to pay a redemption, or any portion thereof, in kind,
the portfolio securities used to make such payment will be selected in such
manner as the Trustees deem fair and equitable and valued in the manner
described under the heading "Net Asset Value" herein.
NET ASSET VALUE
The net asset values of the shares of each Fund are determined once daily
as of the close of regular trading on the NYSE, ordinarily 4 P.M. New York City
time, Monday through Friday, on each day during which the NYSE is open for
unrestricted trading. The NYSE is currently closed on New Year's Day, Presidents
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The net asset value per share of a Fund is computed by dividing the sum of
the value of the securities held by a Fund plus any cash or other assets minus
all liabilities by the total
28
<PAGE>
number of outstanding shares of a Fund at such
time. Any expenses, except for extraordinary or nonrecurring expenses, borne by
a Fund, including the investment management fee payable to the Investment
Manager, are accrued daily.
In general, securities are valued as follows. Securities which are listed
or traded on the New York or American Stock Exchange are valued at the price of
the last quoted sale on the respective exchange for that day. Securities which
are listed or traded on a national securities exchange or exchanges, but not on
the New York or American Stock Exchange, are valued at the price of the last
quoted sale on the exchange for that day prior to the close of the NYSE.
Securities not listed on any national securities exchange which are traded "over
the counter" and for which quotations are available on the National Association
of Securities Dealers' NASDAQ System, or other system, are valued at the closing
price supplied through such system for that day at the close of the NYSE. Other
securities are, in general, valued at the mean of the bid and asked quotations
last quoted prior to the close of the NYSE if there are market quotations
readily available, or in the absence of such market quotations, then at the fair
value thereof as determined by or under authority of the Trustees of the Trust
utilizing such pricing services as may be deemed appropriate. Securities deemed
restricted as to resale are valued at the fair value thereof as determined by or
in accordance with methods adopted by the Trustees of the Trust.
In determining the values of portfolio assets, 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. Most debt securities are valued on
the basis of data provided by such pricing services. Since Strategic Portfolios:
Conservative and Strategic Portfolios: Moderate are significantly comprised of
debt securities under normal circumstances; most of these Funds' assets are
therefore valued on the basis of such data from the pricing services. The
pricing services may provide prices determined as of times prior to the close of
the NYSE.
Short-term debt instruments issued with a maturity of one year or less
which have a remaining maturity of 60 days or less are valued using the
amortized cost method, provided that during any period in which more than 25% of
a Fund's total assets is invested in short-term debt securities the current
market value of such securities will be used in calculating net asset value per
share in lieu of the amortized cost method. The amortized cost method is used
when the value obtained is fair value. Under the amortized cost method of
valuation, the security is initially valued at cost on the date of purchase (or
in the case of short-term debt instruments purchased with more than 60 days
remaining to maturity, the market value on the 61st day prior to maturity), and
thereafter a constant amortization to maturity of any discount or premium is
assumed regardless of the impact of fluctuating interest rates on the market
value of the security.
29
<PAGE>
PORTFOLIO TRANSACTIONS
Portfolio Turnover
A Fund's portfolio turnover rate is determined by dividing the lesser of
securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The Funds reserve full freedom with respect to portfolio
turnover, as described in the Prospectus.
The Funds' portfolio turnover rates for the periods shown below were as
follows:
Year Ended
October 31,
--------------
1995 1994
---- ----
Strategic Portfolios: Moderate 120.62% 142.86%
May 16, 1994
(commencement
Year Ended of operations) to
October 31, 1995 October 31, 1994
---------------- -----------------
Strategic Portfolios: Conservative 132.50% 70.35%
Strategic Portfolios: Aggressive 127.44% 37.75%
The Investment Manager believes the portfolio turnover rate for Strategic
Portfolios: Moderate for the fiscal year ended October 31, 1995 was
significantly lower than that for the previous fiscal year because
- -----------------------------------------------------
- ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------.
The Investment Manager believes the portfolio turnover rate for Strategic
Portfolios: Conservative for the fiscal year ended October 31, 1995 was
significantly higher because
- ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------.
30
<PAGE>
The Investment Manager believes the portfolio turnover rate for Strategic
Portfolios: Aggressive for the fiscal year ended October 31, 1995 was
significantly higher because
- ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------.
Brokerage Allocation
The Funds and the Investment Manager seek the best overall execution of
purchase or sale orders and the most favorable net price in securities
transactions consistent with their judgment as to the business qualifications of
the various broker or dealer firms with which the Funds may do business.
Decisions with respect to the market where the transaction is to be completed,
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 the performance, integrity and financial
responsibility of the various firms as well as to their demonstrated execution
experience and capability generally and in regard to particular markets or
securities and, in agency transactions, to the competitiveness of the commission
rates (or in principal transactions of the net prices) they charge. The
Investment Manager keeps current as to the range of rates or prices charged by
various firms and against this background evaluates the reasonableness of a
commission or price charged with respect to a particular transaction by
considering such factors as difficulty of execution or security positioning by
the executing firm.
When it appears that a number of firms can satisfy the required standards
in respect of a particular transaction, consideration may also be given to
services other than execution services which such firms have provided in the
past or may provide in the future. Among such other services are the supplying
of supplemental investment research, general economic and political information,
analytical and statistical data, relevant market information and daily market
quotations for computation of net asset value. In this connection it should be
noted that a substantial portion of brokerage commissions paid, or principal
transactions entered, by the Funds may be with brokers and investment banking
firms which, in the normal course of business, publish statistical, research and
other material which is received by the Investment Manager and which may or may
not prove useful to the Investment Manager, the Funds or other clients of the
Investment Manager.
Neither the Funds nor the Investment Manager has any definite agreements
with any firm as to the amount of business which that firm may expect to receive
for services supplied or otherwise. There may be, however, understandings with
certain firms that in order for such firms to be able to continuously supply
certain services, they need to receive allocation of a specified amount of
business. These understandings are honored to the extent possible in accordance
with the policy set forth above. Neither the Funds nor the Investment Manager
intends to pay a firm in excess of that which another would charge for handling
the same
31
<PAGE>
transaction in recognition of services (other than execution services) provided.
However, the Funds and the Investment Manager are aware that this is an area
where differences of opinion as to fact and circumstances may exist, and in such
circumstances, if any, rely on the provisions of Section 28(e) of the Securities
Exchange Act of 1934, to the extent applicable. Brokerage commissions paid by
the Funds for the periods shown below were as follows:
September 28, 1993
(commencement
Year Ended of operations) to
October 31, October 31, 1993
----------- ----------------
1995 1994
---- ----
Strategic Portfolios: Moderate $37,000 $18,000 $16,000
May 16, 1994
(commencement
Year Ended of operations) to
October 31, 1995 October 31, 1994
---------------- ----------------
Strategic Portfolios: Conservative $16,000 $ 7,000
Strategic Portfolios: Aggressive $90,000 $33,000
During and at the end of its most recent fiscal year, no Fund held in its
portfolio securities of any entity that might be deemed to be a regular
broker-dealer of such Fund as defined under the 1940 Act.
Occasions may arise when the Investment Manager determines that an
investment in a particular security, or the disposition of a particular
security, is simultaneously a proper investment decision for one or more of the
Funds as well as for the portfolio of one or more of its other clients. In this
event, a purchase or sale, as the case may be, of any such security on any given
day will be normally averaged as to price and allocated as to amount among the
several clients in a manner deemed equitable to each client.
On occasions when the Investment Manager deems the purchase or sale of a
security to be in the best interests of the Funds, as well as other clients of
the Investment Manager, the Investment Manager, to the extent permitted by
applicable laws and regulations, may aggregate such securities to be sold or
purchased for the Fund with those to be sold or purchased for other customers in
order to obtain best execution and lower brokerage commissions, if any. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Investment Manager in
the
32
<PAGE>
manner it considers to be most equitable and consistent with its fiduciary
obligations to all such customers, including the Funds. In some instances, this
procedure may affect the price and size of the positions obtainable for the
Funds.
CERTAIN TAX MATTERS
Federal Income Taxation of the Funds -- In General
- --------------------------------------------------
Each Fund intends to qualify and elect to be treated each taxable year as
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), although it cannot give complete assurance
that it will do so. Accordingly, a Fund must, among other things, (a) derive at
least 90% of its gross income in each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities, (ii) options, futures, or forward contracts (other than options,
futures or forward contracts on foreign currencies), or (iii) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies (or options, futures, or forward contracts) are not directly
related to the Funds' principal business of investing in stocks or securities
(or options and futures with respect to stocks or securities); (c) satisfy
certain diversification requirements; and (d) in order to be entitled to utilize
the dividends paid deduction, distribute annually at least 90% of its investment
company taxable income (determined without regard to the deduction for dividends
paid).
The 30% test will limit the extent to which a Fund may sell securities
held for less than three months, write options which expire in less than three
months, and effect closing transactions with respect to call or put options that
have been written or purchased within the preceding three months. (If a Fund
purchases a put option for the purpose of hedging an underlying portfolio
security, the acquisition of the option is treated as a short sale of the
underlying security unless, for purposes only of the 30% test, the option and
the security are acquired on the same date.) Finally, as discussed below, this
requirement may also limit investments by a Fund in options on stock indices,
listed options on nonconvertible debt securities, futures contracts, options on
interest rate futures contracts and certain foreign currency contracts.
If a 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
33
<PAGE>
will be taxable to shareholders as ordinary income to the extent of such Fund's
current or accumulated earnings and profits. Also, the shareholders, if they
received a distribution in excess of current or accumulated earnings and
profits, would receive a return of capital that would reduce the basis of their
shares of such Fund.
A 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 a 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. Each Fund
intends to make sufficient distributions to avoid this 4% excise tax.
Federal Income Taxation of Investments
- --------------------------------------
Original Issue Discount. For federal income tax purposes, debt securities
purchased by a 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 a 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 a 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 a Fund purchases the
securities. This additional discount represents market discount for income tax
purposes. In the case of any debt security issued after July 18, 1984, having a
fixed maturity date of more than one year from the date of issue and having
market discount, the gain realized on disposition will be treated as interest to
the extent it does not exceed the accrued market discount on the security
(unless a 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. A Fund may be required to capitalize, rather than deduct
currently, part or all of any direct interest expense incurred to purchase or
carry any debt security having market discount, unless a Fund makes the election
to include market discount currently. Because each Fund must include original
issue discount in income, it will be more difficult for a Fund to make the
distributions required for such 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.
34
<PAGE>
Options and Futures Transactions. Certain of a Fund's investments may be
subject to provisions of the Code that (i) require inclusion of unrealized gains
or losses in a Fund's income for purposes of the 90% test, the 30% test, the
excise tax and the distribution requirements applicable to regulated investment
companies; (ii) defer recognition of realized losses; and (iii) characterize
both realized and unrealized gain or loss as short-term or long-term gain or
loss. Such provisions generally apply to, among other investments, options on
debt securities, indices on securities and futures contracts.
Federal Income Taxation of Shareholders
- ---------------------------------------
Dividends paid by a Fund may be eligible for the 70% dividends-received
deduction for corporations. The percentage of a Fund's dividends eligible for
such tax treatment may be less than 100% to the extent that less than 100% of a
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.
Distributions by a Fund can result in a reduction in the fair market value
of such Fund's shares. Should a distribution reduce the fair market value below
a shareholder's cost basis, such distribution nevertheless may be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a taxable distribution will then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
DISTRIBUTION OF SHARES OF THE FUNDSOF SHARES OF THE FUNDS
State Street Research Financial Trust (formerly: MetLife - State Street
Financial Trust) is currently comprised of the following series: State Street
Research Government Income Fund, State Street Research Strategic Portfolios:
Conservative, State Street Research Strategic Portfolios: Moderate and State
Street Research Strategic Portfolios: Aggressive. The Trustees have authorized
shares of the Funds to be issued in four classes: Class A, Class B, Class C and
Class D shares. The Trustees of the Trust have authority to issue an unlimited
number of shares of beneficial interest of separate series, $.001 par value per
share. A "series" is a separate pool of assets of the Trust which is separately
managed and has a different investment objective and different investment
policies from those of another series. The Trustees have authority, without the
necessity of a shareholder vote, to create any number of new series or classes
or to commence the public offering of shares of any previously established
series or class.
35
<PAGE>
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 Funds. Shares of the Funds 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 applicable Fund plus (subject to certain exceptions) a sales charge which,
at the election of the investor, may be imposed (i) at the time of purchase (the
Class A shares) or (ii) on a deferred basis (Class B and Class D shares). The
Distributor may reallow all or portions of such sales charges as concessions to
dealers.
For the fiscal years ended October 31, 1995 and 1994 and for the period
September 28, 1993 (commencement of operations) to October 31, 1993, no sales
charges on Class A shares of Strategic Portfolios: Moderate were paid to the
Distributor. For the fiscal year ended October 31, 1995 and for the period May
16, 1994 (commencement of operations) to October 31, 1994, no sales charges on
Class A shares of Strategic Portfolios: Conservative and Strategic Portfolios:
Aggressive were paid to the Distributor.
The differences in the price at which the Funds' Class A shares are
offered due to scheduled variations in sales charges, as described in the Funds'
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Funds or associated entities.
Where shares of the Funds are offered at a reduced sales charge or without a
sales charge pursuant to sponsored arrangements and managed fee-based programs,
the amount of the sales charge reduction will similarly reflect the anticipated
reduction in sales expenses associated with such arrangements. The reductions in
sales expenses, and therefore the reduction in sales charge, will vary depending
on factors such as the size and other characteristics of the organization or
program, and the nature of its membership or the participants. The Funds reserve
the right to make variations in, or eliminate, sales charges at any time or to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
arrangements at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission on the shares sold. Such commission also is
payable to authorized securities dealers upon sales of Class A shares made
pursuant to a Letter of Intent to purchase shares having a net asset value of
$1,000,000 or more. Shares sold with such commissions payable are subject to a
one-year contingent deferred sales charge of 1.00% on any portion of such shares
redeemed within one year following their sale. After a particular purchase of
Class A shares is made under the Letter of Intent, the commission will be paid
only in respect of that particular
36
<PAGE>
purchase of shares. If the Letter of Intent is not completed, the commission
paid will be deducted from any discounts or commissions otherwise payable to
such dealer in respect of shares actually sold. If an investor is eligible to
purchase shares at net asset value on account of the Right of Accumulation, the
commission will be paid only in respect of the incremental purchase at net asset
value.
For the fiscal years ended October 31, 1995 and 1994 and for the period
September 28, 1993 (commencement of operations) to October 31, 1993, the
Distributor received no contingent deferred sales charges upon redemption of
Class A, Class B and Class D shares of Strategic Portfolios: Moderate and paid
no initial commissions to securities dealers for sales of such shares. For the
fiscal year ended October 31, 1995 and for the period May 16, 1994 (commencement
of operations) to October 31, 1994, the Distributor received no contingent
deferred sales charges upon redemption of Class A, Class B and Class D shares of
Strategic Portfolios: Conservative and Strategic Portfolios: Aggressive and paid
no initial commissions to securities dealers for sales of such shares.
Each Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1" (the
"Distribution Plan") under which the Funds may engage, directly or indirectly,
in financing any activities primarily intended to result in the sale of Class A,
Class B and Class D shares, including, but not limited to, (1) the payment of
commissions and/or reimbursement to underwriters, securities dealers and others
engaged in the sale of shares, including payments to the Distributor to be used
to pay commissions and/or reimbursement to securities dealers (which securities
dealers may be affiliates of the Distributor) engaged in the distribution and
marketing of shares and furnishing ongoing assistance to investors, (2)
reimbursement of direct out-of-pocket expenditures incurred by the Distributor
in connection with the distribution and marketing of shares and the servicing of
investor accounts including expenses relating to the formulation and
implementation of marketing strategies and promotional activities such as direct
mail promotions and television, radio, newspaper, magazine and other mass media
advertising, the preparation, printing and distribution of Prospectuses of the
Funds and reports for recipients other than existing shareholders of the Fund,
and obtaining such information, analyses and reports with respect to marketing
and promotional activities and investor accounts as the Funds may, from time to
time, deem advisable, and (3) reimbursement of expenses incurred by the
Distributor in connection with the servicing of shareholder accounts including
payments to securities dealers and others in consideration of the provision of
personal services to investors and/or the maintenance of shareholder accounts
and expenses associated with the provision of personal services by the
Distributor directly to investors. In addition, the Distribution Plan is deemed
to authorize the Distributor to make payments out of general profits, revenues
or other sources to underwriters, securities dealers and others in connection
with sales of shares, to the extent, if any, that such payments may be deemed to
be within the scope of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets
37
<PAGE>
represented by such Class A shares, and (ii) with respect to Class B and Class D
shares, an annual rate of 0.75% of the average daily value of the net assets
represented by such Class B or Class D shares (as the case may be) to finance
sales or promotion expenses and an annual rate of 0.25% of the average daily
value of the net assets represented by such Class B or Class D shares (as the
case may be) to make payments for personal services and/or the maintenance of
shareholder accounts. Proceeds from the service fee will be used by the
Distributor to compensate securities dealers and others selling shares of the
Funds for rendering service to shareholders on an ongoing basis. Such amounts
are based on the net asset value of shares of the Funds held by such dealers as
nominee for their customers or which are owned directly by such customers for so
long as such shares are outstanding and the Distribution Plan remains in effect
with respect to the Funds. Any amounts received by the Distributor and not so
allocated may be applied by the Distributor as reimbursement for expenses
incurred in connection with the servicing of investor accounts. The distribution
and servicing expenses of a particular class will be borne solely by that class.
During the fiscal year ended October 31, 1995, Strategic Portfolios:
Moderate paid the Distributor no fees under the Distribution Plan. During the
fiscal year ended October 31, 1995, Strategic Portfolios: Conservative and
Strategic Portfolios: Aggressive paid the Distributor fees under the
Distribution Plan and the Distributor used all of such payments for expenses
incurred on behalf of the Funds as follows:
Class A
-------
Strategic Portfolios: Strategic Portfolios:
Conservative Aggressive
------------ ----------
Advertising $ 8,151 $ 12,287
Printing and mailing of
prospectuses to other than
current shareholders 3,555 5,382
Compensation to dealers 0 0
Compensation to sales personnel 32,374 48,800
Interest 0 0
Carrying or other financing charges 0 0
Other expenses: marketing; general 20,923 31,540
------ ------
Total fees $ 65,003 $ 98,009
------ ------
The Distributor may have also used additional resources of its own for further
expenses on behalf of the Fund.
38
<PAGE>
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Funds will make alternative
arrangements for such services for shareholders who acquired shares through such
institutions.
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") and yield of the
Class A, Class B, Class C and Class D shares of the Funds will be calculated as
set forth below. Total return and yield are computed separately for each class
of shares of the Funds.
The Funds' performance is shown below, and where is noted, reflects the
voluntary measures by the Funds' affiliates to reduce fees or expenses relating
to the Funds; see "Accrued Expenses" later in this section.
Total Return
The total returns ("standard total return") of each class of the Funds'
shares currently being offered were as follows:
Commencement
of Operations One Year
(September 28, 1993) Ended
to October 31, 1995 October 31, 1995
------------------- ----------------
With Without With Without
Subsidy Subsidy Subsidy Subsidy
------- ------- ------- -------
Strategic Portfolios: Moderate
Class C 6.19% 5.55% 15.24% 14.40%
39
<PAGE>
Commencement of Operations One Year
(May 16, 1994) to Ended
October 31, 1995 October 31, 1995
---------------------------------------------------
With Without With Without
Subsidy Subsidy Subsidy Subsidy
------- ------- ------- -------
Strategic Portfolios: Conservative
Class A 7.99% 7.36% 10.63% 10.03%
Class C 11.69% 11.07% 16.11% 15.53%
Strategic Portfolios: Aggressive
Class A 8.04% 7.82% 9.34% 9.13%
Class C 11.80% 11.57% 14.85% 14.62%
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 maximum
initial or contingent deferred sales charge applicable to the investment is
deducted, and that all dividends and distributions by the Funds are reinvested
at net asset value on the reinvestment dates during the periods. All accrued
expenses are also taken into account as described later herein.
40
<PAGE>
Yield
- -----
The annualized yield of each class of shares of the Funds currently being
offered, based on the month of October 1995, was as follows:
With Subsidy Without Subsidy
------------ ---------------
Strategic Portfolios: Conservative
Class A 4.20% 3.36%
Class C 4.65% 3.77%
Strategic Portfolios: Moderate
Class C 3.05% 2.14%
Strategic Portfolios:Aggressive
Class A 1.34% 0.70%
Class C 1.69% 1.03%
Yield is computed separately for each class of shares by dividing the net
investment income per share earned during a recent month or other specified
30-day period by the maximum offering price per share on the last day of the
period and annualizing the result in accordance with the following formula:
YIELD = 2[(a-b\+\1)6\-1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of voluntary
expense reductions by the Investment Manager)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, a Fund computes the yield to maturity of each obligation held by
such Fund based on the market value of the obligation (including actual accrued
interest) at the close of the last business day of the preceding period, or,
with respect to obligations purchased during the period, the purchase price
(plus actual accrued interest). The yield to maturity is then divided by 360 and
the
41
<PAGE>
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"), each Fund accounts for gain or
loss attributable to actual monthly paydowns as realized capital gain or loss
during the period. Each 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 a Fund's performance, but because
yields fluctuate, such information cannot necessarily be used to compare an
investment in a Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often are insured and/or provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that yield is a function of the kind and quality of the instruments in the
Fund's portfolio, portfolio maturity and operating expenses and market
conditions.
Accrued Expenses
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return and yield results take sales charges, if applicable, into
account, although the results do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by affiliates
of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Funds would have been lower.
Nonstandardized Total Return
A Fund may provide the above described standard total return results for
Class A, Class B, Class C and Class D shares for periods which end no earlier
than the most recent calendar quarter end and which begin twelve months before
and at the time of commencement
42
<PAGE>
of such Fund's operations. In addition, the
Funds may provide nonstandardized total return results for differing periods,
such as for the most recent six months, and/or without taking sales charges into
account. Such nonstandardized total return is computed as otherwise described
under "Total Return" except the result may or may not be annualized, and, as
noted, any applicable sales charge may not be taken into account and therefore
not deducted from the hypothetical initial payment of $1,000 or ending value.
For example, the nonstandard total returns of each class of shares currently
being offered, without taking sales charges into account, were as follows:
Six Months ended October 31, 1995
---------------------------------
With Subsidy Without Subsidy
------------ ---------------
Strategic Portfolios: Moderate
Class C 9.16% 8.78%
Strategic Portfolios: Conservative
Class A 8.84% 8.58%
Class C 8.95% 8.69%
Strategic Portfolios: Aggressive
Class A 10.11% 10.01%
Class C 10.31% 10.21%
Distribution Rates
A Fund may also quote its distribution rate for each class of shares. The
distribution rate is calculated by annualizing the latest per-share distribution
from ordinary income and dividing the result by the maximum offering price per
share as of the end of the period. 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 a 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
43
<PAGE>
is calculated in part by dividing the latest distribution by the offering price,
which is based on net asset value plus any applicable sales charge, the
distribution rate will increase as the net asset value declines. A distribution
rate can be greater than the yield rate calculated as described above.
The distribution rate of each class of shares of the Funds currently being
offered, based on the month ended October 31, 1995, was as follows:
Strategic Portfolios: Conservative
Class A 3.62%
Class C 3.98%
Strategic Portfolios: Moderate
Class C 2.73%
Strategic Portfolios: Aggressive
Class A 1.40%
Class C 1.61%
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Funds' cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Funds' investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or any of its affiliates.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing professional services
including (1) audits of the Funds' annual financial statements, (2) assistance
and consultation in connection with Securities and Exchange Commission filings
and (3) review of the annual income tax returns filed on behalf of the Funds.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a semiannual
basis, other supplementary financial reports may be made available from time to
time and holders of
44
<PAGE>
record may request a copy of a current supplementary report,
if any, by calling State Street Research Shareholder Services.
The following financial statements are for the Funds' fiscal year ended
October 31, 1995.
236749.c2
12/15/95
45
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
Investment Portfolio
- --------------------------------------------------------------------------------
October 31, 1995
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
EQUITY SECURITIES 75.8%
Basic Industries 12.4%
Chemical 4.1%
Atlantic Richfield Co. 13,000 $ 290,875
Cambrex Corp. 2,100 80,062
Ciba-Geigy AG ADR* 5,800 251,140
Cytec Industries, Inc. 6,700 366,825
FMC Corp.* 3,900 279,338
L'Air Liquide* 1,100 184,454
Mallinckrodt Group, Inc. 1,200 41,700
Monsanto Co. 2,700 282,825
Potash Corp. of Saskatchewan Inc. 3,000 208,875
Rohm & Haas Co. 9,500 524,875
----------
2,510,969
----------
Diversified 1.3%
Cardo AB* 20,000 310,213
Johnson Controls, Inc. 2,500 145,625
Mark IV Industries, Inc. 6,715 130,942
Nippon Electric Glass Co. Ltd.* 10,000 184,760
U.S. Industries, Inc.* 275 4,125
----------
775,665
----------
Electrical Equipment 0.8%
General Electric Co. 3,800 240,350
Philips Electronics NV 5,700 220,162
----------
460,512
----------
Forest Product 0.9%
Aracruz Celulose ADR* 20,000 180,000
Champion International Corp. 3,800 203,300
Crown Vantage, Inc.* 210 4,174
Nippon Paper Industries Co.* 25,000 171,807
----------
559,281
----------
Machinery 3.0%
Cincinnati Milacron, Inc. 7,400 190,550
Elsag Bailey Process Automation NV 6,900 188,025
Fluor Corp. 3,700 209,050
Harnischfeger Industries, Inc. 1,000 31,500
Kajima Corp.* 18,000 166,108
Linde AG* 546 335,528
Millipore Corp. 4,200 148,575
Minebea Co. Ltd.* 22,000 178,503
Pall Corp. 7,300 177,938
Sundstrand Corp. 2,900 177,625
Terex Corp. Rts.* 300 90
----------
1,803,492
----------
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Metal & Mining 2.3%
Alumax, Inc.* 7,900 $ 233,050
Bohler Uddeholm* 3,100 218,533
Cyprus Amax Minerals Co. 5,700 148,912
Reynolds Metals 3,700 186,388
RTZ Corp. PLC 17,500 242,371
SGL Carbon AG* 5,700 373,764
----------
1,403,018
----------
Total Basic Industries 7,512,937
----------
Consumer Cyclical 13.0%
Airline 0.1%
Midwest Express Holdings, Inc.* 2,700 67,837
----------
Automotive 3.2%
Cooper Tire & Rubber Co. 3,800 87,875
Douglas & Lomason Co. 2,200 24,200
Exide Corp. 9,500 416,813
Federal-Mogul Corp. 15,000 268,125
Ford Motor Co. 3,600 103,500
Ford Motor Co. Series A Cv. Pfd. 2,500 235,000
Lear Seating Corp.* 23,000 638,250
Michelin Cl. B 3,900 157,512
----------
1,931,275
----------
Building 0.6%
Fleetwood Enterprises, Inc. 4,300 88,150
La Farge Corp. 5,100 89,250
Owens-Corning Fiberglas Corp. 4,600 194,925
----------
372,325
----------
Hotel & Restaurant 1.5%
Au Bon Pain Company, Inc.* 4,500 34,313
Circus Circus Enterprises, Inc.* 6,100 162,412
Darden Restaurants, Inc.* 5,000 56,875
Harrah's Entertainment, Inc.* 8,000 198,000
Main Street and Main, Inc.* 8,600 32,250
Mirage Resorts, Inc.* 4,500 147,375
Motel of America, Inc.*++ 175 13,125
Outback Steakhouse, Inc.* 3,000 94,125
Primadonna Resorts, Inc.* 3,200 50,000
Station Casinos, Inc.* 9,300 120,900
Studio Plus Hotels, Inc.* 900 17,550
----------
926,925
----------
Recreation 2.3%
Argyle Television, Inc. Series A* 3,400 57,800
Boomtown, Inc. Wts.* 165 66
Capital Cities/ABC, Inc. 800 94,900
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------
Recreation (cont'd)
Comcast Corp. Cl. A 6,800 $ 120,700
Emmis Broadcasting Corp.* 1,800 47,700
Infinity Broadcasting Corp. Cl. A* 5,350 173,875
Mattel Inc. 5,625 161,719
Renaissance Communications Corp.* 6,700 149,912
Sodak Gaming, Inc.* 2,200 40,150
Time Warner, Inc. 4,000 146,000
Time Warner Financing Trust 3,800 121,600
Viacom, Inc. Cl. B* 1,500 75,000
Walt Disney Co. 3,700 213,213
----------
1,402,635
----------
Retail Trade 4.5%
Department 56, Inc.* 4,100 186,038
Federated Department Stores, Inc.* 16,500 418,687
Grand Union Co.* 3,093 33,250
Gymboree Corp.* 7,400 167,425
Home Depot, Inc. 6,600 245,850
Intimate Brands, Inc. Cl. A* 2,000 33,500
May Department Stores Co. 2,800 109,900
Office Depot, Inc.* 5,300 151,712
J.C. Penney, Inc. 1,900 80,037
Tandy Corp.* 5,200 256,750
Toys 'R Us, Inc. 6,600 144,375
Viking Office Products, Inc.* 3,500 155,750
Vons Companies, Inc.* 700 17,762
Wal-Mart Stores, Inc. 13,000 281,125
Woolworth Corp. 29,800 435,825
----------
2,717,986
----------
Textile & Apparel 0.8%
Authentic Fitness Corp.* 8,700 178,350
Norton McNaughton, Inc.* 5,800 114,550
Warnaco Group, Inc. Cl. A* 6,900 160,425
----------
453,325
----------
Total Consumer Cyclical 7,872,308
----------
Consumer Staple 13.6%
Business Service 2.5%
ADT Ltd.* 21,000 294,000
American Oncology Resources, Inc.* 800 21,700
Computer Horizons Corp.* 5,500 143,000
Eltron International, Inc.* 3,200 104,000
First Data Corp. 5,000 330,625
Global Direct Mail Corp.* 8,600 234,350
Integrated System, Inc.* 2,300 80,500
Personnel Group of America, Inc.* 9,500 123,500
Premenos Technologies Corp.* 3,400 133,450
Syncronys Softcorp 2,000 16,000
----------
1,481,125
----------
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Container 0.1%
Owens-Illinois Inc. 4,700 $ 59,337
----------
Drug 2.0%
Arris Pharmaceutical Corp.* 5,600 65,800
CytoTherapeutics, Inc.* 4,300 44,075
Eli Lilly & Co. 1,394 134,695
Merck & Company, Inc. 9,600 552,000
Pfizer, Inc. 6,200 355,725
Schering AG 1,000 69,764
----------
1,222,059
----------
Food & Beverage 3.2%
Anheuser-Busch, Inc. 3,800 250,800
Arnotts Ltd.* 38,000 254,723
Campbell Soup Co. 3,300 172,838
Coca-Cola Co. 1,900 136,562
Coca-Cola Enterprises, Inc. 12,200 324,825
LVMH Moet Hennessy Louis Vuitton ADR* 1,500 298,460
PepsiCo, Inc. 3,700 195,175
Whitman Corp. 13,800 293,250
----------
1,926,633
----------
Hospital Supply 4.1%
Abbott Laboratories 9,300 369,675
American Home Patient, Inc.* 6,600 160,050
American Medical Response, Inc.* 4,500 129,937
Columbia/HCA Healthcare Corp.* 1,800 88,425
Community Care of America, Inc.* 8,200 110,700
Community Health Systems, Inc.* 5,800 184,150
HealthCare Compare Corp.* 100 3,700
I Stat Corp.* 3,300 102,300
Johnson & Johnson 2,800 228,200
Lincare Holdings, Inc.* 6,200 154,225
Maxicare Health Plans, Inc.* 6,900 119,888
Medtronic, Inc. 2,200 127,050
Multicare Cos., Inc.* 1,400 26,250
Orthologic Corp. 6,800 65,450
Roche Holdings AG 30 218,004
Rotech Medical Corp.* 6,500 147,875
United Healthcare Corp. 4,200 223,125
----------
2,459,004
----------
Personal Care 0.7%
Procter & Gamble Co. 5,000 405,000
U.S.A. Detergents, Inc.* 1,900 48,450
----------
453,450
----------
Printing & Publishing 0.3%
American Greetings Corp. 5,400 170,100
----------
Tobacco 0.7%
Philip Morris Cos., Inc. 5,400 456,300
----------
Total Consumer Staple 8,228,008
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
Investment Portfolio (cont'd)
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Energy 6.0%
Oil 5.1%
Abacan Resource Corp. 17,600 $ 43,351
Amerada Hess Corp. 2,300 103,788
Ashland Oil, Inc. 1,800 56,925
Tom Brown, Inc.* 4,800 53,400
Exxon Corp. 3,800 290,225
Global Natural Resources, Inc.* 5,300 53,000
Imperial Oil Ltd. 5,700 208,050
Louisiana Land & Exploration Co. 10,600 374,975
Nuevo Energy Co.* 5,400 119,475
Phillips Petroleum Co. 5,000 161,250
Plains Resources, Inc.* 5,900 40,194
Ranger Oil Ltd.* 17,200 98,900
Repsol S.A.* 7,000 209,045
Swift Energy Co.* 16,400 145,550
Tosco Corp. 8,800 303,600
Total S.A.* 4,610 284,890
Total S.A. Cl. B ADR 4,732 146,100
Ultramar Corp. 600 14,625
Union Pacific Resources Group, Inc.* 5,000 113,750
Woodside Petroleum Ltd. ADR* 51,300 245,793
----------
3,066,886
----------
Oil Service 0.9%
Coflexip* 6,043 171,153
Landmark Graphics Corp.* 6,500 141,375
Schlumberger Ltd. 3,600 224,100
----------
536,628
----------
Total Energy 3,603,514
----------
Finance 8.2%
Bank 2.9%
Banco Industrial Colombiano ADR 25,500 347,438
BankAmerica Corp. 3,500 201,250
Bank of New York Company, Inc. 1,700 71,400
Chase Manhattan Corp. 4,000 228,000
Citicorp 7,300 473,587
Mellon Bank Corp. 1,200 60,150
Sparbanken Sverige AB++ 11,800 124,386
West One Bancorp 5,500 233,750
----------
1,739,961
----------
Financial Service 2.2%
Amoy Properties Ltd.* 100,000 96,356
Bear Stearns Companies, Inc. 5,000 99,375
Federal Home Loan Mortgage Corp. 9,800 678,650
Federal National Mortgage Association 3,500 367,063
Money Store, Inc. 1,600 64,000
United Cos. Financial Corp. 820 23,165
----------
1,328,609
----------
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Insurance 3.1%
Ace Ltd. 9,200 $ 312,800
Ambac, Inc. 3,400 143,225
American Re Corp.* 6,100 233,325
Equitable Companies, Inc. 6,400 136,000
Mid Ocean Ltd.* 8,900 314,838
Mutual Risk Management Ltd. 3,400 125,375
NAC Re Corp. 4,100 144,013
National Re Corp. 3,700 124,412
Progressive Corp. Ohio 1,000 41,500
Safeco Corp. 4,400 282,425
----------
1,857,913
----------
Total Finance 4,926,483
----------
Science & Technology 18.9%
Aerospace 2.1%
Boeing Co. 10,500 689,062
Honeywell, Inc. 1,700 71,400
Raytheon Co. 7,000 305,375
Sequa Corp. Cl. A 8,000 206,000
----------
1,271,837
----------
Computer Software & Service 5.6%
Cheyenne Software, Inc.* 9,800 204,575
Cisco Systems, Inc.* 3,300 255,750
Computervision Corp. 68,600 806,050
Cooper & Chyan Technology, Inc.* 500 5,500
Datastream Systems, Inc.* 6,000 133,500
ESS Technology, Inc.* 4,100 123,000
General Motors Corp. Cl. E 3,400 160,225
Hyperion Software Corp. 3,100 152,675
Intersolv, Inc. 12,900 203,175
Mattson Technologies, Inc. 4,000 88,000
Microsoft Corp. 2,600 260,000
On Technologies Corp.* 6,800 81,600
Parametric Technology Corp. 1,000 67,000
SAP AG ADR++ 7,300 372,300
Softkey Software Products, Inc. 6,200 195,300
Teltrend, Inc.* 500 14,938
3Com Corp.* 1,400 65,800
Western Digital Corp.* 8,800 136,400
Wonderware Corp. 500 15,875
----------
3,341,663
----------
Electronic Components 2.6%
AMP, Inc. 8,200 321,850
BBC Brown Boveri AG* 165 191,408
Cyrix Corp.* 3,700 118,400
Intel Corp.* 2,400 167,700
Kyocera Corp.* 3,000 245,760
Thomas & Betts Corp. 1,900 122,787
Trident Microsystems, Inc.* 6,200 187,550
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Electronic Components (cont'd)
US Order, Inc.* 7,100 $ 106,500
VLSI Technology, Inc.* 3,900 91,650
----------
1,553,605
----------
Electronic Equipment 4.8%
Applied Materials, Inc.* 1,200 60,150
Electroglas, Inc.* 2,400 168,600
L.M. Ericsson Telephone Co. Cl. B ADR* 10,230 218,506
L.M. Ericsson Telephone Co. Cl. B 21,920 465,428
General Motors Corp. Cl. H 3,600 151,200
Itron, Inc.* 4,300 124,700
Motorola, Inc. 1,700 111,563
Nokia Corp.* 7,800 446,228
Perkin-Elmer Corp. 15,300 537,413
Tekelec, Inc.* 6,900 100,050
Tektronix, Inc. 2,600 154,050
Tencor Instruments, Inc.* 3,800 161,975
Tokyo Electronics Ltd.* 5,000 217,019
----------
2,916,882
----------
Office Equipment 3.8%
Broadway & Seymour, Inc.* 5,500 89,375
Diebold, Inc. 700 37,100
Digital Equipment Corp.* 3,000 162,375
FileNet Corp.* 4,600 208,725
Fujitsu Ltd.* 40,000 477,052
Hewlett-Packard Co. 2,700 250,088
International Business Machines Corp. 4,000 389,000
SCI Systems, Inc.* 4,700 165,087
Sequent Computer Systems, Inc.* 5,000 86,875
Xerox Corp. 3,300 428,175
----------
2,293,852
----------
Total Science & Technology 11,377,839
----------
Utility 3.7%
Natural Gas 1.4%
Coastal Corp. 9,000 291,375
ENSERCH Corp. 18,700 271,150
Tenneco, Inc. 2,600 114,075
TransTexas Gas Corp.* 10,700 171,200
----------
847,800
----------
Telephone 2.3%
AT&T Corp. 3,900 249,600
AirTouch Communications, Inc.* 9,000 256,500
Allen Group 3,700 90,650
Korea Mobile Telecom GDR* 5,200 191,100
Southern New England Telecom Corp. 3,900 140,888
Sprint Corp.* 3,800 138,700
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Telephone (cont'd)
Telecom Italia Mobile SPA* 195,000 $ 216,530
Tel-Save Holdings, Inc.* 6,000 83,250
----------
1,367,218
----------
Total Utility 2,215,018
----------
Total Equity Securities (Cost $40,071,390) 45,736,107
----------
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date
- --------------------------------------------------------------------------------
FIXED INCOME SECURITIES 20.8%
U.S. Treasury 4.0%
U.S. Treasury Bond, 12.00% $250,000 8/15/2013 375,040
U.S. Treasury Bond, 8.125% 275,000 8/15/2021 332,577
U.S. Treasury Bond, 6.25% 225,000 8/15/2023 219,901
U.S. Treasury Note, 8.50% 200,000 5/15/1997 208,374
U.S. Treasury Note, 6.75% 375,000 5/31/1999 386,719
U.S. Treasury Note, 7.125% 100,000 9/30/1999 104,609
U.S. Treasury Note, 6.875% 75,000 3/31/2000 78,070
U.S. Treasury Note, 7.50% 175,000 11/15/2001 189,247
U.S. Treasury Note, 6.375% 150,000 8/15/2002 153,867
U.S. Treasury Note, 6.25% 350,000 2/15/2003 356,181
----------
2,404,585
----------
U.S. Agency Mortgage 3.0%
Federal Home Loan Mortgage
Corp. Gold, 6.50% 131,657 7/01/2008 130,670
Federal Home Loan Mortgage
Corp. Series 1547-PJ PAC, 6.50% 50,000 3/25/2023 49,328
Federal Home Loan Mortgage
Corp. Gold, 7.00% 170,274 6/01/2024 168,943
Federal Home Loan Mortgage
Corp. Gold, 7.00% 193,740 12/01/2024 192,225
Federal Home Loan Mortgage
Corp. Gold, 7.50% 167,901 1/01/2025 169,737
Federal Home Loan Mortgage
Corp. Gold, 8.00%+ 100,000 11/13/2025 101,063
Government National Mortgage
Association, 8.00% 127,088 8/15/2008 130,742
Government National Mortgage
Association, 8.00% 271,936 10/15/2017 284,598
Government National Mortgage
Association, 8.00% 49,000 11/15/2017 50,409
Government National Mortgage
Association, 6.50% 242,950 7/15/2024 236,269
Government National Mortgage
Association, 7.00% 141,552 1/15/2025 140,579
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
Investment Portfolio (cont'd)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------
U.S. Agency Mortgage (cont'd)
Government National Mortgage
Association, 7.00% $ 25,226 9/15/2025 $ 25,053
Government National Mortgage
Association, 7.00% 25,000 10/15/2025 24,828
Government National Mortgage
Association, 6.00%+ 50,000 12/21/2025 50,047
Government National Mortgage
Association, 5.50%+ 50,000 12/21/2025 49,484
----------
1,803,975
----------
Canadian-Yankee 0.5%
British Columbia Hydroelectric
Authority Series FH, 15.50% 50,000 7/15/2011 56,356
Carter Holt Harvey Deb., 9.50% 75,000 12/01/2024 94,121
Hydro-Quebec Deb. Series HS, 9.40% 75,000 2/01/2021 89,795
Laidlaw Inc., Deb., 8.75% 50,000 4/15/2025 56,893
----------
297,165
----------
Trust Certificates 0.3%
Cooperative Utility Trust
Certificates, 10.70% 75,000 9/15/2007 84,381
Deseret Generation Cooperative
Trust Certificates, 10.11% 75,000 12/15/2017 83,689
----------
168,070
----------
Foreign Government 6.1%
Australian Dollar
Government of Australia, 7.50% 1,375,000 7/15/2005 960,479
Canadian Dollar
Government of Canada, 9.75% 100,000 12/01/2001 83,637
Government of Canada, 7.50% 100,000 12/01/2003 74,719
Danish Krone
Kingdom of Denmark, 8.00% 4,050,000 3/15/2006 745,662
French Franc
Government of France, 7.75% 950,000 4/12/2000 203,129
Government of France, 7.50% 500,000 4/25/2005 103,710
Deutsche Mark
Republic of Germany, 6.625% 950,000 7/09/2003 685,841
Italian Lira
Republic of Italy, 8.50% 245,000,000 4/01/1999 143,034
Republic of Italy, 10.00% 275,000,000 8/01/2003 160,152
Spanish Peseta
Government of Spain, 11.30% 37,500,000 8/30/2003 308,836
United Kingdom Treasury British Pound
Stock, 8.00% 125,000 6/10/2003 199,666
----------
3,668,865
----------
- -----------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------
Finance/Mortgage 1.4%
ASFS Corp. Series 94-C2
SR A-1, 8.00% $ 40,208 8/25/2010 $ 41,088
American General Finance
Corp. Notes, 8.00% 75,000 2/15/2000 79,519
Beneficial Corp. Mortgage
Note, 8.17% 75,000 11/09/1999 79,792
Discover Credit Card
Trust Series 1993-A, 6.25% 75,000 8/15/2000 75,328
First Chicago Credit Trust
Series 91-D, 8.40% 50,000 6/15/1998 50,625
Ford Credit Auto Loan Master
Trust Series 95-1, 6.50% 125,000 8/15/2002 126,250
General Electric Capital
Corp. Note, 7.625% 100,000 7/24/1996 101,280
General Motors Acceptance
Corp. Note, 7.85% 100,000 11/17/1997 103,284
General Motors Acceptance
Corp. Deb., 8.625% 75,000 6/15/1999 80,491
Household Affinity Master
Trust Series 94-1A, 6.275% 50,000 5/15/2001 49,906
Standard Credit Card Master
Trust Series 93-3A, 5.50% 75,000 1/07/1999 73,757
Tandy Master Trust
Series 1991-A, 8.25% 9,675 4/15/1999 9,700
----------
871,020
----------
Corporate 5.5%
Anacomp Inc. Sr. Sub.
Note, 15.00% [ ] 100,000 11/01/2000 73,000
Chevron Corp. Profit Sharing
Note, 8.11% 75,000 12/01/2004 81,546
Columbia/HCA Healthcare
Corp. Note, 6.87% 50,000 9/15/2003 50,186
Crown Packaging, Inc. Sr.
Note Series B, 10.75% 175,000 11/01/2000 167,125
Finlay Enterprises, Inc.
Sr. Disc. Deb., 0.00% to
4/30/98, 12.00% from 5/1/98
to maturity 40,000 5/01/2005 27,600
Grand Union Co. Sr. Sub.
Notes, 12.25% [ ] 175,000 7/15/2002 168,875
Haynes International Inc.
Sr. Sec. Notes, 11.25% 200,000 6/15/1998 193,600
Horsehead Industries, Inc.
Sub. Note, 14.00% 250,000 6/01/1999 255,000
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------
Corporate (cont'd)
K & F Industries, Inc. Sr.
Sub. Deb., 13.75% $ 250,000 8/01/2001 $ 259,375
K & F Industries, Inc. Sr.
Sec. Notes, 11.875% 30,000 12/01/2003 31,800
Loews Corp. Sr. Notes, 7.00% 50,000 10/15/2023 46,673
Magna International Inc.
Cv. Sub. Deb., 5.00% 83,000 10/12/2002 84,660
Marcus Cable Capital Co.
Sr. Disc. Note, 0.00% to
7/31/99, 13.50% from
8/1/99 to maturity 250,000 8/01/2004 173,438
Mobile Telecommunications
Tech. Sr. Notes, 13.50% 85,000 2/15/2000 96,687
Motels of America, Inc.
Sr. Sub. Notes, 12.00% 175,000 4/15/2004 175,438
Presidio Oil Co. Sr.
Sec. Notes Series B, 11.50% 200,000 9/15/2000 195,000
Ralphs Grocery Co.
Sr. Note, 10.45% 330,000 6/15/2004 330,825
Thermoscan, Inc. Floating
Rate Sr. Sub. Note, 11.50% 165,000 8/15/2001 170,156
United Meridian Corp. Sr.
Sub. Note, 10.375% 130,000 10/15/2005 132,600
Sappi BVI Finance Ltd. Co.
Note, 7.50%++ 585,000 8/12/2002 600,356
U.S.A. Mobile Communications,
Inc. Sr. Notes, 9.50% 65,000 2/01/2004 61,750
----------
3,375,690
----------
Total Fixed Income Securities (Cost $12,215,718) 12,589,370
----------
- -----------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------
SHORT-TERM OBLIGATIONS 4.0%
American Express Credit
Corp., 5.75% $ 559,000 11/2/1995 $ 559,000
Ford Motor Credit Co., 5.76% 1,842,000 11/6/1995 1,842,000
----------
Total Short-Term Obligations (Cost $2,401,000) 2,401,000
----------
Total Investments (Cost $54,688,108)--100.6% 60,726,477
Cash and Other Assets, Less Liabilities--(0.6)% (362,476)
----------
Net Assets--100.0% $60,364,001
==========
Federal Income Tax Information:
At October 31, 1995, the net unrealized appreciation
of investments based on cost for Federal income tax purposes
of $54,819,672 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost $ 7,618,498
Aggregate gross unrealized depreciation for all
investments in which there is an
excess of tax cost over value (1,711,693)
------------------
$ 5,906,805
==================
- --------------------------------------------------------------------------------
ADR and GDR stand for American Depositary Receipt and Global Depositary
Receipt, respectively, representing ownership of foreign securities.
