Supplement No. 1 dated July 17, 1995
to
Prospectus dated February 1, 1995
for
STATE STREET RESEARCH GOVERNMENT INCOME FUND
a series of MetLife-State Street Financial Trust
Minimum Investment
The section under the caption "Purchase of Shares--Minimum Investment" is
revised in its entirety as follows:
"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)."
Other Programs
Immediately after the first sentence of the first paragraph under the caption
"Purchase of Shares--Class A Shares--Initial Sales Charges--Other
Programs," the following is added:
"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."
Additional Information
Under the caption "Redemption of Shares--Additional Information," the first
paragraph is revised in its entirety as follows:
"Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable sales charges, if any. The Fund may increase such minimum
account value above such amount in the future after notice to affected
shareholders. Involuntarily redeemed shares will be priced at the net asset
value on the date fixed for redemption by the Fund, and the proceeds of the
redemption will be mailed to the affected shareholder at the address of record.
Currently, the maintenance fee is $18 annually, which is paid to the Transfer
Agent. The fee does not apply to certain retirement accounts or if the
shareholder has more than an aggregate $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."
Investment Plans
The first paragraph under the caption "Shareholder Services--Investment
Plans" is revised in its entirety to read as follows:
"The Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Investamatic application form available from Shareholder Services."
CONTROL NUMBER: 2456D-950717(0896)SSR-LD GI-252E-795IBS
<PAGE>
State Street Research
Government Income Fund
Prospectus
February 1, 1995
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, 1994, the
Investment Manager had assets of approximately $23.2 billion under
management. State Street Research Investment Services, Inc. serves as
distributor (the "Distributor") for the Fund.
Shareholders may have their shares redeemed directly by the Fund at net
asset value plus the applicable contingent deferred sales charge, if any;
redemptions processed through securities dealers may be subject to processing
charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Fund will
achieve its investment objective. The net asset value of a share of the Fund
will fluctuate as market conditions change.
This Prospectus sets forth concisely the information a prospective
investor ought to know about the Fund before investing. It should be retained
for future reference. A Statement of Additional Information about the Fund
dated February 1, 1995 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 MetLife -
State Street 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 8
Purchase of Shares 9
Redemption of Shares 17
Shareholder Services 19
The Fund and its Shares 23
Management of the Fund 24
Dividends and Distributions; Taxes 25
Calculation of Performance Data 26
<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 0.17% 0.17% 0.17% 0.17%
----- ----- ----- -----
Total Fund Operating Expenses 1.07% 1.82% 0.82% 1.82%
===== ===== ===== =====
</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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A shares $55 $78 $101 $170
Class B shares (1) $68 $87 $119 $194
Class C shares $ 8 $26 $ 46 $101
Class D shares $28 $57 $ 99 $214
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class B shares (1) $18 $57 $99 $194
Class D shares $18 $57 $99 $214
</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 for the fiscal year ended October 31, 1994;
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 have 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
October 31,
1994** 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year $ 12.92 $ 12.38 $12.14 $11.28 $11.63 $11.64 $11.66 $ 12.50
Net investment
income .81 .84 .90 .93 .96 1.05 1.12 .65
Net realized and
unrealized
gain (loss) on
invest-
ments, foreign
currency and
forward
contracts (1.26) .56 .26 .84 (.35) -- (.03) (.84)
Dividends from
net investment
income (.79) (.84) (.91) (.91) (.96) (1.06) (1.11) (.65)
Distributions
from net
realized gains -- (.02) (.01) -- -- -- -- --
-------- -------- ------- ------- ------- ------- ------- --------
Net asset value,
end of year $ 11.68 $ 12.92 $12.38 $12.14 $11.28 $11.63 $11.64 $ 11.66
======== ======== ======= ======= ======= ======= ======= ========
Total return (3.58)%+ 11.63%+ 9.86%+ 16.25%+ 5.54%+ 9.62%+ 9.77%+ (2.43)%++
Net assets at
end of year
(000s) $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 1.07% 1.05% 1.05% 1.05% 1.03% 1.06% 1.04% 1.03%#
Ratio of net
invest-
ment income to
average net
assets 6.54% 6.59% 7.25% 7.98% 8.53% 9.26% 9.54% 8.93%#
Portfolio
turnover rate 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 of Share of Share
Class Class Class
Designations) Designations) Designations)
Year ended to Year ended to Year ended to
October 31, October 31, October 31, October 31, October 31, October 31,
1994** 1993 1994** 1993 1994** 1993
<S> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
year $ 12.91 $ 12.67 $ 12.92 $ 12.67 $ 12.91 $ 12.67
