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As filed with the Securities and Exchange Commission on June 29, 1999
Securities Act of 1933 Registration No. 33-10327
Investment Company Act of 1940 File No. 811-4911
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 25 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 26 [X]
--------------------
STATE STREET RESEARCH FINANCIAL TRUST
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 357-1200
Francis J. McNamara, III
Executive Vice President, Secretary & General Counsel
State Street Research & Management Company
One Financial Center
Boston, Massachusetts 02111
(Name and Address of Agent for Service)
Copy of Communications To:
Geoffrey R.T. Kenyon, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
It is proposed that this filing will become effective under Rule 485:
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On July 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On _____________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On _____________ pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
===============================================================================
<PAGE>
The Prospectus and Statement of Additional Information of the State Street
Research IntelliQuant Portfolios: Small-Cap Value series of State Street
Research Financial Trust (the "Registrant") is included herein.
The Prospectus and Statement of Additional Information of the State Street
Research International Equity Fund series of State Street Research Financial
Trust (the "Registrant") are included in Post-Effective Amendment No. 24.
The Prospectus and Statement of Additional Information of State Street
Research Strategic Portfolios: Moderate, State Street Research Strategic
Portfolios: Conservative and State Street Research Strategic Portfolios:
Aggressive series of the Registrant are included in Post-Effective Amendment No.
23.
The Prospectus and Statement of Additional Information of State Street
Research Government Income Fund series of the Registrant are included in
Post-Effective Amendment No. 22.
<PAGE>
[State Street Research Logo]
State Street Research IntelliQuant:
Portfolios: Small-Cap Value
This prospectus has informa-
tion you should know before
you invest. Please read it
carefully and keep it with
your investment records.
As with all mutual funds,
the Securities and Exchange
Commission has not
approved or disapproved
these securities or deter-
mined if this prospectus
is truthful or complete.
Any representation to
the contrary is a criminal
offense.
An aggressive stock
fund using quantitative
investment techniques
to search for under-
valued small companies.
Prospectus
July 1, 1999
<PAGE>
Contents 1
- --------------------------------------------------------------------------------
2 The Fund
2 Goal and Strategies
3 Principal Risks
6 Investor Expenses
8 Investment Management
9 Your Investment
9 Opening an Account
9 Choosing a Share Class
10 Sales Charges
13 Dealer Compensation
14 Buying and Selling Shares
18 Account Policies
20 Distributions and Taxes
21 Investor Services
22 Other Information
22 Other Securities and Risks
24 Financial Highlights
27 Board of Trustees
Back Cover For Additional Information
<PAGE>
2 The Fund
- --------------------------------------------------------------------------------
[Graphic of Chess Piece -- Knight] Goal and Strategies
Fundamental Goal The fund seeks to provide high total return, consisting
principally of capital appreciation.
Principal Strategies Under normal market conditions, the fund invests primarily
in small company value stocks. These may include common and preferred stocks,
convertible securities and warrants.
The fund generally expects that most investments will be in stocks of companies
no larger than the largest companies in the Russell 2000(R) Index. The fund may
continue to hold or buy additional stock in a company that has outgrown this
range if the stock remains attractive.
In managing the fund's portfolio, the investment manager uses a disciplined
quantitative investment strategy. This strategy includes a stock selection model
and a portfolio construction process, both of which are computer-based. The
stock selection model uses various types of financial criteria to assess the
relative attractiveness of stocks within a universe of small companies. While
the model relies on both value- and growth-oriented criteria, it places greater
weight on value criteria, that is, those that identify stocks that appear to be
trading below their true worth. The portfolio manager also applies a formal
portfolio construction process that is designed to manage the overall volatility
of the fund.
The fund reserves the right to invest in other securities, such as growth stocks
of larger companies and corporate bonds.
The investment manager may adjust the investment model or the fund's portfolio
holdings as market conditions and economic outlooks change or as the investment
manager develops new quantitative strategies.
For more information about the fund's investments and practices, see page 22.
<PAGE>
3
-----
[Sidebar]
[Graphic of Magnifying Glass Over a Page] Who May Want To Invest
State Street Research IntelliQuant Portfolios: Small-Cap Value is designed for
investors who seek one or more of the following:
* an aggressive stock fund for a long-term goal
* a fund to complement a portfolio of more conservative investments
* a fund that emphasizes small company value stocks
The fund is not appropriate for investors who:
* want to avoid high volatility or possible losses
* are making short-term investments
* are investing emergency reserve money
* are seeking regular income
[End Sidebar]
[Graphic of a Roadsign Indicating Two Directions] Principal Risks
Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden, unpredictable drops in value and the potential for
periods of lackluster performance.