* Nonincome-producing securities.
+ Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the
principal value has not been finalized and may vary by no more than 2%.
++ Security restricted in accordance with Rule 144A under the Securities Act
of 1933, which allows for the resale of such securities among certain
qualified buyers. The total cost and market value of Rule 144A securities
owned at October 31, 1995 were $1,037,780 and $1,110,167 (1.84% of net
assets), respectively.
[ ]Security is in default.
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
Investment Portfolio (cont'd)
- --------------------------------------------------------------------------------
Forward currency exchange contracts outstanding at October 31, 1995
are as follows:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Total Value Price (Depreciation) Date
--------------------------------------------- ---------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Sell Australian dollars, buy U.S. dollars 413,223 AUD .73840 AUD $ (9,393) 11/16/95
Sell Australian dollars, buy U.S. dollars 112,014 AUD .73790 AUD (2,602) 11/16/95
Sell Australian dollars, buy U.S. dollars 516,000 AUD .75600 AUD (1,491) 1/24/96
Sell Canadian dollars, buy U.S. dollars 168,000 CAD .73333 CAD (2,181) 11/16/95
Sell Canadian dollars, buy U.S. dollars 12,813 CAD .73551 CAD (138) 11/16/95
Sell Danish krone, buy U.S. dollars 1,178,000 DKK .17319 DKK (11,608) 11/16/95
Sell Danish krone, buy U.S. dollars 1,441,000 DKK .18299 DKK (186) 1/24/96
Sell Danish krone, buy U.S. dollars 1,173,000 DKK .18116 DKK (2,298) 1/24/96
Sell Deutsche mark, buy U.S. dollars 1,393,700 DEM .67476 DEM (50,511) 11/16/95
Sell U.S. dollars, buy Deutsche mark 486,800 DEM .67916 DEM 15,501 11/16/95
Sell Deutsche mark, buy U.S. dollars 840,000 DEM .69832 DEM (11,984) 1/05/96
Sell French francs, buy U.S. dollars 5,830,000 FRF .20145 FRF (16,466) 1/05/96
Sell U.S. dollars, buy French francs 984,860 FRF .20416 FRF 112 1/05/96
Sell French francs, buy U.S. dollars 654,400 FRF .20173 FRF (1,603) 1/24/96
Sell French francs, buy U.S. dollars 787,900 FRF .20138 FRF (2,209) 1/24/96
Sell Italian lira, buy U.S. dollars 234,000,000 ITL .00061 ITL (3,027) 11/16/95
Sell Italian lira, buy U.S. dollars 202,166,759 ITL .00062 ITL (1,859) 11/16/95
Sell Japanese yen, buy U.S. dollars 95,940,000 JPY .01002 JPY 13,063 1/05/96
Sell Pound sterling, buy U.S. dollars 119,100 GBP 1.53300 GBP (5,647) 11/16/95
Sell Spanish peseta, buy U.S. dollars 11,040,000 ESP .00810 ESP (908) 11/16/95
Sell Spanish peseta, buy U.S.dollars 1,125,000 ESP .00785 ESP (375) 11/16/95
Sell Spanish peseta, buy U.S. dollars 22,400,000 ESP .00789 ESP (6,536) 11/16/95
---------
$(102,346)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
October 31, 1995
Assets
Investments, at value (Cost $54,688,108) (Note 1) $60,726,477
Cash 405
Receivable for securities sold 1,950,917
Interest and dividends receivable 302,961
Receivable from Distributor (Note 3) 32,791
Receivable for open forward contracts 28,676
Receivable for fund shares sold 1,218
Deferred organization costs and other assets (Note 1) 43,787
----------
63,087,232
Liabilities
Payable for securities purchased 2,484,461
Payable for open forward contracts 131,022
Accrued management fee (Note 2) 38,846
Accrued transfer agent and shareholder services
(Note 2) 12,510
Accrued distribution fee (Note 5) 8,495
Accrued trustees' fees (Note 2) 4,126
Payable for fund shares redeemed 1,495
Other accrued expenses 42,276
----------
2,723,231
----------
Net Assets $60,364,001
==========
Net Assets consist of:
Undistributed net investment income $ 464,967
Unrealized appreciation of investments 6,038,369
Unrealized depreciation of forward contracts and
foreign currency (104,271)
Accumulated net realized gain 1,190,810
Shares of beneficial interest 52,774,126
----------
$60,364,001
==========
Net Asset Value and redemption price per share of
Class A shares ($39,555,477 / 3,619,245 shares of
beneficial interest) $10.93
==========
Maximum Offering Price per share of Class A shares
($10.93 / .955) $11.45
==========
Net Asset Value, offering price and redemption price
per share of Class C shares ($20,808,524 /
1,902,293 shares of beneficial interest) $10.94
==========
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
For the year ended October 31, 1995
Investment Income
Interest, net of foreign taxes of $4,498 $1,206,837
Dividends, net of foreign taxes of $13,183 618,228
---------
1,825,065
---------
Expenses
Management fee (Note 2) 414,353
Custodian fee 211,434
Distribution fee--Class A (Note 5) 98,009
Audit fee 32,490
Transfer agent and shareholder services (Note 2) 19,152
Reports to shareholders 16,585
Trustees' fees (Note 2) 14,219
Amortization of organization costs (Note 1) 7,482
Legal fees 742
Registration fees 4,255
Miscellaneous 6,579
---------
825,300
Expenses borne by the Distributor (Note 3) (119,174)
---------
706,126
---------
Net investment income 1,118,939
---------
Realized and Unrealized Gain
(Loss) on Investments, Foreign
Currency and Forward Contracts
Net realized gain on investments (Note 1 and 4) 1,620,123
Net realized gain on forward contracts and foreign
currency (Note 1) 257,026
---------
Total net realized gain 1,877,149
---------
Net unrealized appreciation of investments 4,740,960
Net unrealized depreciation of forward contracts and
foreign currency (43,664)
---------
Total net unrealized appreciation 4,697,296
---------
Net gain on investments, foreign currency and
forward contracts 6,574,445
---------
Net increase in net assets resulting from operations $7,693,384
=========
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
May 16, 1994
Year ended (Commencement of
October 31, Operations) to
1995 October 31, 1994
- --------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 1,118,939 $ 466,725
Net realized gain (loss) on
investments, foreign currency
and forward contracts 1,877,149 (492,265)
Net unrealized appreciation of
investments, foreign currency
and forward contracts 4,697,296 1,236,802
------------- -----------------
Net increase resulting from
operations 7,693,384 1,211,262
------------- -----------------
Dividends from net investment
income:
Class A (853,158) (209,424)
Class C (262,218) (513)
------------- -----------------
(1,115,376) (209,937)
------------- -----------------
Net increase from fund share
transactions (Note 6) 2,684,658 50,100,010
------------- -----------------
Total increase in net assets 9,262,666 51,101,335
Net Assets
Beginning of year 51,101,335 --
------------- -----------------
End of year (including
undistributed net investment
income of $464,967, and
$198,630, respectively) $60,364,001 $51,101,335
============= =================
* Net realized gain (loss) for
Federal income tax purposes
(Note 1) $ 1,314,496 $ (356,785)
============= =================
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
October 31, 1995
Note 1
State Street Research Strategic Portfolios: Aggressive (the "Fund"), is a
series of MetLife-State Street Financial Trust (the "Trust"), which was
organized as a Massachusetts business trust in November, 1986 and is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund commenced operations in May,
1994. The Trust consists presently of four separate funds: State Street
Research Strategic Portfolios: Aggressive, State Street Research Government
Income Fund, State Street Research Strategic Portfolios: Moderate and State
Street Research Strategic Portfolios: Conservative.
The Fund is authorized to issue four classes of shares. Only Class A and
Class C shares are presently available for purchase. Class B and Class D
shares are not being offered at this time. Class A shares are subject to an
initial sales charge of up to 4.50% and annual service fees of 0.25% of
average daily net assets. Class B shares will be subject to a contingent
deferred sales charge on certain redemptions made within five years of
purchase and pay annual distribution and service fees of 1.00%. Class B
shares automatically convert into Class A shares (which pay lower ongoing
expenses) at the end of eight years after the issuance of the Class B shares.
Class C shares are only offered to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Values for listed equity securities reflect final sales on national
securities exchanges quoted prior to the close of the New York Stock
Exchange. Over-the-counter securities quoted on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system are valued at
closing prices supplied through such system. If not quoted on the NASDAQ
system, such securities are valued at prices obtained from brokers. In the
absence of recorded sales, valuations are at the mean of the closing bid and
asked quotations. Fixed income securities are valued by a pricing service,
which utilizes market transactions, quotations from dealers, and various
relationships among securities in determining value. Short-term securities
maturing within sixty days are valued at amortized cost. Securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate.
54
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments.
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of
the Fund. Interest income is accrued daily as earned. Dividend income is
accrued on the ex-dividend date. Discount on debt obligations is amortized
under the effective yield method. The Fund is charged for expenses directly
attributable to it, while indirect expenses are allocated among all funds in
the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually,
unless additional distributions are required for compliance with applicable
tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund intends
to qualify under Subchapter M of the Internal Revenue Code and its policy is
to distribute all of its taxable income, including net realized capital
gains, within the prescribed time periods.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a
period of five years.
G. Forward Contracts and Foreign Currencies
The Fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange
contract is an obligation by the Fund to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the origination
date of the contract. Forward foreign currency exchange contracts establish
an exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar. The aggregate principal amount of forward currency exchange
contracts is recorded in the Fund's accounts. All commitments are
marked-to-market at the applicable transaction rates resulting in unrealized
gains or losses. The Fund records realized gains or losses at the time the
forward contracts are extinguished by entry into a closing contract or by
delivery of the currency. Neither spot transactions nor forward currency
exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the
price of these securities should decline.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life
Insurance Company ("Metropolitan"), have entered into an agreement under
which the Adviser earns monthly fees at an annual rate of 0.75% of the Fund's
average daily net assets. In consideration of these fees, the Adviser
furnishes the Fund with management, investment advisory, statistical and
research facilities and services. The Adviser also pays all salaries, rent
and certain other expenses of management. During the year ended October 31,
1995, the fees pursuant to such agreement amounted to $414,353.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance
of the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through
or under which shares of the Fund may be purchased. During the year ended
October 31, 1995, the amount of such expenses was $12,176.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $14,219 during the year ended October 31, 1995.
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended October 31, 1995, the amount of such expenses
assumed by the Distributor and its affiliates was $119,174.
Note 4
For the year ended October 31, 1995, purchases and sales of securities,
exclusive of short-term obligations, aggregated $68,892,104 and $65,158,426
(including $14,122,358 and $13,764,530 of U.S.
Government securities), respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
will pay annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund will pay annual distribution fees of 0.75% of average daily net assets
for Class B and Class D shares. The Distributor uses such payments for
personal service and/or the maintenance of shareholder accounts, to reimburse
securities dealers for distribution and marketing services, to furnish
ongoing assistance to investors and to defray a portion of its distribution
and marketing expenses. For the year ended October 31, 1995, fees pursuant to
such plan amounted to $98,009 for Class A shares.
55
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
Notes (cont'd)
- --------------------------------------------------------------------------------
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At October 31, 1995,
Metropolitan owned 3,619,222 Class A shares and 1,625,110 Class C shares of
the Fund and the Adviser owned one Class A share of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
May 16, 1994
(Commencement of
Year ended Operations) to
October 31, 1995 October 31, 1994
-------------------------- ------------------------
Class A Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 21 $ 191 5,235,603 $50,000,010
Shares repurchased (1,616,379) (15,000,000) -- --
-------- ---------- ------ ----------
Net increase (decrease) (1,616,358) $(14,999,809) 5,235,603 $50,000,010
======== ========== ====== ==========
Class C Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------
Shares sold 1,924,849 $ 18,026,952 10,471 $ 100,000
Issued upon reinvestment of
dividends 3,000 31,088 -- --
Shares repurchased (36,027) (373,573) -- --
-------- ---------- ------ ----------
Net increase 1,891,822 $ 17,684,467 10,471 $ 100,000
======== ========== ====== ==========
</TABLE>
56
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share outstanding throughout each year.
<TABLE>
<CAPTION>
Class A Class C
----------------------------------------- --------------------------------------
May 16, 1994 May 16, 1994
(Commencement of Year ended (Commencement of
Year ended Operations) to October 31, Operations) to
October 31, 1995** October 31, 1994 1995** October 31, 1994
------------------------------------------- ------------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $9.74 $ 9.55 $ 9.74 $ 9.55
Net investment income* .20 .09 .22 .10
Net realized and unrealized gain on
investments, foreign currency and forward
contracts 1.19 .14 1.20 .14
Dividends from net investment income (.20) (.04) (.22) (.05)
----------------- ----------------- --------------- ----------------
Net asset value, end of year $10.93 $ 9.74 $ 10.94 $ 9.74
================= ================= =============== ================
Total return 14.49%+ 2.41%+++ 14.85%+ 2.50%+++
Net assets at end of year (000s) $39,555 $50,999 $20,809 $ 102
Ratio of operating expenses to average net
assets* 1.35% 1.35%++ 1.10% 1.10%++
Ratio of net investment income to average
net assets* 1.98% 2.01%++ 2.13% 2.26%++
Portfolio turnover rate 127.44% 37.75% 127.44% 37.75%
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) $ .02 $ .01 $ .02 $ .01
</TABLE>
- --------------------------------------------------------------------------------
++Annualized
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
**Per-share figures have been calculated using the average shares method.
57
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of MetLife-State Street
Financial Trust and the Shareholders of
State Street Research Strategic Portfolios: Aggressive
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research
Strategic Portfolios: Aggressive (a series of MetLife-State Street Financial
Trust, hereafter referred to as the "Trust") at October 31, 1995, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at October 31, 1995 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 8, 1995
58
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance
- --------------------------------------------------------------------------------
As of October 31, 1995, State Street Research Strategic Portfolios:
Aggressive held 76% of its assets in equities, 21% in fixed-income securities
and 3% in cash.
Stocks
Positive stock returns helped the portfolio's performance. Large-cap and
value stocks made up the largest equity holdings. Large-cap growth stocks
performed strongly, value stocks less so. International equities demonstrated
improved performance after a slow start at the beginning of the Fund's year.
Small-cap growth stocks underperformed for most of the period, hurting
overall performance somewhat. International equities and small-cap growth
stocks both represented small portions of the Fund, however.
Bonds
Overall, the Fund's fixed-income holdings performed well. The largest
position was in high-grade bonds, which gave strong performance. High-yield
and international bonds performed below expectations, but weren't heavily
weighted in the portfolio.
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. "A" share returns reflect the maximum
4.5% sales charge. "C" shares, offered without a sales charge, are available
only to certain employee benefit plans and institutions. The Standard &
Poor's 500 Composite Index (S&P 500) includes 500 widely traded common stocks
and is a commonly used measure of U.S. stock market performance. The Lehman
Brothers Government/Corporate Bond Index is a commonly used index of bond
market performance. The indices are unmanaged and do not take sales charges
into consideration. Direct investment in the indices is not possible; results
are for illustrative purposes only. Performance results for the Fund are
increased by the Distributor's voluntary reduction of Fund fees and expenses.
In the box in the chart at the right, the first figure reflects expense
reduction; the second shows what results would have been without
subsidization.
Comparison Of Change In Value Of A $10,000
Investment In Strategic Portfolios: Aggressive,
The S&P 500 And The Lehman Brothers
Government/Corporate Bond Index
Class A Shares
Average Annual Total Return
1 Year Life of Fund
+9.34%/+9.13% +8.04%/+7.82%
Strategic S&P Lehman Brothers
Portfolios: 500 Govt./Corp
Aggressive Index Index
5/16/94 9550 10000 10000
10/31/94 9780 10549 10006
10/31/95 11198 13334 11622
Class C Shares
Average Annual Total Return
1 Year Life of Fund
+14.85%/+14.62% +11.80%/+11.57%
Strategic S&P Lehman Brothers
Portfolios: 500 Govt./Corp
Aggressive Index Index
5/16/94 10000 10000 10000
10/31/94 10250 10549 10006
10/31/95 11772 13334 11622
59
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
Investment Portfolio
- --------------------------------------------------------------------------------
October 31, 1995
- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
EQUITY SECURITIES 51.0%
Basic Industries 9.1%
Chemical 3.2%
Atlantic Richfield Co. 6,200 $ 138,725
Cambrex Corp. 800 30,500
Ciba-Geigy AG ADR* 2,900 125,570
Cytec Industries, Inc. 3,500 191,625
FMC Corp.* 2,000 143,250
L'Air Liquide* 500 83,843
Mallinckrodt Group, Inc. 700 24,325
Monsanto Co. 1,500 157,125
Potash Corp. of Saskatchewan Inc. 1,500 104,437
Rohm & Haas Co. 4,900 270,725
----------
1,270,125
----------
Diversified 1.0%
Cardo AB* 10,100 156,658
Johnson Controls, Inc. 1,300 75,725
Mark IV Industries, Inc. 3,545 69,127
Nippon Electric Glass Co. Ltd.* 4,000 73,904
U.S. Industries, Inc.* 125 1,875
----------
377,289
----------
Electrical Equipment 0.5%
General Electric Co. 1,900 120,175
Philips Electronic NV 2,400 92,700
----------
212,875
----------
Forest Product 0.6%
Aracruz Celulose ADR 8,500 76,500
Champion International Corp. 1,800 96,300
Crown Vantage, Inc.* 110 2,186
Nippon Paper Industries Co.* 10,000 68,723
----------
243,709
----------
Machinery 2.1%
Cincinnati Milacron, Inc. 4,100 105,575
Elsag Bailey Process Automation NV* 3,100 84,475
Fluor Corp. 1,400 79,100
Harnischfeger Industries, Inc. 500 15,750
Kajima Corp.* 7,000 64,597
Linde AG* 255 156,703
Millipore Corp. 1,800 63,675
Minebea Co. Ltd.* 10,000 81,138
Pall Corp. 3,800 92,625
Sundstrand Corp. 1,500 91,875
Terex Corp. Rts. 150 45
----------
835,558
----------
- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
Metal & Mining 1.7%
Alumax, Inc.* 4,100 $ 120,950
Bohler Uddeholm* 1,400 98,692
Cyprus Amax Minerals Co. 2,900 75,763
RTZ Corp. PLC* 8,500 117,723
Reynolds Metals Co. 1,900 95,712
SGL Carbon AG* 2,600 170,489
----------
679,329
----------
Total Basic Industries 3,618,885
----------
Consumer Cyclical 8.5%
Airline 0.1%
Midwest Express Holdings, Inc.* 800 20,100
----------
Automotive 2.1%
Cooper Tire & Rubber Co. 1,700 39,313
Douglas & Lomason Co. 1,100 12,100
Exide Corp. 4,100 179,887
Federal-Mogul Corp. 7,100 126,913
Ford Motor Co. 3,800 109,250
Lear Seating Corp.* 10,600 294,150
Michelin Cl. B* 1,500 60,581
----------
822,194
----------
Building 0.5%
Fleetwood Enterprises, Inc. 2,300 47,150
Lafarge Corp. 2,700 47,250
Owens-Corning Fiberglas Corp.* 2,300 97,463
----------
191,863
----------
Hotel & Restaurant 0.9%
Au Bon Pain Co., Inc.* 1,100 8,388
Circus Circus Enterprises, Inc.* 2,500 66,562
Darden Restaurants, Inc.* 2,700 30,713
Harrah's Entertainment, Inc.* 4,350 107,662
Main Street and Main, Inc.* 2,400 9,000
Mirage Resorts, Inc.* 2,300 75,325
Motels of America, Inc.*++ 75 5,625
Outback Steakhouse, Inc.* 700 21,963
Primadonna Resorts, Inc.* 900 14,062
Station Casinos, Inc.* 2,500 32,500
Studio Plus Hotels, Inc.* 300 5,850
----------
377,650
----------
Recreation 1.5%
Argyle Television, Inc. Series A* 800 13,600
Boomtown, Inc. Wts.* 85 34
Capital Cities/ABC, Inc. 400 47,450
Comcast Corp. Cl. A 2,400 42,600
Comcast Corp. Cl. A Special 1,000 17,875
Walt Disney Co. 1,800 103,725
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
Recreation (cont'd)
Emmis Broadcasting Corp. Cl. A * 500 $ 13,250
Gaylord Entertainment Co. Cl. A 1,260 32,445
Infinity Broadcasting Corp. Cl. A* 1,900 61,750
Mattel Inc. 2,550 73,312
Renaissance Communications Corp.* 1,650 36,919
Sodak Gaming, Inc.* 300 5,475
Time Warner, Inc. 1,700 62,050
Time Warner Financing Trust 2,000 64,000
Viacom, Inc. Cl. B* 700 35,000
----------
609,485
----------
Retail Trade 3.1%
Department 56, Inc.* 1,000 45,375
Federated Department Stores, Inc.* 8,600 218,225
Grand Union Co.* 1,326 14,255
Gymboree Corp.* 1,900 42,987
Home Depot, Inc. 3,300 122,925
Intimate Brands, Inc. Cl. A* 700 11,725
May Department Stores Co. 1,400 54,950
Office Depot, Inc.* 2,500 71,563
J.C. Penney, Inc. 1,000 42,125
Tandy Corp. 2,700 133,312
Toys 'R Us, Inc.* 3,300 72,188
Viking Office Products, Inc.* 900 40,050
Vons Cos., Inc.* 300 7,612
Wal-Mart Stores, Inc. 6,000 129,750
Woolworth Corp. 15,400 225,225
----------
1,232,267
----------
Textile & Apparel 0.3%
Authentic Fitness Corp. 2,200 45,100
Norton McNaughton, Inc.* 1,500 29,625
Warnaco Group, Inc. Cl. A 1,700 39,525
----------
114,250
----------
Total Consumer Cyclical 3,367,809
----------
Consumer Staple 8.6%
Business Service 1.3%
ADT Ltd.* 11,000 154,000
American Oncology Resources, Inc.* 200 6,950
Computer Horizons Corp.* 1,100 28,600
Eltron International Inc.* 800 26,000
First Data Corp. 2,000 132,250
Global DirectMail Corp.* 2,200 59,950
Integrated System, Inc.* 600 21,000
Personnel Group of America, Inc.* 2,600 33,800
Premenos Technologies, Corp.* 800 31,400
Syncronys Softcorp* 700 5,600
----------
499,550
----------
- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
Container 0.1%
Owens-Illinois Inc. 2,400 $ 30,300
----------
Drug 1.4%
Arris Pharmaceutical Corp.* 2,000 23,500
Cyto Therapeutics, Inc.* 1,600 16,400
Eli Lilly & Co. 730 70,536
Merck & Company, Inc. 4,300 247,250
Pfizer, Inc. 2,800 160,650
Schering AG* 400 27,906
----------
546,242
----------
Food & Beverage 2.5%
Anheuser-Busch, Inc. 1,900 125,400
Arnotts Ltd. Ord.* 20,000 134,065
Campbell Soup Co. 1,800 94,275
Coca-Cola Co. 1,200 86,250
Coca-Cola Enterprises, Inc. 7,000 186,375
LVMH Moet Hennessy Louis Vuitton ADR* 600 119,384
PepsiCo., Inc. 1,900 100,225
Whitman Corp. 7,200 153,000
----------
998,974
----------
Hospital Supply 2.1%
Abbott Laboratories 3,900 155,025
American Homepatient, Inc.* 1,700 41,225
American Medical Response, Inc.* 900 25,988
Columbia/HCA Healthcare Corp.* 700 34,387
Community Care of America, Inc.* 3,000 40,500
Community Health Systems, Inc.* 1,500 47,625
Healthcare Compare Corp.* 100 3,700
I Stat Corp.* 800 24,800
Johnson & Johnson 1,200 97,800
Lincare Holdings, Inc.* 1,700 42,288
Maxicare Health Plans, Inc.* 1,500 26,062
Medtronic, Inc. 1,000 57,750
Multicare Companies, Inc.* 300 5,625
Orthologic Corp.* 1,700 16,362
Roche Holding AG* 10 72,668
Rotech Medical Corp.* 1,600 36,400
United Healthcare Corp. 2,200 116,875
----------
845,080
----------
Personal Care 0.5%
Procter & Gamble Co. 2,300 186,300
U.S.A. Detergents, Inc.* 500 12,750
----------
199,050
----------
Printing & Publishing 0.2%
American Greeting Cl. A 3,100 97,650
----------
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
Investment Portfolio (cont'd)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
Tobacco 0.5%
Philip Morris Cos., Inc. 2,400 $ 202,800
----------
Total Consumer Staple 3,419,646
----------
Energy 4.0%
Oil 3.4%
Abacan Resource Corp.* 6,500 16,010
Amerada Hess Corp. 1,200 54,150
Ashland, Inc. 1,000 31,625
Tom Brown, Inc.* 400 4,450
Exxon Corp. 1,600 122,200
Global Natural Resources, Inc.* 2,000 20,000
Imperial Oil Ltd. 2,700 98,550
Louisiana Land & Exploration Co. 5,500 194,563
Lyondell Petrochemical Co. 500 4,275
Nuevo Energy Co.* 1,500 33,187
Phillips Petroleum Co. 2,700 87,075
Plains Resources, Inc.* 2,200 14,987
Ranger Oil Ltd.* 3,000 17,250
Repsol S.A.* 3,500 104,523
Swift Energy Co.* 5,400 47,925
Tosco Corp. 4,200 144,900
Total S.A. Cl. B* 2,049 126,625
Total S.A. ADR 2,057 63,510
Ultramar Corp. 300 7,312
Union Pacific Resources Group, Inc.* 2,900 65,975
Woodside Petroleum Ltd. ADR* 25,000 119,782
----------
1,378,874
----------
Oil Service 0.6%
Coflexip* 3,022 85,591
Landmark Graphics Corp.* 1,800 39,150
Schlumberger Ltd. 1,800 112,050
----------
236,791
----------
Total Energy 1,615,665
----------
Finance 6.4%
Bank 2.5%
Banco Industrial Colombiano S.A. ADR 13,500 183,938
Bank of New York Co., Inc. 900 37,800
BankAmerica Corp. 2,100 120,750
Chase Manhattan Corp. 2,100 119,700
Citicorp 3,600 233,550
Mellon Bank Corp. 700 35,087
Sparbanken Sverige AB*++ 12,500 131,765
West One Bancorp 2,900 123,250
----------
985,840
----------
- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
Financial Service 1.6%
Amoy Properties Ltd.* 39,000 $ 37,579
Bear Stearns Cos., Inc. 2,600 51,675
Federal Home Loan Mortgage Corp. 4,800 332,400
Federal National Mortgage Association 1,800 188,775
Money Store, Inc. 550 22,000
United Companies Financial Corp. 80 2,260
----------
634,689
----------
Insurance 2.3%
Ace Ltd. 4,800 163,200
Ambac, Inc. 1,800 75,825
American Re Corp.* 4,900 187,425
Equitable Companies, Inc. 3,200 68,000
Mid Ocean Ltd.* 4,600 162,725
Mutual Risk Management Ltd. 600 22,125
NAC Re Corp. 900 31,613
National Re Corp. 800 26,900
Progressive Corp. 500 20,750
SAFECO Corp. 2,400 154,050
----------
912,613
----------
Total Finance 2,533,142
----------
Science & Technology 11.8%
Aerospace 1.6%
Boeing Co. 5,800 380,625
Raytheon Co. 3,200 139,600
Sequa Corp. Cl. A* 3,400 87,550
Honeywell, Inc. 900 37,800
----------
645,575
----------
Computer Software & Service 3.2%
Cheyenne Software, Inc.* 2,500 52,188
Cisco Systems, Inc.* 1,600 124,000
Computervision Corp. 26,800 314,900
Cooper & Chyan Technology, Inc.* 100 1,100
Datastream Systems, Inc.* 1,500 33,375
ESS Technology, Inc.* 1,110 33,000
General Motors Corp. Cl. E 2,000 94,250
Hyperion Software Corp.* 1,100 54,175
Intersolv, Inc.* 3,200 50,400
Mattson Technologies, Inc.* 600 13,200
Microsoft Corp.* 1,300 130,000
OnTechnologies Corp.* 2,200 26,400
Parametric Technology Corp.* 500 33,500
SAP AG ADR*++ 3,200 163,200
Softkey International, Inc.* 1,500 47,250
Teltrend, Inc.* 100 2,987
The accompanying notes are an integral part of the financial statements.
62
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STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
Computer Software & Service (cont'd)
3Com Corp.* 700 $ 32,900
Western Digital Corp.* 4,600 71,300
Wonderware Corp.* 100 3,175
----------
1,281,300
----------
Electronic Components 1.5%
AMP, Inc. 4,100 160,925
BBC Brown Boveri AG* 65 75,403
Cyrix Corp.* 1,000 32,000
Intel Corp.* 1,200 83,850
Kyocera Corp.* 1,000 81,920
Thomas & Betts Corp. 1,000 64,625
Trident Microsystems, Inc.* 1,600 48,400
U.S. Order, Inc.* 1,600 24,000
VLSI Technology, Inc.* 2,000 47,000
----------
618,123
----------
Electronic Equipment 3.1%
Applied Materials, Inc.* 600 30,075
Electroglas, Inc.* 400 28,100
L.M. Ericsson Telephone Co. Cl. B ADR* 5,170 110,428
L.M. Ericsson Telephone Co. Cl. B* 8,769 186,192
General Motors Corp. Cl. H 1,800 75,600
Itron, Inc.* 1,200 34,800
Motorola, Inc. 900 59,063
Nokia Corp. Cl. A* 3,360 192,221
Perkin-Elmer Corp. 7,600 266,950
Tekelec, Inc.* 2,600 37,700
Tektronix, Inc. 1,300 77,025
Tencor Instruments Inc.* 1,100 46,887
Tokyo Electronics Ltd.* 2,000 86,808
----------
1,231,849
----------
Office Equipment 2.4%
Broadway & Seymour, Inc.* 1,200 19,500
Diebold, Inc. 300 15,900
Digital Equipment Corp.* 1,500 81,188
FileNet Corp.* 1,200 54,450
Fujitsu Ltd.* 18,000 214,673
Hewlett Packard Co. 1,400 129,675
International Business Machines Corp. 2,000 194,500
SCI Systems, Inc.* 1,200 42,150
Sequent Computer Systems, Inc.* 1,200 20,850
Xerox Corp. 1,200 155,700
----------
928,586
----------
Total Science & Technology 4,705,433
----------
- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
Utility 2.6%
Natural Gas 1.1%
Coastal Corp. 4,800 $ 155,400
ENSERCH Corp. 9,700 140,650
Tenneco, Inc. 1,300 57,038
TransTexas Gas Corp.* 5,600 89,600
----------
442,688
----------
Telephone 1.5%
AT&T Corp. 1,800 115,200
Airtouch Communications, Inc.* 3,800 108,300
Allen Group Inc. 800 19,600
Korea Mobile Telecom GDR* 2,300 84,525
Southern New England Telecom Corp. 2,100 75,863
Sprint Corp.* 2,100 76,650
Telecom Italia Mobile SpA 82,500 91,609
Tel-Save Holdings, Inc.* 1,400 19,425
----------
591,172
----------
Total Utility 1,033,860
----------
Total Equity Securities (Cost
$17,984,595) 20,294,440
----------
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date
- --------------------------------------------------------------------------------
FIXED INCOME SECURITIES 44.2%
U.S. Treasury 16.4%
U.S. Treasury Bond, 12.00% $550,000 8/15/2013 825,088
U.S. Treasury Bond, 8.125% 775,000 8/15/2021 937,262
U.S. Treasury Bond, 6.25% 575,000 8/15/2023 561,971
U.S. Treasury Note, 6.75% 750,000 5/31/1999 773,437
U.S. Treasury Note, 7.125% 700,000 9/30/1999 732,263
U.S. Treasury Note, 6.875% 650,000 3/31/2000 676,611
U.S. Treasury Note, 7.50% 825,000 11/15/2001 892,163
U.S. Treasury Note, 6.375% 225,000 8/15/2002 230,801
U.S. Treasury Note, 6.25% 575,000 2/15/2003 585,154
U.S. Treasury Note, 5.75% 325,000 8/15/2003 320,583
----------
6,535,333
----------
U.S. Agency Mortgage 9.0%
Federal Home Loan Mortgage Corp.
Gold, 6.50% 197,335 2/01/2009 195,855
Federal Home Loan Mortgage Corp.
Gold, 6.50% 137,792 7/01/2009 136,759
Federal Home Loan Mortgage Corp.
Gold, 7.50%+ 225,000 8/01/2022 227,391
Federal Home Loan Mortgage Corp.,
29-H PAC, 6.50% 100,000 3/25/2023 98,656
The accompanying notes are an integral part of the financial statements.
63
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
Investment Portfolio (cont'd)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
U.S. Agency Mortgage (cont'd)
Federal Home Loan Mortgage Corp.
Gold, 7.50% $ 74,326 8/01/2024 $ 75,139
Federal Home Loan Mortgage Corp.
Gold, 7.00% 352,976 12/01/2024 350,216
Federal Home Loan Mortgage Corp.
Gold, 7.50% 164,165 1/01/2025 165,960
Federal Home Loan Mortgage Corp.
Gold, 8.00% 68,938 6/01/2025 70,661
Federal Home Loan Mortgage Corp.
Gold, 7.50% 97,409 7/01/2025 98,200
Federal National Mortgage
Association FHA-VA, 7.00% 219,851 12/01/2007 231,457
Federal National Mortgage
Association FHA-VA, 8.00% 259,252 4/01/2008 268,266
Government National Mortgage
Association, 8.00% 247,215 10/15/2017 258,726
Government National Mortgage
Association, 8.00% 73,500 11/15/2017 75,613
Government National Mortgage
Association, 9.00% 150,981 2/15/2022 158,766
Government National Mortgage
Association, 6.50% 96,259 12/15/2023 93,612
Government National Mortgage
Association, 6.50% 318,356 7/15/2024 309,602
Government National Mortgage
Association, 7.00% 212,328 1/15/2025 210,868
Government National Mortgage
Association, 7.00% 277,522 8/15/2025 275,612
Government National Mortgage
Association, 7.00% 175,000 10/15/2025 173,796
Government National Mortgage
Association, 5.50%+ 50,000 12/21/2025 49,485
Government National Mortgage
Association, 6.00%+ 75,000 12/21/2025 75,070
----------
3,599,710
----------
Trust Certificates 0.4%
Cooperative Utility Trust
Certificates, 10.70% 125,000 9/15/2017 140,635
----------
Corporate 6.1%
Anacomp Inc. Sr. Sub. Note,
15.00% 100,000 11/01/2000 73,000
Chevron Corp. Note, 8.11% 100,000 12/01/2004 108,728
Columbia/HCA Healthcare Corp.
Master Trust Note, 6.87% 125,000 9/15/2003 125,465
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
Corporate (cont'd)
Crown Packaging, Inc. Sr. Notes
Series B, 10.75% $ 75,000 11/01/2000 $ 71,625
Finlay Enterprises Sr. Disc.
Deb., 8.00% to 4/30/98, 12.00%
from 5/1/98 to maturity 210,000 5/01/2005 144,900
Grand Union Co. Sr. Sub. Notes,
12.00% |B( 75,000 9/01/2004 72,375
Haynes International Inc. Sr.
Sec. Notes, 11.25% 100,000 6/15/1998 96,800
Horsehead Industries, Inc. Sub.
Note, 14.00% 150,000 6/01/1999 153,000
K & F Industries, Inc. Sr. Sub.
Deb. 13.75% 30,000 8/01/2001 31,125
K & F Industries, Inc. Sr. Sec.
Notes, 11.875% 175,000 12/01/2003 185,500
Loews Corp. Sr. Notes, 7.00% 100,000 10/15/2023 93,345
Magna International Inc., Cvt.
Sub. Deb., 5.00% 43,000 10/12/2002 43,860
Marcus Cable Capital Co. Sr.
Disc. Note, 0.00% to
7/31/99, 13.50% from 8/1/99 to
maturity 150,000 8/01/2004 104,063
Mobile Telecommunications, Inc.
Sr. Sub. Disc. Note, 13.50% 165,000 12/15/2002 187,687
Motels of America, Inc. Sr. Sub.
Notes, 12.00% 75,000 4/15/2004 75,187
Presidio Oil Co. Sr. Sec. Notes
Series B, 11.50% 100,000 9/15/2000 97,500
Ralphs Grocery Co. Sr. Note,
10.45% 170,000 6/15/2004 170,425
Sappi BVI Finance Ltd. Cvt. Note,
7.50%++ 330,000 8/12/2002 338,663
Thermoscan, Inc. Floating Rate
Sr. Sub. Note, 11.50% 85,000 8/15/2001 87,656
U.S.A. Mobile Communications,
Inc. Sr. Note, 9.50% 35,000 2/01/2004 33,250
United Meridian Corp. Sr. Sub.
Note, 10.375% 120,000 10/15/2005 122,400
----------
2,416,554
----------
Finance/Mortgage 6.2%
ASFS Corp. Series 94-C2, 8.00% 60,312 8/25/2010 61,631
Allmerica Financial Corp. Sr.
Note, 7.625% 150,000 10/15/2025 150,367
American General Finance Corp.
Notes, 8.00% 100,000 2/15/2000 106,026
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
Finance/Mortgage (cont'd)
Beneficial Corp. Master Trust
Note, 8.17% $ 150,000 11/9/1999 $ 159,585
Caterpillar Financial Services
Co. Master Trust Note, 6.03% 150,000 11/16/1995 150,005
Countrywide MBS Inc. Series 94-2
A-7 PAC, 6.50% 150,000 4/25/2008 149,765
Discover Credit Card Trust Series
1993-A, 6.25% 125,000 8/16/2000 125,546
First Chicago Credit Card Trust
Series 91-D, 8.40% 100,000 6/15/1998 101,250
Ford Credit Auto Loan Master
Trust Series 95-1, 6.50% 200,000 8/15/2000 202,000
General Electric Capital Corp.
Master Trust Note, 7.625% 150,000 7/24/1996 151,920
General Motors Acceptance Corp.
Note, 8.375% 200,000 5/01/1997 206,522
General Motors Acceptance Corp.
Master Trust Note, 7.85% 50,000 11/17/1997 51,642
Nations Bank Master Trust Series
1995-I, 6.45% 150,000 4/15/2003 151,875
Prudential Home Mortgage Series
93-29 A-6 PAC, 6.75% 84,632 8/25/2008 84,949
Prudential Home Mortgage Series
93-57 A-1 PAC, 6.50% 271,727 12/25/2023 271,049
Prudential Home Mortgage Series
93-54 A-21 PAC, 5.50% 125,000 1/25/2024 121,054
Sears Credit Account Master Trust
II 95-2, 8.10% 100,000 1/15/2004 106,750
Standard Credit Card Master Trust
Series 93-3A, 5.50% 100,000 1/07/1999 98,342
----------
2,450,278
----------
Canadian-Yankee 1.6%
British Columbia Hydroelectric
Authority Series FH, 15.50% 130,000 7/15/2011 146,524
Carter Holt Harvey Deb., 9.50% 50,000 12/01/2024 62,748
Hydro-Quebec Deb. Series HS,
9.40% 150,000 2/01/2021 179,590
Laidlaw Inc. Deb., 8.75% 50,000 4/15/2025 56,893
Province of Quebec Global Notes,
7.50% 75,000 7/15/2023 74,332
Talisman Energy Deb., 7.125% 125,000 6/01/2007 126,595
----------
646,682
----------
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
Australian
Foreign Government 4.5% Dollar
Government of Australia, 7.50% 550,000 7/15/2005 $ 384,191
Canadian
Dollar
Government of Canada, 9.75% 100,000 12/01/2001 83,637
Government of Canada, 7.50% 50,000 12/01/2003 37,359
Danish Krone
Kingdom of Denmark, 8.00% 2,100,000 3/15/2006 386,640
French Franc
Government of France, 7.75% 400,000 4/12/2000 85,528
Government of France, 7.50% 200,000 4/25/2005 41,484
Deutsche Mark
Republic of Germany, 6.625% 500,000 7/09/2003 360,969
Italian Lira
Republic of Italy, 8.50% 130,000,000 4/01/1999 75,896
Republic of Italy, 10.00% 175,000,000 8/01/2003 101,915
Spanish
Peseta
Government of Spain, 10.90% 20,000,000 8/30/2003 164,713
British Pound
United Kingdom Treasury Stock,
8.00% 50,000 6/10/2003 79,867
----------
1,802,199
----------
Total Fixed Income Securities (Cost $17,152,562) 17,591,391
----------
SHORT-TERM OBLIGATIONS 5.5%
American Express Credit Corp.,
5.55% $1,059,000 11/01/1995 1,059,000
Ford Motor Credit Co., 5.76% 853,000 11/06/1995 853,000
Ford Motor Credit Co., 5.74% 285,000 11/13/1995 285,000
----------
Total Short-Term Obligations (Cost $2,197,000) 2,197,000
----------
Total Investments (Cost $37,334,157)--100.7% 40,082,831
Cash and Other Assets, Less Liabilities--(0.7)% (261,922)
----------
Net Assets--100.0% $39,820,909
==========
Federal Income Tax Information: At October 31, 1995, the net
unrealized appreciation of investments based on cost for
Federal income tax purposes of $37,453,950 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $ 3,543,445
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (914,564)
----------
$ 2,628,881
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
Investment Portfolio (cont'd)
- --------------------------------------------------------------------------------
ADR and GDR stand for American Depositary Receipt and Global Depositary
Receipt, respectively, representing ownership of foreign securities.
* Nonincome-producing securities.
+ Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the principal
value has not been finalized and may vary by no more than 2%.
++ Security restricted in accordance with Rule 144A under the Securities Act of
1933, which allows for the resale of such securities among certain qualified
buyers. The total cost and market value of Rule 144A securities owned at
October 31, 1995 were $587,101 and $639,253 (1.61% of net assets),
respectively.
[ ] Security is in default.
Forward currency exchange contracts outstanding at October 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Total Value Price (Depreciation) Date
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sell Australian dollars, buy U.S.
dollars 206,788 AUD .73840 AUD $ (4,701) 11/16/95
Sell Australian dollars, buy U.S.
dollars 53,007 AUD .73790 AUD (1,231) 11/16/95
Sell Australian dollars, buy U.S.
dollars 157,000 AUD .75600 AUD (453) 1/24/96
Sell Canadian dollars, buy U.S. dollars 91,000 CAD .73333 CAD (1,181) 11/16/95
Sell Canadian dollars, buy U.S. dollars 47,743 CAD .74173 CAD (205) 1/24/96
Sell Danish krone, buy U.S. dollars 614,000 DKK .17319 DKK (6,050) 11/16/95
Sell Danish krone, buy U.S. dollars 1,345,000 DKK .18302 DKK (138) 1/24/96
Sell Deutsche mark, buy U.S. dollars 768,900 DEM .67476 DEM (27,867) 11/16/95
Sell U.S. dollars, buy Deutsche mark 292,000 DEM .67916 DEM 9,298 11/16/95
Sell Deutsche mark, buy U.S. dollars 390,000 DEM .69832 DEM (5,564) 1/05/96
Sell French francs, buy U.S. dollars 2,570,000 FRF .20145 FRF (7,259) 1/05/96
Sell U.S. dollars, buy French francs 434,149 FRF .20416 FRF 50 1/05/96
Sell French francs, buy U.S. dollars 295,100 FRF .20138 FRF (827) 1/24/96
Sell French francs, buy U.S. dollars 302,000 FRF .20173 FRF (740) 1/24/96
Sell Italian lira, buy U.S. dollars 107,271,790 ITL .00062 ITL (986) 11/16/95
Sell Italian lira, buy U.S. dollars 149,000,000 ITL .00061 ITL (1,928) 11/16/95
Sell Japanese yen, buy U.S. dollars 46,620,000 JPY .01002 JPY 6,348 1/05/96
Sell Pound sterling, buy U.S. dollars 47,700 GBP 1.53300 GBP (2,262) 11/16/95
Sell Spanish peseta, buy U.S. dollars 6,560,000 ESP .00810 ESP (540) 11/16/95
Sell Spanish peseta, buy U.S. dollars 739,000 ESP .00785 ESP (246) 11/16/95
Sell Spanish peseta, buy U.S. dollars 11,200,000 ESP .00789 ESP (3,268) 11/16/95
---------
$(49,750)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
October 31, 1995
Assets
Investments, at value (Cost $37,334,157) (Note 1) $40,082,831
Cash 22,642
Receivable for securities sold 960,684
Interest and dividends receivable 310,849
Receivable from Distributor (Note 3) 29,599
Receivable for open forward contracts 15,696
Receivable for fund shares sold 1,979
Deferred organization costs and other assets (Note 1) 48,924
----------
41,473,204
Liabilities
Payable for securities purchased 1,462,998
Payable for open forward contracts 65,446
Accrued transfer agent and shareholder services
(Note 2) 26,382
Accrued management fee (Note 2) 21,956
Accrued trustees' fees (Note 2) 3,381
Payable for fund shares redeemed 1,245
Other accrued expenses 70,887
----------
1,652,295
----------
Net Assets $39,820,909
==========
Net Assets consist of:
Undistributed net investment income $ 551,744
Unrealized appreciation of investments 2,748,674
Unrealized depreciation of forward contracts and
foreign currency (49,330)
Accumulated net realized loss (386,058)
Shares of beneficial interest 36,955,879
----------
$39,820,909
==========
Net Asset Value, offering price and redemption price
per share of Class C shares ($39,820,909 /
3,880,114 shares of beneficial interest) $ 10.26
==========
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
For the year ended October 31, 1995
Investment Income
Interest, net of foreign taxes of $2,023 $1,301,028
Dividends, net of foreign taxes of $6,765 260,067
---------
1,561,095
Expenses
Management fee (Note 2) 216,199
Custodian fee 144,986
Transfer agent and shareholder services (Note 2) 83,015
Registration fees 40,332
Amortization of organization costs (Note 1) 27,706
Audit fee 25,797
Reports to shareholders 19,833
Trustees' fees (Note 2) 13,820
Legal fees 4,192
Miscellaneous 5,816
---------
581,696
Expenses borne by the Distributor (Note 3) (244,843)
---------
336,853
---------
Net investment income 1,224,242
---------
Realized and Unrealized Gain
(Loss) on Investments, Foreign
Currency and Forward Contracts
Net realized gain on investments (Note 1 and 4) 483,129
Net realized gain on forward contracts and foreign
currency (Note 1) 96,780
---------
Total net realized gain 579,909
---------
Net unrealized appreciation of investments 2,976,344
Net unrealized depreciation of forward contracts and
foreign currency (21,967)
---------
Total net unrealized appreciation 2,954,377
---------
Net gain on investments, foreign currency and
forward contracts 3,534,286
---------
Net increase in net assets resulting from operations $4,758,528
=========
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year ended October 31
--------------------------
1995 1994
- -----------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 1,224,242 $ 814,856
Net realized gain (loss) on
investments, foreign
currency and forward
contracts 579,909 (970,753)
Net unrealized appreciation
(depreciation) of
investments, foreign
currency and forward
contracts 2,954,377 (241,253)
-------- ----------
Net increase (decrease)
resulting from operations 4,758,528 (397,150)
-------- ----------
Dividends from net investment
income--Class C (996,013) (614,662)
-------- ----------
Class C share transactions
(Note 6):
Proceeds from sale of
shares 10,791,980 5,768,409
Net asset value of shares
issued in payment of
dividends 236,847 51,835
Cost of shares repurchased (3,464,385) (1,354,827)
-------- ----------
Net increase from fund share
transactions 7,564,442 4,465,417
-------- ----------
Total increase in net assets 11,326,957 3,453,605
Net Assets
Beginning of year 28,493,952 25,040,347
-------- ----------
End of year (including
undistributed net
investment income of
$551,744 and $193,820,
respectively) $39,820,909 $28,493,952
======== ==========
Number of Class C shares:
Sold 1,120,799 630,344
Issued upon reinvestment of
dividends 24,757 5,730
Repurchased (371,031) (148,286)
-------- ----------
Net increase in fund shares 774,525 487,788
======== ==========
* Net realized gain (loss)
for Federal income tax
purposes
(Note 1) $ 522,329 $ (824,458)
======== ==========
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
October 31, 1995
Note 1
State Street Research Strategic Portfolios: Moderate (the "Fund"), is a
series of MetLife-State Street Financial Trust (the "Trust"), which was
organized as a Massachusetts business trust in November, 1986 and is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund commenced operations in
September, 1993. The Trust consists presently of four separate funds: State
Street Research Strategic Portfolios: Moderate, State Street Research
Government Income Fund, State Street Research Strategic Portfolios:
Conservative and State Street Research Strategic Portfolios: Aggressive.