Net
investment
income .72 .30 .84 .19 .72 .30
Net realized
and
unrealized
gain (loss)
on invest-
ments,
foreign
currency and
forward
contracts (1.27) .24 (1.27) .42 (1.27) .24
Dividends
from net
investment
income (.70) (.30) (.82) (.36) (.70) (.30)
Distributions
from net
realized
gains -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset
value,
end of year $ 11.66 $ 12.91 $ 11.67 $ 12.92 $ 11.66 $ 12.91
======== ======== ======== ======== ======== ========
Total return (4.38)%+ 4.32%++ (3.42)%+ 4.82%++ (4.38)%+ 4.31%++
Net assets at
end
of year
(000s) $52,319 $26,578 $203 $36 $13,425 $12,101
Ratio of
operating
expenses to
average net
assets 1.82% 1.81%# 0.82% 0.80%# 1.82% 1.88%#
Ratio of net
investment
income to
average net
assets 5.86% 5.67%# 8.01% 6.59%# 5.84% 5.59%#
Portfolio
turnover
rate 134.41% 103.49% 134.41% 103.49% 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 and obligations of the Farmers Home
Administration, 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 Farmers Home
Administration, 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, 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.
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 medium and longer term
instruments; the weighted average maturity of portfolio holdings, however,
may be shortened or lengthened depending primarily upon the Investment
Manager's outlook for interest rates.
The Fund reserves full freedom with respect to portfolio turnover. In
periods when there are rapid changes in economic conditions or security price
levels or when investment strategy is changed significantly, portfolio
turnover may be significantly higher than during times of economic and market
price stability or when investment strategy remains relatively constant. 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, subject to certain limitations, purchase put options on
financial futures contracts and on its portfolio securities, write covered
call options on its portfolio securities and purchase securities on a "when-
issued" or delayed delivery 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. The Fund may also enter various forms of swap
arrangements with respect to interest rates, currency rates and indices,
although the Fund does not presently expect to invest more than 5% of its
total assets in such items. See the Statement of Additional Information.
Limiting Investment Risk
In seeking to lessen investment risk, the Fund operates under certain
investment restrictions. The following
8
<PAGE>
restrictions may not be changed except by a vote of the holders of a majority
of the outstanding voting securities of the Fund.
The Fund may not invest in a security if the transaction would result in:
(a) more than 5% of the Fund's total assets being invested in any one issuer;
(b) the Fund's owning more than 10% of any class of voting securities of an
issuer; (c) more than 5% of the Fund's total assets being invested in
securities of issuers (including predecessors) with less than three years of
continuous operations unless such securities are rated BBB or higher by S&P
or Baa or higher by Moody's; or (d) more than 25% of the Fund's total assets
being invested in any one industry. These restrictions do not apply to
investments in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
The Fund may borrow money (through reverse repurchase agreements or
otherwise) only for emergency purposes or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests. In addition, the
Fund may not invest more than 10% of its total assets in illiquid securities,
including securities restricted as to resale under the Securities Act of
1933, repurchase agreements extending for more than seven days and other
securities which are not readily marketable.
For further information on these and other investment restrictions,
including nonfundamental investment restrictions which may be changed without
a shareholder vote, see the Statement of Additional Information.
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.
Information on the Purchase of Shares, Redemption of Shares and
Shareholder Services is set forth on pages 9 to 22 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
9
<PAGE>
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)
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
<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
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 $5,000 $5,000
All Other $ 50 $ 50 $ 50 $ 50
(a) Special conditions apply; contact the Distributor.
</TABLE>
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 pursuant to various retirement, dividend and other investment
plans, or sponsored arrangements involving group solicitations of the members
of an organization. The Fund also reserves the right at any time to suspend
the offering of shares or to reject any specific purchase order for shares.
10
<PAGE>
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding Fund shares, or
the flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in the Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, securities dealers are paid
differing amounts of commission and other compensation depending on which
class of shares they sell.