Small company stocks -- even those that may already be low in price -- can be
particularly sensitive to market movements, because they may be thinly traded
and their market prices tend to reflect future expectations. With value
investing, the main risk is that a stock may not achieve its expected value
because the circumstances causing it to be underpriced do not change. During
times of high volatility, the fund may have difficulty finding buyers for
portfolio securities. Because of these and other risks, the fund may
underperform certain other stock funds (those emphasizing growth stocks or large
company stocks, for example) during periods when small company value stocks are
out of favor.
The success of the fund's investment strategy depends largely on the ability of
the fund's portfolio investment model to assess the potential of the stocks the
fund buys and the portfolio manager's skill in developing, using and refining
that model. The investment model, however, cannot take into account all of the
factors that may affect the market or the fund's portfolio.
<PAGE>
4 The Fund continued
- --------------------------------------------------------------------------------
Because the fund may invest in U.S. companies with some international business,
and may also invest in foreign companies, it is subject to the risks associated
with international investing.
The fund's shares will rise and fall in value and there is a risk that you could
lose money by investing in the fund. Also, the fund cannot be certain that it
will achieve its goal. Finally, fund shares are not bank deposits and are not
guaranteed, endorsed or insured by any financial institution, government entity
or the FDIC.
Information on other securities and risks appears on page 22.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
<PAGE>
5
-----
[Sidebar]
[Graphic of Magnifying Glass Over a Page] Quantitative Investing
Quantitative, or "quant," investing involves the use of various tools, such as
mathematics, statistics and computer technology, to aid the investment process.
One component of quantitative investing is the use of historical data to test a
proposed investment strategy. First, a strategy is developed based on a set of
variables which can be identified at the time of investment. The strategy is
then tested against actual market conditions to determine how it would have
performed. Finally, the strategy is refined and re-tested until it achieves the
desired trade-off between risk and return.
The other component of quantitative investing is the application of the
investment strategy to the day-to-day management of a fund. By using such an
approach in a disciplined manner, an investment manager seeks more consistent
and efficient decision-making.
Quantitative investing is not meant to remove human judgment or influence from
the investment process. In fact, human judgment is a critical component in
developing, modifying and applying the quantitative investment strategy.
Quant funds can be actively or passively managed. Unlike index funds, this fund
is actively managed.
[End Sidebar]
<PAGE>
6 Investor Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class descriptions begin on page 9
------------------------------------------------------
Shareholder Fees (% of offering price) Class A Class B(1) Class B Class C Class S
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Maximum front-end sales charge (load) 5.75 0.00 0.00 0.00 0.00
Maximum deferred sales charge (load) 0.00(a) 5.00 5.00 1.00 0.00
<CAPTION>
Annual Fund Operating Expenses (% of average net assets) Class A Class B(1) Class B Class C Class S
====================================================================================================================================
Management fee 0.80 0.80 0.80 0.80 0.80
Distribution/service (12b-1) fees 0.25 1.00 1.00 1.00 0.00
Other expenses(b) 0.63 0.63 0.63 0.63 0.63
------ ------ ------ ------ -----
Total annual fund operating expenses* 1.68 2.43 2.43 2.43 1.43
====== ====== ====== ====== =====
*Because some of the fund's expenses have
been subsidized, actual total operating
expenses for the prior period were: 1.40 2.15 2.15 2.15 1.15
The fund expects the expense subsidy to
continue through the current fiscal year,
although there is no guarantee that it will.
<CAPTION>
Example Year Class A Class B(1) Class B Class C Class S
====================================================================================================================================
1 $736 $746/$246 $746/$246 $346/$246 $146
3 $1,074 $1,058/$758 $1,058/$758 $758 $452
</TABLE>
(a) Except for investments of $1 million or more; see page 10.
(b) Because the fund has been newly organized, the percentage expense levels
shown in the table as "Other expenses" are based on estimates.
<PAGE>
7
-----
[Sidebar]
[Graphic of Magnifying Glass Over a Page] Understanding
Investor Expenses
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund:
* Shareholder Fees are costs that are charged to you directly. These fees are
not charged on reinvestments or exchanges.
* Annual Fund Operating Expenses are deducted from the fund's assets every year,
and are thus paid indirectly by all fund investors.
* The Example is designed to allow you to compare the costs of this fund with
those of other funds. It assumes that you invested $10,000 over the years
indicated, reinvested all distributions, earned a hypothetical 5% annual
return and paid the maximum applicable sales charges.
Where two numbers are shown separated by a slash, the first one assumes you sold
all your shares at the end of the period, while the second assumes you stayed in
the fund. Where there is only one number, the costs would be the same either
way.
The figures in the Example assume full annual expenses, and would be lower if
they reflected the subsidy.
Investors should keep in mind that the example is for comparison purposes only.
The fund's actual performance and expenses may be higher or lower.