The Fund is authorized to issue four classes of shares. Only Class C shares
are presently available for purchase. Class A, Class B and Class D shares are
not being offered at this time. Class A shares will be subject to an initial
sales charge of up to 4.50% and annual service fees of 0.25% of average daily
net assets. Class B shares will be subject to a contingent deferred sales
charge on certain redemptions made within five years of purchase and pay
annual distribution and service fees of 1.00%. Class B shares automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years after the issuance of the Class B shares. Class C shares are only
offered to certain employee benefit plans and large institutions. No sales
charge is imposed at the time of purchase or redemption of Class C shares.
Class C shares do not pay any distribution or service fees. Class D shares
are subject to a contingent deferred sales charge of 1.00% on any shares
redeemed within one year of their purchase. Class D shares also pay annual
distribution and service fees of 1.00%. The Fund's expenses are borne
pro-rata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the Plan of
Distribution, related specifically to that class. The Trustees declare
separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Values for listed equity securities reflect final sales on national
securities exchanges quoted prior to the close of the New York Stock
Exchange. Over-the-counter securities quoted on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system are valued at
closing prices supplied through such system. If not quoted on the NASDAQ
system, such securities are valued at prices obtained from brokers. In the
absence of recorded sales, valuations are at the mean of the closing bid and
asked quotations. Fixed income securities are valued by a pricing service,
which utilizes market transactions, quotations from dealers, and various
relationships among securities in determining value. Short-term securities
maturing within sixty days are valued at amortized cost. Securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments.
68
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily
expenses of the Fund. Interest income is accrued daily as earned. Dividend
income is accrued on the ex-dividend date. Discount on debt obligations is
amortized under the effective yield method. The Fund is charged for expenses
directly attributable to it, while indirect expenses are allocated among all
funds in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually,
unless additional distributions are required for compliance with applicable
tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund intends
to qualify under Subchapter M of the Internal Revenue Code and its policy is
to distribute all of its taxable income, including net realized capital
gains, within the prescribed time periods. At October 31, 1995, the Fund had
a capital loss carryforward of $309,737 available, to the extent provided in
regulations, to offset future capital gains, if any, which expires on October
31, 2002.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight- line method over a
period of five years.
G. Forward Contracts and Foreign Currencies
The Fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currency. A forward foreign currency exchange contract
is an obligation by the Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the origination date
of the contract. Forward foreign currency exchange contracts establish an
exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar. The aggregate principal amount of forward currency exchange
contracts is recorded in the Fund's accounts. All commitments are
marked-to-market at the applicable transaction rates resulting in unrealized
gains or losses. The Fund records realized gains or losses at the time the
forward contracts are extinguished by entry into a closing contract or by
delivery of the currency. Neither spot transactions nor forward currency
exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the
price of these securities should decline.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.65% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended October 31, 1995, the fees pursuant to
such agreement amounted to $216,199.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance
of the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through
or under which shares of the Fund may be purchased. During the year ended
October 31, 1995, the amount of such expenses was $63,038.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $13,820 during the year ended October 31, 1995.
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended October 31, 1995, the amount of such expenses
assumed by the Distributor and its affiliates was $244,843.
Note 4
For the year ended October 31, 1995, purchases and sales of securities,
exclusive of short-term obligations, aggregated $45,760,595 and $37,521,737
(including $19,626,654 and $16,832,434 of U.S. Government securities),
respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
will pay annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund will pay annual distribution fees of 0.75% of average daily net assets
for Class B and Class D shares. The Distributor uses such payments for
personal service and/or the maintenance of shareholder accounts, to reimburse
securities dealers for distribution and marketing services, to furnish
ongoing assistance to investors and to defray a portion of its distribution
and marketing expenses.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At October 31, 1995, Metropolitan owned 2,617,801 Class C shares of the Fund
and the Adviser owned one Class C share of the Fund.
69
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a Class C share outstanding throughout each year:
<TABLE>
<CAPTION>
Year ended September 28, 1993
October 31 (Commencement of
----------------- Operations)
1995** 1994 to October 31, 1993
- ------------------------------------------------------------------ ------ ------- -------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 9.18 $ 9.57 $ 9.55
Net investment income* .36 .28 .02
Net realized and unrealized gain (loss) on investments, foreign
currency and forward contracts 1.01 (.45) --
Dividends from net investment income (.29) (.22) --
---- ----- -----------------------
Net asset value, end of year $ 10.26 $ 9.18 $ 9.57
==== ===== =======================
Total return 15.24%+ (1.81)%+ 0.21%+++
Net assets at end of year (000s) $39,821 $28,494 $25,040
Ratio of operating expenses to average net assets* 1.00% 1.00% 1.00%++
Ratio of net investment income to average net assets* 3.68% 3.05% 2.32%++
Portfolio turnover rate 120.62% 142.86% 0.00%
*Reflects voluntary assumption of fees or expenses per share in
each year (Note 3) $ .07 $ .05 $ .00
</TABLE>
- --------------------------------------------------------------------------------
++ Annualized
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
**Per-share figures have been calculated using the average shares method.
70
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of MetLife-State Street
Financial Trust and the Shareholders of
State Street Research Strategic Portfolios: Moderate
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research
Strategic Portfolios: Moderate (a series of MetLife-State Street Financial
Trust, hereafter referred to as the "Trust") at October 31, 1995, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at October 31, 1995 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 8, 1995
71
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
Management's Discussion of Fund Performance
- --------------------------------------------------------------------------------
As of October 31, 1995, State Street Research Strategic Portfolios: Moderate
held 51% of its assets in equities, 44% in fixed income securities and 5% in
cash.
Stocks
Positive stock returns helped the portfolio's performance. Large-cap and
value stocks made up the largest equity holdings. Large-cap growth stocks
performed strongly, value stocks less so. International equities, which only
comprised a small portion of the portfolio, demonstrated improved performance
after a slow start at the beginning of the Fund's year. Small-cap growth
stocks underperformed for most of the period, but also had a limited position
in the portfolio.
Bonds
The Fund's fixed-income component performed well, but did not keep pace with
its stock holdings. The largest position was in high-grade bonds, which
provided strong performance. High-yield and international bonds performed
below expectations, but weren't heavily weighted in the portfolio.
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and
institutions. The Standard & Poor's 500 Composite Index (S&P 500) includes
500 widely traded common stocks and is a commonly used measure of U.S. stock
market performance. The Lehman Brothers Government/Corporate Bond Index is a
commonly used index of bond market performance. The indices are unmanaged and
do not take sales charges into consideration. Direct investment in the
indices is not possible; results are for illustrative purposes only.
Performance results for the Fund are increased by the Distributor's voluntary
reduction of Fund fees and expenses. In the box in the chart at the right,
the first figure reflects expense reduction; the second shows what results
would have been without subsidization.
Comparison Of Change In Value Of A $10,000
Investment In Strategic Portfolios: Moderate,
The S&P 500 And The Lehman Brothers Government/
Corporate Bond Index
Class C Shares
Average Annual Total Return
1 Year Life of Fund
+15.24%/+14.40% +6.19%/+5.55%
Strategic
Portfolios: S&P LB Gov't/
Moderate 500 Corp. Index
9/28/93 10000 10000 10000
10/31/93 10021 10207 10041
10/31/94 9840 10600 9575
10/31/95 11340 13400 11123
72
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- -----------------------------------------------------------------------------
Investment Portfolio
- -----------------------------------------------------------------------------
October 31, 1995
<TABLE>
<CAPTION>
Value
Shares (Note 1)
- ----------------------------------------- ----- ------------
<S> <C> <C>
EQUITY SECURITIES 27.5%
Basic Industries 5.3%
Chemical 2.0%
Atlantic Richfield Co. 3,200 $ 71,600
Ciba-Geigy AG ADR* 1,200 51,960
Cytec Industries, Inc. 1,600 87,600
FMC Corp.* 1,000 71,625
L'Air Liquide* 200 33,537
Mallinckrodt Group, Inc. 300 10,425
Monsanto Co. 600 62,850
Potash Corp. of Saskatchewan, Inc. 700 48,737
Rohm & Haas Co. 2,300 127,075
----------
565,409
----------
Diversified 0.5%
Cardo AB* 2,900 44,981
Johnson Controls, Inc. 600 34,950
Mark IV Industries, Inc. 1,575 30,712
Nippon Electric Glass Co. Ltd.* 2,000 36,952
U.S. Industries, Inc.* 100 1,500
----------
149,095
----------
Electrical Equipment 0.3%
General Electric Co. 800 50,600
Philips Electronics NV 1,000 38,625
----------
89,225
----------
Forest Product 0.3%
Aracruz Celulose ADR* 3,300 29,700
Champion International Corp. 700 37,450
Crown Vantage, Inc.* 50 994
Nippon Paper Industries Co.* 4,000 27,489
----------
95,633
----------
Machinery 1.2%
Cincinnati Milacron, Inc. 1,800 46,350
Elsag Bailey Process Automation NV 1,200 32,700
Fluor Corp. 600 33,900
Harnischfeger Industries, Inc. 200 6,300
Kajima Corp.* 3,000 27,685
Linde AG* 81 49,776
Millipore Corp. 1,000 35,375
Minebea Co. Ltd.* 4,000 32,455
Pall Corp. 1,900 46,313
Sundstrand Corp. 700 42,875
----------
353,729
----------
Metal & Mining 1.0%
Alumax, Inc.* 2,000 $ 59,000
Bohler Uddeholm* 500 35,247
Cyprus Amax Minerals Co. 1,400 36,575
RTZ Corp. PLC* 2,500 34,625
Reynolds Metals Co. 900 45,337
SGL Carbon AG* 1,000 65,573
----------
276,357
----------
Total Basic Industries 1,529,448
----------
Consumer Cyclical 4.4%
Automotive 1.2%
Cooper Tire & Rubber Co. 400 9,250
Douglas & Lomason Co. 500 5,500
Exide Corp. 1,600 70,200
Federal-Mogul Corp. 2,500 44,688
Ford Motor Co. 900 25,875
Ford Motor Co. Series A Cv. Pfd. 600 56,400
Lear Seating Corp.* 4,300 119,325
Michelin Cl.B 700 28,271
----------
359,509
----------
Building 0.3%
Fleetwood Enterprises, Inc. 1,100 22,550
LaFarge Corp. 1,300 22,750
Owens-Corning Fiberglas Corp. 1,100 46,612
----------
91,912
----------
Hotel & Restaurant 0.4%
Circus Circus Enterprises, Inc.* 1,100 29,288
Darden Restaurants, Inc.* 1,300 14,787
Harrah's Entertainment, Inc.* 1,600 39,600
Mirage Resorts, Inc.* 1,400 45,850
----------
129,525
----------
Recreation 0.8%
Capital Cities/ABC, Inc. 200 23,725
Comcast Corp. Cl. A 1,000 17,750
Comcast Corp. Cl. A Special 400 7,150
Walt Disney Co. 800 46,100
Infinity Broadcasting Corp. Cl. A* 550 17,875
Mattel, Inc. 1,000 28,750
Time Warner Financing Trust 1,000 32,000
Time Warner, Inc. 800 29,200
Viacom, Inc. Cl. B* 300 15,000
----------
217,550
----------
The accompanying notes are an integral part of the financial statements.
73
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------- ----- ------------
Retail Trade 1.7%
Federated Department Stores, Inc.* 3,800 $ 96,425
Home Depot, Inc. 1,400 52,150
Intimate Brands, Inc. Cl. A* 500 8,375
May Department Stores Co. 700 27,475
Office Depot, Inc.* 1,100 31,487
J.C. Penney, Inc. 500 21,063
Tandy Corp. 1,200 59,250
Toys 'R Us, Inc.* 1,400 30,625
Vons Companies, Inc.* 200 5,075
Wal-Mart Stores, Inc. 2,400 51,900
Woolworth Corp. 7,200 105,300
----------
489,125
----------
Total Consumer Cyclical 1,287,621
----------
Consumer Staple 4.5%
Business Service 0.5%
ADT Ltd.* 5,200 72,800
First Data Corp 900 59,513
----------
132,313
----------
Container 0.1%
Owens-Illinois Inc. 1,200 15,150
----------
Drug 0.8%
Eli Lilly & Co. 465 44,931
Merck & Company, Inc. 2,100 120,750
Pfizer, Inc. 1,200 68,850
Schering AG 100 6,976
----------
241,507
----------
Food & Beverage 1.5%
Anheuser-Busch, Inc. 800 52,800
Arnotts Ltd.* 6,000 40,219
Campbell Soup Co. 1,100 57,613
Coca-Cola Co. 400 28,750
Coca-Cola Enterprises, Inc. 3,000 79,875
LVMH Moet Hennessy Louis Vuitton ADR* 200 39,795
PepsiCo, Inc. 1,200 63,300
Whitman Corp. 3,400 72,250
----------
434,602
----------
Hospital Supply 0.9%
Abbott Laboratories 1,900 75,525
Columbia/HCA Healthcare Corp.* 300 14,737
Johnson & Johnson 600 48,900
Medtronic, Inc. 600 34,650
Roche Holdings AG 5 36,334
United Healthcare Corp. 1,000 53,125
----------
263,271
----------
Personal Care 0.3%
Procter & Gamble Co. 1,000 $ 81,000
----------
Printing & Publishing 0.1%
American Greetings Corp. 1,300 40,950
----------
Tobacco 0.3%
Philip Morris Cos., Inc. 1,100 92,950
----------
Total Consumer Staple 1,301,743
----------
Energy 2.0%
Oil 1.7%
Amerada Hess Corp. 600 27,075
Ashland Oil, Inc. 500 15,813
Exxon Corp. 800 61,100
Imperial Oil Ltd. 850 31,025
Louisiana Land & Exploration Co. 2,500 88,438
Lyondell Petrochemical Co. 100 2,137
Phillips Petroleum Co. 1,300 41,925
Repsol S.A.* 1,500 44,795
Tosco Corp. 2,000 69,000
Total S.A. Cl. B* 717 44,309
Ultramar Corp. 100 2,438
Union Pacific Resources Group, Inc. 1,300 29,575
Woodside Petroleum Ltd. ADR* 7,700 36,893
----------
494,523
----------
Oil Service 0.3%
Coflexip* 1,106 31,325
Schlumberger Ltd. 800 49,800
----------
81,125
----------
Total Energy 575,648
----------
Finance 3.6%
Bank 1.3%
Banco Industrial Colombiano ADR 4,500 61,312
BankAmerica Corp. 1,100 63,250
Bank of New York Company, Inc. 400 16,800
Chase Manhattan Corp. 1,000 57,000
Citicorp 1,400 90,825
Mellon Bank Corp. 300 15,038
Sparbanken Sverige AB++ 1,700 17,920
West One Bancorp 1,400 59,500
----------
381,645
----------
Financial Service 0.9%
Amoy Properties Ltd.* 16,000 15,417
Bear Stearns Companies, Inc. 1,200 23,850
Federal Home Loan Mortgage Corp. 2,200 152,350
Federal National Mortgage Association 800 83,900
----------
275,517
----------
The accompanying notes are an integral part of the financial statements.
74
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- ------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- ------------------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------- ----- ------------
Insurance 1.4%
Ace Ltd. 2,300 $ 78,200
Ambac, Inc. 900 37,913
American Re Corp.* 2,500 95,625
Equitable Companies, Inc. 1,300 27,625
Mid Ocean Ltd.* 2,200 77,825
Progressive Corp. 200 8,300
SAFECO Corp. 1,100 70,606
----------
396,094
----------
Total Finance 1,053,256
----------
Science & Technology 6.1%
Aerospace 0.9%
Boeing Co. 2,400 157,500
Honeywell, Inc. 400 16,800
Raytheon Co. 1,000 43,625
Sequa Corp. Cl. A* 2,000 51,500
----------
269,425
----------
Computer Software & Service 1.6%
Cisco Systems, Inc.* 700 54,250
Computervision Corp.* 16,800 197,400
General Motors Corp. Cl. E 900 42,412
Microsoft Corp.* 500 50,000
Parametric Technology Corp.* 200 13,400
SAP AG ADR*++ 1,200 61,200
3Com Corp.* 300 14,100
Western Digital Corp.* 2,200 34,100
----------
466,862
----------
Electronic Components 0.9%
AMP, Inc. 1,900 74,575
BBC Brown Boveri AG 30 34,801
Intel Corp. 500 34,938
Kyocera Corp. 1,000 81,920
Thomas & Betts Corp. 500 32,313
VLSI Technology, Inc.* 800 18,800
----------
277,347
----------
Electronic Equipment 1.6%
Applied Materials, Inc. 200 10,025
General Motors Corp. Cl. H 800 33,600
L.M. Ericsson Telephone Co. ADR Cl. B* 2,090 44,641
L.M. Ericsson Telephone Co. Cl. B* 3,568 75,759
Motorola, Inc. 400 26,250
Nokia Corp.* 1,360 77,804
Perkin-Elmer Corp. 3,400 119,425
Tektronix, Inc. 600 35,550
Tokyo Electronics Ltd.* 1,000 43,404
----------
466,458
----------
Office Equipment 1.1%
Diebold, Inc. 200 $ 10,600
Digital Equipment Corp.* 600 32,475
Fujitsu Ltd. 7,000 83,484
Hewlett-Packard Co. 600 55,575
International Business Machines Corp. 800 77,800
Xerox Corp. 400 51,900
----------
311,834
----------
Total Science & Technology 1,791,926
----------
Utility 1.6%
Natural Gas 0.7%
Coastal Corp. 2,200 71,225
ENSERCH Corp. 4,700 68,150
Tenneco, Inc. 600 26,325
TransTexas Gas Corp.* 2,600 41,600
----------
207,300
----------
Telephone 0.9%
AT&T Corp. 900 57,600
AirTouch Communications, Inc.* 1,700 48,450
Korea Mobile Telecom GDR* 1,000 36,750
Southern New England Telecom Corp. 1,000 36,125
Sprint Corp.* 1,000 36,500
Telecom Italia Mobile SPA 31,500 34,978
----------
250,403
----------
Total Utility 457,703
----------
Total Equity Securities (Cost $6,887,317) 7,997,345
----------
</TABLE>
<TABLE>
<CAPTION>
Principal Maturity
Amount Date
- -------------------------- --------- --------- ------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 69.5%
U.S. Treasury 27.5%
U.S. Treasury Bond, 12.00% $ 725,000 8/15/2013 1,087,616
U.S. Treasury Bond, 6.25% 825,000 8/15/2023 806,305
U.S. Treasury Bond, 8.125% 1,050,000 8/15/2021 1,269,839
U.S. Treasury Note, 8.50% 500,000 5/15/1997 520,935
U.S. Treasury Note, 5.125% 275,000 6/30/1998 271,219
U.S. Treasury Note, 6.75% 750,000 5/31/1999 773,437
U.S. Treasury Note, 7.125% 275,000 9/30/1999 287,675
U.S. Treasury Note, 6.875% 475,000 3/31/2000 494,447
U.S. Treasury Note, 7.50% 925,000 11/15/2001 1,000,304
U.S. Treasury Note, 6.375% 150,000 8/15/2002 153,867
U.S. Treasury Note, 6.25% 375,000 2/15/2003 381,622
U.S. Treasury Note, 5.75% 950,000 8/15/2003 937,090
----------
7,984,356
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
75
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------- --------------- --------- ------------
<S> <C> <C> <C>
U.S. Agency Mortgage 18.9%
Federal Home Loan Mortgage Corp. Series 29-H PAC,
6.50% $ 125,000 3/25/2023 $ 123,320
Federal Home Loan Mortgage Corp. Gold, 7.00% 924,345 6/01/2024 917,117
Federal Home Loan Mortgage Corp. Gold, 8.00% 91,520 6/01/2025 93,809
Federal Home Loan Mortgage Corp. Gold, 7.50% 593,649 8/01/2024 600,138
Federal Home Loan Mortgage Corp. Gold, 7.50%+ 300,000 11/13/2025 303,187
Government National Mortgage Association, 8.00% 381,262 5/15/2008 392,223
Government National Mortgage Association, 6.50% 817,780 4/15/2009 814,968
Government National Mortgage Association, 8.00% 420,264 10/15/2017 439,833
Government National Mortgage Association, 8.00% 122,500 11/15/2017 126,022
Government National Mortgage Association, 6.50% 96,230 12/15/2023 93,584
Government National Mortgage Association, 6.50% 489,779 7/15/2024 476,311
Government National Mortgage Association, 7.00% 353,881 1/15/2025 351,447
Government National Mortgage Association, 5.50%+ 100,000 12/21/2025 98,969
Government National Mortgage Association, 6.00% 100,000 12/21/2025 100,094
Government National Mortgage Association, 7.00% 353,129 9/15/2025 350,700
Government National Mortgage Association, 7.00% 225,000 10/15/2025 223,452
----------
5,505,174
----------
Canadian--Yankee 3.3%
British Columbia Hydroelectric Authority Deb.
Series FH, 15.50% 225,000 7/15/2011 253,600
Carter Holt Harvey Deb, 9.50% 175,000 12/01/2024 219,616
Hydro-Quebec Deb. Series HS, 9.40% 225,000 2/01/2021 269,386
Laidlaw, Inc. Deb., 8.75% 100,000 4/15/2025 113,785
Province of Quebec Global Notes, 7.50% 100,000 7/15/2023 99,110
----------
955,497
----------
Trust Certificates 1.6%
Cooperative Utility Trust Certificates, 10.70% $ 225,000 9/15/2017 $ 253,143
Rural Electric Cooperative Grantor Trust
Certificates, 10.11% 200,000 12/15/2017 223,172
----------
476,315
----------
Foreign Government 6.3% Australian Dollar
Government of Australia, 7.50% 750,000 7/15/2005 523,897
Canadian Dollar
Government of Canada, 9.75% 50,000 12/01/2001 41,819
Government of Canada, 7.50% 50,000 12/01/2003 37,359
Danish Krone
Kingdom of Denmark, 8.00% 1,300,000 3/15/2006 239,348
French Francs
Government of France, 7.75% 400,000 4/12/2000 85,528
Government of France, 7.50% 300,000 4/25/2005 62,226
Deutsche Mark
Republic of Germany, 6.625% 600,000 7/09/2003 433,163
Italian Lira
Republic of Italy, 8.50% 120,000,000 4/01/1999 70,058
Republic of Italy, 10.00% 175,000,000 8/01/2003 101,915
Spanish Peseta
Government of Spain, 10.90% 19,000,000 8/30/2003 156,477
British Pound
United Kingdom Treasury Stock, 8.00% 50,000 6/10/2003 79,866
----------
1,831,656
----------
Finance/Mortgage 9.0%
American General Finance Corp. Notes, 8.00% $ 125,000 2/15/2000 132,533
ASFS Corp., Series 94-C2 A-1, 8.00% 100,520 8/25/2010 102,719
Beneficial Corp. Note, 8.17% 250,000 11/09/1999 265,975
Discover Credit Card Trust Series 1993-A, 6.25% 250,000 8/16/2000 251,093
First Chicago Credit Trust Series 91-D, 8.40% 150,000 6/15/1998 151,875
Ford Credit Auto Loan Master Trust Series 95-1,
6.50% 375,000 8/15/2000 378,750
General Electric Capital Corp. Deb., 7.625% 225,000 7/24/1996 227,880
General Motors Acceptance Corp. Note, 7.85% 325,000 11/17/1997 335,673
The accompanying notes are an integral part of the financial statements.
76
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- -------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- -------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------- --------------- --------- ------------
Finance/Mortgage (cont'd)
Household Affinity Master Trust Series 94-1A,
6.275% $ 175,000 5/15/2001 $ 174,671
Investment Portfolio (cont'd)Prudential Home
Mortgage Series 93-29 A-6 PAC, 6.75% 280,822 8/25/2008 281,876
Standard Credit Card Master Trust Series 93-3A,
5.50% 275,000 1/07/1999 270,443
Tandy Master Trust Series 1991-A, 8.25% 33,864 4/15/1999 33,949
----------
2,607,437
----------
Corporate 2.9%
Chevron Corp. Note, 8.11% 175,000 12/01/2001 190,274
Columbia/HCA Healthcare Corp. Note, 6.87% 150,000 9/15/2003 150,558
Electronic Data Systems Corp. Note, 6.85%++ 250,000 5/15/2000 255,385
Loews Corp. Sr. Notes, 7.00% 125,000 10/15/2023 116,681
Magna International, Inc. Cv. Sub. Deb, 5.00% 21,000 10/12/2002 21,420
Sappi BVI Finance Ltd. Cv. Note, 7.50%++ 100,000 8/12/2002 102,625
----------
836,943
----------
Total Fixed Income Securities (Cost $19,452,895) 20,197,378
----------
SHORT-TERM OBLIGATIONS 3.9%
Commercial Credit Co., 5.80% $1,129,000 11/3/1995 $ 1,129,000
----------
Total Short-Term Obligations (Cost $1,129,000) 1,129,000
----------
Total Investments (Cost $27,469,212)--100.9% 29,323,723
Cash and Other Assets, Less Liabilities--(0.9)% (253,883)
----------
Net Assets--100.0% $29,069,840
==========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Federal Income Tax Information:
At October 31, 1995, the net unrealized appreciation
of investments based on cost for Federal income tax
purposes of $27,496,803 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost $ 2,078,542
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value (251,622)
----------
$ 1,826,920
==========
</TABLE>
ADR and GDR stand for American Depositary Receipt and Global Depositary
Receipt, respectively, representing ownership of foreign securities.
* Nonincome-producing securities.
+ Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the
principal value has not been finalized and may vary by no more than 2%.
++ Security restricted in accordance with Rule 144A under the Securities Act
of 1933, which allows for the resale of such securities among certain
qualified institutional buyers. The total cost and market value of Rule
144A securities owned at October 31, 1995 were $417,506 and $437,130
(1.50% of net assets), respectively.
The accompanying notes are an integral part of the financial statements.
77
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Forward currency exchange contracts outstanding at October 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Total Value Price (Depreciation) Date
- ---------------------------------------- ------------------ -------------- ----------- ---------
<S> <C> <C> <C> <C>
Sell Australian dollars, buy U.S.
dollars 250,418 AUD .73840 AUD $ (5,692) 11/16/95
Sell Australian dollars, buy U.S.
dollars 53,007 AUD .73790 AUD (1,231) 11/16/95
Sell Australian dollars, buy U.S.
dollars 265,900 AUD .75600 AUD (768) 1/24/96
Sell Canadian dollars, buy U.S. dollars 85,000 CAD .73333 CAD (1,103) 11/16/95
Sell Canadian dollars, buy U.S. dollars 5,407 CAD .73551 CAD (59) 11/16/95
Sell Danish krone, buy U.S. dollars 352,000 DKK .17319 DKK (3,468) 11/16/95
Sell Danish krone, buy U.S. dollars 865,000 DKK .18299 DKK (111) 1/24/96
Sell Deutsche mark, buy U.S. dollars 865,000 DEM .67476 DEM (31,349) 11/16/95
Sell U.S. dollars, buy deutsche mark 292,000 DEM .679163 DEM 9,298 11/16/95
Sell Deutsche mark, buy U.S. dollars 130,000 DEM .698324 DEM (1,855) 1/05/96
Sell French francs, buy U.S. dollars 848,000 FRF .20145 FRF (2,395) 1/05/96
Sell U.S. dollars, buy French francs 143,252 FRF .204161 FRF 16 1/05/96
Sell French francs, buy U.S. dollars 302,000 FRF .20173 FRF (740) 1/24/96
Sell French francs, buy U.S. dollars 392,500 FRF .20138 FRF (1,100) 1/24/96
Sell Italian lira, buy U.S. dollars 99,020,393 ITL .00062 ITL (910) 11/16/95
Sell Italian lira, buy U.S. dollars 149,000,000 ITL .00061 ITL (1,928) 11/16/95
Sell Japanese yen, buy U.S. dollars 15,060,000 JPY .01002 JPY 2,051 1/05/96
Sell Pound sterling, buy U.S. dollars 47,700 GBP 1.53300 GBP (2,262) 11/16/95
Sell Spanish peseta, buy U.S. dollars 5,725,000 ESP .00810 ESP (471) 11/16/95
Sell Spanish peseta, buy U.S. dollars 601,000 ESP .00785 ESP (200) 11/16/95
Sell Spanish peseta, buy U.S. dollars 11,200,000 ESP .00789 ESP (3,268) 11/16/95
---------
$(47,545)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
78
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- ----------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ----------------------------------------------
October 31, 1995
Assets
Investments, at value (Cost $27,469,212 (Note 1) $29,323,723
Cash 48,824
Receivable for securities sold 481,326
Interest and dividends receivable 316,788
Receivable from Distributor (Note 3) 21,603
Receivable for open forward contracts 11,365
Receivable for fund shares sold 871
Deferred organization costs and other assets (Note 1) 31,296
----------
30,235,796
Liabilities
Payable for securities purchased 1,043,289
Payable for open forward contracts 58,910
Accrued management fee (Note 2) 14,855
Accrued transfer agent and shareholder services (Note 2) 8,372
Accrued distribution fee (Note 5) 5,682
Accrued trustees' fees (Note 2) 1,792
Other accrued expenses 33,056
----------
1,165,956
----------
Net Assets $29,069,840
==========
Net Assets consist of:
Undistributed net investment income $ 303,997
Unrealized appreciation of investments 1,854,511
Unrealized depreciation of forward contracts and
foreign currency (47,193)
Accumulated net realized gain 667,786
Shares of beneficial interest 26,290,739
----------
$29,069,840
==========
Net Asset Value and redemption price per share of Class A
shares ($27,636,771 / 2,617,823 shares of beneficial
interest) $10.56
==========
Maximum Offering Price per share of Class A shares
($10.56 / .955) $11.06
==========
Net Asset Value, offering price and redemption price per
share of Class C shares ($1,433,069 / 135,691 shares of
beneficial interest) $10.56
==========
- -------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------
For the year ended October 31, 1995
Investment Income
Interest, net of foreign taxes of $1,724 $1,470,760
Dividends, net of foreign taxes of $2,166 127,324
---------
1,598,084
Expenses
Management fee (Note 2) 162,835
Custodian fee 108,292
Distribution fee--Class A (Note 5) 65,003
Audit fee 21,510
Legal fees 16,256
Reports to shareholders 15,743
Transfer agent and shareholder services (Note 2) 13,498
Registration fees 9,553
Trustees' fees (Note 2) 8,921
Amortization of organization costs (Note 1) 7,483
Miscellaneous 4,406
---------
433,500
Expenses borne by the Distributor (Note 3) (124,191)
---------
309,309
---------
Net investment income 1,288,775
---------
Realized and Unrealized Gain (Loss)
on Investments, Foreign Currency
and Forward Contracts
Net realized gain on investments (Notes 1 and 4) 738,800
Net realized gain on forward contracts and foreign
currency (Note 1) 53,016
---------
Total net realized gain 791,816
---------
Net unrealized appreciation of investments 1,972,686
Net unrealized depreciation of forward contracts and
foreign currency (17,146)
---------
Total net unrealized appreciation 1,955,540
---------
Net gain on investments, foreign currency and
forward contracts 2,747,356
---------
Net increase in net assets resulting from operations $4,036,131
=========
The accompanying notes are an integral part of the financial statements.
79
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- ----------------------------------------------------
Statement of Changes in Net Assets
- ----------------------------------------------------
May 16, 1994
(Commencement of
Year ended Operations) to
October 31, 1995 October 31, 1994
- ----------------------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 1,288,775 $ 520,741
Net realized gain (loss) on
investments, foreign
currency and forward
contracts 791,816 (95,181)
Net unrealized appreciation
(depreciation) of
investments, foreign
currency and forward
contracts 1,955,540 (148,222)
--------------- ---------------
Net increase resulting from
operations 4,036,131 277,338
--------------- ---------------
Dividends from net investment income:
Class A (1,230,373) (261,780)
Class C (51,204) (1,142)
--------------- ---------------
(1,281,577) (262,922)
--------------- ---------------
Net increase from fund share
transactions (Note 6) 1,200,860 25,100,010
--------------- ---------------
Total increase in net assets 3,955,414 25,114,426
Net Assets
Beginning of year 25,114,426 --
--------------- ---------------
End of year (including
undistributed net
investment income of
$303,997 and $217,135,
respectively) $29,069,840 $25,114,426
=============== ===============
* Net realized gain (loss)
for Federal income tax
purposes
(Note 1) $ 693,902 $ (50,922)
=============== ===============
The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------
October 31, 1995
Note 1
State Street Research Strategic Portfolios: Conservative (the "Fund") is a
series of MetLife-State Street Financial Trust (the "Trust"), which was
organized as a Massachusetts business trust in November, 1986 and is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund commenced operations in May,
1994. The Trust consists presently of four separate funds: State Street
Research Strategic Portfolios: Conservative, State Street Research Government
Income Fund, State Street Research Strategic Portfolios: Moderate and State
Street Research Strategic Portfolios: Aggressive.
The Fund is authorized to issue four classes of shares. Only Class A and
Class C shares are presently available for purchase. Class B and Class D
shares are not being offered at this time. Class A shares are subject to an
initial sales charge of up to 4.50% and annual service fees of 0.25% of
average daily net assets. Class B shares will be subject to a contingent
deferred sales charge on certain redemptions made within five years of
purchase and pay annual distribution and service fees of 1.00%. Class B
shares automatically convert into Class A shares (which pay lower ongoing
expenses) at the end of eight years after the issuance of the Class B shares.
Class C shares are only offered to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Values for listed equity securities reflect final sales on national
securities exchanges quoted prior to the close of the New York Stock
Exchange. Over-the-counter securities quoted on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system are valued at
closing prices supplied through such system. If not quoted on the NASDAQ
system, such securities are valued at prices obtained from brokers. In the
absence of recorded sales, valuations are at the mean of the closing bid and
asked quotations. Fixed income securities are valued by a pricing service,
which utilizes market transactions, quotations from dealers, and various
relationships among securities in determining value. Short-term securities
maturing within sixty days are valued at amortized cost. Securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate.
80
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- -----------------------------------------------------------------------------
NOTES (cont'd)
- -----------------------------------------------------------------------------
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments.
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of
the Fund. Interest income is accrued daily as earned. Dividend income is
accrued on the ex-dividend date. Discount on debt obligations is amortized
under the effective yield method. The Fund is charged for expenses directly
attributable to it, while indirect expenses are allocated among all funds in
the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually,
unless additional distributions are required for compliance with applicable
tax regulations. Income dividends and capital gain distributions are
determined in accordance with Federal income tax regulations which may differ
from generally accepted accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund intends
to qualify under Subchapter M of the Internal Revenue Code and its policy is
to distribute all of its taxable income, including net realized capital
gains, within the prescribed time periods.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a
period of five years.
G. Forward Contracts and Foreign Currencies
The Fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange
contract is an obligation by the Fund to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the origination
date of the contract. Forward foreign currency exchange contracts establish
an exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar. The aggregate principal amount of forward currency exchange
contracts is recorded in the Fund's accounts. All commitments are
marked-to-market at the applicable transaction rates resulting in unrealized
gains or losses. The Fund records realized gains or losses at the time the
forward contracts are extinguished by entry into a closing contract or by
delivery of the currency. Neither spot transactions nor forward currency
exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the
price of these securities should decline.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.60% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended October 31, 1995, the fees pursuant to
such agreement amounted to $162,835.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance
of the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through
or under which shares of the Fund may be purchased. During the year ended
October 31, 1995, the amount of such expenses was $8,422.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $8,921 during the year ended October 31, 1995.
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended October 31, 1995, the amount of such expenses
assumed by the Distributor and its affiliates was $124,191.
Note 4
For the year ended October 31, 1995, purchases and sales of securities,
exclusive of short-term obligations, aggregated $35,778,596 and $34,397,400
(including $24,098,870 and $23,626,103 of U.S. Government securities),
respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
will pay annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund will pay annual distribution fees of 0.75% of average daily net assets
for Class B and Class D shares. The Distributor uses such payments for
personal service and/or the maintenance of shareholder accounts, to reimburse
securities dealers for distribution and marketing services, to furnish
ongoing assistance to investors and to defray a portion of its distribution
and marketing expenses. For the year ended October 31, 1995, fees pursuant to
such plan amounted to $65,003 for Class A.
81
<PAGE>
STATE STREET RESEACH STRATEGIC PORTFOLIOS: CONSERVATIVE
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At October 31, 1995,
Metropolitan owned 2,617,801 Class A shares and 10,471 Class C shares of the
Fund and the Adviser owned one Class A share of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
May 16, 1994
(Commencement of
Year ended Operations) to
October 31, 1995 October 31, 1994
-------------------- ------------------------
Class A Shares Amount Shares Amount
- ------------------------------------- ------- --------- -------- ------------
<S> <C> <C> <C> <C>
Shares sold 21 $ 192 2,617,802 $25,000,010
----- ------- ------ ----------
Net increase 21 $ 192 2,617,802 $25,000,010
===== ======= ====== ==========
Class C Shares Amount Shares Amount
- ------------------------------------- ----- ------- ------ ----------
Shares sold 164,827 $1,608,388 10,471 $ 100,000
Issued upon reinvestment of dividends 3,527 35,611 -- --
Shares repurchased (43,134) (443,331) -- --
----- ------- ------ ----------
Net increase 125,220 $1,200,668 10,471 $ 100,000
===== ======= ====== ==========
</TABLE>
82
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- -----------------------------------------------------------------------------
Financial Highlights
- -----------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Class C
-------------------------------- ----------------------------------
May 16, 1994
(Commencement May 16, 1994
of (Commencement
Operations) of
Year ended to Year ended Operations) to
October 31, October 31, October 31, October 31,
1995** 1994 1995** 1994
- ----------------------------------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.56 $9.55 $ 9.56 $9.55
Net investment income* .47 .20 .52 .21
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts 1.00 (.09) .97 (.09)
Dividends from net investment
income (.47) (.10) (.49) (.11)
------------- ----------- ------------- -------------
Net asset value, end of year $10.56 $9.56 $10.56 $9.56
============= =========== ============= =============
Total return 15.84%+ 1.15%+++ 16.11%+ 1.25%+++
Net assets at end of year (000s) $27,637 $25,014 $1,433 $100
Ratio of operating expenses to
average net assets* 1.15% 1.15%++ 0.90% 0.90%++
Ratio of net investment income to
average net assets* 4.74% 4.48%++ 4.91% 4.73%++
Portfolio turnover rate 132.50% 70.35% 132.50% 70.35%
*Reflects voluntary assumption of
fees or expenses per share in
each year (Note 3) $.05 $.03 $.05 $.03
</TABLE>
++ Annualized
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
**Per-share figures have been calculated using the average shares method.
83
<PAGE>
- -----------------------------------------------------------------------------
Report of Independent Accountants
- -----------------------------------------------------------------------------
To the Trustees of MetLife-State Street
Financial Trust and the Shareholders of
State Street Research Strategic Portfolios: Conservative
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research
Strategic Portfolios: Conservative (a series of MetLife-State Street
Financial Trust, hereafter referred to as the "Trust") at October 31, 1995,
and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at October 31, 1995 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 8, 1995
84
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- -----------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- -----------------------------------------------------------------------------
As of October 31, 1995, State Street Research Strategic Portfolios:
Conservative held 69% of its assets in fixed-income securities, 28% in
equities and 3% in cash.
Bonds
The Fund's fixed-income component performed well. The largest position was in
high-grade bonds, which delivered strong performance. International bonds
performed below expectations, but weren't heavily weighted in the portfolio.
Stocks
Healthy stock returns also helped the portfolio's performance. Large-cap and
value stocks dominated the Fund's equity holdings. Large- cap growth stocks
performed strongly, value stocks less so. International equities demonstrated
improved performance after a slow start at the beginning of the year.
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. "A" share returns reflect the maximum
4.5% sales charge. "C" shares, offered without a sales charge, are available
only to certain employee benefit plans and institutions. The Standard &
Poor's 500 Composite Index (S&P 500) includes 500 widely traded common stocks
and is a commonly used measure of U.S. stock market performance. The Lehman
Brothers Government/Corporate Bond Index is a commonly used index of bond
market performance. The indices are unmanaged and do not take sales charges
into consideration. Direct investment in the indices is not possible; results
are for illustrative purposes only. Performance results for the Fund are
increased by the Distributor's voluntary reduction of Fund fees and expenses.
In the box in the chart at the right, the first figure reflects expense
reduction; the second shows what results would have been without
subsidization.
Comparison Of Change In Value Of A $10,000
Investment In Strategic Portfolios: Conservative,
The S&P 500 And The Lehman Brothers
Government/Corporate Bond Index
Class A Shares
Average Annual Total Return
1 Year Life of Fund
+10.63%/+10.03% +7.99%/+7.36%
Strategic
Portfolios: S&P LB Gov't/
Conservative 500 Corp. Index
5/16/94 9550 10000 10000
10/31/94 9660 10549 10006
10/31/95 11190 13334 11622
Class C Shares
Average Annual Total Return
1 Year Life of Fund
+16.11%/+15.53% +11.69%/+11.07%
Strategic
Portfolios: S&P LB Gov't/
Conservative 500 Corp. Index
5/16/94 10000 10000 10000
10/31/94 10125 10549 10006
10/31/95 11755 13334 11622
85
<PAGE>
METLIFE - STATE STREET FINANCIAL TRUST
PART C
OTHER INFORMATION
Item 24: Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements included in PART A (Prospectus) of this
Registration Statement:
Financial Highlights for State Street Research Strategic
Portfolios: Moderate for the period September 28, 1993
(commencement of operations) through October 31, 1995.
Financial Highlights for State Street Research Strategic
Portfolios: Conservative and State Street Research Strategic
Portfolios: Aggressive for the period May 16, 1994
(commencement of operations) through October 31, 1995.
Financial Highlights for State Street Research Government
Income Fund for the period March 23, 1987 (commencement of
operations) through October 31, 1995.
(2) Financial Statements included in PART B (Statement of
Additional Information) of this Registration Statement:
For State Street Research Strategic Portfolios: Moderate for
the fiscal year ended October 31, 1995 (except as provided
below):
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets (fiscal years
ended October 31, 1995 and 1994
Notes to Financial Statements (including financial
highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
C-1
<PAGE>
For State Street Research Strategic Portfolios: Conservative
and State Street Research Strategic Portfolios: Aggressive for
the fiscal year ended October 31, 1995 (except as provided
below):
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets (fiscal year ended
October 31, 1995 and for the period
May 16, 1994 (commencement of operations)
through October 31, 1994)
Notes to Financial Statements (including financial
highlights)
Report of Independent Accountants
For State Street Research Government Income Fund for the
fiscal year ended October 31, 1995:
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets (fiscal years
ended October 31, 1995 and 1994)
Notes to Financial Statements (including financial
highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
(b) Exhibits
(1)(a) First Amended and Restated Master Trust Agreement and
Amendment No. 1 and Amendment No. 2 to First Amended and
Restated Master Trust Agreement
(1)(b) Form of Amendment No. 3 to First Amended and Restated
Master Trust Agreement
(2)(a) By-Laws of the Registrant(1)
(2)(b) Amendment No. 1 to By-Laws effective September 30, 1992(8)
(3) Not applicable
(4) Specimen Share Certificate -- Government Income Fund(2)**
(5)(a) Advisory Agreement with MetLife - State Street Investment
Services, Inc.(2)*
(5)(c) Transfer and Assumption of Responsibilities and Rights
relating to the Advisory Agreement between State Street
Financial Services, Inc. and State Street Research &
Management Company(8)*
(5)(d) Letter Agreement with respect to the Advisory Agreement
relating to MetLife - State Street Research Balanced Fund(11)**
C-2
<PAGE>
(5)(d)(i) Letter Agreement with respect to the Advisory Agreement
relating to State Street Research Strategic Portfolios:
Conservative and State Street Research Strategic Portfolios:
Aggressive(13)
(6)(a) Distribution Agreement with MetLife - State Street Investment
Services, Inc.(2)*
(6)(a)(i) Letter Agreement with respect to the Distribution Agreement
relating to MetLife - State Street Research Balanced Fund(11)**
(6)(a)(ii) Letter Agreement with respect to the Distribution Agreement
relating to State Street Research Strategic Portfolios:
Conservative and State Street Research Strategic Portfolios:
Aggressive(13)
(6)(b) Form of Selected Dealer Agreement
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement(13)
(7) Not applicable
(8)(a) Custodian Contract with State Street Bank and Trust Company(2)
(8)(a)(i) Letter Agreement with respect to Custodian Contract relating to
MetLife - State Street Research Balanced Fund(11)**
(8)(a)(ii) Letter Agreement with respect to the Custodian Contract
relating to State Street Research Strategic Portfolios:
Conservative and State Street Research Strategic Portfolios:
Aggressive(13)
(8)(e) Amendment to the Custodian Contract with State Street Bank and
Trust Company(5)
(9) Not applicable
(10) Opinion and consent of Goodwin, Procter & Hoar(12)
(11) Consent of Price Waterhouse
(12) Not applicable
(13)(a) Purchase Agreement and Investment Letter(1)
(13)(b) Purchase Agreement and Investment Letter(2)
(13)(c) Subscription and Investment Letter -- MetLife - State Street
Research Balanced Fund(11)**
(13)(c)(i) Subscription and Investment Letters -- Street Research
Strategic Portfolios: Conservative and State Street Research
Strategic Portfolios: Aggressive(13)
(14)(a) State Street Research IRA: Disclosure Statement, Forms Booklet
and Transfer of Assets/Direct Rollover Form
(14)(b) State Street Research 403(b): Brochure, Maximum Salary
Reduction Worksheet, Account Application, Salary Reduction
Agreement and Transfer of 403(b) Assets Form
(15)(a) Amended and Restated Plan of Distribution Pursuant to Rule
12b-1(10)
(15)(a)(i) Letter Agreement with respect to Amended and Restated Plan of
Distribution Pursuant to Rule 12b-1 relating to MetLife -
State Street Research Balanced Fund(11)**
C-3
<PAGE>
(15)(a)(ii)Letter Agreement with respect to Amended and Restated Plan of
Distribution Pursuant to Rule 12b-1 relating to State Street
Research Strategic Portfolios: Conservative and State Street
Research Strategic Portfolios: Aggressive(13)
(16)(a) Calculation of Performance Data relating to State Street
Research Government Income Fund(5)**
(16)(b) Calculation of Distribution Rate relating to State Street
Research Government Income Fund(6)**
(16)(c) Calculation of Performance Data relating to State Street
Research Strategic Portfolios: Conservative, State Street
Research Strategic Portfolios: Moderate and State Street
Research Strategic Portfolios: Aggressive(14)
(17) Multiple Class Expense Allocation Plan Adopted Pursuant to
Rule 18f-2
(18) Powers of Attorney
(19) Certificate of Board Resolution Respecting Powers of Attorney
(20) Application Forms(13)
(27) Financial Data Schedules
- ---------------
* MetLife - State Street Investment Services, Inc. changed its name to State
Street Financial Services, Inc. effective as of June 18, 1992, and
subsequently changed its name to State Street Research Investment
Services, Inc. effective October 28, 1992. Documents in this listing of
Exhibits which were effective prior to the most recent name change
accordingly refer to MetLife - State Street Investment Services, Inc. or
State Street Financial Services, Inc.