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
investment 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 within one year
investment years following following their
their purchase; purchase
no contingent
deferred sales
charge after five
years
On investments of
$1 million or
more, no initial
sales charge; but
contingent
deferred
sales charge of
1% applies to any
shares redeemed
within one year
following their
purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years;
Class B shares
convert
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 less 0.25%
Selling to 0.50% retained
Securities by Distributor
Dealer
On investments of
$1 million or
more, 0.25% to
0.70% paid to
dealer by
Distributor
</TABLE>
11
<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.
<TABLE>
<CAPTION>
Sales Sales
Charge Charge
Paid by Paid by Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 or above but less
than $250,000 3.50% 3.63% 3.00%
$250,000 or above but less
than $500,000 2.50% 2.56% 2.00%
$500,000 or above but less
than $1 million 2.00% 2.04% 1.75%
See
following
$1 million and 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 will pay the authorized securities dealer
a commission as follows:
12
<PAGE>
<TABLE>
<CAPTION>
Amount of Sale Commission
<S> <C>
(a) $1 million to $3 million 0.70%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
</TABLE>
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed
within one year of the sale. However, such redeemed shares will not be
subject to the contingent deferred sales charge to the extent that their
value represents (1) capital appreciation or (2) reinvestment of dividends or
capital gains distributions. In addition, the contingent deferred sales
charge will be waived for certain other redemptions as described under
"Contingent Deferred Sales Charge Waivers" below (as otherwise applicable to
Class B shares).
Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of certain other Eligible Funds, as described
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption
within one year of the Class A shares which are acquired through such
exchange. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption. The amount of any contingent
deferred sales charge will be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement
of Additional Information, of $100,000 or more of Class A shares of the Fund
or a combination of "Eligible Funds." "Eligible Funds" include the Fund and
other funds so designated by the Distributor from time to time. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Securities dealers should call Shareholder Services
for details concerning the other Eligible Funds and any persons who may
qualify for reduced sales charges and related information. See the Statement
of Additional Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Fund and any other Eligible Funds within a 13-month period.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of shares
of the Fund and other Eligible Funds at reduced sales charges pursuant to a
Right of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call
Shareholder Services for details concerning the Right of Accumulation.
Other Programs
Class A shares of the Fund may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored
arrangements, which include programs under which a company, employee benefit
plan or other organization makes recommendations to, or permits group
solicitation of, its employees, members or participants, except any
organization created primarily for the purpose of obtaining shares of the
Fund at a reduced sales charge or without a sales charge. Information on such
arrangements and further conditions and limitations is available from the
Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, Distributor, or any affiliated entities, including any
direct or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
represen-
13
<PAGE>
tatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated
Companies, any relatives of any such individuals whose relationship is
directly verified by such individuals to the Distributor, or any beneficial
account for such relatives or individuals; and (C) employees, officers, sales
representatives or directors of dealers and other entities with a selling
agreement with the Distributor to sell shares of any aforementioned
investment company, any spouse or child of such person, or any beneficial
account for any of them. The purchase must be made for investment and the
shares purchased may not be resold except through redemption. This purchase
program is subject to such administrative policies, regarding the
qualification of purchasers and any other matters, as may be adopted by the
Distributor from time to time.
Class B Shares--Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Fund. However, a
contingent deferred sales charge may be imposed upon redemptions of Class B
shares as described below.
The Distributor will pay securities dealers at the time of sale a 4%
commission for selling Class B shares. The proceeds of the contingent
deferred sales charge and the distribution fee are used to offset
distribution expenses and thereby permit the sale of Class B shares without
an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets or (2) reinvestment of dividends or capital gains distributions.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
As A Percentage Of
Net Asset Value
Redemption During At Redemption
<S> <C>
1st Year Since Purchase 5%
2nd Year Since Purchase 4
3rd Year Since Purchase 3
4th Year Since Purchase 3
5th Year Since Purchase 2
6th Year Since Purchase and Thereafter None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first
of those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of the Fund acquired through an exchange from
another Eligible Fund will be measured from the date that such shares were
initially acquired in the other Eligible Fund, and Class B shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gains distribution reinvestments in such other
Eligible Fund. These determinations will result in any contingent deferred
sales charge being imposed at the lowest possible rate. For federal income
tax purposes, the amount of the contingent deferred sales charge will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid
to the Distributor.
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 mini-
14
<PAGE>
mum 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 has reserved the right to change, modify or terminate the waivers
described above at any time.
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
redemption. The amount of any contingent deferred sales charge will be paid
to the Distributor.