[End Sidebar]
<PAGE>
8 The Fund continued
- --------------------------------------------------------------------------------
[Graphic of Statue of The Thinker] Investment Management
The fund's investment manager is State Street Research & Management Company, One
Financial Center, Boston, Massachusetts 02111. The firm traces its heritage back
to 1924 and the founding of one of America's first mutual funds. Today the firm
has more than $53 billion in assets under management (as of May 31, 1999),
including $17.4 billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.80% of fund assets, annually) as
compensation. The investment manager is a subsidiary of Metropolitan Life
Insurance Company.
E.K. Easton Ragsdale, Jr. has been responsible for the fund's day-to-day
portfolio management since its inception in November 1998. A senior vice
president, he joined the firm in 1995 as director of quantitative research.
Previously, he was a senior vice president and chief quantitative analyst at
Kidder, Peabody & Co., and he has worked as an investment professional since
1982.
<PAGE>
Your Investment 9
- --------------------------------------------------------------------------------
[Graphic of a Key] Opening an Account
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To open an account without the help of a financial professional, please use the
instructions on these pages.
[Graphic of Pencil and a Paper with List: A, B, C, S] Choosing a Share Class
The fund generally offers four share classes, each with its own sales charge and
expense structure: Class A, Class B(1), Class C and Class S. The fund also
offers Class B shares, but only to current Class B shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of the State Street Research funds.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you may want to consider Class B(1) shares (if
investing for at least six years) or Class C shares (if investing for less than
six years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
brokers, you may be eligible to purchase Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
<PAGE>
10 Your Investment continued
- --------------------------------------------------------------------------------
Class A -- Front Load
* Initial sales charge of 5.75% or less
* Lower sales charges for larger investments; see sales charge schedule at right
* Lower annual expenses than Class B(1) or Class C shares because of lower
distribution/service (12b-1) fee of 0.25%
Class B (1)-- Back Load
* No initial sales charge
* Deferred sales charge of 5% or less on shares you sell within six years
* Annual distribution/service (12b-1) fee of 1.00%
* Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Class B -- Back Load
* Available only to current Class B shareholders; see page 11 for details
Class C -- Level Load
* No initial sales charge
* Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
* Lower deferred sales charge than Class B(1) shares
* Annual distribution/service (12b-1) fee of 1.00%
* No conversion to Class A shares after eight years, so annual expenses do not
decrease
Class S -- Special Programs
* Available only through certain retirement accounts, advisory accounts of the
investment manager and other special programs, including broker programs with
recordkeeping and other services; these programs usually involve special
conditions and separate fees (consult your financial professional or your
program materials)
* No sales charges of any kind
* No distribution/service (12b-1) fees; annual expenses are lower than other
share classes
Sales Charges
Class A -- Front Load
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
===================================================================
Up to $50,000 5.75 6.10
$50,000 to $100,000 4.50 4.71
$100,000 to $250,000 3.50 3.63
$250,000 to $500,000 2.50 2.56
$500,000 to $1 million 2.00 2.04
$1 million or more see below
With Class A shares, you pay a sales charge when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge"
<PAGE>
11
-----
(CDSC) of 1% if you sell any shares within one year of purchasing them. See
"Other CDSC Policies" on page 12.
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
Class B(1) -- Back Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
===============================================================
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year 1.00
Seventh or eighth year none
With Class B(1) shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for six years or less, as described in the table above. See "Other
CDSC Policies" on page 12.
Class B(1) shares automatically convert to Class A shares after eight years;
Class A shares have lower annual expenses.
Class B -- Back Load
Class B shares are available only to current shareholders through reinvestment
of dividends and distributions or through exchanges from existing Class B
accounts of the State Street Research funds. Other investments made by current
Class B shareholders will be in Class B(1) shares.
With Class B shares, you are charged a "contingent deferred sales charge" (CDSC)
when you sell shares you have held for five years or less. The CDSC is a
percentage of net asset value at the time of purchase (or of sale, if lower) and
is deducted from your proceeds. When you sell shares in the first year after you
bought them, the CDSC is 5.00%; second year, 4.00%; third year, 3.00%; fourth
year, 3.00%; fifth year, 2.00%; sixth year or later, none. See "Other CDSC
Policies" on page 12.
Class B shares automatically convert to Class A shares after eight years.
<PAGE>
12 Your Investment continued
- --------------------------------------------------------------------------------
Class C Level Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
=============================================================
First year 1.00
Second year or later None
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. See "Other CDSC
Policies" on this page.
Class C shares currently have the same annual expenses as Class B(1) shares, but
never convert to Class A shares.
Class S -- Special Programs
Class S shares have no sales charges.
Other CDSC Policies
The CDSC will be based on the net asset value of the shares at the time of
purchase (or sale, if lower). Any shares acquired through reinvestment are not
subject to the CDSC. There is no CDSC on exchanges into other State Street
Research funds, and the date of your initial investment will continue to be used
as the basis for CDSC calculations when you exchange. To ensure that you pay the
lowest CDSC possible, the fund will always use the shares with the lowest CDSC
to fill your sell requests.