** The Series of the Registrant have changed their names at various times.
Documents in this listing of Exhibits which were immediately
effective prior to the most recent name change accordingly refer to
a prior name of a securities.
C-4
<PAGE>
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote Securities Act of 1933
Reference Registration/Amendment Date Filed
1 Initial Registration November 21, 1986
2 Pre-Effective Amendment No. 1 February 13, 1987
3 Post-Effective Amendment No. 1 August 27, 1987
4 Post-Effective Amendment No. 2 June 3, 1988
5 Post-Effective Amendment No. 3 February 22, 1989
6 Post-Effective Amendment No. 4 February 28, 1990
7 Post-Effective Amendment No. 5 February 26, 1991
8 Post-Effective Amendment No. 7 February 26, 1993
9 Post-Effective Amendment No. 8 April 2, 1993
10 Post-Effective Amendment No. 9 July 8, 1993
11 Post-Effective Amendment No. 10 February 9, 1994
12 Post-Effective Amendment No. 11 February 18, 1994
13 Post-Effective Amendment No. 13 November 30, 1994
14 Post-Effective Amendment No. 14 January 31, 1995
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
As of November 30, 1995 the numbers of record holders of shares of the
Registrant's Fund was as follows:
(1) (2)
Number of
Title of Class Record Holders
- --------------------------------------------------------------------------------
Shares of Beneficial Interest
State Street Research Government Income Fund
Class A 16,473
Class B 3,416
Class C 37
Class D 191
C-5
<PAGE>
State Street Research Strategic Portfolios: Moderate
Class A 0
Class B 0
Class C 10
Class D 0
State Street Research Strategic Portfolios: Conservative
Class A 6
Class B 0
Class C 5
Class D 0
State Street Research Strategic Portfolios: Aggressive
Class A 7
Class B 0
Class C 6
Class D 0
Item 27. Indemnification
Under Article VI of the Registrant's Master Trust Agreement each of its
Trustees and officers or persons serving in such capacity with another entity at
the request of the Registrant ("Covered Person") shall be indemnified against
all liabilities, including, but not limited to, amounts paid in satisfaction of
judgments, in compromises 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 person may be or may have been involved as a
party or otherwise or with which such Covered Person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, director or trustee, except with respect to any
matter as to which it has been determined that such Covered Person had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office (such conduct
referred to hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before which the proceeding was brought that the
person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of a court action or an administrative proceeding against a Covered
Person for insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable
C-6
<PAGE>
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-7
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
State Street Investment Adviser Various investment Boston, MA
Research & advisory clients
Management
Company
Bangs, Linda L. None
Vice President
Barton, Michael E. None
Vice President
Bennett, Peter C. Vice President State Street Research Capital Trust Boston, MA
Director and Vice President State Street Research Exchange Trust Boston, MA
Executive Vice Vice President State Street Research Growth Trust Boston, MA
President Vice President State Street Research Master Investment Trust Boston, MA
Vice President MetLife - State Street Equity Trust
Director State Street Research Investment Services, Inc Boston, MA
Director Boston Private Bank & Trust Co. Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Director (until 12/93) Gefinor Securities S.A. Geneva, Switzerland
Chairman and Trustee Gordon College Wenham, MA
Brown, Susan H. None
Vice President
Burbank, John F. None
Vice President
Canavan, Joseph W. Assistant Treasurer MetLife - State Street Equity Trust Boston, MA
Vice President Assistant Treasurer MetLife - State Street Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Controller State Street Research Portfolios, Inc. New York, NY
Principal business
C-8
<PAGE>
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Carmen, Michael T. None
Vice President
Carstens, Linda C. None
Vice President
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President Director Avalon, Inc. Boston, MA
DiFazio, Susan M.W. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President (Vice President until
8/93)
Dillman, Thomas J Director of Research Bank of New York New York, NY
Senior Vice President (until 6/95)
Drake, Susan W. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President
Duggan, Peter J. Vice President New England Mutual Life Insurance Company Boston, MA
Senior Vice (until 8/94)
President
Evans, Gordon Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Federoff, Alex G. None
Vice President
Finch, Edward R. None
Senior Vice President
(Vice President
until 10/93)
Gardner, Michael D. Vice President The Prudential Insurance Company of America Shorthills, NJ
Senior Vice President (until 9/93)
(Vice President until Partner Prism Group Seattle, WA
6/95)
Geer, Bartlett R. Vice President MetLife - State Street Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
(Vice President Vice President State Street Research Investment Services, Inc. Boston, MA
until 8/93)
C-9
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Glovsky, Charles S. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
(Vice President until
8/93)
Hamilton, Jr., William A. Treasurer and Director Ellis Memorial and Eldredge House Boston, MA
Senior Vice President Treasurer and Director Nautical and Aviation Publishing Company, Inc. Baltimore, MD
(Vice President Treasurer and Director North Conway Institute Boston, MA
until 8/93)
Haverty, Jr., Lawrence J. None
Senior Vice President
(Vice President
until 8/93)
Heineke, George R. None
Vice President
Jackson, Jr., Trustee Certain trusts of related and
F. Gardner non-related individuals
Senior Vice President Trustee Vincent Memorial Hospital Boston, MA
(Vice President
until 8/93)
Jamieson, Frederick H. Vice President and Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Senior Vice President Vice President and Asst. Treasurer SSRM Holdings, Inc. Boston, MA
(Vice President Vice President and Controller MetLife Securities, Inc. New York, NY
until 6/95)
Kallis, John H. Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President Vice President MetLife - State Street Financial Trust Boston, MA
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Director and President K&G Enterprises Washington, D.C.
Kasper, M. Katherine None
Vice President
C-10
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Vice President
Kobrick, Frederick R. Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice Vice President MetLife - State Street Equity Trust Boston, MA
President Vice President State Street Research Capital Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Member Harvard Business School Association Cambridge, MA
Member National Alumni Council, Boston University Boston, MA
Leary, Eileen M. None
Vice President
Lintz, Carol None
Vice President
McNamara, III, Francis J. Senior Vice President, Clerk State Street Research Investment Services, Inc. Boston, MA
Senior Vice President, and General Counsel
Secretary and Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
General Counsel Secretary and General Counsel State Street Research Capital Trust Boston, MA
Secretary and General Counsel State Street Research Exchange Trust Boston, MA
Secretary and General Counsel State Street Research Growth Trust Boston, MA
Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel MetLife - State Street Equity Trust Boston, MA
Secretary and General Counsel MetLife - State Street 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
Senior Vice President, General The Boston Company, Inc. Boston, MA
Counsel and Assistant Secretary
(until 5/95)
Senior Vice President, General Boston Safe Deposit and Trust Company Boston, MA
Counsel and Assistant Secretary
(until 5/95)
Senior Vice President, General The Boston Company Advisors, Inc. Boston, MA
Counsel and Assistant Secretary
(until 5/95)
C-11
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Maus, Gerard P. Treasurer MetLife - State Street Equity Trust Boston, MA
Director, Executive Treasurer MetLife - State Street Financial Trust Boston, MA
Vice President Treasurer State Street Research Income Trust Boston, MA
and Treasurer Treasurer State Street Research Money Market Trust Boston, MA
Treasurer State Street Research Tax-Exempt Trust Boston, MA
Treasurer State Street Research Capital Trust Boston, MA
Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Treasurer and Chief Financial Officer
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Director GFM International Investors, Ltd. London, England
Treasurer and Chief Financial SSRM Holdings, Inc. Boston, MA
Officer
Treasurer MetLife Securities, Inc. New York, NY
Milder, Judith J. None
Senior Vice President
(Vice President
until 6/95)
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Moore, Jr., Thomas P. Director Hibernia Savings Bank Quincy, MA
Senior Vice Vice President State Street Research Capital Trust Boston, MA
President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President MetLife - State Street Equity Trust Boston, MA
Mulligan, JoAnne C. Vice President State Street Research Money Market Trust Boston, MA
Vice President
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
C-12
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Pannell, James C. None
Vice President
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
(Vice President
until 7/94)
Pluckhahn, Charles W. None
Vice President
Ragsdale, Easton Senior Vice President Kidder, Peabody, & Co. Incorporated New York, NY
Vice President (until 12/94)
Rawlins, Jeffrey A. None
Vice President
Rice III, Daniel Joseph Vice President MetLife - State Street Equity Trust Boston, MA
Senior Vice President
(Vice President
until 8/93)
Richards, Scott Vice President Wellington Management Company Boston, MA
Vice President (until 1/94)
Romich, Douglas A. Assistant Treasurer MetLife - State Street Equity Trust Boston, MA
Vice President Assistant Treasurer MetLife - State Street Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Controller State Street Research Portfolios, Inc. New York, NY
Row, III, Walter A. None
Vice President
C-13
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Schrage, Michael Senior Vice President Putnam Management Boston, MA
Vice President (until 12/93)
Schultz, David C. Director (non-voting) Capital Trust, S.A. Luxembourg
Executive Vice Director Alex Brown Capital, Ltd. Hamilton, Bermuda
President
(Senior Vice President Director and Treasurer Mafraq Hospital Association Mafraq, Jordan
until 12/94, Vice Member Association of Investment
President until Management Sales Executives Atlanta, GA
4/94) Member, Investment Committee Lexington Christian Academy Lexington, MA
Shean, William G. None
Vice President
Shively, Thomas A. Vice President MetLife - State Street Financial Trust Boston, MA
Director and Vice President State Street Research Money Market Trust Boston, MA
Executive Vice Vice President State Street Research Tax-Exempt Trust
President (Senior Director State Street Research Investment Services, Inc Boston, MA
Vice President Vice President State Street Research Securities Trust Boston, MA
until 6/93)
Shoemaker, Richard D. None
Senior Vice President
(Vice President
until 8/93)
Strelow, Dan R. None
Senior Vice President
(Vice President
until 8/93)
Stuka, Paul U.S. Portfolio Consultant Teton Partners Boston, MA
Senior Vice President (until 4/95)
C-14
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Swanson, Amy McDermott None
Senior Vice President
(Vice President
until 8/93)
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
(Vice President
until 6/95)
Verni, Ralph F. Chairman, President, Chief State Street Research Capital Trust Boston, MA
Chairman, President, Executive Officer and Trustee
Chief Executive Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Growth Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Master Investment Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Securities Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief MetLife - State Street Equity Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief MetLife - State Street Financial Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Income Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Money Market Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Tax-Exempt Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Investment Services, Inc. Boston, MA
Executive Officer and Director
Chairman and Director Metric Holdings, Inc. San Francisco, CA
Director and Officer Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Chairman of the Board and Director MetLife Securities, Inc. New York, NY
Chairman and Director (until 11/94) GFM International Investors, Ltd. London, England
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director CML Group, Inc. Boston, MA
C-15
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wade, Dudley Vice President State Street Research Growth Trust Boston, MA
Freeman Vice President State Street Research Master Investment Trust Boston, MA
Senior Vice
President
Wallace, Julie K. None
Vice President
Ward, Geoffrey None
Senior Vice President
(Vice President
until 8/93)
Westvold, President and Director Bondurant, Inc. Medfield, MA
Elizabeth McCombs (until 2/94)
Vice President
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Vice President, Asst. Clerk (Vice President
Assistant Secretary until 6/95)
and Assistant Assistant Secretary State Street Research Capital Trust Boston, MA
General Counsel Assistant Secretary State Street Research Exchange Trust Boston, MA
Assistant Secretary State Street Research Growth Trust Boston, MA
Assistant Secretary State Street Research Master Investment Trust Boston, MA
Assistant Secretary State Street Research Securities Trust Boston, MA
Assistant Secretary MetLife - State Street Equity Trust Boston, MA
Assistant Secretary MetLife - State Street Financial Trust Boston, MA
Assistant Secretary State Street Research Income Trust Boston, MA
Assistant Secretary State Street Research Money Market Trust Boston, MA
Assistant Secretary State Street Research Tax-Exempt Trust Boston, MA
Assistant Secretary SSRM Holdings, Inc. Boston, MA
Woodbury, Robert S. Employee Metropolitan Life Insurance Company New York, NY
Vice President
Woodworth, Jr., Kennard Vice President State Street Research Exchange Trust Boston, MA
Senior Vice Vice President State Street Research Growth Trust Boston, MA
President
C-16
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
(Vice President
until 8/93)
Yogg, Michael Richard Vice President MetLife - State Street Financial Trust Boston, MA
Senior Vice Vice President State Street Research Income Trust Boston, MA
President
</TABLE>
C-17
Item 29. Principal Underwriters
(a) State Street Research Investment Services, Inc. serves as principal
underwriter for State Street Research Equity Trust, MetLife - State Street
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 and State Street
Research Portfolios, Inc.
(b) Directors and Officers of State Street Research Investment
Services, Inc. are as follows:
(1) (2) (3)
Positions Positions
Name and Principal and Offices and Offices
Business Address with Underwriter with Registrant
Ralph F. Verni Chairman of the Chairman of
One Financial Center Board, President, the Board,
Boston, MA 02111 Chief Executive Officer President,
and Director Chief Executive
Officer and
Trustee
Peter C. Bennett Director Vice President
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice Treasurer
One Financial Center President, Treasurer,
Boston, MA 02111 Chief Financial
Officer and Director
Thomas A. Shively Director None
One Financial Center
Boston, MA 02111
George B. Trotta Executive None
One Madison Avenue Vice President
New York, NY 10010
Dennis C. Barghann Senior Vice President None
One Madison Avenue
New York, NY 10010
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
C-18
<PAGE>
Paul V. Daly Senior Vice President None
One Financial Center
Boston, MA 02111
Susan M.W. DiFazio Senior Vice President None
One Financial Center
Boston, MA 02111
Robert Hauesler Senior Vice President None
One Madison Avenue
New York, NY 10010
Gregory R. McMahan Senior Vice President None
One Financial Center
Boston, MA 02111
Francis J. McNamara, III Senior Vice Secretary
One Financial Center President and
Boston, MA 02111 Clerk
Joan D. Miller Senior Vice President None
One Financial Center
Boston, MA 02111
Richard P. Samartin Senior Vice President None
One Financial Center
Boston, MA 02111
Darman A. Wing Senior Vice Assistant
One Financial Center President and Secretary
Boston, MA 02111 Assistant Clerk
Gordon Evans Vice President None
One Financial Center
Boston, MA 02111
Linda Grasso Vice President None
One Financial Center
Boston, MA 02111
Frederick H. Jamieson Vice President and None
One Financial Center Assistant Treasurer
Boston, MA 02111
C-19
<PAGE>
Item 30. Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
(a) Inapplicable.
(b) Deleted.
(c) The Registrant undertakes to hold a special meeting of shareholders
for the purpose of voting upon the question of removal of any trustee or
trustees when requested in writing to do so by the record holders of not less
than 10 per centum of the outstanding shares of the 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.
(d) The Registrant has elected to include the information required by Item
5A of Form N-1A in its annual report to shareholders. The Registrant undertakes
to furnish each person to whom a prospectus is delivered with a copy of the
applicable fund's latest annual report to shareholders upon request and without
charge.
C-20
<PAGE>
NOTICE
A copy of the Master Trust Agreement of the Registrant is on file with the
Secretary of State of the Commonwealth of Massachusetts and notice is hereby
given that the obligations of the Registrant hereunder, and the authorization,
execution and delivery of this Registration Statement and Amendment, shall not
be binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Registrant as individuals or personally, but shall bind only
the property of the series of the Registrant, as provided in the Master Trust
Agreement. Each series of the Registrant shall be solely and exclusively
responsible for all of its direct or indirect debts, liabilities, and
obligations, and no other series shall be responsible for the same.
C-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 15 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 27th day of December, 1995.
METLIFE - STATE STREET FINANCIAL 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:
* Trustee, Chairman of the Board
- ---------------------------------- and Chief Executive Officer
Ralph F. Verni (principal executive officer)
* Treasurer (principal financial
- ---------------------------------- and accounting officer)
Gerard P. Maus
*
- ---------------------------------- Trustee
Edward M. Lamont
* Trustee
- ----------------------------------
Robert A. Lawrence
* Trustee
- ----------------------------------
Dean O. Morton
* Trustee
- ----------------------------------
Thomas L. Phillips
*
- ---------------------------------- Trustee
Toby Rosenblatt
* Trustee
- ----------------------------------
Michael S. Scott Morton
<PAGE>
* Trustee
- ----------------------------------
Jeptha H. Wade
*By: /s/ Francis J. McNamara, III
----------------------------
Francis J. McNamara, III,
Attorney-in-Fact under Powers of
Attorney dated December 27, 1995,
filed herein.
1933 Act Registration No. 33-10327
1940 Act File No. 811-4911
======================================================================
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. 15 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 16 [X]
____________________
METLIFE - STATE STREET FINANCIAL TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
____________________
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(1)(a) First Amended and Restated Master Trust Agreement and
Amendment No. 1 and Amendment No. 2 to the First Amended
and Restated Master Trust Agreement
(1)(b) Form of Amendment No. 3 to the First Amended and Restated
Master Trust Agreement
(6) Form of Selected Dealer Agreement and Form of Supplement
No. 1 to Selected Dealer Agreement
(11) Consent of Price Waterhouse
(14)(a) State Street Research IRA: Disclosure Statement, Forms
Booklet and Transfer of Assets/Direct Rollover Form
(14)(b) State Street Research 403(b): Brochure, Maximum Salary
Reduction Worksheet, Account Application, Salary Reduction
Agreement and Transfer of 403(b) Assets Form
(17) Multiple Class Expense Allocation Plan Adopted Pursuant to
Rule 18f-2
(18) Powers of Attorney
(19) Certificate of Board Resolution Respecting Powers of Attorney
(27) Financial Data Schedules
50846.c3
1/25/95
METLIFE - STATE STREET FIXED INCOME TRUST
FIRST AMENDED AND RESTATED
MASTER TRUST AGREEMENT
June 1, 1993
Copyright l993 Goodwin, Procter & Hoar
All Rights Reserved
<PAGE>
METLIFE - STATE STREET FIXED INCOME TRUST
FIRST AMENDED AND RESTATED
MASTER TRUST AGREEMENT
Page
ARTICLE I. NAME AND DEFINITIONS 1
Section 1.1 Name 1
Section 1.2 Definitions 2
(a) "By-laws" 2
(b) "Class" 2
(c) "Commission" 2
(d) "Declaration of Trust" 2
(e) "1940 Act" 2
(f) "Shareholder" 2
(g) "Shares" 2
(h) "Sub-Trust" or "Series" 2
(i) "Trust" 2
(j) "Trustees" 2
ARTICLE II. PURPOSE OF TRUST 2
ARTICLE III. THE TRUSTEES 3
Section 3.1 Number, Designation, Election, Term, etc. 3
(a) Initial Trustees 3
(b) Number 3
(c) Election and Term 3
(d) Resignation and Retirement 3
(e) Removal 3
(f) Vacancies 4
(g) Effect of Death, Resignation, etc. 4
(h) No Accounting 4
Section 3.2 Powers of Trustees 4
(a) Investments 6
(b) Disposition of Assets 6
(c) Ownership Powers 6
(d) Subscription 6
(e) Form of Holding 6
(f) Reorganization, etc. 6
(g) Voting Trusts, etc. 6
(h) Compromise 7
(i) Partnerships, etc. 7
(j) Borrowing and Security 7
(k) Guarantees, etc. 7
(1) Insurance 7
(m) Pensions, etc. 7
(n) Distribution Plans 8
(i)
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Page
Section 3.3 Certain Contracts 8
(a) Advisory 8
(b) Administration 8
(c) Distribution 9
(d) Custodian and Depository 9
(e) Transfer and Dividend Disbursing Agency 9
(f) Shareholder Servicing 9
(g) Accounting 9
Section 3.4 Payment of Trust Expenses and
Compensation of Trustees 10
Section 3.5 Ownership of Assets of the Trust 11
ARTICLE IV. SHARES 11
Section 4.1 Description of Shares 11
Section 4.2 Establishment and Designation of
Sub-Trusts 12
(a) Assets Belonging to Sub-Trusts 12
(b) Liabilities Belonging to Sub-Trusts 13
(c) Dividends 14
(d) Liquidation 14
(e) Voting 15
(f) Redemption by Shareholder 15
(g) Redemption by Trust 15
(h) Net Asset Value 16
(i) Transfer 16
(j) Equality 16
(k) Fractions 17
(1) Conversion Rights 17
Section 4.3 Ownership of Shares 17
Section 4.4 Investments in the Trust 17
Section 4.5 No Pre-emptive Rights 18
Section 4.6 Status of Shares and Limitation of
Personal Liability 18
ARTICLE V. SHAREHOLDERS' VOTING POWERS AND MEETINGS 18
Section 5.1 Voting Powers 18
Section 5.2 Meetings 19
Section 5.3 Record Dates 19
(ii)
<PAGE>
Page
Section 5.4 Quorum and Required Vote 20
Section 5.5 Action by Written Consent 20
Section 5.6 Inspection of Records 20
Section 5.7 Additional Provisions 20
Section 5.8 Shareholder Communications 20
ARTICLE VI. LIMITATION OF LIABILITY; INDEMNIFICATION 21
Section 6.1 Trustees, Shareholders, etc. Not
Personally Liable 21
Section 6.2 Trustee's Good Faith Action; Expert Advice;
No Bond or Surety 22
Section 6.3 Indemnification of Shareholders 22
Section 6.4 Indemnification of Trustees, Officers, etc. 23
Section 6.5 Compromise Payment 24
Section 6.6 Indemnification Not Exclusive, etc. 24
Section 6.7 Liability of Third Persons Dealing with
Trustees 25
ARTICLE VII. MISCELLANEOUS 25
Section 7.1 Duration and Termination of Trust 25
Section 7.2 Reorganization 25
Section 7.3 Amendments 26
Section 7.4 Filing of Copies; References; Headings 27
Section 7.5 Applicable Law 27
(iii)
<PAGE>
METLIFE - STATE STREET FIXED INCOME TRUST
FIRST AMENDED AND RESTATED
MASTER TRUST AGREEMENT
FIRST AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST made at
Boston, Massachusetts this 1st day of June, 1993, by the Trustees
hereunder, and by the holders of shares of beneficial interest to be
issued hereunder as hereinafter provided.
WITNESSETH
WHEREAS this Trust has been formed to carry on the business of an
investment company; and
WHEREAS this Trust is authorized to issue its shares of beneficial
interest in separate series, each separate series to be a Sub-Trust
hereunder, all in accordance with the provisions hereinafter set forth;
and
WHEREAS the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts business trust in accordance
with the provisions hereinafter set forth.
WHEREAS, the Trustees desire to amend and restate the Declaration of
Trust dated November 19, 1986 in its entirety by adopting this First
Amended and Restated Master Trust Agreement, which shall supersede such
Declaration of Trust and be the governing instrument of the Trust from
and after the date hereof.
NOW, THEREFORE, the Trustees hereby amend and restate the Declaration of
Trust dated November 19, 1986 in its entirety and declare that they will
hold all cash, securities and other assets which they may from time to
time acquire in any manner as Trustees hereunder IN TRUST to manage and
dispose of the same upon the following terms and conditions for the
benefit of the holders from time to time of shares of beneficial
interest in this Trust or Sub-Trusts (as hereinafter defined) created
hereunder as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. This Trust shall be known as MetLife - State Street
Fixed Income Trust and the Trustees shall conduct the business of the
Trust under that name or any other name or names as they may from time
to time determine.
<PAGE>
Section 1.2 Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time;
(b) "Class" refers to any class of shares of any Series or Sub-Trust
established and designated under or in accordance with the provisions of
Article IV;
(c) "Commission" shall have the meaning given it in the 1940 Act;
(d) "Declaration of Trust" shall mean this First Amended and Restated
Agreement and Declaration of Trust as amended or restated from time to
time;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(f) "Shareholder" means a record owner of Shares;
(g) "Shares" refers to the transferable units of interest into which the
beneficial interest in the Trust and each Sub-Trust of the Trust and/or
any class of any Series (as the context may require) shall be divided
from time to time;
(h) "Sub-Trust" or "Series" refers to a series of Shares established and
designated under or in accordance with the provisions of Article IV;
(i) "Trust" refers to the Massachusetts business trust established by
this Declaration of Trust, as amended from time to time, inclusive of
each and every Sub-Trust established hereunder; and
(j) "Trustees" refers to the Trustees of the Trust and of each Sub-Trust
hereunder named herein or elected in accordance with Article III.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to operate as an investment company and to
offer Shareholders of the Trust and each Sub-Trust of the Trust one or
more investment programs primarily in securities and debt instruments.
2
<PAGE>
ARTICLE III
THE TRUSTEES
Section 3.1 Number, Designation, Election, Term, etc.
(a) Initial Trustees. The Trustees hereof are Edward M. Lamont, Robert
A. Lawrence, Dean O. Morton, Thomas L. Phillips, Toby Rosenblatt,
Michael S. Scott Morton, Ralph F. Verni and Jeptha H. Wade.
(b) Number. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase or decrease (to not less than
two at any time after the effective date of the Trust's Registration
Statement on Form N-lA with the Commission) the number of Trustees to a
number other than the number theretofore determined. No decrease in the
number of Trustees shall have the effect of removing any Trustee from
office prior to the expiration of his term, but the number of Trustees
may be decreased in conjunction with the removal of a Trustee pursuant
to subsection (e) of this Section 3.1.
(c) Election and Term. The Shareholders shall elect a Board of Trustees
at the first meeting of Shareholders following the initial public
offering of Shares. Each Trustee, whether named above or hereafter
becoming a Trustee, shall serve as a Trustee of the Trust and of each
Sub-Trust hereunder during the lifetime of this Trust and until its
termination as hereinafter provided except as such Trustee sooner dies,
resigns or is removed. The Trustees may elect their own successors and
may, pursuant to Section 3.1(f) hereof, appoint Trustees to fill
vacancies; provided, however, that the Shareholders shall have the right
to elect Trustees subsequent to the initial election contemplated by
this Section 3.1(c) in the event there shall at any time be no Trustees
in office or when and to the extent otherwise required by Section 16(a)
of the 1940 Act.
(d) Resignation and Retirement. Any Trustee may resign his trust or
retire as a Trustee, by written instrument signed by him and delivered
to the other Trustees or to any officer of the Trust, and such
resignation or retirement shall take effect upon such delivery or upon
such later date as is specified in such instrument and shall be
effective as to the Trust and each Sub-Trust hereunder.
(e) Removal. Any Trustee may be removed with or without cause at any
time: (i) by written instrument, signed by at least two thirds of the
number of Trustees in office immediately prior to such removal,
specifying the date upon which such removal shall become effective; or
(ii) by vote of Shareholders holding not less than two thirds of the
Shares then outstanding, cast in person or by proxy at any meeting
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<PAGE>
called for the purpose; or (iii) by a written declaration signed by
Shareholders holding not less than two thirds of the Shares then
outstanding and filed with the Trust's custodian. Any such removal shall
be effective as to the Trust and each Sub-Trust hereunder.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from any reason,
including without limitation the death, resignation, retirement, removal or
incapacity of any of the Trustees, or resulting from an increase in the number
of Trustees by the other Trustees may (but so long as there are at least two
remaining Trustees, need not unless required by the 1940 Act) be filled by a
majority of the remaining Trustees, subject to the provisions of Section 16(a)
of the 1940 Act, through the appointment in writing of such other person as such
remaining Trustees in their discretion shall determine and such appointment
shall be effective upon the written acceptance of the person named therein to
serve as a Trustee and agreement by such person to be bound by the provisions of
this Declaration of Trust, except that any such appointment in anticipation of a
vacancy to occur by reason of retirement, resignation or increase in number of
Trustees to be effective at a later date shall become effective only at or after
the effective date of said retirement, resignation or increase in number of
Trustees. As soon as any Trustee so appointed shall have accepted such
appointment and shall have agreed in writing to be bound by this Declaration of
Trust and the appointment is effective, the Trust estate shall vest in the new
Trustee, together with the continuing Trustees, without any further act or
conveyance.
(g) Effect of Death, Resignation, etc. The death, resignation,
retirement, removal or incapacity of the Trustees, or any one of them,
shall not operate to annul or terminate the Trust or any Sub-Trust
hereunder or to revoke or terminate any existing agency or contract
created or entered into pursuant to the terms of this Declaration of
Trust.
(h) No Accounting. Except to the extent required by the 1940 Act or
under circumstances which would justify his removal for cause, no person
ceasing to be a Trustee as a result of his death, resignation,
retirement, removal or incapacity (nor the estate of any such person)
shall be required to make an accounting to the Shareholders or remaining
Trustees upon such cessation.
Section 3.2 Powers of Trustees. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to
carry out that responsibility and the purpose of the Trust. The Trustees
in all instances shall act as principals, and are and shall be free from
the control of the Shareholders. The Trustees shall have full power and
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<PAGE>
authority to do any and all acts and to make and execute any and all
contracts and instruments that they may consider necessary or
appropriate in connection with the management of the Trust. The Trustees
shall not be bound or limited by present or future laws or customs with
regard to investment by trustees or fiduciaries, but shall have full
authority and absolute power and control over the assets of the Trust
and the business of the Trust to the same extent as if the Trustees were
the sole owners of the assets of the Trust and the business in their own
right, including such authority, power and control to do all acts and
things as they, in their uncontrolled discretion, shall deem proper to
accomplish the purposes of this Trust. Without limiting the foregoing,
the Trustees may adopt By-Laws not inconsistent with this Declaration of
Trust providing for the conduct of the business and affairs of the Trust
and may amend and repeal them to the extent that such By-Laws do not
reserve that right to the Shareholders; they may sue or be sued in the
name of the Trust; they may from time to time in accordance with the
provisions of Section 4.1 hereof establish classes of Shares of any
Series or divide the Shares of any Series into classes, each such Sub-
Trust to operate as a separate and distinct investment medium and with
separately defined investment objectives and policies and distinct
investment purposes; they may as they consider appropriate elect and
remove officers and appoint and terminate agents and consultants and
hire and terminate employees, any one or more of the foregoing of whom
may be a Trustee, and may provide for the compensation of all of the
foregoing; they may appoint from their own number, and terminate, any
one or more committees consisting of two or more Trustees, including
without implied limitation an executive committee, which may, when the
Trustees are not in session and subject to the 1940 Act, exercise some
or all of the power and authority of the Trustees as the Trustees may
determine; in accordance with Section 3.3 they may employ one or more
advisers, administrators, depositories and custodians and may authorize
any depository or custodian to employ subcustodians or agents and to
deposit all or any part of such assets in a system or systems for the
central handling of securities and debt instruments, retain transfer,
dividend, accounting or Shareholder servicing agents or any of the
foregoing, provide for the distribution of Shares by the Trust through
one or more distributors, principal underwriters or otherwise, and set
record dates or times for the determination of Shareholders or various
of them with respect to various matters; they may compensate or provide
for the compensation of the Trustees, officers, advisers,
administrators, custodians, other agents, consultants and employees of
the Trust or the Trustees on such terms as they deem appropriate; and in
general they may delegate to any officer of the Trust, to any committee
of the Trustees and to any employee, adviser, administrator,
distributor, depository, custodian, transfer and dividend disbursing
agent, or any other agent or consultant of the Trust
5
<PAGE>
such authority, powers, functions and duties as they consider desirable
or appropriate for the conduct of the business and affairs of the Trust,
including without implied limitation the power and authority to act in
the name of the Trust and any Sub-Trust and of the Trustees, to sign
documents and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with
the 1940 Act or other applicable law, the Trustees shall have power and
authority for and on behalf of the Trust and each separate Sub-Trust
established hereunder:
(a) Investments. To invest and reinvest cash and other property, and to
hold cash or other property uninvested without in any event being bound
or limited by any present or future law or custom in regard to
investments by trustees;
(b) Disposition of Assets. To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets of the
Trust;
(c) Ownership Powers. To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities, debt instruments
or property; and to execute and deliver proxies or powers of attorney to
such person or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with relation to
securities, debt instruments or property as the Trustees shall deem
proper;
(d) Subscription. To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities or
debt instruments;
(e) Form of Holding. To hold any security, debt instrument or property in a form
not indicating any trust, whether in bearer, unregistered or other negotiable
form, or in the name of the Trustees or of the Trust or of any Sub-Trust or in
the name of a custodian, subcustodian or other depository or a nominee or
nominees or otherwise;
(f) Reorganization, etc. To consent to or participate in any plan for
the reorganization, consolidation or merger of any corporation or
issuer, any security or debt instrument of which is or was held in the
Trust; to consent to any contract, lease, mortgage, purchase or sale of
property by such corporation or issuer, and to pay calls or
subscriptions with respect to any security or debt instrument held in
the Trust;
(g) Voting Trusts, etc. To join with other holders of any securities or
debt instruments in acting through a committee, depositary, voting
trustee or otherwise, and in that connection to deposit any security or
debt instrument with, or transfer any security or debt instrument to,
any such committee,
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<PAGE>
depositary or trustee, and to delegate to them such power and authority
with relation to any security or debt instrument (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and compensation
of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) Compromise. To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any Sub-Trust or any matter in
controversy, including but not limited to claims for taxes;
(i) Partnerships, etc. To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) Borrowing and Security. To borrow funds and to mortgage and pledge
the assets of the Trust or any part thereof to secure obligations
arising in connection with such borrowing;
(k) Guarantees, etc. To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and to
mortgage and pledge the Trust property or any part thereof to secure any
of or all such obligations;
(l) Insurance. To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the conduct
of the business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and
principal on its portfolio investments, and insurance policies insuring
the Shareholders, Trustees, officers, employees, agents, consultants,
investment advisers, managers, administrators, distributors, principal
underwriters, or independent contractors, or any thereof (or any person
connected therewith), of the Trust individually against all claims and
liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such person in any such
capacity, including any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust would have the power
to indemnify such person against such liability;
(m) Pensions, etc. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out
pension, profit-sharing, share bonus, share purchase, savings, thrift
and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits,
for any or all of the Trustees, officers, employees and agents of the
Trust; and
7
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(n) Distribution Plans. To adopt on behalf of the Trust or any Sub-Trust
a plan of distribution and related agreements thereto pursuant to the
terms of Rule 12b-1 of the 1940 Act and to make payments from the assets
of the Trust or the relevant Sub-Trust or Sub-Trusts or class or classes
thereof pursuant to said Rule 12b-1 Plan.
Except as otherwise provided by the 1940 Act or other applicable law,
this Declaration of Trust or the By-Laws, any action to be taken by the
Trustees on behalf of the Trust or any Sub-Trust may be taken by a
majority of the Trustees present at a meeting of Trustees (a quorum,
consisting of at least one-half of the Trustees then in office, being
present), within or without Massachusetts, including any meeting held by
means of a conference telephone or other communications equipment by
means of which all persons participating in the meeting can hear each
other at the same time, and participation by such means shall constitute
presence in person at a meeting, or by written consents of a majority of
the Trustees then in office (or such larger or different number as may
be required by the 1940 Act or other applicable law).
Section 3.3 Certain Contracts. Subject to compliance with the provisions
of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees
generally, the Trustees may, at any time and from time to time and
without limiting the generality of their powers and authority otherwise
set forth herein, enter into one or more contracts with any one or more
corporations, trusts, associations, partnership, limited partnerships,
other type of organizations, or individuals (a "Contracting Party"), to
provide for the performance and assumption of some or all of the
following services, duties and responsibilities to, for or on behalf of
the Trust and/or any Sub-Trust, and/or the Trustees, and to provide for
the performance and assumption of such other services, duties and
responsibilities in addition to those set forth below as the Trustees
may determine appropriate:
(a) Advisory. Subject to the general supervision of the Trustees and in
conformity with the stated policy of the Trustees with respect to the
investments of the Trust or of the assets belonging to any Sub-Trust of
the Trust (as that phrase is defined in subsection (a) of Section 4.2),
to manage such investments and assets, make investment decisions with
respect thereto, and to place purchase and sale orders for portfolio
transactions relating to such investments and assets;
(b) Administration. Subject to the general supervision of the Trustees
and in conformity with any policies of the Trustees with respect to the
operations of the Trust and each Sub-Trust, to supervise all or any part
of the operations of the Trust and each Sub-Trust, and to provide all or
any part
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of the administrative and clerical personnel' office space and office
equipment and services appropriate for the efficient administration and
operations of the Trust and each Sub-Trust;
(c) Distribution. To distribute the Shares of the Trust and each Sub-
Trust (including any classes thereof), to be principal underwriter of
such Shares, and/or to act as agent of the Trust and each Sub-Trust in
the sale of Shares and the acceptance or rejection of orders for the
purchase of Shares;
(d) Custodian and Depository. To act as depository for and to maintain
custody of the property of the Trust and each Sub-Trust and accounting
records in connection therewith;
(e) Transfer and Dividend Disbursing Agency. To maintain records of the
ownership of outstanding Shares, the issuance and redemption and the
transfer thereof, and to disburse any dividends declared by the Trustees
and in accordance with the policies of the Trustees and/or the
instructions of any particular Shareholder to reinvest any such
dividends;
(f) Shareholder Servicing. To provide service with respect to the
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares and similar matters: and
(g) Accounting. To handle all or any part of the accounting
responsibilities, whether with respect to the Trust's properties,
Shareholders or otherwise The same person may be the Contracting Party
for some or all of the services, duties and responsibilities to, for and
of the Trust and/or the Trustees, and the contracts with respect thereto
may contain such terms interpretive of or in addition to the delineation
of the services, duties and responsibilities provided for, including
provisions that are not inconsistent with the 1940 Act relating to the
standard of duty of and the rights to indemnification of the Contracting
Party and others, as the Trustees may determine. Nothing herein shall
preclude, prevent or limit the Trust or a Contracting Party from
entering into sub contractual arrangements relating to any of the
matters referred to in Sections 3.3(a) through (g) hereof.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of
or for any Contracting Party, or of or for any parent or affiliate
of any Contracting Party or that the Contracting Party or any
parent or affiliate thereof is a Shareholder or has an interest in
the Trust or any Sub-Trust, or that
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(ii) any Contracting Party may have a contract providing for
the rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited
partnerships or other organizations, or have other business or
interests,
shall not affect the validity of any contract for the performance and
assumption of services, duties and responsibilities to, for or of he
Trust or any Sub-Trust and/or the Trustees or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or
executing the same or create any liability or accountability to the
Trust, any Sub-Trust or its Shareholders, provided that in the case of
any relationship or interest referred to in the preceding clause (i) on
the part of any Trustee or officer of the Trust either (x) the material
facts as to such relationship or interest have been disclosed to or are
known by the Trustees not having any such relationship or interest and
the contract involved is approved in good faith by a majority of such
Trustees not having any such relationship or interest (even though such
unrelated or disinterested Trustees are less than a quorum of all of the
Trustees), (y) the material facts as to such relationship or interest
and as to the contract have been disclosed to or are known by the
Shareholders entitled to vote thereon and the Contract involved is
specifically approved in good faith by vote of the Shareholders, or (z)
the specific contract involved is fair to the Trust as of the time it is
authorized, approved or ratified by the Trustees or by the Shareholders.
Section 3.4 Payment of Trust Expenses and Compensation of Trustees. The
Trustees are authorized to pay or to cause to be paid out of the
principal or income of the Trust or any Sub-Trust, or partly out of
principal and partly out of income, and to charge or allocate the same
to, between or among such one or more of the Sub-Trusts and/or one or
more classes of Shares thereof that may be established and designated
pursuant to Article IV, as the Trustees deem fair, all expenses, fees,
charges, taxes and liabilities incurred or arising in connection with
the Trust or any Sub-Trust and/or one or more classes of shares thereof,
or in connection with the management thereof, including, but not limited
to, the Trustees compensation and such expenses and charges for the
services of the Trust's officers, employees, investment adviser,
administrator, distributor, principal underwriter, auditor, counsel,
depository, custodian, transfer agent, dividend disbursing agent,
accounting agent, Shareholder servicing agent, and such other agents,
consultants, and independent contractors and such other expenses and
charges as the Trustees may deem necessary or proper to incur. Without
limiting the generality of any other provision hereof, the Trustees
shall be entitled to reasonable compensation from the Trust for their
services as Trustees and may fix the amount of such compensation.
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Section 3.5 Ownership of Assets of the Trust. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trustees.
ARTICLE IV
SHARES
Section 4.1 Description of Shares. The beneficial interest in the Trust
shall be divided into Shares, all with $.001 par value, but the Trustees
shall have the authority from time to time to establish and designate
one or more Series of Shares (each of which Series of Shares shall be a
separate and distinct Sub-Trust of the Trust, including without
limitation those Sub-Trusts specifically established and designated in
Section 4.2) and one or more classes thereof, as they deem necessary or
desirable. For all purposes under this Declaration of Trust or
otherwise, including, without implied limitation, (i) with respect to
the rights of creditors and (ii) for purposes of interpreting the
relevant rights of each Sub-Trust and the Shareholders of each Sub-
Trust, each Sub-Trust established hereunder shall be deemed to be a
separate trust. The Trustees shall have exclusive power without the
requirement of Shareholder approval to establish and designate such
separate and distinct Sub-Trusts or classes thereof, and to fix and
determine the relative rights and preferences as between the shares of
the separate Sub-Trusts or classes as to right of redemption and the
price, terms and manner of redemption, special and relative rights as to
dividends and other distributions and on liquidation, sinking or
purchase fund provisions, conversion rights, and conditions under which
the several Sub-Trusts or classes thereof shall have separate voting
rights or no voting rights.
The number of authorized Shares and the number of Shares of each Sub-
Trust or classes thereof that may be issued is unlimited, and the
Trustees may issue Shares of any Sub-Trust for such consideration and on
such terms as they may determine (or for no consideration if pursuant to
a Share dividend or split-up), all without action or approval of the
Shareholders. All Shares when so issued on the terms determined by the
Trustees shall be fully paid and non-assessable (but may be subject to
mandatory contribution back to the Trust as provided in subsection (h)
of Section 4.2). The Trustees may classify or reclassify any unissued
Shares or any Shares previously issued and reacquired of any Sub-Trust
or class into one or more Sub-Trusts or classes that may be established
and designated from time to time. The Trustees may hold as treasury
Shares, reissue for such consideration and on such terms as they may
determine, or cancel, at their discretion from time to time, any Shares
of any Sub-Trust reacquired by the Trust.
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The Trustees may from time to time close the transfer books or establish
record dates and times for the purposes of determining the holders of
Shares entitled to be treated as such, to the extent provided or
referred to in Section 5.3.
The establishment and designation of any Sub-Trust or classes in
addition to those established and designated in Section 4.2 shall be
effective (i) upon the execution by a majority of the then Trustees of
an instrument setting forth such establishment and designation of the
relative rights and preferences of the Shares of such Sub-Trust, (ii)
upon the execution of an instrument in writing by an officer of the
Trust pursuant to the vote of a majority of the Trustees, or (iii) as
otherwise provided in either such instrument. At any time that there are
no Shares outstanding of any particular Sub-Trust previously established
and designated, the Trustees may by an instrument executed by a majority
of their number abolish that Sub-Trust and the establishment and
designation thereof. Each instrument referred to in this paragraph shall
have the status of an amendment to this Declaration of Trust.
Any Trustee, officer or other agent of the Trust, and any organization
in which any such person is interested may acquire, own, hold and
dispose of Shares of any Sub-Trust of the Trust to the same extent as if
such person were not a Trustee, officer or other agent of the Trust; and
the Trust may issue and sell or cause to be issued and sold and may
purchase Shares of any Sub-Trust from any such person or any such
organization subject only to the general limitations, restrictions or
other provisions applicable to the sale or purchase of Shares of such
Sub-Trust generally.
Section 4.2 Establishment and Designation of Sub-Trusts Without limiting
the authority of the Trustees set forth in Section 4.1 to establish and
designate further Sub-Trusts, the Trustees hereby establish and
designate one Sub-Trust: the "State Street Research Government Income
Fund." The Shares of such Sub-Trust and any Shares of any further Sub-
Trusts that may from time to time be established and designated by the
Trustees shall (unless the Trustees otherwise determine with respect to
some further Sub-Trust at the time of establishing and designating the
same) have the following relative rights and preferences:
(a) Assets Belonging to Sub-Trusts. All consideration received by the
Trust for the issue or sale of Shares of a particular Sub-Trust or any
classes thereof, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall be
held by the Trustees in
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trust for the benefit of the holders of Shares of that Sub-Trust and
shall irrevocably belong to that Sub-Trust (and be allocable to any
classes thereof) for all purposes, and shall be so recorded upon the
books of account of the Trust. Such consideration, assets, income,
earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds, in whatever
form the same may be, together with any General Items (as hereinafter
defined) allocated to that Sub-Trust as provided in the following
sentence, are herein referred to as "assets belonging to" that Sub-Trust
(and be allocable to any classes thereof). In the event that there are
any assets, income, earnings, profits, and proceeds thereof, funds, or
payments which are not readily identifiable as belonging to any
particular Sub-Trust (collectively "General Items"), the Trustees shall
allocate such General Items to and among any one or more of the Sub-
Trusts established and designated from time to time in such manner and
on such basis as they, in their sole discretion, deem fair and
equitable, and any General Items so allocated to a particular Sub-Trust
shall belong to that Sub-Trust (and be allocable to any class thereof).
Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Sub-Trusts (including any classes thereof)
for all purposes.
(b) Liabilities Belonging to Sub-Trusts. The assets belonging to each
particular Sub-Trust shall be charged with the liabilities in respect of
that Sub-Trust and all expenses, costs, charges and reserves belonging
to that Sub-Trust, and any general liabilities, expenses, costs, charges
or reserves of the Trust which are not readily identifiable as belonging
to any particular Sub-Trust shall be allocated and charged by the
Trustees to and among any one or more of the Sub-Trusts established and
designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. In addition,
the liabilities in respect of a particular class of Shares of a
particular Series and all expenses, costs, charges and reserves
belonging to that class of Shares, and any general liabilities,
expenses, costs, charges or reserves of that particular Series which are
not readily identifiable as belonging to any particular class of Shares
of that Series shall be allocated and charged by the Trustees to and
among any one or more of the classes of Shares of that Series
established and designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable.
The liabilities, expenses, costs, charges and reserves allocated and so
charged to a Series or class thereof are herein referred to as
"liabilities belonging to" that Series or class thereof. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the Shareholders of all Series
(including any classes thereof) for all
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purposes. Any creditor of any Sub-Trust may look only to the assets of
that Sub-Trust to satisfy such creditor's debt.
The Trustees shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated as income
and which items as capital, and each such determination and allocation
shall be conclusive and binding upon the Shareholders.
(c) Dividends. Dividends and distributions on Shares of a particular
Sub-Trust or any class thereof may be paid with such frequency as the
Trustees may determine, which may be daily or otherwise pursuant to a
standing resolution or resolutions adopted only once or with such
frequency as the Trustees may determine, to the holders of Shares of
that Sub-Trust or class, from such of the income and capital gains,
accrued or realized, from the assets belonging to that Sub-Trust or in
the case of a class, belonging to that Sub-Trust and allocable to that
class, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Sub-Trust or class. All dividends
and distributions on Shares of a particular Sub-Trust or classes thereof
shall be distributed pro rata to the holders of Shares of that Sub-Trust
or class in proportion to the number of Shares of that Sub-Trust or
class held by such holders at the date and time of record established
for the payment of such dividends or distributions, except that in
connection with any dividend or distribution program or procedure the
Trustees may determine that no dividend or distribution shall be payable
on Shares as to which the Shareholder's purchase order and/or payment
have not been received by the time or times established by the Trustees
under such program or procedure. Such dividends and distributions may be
made in cash or Shares of that Sub-Trust or class or a combination
thereof as determined by the Trustees or pursuant to any program that
the Trustees may have in effect at the time for the election by each
Shareholder of the mode of the making of such dividend or distribution
to that Shareholder. Any such dividend or distribution paid in Shares
will be paid at the net asset value thereof as determined in accordance
with subsection (h) of Section 4.2.