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of regular
15
<PAGE>
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:
<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 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
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
16
<PAGE>
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 are normally remitted within seven days after
receipt of the redemption request 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 Application. In order to arrange for
redemption-by-check after an account has been opened, a revised Application
with signature card and signatures
17
<PAGE>
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, as a result of redemptions, falls and remains
below $1,500 for a period of 60 days after notice is mailed to the applicable
shareholder. 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.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment
of redemption proceeds: (1) during any period that the NYSE is closed (other
than customary weekend and holiday closings) or trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the Fund's net asset value; or
(3) during such other periods as the Securities and Exchange Commission may
by order permit for the protection of investors; and (b) the payment of
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redemption proceeds may be postponed as provided under "Redemption of
Shares."
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 enable the Transfer
Agent to be certain that the person who has authorized a redemption from the
account is, in fact, the shareholder. Signature guarantees are required for:
(1) all redemptions requested by mail; (2) requests to transfer the
registration of shares to another owner; and (3) 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 by the Fund in certain
instances.
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 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
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might otherwise be due upon an ordinary redemption of such shares. The
MetLife - State Street Research Money Market Fund issues Class E shares which
are sold without any sales charge. Exchanges of MetLife - 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. In order to limit exchange
activity where the Fund believes doing so would be in the best interests of
the Fund, it reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any exchange for
any person. These measures may be imposed at any time. 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 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 30 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
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this reinvestment privilege only once 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 Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments
by authorizing withdrawals from their bank accounts each month or quarter on
the Investamatic application form available from Shareholder Services. The
Investamatic Check Program is subject to the same minimum initial investment
and subsequent investment requirements as applicable otherwise.
The Fund also offers tax-sheltered retirement plans, including prototype
and other employee benefit plans for employees, sole proprietors,
partnerships and corporations and IRAs. Details of these investment plans and
their availability may be obtained from securities dealers or from
Shareholder Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Fund's Systematic Withdrawal Plan,
to have periodic checks issued for specified amounts. These amounts may not
be less than certain minimums, depending on the class of shares held. The
Plan provides that all income dividends and capital gains distributions of
the Fund shall be credited to participating shareholders in additional shares
of the Fund. Thus, the withdrawal amounts paid can only be realized by
redeeming shares of the Fund under the Plan. To the extent such amounts paid
exceed dividends and distributions from the Fund, a shareholder's investment
will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such 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 distributions from the Fund or any Eligible Fund
automatically invested at net asset value in one other such Eligible Fund
designated by the shareholder, provided the account into which the investment
is made is initially funded with the requisite minimum amount. The number of
shares purchased will be determined as of the dividend payment date. The
Dividend Allocation Plan is subject to state securities law requirements, to
suspension at any time, and to such policies, limitations and restrictions,
as, for instance, may be applicable to street name or master accounts, that
may be adopted from time to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will
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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.
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.
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.
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The Fund and its Shares
The Fund was organized in 1986 as a series of MetLife--State Street Financial
Trust, a Massachusetts business trust. 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.
The Fund has received an order from the Securities and Exchange Commission
permitting the issuance and sale of multiple classes of shares representing
interests in the existing portfolio of any series of the Trust. 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. The Trustees have authorized the Fund to offer four
classes of shares as described above. In the future, certain classes may be
redesignated, for administrative purposes only, to conform to standard class
designations and common usage of terms which may develop in the mutual fund
industry. For example, Class C shares may be redesignated as Class Y shares
and Class D shares may be redesignated as Class C shares. Any redesignation
would not affect any substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class D shares
bear the expenses of the deferred sales arrangement and any expenses
(including the higher service and distribution fees) resulting from such
sales arrangement, and certain other incremental expenses related to a class.
Each class will have exclusive voting rights with respect to provisions of
the Rule 12b-1 distribution plan pursuant to which the service and
distribution fees, if any, are paid. Although the legal rights of holders of
each class of shares are identical, it is likely that the different expenses
borne by each class will result in different net asset values and dividends.
The different classes of shares of the Fund also have different exchange
privileges.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material adverse effect on
the rights of any shareholder. On any matter submitted to the shareholders,
the holder of shares of the Fund is entitled to one vote per share (with
proportionate voting for fractional shares) regardless of the relative net
asset value thereof.
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, the Fund will assist shareholders 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.