The CDSC is waived on shares sold for participant initiated distributions from
State Street Research prototype retirement plans. In other cases, the CDSC is
waived on shares sold for mandatory retirement distributions or for
distributions because of disability or death. Consult your financial
professional or the State Street Research Service Center for more information.
[Sidebar]
[Graphic of Magnifying Glass Over a Page] Understanding
Distribution/Service
Fees
As noted in the descriptions on pages 10 to 12, all share classes except Class S
have an annual distribution/service fee, also called a 12b-1 fee.
Under its current 12b-1 plans, the fund may pay certain distribution and service
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class.
Some of the 12b-1 fee is used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on the
next page shows how these professionals' compensation is calculated.
The fund may continue to pay 12b-1 fees even if the fund is subsequently closed
to new accounts.
[End Sidebar]
<PAGE>
13
-----
[Graphic of Checque] Dealer Compensation
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions and annual
fees. These are paid by the fund's distributor, using money from sales charges,
distribution/service (12b-1) fees and its other resources.
Brokers and agents may charge a transaction fee on orders of fund shares placed
directly through them. The distributor may pay its affiliate MetLife Securities,
Inc. additional compensation of up to 0.25% of certain sales or assets.
Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider the sale of shares of the State Street Research
funds by the broker.
<TABLE>
<CAPTION>
Maximum Dealer Compensation (%) Class A Class B(1) Class B Class C Class S
==========================================================================================================
<S> <C> <C> <C> <C> <C>
Commission see below 4.00 4.00 1.00 0.00
Investments up to $50,000 5.00 -- -- -- --
$50,000 to $100,000 4.00 -- -- -- --
$100,000 to $250,000 3.00 -- -- -- --
$250,000 to $500,000 2.00 -- -- -- --
$500,000 to $1 million 1.75 -- -- -- --
First $1 to 3 million 1.00(a) -- -- -- --
Next $2 million 0.75(a) -- -- -- --
Next $2 million 0.50(a) -- -- -- --
Next $1 and above 0.25(a) -- -- -- --
Annual fee 0.25 0.25 0.25 1.00 0.00
</TABLE>
(a) If your financial professional declines this commission, the one-year CDSC
on your investment is waived.
<PAGE>
14 Buying and Selling Shares
- --------------------------------------------------------------------------------
(a) Except $500 for Individual Retirement Accounts during special promotional
periods; contact your financial professional.
[Graphic of Cash Register] Policies for
Buying Shares
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
Minimum Initial Investments:
* $1,000 for accounts that use the Investamatic program(a)
* $2,000 for Individual Retirement Accounts(a)
* $2,500 for all other accounts
Minimum Additional Investments:
* $50 for any account
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Orders received thereafter will be executed the following day, at that
day's closing share price.
Wire Transactions Funds may be wired between 8:00 a.m. and 4:00 p.m. eastern
time. To make a same-day wire investment, please notify State Street Research by
12:00 noon of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. If the New York Stock Exchange closes before 4:00 p.m. eastern time,
you may be unable to make a same-day wire investment. Your bank may charge a fee
for wiring money.
<PAGE>
Instructions for Buying Shares 15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
To Open and Account To Add to an Account
<S> <C> <C>
[Graphic Through a Consult your financial professional or your Consult your financial professional or your
of a Professional program materials. program materials.
Briefcase] or Program
By Mail [Graphic Make your check payable to "State Street Fill out an investment slip from an account
of a Research Funds." Forward the check and your statement, or indicate the fund name and
Mailbox] application to State Street Research. account number on your check. Make your
check payable to "State Street Research
Funds." Forward the check and slip to State
Street Research.
[Graphic By Federal Call to obtain an account number and Call State Street Research to obtain a
of Federal Funds Wire forward your application to State Street control number. Instruct your bank to wire
Funds Wire] Research. Wire funds using the instructions funds to:
at right. * State Street Bank and Trust Company,
Boston, MA
* ABA: 011000028
* BNF: fund name and share class you want
to buy
* AC: 99029761
* OBI: your name and your account number
* Control: the number given to you by State
Street Research
By Electronic [Graphic Verify that your bank is a member of the Call State Street Research to verify that
Funds Transfer of an ACH (Automated Clearing House) system. the necessary bank information is on file
(ACH) Electrical Forward your application to State Street for your account. If it is, you may request
Plug] Research. Please be sure to include the a transfer with the same phone call. If
appropriate bank information. Call State not, please ask State Street Research to
Street Research to request a purchase. provide you with an EZ Trader application.