(d) Liquidation. In the event of the liquidation or dissolution of the
Trust, the Shareholders of each Sub-Trust or any class thereof that has
been established and designated shall be entitled to receive, when and
as declared by the Trustees, the excess of the assets belonging to that
Sub-Trust or in the case of a class, belonging to that Sub-Trust and
allocable to that class, over the liabilities belonging to that Sub-
Trust or class. The assets so distributable to the Shareholders of any
particular Sub-Trust or class thereof shall be distributed among such
Shareholders in proportion to the number of Shares of that Sub-Trust or
class thereof held by
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them and recorded on the books of the Trust. The liquidation of any
particular Sub-Trust or class thereof may be authorized at any time by
vote of a majority of the Trustees then in office subject to the
approval of a majority of the outstanding voting Shares of that Sub-
Trust or class, as defined in the 1940 Act.
(e) Voting. On each matter submitted to a vote of the Shareholders, each
holder of a Share of each Sub-Trust or class thereof shall be entitled
to one vote for each whole Share and to a proportion ate fractional vote
for each fractional Share standing in his name on the books of the Trust
and all Shares of each Sub-Trust and classes thereof shall vote as a
separate class except as to voting for Trustees and as otherwise
required by the 1940 Act. As to any matter which does not affect the
interest of a particular Sub-Trust or class, only the holders of Shares
of the one or more affected Sub-Trusts or class shall be entitled to
vote.
(f) Redemption by Shareholder. Each holder of Shares of a particular
Sub-Trust or any class thereof shall have the right at such times as may
be permitted by the Trust, but no less frequently than once each week,
to require the Trust to redeem all or any part of his Shares of that
Sub-Trust or class thereof at a redemption price equal to the net asset
value per Share of that Sub-Trust or class thereof next determined in
accordance with subsection (h) of this Section 4.2 after the Shares are
properly tendered for redemption, subject to any contingent deferred
sales charge in effect at the time of redemption. Payment of the
redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or
undesirable, the Trust may, subject to the requirements of the 1940 Act,
make payment wholly or partly in securities or other assets belonging to
the Sub-Trust of which the Shares being redeemed are part at the value
of such securities or assets used in such determination of net asset
value.
Notwithstanding the foregoing, the Trust may postpone payment of
the redemption price and may suspend the right of the holders of Shares
of any Sub-Trust to require the Trust to redeem Shares of that Sub-Trust
during any period or at any time when and to the extent permissible
under the 1940 Act.
(g) Redemption by Trust. Each Share of each Sub-Trust or classes thereof
that has been established and designated is subject to redemption by the
Trust at the redemption price which would be applicable if such Share
was then being redeemed by the Shareholder pursuant to subsection (f) of
this Section 4.2 upon such other conditions as may from time to time be
determined by the Trustees and set forth in the then current prospectus
of the Trust with respect to
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maintenance of Shareholder accounts of a minimum amount. Upon such
redemption the holders of the Shares so redeemed shall have no further
right with respect thereto other than to receive payment of such
redemption price.
(h) Net Asset Value. The net asset value per Share of any Sub-Trust
shall be (i) in the case of a Sub-Trust whose shares are not divided in
to classes, the quotient obtained by dividing the value of the net
assets of that Sub-Trust (being the value of the assets belonging to
that Sub Trust less the liabilities belonging to that Sub-Trust) by the
total number of Shares of that Sub-Trust outstanding and (ii) in the
case of a class of Shares of a Sub-Trust whose Shares are divided into
classes, the quotient obtained by dividing the value of the net assets
of that Sub-Trust allocable to such class (being the value of the assets
belonging to that Sub-Trust allocable to such class less the liabilities
belonging to such class) by the total number of Shares of such class
outstanding; all determined in accordance with the methods and
procedures, including without limitation those with respect to rounding,
established by the Trustees from time to time.
The Trustees may determine to maintain the net asset value per Share of any
Sub-Trust at a designated constant dollar amount and in connection therewith may
adopt procedures not inconsistent with the 1940 Act for the continuing
declarations of income attributable to that Sub-Trust as dividends payable in
additional Shares of that Sub-Trust at the designated constant dollar amount and
for the handling of any losses attributable to that Sub-Trust. Such procedures
may provide that in the event of any loss each Shareholder shall be deemed to
have contributed to the capital of the Trust attributable to that Sub-Trust his
pro rata portion of the total number of Shares required to be cancelled in order
to permit the net asset value per Share of that Sub-Trust to be maintained,
after reflecting such loss, at the designated constant dollar amount. Each
Shareholder of the Trust shall be deemed to have agreed, by his investment in
any Sub-Trust with respect to which the Trustees shall have adopted any such
procedure, to make the contribution referred to in the preceding sentence in the
event of any such loss.
(i) Transfer. All Shares of each particular Sub-Trust or class thereof
shall be transferable, but transfers of Shares of a particular Sub-Trust
or class thereof will be recorded on the Share transfer records of the
Trust applicable to that Sub-Trust or class only at such times as
Shareholders shall have the right to require the Trust to redeem Shares
of that Sub-Trust or class and at such other times as may be permitted
by the Trustees.
(j) Equality. Except as provided herein or in the instrument designating
and establishing any class of Shares or
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any Sub-Trust, all Shares of each particular Sub-Trust or class thereof
shall represent an equal proportionate interest in the assets belonging
to that Sub-Trust, or in the case of a class, belonging to that Sub-
Trust and allocable to that class, subject to the liabilities belonging
to that Sub-Trust or class, and each Share of any particular Sub-Trust
or class shall be equal to each other Share of that Sub-Trust or class;
but the provisions of this sentence shall not restrict any distinctions
permissible under subsection (c) of this Section 4.2 that may exist with
respect to dividends and distributions on Shares of the same Sub-Trust
or class. The Trustees may from time to time divide or combine the
Shares of any particular Sub-Trust or class into a greater or lesser
number of Shares of that Sub-Trust or class without thereby changing the
proportionate beneficial interest in the assets belonging to that Sub-
Trust or class or in any way affecting the rights of Shares of any other
Sub-Trust or class.
(k) Fractions. Any fractional Share of any Sub-Trust, if any such
fractional Share is outstanding, shall carry proportionately all the
rights and obligations of a whole Share of that Sub-Trust, including
rights and obligations with respect to voting, receipt of dividends and
distributions, redemption of Shares, and liquidation of the Trust.
(l) Conversion Rights. Subject to compliance with the requirements of
the 1940 Act, the Trustees shall have the authority to provide that
holders of Shares of any Sub-Trust or classes thereof shall have the
right to convert said Shares into Shares of one or more other Sub-Trust
or classes thereof in accordance with such requirements and procedures
as may be established by the Trustees.
Section 4.3 Ownership of Shares. The ownership of Shares shall be recorded on
the books of the Trust or of a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Sub-Trust and each
class thereof that has been established and designated. No certificates
certifying the ownership of Shares need be issued except as the Trustees may
otherwise determine from time to time. The Trustees may make such rules as they
consider appropriate for the issuance of Share certificates, the use of
facsimile signatures, the transfer of Shares and similar matters. The record
books of the Trust as kept by the Trust or any transfer or similar agent, as the
case may be, shall be conclusive as to who are the Shareholders and as to the
number of Shares of each Sub-Trust held from time to time by each such
Shareholder.
Section 4.4 Investments in the Trust. The Trustees may accept investments in the
Trust and each Sub-Trust thereof from such persons and on such terms and for
such consideration, not inconsistent with the provisions of the 1940 Act, as
they from
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time to time authorize. The Trustees may authorize any distributor,
principal underwriter, custodian, transfer agent or other person to
accept orders for the purchase of Shares that conform to such authorized
terms and to reject any purchase orders for Shares whether or not
conforming to such authorized terms.
Section 4.5 No Pre-emptive Rights. Shareholders shall have no pre-
emptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 4.6 Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights
provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed
to the terms hereof and to have become a party hereto. The death of a
Shareholder during the continuance of the Trust shall not operate to
terminate the Trust or any Sub-Trust thereof nor entitle the
representative of any deceased Shareholder to an accounting or to take
any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole
or any part of the Trust property or right to call for a partition or
division of the same or for an accounting, nor shall the ownership of
Shares constitute the Shareholders partners. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust shall have any
power to bind personally any Shareholder, nor except as specifically
provided herein to call upon any Shareholder for the payment of any sum
of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay.
ARTICLE V
SHAREHOLDERS VOTING POWERS AND MEETINGS
Section 5.1 Voting Powers. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees as provided in Section
3.1, (ii) with respect to any contract with a Contracting Party as
provided in Section 3.3 as to which Shareholder approval is as required
by the 1940 Act, (iii) with respect to any termination or reorganization
of the Trust or any Sub-Trust to the extent and as provided in Sections
7.1 and 7.2, (iv) with respect to any amendment of this Declaration of
Trust to the extent and as provided in Section 7.3, (v) to the same
extent as the stockholders of a Massachusetts business corporation as to
whether or not a court action, proceeding or claim should or should not
be brought or maintained derivatively or as a class action on behalf of
the Trust or any Sub-Trust thereof or the Shareholders (provided,
however, that
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a Shareholder of a particular Sub-Trust shall not be entitled to a
derivative or class action on behalf of any other Sub-Trust (or
Shareholder of any other Sub-Trust) of the Trust) and (vi) with respect
to such additional matters relating to the Trust as may be required by
the 1940 Act, this Declaration of Trust, the By-Laws or any registration
of the Trust with the Commission (or any successor agency) or any state,
or as the Trustees may consider necessary or desirable. There shall be
no cumulative voting in the election of Trustees. Shares may be voted in
person or by proxy. A proxy with respect to Shares held in the name of
two or more persons shall be valid if executed by any one of them unless
at or prior to exercise of the proxy the Trust receives a specific
written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
Section 5.2 Meetings. No annual or regular meeting of Shareholders is
required. Special meetings of Shareholders may be called by the Trustees
from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein provided
or upon any other matter deemed by the Trustees to be necessary or
desirable. Written notice of any meeting of Shareholders shall be given
or caused to be given by the Trustees by mailing such notice at least
seven days before such meeting, postage prepaid, stating the time, place
and purpose of the meeting, to each Shareholder at the Shareholder's
address as it appears on the records of the Trust. The Trustees shall
promptly call and give notice of a meeting of Shareholders for the
purpose of voting upon removal of any Trustee of the Trust when
requested to do so in writing by Shareholders holding not less than 10%
of the Shares then outstanding. If the Trustees shall fail to call or
give notice of any meeting of Shareholders for a period of 30 days after
written application by Shareholders holding at least 10% of the Shares
then outstanding requesting a meeting be called for any other purpose
requiring action by the Shareholders as provided herein or in the By-
Laws, then Shareholders holding at least 10% of the Shares then
outstanding may call and give notice of such meeting, and thereupon the
meeting shall be held in the manner provided for herein in case of call
thereof by the Trustees.
Section 5.3 Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any
adjournment thereof, or who are entitled to participate in any dividend
or distribution, or for the purpose of any other action, the Trustees
may from time to time close the transfer books for such period, not
exceeding 30 days (except
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at or in connection with the termination of the Trust), as the Trustees
may determine; or without closing the transfer books the Trustees may
fix a date and time not more than 60 days prior to the date of any
meeting of Shareholders or other action as the date and time of record
for the determination of Shareholders entitled to vote at such meeting
or any adjournment thereof or to be treated as Shareholders of record
for purposes of such other action, and any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at
such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action, even though he
has since that date and time disposed of his Shares, and no Shareholder
becoming such after that date and time shall be so entitled to vote at
such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action.
Section 5.4 Quorum and Required Vote. A majority of the Shares entitled
to vote shall be a quorum for the transaction of business at a
Shareholders meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held, within a
reasonable time after the date set for the original meeting without the
necessity of further notice. A majority of the Shares voted, at a
meeting of which a quorum is present shall decide any questions and a
plurality shall elect a Trustee, except when a different vote is
required or permitted by any provision of the 1940 Act or other
applicable law or by this Declaration of Trust or the By-Laws.
Section 5.5 Action by Written Consent. Subject to the provisions of the
1940 Act and other applicable law, any action taken by Shareholders may
be taken without a meeting if a majority of Shareholders entitled to
vote on the matter (or such larger proportion thereof as shall be
required by the 1940 Act or by any express provision of this Declaration
of Trust or the By-Laws) consent to the action in writing and such
written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.
Section 5.6 Inspection of Records. The records of the Trust shall be open to
inspection by Shareholders to the same extent as is permitted stockholders of a
Massachusetts business corporation under the Massachusetts Business Corporation
Law.
Section 5.7 Additional Provisions. The By-Laws may include further
provisions for Shareholders votes and meetings and related matters not
inconsistent with the provisions hereof.
Section 5.8 Shareholder Communications. Whenever ten or more
Shareholders of record who have been such for at least six months
preceding the date of application, and who hold in the aggregate either
Shares having a net asset value of at least
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$25,000 or at least 1% of the outstanding Shares, whichever is less,
shall apply to the Trustees in writing, stating that they wish to
communicate with other Shareholders with a view to obtaining signatures
to a request for a Shareholder meeting and accompanied by a form of
communication and request which they wish to transmit, the Trustees
shall within five business days after receipt of such application either
(1) afford to such applicants access to a list of the names and
addresses of all Shareholders as recorded on the books of the Trust or
Sub-Trust, as applicable; or (2) inform such applicants as to the
approximate number of Shareholders of record, and the approximate cost
of mailing to them the proposed communication and form of request.
If the Trustees elect to follow the course specified in clause (2)
above, the Trustees, upon the written request of such applicants,
accompanied by a tender of the material to be mailed and of the
reasonable expenses of mailing, shall, with reasonable promptness, mail
such material to all Shareholders of record at their addresses as
recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Trustees to the effect
that in their opinion either such material contains untrue statements of
fact or omits to state facts necessary to make the statements contained
therein not misleading, or would be in violation of applicable law, and
specifying the basis of such opinion. The Trustees shall thereafter
comply with any order entered by the Commission and the requirements of
the 1940 Act and the Securities Exchange Act of 1934.
ARTICLE VI
LIMITATION OF LIABILITY, INDEMNIFICATION
Section 6.1 Trustees, Shareholders, etc. Not Personally Liable. All
persons extending credit to, contracting with or having any claim
against the Trust shall look only to the assets of the Sub-Trust with
which such person dealt for payment under such credit, contract or
claim, and neither the Shareholders of any Sub-Trust nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past,
present or future, nor any other Sub-Trust shall be personally liable
therefor. Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever executed or done by
or on behalf of the Trust, any Sub-Trust or the Trustees or any of them
in connection with the Trust shall be conclusively deemed to have been
executed or done only by or for the Trust (or the Sub-Trust) or the
Trustees and not personally. Nothing in this Declaration of Trust shall
protect any Trustee or officer against any liability to the Trust or
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the Shareholders to which such Trustee or officer would other wise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office
of Trustee or of such officer.
Section 6.2 Trustee's Good Faith Action; Expert Advice; No Bond or
Surety. The exercise by the Trustees of their powers and discretion
hereunder shall be binding upon everyone interested. A Trustee shall be
liable for his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office
of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. Subject to the foregoing, (a) the
Trustees shall not be responsible or liable in any event for any neglect
or wrongdoing of any officer, agent, employee, consultant, adviser,
administrator, distributor or principal underwriter, custodian or
transfer, dividend disbursing, Shareholder servicing or accounting agent
of the Trust, nor shall any Trustee be responsible for the act or
omission of any other Trustee; (b) the Trustees may take advice of
counsel or other experts with respect to the meaning and operation of
this Declaration of Trust and their duties as Trustees, and shall be
under no liability for any act or omission in accordance with such
advice or for failing to follow such advice; and (c) in discharging
their duties, the Trustees, when acting in good faith, shall be entitled
to rely upon the books of account of the Trust and upon written reports
made to the Trustees by any officer appointed by them, any independent
public accountant, and (with respect to the subject matter of the
contract involved) any officer, partner or responsible employee of a
Contracting Party appointed by the Trustees pursuant to Section 3.3. The
Trustees as such shall not be required to give any bond or surety or any
other security for the performance of their duties.
Section 6.3 Indemnification of Shareholders. In case any Shareholder (or former
Shareholder) of any Sub-Trust of the Trust shall be charged or held to be
personally liable for any obligation or liability of the Trust solely by reason
of being or having been a Shareholder and not because of such Shareholder's acts
or omissions or for some other reason, said Sub-Trust (upon proper and timely
request by the Shareholder, shall assume the defense against such charge and
satisfy any judgment thereon, and the Shareholder or former Shareholder (or his
heirs, executors, administrators or other legal representatives or in the case
of a corporation or other entity, its corporate or other general successor)
shall be entitled out of the assets of said Sub-Trust estate to be held harmless
from and indemnified against all loss and expense arising from such liability.
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Section 6.4 Indemnification of Trustees, Officers, etc. The Trust shall
indemnify (from the assets of the Sub-Trust or Sub-Trusts in question)
each of its Trustees and officers (including persons who serve at the
Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person"))
against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred
by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before
any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with
which such person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Trustee or officer,
director or trustee, except with respect to any matter as to which it
has been determined that such Covered Person had acted with willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office (such
conduct referred to hereafter as "Disabling Conduct"). A determination
that the Covered Person is entitled to indemnification may be made by
(i) a final decision on the merits by a court or other body before whom
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 Trust
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.
Expenses, including accountants' and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), may be paid from
time to time by the Sub-Trust in question in advance of the final
disposition of any such action, suit or proceeding, provided that the
Covered Person shall have undertaken to repay the amounts so paid to the
Sub-Trust in question if it is ultimately determined that
indemnification of such expenses is not authorized under this Article VI
and (i) the Covered Person shall have provided security for such
undertaking, (ii) the Trust shall be insured against losses arising by
reason of any lawful advances, or (iii) a majority of a quorum of the
disinterested Trustees who are not a party to the proceeding, or an
independent legal counsel in a written opinion, shall have determined,
based on a
23
<PAGE>
review of readily available facts (as opposed to a full trial-type
injury), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.
Section 6.5 Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section
6.4, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided
unless such indemnification shall be approved (a) by a majority of the
disinterested Trustees who are not parties to the proceeding or (b) by
an independent legal counsel in a written opinion. Approval by the
Trustees pursuant to clause (a) or by independent legal counsel pursuant
to clause (b) shall not prevent the recovery from any Covered Person of
any amount paid to such Covered Person in accordance with any of such
clauses as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to have been liable to
the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of such Covered Person's office.
Section 6.6 Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article VI shall not be exclusive of or
affect any other rights to which any such Covered Person may be
entitled. As used in this Article VI, "Covered Person" shall include
such person's heirs, executors and administrators, an "interested
Covered Person" is one against whom the action, suit or other proceeding
in question or another action, suit or other proceeding on the same or
similar grounds is then or has been pending or threatened, and a
"disinterested" person is a person against whom none of such actions,
suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or
threatened. Nothing contained in this Article shall affect any rights to
indemnification to which personnel of the Trust, other than Trustees and
officers, and other persons may be entitled by contract or otherwise
under law, nor the power of the Trust to purchase and maintain liability
insurance on behalf of any such person.
Section 6.7 Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any injury concerning
the validity of any transaction made or to be made by the Trustees or to
see to the application of any payments made or property transferred to
the Trust or upon its order.
24
<PAGE>
ARTICLE VII
MISCELLANEOUS
Section 7.1 Duration and Termination of Trust. Unless terminated as
provided herein, the Trust shall continue without limitation of time
and, without limiting the generality of the foregoing, no change,
alteration or modification with respect to any Sub-Trust shall operate
to terminate the Trust. The Trust or any Sub-Trust or class may be
terminated at any time by a majority of the Trustees then in office
subject to a favorable vote of a majority of the outstanding voting
securities, as defined in the 1940 Act, Shares of each Sub-Trust or
class voting separately by Sub-Trust or class.
Section 7.2 Reorganization. The Trustees may sell, convey, merge and
transfer the assets of the Trust, or the assets belonging to any one or
more Sub-Trusts, to another trust, partnership, association or
corporation organized under the laws of any state of the United States,
or to the Trust to be held as assets belonging to another Sub-Trust of
the Trust, in exchange for cash, shares or other securities (including,
in the case of a transfer to another Sub-Trust of the Trust, Shares of
such other Sub-Trust) with such transfer either (1) being made subject
to, or with the assumption by the transferee of, the liabilities
belonging to each Sub-Trust the assets of which are so transferred, or
(2) not being made subject to, or not with the assumption of, such
liabilities; provided, however, that no assets belonging to any
particular Sub-Trust shall be so transferred unless the terms of such
transfer shall have first been approved at a meeting called for the
purpose by the affirmative vote of the holders of a majority of the
outstanding voting Shares, as defined in the 1940 Act, of that Sub-
Trust. Following such transfer, the Trustees shall distribute such cash,
shares or other securities (giving due effect to the assets and
liabilities belonging to and any other differences among the various
Sub-Trusts the assets belonging to which have so been transferred) among
the Shareholders of the Sub-Trust the assets belonging to which have
been so transferred; and if all of the assets of the Trust have been so
transferred, the Trust shall be terminated.
The Trust, or any one or more Sub-Trusts, may, either as the successor,
survivor, or non-survivor, (1) consolidate with one or more other
trusts, partnerships, associations or corporations organized under the
laws of the Commonwealth of Massachusetts or any other state of the
United States, to form a new consolidated trust, Partnership,
association or corporation under the laws of which any one of the
constituent entities is organized, or (2) merge into one or more other
trusts, Partnerships, associations or corporations organized
25
<PAGE>
under the laws of the Commonwealth of Massachusetts or any other state
of the United States, or have one or more such trusts, partnerships,
associations or corporations merged into it, any such consolidation or
merger to be upon such terms and conditions as are specified in an
agreement and plan of reorganization entered into by the Trust, or one
or more Sub-Trusts as the case may be, in connection therewith. The
terms "merge" or "merger" as used herein shall also include the purchase
or acquisition of any assets of any other trust, partnership,
association or corporation which is an investment company organized
under the laws of the Commonwealth of Massachusetts or any other state
of the United States. Any such consolidation or merger shall require the
affirmative vote of the holders of a majority of the outstanding voting
Shares, as defined in the 1940 Act, of each Sub-Trust affected thereby.
Section 7.3 Amendments. All rights granted to the Shareholders under
this Declaration of Trust are granted subject to the reservation of the
right to amend this Declaration of Trust as herein provided, except that
no amendment shall repeal the limitations on personal liability of any
Shareholder or Trustee or repeal the prohibition of assessment upon the
Shareholders without the express consent of each Shareholder or Trustee
involved. Subject to the foregoing, the provisions of this Declaration
of Trust (whether or not related to the rights of Shareholders) may be
amended at any time, so long as such amendment does not adversely affect
the rights of any Shareholder with respect to which such amendment is or
purports to be applicable and so long as such amendment is not in
contravention of applicable law, including the 1940 Act, by an
instrument in writing signed by a majority of the then Trustees (or by
an officer of the Trust pursuant to the vote of a majority of such
Trustees). Any amendment to this Declaration of Trust that adversely
affects the rights of Shareholders may be adopted at any time by an
instrument in writing signed by a majority of the then Trustees (or by
an officer of the Trust pursuant to a vote of a majority of such
Trustees) when authorized to do so by the vote in accordance with
Subsection (e) of Section 4.2 of Shareholders holding a majority of the
Shares entitled to vote. Subject to the foregoing, any such amendment
shall be effective as provided in the instrument containing the terms of
such amendment or, if there is no provision therein with respect to
effectiveness, upon the execution of such instrument and of a
certificate (which may be a part of such instrument) executed by a
Trustee or officer of the Trust to the effect that such amendment has
been duly adopted.
Section 7.4 Filing of Copies; References; Headings. The original or a
copy of this instrument and of each amendment hereto shall be kept at
the office of the Trust where it may be
26
<PAGE>
inspected by any Shareholder. A copy of this instrument and of each
amendment hereto shall be filed by the Trust with the Secretary of The
Commonwealth of Massachusetts and with the Boston City Clerk, as well as
any other governmental office where such filing may from time to time be
required, but the failure to make any such filing shall not impair the
effectiveness of this instrument or any such amendment. Anyone dealing
with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such amendments have been made, as to the
identities of the Trustees and officers, and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it
were the original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such amendments. In this
instrument and in any such amendment, references to this instrument, and
all expressions like "herein", "hereof" and "hereunder" shall be deemed
to refer to this instrument as a whole as the same may be amended or
affected by any such amendments. The masculine gender shall include the
feminine and neuter genders. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or
affect the meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts each of which
shall be deemed an original.
Section 7.5 Applicable Law. This Declaration of Trust is made in The
Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of said
Commonwealth, including the Massachusetts Business Corporation Law as
the same may be amended from time to time, to which reference is made
with the intention that matters not specifically covered herein or as to
which an ambiguity may exist shall be resolved as if the Trust were a
business corporation organized in Massachusetts, but the reference to
said Business Corporation Law is not intended to give the Trust, the
Trustees, the Shareholders or any other person any right, power,
authority or responsibility available only to or in connection with an
entity organized in corporate form. The Trust shall be of the type
referred to in Section 1 of Chapter 182 of the Massachusetts General
Laws and of the type commonly called a Massachusetts business trust, and
without limiting the provisions hereof, the Trust may exercise all
powers which are ordinarily exercised by such a trust.
27
<PAGE>
IN WITNESS WHEREOF, the undersigned officer of the Trust hereby adopts
the foregoing on behalf of the Trust pursuant to authorization by the
Trustees of the Trust.
/s/ Constantine Hutchins, Jr.
Constantine Hutchins, Jr.
Secretary
Date: June 1, 1993
Principal office of the Trust:
One Financial Center
Boston, Massachusetts 02111
DP-3085/d
5/27/92
CR.002
<PAGE>
METLIFE - STATE STREET FIXED INCOME TRUST
TRUSTEES AS OF MAY 27, 1993
Edward M. Lamont
Box 1234
Moores Hill Road
Syosset, NY 11791
Robert A. Lawrence
7 Jackson Pond Road
Dedham, MA 02026
Dean O. Morton
25857 Westwind Way
Los Altos Hills, CA 94022
Thomas L. Phillips
60 Black Oak Road
Weston, MA 02193
Toby Rosenblatt
3409 Pacific Avenue
San Francisco, CA 94118
Michael S. Scott Morton
31 Somerset Road
Lexington, MA 02173
Ralph F. Verni
123 Belcher Drive
Sudbury, MA 01776
Jeptha H. Wade
251 Old Billerica Road
Bedford, MA 01730
<PAGE>
METLIFE - STATE STREET FIXED INCOME TRUST
Amendment No. 1 to First Amended and
Restated Master Trust Agreement
INSTRUMENT OF AMENDMENT
Pursuant to Article I, Section 1.1, Article IV, Sections 4.1 and 4.2 and
Article VII, Section 7.3 of the First Amended and Restated Master Trust
Agreement of the MetLife - State Street Fixed Income Trust (the "Trust")
dated June 1, 1993, the Master Trust Agreement is hereby amended to
change the name of the Trust to MetLife - State Street Financial Trust
and to establish and designate an additional series of shares to be
known as the MetLife - State Street Research Balanced Fund series, such
new series to have the relative rights and preferences set forth in
Article IV, Section 4.2, subsections (a) through (1) of the Amended and
Restated Master Trust Agreement.
This Amendment shall be effective as of September 1, 1993.
IN WITNESS WHEREOF, the undersigned officer of the Trust hereby adopts
the foregoing on behalf of the Trust pursuant to authorization by the
Trustees of the Trust.
/s/ Constantine Hutchins, Jr.
-----------------------------
Constantine Hutchins, Jr.
Secretary
YP-8448/M
CR.003
<PAGE>
Exhibit (1)(a)
METLIFE - STATE STREET FINANCIAL TRUST
Amendment No. 2 to First Amended and
Restated Master Trust Agreement
INSTRUMENT OF AMENDMENT
Pursuant to Article IV, Sections 4.1. and 4.2 and Article VII, Section 7.3 of
the First Amended and Restated Master Trust Agreement of the MetLife - State
Street Financial Trust (the "Trust") dated June 1, 1993, ("Master Trust
Agreement") the Master Trust Agreement is hereby amended to change the name of
MetLife - State Street Research Balanced Fund to State Street Research Strategic
Portfolios: Moderate and to establish and designate two additional series of
shares to be known as State Street Research Strategic Portfolios: Conservative
and State Street Research Strategic Portfolios: Aggressive, both new series to
have the relative rights and preferences set forth in Article IV, Section 4.2,
subsections (a) through (1) of the Master Trust Agreement.
Pursuant to Article VII, Section 7.3 of the Master Trust Agreement, the third
sentence of the second paragraph of Article IV, Section 4.1 of the Master Trust
Agreement is hereby amended to read as follows:
"The Trustees may classify or reclassify any Shares of any Sub-Trust of class
into one or more Sub-Trusts or classes that may be established and designated
from time to time provided, however, that no such classification or
reclassification shall adversely affect the rights of any Shareholder."
This Amendment shall be effective as of May 10, 1994.
IN WITNESS WHEREOF, the undersigned officer of the Trust hereby adopts the
foregoing on behalf of the Trust pursuant to authorization by the Trustees of
the Trust.
/s/ Constantine Hutchins, Jr.
-----------------------------
Constantine Hutchins, Jr.
Secretary
Exhibit (1)(b)
METLIFE - STATE STREET FINANCIAL TRUST
Amendment No. 3 to First Amended and
Restated Master Trust Agreement
INSTRUMENT OF AMENDMENT
Pursuant to Article I, Section 1.1, Article IV, Sections 4.1 and 4.2 and
Article VII, Section 7.3 of the First Amended and Restated Master Trust
Agreement of the MetLife - State Street Financial Trust (the "Trust") dated June
1, 1993 ("Master Trust Agreement"), as heretofore amended, the Master Trust
Amendment is hereby amended to change the name of the Trust to "State Street
Research Financial Trust."
Pursuant to Article VII, Section 7.3 of the Master Trust Amendment, the
following actions are taken:
The last sentence of Article IV, Section 4.2(d) of the Master Trust
Agreement is hereby amended to read as follows:
"The liquidation of any particular Sub-Trust or class thereof may be
authorized by vote of a majority of the Trustees then in office without the
approval of shareholders of such Sub-Trust."
Section 5.3 of Article V of the Master Trust Agreement is revised in its
entirety to read as follows:
"Section 5.3 Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a reasonable date and
time prior to the date of any meeting of Shareholders or other action as the
date and time of record for the determination of Shareholders entitled to vote
at such meeting or any adjournment thereof or to be treated as a Shareholder of
record for purposes of such other action, even though he has since that date and
time disposed of his Shares, and no Shareholder becoming such after that date
and time shall be so entitled to vote at such meeting or any adjournment thereof
or to be treated as a Shareholder of record for purposes of such other action."
Section 7.2 of Article VII of the Master Trust Agreement is revised in
its entirety to read as follows:
"Section 7.2 Reorganization. The Trust, or any one or more Sub-Trusts,
may, either as the successor, survivor, or non-survivor, (1) consolidate or
merge with one or more other trusts, sub-trusts, partnerships, associations or
corporations organized under the laws of The Commonwealth of Massachusetts or
any other state of the United States, to form a consolidated or merged trust,
sub-trust, partnership, limited liability company, association or corporation
under the laws of which any one of the constituent entities is organized, with
the Trust or Sub-Trust to be the survivor or non-survivor of such consolidation
or merger or (2) transfer a substantial portion of its assets to one or more
other trusts, sub-trusts, partnerships, limited liability companies,
associations or corporations organized under the laws of The Commonwealth of
Massachusetts or any other state of the United States, or have one or more such
trusts, sub-trusts, partnerships, limited liability companies, associations or
corporations transfer a substantial portion of its assets to it, any such
consolidation, merger or transfer to be upon such terms and conditions as are
specified in an agreement and plan of reorganization authorized and approved by
the Trustees and entered into by the Trust, or one or more Sub-Trusts, as the
case may be, in connection therewith. Any such consolidation, merger or transfer
may be authorized by vote of a majority of the Trustees then in office without
the approval of shareholders of any Sub-Trust."
This Amendment shall be effective as of March 1, 1996.
IN WITNESS WHEREOF, the undersigned officer of the Trust hereby adopts
the foregoing on behalf of the Trust pursuant to authorization by the Trustees
of the Trust.
/s/ Francis J. McNamara, III
----------------------------
Francis J. McNamara, III
Secretary
Exhibit (6)(b)
SELECTED DEALER AGREEMENT
Boston, Massachusetts
Effective Date: __________
Dealer Name:
---------------------------------------
Address:
---------------------------------------
---------------------------------------
Attn:
---------------------------------------
Ladies and Gentlemen:
We have been appointed to serve as an agent and principal underwriter as
defined in the Investment Company Act of 1940 (the "1940 Act") for the purpose
of selling and distributing shares (the "Shares") of each of the portfolio
series as specified from time to time, of certain investment companies,
including, but not limited to, the MetLife - State Street trusts, the State
Street trusts and MetLife Portfolios, Inc. Hereinafter the specified portfolio
series shall be denoted individually as a "Fund" and collectively as the
"Funds", and the investment companies shall be denoted individually as an
"Investment Company" and collectively as the "Investment Companies" for purposes
of this Agreement.
We are hereby inviting you, as a selected dealer and subject to the terms
and conditions set forth below, to make available to your customers Shares of
the Funds. By your acceptance hereof, you agree that you shall exercise your
best efforts to find purchasers for the Shares, shall purchase Shares only from
us or from your customers, and shall act only as agent for your customers or
dealer for your own account, with no authority to act as agent for the Funds,
for us or for any other dealer in any respect.
1. Acceptance of Orders. Orders received from you will be accepted only at
the public offering price (as defined below in Section 2) applicable to each
order. You agree to place orders for Shares immediately upon the receipt of, and
in the same amount as, orders from your customers. We will not accept a
conditional order from you on any basis. All orders are subject to our receipt
of Shares from the Investment Company and to acceptance and confirmation of such
<PAGE>
orders by us and by the Investment Company. The procedures relating to the
handling of orders shall be subject to instructions which we shall provide from
time to time to you. We and the Investment Companies reserve the right in our
sole discretion to reject any order.
2. Public Offering Price and Sales Charge. The public offering price shall
be the net asset value per Share plus any sales charge payable upon the purchase
of Shares of such Fund or class thereof as described in the then current
prospectus applicable to such Shares, as amended and in effect from time to time
(the "Prospectus"). The public offering price may reflect scheduled variations
in, or the elimination of, the sales charge on sales of the Shares either
generally to the public or in connection with special purchase plans, as
described in the Prospectus and related Statement of Additional Information. You
agree that you will apply any scheduled variation in, or elimination of, the
sales charge uniformly to all offerees in the class specified in the Prospectus.
The sales charge applicable to any sale of Shares by you and the dealer
concession or commission applicable to any order from you for the purchase of
Shares accepted by us shall be as set forth in the applicable Prospectus and
related Statement of Additional Information. You agree that you will not combine
customer orders to reach breakpoints in commissions for any purpose unless
authorized by the Prospectus or by us in writing. All commissions and
concessions are subject to change without notice by us.
3. 12b-1 Plans.
(a) As consideration for your providing distribution and marketing
services in the promotion of the sale of Shares of certain Funds or classes
thereof which have adopted Distribution Plans pursuant to Rule 12b-1 under the
1940 Act, and for providing personal services to and/or the maintenance of the
accounts of, your customers who invest in and own such Shares, we shall pay you
such fee, if any, as is described in the applicable Prospectus and otherwise
established by us from time to time on Shares which are owned of record by your
firm as nominee for your customers or which are owned by those customers of your
firm whose records, as maintained by such Fund or its agent, designate your firm
as the customer's dealer of record. Any fee payable hereunder shall be computed
and accrued daily and for each month shall be based on average daily net asset
value of the relevant Shares which remain outstanding during such month. No such
fee will be paid to you with respect to Shares redeemed or repurchased by such
Fund within seven business days after the date of our confirmation of such
purchase. No such fee will be paid to you with respect to any of your customers
2
<PAGE>
if the amount of such fee based upon the value of such customer's Shares will be
less than $1.00.
(b) The provisions of this Paragraph 3 may be terminated with respect to
any Fund or class thereof in accordance with the provisions of Rule 12b-1 under
the 1940 Act or the rules of the National Association of Securities Dealers,
Inc. (the "NASD") and thereafter no such fee will be paid to you.
(c) Consistent with NASD policies as amended or interpreted from time to
time (i) you waive payment of amounts due from us which are funded by fees we
receive under such Distribution Plans until we are in receipt of the fees on the
relevant shares of a Fund, and (ii) our liability for amounts payable to you is
limited solely to the proceeds of the fees receivable to us on the relevant
shares.
4. Payment for Shares. Payment for Shares sold through you shall be made on
or before the settlement date specified in the applicable confirmation, at the
office of our clearing agent, and by your check payable to the order of such
Fund or, if applicable, by Federal Funds wire for credit to such Fund, in any
case in accordance with the procedures and conditions described in the
applicable Prospectus. Each Fund reserves the right to delay issuance or
transfer of Shares until such check has cleared. If such payment is not received
by us, we reserve the right, without notice, forthwith to cancel the sale.
Unless other instructions are received by us on or before the settlement date,
orders accepted by us may be placed in an Open Account in your name. If such
payment or instruments are not timely received by us, we may hold you
responsible for any expense or loss, including loss of profit, suffered by us or
by such Fund resulting from your failure to make payment as aforesaid.
5. Redemption and Repurchase of Shares. If any of the Shares sold through
you hereunder are redeemed by such Fund or repurchased by us as agent for such
Fund within seven business days after confirmation of the original purchase, it
is agreed that you shall forfeit your right to the entire dealer concession and
related commission, if any, received by you on such Shares. We will notify you
of any such repurchase or redemption within ten business days from the date
thereof and you shall forthwith refund to us the entire concession and
commission, if any, received by you on such sale. We agree, in the event of any
such repurchase or redemption, to refund to such Fund our share of the sales
charge retained by us, if any, and upon receipt from you of the refund of the
concession allowed to you, to pay such refund forthwith to such Fund.
3
<PAGE>
If you purchase Shares from any customer in connection with repurchase
arrangements offered by an Investment Company, you agree to pay such customer
not less than the applicable repurchase price as established by the Prospectus.
If you act as agent for your customer in selling Shares to us or a Fund, you
agree not to charge your customer more than a fair commission for handling the
transaction. Any order placed by you for the repurchase of Shares of a Fund is
subject to the timely receipt by the Fund's transfer agent of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation, in which
case you agree to be responsible for any loss resulting to the Fund or to us
from such cancellation.
6. Manner of Offering.
(a) No person is authorized to make any representations concerning
Shares except those contained in the applicable Prospectus, in the related
Statement of Additional Information and in any then current sales literature or
other material issued by us supplemental to such Prospectus, which sales
literature or other material is used in conformity with applicable rules or
conditions. All offerings of Shares by you shall be subject to the conditions
set forth in the applicable Prospectus (including the condition relating to
minimum purchases) and to the terms and conditions herein set forth. We will
furnish additional copies of the Prospectuses and such sales literature and
other material issued by us in reasonable quantities upon request. You will
provide all customers with the applicable Prospectus prior to or at the time
such customer purchases Shares and will forward promptly to us any customer
request for a copy of the applicable Statement of Additional Information. Sales
and exchanges of Shares may only be made in those states and jurisdictions where
the Shares are registered or qualified for sale to the public. We agree to
advise you currently of the identity of those states and jurisdictions in which
the Shares are registered or qualified for sale, and you agree to indemnify us
and/or the Funds for any claim, liability, expense or loss in any way arising
out of a sale of Shares in any state or jurisdiction in which such Shares are
not so registered or qualified.
(b) You agree to conform to any compliance or offering standards that we
may establish from time to time, including without limitation standards as to
when classes of Shares may appropriately be sold to particular investors.
4
<PAGE>
7. NASD Matters. This Agreement is conditioned upon your representation and
warranty that you are a member of the NASD or, in the alternative, that you are
a foreign dealer not eligible for membership in the NASD. You and we agree to
abide by the Rules and Regulations of the NASD, including Rule 26 of its Rules
of Fair Practice, and all applicable federal, state, and foreign laws, rules and
regulations.
8. Rejection of Orders. We shall have the right to accept or reject orders
for the purchase of Shares of any Fund. It is understood that for the purposes
hereof no Share shall be considered to have been sold by you and no compensation
will be payable to you with respect to any subscription for Shares which is
rejected by us or an Investment Company. Any consideration which you may receive
in connection with a rejected purchase order will be returned promptly.
Confirmations of all accepted purchase orders will be transmitted by the
Transfer Agent for the applicable Fund or class thereof to the investor or to
you, if authorized.
9. Status of Soliciting Dealer. Nothing herein shall make you a partner
with us or render our relationship an association. You are responsible for your
own conduct, for the employment, control and conduct of your employees and
agents and for injury to such employees or agents or to others through such
employees or agents. You assume full responsibility for your employees and
agents under applicable laws and agree to pay all employer taxes relating
thereto.
10. No Liability. As distributor of the Shares, we shall have full
authority to take such action as we may deem advisable in respect of all matters
pertaining to the distribution of such Shares. We shall not be under any
liability to you, except for lack of good faith and for obligations expressly
assumed by us in this Agreement; provided, however, that nothing in this
sentence shall be deemed to relieve any of us from any liability imposed by the
Securities Act of 1933, as amended.
11. Term of Contract; Amendment; Termination. This Agreement shall become
effective on the date hereof. We and each Fund reserve the right, in our
discretion upon notice to you, to amend, modify or terminate this Agreement at
any time, to change any sales charges, commissions, concessions and other fees
described in the applicable Prospectus or to suspend sales or withdraw the
offering of Shares of any Fund or class of Shares thereof entirely. You agree
that any order to purchase Shares placed by you after notice of any amendment to
this Agreement has been sent to you shall constitute your agreement to such
amendment.
5
<PAGE>
12. Miscellaneous. This Agreement supersedes any and all prior agreements
between us. All communications to us should be sent to the above address. Any
notice to you shall be duly given if mailed or telefacsimiled to you at the
address specified by you above. This Agreement shall be effective when accepted
by you below and shall be construed under the laws of the Commonwealth of
Massachusetts.
The following provision, as marked, applies to this agreement.
|_| This document constitutes an amendment to and restatement of the Selected
Dealer Agreement currently in effect between you and us.
|_| Please confirm your agreement hereto by signing and returning the enclosed
counterpart of this Agreement at once to: State Street Research Investment
Services, Inc., One Financial Center, Boston, Massachusetts 02111,
Attention: President. Upon receipt thereof, this Agreement and such signed
duplicate copy will evidence the agreement between us as of the date
indicated.
State Street Research
Investment Services, Inc.
(Distributor)
By:
-----------------------
ACCEPTED:
[ ]
(Selected Dealer)
By:
----------------------------
6
<PAGE>
SUPPLEMENT NO. 1 TO
SELECTED DEALER AGREEMENT
Boston, Massachusetts
Effective Date: _________________
Dealer Name: _____________________________________
Address: _____________________________________
_____________________________________
Attn: _____________________________________
Ladies and Gentlemen:
This Agreement amends and supplements the Selected Dealer Agreement
between you and us, as in effect from time to time (the "Selected Dealer
Agreement"). All of the terms and provisions of the Selected Dealer Agreement
remain in full force and effect, and this Agreement and the Selected Dealer
Agreement shall be construed and interpreted as one Agreement, provided that in
the event of any inconsistency between this Agreement and the Selected Dealer
Agreement, the terms and provisions of this Agreement shall control. Capitalized
terms used in this Agreement and not defined herein are used as defined in the
Selected Dealer Agreement.
We understand that you wish to use Shares of the Funds in managed
fee-based programs in which you participate (the "Fee-Based Program"), and that
you wish to afford investors participating in such programs the opportunity to
qualify for the ability to purchase shares of the Funds at net asset value. We
are willing to allow you to purchase Shares of the Funds for sale to investors
participating in the Fee-Based Program on such basis, subject to the terms and
conditions of this Agreement and the Selected Dealer Agreement.
1. Sale of Shares through Fee-Based Program
You may, in connection with the Fee-Based Program, sell shares of any
Funds made available by us, from time to time, at net asset value to investors
participating in a bona fide Fee-Based Program. You will receive no discount,
commission or other concession with respect to any
<PAGE>
such sale, but will be entitled to receive any service fees otherwise payable
with respect thereto to the extent provided from time to time in the applicable
Funds' Prospectuses and in the Dealer Agreement. We will, after consulting with
you, determine, from time to time, which Funds we will make available to you for
use in the Fee-Based Program. You agree that Shares will not be made available
through the Fee-Based Program for the sole purpose of enabling evasion of sales
charges.
2. Fees under Fee-Based Program
For any Fee-Based Program investor eligible to purchase Fund shares at
net asset value, the investor shall be subject to an annual fee of not more than
2.50% of such investor's average net assets included in the Fee-Based Program,
nor less than 0.50% of such assets. You shall send to us upon request from time
to time the then-current standard fee schedule for the applicable Fee-Based
Program and a copy of the applicable Schedule H to the Form ADV containing the
required disclosures relating to the Fee-Based Program, or any successor
required disclosures. Any brochures, written materials or advertising relating
to the Fee-Based Program may refer to the Funds as available at net asset value
if the fees and expenses of the Fee-Based Program are given at least equal
prominence. In connection with explaining the fees and expenses of the Fee-Based
Program, your representatives may describe to customers the option of purchasing
Fund shares through such Program at net asset value.
3. Undertakings
You will (i) provide us with continuous reasonable access to your
offices, representatives and mutual fund and Fee-Based Program sales support
personnel and to meetings, including national and regional sales conferences and
training programs, of your representatives and sales personnel, (ii) include
descriptions of all Funds offered through the Fee-Based Program in internal
sales materials and electronic information displays used in conjunction with the
Fee-Based Program, (iii) include our representatives on your internal sales
lines and conference calls on a regular basis, (iv) use reasonable efforts to
motivate your representatives to recommend suitable Funds for clients of the
Fee-Based Program, (v) provide us with sales information in reasonable
Fund-by-Fund detail, including identification of offices and representatives
that account for the most significant sales of shares of the Funds through the
Fee-Based Program, and (vi) include the Funds on any approved, preferred or
other similar list of mutual fund products offered through the Fee-Based
Program.
4. Customer Accounts
You may maintain with the Funds' shareholder servicing agent either (i)
one or more omnibus accounts solely for the participants in the applicable
Fee-Based Program or (ii) separate accounts for each participant in the
applicable Fee-Based Program. If one or more omnibus accounts are maintained,
you shall, among other things, be responsible for forwarding proxies, annual and
semi-annual reports and other materials to each beneficial owner in a timely
manner.
5. Applicable Law
This Agreement shall be governed by and construed and interpreted in
accordance with the internal laws of The Commonwealth of Massachusetts.
6. Disclaimer and Indemnity
We are not endorsing, recommending and are not otherwise involved in
providing any investment product of yours, including but not limited to any
Fee-Based Program. We are merely affording you the opportunity to use shares of
the Funds as an investment medium for the applicable Fee-Based Program. You
acknowledge and agree that you are solely responsible for any such Fee-Based
Program and you agree to indemnify, defend and hold harmless us, the Funds and
our and their affiliates, directors, trustees, officers, employees and agents
from and against any claims, losses, damages or costs (including attorneys'
fees) arising from or related to such Fee-Based Program, including without
limitation any brochures, written materials or advertising in any form that
refers to the Funds or the Fee-Based Program.
7. Miscellaneous
This Agreement is not exclusive and shall terminate automatically upon
termination of the Selected Dealer Agreement. We reserve the right, in our
discretion upon notice to you, to amend, modify or terminate this Agreement at
any time. You agree that any order to purchase Shares placed by you after notice
of any amendment to this Agreement has been sent to you shall constitute your
agreement to such amendment.