Special Meetings of Shareholders of the MetLife - State Street Research
Government Securities Fund (the "Government Securities Fund") and the Fund
have been tentatively scheduled for April or May, 1995. At these meetings,
shareholders will be asked
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to consider and approve an Agreement and Plan of Reorganization between the
Government Securities Fund and the Fund.
If the proposal is approved by the shareholders of the Government
Securities Fund and the Fund, the Fund would acquire substantially all of the
assets and liabilities of the Government Securities Fund. As a result of this
transaction, shareholders of the Government Securities Fund would receive in
exchange for their shares of the Government Securities Fund shares of the
corresponding class of the Fund with an aggregate value equivalent to the
aggregate net asset value of their Government Securities Fund investment at
the time of the transaction. The transaction is conditioned upon the receipt
of an opinion of counsel to the effect that the transaction would be free
from Federal income taxes to the shareholders of the Government Securities
Fund and the Government Securities Fund itself.
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 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.
The Investment Manager is an indirect wholly-owned subsidiary of
Metropolitan Life Insurance Company and the Distributor is a wholly-owned
subsidiary of the Investment Manager, 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.
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.
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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.
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.
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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 distribution rate is not computed in the same
manner as the above described yield, and therefore can be significantly
different from it. In its supplemental sales literature, the Fund may quote
its distribution rate together with the above described standard total return
and yield information. The use of such distribution rates would be subject to
an appropriate explanation of how the components of the distribution rate
differ from the above described yield.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of the Fund varies in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
performance quotation should be considered a representation as to the Fund's
performance for any future period. In 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
26
<PAGE>
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.
27
<PAGE>
STATE STREET RESEARCH
GOVERNMENT INCOME FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266
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 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
GI-609D-295IB CONTROL NUMBER: 2097-950124(0496)SSR-LD
[clock tower logo] STATE STREET RESEARCH
State Street Research
Government Income Fund
February 1, 1995
PROSPECTUS
<PAGE>
Supplement No. 2 dated July 17, 1995
(Supplanting Supplement No. 1 dated February 1, 1995)
to
Prospectus dated February 1, 1995
for
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
Series of MetLife-State Street Financial Trust
Share Classes Available
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. Class A shares are not currently available for acquisition
through exchanges from another fund. Contact the Distributor for details.
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.
Minimum Investment
The section under the caption "Purchase of Shares--Minimum Investment" is
revised in its entirety as follows:
"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.
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)."
Other Programs
Immediately after the first sentence of the first paragraph under the caption
"Purchase of Shares--Class A Shares--Initial Sales Charges--Other
Programs," the following is added:
"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."
Additional Information
Under the caption "Redemption of Shares--Additional Information," the first
paragraph is revised in its entirety as follows:
"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 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."
Investment Plans
The first paragraph under the caption "Shareholder Services--Investment
Plans" is revised in its entirety to read as follows:
"Each Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Investamatic application form available from Shareholder Services."
CONTROL NUMBER: 2456M-950717(0896)SSR-LD SP-262E-795IBS
<PAGE>
State Street Research
Strategic Portfolios: Conservative
Strategic Portfolios: Moderate
Strategic Portfolios: Aggressive
Prospectus
February 1, 1995
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, 1994, the
Investment Manager had assets of approximately $23.2 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 February 1, 1995 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 MetLife - State Street 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>
<CAPTION>
Table of Contents Page
<S> <C>
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 23
The Funds and Their Shares 27
Management of the Funds 28
Dividends and Distributions; Taxes 29
Calculation of Performance Data 30
Appendix--Description of Debt/Bond Ratings 31
</TABLE>
<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 1.00% 1.00% 1.00% 1.00%
Less Voluntary Reduction (0.70%) (0.70%) (0.70%) (0.70%)
------- ------- ------- -------