[Graphic of By Investamatic Forward your application, with all Call State Street Research to verify that
a Monthly appropriate sections completed, to State Investamatic is in place on your account,
Calendar] Street Research, along with a check for or to request a form to add it. Investments
your initial investment payable to "State are automatic once Investamatic is in
Street Research Funds." place.
By Exchange [Graphic of Call State Street Research or visit our Web Call State Street Research or visit our Web
Two Arrows site. site.
Pointing
Right and Left]
</TABLE>
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)
Internet www.ssrfunds.co
<PAGE>
16 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic of a Cash Register Generating Policies for
a Receipt, with the words, "Your Receipt"] Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
* you are selling more than $100,000 worth of shares
* the name or address on the account has changed within the last 30 days
* you want the proceeds to go to a name or address not on the account
registration
* you are transferring shares to an account with a different registration or
share class
* you are selling shares held in a corporate or fiduciary account; for these
accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Requests received thereafter will be executed the following day, at that
day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) for those shares has been collected, you will
not receive the proceeds until your initial payment has cleared. This may take
up to 15 days after your purchase was recorded (in rare cases, longer). If you
open an account with shares purchased by wire, you cannot sell those shares
until your application has been processed.
<PAGE>
Instructions for Selling Shares 17
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
[Graphic Through a Consult your financial professional or your program materials.
of a Professional
Briefcase] or Program
By Mail [Graphic Send a letter of instruction, an endorsed stock power or share certificates (if you hold
of a certificate shares) to State Street Research. Specify the fund, the account number and the
Mailbox] dollar value or number of shares. Be sure to include all necessary signatures and any
additional documents, as well as signature guarantees if required (see facing page).
[Graphic By Federal Check with State Street Research to make sure that a wire redemption privilege, including a
of Federal Funds Wire bank designation, is in place on your account. Once this is established, you may place your
Funds Wire] request to sell shares with State Street Research. Proceeds will be wired to your
pre-designated bank account. (See "Wire Transactions" on facing page.)
By Electronic [Graphic Check with State Street Research to make sure that the EZ Trader feature, including a bank
Funds Transfer of an designation, is in place on your account. Once this is established, you may place your request
(ACH) Electrical to sell shares with State Street Research. Proceeds will be sent to your pre-designated bank
Plug] account.
[Graphic of By Telephone As long as the transaction does not require a written request (see facing page), you or your
a Telephone] financial professional can sell shares by calling State Street Research. A check will be
mailed to your address of record on the following business day.
By Exchange [Graphic of Read the prospectus for the fund into which you are exchanging. Call State Street Research or
Two Arrows visit our Web site.
Pointing
Right and Left]
[Graphic of By Systematic See plan information on page 21.
a Daily Withdrawal Plan
Calendar]
</TABLE>
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)
Internet www.ssrfunds.co
<PAGE>
18 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic of Stack of Forms] Account Policies
Telephone Requests When you open an account you automatically receive telephone
privileges, allowing you to place requests for your account by telephone. Your
financial professional can also use these privileges to request exchanges on
your account and, with your written permission, redemptions. For your
protection, all telephone calls are recorded.
As long as State Street Research takes certain measures to authenticate teleph
one requests on your account, you may be held responsible for unauthorized
requests. Unauthorized telephone requests are rare, but if you want to protect
yourself completely, you can decline the telephone privilege on your
application. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class of your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
You must hold Class A shares of any fund for at least 30 days before you can
exchange them for Class A shares of a different fund with a higher applicable
sales charge.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's exchange privilege and may refuse to accept
any exchange request, particularly those associated with "market timing"
strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or, depending on the circumstances, may deduct an annual
maintenance fee (currently $18).
<PAGE>
19
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The Fund's Business Hours The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are ava ilable
from 8:00 a.m. to 6:00 p.m. eastern time on these days.
Calculating Share Price The fund calculates its net asset value per share (NAV)
every business day at the close of regular trading on the New York Stock
Exchange (usually at 4:00 p.m. eastern time). NAV is calculated by dividing the
fund's net assets by the number of its shares outstanding.
In calculating its NAV, the fund uses the last reported sale price or quotation
for portfolio securities. However, in cases where these are unavailable, or when
the investment manager believes that subsequent events have rendered them
unreliable, the fund may use fair-value estimates instead.
Because foreign securities markets are sometimes open on different days from
U.S. markets, there may be instances when the value of the fund's portfolio
changes on days when you cannot buy or sell fund shares.
Reinstating Recently Sold Shares For 120 days after you sell shares, you have
the right to "reinstate" your investment by putting some or all of the proceeds
into any currently available State Street Research fund at net asset value. Any
CDSC you paid on the amount you are reinstating will be credited to your
account. You may only use this privilege once in any twelve-month period with
respect to your shares of a given fund.