<PAGE>
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By: __________________________
Name:
Title:
Accepted:
__________________________________
Name of Dealer
By: __________________________________
Name:
Title:
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statements of Additional
Information constituting part of this Post-Effective Amendment
No. 15 to the registration statement (No. 33-10327) on Form N-1A
(the "Registration Statement") of our reports dated December 8,
1995 relating to the financial statements and financial
highlights of State Street Research Government Income Fund,
State Street Research Strategic Portfolios: Conservative, State
Street Research Strategic Portfolios: Moderate and State Street
Research Strategic Portfolios: Aggressive (each a series of
MetLife - State Street Financial Trust), which appear in such
Statements of Additional Information and to the incorporation by
reference of our reports into the Prospectuses which constitute
part of this Registration Statement. We also consent to the
reference to us under the heading "Independent Accountants" in
such Statements of Additional Information and to the reference
to us under the heading "Financial Highlights" in such
Prospectuses.
Price Waterhouse LLP
Boston, Massachusetts
December 28, 1995
Exhibit (14)(a)
[LOGO] STATE STREET RESEARCH
[LOGO]
STATE STREET RESEARCH
IRA
Forms Booklet
o o o o o o o o o o o o o o o o o o o
This IRA Forms Booklet includes:
o Terms and Conditions
o Application
o Lump Sum Profile
o Distribution Form
o Pre-59 1/2 Distribution
Information Request Form
<PAGE>
Just about everything you will need to open an IRA at
State Street Research is included in this Forms Booklet.
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Terms and Conditions
- --------------------------------------------------------------------------------
This legal document explains the provisions of your Individual Retirement
Account.
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IRA Application
- --------------------------------------------------------------------------------
This application allows you or your investment representative to open all types
of IRAs, including:
o Regular/accumulation IRAs (you can make contributions to it each year).
o Rollover IRAs (you can move money from another qualified retirement
plan--such as a former employer's 401(k) plan--into an IRA at State Street
Research.) You will also need to complete the Transfer of Assets/Direct
Rollover Form.
o Transfer of assets IRAs (you can transfer money from an IRA somewhere else
to an IRA at State Street Research.) You will also need to complete the
Transfer of Assets/Direct Rollover Form.
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Lump Sum Profile
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You or your investment representative may fill out this form to request a
personalized, hypothetical illustration based on a lump-sum distribution from a
qualified retirement plan.
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Distribution Form
- --------------------------------------------------------------------------------
When it's time to withdraw money from your IRA, this is the form to use. Among
other things, the form allows you to withdraw all of your money, set up a
Systematic Withdrawal Plan, or begin "required minimum distributions."
Before you begin withdrawals from your IRA, please consult your tax adviser
to determine whether any tax penalties apply to you. Also, don't forget that a
contingent deferred sales charge may apply to distributions. If you plan to
direct your distributions to an address besides your address of record--a bank
account or a State Street Research mutual fund, for instance--you will need a
signature guarantee.
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Pre-59 1/2 Distribution Information Request Form
- --------------------------------------------------------------------------------
In certain cases, it may be possible to receive distributions from your IRA
before you reach age 59 1/2--without paying a tax penalty. This form lets you
request additional information. Before you begin withdrawals from your IRA,
please consult your tax adviser to determine whether any tax penalties apply to
you.
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Transfer of Assets/Direct Rollover Form
- --------------------------------------------------------------------------------
(not included in the Forms Booklet)
Fill out this form to move money to State Street Research from an IRA at another
company (transfer of assets), or from your employee retirement plan (direct
rollover). Send us a completed Transfer of Assets/Direct Rollover Form and a
completed IRA Application, and we'll do the rest.
If you have any questions, please contact your investment representative,
or call us at 1-800-562-0032.
<PAGE>
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[LOGO] State Street Research IRA
Terms & Conditions
- --------------------------------------------------------------------------------
These Terms and Conditions are in the form promulgated by the Internal Revenue
Service in Form 5305 for use in establishing an individual retirement trust
account.
ARTICLE I.
The Trustee may accept additional cash contributions on behalf of the Grantor
for a tax year of the Grantor. The total cash contributions are limited to
$2,000 for the tax year unless the contribution is a rollover contribution
described in section 402(c) (but only after December 31, 1992), 403(a)(4),
403(b)(8), 408(d)(3), or an employer contribution to a simplified employee
pension plan as described in section 408(k). Rollover contributions before
January 1, 1993, include rollovers described in section 402(a)(5), 402(a)(6),
402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a
simplified employee pension plan as described in section 408(k).
ARTICLE II.
The Grantor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III.
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state.
ARTICLE IV.
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Grantor's interest in the custodial account shall be made in
accordance with the following requirements and shall otherwise comply with
section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are herein incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Grantor under paragraph 3, or to the surviving spouse under paragraph 4,
other than in the case of life annuity, life expectancies shall be recalculated
annually. Such election shall be irrevocable as to the Grantor and the surviving
spouse and shall apply to all subsequent years. The life expectancy of a
nonspouse beneficiary may not be recalculated.
3. The Grantor's entire interest in the custodial account must be, or begin to
be, distributed by the Grantor's required beginning date (April 1 following the
calendar year end in which the Grantor reaches age 70 1/2). By that date, the
Grantor may elect, in a manner acceptable to the Trustee, to have the balance in
the custodial account distributed in:
(a) A single sum payment
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Grantor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Grantor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period that
may not be longer than the Grantor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period that
may not be longer than the joint life and last survivor expectancy of the
Grantor and his or her designated beneficiary.
4. If the Grantor dies before his or her entire interest is distributed to him
or her, the entire remaining interest will be distributed as follows:
(a) If the Grantor dies on or after distribution of his or her interest has
begun, distribution must continue to be made in accordance with paragraph 3.
(b) If the Grantor dies before distribution of his or her interest has begun,
the entire remaining interest will, at the election of the Grantor or, if the
Grantor has not so elected, at the election of the beneficiary or
beneficiaries, either
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Grantor's death, or
(ii) Be distributed in equal or substantially equal payments over the life
or life expectancy of the designated beneficiary or beneficiaries starting
by December 31 of the year following the year of the Grantor's death. If,
however, the beneficiary is the Grantor's surviving spouse, then this
distribution is not required to begin before December 31 of the year in
which the Grantor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has irrevocably
commenced, distributions are treated as having begun on the Grantor's required
beginning date, even though payments may actually have been made before that
date.
(d) If the Grantor dies before his or her entire interest has been distributed
and if the beneficiary is other than the surviving spouse, no additional cash
contributions or rollover contributions may he accepted in the account.
5. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Grantor's entire interest in the custodial account as of the close of
business on December 31 of the preceding year by the life expectancy of the
Grantor (or the joint life and last survivor expectancy of the Grantor and the
Grantor's designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under paragraph 3,
determine the initial life expectancy (or joint life and last survivor
expectancy) using the attained ages of the Grantor and designated beneficiary as
of their birthdays in the year the Grantor reaches age 70 1/2. In the case of a
distribution in accordance with paragraph 4(b)(ii), determine life expectancy
using the attained age of the designated beneficiary as of the beneficiary's
birthday in the year distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C. B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
ARTICLE V.
1. The Grantor agrees to provide the Trustee with information necessary for the
Trustee to prepare any reports required under section 408(i) and Regulations
sections 1.408-5 and 1.408-6.
2. The Trustee agrees to submit reports to the Internal Revenue Service and the
Grantor as prescribed by the Internal Revenue Service.
ARTICLE Vl.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and related
regulations will be invalid.
ARTICLE Vll.
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear below.
<PAGE>
ARTICLE VIII.
1. The amount of each contribution credited to the Grantor's individual
retirement trust account shall (except to the extent applied to pay fees or
other charges under section 7 below) be applied to purchase full and fractional
shares of beneficial interest of one or more classes in one or more mutual funds
(hereinafter collectively the "Funds" or individually a "Fund"), as designated
from time to time by State Street Research Investment Services, Inc. ("SSRIS")
as available for investment under this agreement (provided always that such
shares may legally be offered for sale in the state of the Grantor's residence),
in accordance with instructions of the Grantor given under Section 3 below. The
Trustee (or any party appointed to act as agent for the Trustee under section 16
of this Article VlIl--the "Agent"; whenever an Agent is acting for the Trustee,
references to the Trustee will be deemed to include the Agent) may retain the
Grantor's initial deposit for a period of up to ten days after receipt thereof
without liability for any loss of interest, earnings or appreciation, and may
invest such initial deposit at the end of such period if the Grantor has not
revoked his account. The Grantor may revoke the account by written notice to the
Trustee or its Agent received by the Trustee or its Agent within seven calendar
days after the Grantor establishes the account. Upon revocation, the amount of
the Grantor's initial deposit will be returned to him, without interest.
2. All dividends and capital gain distributions received on the shares of a
particular class of any Fund held in the Grantor's account shall be retained in
the account and (unless received in additional shares of such class) shall be
reinvested in full and fractional shares of such class of such Fund.
3. For each contribution, the Grantor shall designate the portion that will be
invested in each Fund. A contribution may be invested entirely in one Fund, or
may be invested in two or more Funds. However, investment designations will be
subject to any minimum initial or additional investment rules applicable to a
Fund. In addition, the Grantor shall designate which class of shares of each
such Fund the Grantor's contribution shall be invested in.
The Grantor shall make such designation on the State Street Research
Individual Retirement Account Application or other written notice acceptable to
the Trustee.
4. Subject to the minimum initial or additional investment, minimum balance and
other exchange rules applicable to a Fund, the Grantor may at any time direct
the Trustee to exchange all or a specified portion of the shares of a Fund in
the Grantor's account for shares and fractional shares of one or more other
Funds.
The Grantor shall give such directions by written, telephonic or other
notice acceptable to the Trustee and the Trustee will process such directions as
soon as practicable after receipt thereof.
If any investment designation or direction relating to investments under
these Terms and Conditions is, in the opinion of the Trustee (or SSRIS or the
Agent), ambiguous or incomplete, the Trustee may refrain from carrying out such
designation or other investment direction until the designation or other
investment direction has been clarified or completed to the Trustee's
satisfaction, and neither the Trustee, SSRIS, the Agent nor any Fund (nor any of
their affiliates) will have any liability for loss of interest, earnings or
investment gains or appreciation during such period.
5. The Grantor, by written notice to the Trustee, may designate one or more
beneficiaries to receive the balance (if any) remaining in the Grantor's account
after his death and the time and manner of payment of such balance (subject to
the applicable requirements of the preceding Articles of these Terms and
Conditions). A designation may be on a form provided by the Trustee or on a
written instrument acceptable to the Trustee executed by the Grantor and filed
with the Trustee. The Grantor may revoke or change such designation in like
manner, at any time and from time to time. No designation will be effective
until received by the Trustee. Any designation filed with the Trustee (whether
or not such designation fully disposes of the Grantor's account) will revoke all
other designations previously filed with the Trustee. If no such designation is
in effect upon the Grantor's death, or if such a designation is in effect but
does not fully dispose of the Grantor's account, the balance in the account
shall be paid in a single sum, as soon as is practicable, to the Grantor's
estate.
Subject to the applicable requirements of the preceding Articles of these
Terms and Conditions, the Grantor may designate a form of payment to the
beneficiary by filing an instrument so specifying with the Trustee. In the
absence of such written instructions from the Grantor, the Trustee will pay the
beneficiary in such form as the beneficiary selects.
Except as provided in the first sentence of the preceding paragraph,
following the Grantor's death, each beneficiary (or the representative of the
Grantor's estate) will exercise the powers and responsibilities of the Grantor
hereunder with respect to the portion of the Grantor's account passing to such
beneficiary (or estate).
6. The Trustee shall forward to the Grantor any notices, prospectuses, reports
to shareholders, financial statements, proxies and proxy soliciting materials,
relating to the Fund shares in the Grantor's account. The Trustee shall vote any
such shares held in the account in accordance with the timely written
instructions of the Grantor if received. If no timely written instructions are
received from the Grantor, the Trustee may vote such shares in such manner as it
deems appropriate (including "present" or in accordance with the recommendations
of SSRIS).
7. The Trustee's fee for performing its duties hereunder shall be such
reasonable amounts as shall be agreed to from time to time by the Trustee and
SSRIS. Such fee, any taxes of any kind and any liabilities with respect to the
account, and any and all expenses reasonably incurred by the Trustee shall, if
not paid by the Grantor, be paid from the Grantor's account.
8. The Trustee shall make distributions from the account at such times and in
such manner as the Grantor directs in writing, subject (except where otherwise
specifically provided in this Article VIII) to the applicable requirements of
the preceding Articles of these Terms and Conditions.
The recalculation of life expectancy of the Grantor and/or the Grantor's
spouse in connection with distributions from the account before the Grantor's
death will be made only at the written election of the Grantor. The
recalculation of life expectancy of the surviving spouse in connection with
distributions from the account after the Grantor's death will be made only at
the written election of the surviving spouse. By establishing the account, the
Grantor (for himself and his surviving spouse, if any) determines not to
recalculate life expectancies unless the Grantor (or surviving spouse)
specifically elects the recalculation of life expectancies approach in
accordance with the following sentence. Any such election may be made in such
form as the Grantor (or the surviving spouse) provides for (including
instructions to such effect to the Trustee or the calculation of minimum
distribution amounts in accordance with a method that provides for recalculation
of life expectancy and instructions to the Trustee to make distributions in
accordance with such method).
9. It shall be the sole responsibility of the Grantor to determine the time and
amount of contributions to the account and the time, amount and manner of
payment of distributions from the account (and to instruct the Trustee or the
Agent accordingly), and the federal and state tax treatment of any contributions
to or distributions from the account. SSRIS, the Agent, the Trustee and the
Funds shall be fully protected in following the direction of the Grantor with
respect to the time, amount and manner of payment of such distributions, or in
not acting in the absence of such direction. If the Grantor (or beneficiary)
does not direct the Trustee to make distributions from the account by the time
that such distributions are required to commence in accordance with the
preceding Articles of these Terms and Conditions, the Trustee (and SSRIS and the
Agent) will assume that the Grantor (or beneficiary) is meeting the minimum
distribution requirements from another individual retirement arrangement
maintained by the Grantor (or beneficiary) and will be fully protected in so
doing. SSRIS, the Agent, the Trustee and the Funds shall not be liable for any
taxes, penalties, liabilities or other costs to the Grantor or any other person
resulting from contributions to or distributions from the
<PAGE>
Grantor's account.
10. SSRIS, the Agent, the Trustee and the Funds shall not be responsible for any
loss or diminution in the value of the Grantor's account arising out of the
Grantor's establishment of a State Street Research Individual Retirement Account
or arising out of any investment instructions of the Grantor, whether relating
to the portion of contributions invested in one or more of the Funds, the
selection of a particular class of shares of a particular Fund, or the exchange
of shares of one Fund for shares of one or more other Funds. SSRIS, the Agent,
the Trustee and the Funds shall not render any investment advice to the Grantor
(or beneficiary) and will have no duty of inquiry concerning the Grantor's (or
beneficiary's) investment directions (subject to the right of the Trustee, SSRIS
or the Agent to obtain clarification or completion of any investment directions
under section 4 above). The Grantor (or beneficiary) will have exclusive
investment control over the account.
11. Whenever the Grantor (or beneficiary) is responsible for any direction,
notice, representation or instruction under these Terms and Conditions, SSRIS,
the Agent, the Trustee and the Funds shall be entitled to assume the propriety
and truth of any statement made by the Grantor (or beneficiary), and shall be
under no duty of further inquiry with respect thereto, and shall have no
liability with respect to any action taken in reliance upon such statement.
However, the Trustee (or Agent or SSRIS) shall be entitled to receive such
information or documentation (including signature guarantees, waivers or
indemnifications) as it may reasonably request before carrying out any
direction, notice or instruction from the Grantor (or beneficiary).
Grantor agrees to provide information to the Trustee at such times as may be
necessary to enable the Trustee to administer the account hereunder.
Except to the extent provided by applicable law, the account will not be
subject to assignment, transfer, pledge or hypothecation, nor shall it be liable
for the debts of the Grantor (or beneficiary) or subject to seizure, attachment,
execution or other legal process. However, the Trustee (or Agent or SSRIS) may
carry out the requirements of any apparently valid order of a governmental
authority (including a court) relating to the Grantor's account and will have no
liability for so doing.
12. These Terms and Conditions shall terminate upon the complete distribution of
the account to the Grantor or his beneficiaries or to a successor individual
retirement account, annuity or bond, to a qualified plan, or to an annuity or
custodial account under Section 403(b) of the Internal Revenue Code. The Trustee
shall have the right to terminate this account upon 60 days notice to the
Grantor, or to his beneficiaries if he is then dead. In such event, upon
expiration of such 60 day period, the Trustee shall transfer the amount in the
account into such successor individual retirement accounts, annuities or bonds,
qualified plan, or annuity or custodial account as the Grantor (or his
beneficiaries) shall designate, or, in the absence of such designation, to the
Grantor, or if he is then dead, to the beneficiaries or the Grantor's estate as
their interests shall appear.
13. The Trustee may resign at any time upon 60 days notice in writing to SSRIS
and may be removed by SSRIS at any time upon 60 days notice in writing to the
Trustee. Upon such resignation or removal, SSRIS shall appoint a successor
trustee which satisfies the requirements of Section 408 of the Internal Revenue
Code.
14. Upon receipt by the Trustee of written notice of appointment of a successor
trustee or custodian and of written acceptance of such appointment by the
successor, the Trustee shall transfer to such successor the assets of the
account and copies of all records pertaining thereto. The Trustee may reserve
such sum of money as it deems advisable for payment of its fees, taxes, costs,
expenses or liabilities with respect to the account, with the balance (if any)
of such reserve remaining after the payment of such items to be paid over to the
successor. The successor shall hold the assets paid over to it under terms that
satisfy the requirements of Section 408 of the Internal Revenue Code.
15. If, within 60 days after the Trustee's resignation or removal, SSRIS has not
appointed a successor trustee which has accepted such appointment, the Trustee
shall appoint such a successor unless it elects to terminate the Agreement under
Section 12 of this Article VIII.
16. The Trustee may employ or designate one or more parties to serve as agents
or contractors to perform any or all of its duties hereunder.
17. Any notice sent to the Grantor or to his beneficiaries or estate, if he is
then dead, shall be effective if sent by first class mail to him or them at his
or their last addresses of record as provided to the Trustee.
18. Any distributions from the account may be mailed, first-class postage
prepaid to the last known address of the person who is to receive such
distribution, as shown on the Trustee's records, and such distribution shall to
the extent of the amount thereof completely discharge the Trustee's liability
for such payment.
19. Any purchase or redemption of shares of any class of a Fund for or from the
Grantor's account will be effected at the public offering price or net asset
value of such Fund (as described in the then effective prospectus for such Fund)
next established after the Fund's transfer agent receives the contribution or
other directions.
Any purchase, exchange, transfer or redemption of shares of any class of a
Fund for or from the Grantor's account will be subject to any sales charge,
distribution fee or redemption charge, or other fee or charge applicable to
shares of such class, as described in the then effective prospectus for such
Fund. In addition, shares of any class of a Fund will be subject to any service
fee, charge or other annual maintenance or servicing fees or charges applicable
to shares of such class as described in the then effective prospectus for such
Fund.
20. SSRIS may amend these Terms and Conditions from time to time, and shall give
written notice of any material amendment to the Grantor within a reasonable time
after the amendment is adopted or becomes effective, whichever is later. The
Grantor hereby expressly delegates authority to SSRIS to amend these Terms and
Conditions and consents to any such amendments.
21. These Terms and Conditions shall be construed, administered and enforced
according to the laws of Massachusetts. The Grantor agrees that any legal
proceedings relating to the Grantor's account must be brought in a court
(including a federal district court) located in Massachusetts.
22. The term "Trustee" refers to the person serving as the Trustee of the
Individual Retirement Account established hereby, and the term "Grantor" refers
to the person for whose benefit such Account was established.
23. Articles I through VII of these Terms and Conditions are in the form
promulgated by the Internal Revenue Service. It is anticipated that if and when
the Internal Revenue Service promulgates changes to Form 5305, SSRIS will adopt
such changes as an amendment to these Terms and Conditions. Pending the adoption
of any amendment necessary or desirable to conform these Terms and Conditions to
the requirements of any amendment to the Internal Revenue Code or regulations or
rulings thereunder, the Trustee (and SSRIS and the Agent) may operate the
Grantor's account in accordance with such requirements to the extent deemed
necessary to preserve the tax benefits of the account.
24. The Grantor acknowledges that he or she has received and read the current
prospectus for each Fund in which his or her account is invested and the State
Street Research Individual Retirement Account Disclosure Statement.
(References are to the Internal Revenue Code.)
[LOGO] STATE STREET RESEARCH
<PAGE>
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[LOGO] State Street Research IRA
IRA Application
- --------------------------------------------------------------------------------
Upon completion, send application and check (if you are making a
contribution at this time) made payable to "State Street Bank and Trust Company,
Trustee" to the address listed on the back.
1 What Type of IRA?
[ ] Regular/Accumulation
(if you plan to make additional investments
into the account)
[ ] Rollover IRA
[ ] Direct rollover (sent trustee to trustee, from
a qualified retirement plan elsewhere to a
State Street Research IRA)
[ ] Rollover (proceeds from my former qualified
retirement plan were paid to me, and my
check is enclosed) Please note: Rollover must be
transferred within 60 days of the date proceeds
were paid to you.
Do not rollover or transfer any amounts required
to be paid to you under the minimum distribution
rules that apply after you reach age 70 1/2, or any
other amounts which are not eligible rollover
distributions or would not be otherwise includable
in your gross income.
[ ] Transfer of Assets
(from an IRA at another company to a State Street
Research IRA)
[ ] SEP IRA [ ] SAR-SEP IRA
- --------------------------------------------------------------------------------
Name of employer Employer telephone
- --------------------------------------------------------------------------------
Address of employer
2 What is your name and address?
(Please print.)
- --------------------------------------------------------------------------------
Your name
- --------------------------------------------------------------------------------
Street address
- --------------------------------------------------------------------------------
City State ZIP
- --------------------------------------------------------------------------------
Daytime telephone number Evening telephone number
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
3 Which funds have you selected?
- --------------------------------------------------------------------------------
Fund name
$ [ ] A [ ] B [ ] D*
- --------------------------------------------------------------------------------
Amount ($2,000 minimum) Share class**
- --------------------------------------------------------------------------------
Fund name
$ [ ] A [ ] B [ ] D*
- --------------------------------------------------------------------------------
Amount ($2,000 minimum) Share class**
- --------------------------------------------------------------------------------
Fund name
$ [ ] A [ ] B [ ] D*
- --------------------------------------------------------------------------------
Amount ($2,000 minimum) Share class**
$
- ---------------------
Total amount invested
* "D" shares not available through MSI.
**Investments in Money Market Fund will purchase
class E shares.
If a check is enclosed, make it payable to "State Street Bank and Trust
Company, Trustee." Please add $10 for the first year's trustee fee;
otherwise, the fee will be deducted from your account at year end.
<PAGE>
4 Who is your beneficiary?
Primary beneficiary
(only one required per account. If you have more than
two, include them on a separate sheet. If two or more
are named, they will receive equal amounts unless you
specify otherwise; also if one of the named primary
beneficiaries predeceases you, that person's share will
be distributed pro-rata to the other primary beneficiaries
who survive you, unless you specify otherwise.)
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State ZIP
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State ZIP
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
Secondary beneficiary
(if the person(s) named as primary beneficiary fails to
survive you.)
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State ZIP
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
5 We need your signature
I hereby establish a State Street Research IRA, appoint State Street Bank and
Trust Company as Trustee, direct that contributions to my IRA be invested as
specified by this application, and designate the individual(s) named above, or
in any signed attachment, as my beneficiary(ies). I have received a current
prospectus for the Fund(s) indicated above and the Terms and Conditions of the
State Street Research IRA (which are incorporated herein by reference) and have
read its Disclosure Statement.
Under penalties of perjury, I certify that: (1) the number shown on this form is
my correct taxpayer identification number (or I am waiting for a number to be
issued to me), and (2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the Internal
Revenue Service that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding. (You must cross out item (2) above if you
have been notified by the IRS that you are currently subject to backup
withholding because of under-reporting interest or dividends on your tax
return.)
I confirm that all the information, instructions and agreements set forth hereon
shall apply to the account, and if applicable, shall also apply to any other
fund account with shares acquired upon exchange of share of the Fund.
- --------------------------------------------------------------------------------
Signature Date
<PAGE>
6 Dealer information
(for Dealer use only)
- --------------------------------------------------------------------------------
Dealer name
- --------------------------------------------------------------------------------
Street address of home office
- --------------------------------------------------------------------------------
City State ZIP
- --------------------------------------------------------------------------------
Authorized signature of dealer
- --------------------------------------------------------------------------------
Agency/branch office number
- --------------------------------------------------------------------------------
Street address of agency/branch office servicing account
- --------------------------------------------------------------------------------
City State ZIP
- --------------------------------------------------------------------------------
Registered representative's name and number
If this application is for an account introduced through the above-named Dealer,
the Dealer further agrees to all applicable provisions in this application and
in the Prospectus. The Dealer warrants that this application is completed in
accordance with the shareholder's instructions and agrees to indemnify the
Transfer Agent, the Fund, any other eligible Funds, State Street Research
Shareholder Services, the Investment Manager or the Distributor for any loss or
liability from acting or relying upon such instructions and information. The
terms and conditions of the currently effective Selected Dealer Agreement or
sales agreement are included by reference in this section. The dealer represents
that it may lawfully sell shares of the designated Fund(s) in the state
designated as the Applicant's address of record, and that it has a currently
effective selected dealer agreement with a Distributor authorizing the Dealer to
sell shares of the Fund and the Eligible Funds.
- --------------------------------------------------------------------------------
Optional Shareholder Services
- --------------------------------------------------------------------------------
A Telephone Exchange Privilege
To exchange Fund shares over the telephone--available only for shares held on
deposit with Agent.
Telephone Exchange By Shareholder OR DEALER
State Street Research Shareholder Services may effect exchanges for my account
according to telephone instructions FROM ME OR MY DEALER as set forth in the
Prospectus, and may register the shares of the fund to be acquired exactly the
same as my existing account. Authorizing an exchange constitutes an
acknowledgment that I have received the current prospectus of the Fund to be
acquired.
I will not hold the Transfer Agent, the Fund, any other Eligible Funds, State
Street Research Shareholder Services, the Investment Manager or the Distributor
liable for any loss, injury, damage or expense as a result of acting upon any
telephone instructions or responsible for the authenticity of any telephone
instructions. I understand that all telephone calls are tape recorded. My
liability shall be subject to the use of reasonable procedures to confirm that
instructions communicated by telephone are genuine.
The account will automatically have this privilege unless you expressly decline
it by providing your initials below.
I do not want the Telephone Exchange Privilege.
(initial here.)
-----------------
B Do You Qualify For Reduced Sales Charges?
(Applies to Class A shares only)
[ ] Right of Accumulation:
I apply for Right of Accumulation reduced sales charges for Class A share
purchases because the combined holdings for me and my family members in the
Eligible Funds (listed below) totals $100,000 or more. I understand the Transfer
Agent must confirm the holdings listed below.
Name on account Account number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] Letter of Intent:
I intend to invest [ ] $100,000, [ ] $250,000, [ ] $500,000, or
[ ] $1,000,000 in any combination of the Eligible Funds
over a 13-month period beginning _________________ 19__
(purchase date not more than 90 days prior to this letter). If
the amount indicated is not invested within 13 months,
reduced sales charges do not apply.
<PAGE>
C Investamatic Check Program
To arrange automatic additional investments from a bank account into Fund
accounts. Accounts must first meet minimum initial investment requirements.
(Total annual contribution should not exceed $2,000 for an individual IRA.)
- --------------------------------------------------------------------------------
Fund name Account number
$ [ ] A [ ] B [ ] D
- --------------------------------------------------------------------------------
Amount (See prospectus for minimum) Share class*
- --------------------------------------------------------------------------------
Fund name Account number
$ [ ] A [ ] B [ ] D
- --------------------------------------------------------------------------------
Amount (See prospectus for minimum) Share class*
* Investments in Money Market Fund will purchase
Class E shares.
- --------------------------------------------------------------------------------
Account registration (exactly as it appears on Fund records)
Frequency of investment
[ ] Monthly [ ] Quarterly
Investment date (if you don't choose a date, the 5th will be
chosen automatically)
[ ] 5th business day [ ] 20th business day
I hereby request and authorize the bank named in this section ("the Bank") to
pay and charge checks drawn on, or debits against, my account initiated by and
payable to the transfer agent designated by the Distributor. I agree that the
Bank's rights in respect to each such check or debit shall be the same as if it
were a check drawn on or debit against my account authorized personally by me.
This authority is to remain in effect until revoked by me, and until the Bank
actually receives such notice, I agree that the Bank shall be fully protected in
honoring any such check or debit authorization. I further agree that if any
check or debit authorization be dishonored, whether with or without cause and
whether intentionally or inadvertently, the Bank shall be under no liability
whatsoever, unless the nonpayment is because of insufficient funds. I understand
that this Program may be revoked by the Agent or the Distributor without prior
notice if any check is not paid upon presentation, and that this Program may be
discontinued by the Distributor, the Agent or me upon thirty (30) business days'
notice prior to the due date of any deposit.
State Street Bank and Trust Company, Trustee:
You are hereby authorized and appointed on behalf of the above-signed dealer
to execute the purchase transactions in accordance with the terms and
conditions of this Application, and to confirm each purchase.
Acceptance by the Trustee:
This plan shall be deemed to have been accepted by the Trustee, State Street
Bank and Trust Company, after all necessary forms, properly completed, are
received by State Street Research Shareholder Services, and delivered by
Shareholder Services to the agent for the Trustee.
Type of bank account:
[ ] Checking [ ] NOW or Money Market [ ] Savings
- --------------------------------------------------------------------------------
Account title (print exactly as it appears on bank records)
- --------------------------------------------------------------------------------
Bank routing number Bank account number
- --------------------------------------------------------------------------------
Bank name
- --------------------------------------------------------------------------------
Bank street address
- --------------------------------------------------------------------------------
City State ZIP
1944
4-122/100
________________ 19____
______________________________________________________________/ $
______________________________________________________________ DOLLARS
Staple a blank check marked "VOID" here
_________________________________________________________________________
1505
================================================================================
Once completed, send application and check (if you are making a contribution at
this time) made payable to "State Street Bank and Trust Company, Trustee" to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
================================================================================
[LOGO] STATE STREET RESEARCH
<PAGE>
- --------------------------------------------------------------------------------
[LOGO] State Street Research IRA
Lump Sum Profile
- --------------------------------------------------------------------------------
Registered Representative Information
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Firm name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State ZIP
- --------------------------------------------------------------------------------
Telephone Fax
================================================================================
Registered representative, return form to:
State Street Research Investment Services
Attn: Marketing Analysis Department
One Financial Center, 3rd Floor
Boston, MA 02111
Or fax to: 1-617-261-0288
================================================================================
Client Information
- --------------------------------------------------------------------------------
Name
/ /
- --------------------------------------------------------------------------------
Date of lump-sum distribution Age Date of birth
- --------------------------------------------------------------------------------
Spouse's age Age to start income payments (maximum age 70 1/2)
Exempt from early distribution penalty? [ ] yes [ ] no
$
- --------------------------------------------------------------------------------
Year you entered plan Total taxable distribution
$
- --------------------------------------------------------------------------------
Number of exemptions Other taxable income in year of distribution
(income after deductions and exemptions)
$
- --------------------------------------------------------------------------------
Other taxable income during payout period
(income after deductions and exemptions)
Tax filing status [ ] single [ ] joint [ ] head of household
%
- --------------------------------------------------------------------------------
Inflation rate (for 15% penalty tax exclusion)
(3% assumed unless otherwise indicated)
%
- --------------------------------------------------------------------------------
Federal income tax bracket (if none elected, 28% assumed)
%
- --------------------------------------------------------------------------------
Your state income tax rate
- --------------------------------------------------------------------------------
Rate of return to assume (5% unless otherwise indicated)
Investment Information
What is your investment objective? (check all that apply)
[ ] Aggressive growth
[ ] Growth
[ ] Growth and income
[ ] Current income
[LOGO] STATE STREET RESEARCH
<PAGE>
- --------------------------------------------------------------------------------
[[LOGO] State Street Research IRA
IRA Distribution Form
- --------------------------------------------------------------------------------
1 IRA owner information
(Please print or type.)
- --------------------------------------------------------------------------------
Today's date
- --------------------------------------------------------------------------------
IRA account number
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Daytime phone number
- --------------------------------------------------------------------------------
Address (P.O. Boxes may not be used)
- --------------------------------------------------------------------------------
City State ZIP
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
2 Oldest primary designated beneficiary
(If you wish to add beneficiaries, please attach a separate list.)
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Relationship
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State ZIP
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
3 Account balance on December 31:
If you transferred or rolled over your IRA from another
retirement plan this year, please provide its account
balance as of December 31 of the prior year.
$______________
4 Type of Distribution
(Choose one. For Class "B" or "D" shares, a contingent
deferred sales charge may apply.)
[ ] A. Regular distribution
I am age 59 1/2 or older and wish to withdraw $_____________
(To establish a Systematic Withdrawal Plan, fill out
section 5.)
[ ] B. Disability
I wish to withdraw $_____________
I have attached a copy of Schedule R from my tax return
or a confirmation letter from my physician.
(To establish a Systematic Withdrawal Plan, fill out section 5.)
[ ] C. Death of IRA shareholder
Withdrawal amount: $______________
The beneficiary should complete this form and enclose a
certified copy of the shareholder's death certificate.
(To establish a Systematic Withdrawal Plan, fill out section 5.)
[ ] D. Withdrawal of excess contribution
Year excess contribution was made: 19_____.
Withdrawal amount: $______________
[ ] E. Pre-59 1/2 distribution
I wish to withdraw $
I understand that a 10% tax penalty may apply on the
amount of the withdrawal includable in income.
[ ] F. Pre-59 1/2 distribution with substantially equal
periodic payments
(If you have any questions, contact your investment
representative or tax adviser, or call State Street Research
at 1-800-562-0032. State Street Research does not guarantee
or give any assurance that the pre-59 1/2 distribution with
"substanially equal periodic payments" will qualify for an
exception to the 10% penalty tax.)
[ ] I have made the calculations to determine substantially
equal periodic payments from my IRA account. I understand
that if I modify the withdrawal plan before the end of
5 years, or before I reach age 59 1/2, whichever occurs later,
the IRS may impose a retroactive 10% penalty on
payments includable in income with interest.
Payment amount $__________________
Payment frequency:
[ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
[ ] Make the calculations for me based on:
[ ] My individual life expectancy.
[ ] Joint life expectancy with my designated beneficiary.
Payment frequency:
[ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
[ ] G. Post-70 1/2 - Required minimum distribution
(choose one.)
[ ] I wish to receive my entire IRA account balance.
[ ] I am already taking the required minimum distribution
from another IRA. Please take no action.
[ ] I have calculated the amount of my required distribution.
Payment amount $__________________
Payment frequency:
[ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
[ ] Make the calculations for me based on:
[ ] My individual life expectancy.
[ ] Joint life expectancy with my designated beneficiary.
[ ] A fixed number of years:_____________ years
Payment frequency:
[ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
Payments to begin:____________________(month/year)
Note: to begin payments in the month indicated,
State Street Research must receive this form at least
three weeks prior to the first payment.
[ ] H. Income distributions
Choose only one. (Not available if you are under age 59 1/2.
If you choose this option, you may not choose a Systematic
Withdrawal Plan. Please note: this may not be enough to satisfy
minimum distribution rules if you are over age 70 1/2.)
[ ] Dividends in cash
[ ] Dividends and capital gain distributions in cash
<PAGE>
5 Systematic Withdrawal Plan
Please base my systematic withdrawal payments on
the following (choose only one). For Class "B" or "D"
shares, a contingent deferred sales charge may apply.
[ ] My individual life expectancy.
Do you wish us to recalculate this each year? [ ] Yes [ ] No
[ ] Joint life expectancy with my designated beneficiary.
Do you wish us to recalculate this each year? [ ] Yes [ ] No
[ ] A fixed number of years:_________________years
Do you wish us to recalculate this each year? [ ] Yes [ ] No
[ ] A fixed dollar amount: $____________________
[ ] A fixed number of shares:___________________
[ ] A fixed percentage:_________________________%
Payment frequency:
[ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
Payments to begin:___________________________(month/year)
Note: to begin payments in the month indicated, State Street
Research must receive this form at least three weeks prior to
the first payment.
6 Distribute To:
[ ] Mail to IRA owner, at address of record
[ ] Deposit to the following (non-retirement) State Street
Research mutual fund account
- --------------------------------------------------------------------------------
Fund name:
- --------------------------------------------------------------------------------
Account number:
[ ] Open a new (non-retirement) account in the following
mutual fund from State Street Research:
- --------------------------------------------------------------------------------
Fund
[ ] A [ ] B [ ] D
- --------------------------------------------------------------------------------
Share class*
[ ] Other payee:
- --------------------------------------------------------------------------------
Name of bank (Automatic Bank Connection) or payee
- --------------------------------------------------------------------------------
Bank account number (if applicable)
- --------------------------------------------------------------------------------
Street address
- --------------------------------------------------------------------------------
City State ZIP
Attach a blank check marked "Void" if distribution
is to be made to your bank.
* Investments in Money Market Fund will purchase
Class E shares.
7 Substitute Form W-4P
Withholding Election:
(This section must be completed.)
Instructions: Check the first box if you do not want federal
tax withheld from each IRA distribution. If you elect no withholding,
your election will remain in effect until revoked; you
may change your election by writing to State Street Research
Shareholder Services. Check the second box to have withholding
apply. Even if you elect not to have federal tax withheld,
you are liable for payment of federal tax on the taxable portion
of your IRA distribution. You may also be subject to tax penalties
under the estimated tax payment rules if your payments
of estimated tax and withholding are not adequate. Some
states may also require us to withhold state income tax from
these withdrawals.
We encourage you to consult with your tax adviser regarding
your IRA distributions.
[ ] I elect not to have tax withheld from each distribution.
[ ] I elect to have 10% tax withheld from each distribution.
Also, please withhold an additional________________% or $____________
from each distribution.
- --------------------------------------------------------------------------------
Signature of IRA owner Date
8 Authorizations and signatures:
I authorize the Transfer Agent to act upon my
instructions for both the options I have checked
on this form and the withholding elections I
have indicated:
- --------------------------------------------------------------------------------
Signature of IRA owner
- --------------------------------------------------------------------------------
Printed name of IRA owner
Signature Guarantee
- --------------------------------------------------------------------------------
Name of bank or eligible guarantor
- --------------------------------------------------------------------------------
Authorized signature of bank or eligible guarantor
- --------------------------------------------------------------------------------
Title
A signature guarantee is required if you are directing a
distribution to an address other than your address of record or
to a payee other than yourself. Signatures may be guaranteed
by a bank, a member of a domestic stock exchange, or other
eligible guarantor. Notarizations are not acceptable.
================================================================================
Return this signed and dated form to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
================================================================================
[LOGO] STATE STREET RESEARCH
<PAGE>
- --------------------------------------------------------------------------------
[LOGO] State Street Research IRA
Pre-59 1/2 Distribution Information Request Form
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Client's Name
/ / / /
- --------------------------------------------------------------------------------
Date Date of Birth
$
- --------------------------------------------------------------------------------
Current Account Balance(1)
Payout Mode (Circle) A S Q M
/ /
- --------------------------------------------------------------------------------
Beneficiary's Date of Birth (Optional)(2)
================================================================================
Registered representative, return form to:
State Street Research Investment Services
Attn: Marketing Analysis Department
One Financial Center, 3rd Floor
Boston, MA 02111
Or fax to: 1-617-261-0288
================================================================================
- --------------------------------------------------------------------------------
Representative's Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
( )
- --------------------------------------------------------------------------------
Telephone Number
( )
- --------------------------------------------------------------------------------
Fax Number
Unless otherwise indicated, response will be to the
fax number above.
Comments:
(1) Account balance at end of prior month or current balance
for this month. Factors are valid for current balances and
current month only. However, factors can be used for
planning purposes for withdrawals in the future. When actual
withdrawals are to commence, the client's age, account
balance and actual month will be used for factor calculations.
(2) While the age of the beneficiary can be used for factor
calculations, usually a single life quotation will maximize
the payouts.
[LOGO] STATE STREET RESEARCH P59TT (2/95)
<PAGE>
[LOGO] STATE STREET RESEARCH
(C)1995 State Street Research Investment Services, Inc. Boston, MA 02111
CONTROL NUMBER: 2251-950331(0496)SSR-LD IR-082E-395
<PAGE>
- --------------------------------------------------------------------------------
[LOGO] State Street Research IRA
Transfer of Assets/Direct Rollover Form
- --------------------------------------------------------------------------------
Once completed, send the top two copies of this form and a State Street Research
IRA Application to: State Street Research Shareholder Services, P.O. Box 8408,
Boston, MA 02266-8408. Do not rollover or transfer any amounts required to be
paid to you under the minimum distribution rules that apply after you reach age
70 1/2.
1 Your name and address
(Please print.)
- --------------------------------------------------------------------------------
Your name
- --------------------------------------------------------------------------------
Street address
- --------------------------------------------------------------------------------
City State ZIP
- --------------------------------------------------------------------------------
Home telephone number Business telephone number
/ /
- --------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
2 Your fund selections at
State Street Research
Fund Name Account number Share class* Amount
(if applicable)
[ ] A [ ] B [ ] D
- --------------------------------------------------------------------------------
[ ] A [ ] B [ ] D
- --------------------------------------------------------------------------------
[ ] A [ ] B [ ] D
- --------------------------------------------------------------------------------
*Money Market Fund investments will purchase Class E shares.
3 Direct Rollover of Eligible Rollover
Distributions (complete if applicable)
(Sent trustee-to-trustee, from a retirement plan
elsewhere to an IRA at State Street Research)
Type of current plan:
[ ] 403(b) [ ] 401(k) [ ] Pension plan [ ] Other
- --------------------------------------------------------------------------------
Account number
- --------------------------------------------------------------------------------
Name and address of current trustee/custodian
4 Transfer of Assets (complete if applicable)
(From an IRA at another company to an
IRA at State Street Research)
- --------------------------------------------------------------------------------
Name and address of current trustee/custodian
- --------------------------------------------------------------------------------
Fund name IRA account number
- --------------------------------------------------------------------------------
Fund name IRA account number
5 Authorization
(To authorize your current Trustee/custodian to
transfer/rollover your qualified plan or IRA assets to
State Street Research)
Please redeem [ ] all or [ ] part ($__________ ) of my present
account and transfer the redemption proceeds to my State
Street Research IRA account [ ] immediately [ ] at maturity.
- --------------------------------------------------------------------------------
Your signature Date
- --------------------------------------------------------------------------------
Employer's signature (if required) Date
6 Signature guarantee
(Ask your current custodian/trustee if it requires
your signature to be guaranteed.)
Signature guaranteed by:
- --------------------------------------------------------------------------------
Name of bank/eligible guarantor
- --------------------------------------------------------------------------------
Authorized signature of bank or eligible guarantor
Please do not fill out the lower portion of this form.
- --------------------------------------------------------------------------------
For current trustee/custodian use: Instructions for delivery to State Street
Research IRA.
- --------------------------------------------------------------------------------
Please liquidate and transfer on a fiduciary-to-fiduciary basis all or part of
the designated account as instructed above and make check payable to: State
Street Bank and Trust Company, Trustee.
================================================================================
Please include account number and FBO on the check.
Mail to: State Street Research Shareholder Services, P.O. Box 8408, Boston,
MA 02266-8408
Please remember to include a copy of this form, along with a check, for
proper credit to the accounts. State Street Research Shareholder Services
will deliver the items to the agent for State Street Bank and Trust Company,
who serves as Trustee.
================================================================================
For successor trustee/custodian use: Successor Trustee's acceptance of
Individual Retirement Account assets.
State Street Bank and Trust Company will accept the transfer described above
once this form has been completed and signed by you.
- --------------------------------------------------------------------------------
Authorized signature of acceptance by Agent for State Street Bank and Trust
Company, Trustee.
CONTROL NUMBER: 2237-950331(0496)SSR-LD IR 139E-395
[LOGO] STATE STREET RESEARCH
<PAGE>
[Logo] STATE STREET RESEARCH
[LOGO]
STATE STREET RESEARCH
IRA
YOUR GUIDE TO PLANNING FOR
A COMFORTABLE RETIREMENT
o o o o o o o o o o o o o o
o Regular/accumulation IRA
o Rollover IRA
o Transfer of assets IRA
o Lump-Sum distribution IRA
o IRA distributions and withdrawals
<PAGE>
GONE
FISHIN'
[Graphic -- Fish]
CONTENTS PAGE
Introduction.................................1
What is an IRA...............................3
IRA at a glance..............................4
Choosing your IRA
o regular/accumulation IRA ...............5
o rollover/transfer of assets...............7
o lump-sum distribution.....................9
State Street Research
IRA services
o Distributions/withdrawals ...........12-13
IRA basics
Answers to common
questions................................15
Why invest with
State Street Research.......................18
Your investment
options.............................Back Cover
A RELAXED
RETIREMENT
REQUIRES
CAREFUL
PLANNING
o o o o o o o o o o o o o o o o o o o o o
Many of us look forward to retirement as
a time when we can do the things we've
wanted to do for years. But in order for
your "golden years" to shine, you need
to start planning today.
The Financial Challenges
of Retirement
When planning for something as important
as your retirement, it's crucial that
you know the facts:
o Many people are retiring earlier and
living longer; retirement assets may
have to last 20, even 30, years. Yet
half of all retirees during the late
1980s entered their retirement years
with less than $10,000 in savings.(1)
Outliving retirement income is a
serious concern.
(1) Source: Rep. William J. Hughes,
statement before the Subcommittee on
Retirement Income and Security, House
Select Committee on Aging, U.S. House
of Representatives, July 10, 1991.
1
<PAGE>
How Long Will Your
Money Last...
$100,000 earning hypothetical rates of
return with monthly withdrawals of $800
(compounded monthly)
Years of withdrawals before principal is exhausted
[The table below was represented as a bar graph in the printed material.]
4% 13.5 yrs.
6% 16.2 yrs.
8% 22.1 yrs.
Rate of return before inflation
These figures are for illustration only
and are not a projection of investment
performance. There is no guarantee that
any available fund managed by State
Street Research or its affiliates will
achieve any particular rate of return.
Results do not take into account the
effect of taxes or inflation on income.
o Estimates indicate that most retirees
need 70% to 80% of their
pre-retirement income to maintain
their standard of living. In most
cases, Social Security and pension(s)
provide only a portion of the income
needed. A third or more may have to
come from personal savings and
investments.
o Retirees should not count on Social
Security as a sole means of
retirement income. Consider that the
average Social Security payment is
$7,836 per year (that's only $653 per
month),(2) fine as a supplement, but
not as a primary source of income.
(2) Source: Social Security
Administration
Where Will The Money
Come From
THE PERCEPTION
Where will many pre-retirees think
the money will come from
[The table below was represented as pie graph in the printed material.]
Savings* 18%
Pensions** 43%
Social Security 25%
Earnings 4%
Other/Unsure 10%
Source: Merrill Lynch
* Includes IRA, payroll reduction plan,
401(k), life insurance, annuities,
investments, other savings on hand
and savings to be added.
** Includes employer's pension plan,
profit sharing plan, government
pension, Keogh/SEP.
THE REALITY
Actual sources of
Retirement Income
[The table below was represented as a pie graph in the printed material.]
Pensions 20%
Earned Income 27%
Investment/Savings 33%
Social Security 18%
Other Benefits 2%
Source: Social Security Administration.
For retirees with at least $28,714 in
annual income in 1990.
o Most Americans change jobs numerous
times over their careers; frequent
job changes can mean reduced income
from company pension plans. Similar
to Social Security, pension plans
should be viewed as a supplementary
source of retirement income.
o Taxes and inflation. They don't go
away, even for retirees. In fact, the
portion of Social Security benefits
that may be subject to tax has
increased from 50% to 85%! And when
you consider that an annual inflation
rate of 4% cuts purchasing power in
half in just 15 years, the
combination of taxes and inflation
can make a serious dent in any
retirement nest egg.