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 0.93% 0.93% 0.93% 0.93%
Less Voluntary Reduction (0.58%) (0.58%) (0.58%) (0.58%)
------- ------- ------- -------
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 0.49% 0.49% 0.49% 0.49%
Less Voluntary Reduction (0.14%) (0.14%) (0.14%) (0.14%)
------- ------- ------- -------
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:
Strategic Portfolios: Conservative
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Class A shares $56 $80
Class B shares $69 $90
Class C shares $ 9 $29
Class D shares $29 $60
</TABLE>
Strategic Portfolios: Moderate
<TABLE>
<CAPTION>
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>
Strategic Portfolios: Aggressive
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Class A shares $58 $86
Class B shares $71 $96
Class C shares $11 $35
Class D shares $31 $66
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
Strategic Portfolios: Conservative
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Class B $19 $60
Class D $19 $60
</TABLE>
Strategic Portfolios: Moderate
<TABLE>
<CAPTION>
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>
Strategic Portfolios: Aggressive
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Class B $21 $66
Class D $21 $66
</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, 1994;
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, 1994, Total Fund Operating Expenses as a
percentage of average
4
<PAGE>
net assets of Class A and Class C shares, respectively, would have been 1.85%
and 1.60% of the Strategic Portfolios: Conservative; and 1.49% and 1.24% of
the Strategic Portfolios: Aggressive; and would have been 1.58% 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 0.70%
and 0.70% of the Class A and Class C shares of the Strategic Portfolios:
Conservative, respectively; 0.14% and 0.14% of the Class A and Class C shares
of the Strategic Portfolios: Aggressive, respectively; and 0.58% 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>
May 16, 1994
(commencement
of operations)
to October 31, 1994
Class A Class C
<S> <C> <C>
Net asset value, beginning of period $ 9.55 $ 9.55
Net investment income* .20 .21
Net realized and unrealized loss on investments, foreign currency
and forward contracts (.09) (.09)
Dividends from net investment income (.10) (.11)
-------- -------
Net asset value, end of period $ 9.56 $ 9.56
======== =======
Total return++ 1.15% 1.25%
Net assets at end of period (000s) $25,014 $ 100
Ratio of operating expenses to average net assets* 1.15%# 0.90%#
Ratio of net investment income to average net assets* 4.48%# 4.73%#
Portfolio turnover rate 70.35% 70.35%
*Reflects voluntary assumption of fees or expenses per share $ .03 $ .03
</TABLE>
# Annualized.
++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
5
<PAGE>
Strategic Portfolios: Moderate
<TABLE>
<CAPTION>
Class C
September 28, 1993
Year ended (commencement of
October 31 operations) to
1994 October 31, 1993
<S> <C> <C>
Net asset value, beginning of year $ 9.57 $ 9.55
Net investment income* .28 .02
Net realized and unrealized loss on investments, foreign currency
and forward contracts (.45) --
Dividends from net investment income (.22) --
-------- --------
Net asset value, end of year $ 9.18 $ 9.57
======== ========
Total return (1.81)%+ 0.21%++
Net assets at end of year (000s) $28,494 $25,040
Ratio of operating expenses to average net assets* 1.00% 1.00%#
Ratio of net investment income to average net assets* 3.05% 2.32%#
Portfolio turnover rate 142.86% 0.00%
*Reflects voluntary assumption of fees or expenses per share in
each year $ .05 $ .00
</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.
Strategic Portfolios: Aggressive
<TABLE>
<CAPTION>
May 16, 1994
(commencement
of operations)
to October 31, 1994
Class A Class C
<S> <C> <C>
Net asset value, beginning of period $ 9.55 $ 9.55
Net investment income* .09 .10
Net realized and unrealized gain on investments, foreign currency
and forward contracts .14 .14
Dividends from net investment income (.04) (.05)
-------- -------
Net asset value, end of period $ 9.74 $ 9.74
======== =======
Total return++ 2.41% 2.50%
Net assets at end of period (000s) $50,999 $ 102
Ratio of operating expenses to average net assets* 1.35%# 1.10%#
Ratio of net investment income to average net assets* 2.01%# 2.26%#
Portfolio turnover rate 37.75% 37.75%
*Reflects voluntary assumption of fees or expenses per share $ .01 $ .01
</TABLE>
# Annualized.
++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
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 and certain other investments which have, simultaneously, the
characteristics of a security and a futures contract. 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. Each Fund may
also enter various forms of swap arrangements with respect to interest rates,
currency rates and indices, although none of the Funds presently expect to
invest more than 5% of its total assets in such items. 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.
Each Fund may enter into repurchase agreements and purchase when-issued
securities. See the Statement of Additional Information.
12
<PAGE>
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
invest in a security if the transaction would result in: (a) with respect to
75% of its total assets, more than 5% of the Fund's total assets being
invested in any one issuer; (b) the Fund's owning more than 10% of the
outstanding voting securities of an issuer; or (c) more than 25% of the
Fund's total assets being invested in any one industry. These restrictions do
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.