Additional Policies Please note that the fund maintains additional policies and
reserves certain rights, including:
* The fund may vary its requirements for initial or additional investments,
exchanges, reinvestments, periodic investment plans, retirement and employee
benefit plans, sponsored arrangements and other similar programs
* All orders to purchase shares are subject to acceptance by the fund
* At any time, the fund may change or discontinue its sales charge waivers and
any of its order acceptance practices, and may suspend the sale of its shares
* The fund may delay sending you redemption proceeds for up to seven days, or
longer if permitted by the SEC
* To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the State Street Research Service Center promptly
<PAGE>
20 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic of Magnifying Glass Over a Page] Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
* investing a large amount in the fund close to the end of its fiscal year or a
calendar year (if the fund makes a distribution, you will receive some of your
investment back as a taxable distribution)
* selling shares at a loss for tax purposes and investing in a substantially
identical investment within 30 days before or after that sale (such a
transaction is usually considered a "wash sale," and you will not be allowed
to claim a tax loss in the current year)
[Graphic of Uncle Sam] Distributions and Taxes
Income and Capital Gains Distributions The fund typically distributes any net
income to shareholders two times a year. Net capital gains, if any, are
typically distributed around the end of its fiscal year, which is February 28.
To comply with tax regulations, the fund also may be required to pay an
additional capital gains tax distribution in December.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, de posited in a bank account or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gain distributions you receive from the fund are taxable as
ordinary income. Distributions of long-term capital gains are generally taxable
as capital gains -- in most cases, at a different rate from that which applies
to ordinary income.
The tax you pay on a given capital gains distribution generally depends on how
long the fund has held the portfolio securities it sold. It does not depend on
how long you have owned your fund shares or whether you reinvest your
distributions.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
<PAGE>
21
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The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
Backup Withholding By law, the fund must withhold 31% of your distributions and
proceeds if you have not provided complete, correct taxpayer information.
[Graphic of a Handshake] Investor Services
Investamatic Program Use Investamatic to set up regular automatic investments
in the fund from your bank account. You determine the frequency and amount of
your investments.
Systematic Withdrawal Plan This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 12% of your fund assets a year (minimum $50 per
withdrawal) without incurring any contingent deferred sales charges. Certain
terms and minimums apply.
EZTrader This service allows you to purchase or sell fund shares over the
telephone through ACH (Automated Clearing House) system.
Dividend Allocation Plan This plan automatically invests your distributions
from the fund into another fund of your choice, without any fees or sales
charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.
Retirement Plans State Street Research offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
Call 1-800-562-0032 for information on any of the services described above.
<PAGE>
22 Other Information
- --------------------------------------------------------------------------------
[Graphic of a Pile of Securities] Other Securities
and Risks
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 2. Below are brief
descriptions of other securities and practices, along with their associated
risks.
Restricted and Illiquid Securities Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and price.
Some of these securities are new and complex, and trade only among institutions;
the markets for these securities are still developing, and may not function as
efficiently as established markets. Owning a large percentage of restricted or
illiquid securities could hamper the fund's ability to raise cash to meet
redemptions. Also, because there may not be an established market price for
these securities, the fund may have to estimate their value, which means that
their valuation (and, to a much smaller extent, the valuation of the fund) may
have a subjective element.
International Exposure Many U.S. companies in which the fund may invest
generate significant revenues and earnings from abroad. As a result, these
companies and the prices of their securities may be affected by weaknesses in
global and regional economies and the relative value of foreign currencies to
the U.S. dollar. These factors, taken as a whole, could adversely affect the
price of fund shares.
Foreign Investments Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable information and fluctuations in currency exchange rates. These
risks are usually higher in less developed countries. The fund may use foreign
currencies and related instruments to hedge its foreign investments.
In addition, foreign securities may be more difficult to resell and the markets
for them less efficient than for comparable U.S. securities. Even where a
foreign security increases in price in its local currency, the appreciation may
be diluted by the negative effect of exchange rates when the security's value is
converted to U.S. dollars. Foreign withholding taxes also may apply and errors
and delays may occur in the settlement process for foreign securities.
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from one or more securities, indices
or currencies. The fund may use certain derivatives for hedging (attempting to
offset a potential loss
<PAGE>
23
-----
in one position by establishing an interest in an opposite position). This
includes the use of currency-based derivatives for hedging its positions in
foreign securities. The fund may also use certain derivatives for speculation
(investing for potential income or capital gain).
While hedging can guard against potential risks, it adds to the fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected.
The main risk with derivatives is that some types can amplify a gain or loss,
potentially earning or losing substantially more money than the actual cost of
the derivative.
With some derivatives, whether used for hedging or speculation, there is also
the risk that the counterparty may fail to honor its contract terms, causing a
loss for the fund.