Remember When...
A dollar was worth a dollar.
Thanks to inflation, your 1974 dollar is
worth only 29 cents in today's economy.
[The table below was represented as a line graph in the printed material.]
1974 $1.00
1994 $0.29
Source: Consumer Price Index
You Need A
Substantial Nest Egg
To comfortably meet retirement and
health care costs, you'll probably need
more income than Social Security and
your pension plan alone will provide.
Unfortunately, taxable savings plans may
not be adequate either. Both the money
you set aside and the interest it earns
are taxed at current rates, and that tax
bite can make a real difference over the
long term. Fortunately, there is an easy
way to help insure a more comfortable
retirement. It's called an IRA.
2
<PAGE>
[Graphic -- What is an IRA?]
An Individual Retirement Account,
commonly referred to as an "IRA," is a
savings or investment plan that lets you
set aside money specifically for your
retirement. An IRA offers three
important advantages:
o Tax-deferred earnings--you pay no
taxes on your investment earnings
until you begin taking distributions
from your account. Generally,
withdrawals begin after retirement,
when you may be in a lower tax
bracket--ultimately, your tax bill
might be smaller.
[BAR CHART]
Build For Tomorrow
Tax-deferred growth can help make a
comfortable retirement a reality.
Tax deferred $202,144
28% $140,539
31% $135,297
36% $127,048
39.6% $121,511
Tax-deferred annual investments of
$2,000 over 30 years, earning a 7%
hypothetical rate of return versus the
same investments taxed at the 28%, 31%,
36%, and 39.6 federal tax rates.
For illustration only. Not intended to
imply or guarantee a rate of return on
any investment.
o Power of tax-deferred
compounding--compounding is the money
you earn on your IRA contributions
(dividends, interest, appreciation
and capital gains). Because earnings
are tax-deferred, your retirement
nest egg has the potential to build
even more quickly than a taxable
investment earning the same rate of
return. This can make a significant
difference, particularly over the
long-term.
o Potential tax deduction--you may be
eligible to deduct some or all of
your IRA contributions on your
current federal income tax return.
But even if your contributions aren't
deductible, you still benefit from
tax-deferred growth--a key component
to a sound retirement plan.
In addition to these incentives, a State
Street Research IRA offers you other
advantages, including--a wide choice of
mutual funds and services, and all the
information you need in an easy-to-use,
easy-to-read format. With help from this
guide and the accompanying forms
booklet, you can choose any type of IRA
transaction you need. Open an IRA, take
distributions from your IRA, or just
call to find out more.
Mutual Funds Can Help
The American public has become more
focused than ever on the importance of
investing for retirement. And mutual
funds have taken center stage. Currently
33% (approximately $284 billion) of all
IRA assets are invested in mutual funds.
Why? Because mutual funds offer a
variety of features that appeal to
investors accumulating assets for the
future, including--
o professional management
o diversification
o flexibility
o convenience
o affordability
Source: Investment Company Institute,
1994 Mutual Fund Fact Book
CONSIDER
the potential benefits
if your earnings
could grow tax-deferred...
3
<PAGE>
Mutual Funds and
IRA Investing --
A Natural Fit
An increasing number of investors are
choosing mutual funds to help meet their
future retirement needs.
Number of Mutual Fund
IRA Accounts
1993
29,300,000
1981
500,000
Source: Investment Company Institute,
1994 Mutual Fund Fact Book
We want to
MAKE IT EASY
to plan for retirement...
All the forms you need
are in the forms booklet
that accompanies
this brochure.
And, remember
to consult your
investment representative
and tax adviser.
STATE STREET RESEARCH
IRA
AT A GLANCE
State Street Research offers an IRA to meet your needs.
Included in this brochure:
Regular/Accumulation IRA--see page 5
Open a State Street Research IRA and build your
retirement assets over time through periodic
contributions.
Rollover & Transfer of Assets IRA--see page 7
Rollovers and Transfers are great for
consolidating your finances. They potentially
reduce your IRA fees and simplify your
record-keeping, while continuing to let your
assets build for tomorrow.
Lump-Sum Distribution IRA--see page 9
Retiring or leaving your job? If so, you may be
expecting a lump-sum distribution. Let us show you
what your options are. Making the wrong decision
could cost you thousands. Help avoid tax penalties
with a State Street Research IRA.
Distributions and withdrawals--see page 12
If you're approaching 70 1/2, it's almost time to
begin taking mandatory IRA withdrawals. The IRS
has rules about how much you must withdraw based
on your age, life expectancy and account balance.
State Street Research can help with the
calculations for your review.
4
<PAGE>
YOUR IRA OPTIONS
REGULAR
IRA
IS THIS THE
IRA FOR YOU?
o o o o o o o o o o o o o o o o o o o o
Consider a Regular/Accumulation IRA if
you are:
o Interested in a tax-advantaged way to
save for retirement.
o Concerned about future retirement and
health care expenses and the real
danger of outliving your retirement
assets.
o Employed, but do not have the benefit
of an employer-sponsored retirement
plan.
o Employed and covered by a retirement
plan at work, but want additional
tax-deferred growth potential.
[Graphic]
CONTRIBUTIONS
TO AN IRA
With a regular IRA, you can contribute
up to $2,000 per year or 100% of earned
income, whichever is less.
THE BENEFITS
Without the added boost of personal
retirement savings, many retirees must
make marked cuts in their standard of
living. Establishing an IRA today is a
great way to help build for the future.
You'll benefit from:
o Tax deferral--
Pay no taxes on your investment
earnings until you begin taking
distributions from your account. Once
you reach retirement age, you may be
in a lower tax bracket--which may
mean you pay less in taxes!
o Tax-deferred compounding--
Compounding is the money you earn on
your IRA contributions plus
accumulated investment earnings
(interest, dividends and capital
gains). Because your earnings grow
tax-deferred, your assets have the
potential to accumulate even more
quickly.
o Current tax deduction--
You may be eligible to take a full or
partial tax deduction for
contributions to an IRA.*
* See your tax adviser for details.
[Graphic]
CAN'T DEDUCT
YOUR IRA
CONTRIBUTION?
Don't worry, over time, it's the tax
deferral, not the tax deduction, that
can make the real difference. And, it's
available to all IRA investors.
[PIE CHART]
Benefits of Tax Deduction
Contribute a total of $60,000
to an IRA...
...and your
tax deductions
total $21,600
$60,000
For illustration only. Assumes
individual in 36% federal tax bracket
contributes $2,000 annually over 30
years.
5
<PAGE>
THE FORMS
YOU NEED
1. IRA Terms & Conditions
2. IRA Application
3. Fund Prospectus(es)
Benefits of Tax Deferral
You gain a significant edge when
your investment is tax-deferred
[The table below was represented as a graphic in the printed material.]
$2,000/yr. tax-deferred $202,144
$2,000/yr. taxable 36% bracket $127,048
$75,096 tax advantage
For illustration only. Not intended to imply or guarantee a rate of return on
any investment. Assumes individual in 36% federal tax bracket; annual
contributions of $2,000 for 30 years; and a hypothetical 7% rate of return.
How To Open
Your IRA
o o o o o o o o o o o o o o o o o o o o
A o Sit down with your investment
representative to map out a solid
plan for preparing for retirement.
Choose the State Street Research
funds that best suit your goals and
risk tolerance.
o Read the prospectus for each fund
you're considering before you
invest.
B o Familiarize yourself with the IRA
Terms & Conditions.
o Complete the IRA Application--be
sure to specify which mutual funds
you would like to invest in (Section
3).
o Attach a check made payable to State
Street Bank & Trust Co.*
C o Keep a copy of your signed documents
for your files.
o Mail your completed application in
the envelope provided.
o You will receive written
confirmation that your account has
been established.
* Note: you may contribute up to
$2,000 annually to your IRA. Once
you invest the minimum initial
investment of $2,000 to open your
IRA, you may choose either a
lump-sum investment or periodic
contributions in following years. If
you'd like your IRA contributions
made automatically from your
checking account--each month or
every quarter--fill out the
Investamatic section of the IRA
Application. If you use
Investamatic, you may invest as
little as $50 once the $2,000
minimum investment requirement is
met.
That's all there is to it!
If you have any questions, call toll-free:
1-800-562-0032.
6
<PAGE>
YOUR IRA OPTIONS
ROLLOVER
IRA
IS THIS THE
IRA FOR YOU?
o o o o o o o o o o o o o o o o o o o o
Consider a rollover or a transfer of
assets if you:
o Have IRA(s) at other financial
institution(s) and want to transfer
your assets to consolidate your
accounts for easier record keeping
and potentially lower fees.
o Already have an IRA, but are
dissatisfied with your current level
of service or want a wider array of
investment options.
"TRANSFER"
"ROLLOVER"
What's The Difference?
While the terms are often used
interchangeably, there are important
differences between a "transfer" and a
"rollover:"
o Transfer--moves your IRA assets
directly from one custodian to
another. One of the key differences
between a transfer and a rollover is
with a transfer you never take
receipt of your assets. There is no
limit to the number of IRA transfers
you can make in a given year.
o Rollover--moves your retirement
assets from one place to another.
Unlike a transfer, which occurs
between two custodians, with no
direct involvement by you, choosing
a rollover means you receive an
actual distribution from the first
IRA and it is your responsibility to
reinvest it in another IRA within 60
days. Aside from certain exceptions,
if you are under age 59 1/2 and do
not complete the rollover within 60
days, you will pay ordinary income
tax on your withdrawal, plus a
possible 10% tax penalty. While you
can make an unlimited number of
transfers, you are entitled to only
one IRA rollover between IRAs in a
12-month period. For more
information on direct rollovers,
please see the Lump Sum Distribution
IRA on pages 9-11. Also, remember
that whether a transfer or rollover
of assets, sales charges may apply
to investments in a mutual fund.
THE BENEFITS
o Easier record keeping
o Help avoid tax penalties
o Continue to build for retirement
o Potentially lower fees
Sales charges may apply; please consult
the Fund prospectus(es) for more
details.
CASE STUDY
o o o o o o o o o o o o o o o o o o o o
Transferring
Assets For Easier
Record Keeping
Over the years, Fred Viola and his wife
Florence had established IRAs with a
number of financial institutions. It was
becoming a record-keeping nightmare,
particularly at tax time. The Violas,
long-time investors with State Street
Research, called their investment
representative to see whether their IRAs
could be consolidated into one IRA.
Their representative assured them that
this could be easily accomplished. The
transaction was simply called a
"transfer of assets." After the transfer
was complete, the Violas were pleased to
finally have their IRA assets "under one
roof" and found that State Street
Research's consolidated IRA statement
made tax time much easier.
Note: consolidation of rollover IRAs
(which contain assets from 403(b)
contracts or qualified plans other than
IRAs), with an existing IRA may have
adverse tax consequences such as
limiting future rollovers into qualified
plans other than IRAs.
7
<PAGE>
THE FORMS
YOU NEED
1. IRA Terms & Conditions
2. IRA Application
3. Transfer of Assets/
Direct Rollover Form
4. Fund Prospectus(es)
o o o o o o o o o o o o o o o o o o o o
STATE STREET RESEARCH IRA
How To
Rollover
Or Transfer
Assets To
An IRA
o o o o o o o o o o o o o o o o o o o o
A o Sit down with your investment
representative; he or she will help
you select the funds for your IRA
that are best suited to your
retirement goals.
o Read the prospectus for each fund
you're considering before you
invest.
B o Familiarize yourself with the IRA
Terms & Conditions.
o Complete the IRA Application--be
sure to specify which mutual funds
you would like to invest in (Section
3).
For Rollovers Only:
o Attach a check made payable to State
Street Bank & Trust Co., or, if the
check representing your assets was
made payable to you, please endorse
it to State Street Bank & Trust Co.
For Transfers of Assets &
Direct Rollovers Only:
C o Complete the Transfer of
Assets/Direct Rollover Form. This
will authorize your present IRA
trustee (or the plan administrator
of your employer's plan) to
transfer/rollover your assets
directly to State Street Research.
D o Keep a copy of your signed documents
for your files
o Mail your completed application and
the transfer of assets/direct
rollover form in the envelope
provided.
o You will receive written
confirmation that the transfer, or
rollover, has occurred and your IRA
has been established.
That's all there is to it!
If you have any questions, call toll-free:
1-800-562-0032.
8
<PAGE>
YOUR IRA OPTIONS
LUMP-SUM
IRA
IS THIS THE
IRA FOR YOU?
o o o o o o o o o o o o o o o o o o o o
Consider a Lump-Sum Distribution IRA if
you are leaving your job for any reason:
o You have reached retirement age, or
you've decided to retire early.
o You have accepted a new job with
another employer.
o Your industry is consolidating and
layoffs are inevitable.
o Your company has recently been
acquired or taken over.
o You're starting your own business.
Avoid the 20% withholding and keep your
retirement money working by rolling your
eligible rollover distribution directly
into an IRA from State Street Research.
What's A Lump-Sum
Distribution?
To qualify as a lump-sum, the
distribution from your company's
retirement plan must:
o Represent your entire vested account
balance
o Be paid as a result of separation
from service; attainment of
age 59 1/2; disability; or death
o Be paid in one or more payments
within one calendar year
Facing Major Decisions
If your employer has a retirement plan
that you've participated in, when you
leave your job, you may receive a
lump-sum distribution from that plan.
You need to decide--in advance--how to
deal with those assets or you may face
some serious tax consequences:
o how much will you owe in taxes?
o do you qualify for income averaging?
o is your best option a direct
rollover into an IRA?
o what are the tax consequences if you
keep the money?
YOUR OPTIONS
Take a cash distribution and pay
your tax bill now
If you don't roll your money into an
IRA (or other tax-qualified
retirement plan) within 60 days, or
don't qualify for income averaging,
you may face a hefty tax bill that
could include penalties if you are
under age 59 1/2.
Use income averaging to minimize the
taxes you pay now(4)
If you keep your distribution,
current taxes are due on your entire
distribution. It's possible to reduce
your taxes by using 5- or 10-year
income averaging, if you qualify:
5-year averaging--you must be at
least 59 1/2 when you receive your
lump-sum distribution and have been
an active participant in your former
employer's retirement plan for at
least five years.
10-year averaging--you can use this
method if you were 50 or older on
January 1, 1986 (this rule applies
to 5-year averaging as well).
(4) Income averaging can only be used
once.
Choose a direct rollover to defer
taxes
A direct rollover into an IRA or
your new employer's qualified
retirement plan will defer taxes on
all or part of your distribution. By
continuing to benefit from
tax-deferred growth, a direct
rollover IRA may provide the
opportunity to substantially
increase your retirement assets over
time.(5)
(5) If you receive a check and the
rollover is not done directly
(institution-to-institution), you
will be subject to 20% income tax
withholding (mandatory under IRA
rules). This applies even if you
comply with the 60-day rollover
deadline.
Another option is to begin periodic
withdrawals of substantially equal
amounts for at least 10 years. You
pay tax as you receive distributions
but avoid the 20% withholding tax
and the 10% penalty tax if rolled
over within 60 days.
9
<PAGE>
How To Choose
Your Best Distribution
Option
State Street Research offers a free
personalized program called Lump Sum to
help you get the most from your
retirement plan distributions. Lump Sum
will show you--in real dollar
terms--what each distribution option
means, given your age, tax bracket and
income needs.(6) In an
individually-prepared analysis, Lump Sum
shows:
1 How your distribution can grow in a
tax-deferred IRA.
2 How 5- or 10-year income averaging
can lower your tax bill (if you are
eligible).
3 Expected income and taxes for each
of your distribution options.
4 Hypothetical performance
illustration on selected mutual
funds that correspond with the
investment objective that you
indicate on the Lump Sum Profile
form.
(6) Lump Sum Illustrations are based on
past performance only and are not
meant to imply or guarantee future
performance of any funds managed by
State Street Research or its
affiliates.
o o o o o o o o o o o o o o o o o o o o
STATE STREET RESEARCH IRA
NEW TAX LAW
$
COULD COST YOU $$$
20% Withholding Law--
Effective January 1, 1993
The 20% withholding rule applies to all
eligible rollover distributions and not
just the taxable portion of a lump sum
distribution.
If you accept a check--made payable to
you--your employer must withhold 20% of
the total for taxes. This rule applies
even if you have every intention of
rolling the money over within 60 days.
Exempt From 20%
Withholding Rule
In general, eligible rollover
distributions are all distributions from
a qualified retirement plan except the
following:
o Distributions from IRAs
o Substantially equal periodic payments
(made not less frequently than
annually) with a term of 10 years or
more.
o Substantially equal payments (made not
less frequently than annually) made
for your lifetime or over a period not
exceeding your life expectancy; or for
the joint lives of you and your
beneficiary or over a period not
exceeding your joint life
expectancies.
o Minimum required distributions
o Distributions of previously taxed
amounts.
CASE STUDY
o o o o o o o o o o o o o o o o o o o o
20% Law In Action
George Mills, age 50, has accepted a new
job and is eligible for a $100,000
lump-sum distribution from his former
employer's retirement plan. Thinking he
has 60 days to decide to roll all, or a
portion, into an IRA, George accepts the
distribution check. Later, when George
looks at the check, he sees that it is
for $80,000 not $100,000. He immediately
calls the benefits department at his
former employer. They explain that the
lump-sum distribution was in IRS-terms
an "eligible rollover distribution,"
hence, it is subject to the new 20%
withholding. Now what?
o George decides to roll the $80,000
into an IRA.
o The $20,000 withheld is treated as a
premature distribution and will be
included in his annual income for tax
purposes.
o George is in the 36% tax
bracket--income tax due on the $20,000
is $7,200.
o The remainder of the $20,000 withheld
will be refunded after he files his
tax return.
o And it gets worse. George is under
59 1/2, so he has to pay an additional
penalty tax of 10%. Already his tax
bill is up to $9,200--and that doesn't
include state or local taxes!
If George wants to roll over the entire
$100,000, is it still possible? Yes. But
he must come up with the additional
$20,000 from his other assets. And, the
rollover must be completed within 60
days from the date he received the
$80,000. This will not get back the
$20,000 withheld for tax purposes (he'll
have to wait for his IRS refund), but it
will avoid a 10% premature withdrawal
penalty and the $7,200 income tax.
TURN PAGE FOR MORE INFO ON LUMP-SUM IRA
10
<PAGE>
THE FORMS
YOU NEED
1. IRA Terms & Conditions
2. IRA Application
3. Lump Sum Profile
4. Transfer of Assets/Direct
Rollover Form
5. Fund Prospectus(es)
How To Open An
IRA With Your
Lump-Sum
Distribution
o o o o o o o o o o o o o o o o o o o o
A o Complete the Lump Sum Profile form
and mail, or fax, it to State Street
Research.
o With your investment representative,
review the Lump Sum Illustration
provided by State Street Research
and select the distribution option
that best suits your needs.
B o If an investment is appropriate,
your representative will help you
select the funds for your IRA that
will best meet your retirement
goals.
o Read the prospectus for each fund
you're considering before you
invest.
C o Familiarize yourself with the IRA
Terms & Conditions.
o Complete the IRA Application--be
sure to specify which mutual funds
you would like to invest in (Section
3).
For an institution-to-institution
rollover:
D o Complete the Transfer of
Assets/Direct Rollover Form.
This will authorize your retirement
plan trustee to transfer/rollover
your assets directly to State Street
Research.
E o Keep a copy of your signed documents
for your files.
o Mail your completed application and
the transfer of assets/direct
rollover form in the envelope
provided.
o You will receive written
confirmation that the transfer, or
direct rollover has occurred and
your IRA has been established.
That's all there is to it!
If you have any questions, call toll-free:
1-800-562-0032.
11
<PAGE>
DISTRIBUTION SERVICES AVAILABLE TO IRA OWNERS
MINIMUM DISTRIBUTION
IRA
Investing for retirement is serious
business, and State Street Research
recognizes that it takes more than
attractive investments to power a
successful IRA. It takes dedicated
service, low cost, and features that
help make investing easier.
MINIMUM
DISTRIBUTION SERVICE
Consider a minimum distribution from
your IRA if you are:
o approaching age 70 1/2.
o Between age 59 1/2 and 70 1/2 and
ready to supplement your retirement
income with distributions from your
IRA.(7)
(7) Minimum withdrawals are not
mandatory until April 1 following
the year you reach age 70 1/2. Also
sales charges may apply to
withdrawals made prior to age
70 1/2. See Fund prospectus for
details.
Withdrawals Are
Mandatory At
Age 70 1/2
You may make withdrawals from an IRA
from age 59 1/2 on. However, if you are
approaching 70 1/2, the IRS requires
that you begin taking a minimum
distribution from your IRA each year. If
you don't make the required withdrawals,
you will be subject to a 50% penalty tax
on the amount that should have been
withdrawn. Therefore, once you reach
70 1/2, it is important that you begin
taking your minimum distributions by
April 1 of the following year.
DID YOU TURN
70 1/2 THIS YEAR?
If so, you MUST begin IRA withdrawals by
April 1 of next year
How Much Do You Need
To Withdraw?
When you're ready to take distributions,
you have two choices for determining the
amount to withdraw to meet the minimum
requirement (based on age, account
balance and life expectancy):
o We will do the calculations for your
State Street Research IRA--for your
review--based on information you
provide. Distributions will be paid
on a periodic basis, and your
minimum distribution amount will be
recalculated automatically each
year.
o You may make your own
calculations--take your IRA
withdrawal in an annual lump-sum or
choose periodic payments.(8)
(8) If you choose to make your own
calculations, you must take all your
IRAs into consideration (State
Street Research and others) in
computing the aggregate amount
required to satisfy the minimum
distribution requirements. However,
the IRS allows you to take the
amount from any one or more of your
IRAs, as you choose. As your account
size changes, the required minimum
distribution will vary each year;
therefore, it is your responsibility
to be sure that the withdrawal
amount you specify does not fall
below the minimum amount required.
If you change beneficiaries, see
your tax adviser. This may affect
your calculations.
o o o o o o o o o o o o o o o o o o o o
STATE STREET RESEARCH IRA
TURN PAGE FOR MORE INFO ON MINIMUM DISTRIBUTION
12
<PAGE>
Cash Or Reinvest--
It's Up To You
Take your IRA distribution(s) in cash or
choose automatic reinvestment:
o Cash--We'll send you one check,
representing your annual minimum
withdrawal amount, or a series of
smaller periodic payments. Or choose
the Automatic Bank Connection (ABC)
option, and your distributions will
automatically be deposited in your
bank checking or NOW account. ABC is
easy and gives you ready access to
your distributions.
o Automatic Reinvestment--Just tell us
which available funds managed by
State Street Research (or its
affiliates) you'd like to invest in,
and we'll automatically reinvest
your minimum distributions for you.9
While no longer tax-sheltered, your
money has the potential to continue
to grow to provide future income for
you or your heirs.
9 See Fund prospectus for minimum
required investments. Also, in
general, contributions--whether in
cash or reinvested--are taxable. If
you have made non-deductible
contributions to your IRA, a portion
of each distribution will not be
taxable.
A WORD ABOUT
PRE-59 1/2
DISTRIBUTIONS
There are several circumstances in which
you might choose to make withdrawals
from your IRA prior to reaching age
59 1/2. Call us if you'd like more
information. Make sure you consult with
your tax adviser first so that you fully
understand the potential tax
consequences. A 10% penalty may apply to
these withdrawals.
THE FORMS
YOU NEED
1. IRA
Distribution
Form
How To Choose
The Minimum Distribution Option
o o o o o o o o o o o o o o o o o o o o
A o Complete the IRA Distribution
Form--be sure to indicate which
distribution option you'd like
(Section 4).
B o Keep a copy of your signed documents
for your files.
o Mail the completed form in the
envelope provided.
That's all there is to it! Your
distributions will begin within one month.
If you have any questions, call toll-free:
1-800-562-0032.
13
<PAGE>
MORE FEATURES
IRA
ONE FEE
$10
ANNUALLY
Choose as many available mutual funds
for your IRA account as you want--you
pay only one fee (Does not include sales
charge).(10)
o Easy-To-Use Brochure/Forms--
We explain your IRA options and give
you step-by-step instructions on how
to open the IRA that's right for you.
Forms are easy to fill
out--everything you need is at your
fingertips.
o Consolidated Statement--
All your State Street Research IRA
information on one statement. You'll
see at a glance what portion of your
investments are tax-qualified and--if
you have non-IRA mutual fund
accounts--what are not. This can be a
big timesaver at tax time. For your
convenience, statements are generated
quarterly.
(10) Applies to annual trustee fee, does
not include applicable sales
charges. See Fund prospectus for
more information.
o Free Hypothetical Illustrations
(based on past performance)--
Tailored to your needs--this
powerful tool shows any number of
investment scenarios all in real
dollar terms. This service can be
invaluable for retirement planning.
See your investment representative
for details.(11)
o DIRECT--
An innovative risk reduction
strategy for lump-sum investments.
Commit a minimum of $10,000 to any
available State Street Research
mutual fund. Smaller sums(12) are then
systematically invested (monthly or
quarterly) into a maximum of four
other funds that you choose. It's a
great solution if you have a
substantial sum of money to invest
but are concerned about committing
it all at once.
o Automatic Reinvestment of Required
Distributions--
If it's time to take required
distributions from your State Street
Research IRA--but you don't
currently need the money--this
option will help your assets
continue to work for you. Although
no longer tax-advantaged, your IRA
distributions will automatically be
reinvested in the fund(s) you
choose. You will generally pay taxes
on the amounts reinvested, and the
earnings on the distributions will
no longer be tax-sheltered.
(11) Illustrations are based on past
performance only and are not
intended to imply or guarantee the
future performance of any available
fund managed by State Street
Research or its affiliates.
(12) See prospectus for minimum required
investments.
o Investamatic--
Invest in your State Street Research
IRA, on a monthly or quarterly
basis, through the Investamatic
check program. You can have as
little as $50 automatically
withdrawn from your checking account
and invested in your IRA. It's a
great way to build for your future
with no inconvenience.(12)
o Automatic Bank Connection (ABC)--
If you're taking distributions from
your IRA, choose this feature and
insure that all investment income is
deposited directly into your bank
checking account. No phone calls or
unnecessary paperwork, it all
happens automatically and gives you
immediate access to your money.
o Overview--
Receive a copy of our shareholder
newsletter four times a year. Each
issue is full of information about
the economy, tips to make investing
easier, what State Street Research
portfolio managers are saying about
the markets, and more!
14
<PAGE>
IRA BASICS
Q/A
ANSWERS TO
FREQUENTLY
ASKED
QUESTIONS
o o o o o o o o o o o o o o o o o o o o
CONTRIBUTIONS
TO YOUR IRA
Q. Who can open an IRA?
A. Anyone with earned income who is
under age 70 1/2.
Q. How much can I contribute to an IRA
each year?
A. Except for rollover contributions,
you can contribute a maximum of $2,000
or 100% of your earned income, whichever
is less.
Q. We're a dual-income household. Can we
each contribute $2,000?
A. Yes. If your spouse is a wage-earner,
he or she can open a separate IRA--the
maximum contribution rules apply
separately to each of you--$2,000 each
for a combined annual total of $4,000 or
100% of compensation, whichever is less.
Q. May I have more than one IRA?
A. Absolutely. Just be sure that total
annual contributions to your IRAs do not
exceed 100% of compensation, up to a
maximum of $2,000. Many investors have
found that by consolidating multiple
IRAs into one IRA, annual account
maintenance fees are reduced and record
keeping is made easier. One note
though--sales charges may apply. Please
consult a Fund prospectus for details.
Q. How do I determine whether my IRA
contribution is deductible on my federal
tax return?
A. Deductibility of IRA contributions
depends on your income and whether you
participate in an employer-sponsored
retirement plan. Generally, you can
fully deduct up to $2,000 if:
o you or your spouse is not covered by
an employer-sponsored retirement
plan;
o you or your spouse participate in an
employer-sponsored retirement plan,
but your adjusted gross income does
not exceed $40,000 ($25,000 if you
are single).
For married couples filing jointly with
earnings of $40,000 to $50,000 (and
single filers who earn $25,000 to
$35,000), contributions may be partially
deductible--the rules can be complex.
Please see your tax adviser for details.
Q. Why contribute to an IRA if I can't
deduct my contribution?
A. You're helping prepare for a
comfortable retirement. And regardless
of whether you are able to deduct your
contribution, contributing to an IRA
gives you the benefit of tax deferral on
your earnings. Earnings are tax-free
until they are distributed to you. When
you're ready to retire, this
tax-deferred compounding may make a
sizable difference in your retirement
savings.
Q. Do I have to contribute to an IRA
every year?
A. You are not required to contribute to
your IRA each year, but it may be wise
to do so. IRA contributions--up to the
maximum annual limit--are completely at
your discretion. Contribute as much or
as little as you choose. However, you
may not make up "missed" contributions
in later years.
Q. Is there a cut-off date for my annual
IRA contribution?
A. You can contribute to your IRA
(deductible and non-deductible
contributions) up to the due date for
filing your federal tax return for the
prior year--generally April 15th.
Q. Do I have to stop contributing to my
IRA once I reach a certain age?
A. Yes. You can make IRA contributions
as long as you are a wage-earner up to,
but not including, the year you reach
age 70 1/2.
15
<PAGE>
DISTRIBUTIONS
FROM YOUR IRA
Q. When will I start to make
withdrawals?
A. You may elect to make withdrawals
from your IRA in the year in which you
reach age 59 1/2. Withdrawals before you
reach age 59 1/2 may be considered
premature and may be subject to a
penalty tax of 10%. However, you must
begin making withdrawals from your IRA
by April 1 of the year following the
year in which you reach 70 1/2.
Q. What if I decide to make withdrawals
before I turn 59 1/2?
A. If you decide to withdraw money from
your IRA before age 59 1/2, you may
incur a 10% tax penalty--on top of your
regular income tax. This penalty is
imposed to encourage people to invest in
an IRA as a future retirement account,
not a short-term savings vehicle.
However, exceptions exist, including
those based on hardships such as death
or disability. (Sales charges may apply
in some circumstances.)
Q. Will I have to pay tax on my IRA
withdrawals?
A. Unfortunately, the answer is yes. IRA
withdrawals are generally taxable as
ordinary income in the year you receive
them. But--and this is part of the
attraction of IRAs--when you reach
retirement, your income may be lower
than it is now, putting you in a lower
tax bracket. So by deferring your tax
bill until retirement, you may pay less
in taxes.
Q. What about tax on withdrawals of
non-deductible contributions?
A. Don't worry, you don't have to pay
taxes twice! If you've made
contributions that you did not deduct on
your tax return, they are returned to
you tax-free because you paid tax on
them in the year they were contributed.
However, for maximum flexibility under
the income tax rules, you may want to
consider keeping rollover IRAs separate
from others.
Q. I'd like to wait as long as possible
before I take withdrawals from my IRA.
What's the latest date I can start?
A. The law requires that you begin
withdrawals no later than April 1
following the year you reach age 70 1/2.
If you have reached this age and choose
to take your withdrawals in installments
(versus a lump-sum payment) you must
satisfy certain minimum distribution
requirements. These calculations are
based on your life expectancy (and those
of your beneficiaries, if any). As part
of our IRA service, we'll provide you
with your minimum distribution
calculation(s) on your State Street
Research IRA, for your review. If you
begin withdrawals after age 70 1/2 and
do not take your minimum required
distribution, you may be assessed a
penalty tax equal to 50% of the
difference between the amount you
received and the amount you should have
received. See your tax adviser for
details.
Q. Will IRA withdrawals affect my Social
Security benefits?
A. No. Your IRA withdrawals are in
addition to other retirement income such
as Social Security and any other
retirement or pension plan benefits you
may receive.
o o o o o o o o o o o o o o o o o o o o
STATE STREET RESEARCH IRA
TURN PAGE FOR MORE Qs & As
16
<PAGE>
Q. Will I have access to my IRA money if
I become disabled?
A. Absolutely. If you become
disabled--as defined in Section 72(m) of
the Internal Revenue Code--you may begin
to receive penalty-free distributions
from your IRA regardless of your age.
Q. What happens to my IRA if I die?
A. Your assets will be distributed to
your designated beneficiary(ies). If you
die after some of your IRA assets have
been distributed to you, your designated
beneficiary may continue to receive
payments under the method you elected
prior to your death. Distributions to
your beneficiary must be made at least
as rapidly as they were made to you.
However, if you die before any IRA
distributions have begun, the rules
change slightly:
o In general, your IRA assets must be
distributed to your estate or
beneficiary within five years after
your death.
o If you have designated a beneficiary
and he or she is someone other than
your spouse, your beneficiary may
begin distributions no later than
one year after the date of your
death, and such distributions must
be made over your beneficiary's life
or over a period not exceeding your
beneficiary's life expectancy.
o If your designated beneficiary is
your spouse, he or she may defer any
distributions until December 31st of
the year in which you would have
reached age 70 1/2. Distributions
must then be made over your spouse's
life or over a period not exceeding
his or her life expectancy. Or, your
spouse may roll your IRA assets over
into his or her own IRA; the assets
would then be subject to the same
distribution rules as any IRA.
INVESTING
YOUR IRA
Q. Are there any rules about how IRA
contributions can be invested?
A. You have a number of investment
options to choose from,
including--individual stocks and bonds,
mutual funds, certain types of
annuities, endowment policies and
savings accounts. These options vary in
risk and potential rate of return, so be
sure to consult your investment adviser.
He or she can help you select the asset
mix that's right for you. The law
prohibits IRAs from investing in life
insurance.
Q. I keep reading about IRAs and mutual
fund investing--what is a mutual fund?
A. A mutual fund is a company that pools
the money of many shareholders,
investing it in a variety of securities
chosen by a full-time, professional
money manager, for the purpose of
meeting a stated financial objective.
The flexibility and diversification of
mutual funds have wide appeal--currently
over $284 billion (approximately 33%) of
all IRA assets are invested in mutual
funds.
Source: Investment Company Institute,
1994 Mutual Fund Fact Book
Q. If I own mutual funds in my IRA, what
happens to any dividends and capital
gains?
A. Dividends and capital gain
distributions are automatically
reinvested in additional shares. These
additional shares do not affect the
amount you may contribute. It is
important to understand that the value
of a fund's portfolio will fluctuate
with changes in market conditions;
therefore, the amount available when you
are ready to take your distributions
cannot be projected or guaranteed.
Q. What about fees? Is it expensive to
open an IRA with State Street Research?
A. State Street Research offers some of
the most competitive pricing for IRAs
that you'll find anywhere. You'll pay a
$10 annual account administration
(trustee) fee. This $10 (per IRA) fee
allows you to choose any number of our
available mutual funds. You pay per IRA,
not per fund! Remember though, sales
charges may also apply to the mutual
funds that you invest in for your IRA.
JUST THE
ABCs
OF IRAs
These are the IRA basics. You may have
further questions which your investment
representative and/or tax adviser can
answer.
17
<PAGE>
WHY INVEST WITH
STATE STREET RESEARCH
PROVEN
MANAGEMENT
SINCE 1924
o o o o o o o o o o o o o o o o o o o o
State Street Research & Management
Company has a history that dates to
1924, when Paul Cabot and his
Boston-based colleagues opened America's
second mutual fund. Over the years,
State Street Research has built a
reputation for top-notch research and
prudent investment management. Today,
the Company is well-respected in many of
the nation's most powerful board rooms
and is best known as the institutional
asset manager for some of the most
successful and renowned companies in the
United States. The knowledge, resources
and experience of over seven decades are
available to individual investors
through the State Street Research IRA.
Investment
Flexibility
Choose the mutual fund, or combination
of funds, which best suits your
investment objectives. If your financial
goals change, you can easily exchange
shares of one available mutual fund
managed by State Street Research or its
affiliates for shares of another with no
fee. Exchanges may be subject to
applicable sales charges, and the
privilege may be changed or discontinued
at any time.
A Wealth of Experience
An investment as important as your
retirement plan--and that's what an IRA
is--shouldn't be entrusted to anyone but
experts. To manage its assets, State
Street Research employs some of the best
in the business. The Company currently
has 22 portfolio managers on staff--they
average 20 years of investment
experience--and 25 analysts--with an
average 15 years of experience.
o o o o o o o o o o o o o o o o o o o o
STATE STREET RESEARCH IRA
18
<PAGE>
[Graphic]
OPTIONS
YOUR
INVESTMENT
OPTIONS
o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o
Whichever IRA you choose, State Street
Research offers a family of mutual funds
from which to choose. Each fund is
managed to achieve a specific objective
such as growth, income, or growth and
income combined.
Consult your investment representative
for the fund(s) best suited to your
goals and risk tolerance.
- --------------------------------------------------------------------------------
Please note that neither State Street Research, Metropolitan Life Insurance
Company nor any of their agents give legal or tax advice. The brief discussion
of taxes in this brochure is neither complete nor necessarily up-to-date--it is
intended strictly as a guide. The laws and regulations are complex and subject
to change.
For complete details, consult your attorney or tax adviser.
- --------------------------------------------------------------------------------
[Logo] STATE STREET RESEARCH
A MetLife Company
When used as sales material, this brochure must be preceded or accompanied by a
current, relevant fund prospectus which provides more complete information
including investment policies, sales charges and expenses. Please read the
prospectus(es) carefully before you invest.
(C)1995 State Street Research Investment Services, Inc., Boston, MA 02111
CONTROL NUMBER: 2074-950302(0496)SSR-LD
IR-081E-395
Exhibit (14)(b)
[FRONT COVER]
[State Street Research Logo]
403(b)
Retirement--The Key Is Planning Now
As a working person, you have a decision to make--how to protect your current
earnings and provide for a comfortable retirement.
Social Security may not be adequate. Currently, average monthly benefits
are around $675.* And, as the retired population grows in proportion to
the number of workers paying into the fund, Social Security may become
less reliable. In fact, in many places, employees of state or local
governments do not participate in Social Security.
Taxable savings plans may not be adequate either. Both the money you set
aside and the interest it earns are taxed at current rates--just when
you're at peak income levels.
*Source: Social Security Administration.
A Good Way To Plan For Retirement
A State Street Research 403(b) Account is a good way for employees of
private tax-exempt organizations such as hospitals or colleges, and
employees of public schools or colleges, to build financial resources
for retirement. If you are such an employee, you should consider a
403(b) account.
The 403(b) Advantage--Lower Income Taxes
Contributions to your State Street Research 403(b) Account are not
subject to current federal income tax, within the limits allowed by the tax
laws. This reduces your current federal income tax liability and increases your
spendable income, compared to a taxable savings program. Many states
exclude 403(b) contributions from state income taxes as well.
This chart shows the benefits of saving with a 403(b) account. In each
instance, the employee plans to save 10% of income, or $5,000. This
example shows only federal income tax savings. You may also save on
state income taxes.
Saving Outside 403(b) Saving With 403(b)
Salary $50,000 Salary $50,000
Income Taxes 9,353 403(b) Savings 5,000
- ---------------------------- -------------------------------
After-Tax Income 40,647 Taxable income 45,000
Savings 5,000 Income Taxes 7,953
- ---------------------------- -------------------------------
Spendable Income $35,647 Spendable Income $37,047
With 403(b), you have $1,400 more in spendable income!
The 403(b) Advantage--Tax-Free Accumulation
The interest and other investment earnings accumulating in your 403(b)
account compound tax deferred until you begin making withdrawals from your
account. This can mean greater overall returns than with taxable
investments.
<PAGE>
------------------------ LINE CHART ------------------------------
Taxable vs. Tax-free Accumulation
The chart at right
illustrates what
happens when monthly investments of $125
grow at 7% and 5%
tax free for 10 years,
versus the same
taxable investments
growing at 7% and 5%
for 10 years in the 28%
tax bracket. All
distributions are
reinvested. Sales
charges, if any are
not reflected.
($ in Thousands)
$21,501 Tax deferred 7%
$19,413 Taxable 7%
$19,375 Tax deferred 5%
$18,018 Taxable 5%
The chart illustrates general advantages of tax-deferral. Returns are
hypothetical and are for illustrative purposes only; they are not
intended to imply or guarantee a rate of return on any mutual fund or
other investment.
----------------------------------------------------------------
State Street Research Mutual Funds
Your 403(b) contributions will be invested in the State Street Research
fund(s) of your choice. State Street Research offers a variety of mutual
funds, each managed to meet a specific investment objective, such as
growth or income.
Corporate Heritage
State Street Research has a history dating to 1924, with the founding of
the nation's second oldest mutual fund. Today the Company manages over
$27 billion in assets.
How To Get Started
The following questions and answers will give you important information
about your State Street Research 403(b) Account. Simply follow the
instructions on the back cover to set up your account.
Questions And Answers About Your
403(b) Account
Eligibility
Who can have a 403(b) account?
Only employees of an organization described in Section 501(c)(3) of the
Internal Revenue Code may have a 403(b) account. These include non-
profit charitable, educational, scientific or religious organizations,
such as hospitals or colleges. Also, an employee of a state or local
government who is employed by a school (for example, a local school
system or state college or university) can have a 403(b) account. Check
with your employer to determine whether you qualify for a 403(b)
account.
<PAGE>
What happens if I change employers?
If your new employer is a qualified employer, you may continue to
contribute to your 403(b) account after changing jobs. If your new
employer is not a qualified organization, you may no longer make
contributions to your 403(b) account, but your account will continue to
accumulate tax free until you begin making withdrawals. Contact
State Street Research Shareholder Services for additional information:
1-800-562-0032.
Contributions
How do I make contributions to my 403(b) account?
Usually, you would enter into a salary reduction agreement with your
employer that specifies the amount you want to contribute. Your
compensation will be reduced by this amount and the money will be
contributed by your employer to your 403(b) account. In some cases, your
employer may make contributions to your 403(b) account as a retirement
benefit for you.
Your employer may already have a salary reduction agreement for you to
use. If not, a form of salary reduction agreement is included in your
State Street Research 403(b) Package. Read the form for an explanation
of IRS restrictions on changing the amount of your salary reduction.
Maximum Contribution
How much can be contributed each year to my 403(b) account?
Determining your maximum 403(b) contribution is complex because several
different tax law limits apply depending on your individual situation.
For most employees, the maximum salary reduction contribution for a
calendar year will be the smaller of 20% of your compensation or $9,500.
In the future, the $9,500 limit may be indexed for inflation each year.
Employees of certain kinds of qualified employers (for example, public
schools and private tax-exempt schools, colleges, hospitals and home-
health agencies) can elect different limits in some situations. Also,
long-service employees (15 or more years of service) of such employers
may have increased limits.
Your employer's benefits or personnel department, or the business
office, may be available to calculate your maximum contribution. If not,
you may use the worksheet enclosed in your State Street Research 403(b)
Package. You may wish to consult an accountant or tax adviser to confirm
your maximum contribution.
What happens if I exceed the maximum for a year?
If you exceed the $9,500 limit for a year, you should request State
Street Research to return the excess contribution to you with earnings.
You should make your request no later than March 1 of the following
year.
<PAGE>
If your contributions for a year exceed any of the other limits, you
must include the excess in your income for federal income tax purposes.
In addition, you may have to pay a penalty tax equal to 6% of the
"excess contribution." The penalty tax also applies to excess
contribution amounts left over from prior years.
You can avoid paying the penalty tax if you withdraw the amount of the
excess from your account before the end of the year in which the excess
contribution was made.
Even if you have to pay the penalty tax in one year, you can avoid paying it in
later years by contributing less than your maximum for the later year; the
excess is reduced by the difference between the maximum and the actual
contribution.
Investments
What are my investment choices?
Contributions to your 403(b) account may be invested in one or more of
the eligible mutual funds distributed by State Street Research.
Also, you can exchange amounts from one fund to another. (You can even
choose telephone exchange privileges when completing your State Street
Research 403(b) Account Application.) There may be minimum investment
amounts for certain funds, or there may be sales charges. Such minimums
or charges are described in the prospectus(es).
Before investing, be sure to read the current prospectus(es) for the
funds in which you are interested so that you can be familiar with the
investment objectives and policies, and the sales charges or other
charges applicable to a Fund.
May I transfer my existing 403(b) to State Street Research?
Yes. Complete the Transfer of 403(b) Assets Form found in your State
Street Research 403(b) Package. Be sure to note the requirements for a
tax-free transfer described in the Form. Consult your personnel or
benefits department or your tax adviser for additional information.
What about an IRA?
You can have an IRA even though you are contributing to a 403(b)
account. Depending on your income level, contributions to an IRA may or
may not be deductible on your federal income tax return. For more
information about our IRAs, call State Street Research Shareholder
Services: 1-800-562-0032.
<PAGE>
Withdrawals From Your Account
When will I begin to receive retirement benefits from my account?
You choose when to make withdrawals from your 403(b) account. However,
withdrawals may not begin until you have retired or terminated
employment with your employer; reached age 59-1/2 (even though you are
still employed by your employer); or died. Earlier withdrawals are
permitted only if you become disabled or suffer a financial hardship
(as defined by IRS regulations). Consult your tax adviser, as tax
penalties may result. You may be requested to verify disability with a
doctor's certificate or a Social Security disability benefits award.
You may be asked to verify financial hardship by a certificate from an
independent person appointed by your employer, and financial hardship
withdrawals are limited to the amount of your salary reduction
contributions (no earnings or investment gains). You must begin making
withdrawals by April 1 of the year following the year when you reach
age 70-1/2. This is required even if you are still working.
Use the Withdrawal Form to notify State Street Research when you wish to
begin making withdrawals from your account.
How will the benefits be paid to me?
Benefits will be paid to you either in a lump-sum payment or in periodic
(monthly, quarterly, or annual) installments. Installment payments may
not extend beyond your life expectancy or the joint life expectancy of
you and your designated beneficiary.
Also, there are minimums on the amount of installments you must receive
after age 70-1/2. There are substantial penalty taxes (up to 50%) if you
do not make the minimum required withdrawals.
What happens to my account if I die?
Your account balance goes to the beneficiary(ies) you designate on the
403(b) application or on another written document you send to State
Street Research Shareholder Services. You can change your
beneficiary(ies) in writing. Naming a beneficiary(ies) can have estate
and tax-planning implications; consult a qualified professional.
Withdrawals by a beneficiary(ies) are also subject to rules relating to
when withdrawals must begin and minimums for installment withdrawals.
Taxes
How will I be taxed on withdrawals from my 403(b)?
Generally, amounts withdrawn from your account are taxed as ordinary
income in the year when received. In addition, with limited exceptions,
such as disability, amounts withdrawn before age 59-1/2 are subject to
an additional 10% penalty tax.
Special five-year averaging, applicable to lump-sum distributions from
certain retirement plans, does not apply to 403(b).
<PAGE>
Certain very large withdrawals (generally over $150,000 in a year--
counting all 403(b) and IRA withdrawals and distributions to you from
qualified retirement plans) may be subject to a 15% penalty tax.
There may be income tax withholding on the amounts you withdraw. If you
withdraw an amount from your State Street Research 403(b) Account that
is eligible for rollover (see next question), mandatory 20% federal
income tax withholding will apply unless the withdrawn amount is rolled
directly to another 403(b) arrangement or to an IRA. If the amount you
withdraw is not eligible for rollover to another 403(b) arrangement or
IRA, 10% withholding of federal income tax will apply unless you elect
no withholding on your Withdrawal Form.
Can I postpone federal income tax on a withdrawal from my 403(b)
account?
In certain situations, you can defer income taxes on withdrawals from
your 403(b) account if all or part of the withdrawal is rolled over to
another 403(b) account or into an IRA either directly by State Street
Research (direct rollover) or by you (regular rollover) within 60 days.
All withdrawals are eligible for rollover (either a direct rollover or a
regular rollover) except minimum required withdrawals after age 70-1/2
and withdrawals over a period of at least 10 years or over the life
expectancy of you (or you and your designated beneficiary).