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 26.
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. A Fund reserves the
right to reject any purchase order, including orders in connection with
exchanges, for any reason which a Fund in its sole discretion deems
appropriate. A 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
All other $2,500 $2,500 $(a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 $5,000 $5,000
All other $ 50 $ 50 $ 50 $ 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 pursuant to various retirement, dividend and other investment
plans, or sponsored arrangements involving group solicitations of the members
of an organization. The Fund also reserves the right at any time to suspend
the offering of shares or to reject any specific purchase order for shares.
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 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 on amount of shares redeemed shares redeemed
investment within first five within one year
years following their following their
purchase; no purchase
contingent deferred
sales charge after
five years
On investments of $1
million or more, no
initial sales charge;
but contingent
deferred sales charge
of 1% applies to any
shares redeemed within
one year following
their purchase
Distribution Fee None 0.75% for first 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 sales charge
Received by less 0.25% to 0.50%
Selling retained by
Securities Distributor
Dealer
On investments of
$1 million or more,
0.25% to 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 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. 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-
18
<PAGE>
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.
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
19
<PAGE>
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 have reserved the right to change, modify or terminate the
waivers described above at any time.
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 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
20
<PAGE>
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 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.
21
<PAGE>
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 are normally remitted within seven days after
receipt of the redemption request 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 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
22
<PAGE>
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, a Fund reserves the right to involuntarily redeem at its option any
shareholder account which, as the result of redemptions, falls and remains
below $1,500 for a period of 60 days after notice is mailed to the applicable
shareholder. 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.
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 provided under "Redemption of
Shares."
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 enable
the Transfer Agent to be certain that the person who has authorized a
redemption from the account is, in fact, the shareholder. Signature
guarantees are required for: (1) all redemptions requested by mail; and (2)
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 by a Fund in certain instances.
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."
23
<PAGE>
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 MetLife - State Street Research Money Market Fund issues Class E
shares which are sold without any sales charge. Exchanges of MetLife - 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 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.
24
<PAGE>
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. In order to limit exchange
activity where a Fund believes doing so would be in the best interests of a
Fund, it reserves the right to revise or terminate the exchange privilege,
limit the amount or number of exchanges or reject any exchange for any
person. These measures may be imposed at any time. 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 30 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 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 Funds offer Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments
by authorizing withdrawals from their bank accounts each month or quarter on
the Investamatic application form available from Shareholder Services. The
Investamatic Check Program is subject to the same minimum initial investment
and subsequent investment requirements for accounts as applicable otherwise.
The Funds also offer tax-sheltered retirement plans, including prototype
and other employee benefit plans for employees, sole proprietors,
partnerships and corporations and IRAs. Details of these investment plans and
their availability may be obtained from securities dealers or from
Shareholder Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in 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.
25
<PAGE>
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.
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.
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
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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 as series of 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.
The Funds have received an order from the Securities and Exchange
Commission permitting the issuance and sale of multiple classes of shares
representing interests in the existing portfolio of any series of the Trust.
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. The Trustees have authorized the
Funds to offer four classes of shares as described above. 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.
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The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material adverse effect on
the rights of any shareholder. On any matter submitted to the shareholders,
the holder of 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, the relevant Fund or Funds will assist
shareholders 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 October 31, 1994 Metropolitan Life Insurance Company
("Metropolitan"), was the record and/or beneficial owner of 100% of the
outstanding Class A and Class C shares of Strategic Portfolios: Conservative
and Strategic Portfolios: Aggressive and of approximately 84.3% of the
outstanding 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 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.
The Investment Manager is an indirect wholly-owned subsidiary of
Metropolitan and the Distributor is a wholly-owned subsidiary of the
Investment Manager, 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.
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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 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.
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-
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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 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. During the first year of
operations, Strategic Portfolios: Conservative and Strategic Portfolios:
Aggressive may also advertise aggregate total return without annualization.
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
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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 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.
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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 group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
1, 2 or 3: The ratings from Aa through Baa may be modified by the addition
of a numeral indicating a bond's rank within its rating category.
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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 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
SP-007E-295IBS CONTROL NUMBER: 2008-950127(0296)SSR-LD
[clock tower logo] STATE STREET RESEARCH
State Street Research
Strategic Portfolios:
Conservative, Moderate, Aggressive
February 1, 1995
PROSPECTUS