Securities Lending The fund may seek additional income or fees by lending
portfolio securities to qualified institutions. By reinvesting any cash
collateral it receives in these transactions, the fund could realize additional
gains or losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the fund could lose money.
When-issued Securities The fund may invest in securities prior to their date of
issue. These securities could fall in value by the time they are actually
issued, which may be any time from a few days to over a year.
Short-Term Trading While the fund ordinarily does not trade securities for
short-term profits, it will sell any security at any time it believes best,
which may result in short-term trading. Short-term trading can increase the
fund's brokerage costs and may increase your tax liability if there are capital
gains.
Bonds The value of any bonds held by the fund is likely to decline when
interest rates rise; this risk is greater for bonds with longer maturities. A
less significant risk is that a bond issuer could default on principal or
interest payments, causing a loss for the fund.
Defensive Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the fund does this, it is not pursuing its goal.
Year 2000 The investment manager does not currently anticipate that computer
problems related to the year 2000 will have a material effect on the fund.
However, there can be no assurances is this area, including the possibility that
year 2000 computer problems could negatively affect communications systems,
investment markets or the economy in general.
<PAGE>
24 Financial Highlights
- --------------------------------------------------------------------------------
These highlights are intended to help you understand the fund's performance
since its inception. The information in these tables has been audited by
PricewaterhouseCoopers LLP, the fund's independent accountants. Their report and
the fund's financial statements are included in the fund's annual report, which
is available upon request. Total return figures assume reinvestment of all
distributions.
<TABLE>
<CAPTION>
Class A Class B(1)
--------------------------------------------------------------------------------------
Per Share Data 1999(a)(b) 1999(a)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ($) 9.43 9.43
------ ------
Net investment income ($)* 0.04 0.02
Net realized and unrealized loss
on investments ($) (0.52) (0.52)
------ ------
Total from investment operations ($) (0.48) (0.50)
------ ------
Net asset value, end of period ($) 8.95 8.93
====== ======
Total return (%)(c) (5.09)(d) (5.30)(d)
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 504 474
Expense ratio (%)* 1.40(e) 2.15(e)
Ratio of net investment income
to average net assets (%)* 1.83(e) 1.09(e)
Portfolio turnover rate (%) 0.66 0.66
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.19 0.19
</TABLE>
<PAGE>
25
-----
<TABLE>
<CAPTION>
Class B Class C
--------------------------------------------------------------------------------------
Per Share Data 1999(a)(b) 1999(a)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ($) 9.43 9.43
------ ------
Net investment income ($)* 0.02 0.02
Net realized and unrealized loss
on investments ($) (0.52) (0.52)
------ ------
Total from investment operations ($) (0.50) (0.50)
------ ------
Net asset value, end of period ($) 8.93 8.93
====== ======
Total return (%)(c) (5.30)(d) (5.30)(d)
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 474 474
Expense ratio (%)* 2.15(e) 2.15(e)
Ratio of net investment income
to average net assets (%)* 1.09(e) 1.09(e)
Portfolio turnover rate (%) 0.66 0.66
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.19 0.19
</TABLE>
(a) November 30, 1998 (commencement of operations) to February 28, 1999.
(b) Per-share figures have been calculated using the average shares method.
(c) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the distributor and its affiliates had not
voluntarily reduced the fund's expenses.
(d) Not annualized.
(e) Annualized.
<PAGE>
26 Financial Highlights continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class S
----------------------------------------
Per Share Data 1999(a)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period ($) 9.43
------
Net investment income ($)* 0.05
Net realized and unrealized loss
on investments ($) (0.53)
------
Total from investment operations ($) (0.48)
------
Net asset value, end of period ($) 8.95
======
Total return (%)(c) (5.09)(d)
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 2,848
Expense ratio (%)* 1.15(e)
Ratio of net investment income
to average net assets (%)* 2.09(e)
Portfolio turnover rate (%) 0.66
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.19
</TABLE>
(a) November 30, 1998 (commencement of operations) to February 28, 1999.
(b) Per-share figures have been calculated using the average shares method.
(c) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the distributor and its affiliates had not
voluntarily reduced the fund's expenses.
(d) Not annualized.
(e) Annualized.
<PAGE>
Board of Trustees 27
- --------------------------------------------------------------------------------
[Graphic of Architectural Column]
The Board of Trustees is responsible for the operation of the fund. They
establish the fund's major policies, review investments, and provide guidance to
the investment manager and others who provide services to the fund. The Trustees
have diverse backgrounds and substantial experience in business and other areas.
Ralph F. Verni
Chairman of the Board, President,
Chief Executive Officer and Director,
State Street Research &Management
Company
Bruce R. Bond
President, Chief Executive Officer
and Director,
PictureTel Corporation
Steve A. Garban
Former Senior Vice President for Finance
and Operations and Treasurer,
The Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the Board
and Chief Financial Officer,
St. Regis Corp.