Caution: Rollovers must meet technical IRS requirements that cannot be
described in detail here. Consult your employer or tax adviser for
assistance in carrying out a rollover.
If a withdrawal is eligible for rollover and if you do not elect a
direct rollover, the Custodian must withhold 20% of your withdrawal for
federal income taxes. The rollover and withholding rules also apply to
your surviving spouse if he or she receives a distribution from your
account upon your death.
Be certain to carefully read the notice on tax treatment and withholding
on withdrawals that accompanies the Withdrawal Form for more
information.
What about other taxes?
Contributions under a salary reduction agreement will be subject to
Social Security withholding if you are covered by Social Security.
State tax treatment varies from state to state. You should consult your
tax adviser with any questions on how a 403(b) account would affect your
state taxes.
IMPORTANT. The preceding questions and answers are general and are
provided for informative purposes only. Always consult your tax adviser
for advice on how the tax laws apply to you and how a State Street
Research 403(b) account will affect your tax situation. More information
is available in IRS Publication 571, Tax-Sheltered Annuity Plans for
Employees of Public Schools and Certain Tax-Exempt Organizations; this
publication is available from the IRS.
<PAGE>
How To Start Your State Street Research 403(b) Account
1. Carefully read the material describing the State Street Research
403(b) Account and the prospectus(es) for the fund(s) in which you plan
to invest. You may want to review the material with your accountant,
lawyer or other tax adviser because the rules under Section 403(b) are
complex and subject to change.
2. If contributions to your 403(b) Account will be made under a salary
reduction agreement, you should fill out, and you and your employer
should sign, a salary reduction agreement. If your employer does not
have a form of salary reduction agreement for use with employees, you
may use the sample Salary Reduction Agreement found in the State Street
Research 403(b) package.
3. Complete and sign the State Street Research 403(b) Account
Application. Be sure to complete the beneficiary section of the
Application.
4. If you are transferring your current 403(b) assets to State Street
Research, complete and sign the Transfer of Assets Form.
5. Mail the completed and signed Application (and the Transfer of Assets
Form, if used) to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
Enclose a check in the amount of $10.00 payable to State Street Bank and
Trust Company, Custodian, to cover the first year's annual maintenance
fee for the account; otherwise the fee will be charged to your account.
There is a $10.00 annual maintenance fee for each calendar year (the fee
is not prorated for less than a full calendar year). We will forward the
necessary materials to the Custodian.
This brochure must be preceded or accompanied by the relevant fund
prospectus(es), which includes investment policies, sales charges and
expenses. Please read the prospectus(es) carefully before investing.
[State Street Research logo]
(C)1995 State Street Research Investment Services, Inc. Boston, MA 02111
Control Number: 2717-951025(1196)SSR-LD RP-923C-1095
<PAGE>
[BACK COVER]
(C)1995 State Street Research Investment Services, Inc., Boston, MA 02111
CONTROL NUMBER: 2713-951025(1196)SSR-LD RP-921C-1095
[FRONT COVER]
[State Street Research logo]
403(b)
Maximum Salary
Reduction Worksheet
Maximum Salary Reduction Worksheet
This worksheet will help you compute the maximum amount by which you can reduce
your salary without exceeding any of the limits. Before doing the calculations,
you may wish to check with your Employer's benefits or personnel department or
business office. Often these departments will calculate an employee's 403(b)
maximum.
If you use the worksheet to do your own calculation, read the
information following the worksheet first. After completing the
worksheet, you should consult your accountant, lawyer or other
professional tax adviser to verify your calculation or answer your
questions. The tax laws change often and individual situations can vary.
Also, certain exceptions and rules that apply only in relatively rare
situations are not covered by the worksheet. This worksheet and the
questions and answers following it are not intended to be tax advice,
and you are responsible for meeting the tax law limits
on contributions to your 403(b) account.
To help you, the example demonstrates a typical salary reduction situation and
the worksheet provides spaces for your own computations. This worksheet and the
questions and answers are designed to help you determine your maximum salary
reduction. If your employer will make contributions on your behalf as an
addition to your salary, or if you will contribute by foregoing an increase in
compensation, there are different formulas to determine your maximum. If this
situation applies to you, your Employer should be able to help you calculate the
limits that apply to you.
In the example, a college teacher will earn $40,000 in 1995. She will
have worked for the college 15 years at the end of 1995. The college has
previously contributed $20,000 on her behalf to its 403(b) retirement
plan ($18,000 of which was contributed in the most recent 10 years). The
college will contribute 10% of her salary ($4,000) to its retirement
plan for 1995. In addition, the employee reduced her salary in prior
years by a total of $10,000 for contribution to her 403(b) account. How
much can this employee reduce her salary for 1995?
Step 1 - Determine the Exclusion Allowance
(example) (your computation)
(a) Enter your expected
salary for the current
year before reduction
for contributions to
your 403(b) account. $40,000 ___________________
(b) Enter your number
of years of service
(including whole
and fractional years)
as of the end of the
current year. 15 ____________________
(c) Multiply (a) by (b)
by .20. $120,000 ____________________
(d) Enter the amount of
your salary reduction
contributions and
employer contributions
for you to a 403(b)
retirement plan or to a
qualified retirement plan
in prior years. $ 30,000 _____________________
<PAGE>
(e) Enter amount of
contributions by
your employer
for you to a 403(b)
retirement plan for
the current year. $ 4,000 ______________________
(f) Subtract (d) and (e)
from (c). $ 86,000 ______________________
(g) Multiply your years
of service in (b) by .20
and add 1. 4 ______________________
(h) Divide (f) by (g) to
determine your
exclusion allowance
for the year. $ 21,500 ______________________
Step 2 - Determine the Section 415 General Limitation
(a) Multiply your expected
salary (before reduction
for contributions to your
403(b) account) for the
current year by .20. $ 8,000 ______________________
(b) Multiply amount of
your employer's
expected contributions
for you for the current
year to a 403(b) retire-
ment plan by .80. $ 3,200 ______________________
(c) Subtract (b) from
(a)to determine your
Section 415 general
limitation (but not
in excess of $30,000). $ 4,800 ______________________
Step 3 - Determine the Section 415 Alternatives
Alternative A
Available if employee
terminates service;
same as exclusion
allowance but based
on last ten years of
service with employer,
up to a maximum
of $30,000. $ 16,000 ______________________
Alternative B
(a) Enter the exclusion
allowance determined
in Step 1. $ 21,500 ______________________
(b) Add $3,200 to the Section
415 general limitation
determined in Step 2. $ 8,000 ______________________
(c) Enter $15,000. $ 15,000 $ 15,000
<PAGE>
(d) Your alternative B
limitation is the
smallest of (a),
(b) or (c). $ 8,000 ______________________
Alternative C
Enter the Section 415
general limitation
determined in Step 2. $ 4,800 ______________________
Step 4 - Apply the $9,500 Limit
(a) Enter $9,500. $ 9,500 $9,500
(b) If eligible (see Question 14
below), use the smallest
of the following:
(i) $ 3,000 $ 3,000 $3,000
(ii) $15,000 reduced
by increases to the
$9,500 limit you
used in prior years. $ 15,000 ______________________
(iii) $5,000 multiplied
times years of service,
reduced by all prior
salary reduction
contributions to a
403(b) account or
annuity or to a
401(k) plan. $ 65,000 $_____________________
(c) Add the amount
determined in (b)
to $9,500; this is
your limit for the
year under this step. $ 12,500 $_____________________
Step 5 - Determine the maximum salary reduction
(a) Enter your exclusion
allowance from step 1. $ 21,500 ______________________
(b) Enter your Section 415
general limitation
from step 2. $ 4,800 ______________________
(c) Enter the lesser
of (a) or (b). $ 4,800 ______________________
(d) Enter Alternative A
if applicable. $ 16,000* ______________________
(e) Enter Alternative B. $ 8,000 ______________________
(f) Enter Alternative C. $ 4,800 ______________________
(g) Enter the largest
of items (c), (d),
(e) or (f). $ 8,000* ______________________
<PAGE>
(h) Enter the $9,500
limit (Step 5(c)). $ 12,500 $_____________________
(i) Enter the smaller
of (g) or (h).
This is your maxi-
mum salary reduc-
tion for this year. $ 8,000 ______________________
*Alternative A is not available to the employee in the example because
she is not terminating employment.
For this employee, the Alternative B limit of $8,000 is the largest for
this year. Keep in mind that the alternative election, which appears
most advantageous in this year may not necessarily be the best for you
over the long run. See Questions 9 and 12.
Step 6 - Salary Reduction Agreement
Enter a salary reduction agreement with your Employer, which reduces
your compensation each pay period so that the correct amount is
contributed to your State Street Research 403(b) Account.
QUESTIONS AND ANSWERS ON
CALCULATING YOUR MAXIMUM
Maximum Contribution
1. What is the maximum annual contribution to my 403(b) account?
The maximum contribution you can exclude from your taxable income
(sometimes called your "maximum exclusion allowance"
or "MEA") is the smaller of your "403(b) exclusion allowance" (Questions
2-5) or your "415 limit" (Questions 6-12). Finally, your salary
reduction contributions for a year cannot exceed $9,500; this is
increased for certain employees (Questions 13 and 14).
Exclusion Allowance
2. How do I compute my "exclusion allowance"?
Use the following steps to compute your 403(b) exclusion allowance:
(a) Take 20 percent of your expected salary for the current
year (before reduction for your 403(b) contributions, but
after reduction for salary reduction contributions under a
cafeteria or flexible benefits plan or 401(k) plan if your
employer maintains such a plan).
(b) Multiply (a) by your number of years of service with your
current employer as of the end of the current year.
(c) Subtract the following total from (b):
(bullet) your total 403(b) salary reduction contributions
in previous years (which you excluded from your
income),
(bullet) your employer's contributions in previous years on
your behalf to a 403(b) retirement plan or to a
qualified retirement plan,
<PAGE>
(bullet) your employer's expected contributions to a 403(b)
retirement plan for you for the current year (see
Questions 15 and 16).
(d) Divide (c) by the sum of one plus 20 percent of your years
of service as of the end of the current year.
The resulting figure is the amount of your exclusion allowance for the
current year.
3. What if I do not know how much my employer has contributed in
previous years on my behalf to a retirement plan?
If you cannot learn this from the benefits or personnel office of your
employer, IRS regulations provide a method for determining the amount of
your employer's prior contributions. Consult your employer or tax
adviser for further information.
Years of Service
4. How do I determine my years of service?
Count one year of service for each full year you were a full-time
employee. Count a fraction of a year of service for years in which you
were a part-time employee or did not work a full year. Add your full and
fractional years of service together to determine your total years of
service. Only service with your current employer can be counted.
Part-time Fraction. For part-time work, the fraction is your work
schedule divided by the normal work schedule for a full-time employee
holding the same position. For example, if for a year you taught one
course for six hours per week, and a full-time teacher normally teaches
18 hours per week, your fraction would be one-third of a year.
Partial Year Fraction. If you were a full-time employee for part of the year,
the fraction is the number of weeks or months you worked divided by the number
of weeks or months in your employer's annual work period. For example, if you
taught full-time for four and one-half months and your employer's annual work
period is an academic year of nine months, your fraction would be one-half of a
year.
Part-time, Partial Year Fraction. If you were a part-time employee for
part of a year, calculate one fraction as though you were a part-time
employee for a full year and one fraction as though you were
a full-time employee for a part of a year. Then multiply the two
fractions together to obtain your fractional year of service. For
example, if you taught a course for six hours per week for one semester
at a school where full-time teachers taught 18 hours per week for two
semesters, your fractional year of service would be one-sixth (part-time
fraction of one-third times full-time for part-of-a-year fraction of
one-half).
5. What if I have less than one year of service?
Under the law, you may compute your exclusion allowance based on one
year of service even if you have worked for your employer for less than
a year or if your fractional years of service total less than a year.
<PAGE>
415 Limits
6. What are the 415 limits?
The 415 limits are from Section 415 of the Internal Revenue Code. The
415 limits apply even though your 403(b) exclusion allowance for the
year is greater. Section 415 has a general limit and certain
alternatives that may permit a larger maximum.
7. How do I compute the 415 general limit?
Your 415 general limit is the smaller of:
(a) 20 percent of your compensation for the year (before
reduction for contributions to your 403(b) account, but
after reduction for salary reduction contributions under
any cafeteria or flexible benefits plan or 401(k) plan your
employer maintains); this amount must be reduced by 80% of
your employer's contribution for the year to the 403(b)
retirement plan; or
(b) $30,000. (This $30,000 figure will eventually be indexed
for cost-of-living changes. However, the indexing will not
begin for some years depending on future inflation.)
415 Alternatives
8. What are the 415 alternatives?
In the past, many employees eligible for 403(b) did not enter into
salary reduction agreements because they expected to make large "catch-
up" contributions later. The 415 general limit might prevent those
employees from saving enough for their retirement years. To remedy this
situation, 415 provides certain alternatives.
These alternatives are available only to employees of an educational
organization, a hospital, a home health service agency, a health and
welfare service agency, or a church or association of churches. If you
do not work for such an employer, you can skip Questions 9 through 12.
9. How many alternatives are there?
Section 415 provides three alternatives:
Alternative A may be used only once, in the year you leave the
service of your employer. Under this alternative, the 415
percentage limitation (see Answer 7(a)) is disregarded and you
may calculate your 403(b) exclusion allowance using your years
of service with your employer up to a maximum of ten years. The
$30,000 limit still applies, however, even if your exclusion
allowance is higher.
In other words, under this alternative, you are limited to your
403(b) exclusion allowance based on a maximum of ten years of
service, or $30,000, whichever is less.
Alternative B is the smallest of:
(a) the amount of your 403(b) exclusion allowance;
(b) 20 percent of your compensation (before reduction for
contributions to your 403(b) account) plus $3,200;
(c) $15,000
<PAGE>
Alternative C is to disregard the 403(b) exclusion allowance
altogether. Under this alternative, contributions are subject
only to the 415 general limit described in Answer 7.
Finally, there is a separate alternative available only to an employee
of a church or association of churches: to replace the 415 general limit
with the limit of $10,000 per year (up to a cumulative total
of $40,000).
10. Are there any special rules for electing one of the alternatives?
Yes. You may elect only one of the three alternatives. If you elect one
of the alternatives, you may not elect either of the other
alternatives in any future year.
Alternative A (for the year of separation) may be elected only once. If
you elect this alternative in any year, you may not elect an
alternative at any time in the future.
If you elect an alternative, your election is irrevocable for that year.
However, you may elect either alternative B or C in one year,
choose not to use it in the following year, and then elect the same
alternative again in the third year.
11. How do l elect an alternative?
You elect an alternative simply by computing your income tax
liability in a manner consistent with the alternative.
12. Which alternative is best for me?
This depends upon your current compensation, expected future
compensation, years of service, expected future years of service,
expected ability to make future salary reduction contributions, and so
forth. An alternative which appears advantageous this year may restrict
contributions to your 403(b) account in later years. Only you can decide
which alternative is most advantageous to you.
The $9,500 Cap
13. Where did the $9,500 limit come from?
In the Tax Reform Act of 1986, Congress decided to limit salary
reduction contributions by employees. For 403(b), Congress chose a
$9,500 cap. This $9,500 cap applies as a maximum salary reduction
contribution even though your 403(b) exclusion allowance or 415 limit is
higher. This cap applies only to your salary reduction contributions,
not to employer contributions to a 403(b) retirement plan for you.
The $9,500 cap is indexed for future cost-of-living increases.
However, the cap will not increase for some years; exactly when depends
on future inflation rates.
14. Who qualifies for an increased $9,500 cap?
Congress realized that the $9,500 cap would affect employees who
expected to make "catch-up" contributions. Therefore, an increased cap
is available to some employees.
There are two requirements for an increased cap. First, your employer
must be one of the types listed in Answer 8. Second, you must have 15 or
more years of service with the employer. If you qualify, your $9,500 cap
is increased by the smallest of the following:
(a) $3,000;
<PAGE>
(b) $15,000 (reduced by all amounts by which your $9,500 cap
was increased in prior years under this special rule); or
(c) $5,000 multiplied by your number of years of service, minus
all previous salary reduction contributions under 403(b)
(or under any 401(k) plan in which you participated).
Additional Rules for an Employee with Another Retirement Program
15. If for the current year my employer or any other employer contributes to
another 403(b) account or annuity for me, must such contributions be added to my
salary reduction contributions when determining my maximum contribution?
Yes. To determine your 403(b) exclusion allowance, your 415 limit or one
of the alternatives (but not the $9,500 cap--only your salary reduction
contributions count against the $9,500 cap), your employer's current
contributions to a 403(b) plan or arrangement for you must be included.
(See the Worksheet for an example of this situation). If your employer
has a retirement plan, you should find out whether it is a 403(b) plan.
16. If for the current year my employer makes contributions for me to a
retirement plan that is "qualified" under section 401(a) of the Code,
must such contributions be counted when determining my maximum
contribution?
If this situation applies to you, you should consult your tax adviser.
The following is only a general summary of the rules governing
aggregation of contributions to your 403(b) account with contributions
to a qualified plan.
Contributions for you to a qualified plan during the current year by an
employer are not counted in determining your 403(b) exclusion allowance
this year.
However, for your 415 limit, the answer depends on whether you have
elected one of the 415 alternatives and on whether you
"control" your employer.
If you have not elected an alternative, or if you have elected
alternative A or B, you need not combine contributions to your 403(b)
account with contributions on your behalf to a qualified plan of the
same or any other employer unless you control the employer by owning a
50% or greater interest.
If you have elected alternative C (to disregard the exclusion allowance
entirely), you must count contributions to your 403(b) account with
contributions for you to a qualified retirement plan maintained by any employer
regardless of whether you "control" the employer.
<PAGE>
State Street Research 403(b)
Account Application
How to open your
State Street
Research 403(b)
Account
1. To open a State Street Research 403(b) Account, please complete
this side of the Application.
2. Your investment dealer must complete the dealer information
section of the Application.
What type of State
Street Research
403(b) are you
opening?
[ ] Regular 403(b) [ ] Transfer of Assets [ ] Regular Rollover
or Direct Rollover
Employee
information
Complete the following
information about
yourself. Your account
will be registered in
your name.
Name ___________________________________ Birth date______________________
Street___________________________________________________________________
City_____________________________________State___________ZIP_____________
Social Security #________________________________________________________
Daytime telephone #______________________________________________________
Employer
information
Complete the following
information about your
Employer.
Name_____________________________________________________________________
Street___________________________________________________________________
City_____________________________________State___________ZIP_____________
Name of contact person___________________Daytime telephone #_____________
Which Fund(s)
have you selected
for your 403(b)?
See the State Street
Research 403(b)
brochure and relevant
prospectus(es) for
Fund details.
Name of Fund Class of Shares Percentage
A B D
[ ] [ ] [ ] _______ %
- ---------------------------------------
[ ] [ ] [ ] _______ %
- ---------------------------------------
[ ] [ ] [ ] _______ %
- ---------------------------------------
[ ] [ ] [ ] _______ %
- ---------------------------------------
[ ] [ ] [ ] _______ %
- ---------------------------------------
Total 100%
<PAGE>
Who is the
beneficiary of
your State Street
Research 403(b) Account?
1. Name__________________________________Birth date______________________
Relationship to you___________________________________________________
Street________________________________________________________________
City__________________________________State___________ZIP_____________
Social Security #_____________________________________________________
Percentage to this beneficiary ____%
2. Name__________________________________Birth date______________________
Relationship to you___________________________________________________
Street________________________________________________________________
City__________________________________State___________ZIP_____________
Social Security #_____________________________________________________
Percentage to this beneficiary ____%
Important
Naming a beneficiary(ies) can have estate and tax-planning implications.
Also, if you are married and live in a community property state (AZ, CA,
ID, LA, NM, NV, TX, or WA), you may need your spouse's consent to
designate someone else as beneficiary for more than half of your
Account. Consult your attorney, or other qualified professional, for
additional advice.
Keep a copy of this account application with your other important papers
(such as your will).
Telephone Exchange
The Telephone Exchange Privilege is available only for shares held on
deposit with the Transfer Agent. None of the Transfer Agent, any of the
Funds, State Street Research Shareholder Services, the Investment
Manager or the Distributor will be liable for any loss, injury, damage
or expense as a result of acting upon, and will not be responsible for
the authenticity of, any telephone instructions. I understand that all
telephone calls are tape recorded. My liability shall be subject to the
use of reasonable procedures to confirm that instructions communicated
by telephone are genuine.
<PAGE>
Telephone Exchange
by Shareholder
or Dealer
The Transfer Agent may effect exchanges for my account according
to telephone instructions from me or my Dealer as set forth in the
prospectus, and may register the shares of the Fund to be acquired
exactly the same as my existing account. Authorizing an exchange
constitutes an acknowledgment that the shareholder has received
the current prospectus of the Fund to be acquired. The account will
automatically have this privilege unless it is expressly declined by
providing your initials in the space below.
I DO NOT WANT THE TELEPHONE EXCHANGE PRIVILEGE.
___(Initial here.)
Sign here to
establish the
403(b) Account
I hereby establish a State Street Research 403(b) Account, the terms of
which are contained in this Application and the State Street Research
403(b) Agreement (which I have received and which is incorporated herein
by reference) and appoint State Street Bank and Trust Company as
Custodian. I direct that contributions to my 403(b) Account be invested
as specified above in this Application (until changed by me
in accordance with the Agreement), designate the individual(s) named
above as my beneficiary(ies) (unless I have filed a separate written
designation with the Custodian or its agent), acknowledge that I have
received a current prospectus(es) of the Fund(s) indicated above, and
acknowledge that there is a $10 annual maintenance fee (in addition
to any fees and charges described in the prospectus(es)).
Under penalties of perjury, I certify that (1) the number shown on this
Application is my correct taxpayer identification number (or I am
waiting for a number to be issued to me), and (2) I am not subject to
backup withholding because (a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal Revenue Service that I am
subject to backup withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
Certification Instructions--You must cross out item (2) above if you have
been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your
tax return.
Employee signature_____________________________Date___________________
<PAGE>
Dealer information
and signature
guarantee
Please have your
investment dealer
fill out this section.
Dealer firm__________________________________________________________
Home office address_________________City__________State______ZIP_____
Branch office address_______________City__________State______ZIP_____
Telephone #______________Branch #_____________Rep. #_________________
Authorized dealer signature__________________________________________
Investment Dealer's last name________________________________________
If this Application is for an account introduced through the
above-named Dealer, the Dealer further agrees to all applicable
provisions in this Application and in the prospectus(es) of the
Fund(s) selected by the Employee, represents that it has provided a
current prospectus(es) to the Employee and that the Application is
properly executed by a person authorized by the Dealer to guarantee
signatures. The Dealer warrants that this Application is completed in
accordance with the Employee's instructions and agrees to indemnify
the Funds(s), the Distributor, the Investment Manager, State Street
Research Shareholder Services and the Transfer Agent for any loss or
liability from acting or relying upon such instructions and
information. The terms and conditions of the Distributor's currently
effective Selected Dealer Agreement or sales agreement are included by
reference in this section. The Dealer represents that it has a
currently effective Selected Dealer Agreement or sales agreement with
the Distributor authorizing the Dealer to sell shares of the Fund(s),
and that it may lawfully sell shares of the designated Fund(s) in the
state designated as the Employee's address of record.
State Street Bank
and Trust Company,
Custodian
You are hereby authorized and appointed on behalf of the above-signed
dealer to execute purchase transactions in accordance with the terms and
conditions of this Application, and to confirm each purchase.
Acceptance by
the Custodian
This Account will be deemed to have been accepted by the Custodian,
State Street Bank and Trust Company, after all necessary forms, properly
completed, are received by State Street Research Shareholder
Services and delivered by Shareholder Services to the Transfer Agent.
Send completed application to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
Control Number: 2709-951025(1196)SSR-LD RP-918C-1095
<PAGE>
State Street Research 403(b)
Salary Reduction Agreement
Parties
Complete the information
about the Employee and
the Employer.
Employee name______________________________________
Social Security #__________________________________
Employer name______________________________________
Check one box.
[ ] Original Agreement [ ] Modification
Agreements
Fill in the dollar amount
or percentage that you
want to contribute in
section 2.
The Employee and the Employer agree as follows:
1. The Employee has signed the State Street Research 403(b) Account
Application establishing the Account for the benefit of the
Employee. The Employee and the Employer are entering into this
salary reduction agreement ("this Agreement") to provide for
contributions to the Account.
2. The Employee requests, and the Employer agrees, to reduce the
compensation of the Employee by $______ or by ______% per pay
period, starting with the first pay period that begins after the
Employee and the Employer have signed this Agreement.
3. As soon as possible after each pay day, the Employer will transmit
the amount by which the Employee's compensation is reduced for that
pay period to the agent for the Custodian of the Employee's
Account, to be credited to the Employee's Account in accordance
with the State Street Research 403(b) Account Agreement. For
federal income tax purposes, such amounts are considered Employer
contributions to the Employee's Account.
Where to send
contributions.
Checks should be made payable to "State Street Bank and Trust Company,
Custodian, FBO __________________________ [insert name of Employee]
403(b) Account." Mail checks to State Street Research, P.O. Box
8408, Boston, MA 02266-8408.
OVER >
<PAGE>
4. This Agreement will be effective only with respect to compensation
not yet earned by the Employee, and not with respect to
compensation already earned by the Employee on the date this
Agreement is signed.
This Agreement is binding and irrevocable with respect to
compensation earned by the Employee while this Agreement is in
effect. The Employer or the Employee may terminate this Agreement
at any time with respect to compensation not yet earned by the
Employee at the date of termination, by giving written notice to
the other party. After termination, the Employee may reinstate this
Agreement (with the same or a different salary reduction amount);
however, the Employee may not reinstate this Agreement during the
same calendar year that the Employee (or Employer) terminated this
Agreement.
The Employee may modify the amount of salary reduction elected in
Paragraph 2 above at any time by giving the Employer signed
instructions specifying the new salary reduction amount. However,
the Employee may not modify this Agreement during the same calendar
year that the Employee originally signed this Agreement or in any
calendar year when the Employee has already modified this Agreement
once during such year.
5. Unless the Employer agrees to calculate the Employee's maximum
403(b) contribution, the Employer has no responsibility for
determining that the amount by which the Employee's compensation is
reduced, as set forth in Paragraph 2 above, does not exceed the
limitations applicable to the Employee under the Internal Revenue
Code. The Employee agrees to indemnify the Employer, State Street
Research Investment Services, Inc., and its affiliates for any and
all charges, expenses, taxes, interest or penalties imposed on the
Employer as a result of any reduction in compensation in excess of
such limitations.
Signatures
In witness whereof, the parties hereto have signed this Agreement
on______________________________, 19_______.
Employee Employer
(Signature)______________ (Name of employer)___________________________
By:_________________________________________
Signature and title of authorized official)
CONTROL NUMBER: 2711-951025(1196)SSR-LD RP-920C-1095
<PAGE>
State Street Research 403(b)
Transfer of 403(b) Assets Form
How to transfer
your existing
403(b) Account
to State Street
Research
(bullet) If you don't have a State Street Research 403(b) Account
yet, complete this transfer form and a State Street Research
403(b) Account Application.
(bullet) If you already have a State Street Research 403(b) Account,
just complete this transfer form.
(bullet) When completed, send this transfer form (and if necessary,
your 403(b) Account Application) to: State Street Research
Shareholder Services, P.O. Box 8408, Boston, MA 02266-8408.
Information
about you
Name______________________________Social Security #__________________
Telephone (day)___________________Telephone (night)__________________
Account number (If you already have a State Street Research 403(b)
Account)_____________________________________________________________
Where is your
403(b) Account
now?
Name of current Custodian/Insurer____________________________________
Address______________________________________________________________
City_____________________________State__________________ZIP__________
Account number_____________________Name of mutual fund or fund family
(if applicable)______________________________________________________
Please tell us
which Fund(s)
you have selected
for your 403(b)
investment
[ ] This is a new State Street Research 403(b) Account. My
investment choices are on my 403(b) Account Application.
[ ] I already have a State Street Research 403(b) Account. Please
invest the amount transferred as follows:
Fund name___________________________Account number____________ _____%
Fund name___________________________Account number____________ _____%
I acknowledge that I have received a current prospectus(es) of the
Fund(s) selected.
OVER >
<PAGE>
Please authorize
transfer of your
current 403(b)
Account to State
Street Research
To my current Custodian/Insurer: Please redeem
[ ] ALL or [ ] PART ($_________) of my current 403(b) and transfer
the proceeds in cash to my State Street Research 403(b) Account.
(For partial transfers, indicate which investments are to be liquidated.)
Your signature______________________________Date____________
Note: Under current IRS rulings, a transfer from another 403(b) account
to a State Street Research 403(b) Account will be a tax-free transaction
as long as the withdrawal restrictions under your existing 403(b) are
not more severe than those under the State Street Research 403(b)
account (see Section 5.2 of the State Street Research 403(b) Agreement).
By signing this form, you are certifying that this transfer will be a
tax-free transaction under the preceding sentence.
Signature
Guarantee
A signature guarantee may be required. Call your current Custodian/
Insurer for requirements.
Signature guaranteed by (name of bank or dealer firm)__________________
Signature and title of officer_________________________________________
PLEASE DO NOT FILL OUT THE FOLLOWING PORTION OF THIS FORM
Directions
to Current
Custodian/Insurer
Please liquidate and transfer on a fiduciary-to-fiduciary basis all or
part of the designated account as instructed above. Make check payable
to State Street Bank and Trust Company, Custodian.
Include the following account number and FBO on the check.
Account number________________________Name____________________________
Mail to: State Street Research Shareholder Services,
P.O. Box 8408, Boston, MA 02266-8408
Include a copy of this Transfer of 403(b) Assets Form with the check for
proper credit to the customer's account. State Street Research
Shareholder Services will deliver the items to Boston Financial Data
Services, Inc., which serves as Agent for the Custodian.
Successor
Custodian
State Street Bank and Trust Company will accept the transfer described
above once this form has been completed by you and the transfer has been
completed by your current 403(b) Custodian/Insurer.
______________________________________________________________________
Authorized signature of acceptance Date
by State Street Research Shareholder
Services on behalf of State Street Bank and Trust Company, Custodian
CONTROL NUMBER: 2707-951025(1196)SSR-LD RP-919C-1095
Exhibit (17)
Multiple Class Expense Allocation Plan
Adopted Pursuant to Rule 18f-3
WHEREAS, MetLife - State Street Financial 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 (i) issue shares of beneficial
interest ("Shares") in separate series, with the Shares of each such
series representing the interests in a separate portfolio of securities
and other assets, and (ii) divide the Shares within each such series
into two or more classes;
WHEREAS, the Trust has established one or more portfolio series as of
the date hereof (such portfolios being referred to collectively herein
as the "Initial Series", such series, together with all other series
subsequently established by the Trust and made subject to this Plan,
being referred to herein individually as a "Series" and collectively
as the "Series"), and four classes thereof designated as "Class A,"
"Class B," "Class C," and "Class D" shares, except for the MetLife -
State Street Research Money Market Fund, which issues four classes
thereof designated as "Class B," "Class C," "Class D," and "Class E"
shares);
WHEREAS, prior to the adoption of Rule 18f-3 by the Securities and
Exchange Commission the Trust received an Order from the Securities
and Exchange Commission under Section 6(c) of the Act for an exemption
from Sections 2(a)(32), 2(a)(35), 18(f), 18(g), 18(i), 22(c) and 22(d)
of the Act and Rule 22c-1 thereunder to permit the Trust to issue
multiple classes of shares representing interests in the same
portfolio of securities, assess a contingent deferred sales charge
("CDSC") on certain redemptions of shares, and waive the CDSC in
certain cases; and
WHEREAS, the Trustees have determined to operate under Rule 18f-3 and
pursuant to such Rule the Board of Trustees as a whole, and the
Trustees who are not interested persons of the Trust (as defined in
the Act) (the "Qualified Trustees"), having determined in the exercise
of their reasonable business judgment this Plan is in the best
interest of each class of the Initial Series individually and the
Initial Series as a whole, have accordingly approved this Plan.
NOW, THEREFORE, Trust hereby adopts this Plan in accordance with Rule
18f-3 under the Act, on the following terms and conditions:
1. Class Differences. Each class of Shares of each Initial Series
shall represent interests in the same portfolio of investments of
Initial Series and shall be identical in all respects, and except as
otherwise set forth in this Plan, shall differ solely with respect to:
(i) arrangements for shareholder services or the distribution of
Shares, or both, as provided for in Sections 2 and 3 of this Plan;
(ii) the exclusive right of a Class to vote on certain matters
relating to the Plan of Distribution Pursuant to Rule 12b-1 adopted by
the Trust with respect to such Class; (iii) such differences relating
to purchase minimums, sales charges and eligible investors as may be
set forth in the Prospectuses and Statement of Additional Information
of the Initial Series, as the same may be amended or supplemented from
time to time (the "Prospectuses" and "SAI"); (iv) the different
exchange privileges of the classes of Shares; (v) the fact that only
certain classes will have a conversion feature; and (iv) the
designation of each Class of shares.
2. Differences in Distribution and Shareholder Services.
Each Class of Shares of the Initial Series shall have a different
arrangement for shareholder services or the distribution of
Shares, or both, as follows:
Class A Shares shall be sold subject to a front-end sales charge as
set forth in the Prospectuses and SAI with respect to the applicable
Initial Series. Class A, Class B and Class D Shares shall be sold
subject to a contingent deferred sales charge as set forth in the
Prospectuses and SAI with respect to the applicable Initial Series.
Class A, B and D Shares shall be subject to a service fee of up to
0.25% of the nets assets of the Initial Series allocable to such Class
of Shares. Class B and D Shares shall also be subject to an annual
distribution fee of up to 0.75% of the nets assets of the Initial
Series allocable to such Class of Shares. Such service and
distribution fees may be used to finance activities in accordance with
Rule 12b-1 under the Act and the Plan of Distribution pursuant to Rule
12b-1 adopted by the Trust.
3. Allocation of Expenses. Expenses of the Series shall be allocated
as follows:
(a) Class Expenses. Expenses relating to different arrangements for
shareholder services or the distribution of Shares, or both, shall be
allocated to and paid by that class. A class may pay a different share
of other expenses, not including advisory or custodial fees or other
expenses related to the management of a Series' assets, if such
expenses are actually incurred in a different amount by that class, or
if the class receives services of a different kind or to a different
degree than other classes.
(b) Other Allocations. All expenses of the Series not allocated to a
particular class pursuant to Sections 2 and 3(a) of this Plan shall be
allocated to each class on the basis of the net asset value of that
class in relation to the net asset value of the Series.
Notwithstanding the foregoing, the underwriter, adviser, or other
provider of services to a Series may waive or reimburse the expenses
of a specific class or classes to the extent permitted under Rule
18f-3 under the Act; provided, however, that the Board shall monitor
the use of such waivers or reimbursements intended to differ by class.
4. Term and Termination.
(a) Initial Series. This Plan shall become effective with respect to
the Initial Series as of the date hereof, and shall continue in effect
with respect to each Class of Shares of the Initial Series (subject to
Section 4(c) hereof) until terminated in accordance with the
provisions of Section 4(c) hereof.
(b) Additional Series or Classes. This Plan shall become effective
with respect to any class of the Initial Series other than Class A,
Class B, Class C, and Class D, and in the case of the MetLife - State
Street Money Market Fund, Class E, and with respect to each additional
Series or class thereof established by the Trust after the date hereof
and made subject to this Plan, upon commencement of operations thereof
or as otherwise determined, and shall continue in effect with respect
to each such additional Series or class (subject to Section 4(c)
hereof) until terminated in accordance with the provisions of Section
4(c) hereof. An addendum hereto setting forth such specific and
different terms of such additional series of classes shall be attached
to this Plan.
(c) Termination. This Plan may be terminated at any time with respect
to the Trust or any Series or class thereof, as the case may be, by
vote of a majority of both the Trustees of the Trust and the Qualified
Trustees. The Plan may remain in effect with respect to a Series or
class thereof even if it has been terminated in accordance with this
Section 4(e) with respect to such Series or class or one or more other
Series of the Trust.
5. Amendments. Any material amendment to this Plan shall
require the affirmative vote of a majority of both the Trustees
of the Trust and the Qualified Trustees.
Dated: May 5, 1995
Exhibit (18)
POWER OF ATTORNEY
We, the undersigned MetLife - State Street Financial Trust
("Trust"), a Massachusetts business trust, its trustees, its
principal executive officer and its principal financial and
accounting officer, hereby severally constitute and appoint
Francis J. McNamara III and Darman A. Wing, as our true and
lawful attorneys, with full power to each of them alone to sign
for us, in our names and in the capacities indicated below, any
Registration Statements and any and all amendments thereto of the
Trust filed with the Securities and Exchange Commission and
generally to do all such things in our names and in the indicated
capacities as are required to enable the Trust to comply with
provisions of the Securities Act of 1933, as amended, and/or the
Investment Company Act of 1940, as amended, and all requirements
and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they have been and may
be signed by our said attorneys to said Registration Statements,
and any and all amendments thereto.
IN WITNESS WHEREOF, we have hereunto set our hands, on
the 28th day of December, 1995.
SIGNATURES
METLIFE - STATE STREET FINANCIAL TRUST
By: /s/ Ralph F. Verni
------------------
Ralph F. Verni, Chief Executive
Officer and President
/s/ Ralph F. Verni /s/ Thomas L. Phillips
------------------ ----------------------
Ralph F. Verni, Trustee and Thomas L. Phillips, Trustee
principal executive officer
/s/ Gerard P. Maus /s/ Toby Rosenblatt
------------------ -------------------
Gerard P. Maus, Principal Toby Rosenblatt, Trustee
financial and accounting officer
/s/ Edward M. Lamont /s/ Michael S. Scott Morton
-------------------- ---------------------------
Edward M. Lamont, Trustee Michael S. Scott Morton, Trustee
/s/ Robert A. Lawrence /s/ Jeptha H. Wade
---------------------- ------------------
Robert A. Lawrence, Trustee Jeptha H. Wade, Trustee
/s/ Dean O. Morton
------------------
Dean O. Morton, Trustee
Exhibit (19)
METLIFE-STATE STREET FINANCIAL TRUST
Certificate of Resolution
I, the undersigned Amy L. Simmons, hereby certify that I am Assistant
Secretary of MetLife - State Street Financial Trust (the "Trust"), a
Massachusetts business trust duly authorized and validly existing under
Massachusetts law, and that the following is a true, correct and complete
statement of a vote duly adopted by the Trustees of said Trust on May 5, 1995:
"VOTED: That Francis J. McNamara III and
Darman A. Wing be, and each hereby is,
authorized and empowered, for and on behalf of
the Trust, its principal financial and
accounting officer, and in their name, to
execute, and file a Power of Attorney relating
to, the Trust's Registration Statements under
the Investment Company Act of 1940 and/or the
Securities Act of 1933, and amendments thereto,
the execution and delivery of such Power of
Attorney, Registration Statements and
amendments thereto, to constitute conclusive
proof of such authorization."
I further certify that said vote has not been amended or revoked and
that the same is now in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of
December, 1995.
/s/ Amy L. Simmons
-------------------
Assistant Secretary
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
SSR STRATEGIC PORTFOLIOS:CONSERVATIVE CL.A
</LEGEND>
<CIK> 0000806390
<NAME> METLIFE-STATE STREET FINANCIAL TRUST
<SERIES>
<NUMBER> 041
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 27,469,212
<INVESTMENTS-AT-VALUE> 29,323,723
<RECEIVABLES> 831,953
<ASSETS-OTHER> 80,120
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,235,796
<PAYABLE-FOR-SECURITIES> 1,043,289
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 122,667
<TOTAL-LIABILITIES> 1,165,956
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,290,739
<SHARES-COMMON-STOCK> 2,617,823
<SHARES-COMMON-PRIOR> 2,617,802
<ACCUMULATED-NII-CURRENT> 303,997
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 667,786
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,807,318
<NET-ASSETS> 29,069,840
<DIVIDEND-INCOME> 127,324
<INTEREST-INCOME> 1,470,760
<OTHER-INCOME> 0
<EXPENSES-NET> 309,309
<NET-INVESTMENT-INCOME> 1,288,775
<REALIZED-GAINS-CURRENT> 791,816
<APPREC-INCREASE-CURRENT> 1,955,540
<NET-CHANGE-FROM-OPS> 4,036,131
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,230,373)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,955,414
<ACCUMULATED-NII-PRIOR> 217,135
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (54,497)
<GROSS-ADVISORY-FEES> 162,835
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 433,500
<AVERAGE-NET-ASSETS> 27,139,167
<PER-SHARE-NAV-BEGIN> 9.56
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 1.00
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
SSR STRATEGIC PORTFOLIOS;CONSERVATIVE CL.C
</LEGEND>
<CIK> 0000806309
<NAME> METLIFE-STATE STREET FINANCIAL TRUST
<SERIES>
<NUMBER> 043
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 27,469,212
<INVESTMENTS-AT-VALUE> 29,323,723
<RECEIVABLES> 831,953
<ASSETS-OTHER> 80,120
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,235,796
<PAYABLE-FOR-SECURITIES> 1,043,289
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 122,667
<TOTAL-LIABILITIES> 1,165,956
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,290,739
<SHARES-COMMON-STOCK> 135,691
<SHARES-COMMON-PRIOR> 10,471
<ACCUMULATED-NII-CURRENT> 303,997
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 667,786
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,807,318
<NET-ASSETS> 29,069,840
<DIVIDEND-INCOME> 127,324
<INTEREST-INCOME> 1,470,760
<OTHER-INCOME> 0
<EXPENSES-NET> 309,309
<NET-INVESTMENT-INCOME> 1,288,775
<REALIZED-GAINS-CURRENT> 791,816
<APPREC-INCREASE-CURRENT> 1,955,540
<NET-CHANGE-FROM-OPS> 4,036,131
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (51,204)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 164,827
<NUMBER-OF-SHARES-REDEEMED> (43,134)
<SHARES-REINVESTED> 3,527
<NET-CHANGE-IN-ASSETS> 3,955,414
<ACCUMULATED-NII-PRIOR> 217,135
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (54,497)
<GROSS-ADVISORY-FEES> 162,835
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 433,500
<AVERAGE-NET-ASSETS> 27,139,167
<PER-SHARE-NAV-BEGIN> 9.56
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.97
<PER-SHARE-DIVIDEND> (0.49)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
METLIFE-STATE STREET FINANCIAL TRUST
</LEGEND>
<CIK> 0000806390
<NAME> SSR STRATEGIC PORTFOLIOS: MODERATE CL. C
<SERIES>
<NUMBER> 023
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 37,334,157
<INVESTMENTS-AT-VALUE> 40,082,831
<RECEIVABLES> 1,318,807
<ASSETS-OTHER> 71,566
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,473,204
<PAYABLE-FOR-SECURITIES> 1,462,998
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 189,297
<TOTAL-LIABILITIES> 1,652,295
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,955,879
<SHARES-COMMON-STOCK> 3,880,114
<SHARES-COMMON-PRIOR> 3,105,589
<ACCUMULATED-NII-CURRENT> 551,744
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (386,058)
<ACCUM-APPREC-OR-DEPREC> 2,699,344
<NET-ASSETS> 39,820,909
<DIVIDEND-INCOME> 260,067
<INTEREST-INCOME> 1,301,028
<OTHER-INCOME> 0
<EXPENSES-NET> 336,853
<NET-INVESTMENT-INCOME> 1,224,242
<REALIZED-GAINS-CURRENT> 579,909
<APPREC-INCREASE-CURRENT> 2,954,377
<NET-CHANGE-FROM-OPS> 4,758,528
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (996,013)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,120,199
<NUMBER-OF-SHARES-REDEEMED> (371,031)
<SHARES-REINVESTED> 24,757
<NET-CHANGE-IN-ASSETS> 11,326,957
<ACCUMULATED-NII-PRIOR> 193,820
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (910,252)
<GROSS-ADVISORY-FEES> 216,199
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 581,696
<AVERAGE-NET-ASSETS> 33,261,385
<PER-SHARE-NAV-BEGIN> 9.18
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 1.01
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
METLIFE-STATE STREET FINANCIAL TRUST
</LEGEND>
<CIK> 0000806390
<NAME> SSR STRATEGIC PORTFOLIOS: AGGRESSIVE CL. A
<SERIES>
<NUMBER> 031
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 54,688,108
<INVESTMENTS-AT-VALUE> 60,726,477
<RECEIVABLES> 2,316,563
<ASSETS-OTHER> 44,192
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63,087,232
<PAYABLE-FOR-SECURITIES> 2,484,461
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 238,770
<TOTAL-LIABILITIES> 2,723,231
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,774,126
<SHARES-COMMON-STOCK> 3,619,245
<SHARES-COMMON-PRIOR> 5,235,603
<ACCUMULATED-NII-CURRENT> 464,967
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,190,810
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,934,098
<NET-ASSETS> 60,364,001
<DIVIDEND-INCOME> 618,228
<INTEREST-INCOME> 1,206,837
<OTHER-INCOME> 0
<EXPENSES-NET> 706,126
<NET-INVESTMENT-INCOME> 1,118,939
<REALIZED-GAINS-CURRENT> 1,877,149
<APPREC-INCREASE-CURRENT> 4,697,296
<NET-CHANGE-FROM-OPS> 7,693,384
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (853,158)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21
<NUMBER-OF-SHARES-REDEEMED> (1,616,379)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,262,666
<ACCUMULATED-NII-PRIOR> 198,630
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (434,107)
<GROSS-ADVISORY-FEES> 414,353
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 825,300
<AVERAGE-NET-ASSETS> 55,247,067
<PER-SHARE-NAV-BEGIN> 9.74
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 1.19
<PER-SHARE-DIVIDEND> (0.20)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.93
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
METLIFE-STATE STREET FINANCIAL TRUST
</LEGEND>
<CIK> 0000806390
<SERIES>
<NUMBER> 033
<NAME> SSR STRATEGIC PORTFOLIOS: AGGRESSIVE CL. C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 54,688,108
<INVESTMENTS-AT-VALUE> 60,726,477
<RECEIVABLES> 2,316,563
<ASSETS-OTHER> 44,192
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63,087,232
<PAYABLE-FOR-SECURITIES> 2,484,461
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 238,770
<TOTAL-LIABILITIES> 2,723,231
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,774,126
<SHARES-COMMON-STOCK> 1,902,293
<SHARES-COMMON-PRIOR> 10,471
<ACCUMULATED-NII-CURRENT> 464,967
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,190,810
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,934,098
<NET-ASSETS> 60,364,001
<DIVIDEND-INCOME> 618,228
<INTEREST-INCOME> 1,206,837
<OTHER-INCOME> 0
<EXPENSES-NET> 706,126
<NET-INVESTMENT-INCOME> 1,118,939
<REALIZED-GAINS-CURRENT> 1,877,149
<APPREC-INCREASE-CURRENT> 4,697,296
<NET-CHANGE-FROM-OPS> 7,693,384
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (262,218)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,924,849
<NUMBER-OF-SHARES-REDEEMED> (36,027)
<SHARES-REINVESTED> 3,000
<NET-CHANGE-IN-ASSETS> 9,262,666
<ACCUMULATED-NII-PRIOR> 198,630
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (434,107)
<GROSS-ADVISORY-FEES> 414,353
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 825,300
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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METLIFE-STATE STREET FINANCIAL TRUST
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<CIK> 0000806390
<NAME> SSR GOVERNMENT INCOME FUND CLASS A
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
METLIFE-STATE STREET FINANCIAL TRUST
</LEGEND>
<CIK> 0000806390
<NAME> SSR GOVERNMENT INCOME FUND CLASS B
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
METLIFE-STATE STREET FINANCIAL TRUST
</LEGEND>
<CIK> 0000806390
<NAME> SSR GOVERNMENT INCOME FUND CLASS C
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
METLIFE-STATE STREET FINANCIAL TRUST
</LEGEND>
<CIK> 0000806390
<NAME> SSR GOVERNMENT INCOME FUND CLASS D
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