Dean O. Morton
Former Executive Vice President,
Chief Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and Public
Management, George Washington
University, former Member of the Board of
Governors of the Federal Reserve System
and Chairman and Commissioner of the
Commodity Futures Trading Commission
Toby Rosenblatt
President, The Glen Ellen Company
Vice President, Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
<PAGE>
28 Notes
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<PAGE>
Notes 29
- --------------------------------------------------------------------------------
<PAGE>
For Additional Information
- --------------------------------------------------------------------------------
[Sidebar]
If you have questions about the fund or would like to request a free copy of the
current annual/semiannual report or SAI, contact State Street Research or your
financial professional.
[State Street Research Logo]
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
You can also obtain information about the fund, including the SAI and certain
other fund documents, on the Internet at www.sec.gov, in person at the SEC's
Public Reference Room in Washington, DC (telephone 1-800-SEC-0330) or by mail by
sending your request, along with a duplicating fee, to the SEC's Public
Reference Section, Washington, DC 20549-6009.
prospectus
- --------------------------------------------------------------------------------
SEC File Number: 811-4911
[End Sidebar]
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detai l the fund's actual investments as of the
report date. Reports include a discu ssion by fund management of recent economic
and market trends and fund performance. The annual report also includes the
report of the fund's independent accountants.
Ticker Symbols
- ---------------------------------------------------
Class A (proposed) SIVAX
Class B(1) (proposed) SIVPX
Class B (proposed) SIVBX
Class C (proposed) SIVCX
Class S (proposed) SIVSX
Statement of Additional Information (SAI) A supplement to the prospectus, the
SAI contains further information about the fund and its investment limitations
and policies. A current SAI for this fund is on file with the Securities and
Exchange Commission and is incorporated by reference (is legally part of this
prospectus).
IQ-868F-0699
Control Number: (exp 0700)SSR-LD
<PAGE>
State Street Research IntelliQuant Portfolios:
Small-Cap Value
a series of
State Street Research Financial Trust
STATEMENT OF ADDITIONAL INFORMATION
July 1, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVE.....................................................................2
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS..........................................2
ADDITIONAL RISKS AND INFORMATIONCONCERNING CERTAININVESTMENT TECHNIQUES..................4
DEBT INSTRUMENTS ANDPERMITTED CASH INVESTMENTS..........................................16
THE TRUST, THE FUND AND ITS SHARES......................................................20
TRUSTEES AND OFFICERS...................................................................23
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY SERVICES.................................28
PURCHASE AND REDEMPTION OF SHARES.......................................................29
SHAREHOLDER ACCOUNTS....................................................................36
NET ASSET VALUE.........................................................................41
PORTFOLIO TRANSACTIONS..................................................................42
CERTAIN TAX MATTERS.....................................................................45
DISTRIBUTION OF SHARES OF THE FUND......................................................49
CALCULATION OF PERFORMANCE DATA.........................................................53
CUSTODIAN...............................................................................55
INDEPENDENT ACCOUNTANTS.................................................................55
FINANCIAL STATEMENTS....................................................................56
</TABLE>
The following Statement of Additional Information is not a Prospectus. It
should be read in conjunction with the Prospectus of State Street Research
IntelliQuant Portfolios: Small-Cap Value (the "Fund") dated July 1, 1999, which
may be obtained without charge from the offices of State Street Research
Financial Trust (the "Trust") or State Street Research Investment Services, Inc.
(the "Distributor"), One Financial Center, Boston, Massachusetts 02111-2690.
The Fund's financial statements as of and for the period ended February 28,
1999, which are included in the Fund's Annual Report to shareholders for that
period, are incorporated by reference. The Annual Report is available, without
charge, upon request by calling 1-800-562-0032.
CONTROL NUMBER: (exp0700)SSR-LD IQ-033G-0799
<PAGE>
INVESTMENT OBJECTIVE
As set forth under "The Fund--Goal and Strategies--Fundamental Goal" in the
Prospectus of State Street Research IntelliQuant Portfolios: Small-Cap Value
(the "Fund"), the Fund's investment goal, which is to provide high total return,
consisting principally of capital appreciation, is fundamental and may not be
changed by the Fund except by the affirmative vote of a majority of the
outstanding voting securities of the Fund, as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"). (Under the 1940 Act, a "vote of the
majority of the outstanding voting securities" means the vote, at the annual or
a special meeting of security holders duly called, (i) of 67% or more of the
voting securities present at the meeting if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy or (ii) of
more than 50% of the outstanding voting securities, whichever is less.)
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Fund--Principal Risks" and "Other
Information--Other Securities and Risks" in the Fund's Prospectus, the Fund has
adopted certain investment restrictions, and those investment restrictions are
either fundamental or not fundamental. Fundamental restrictions may not be
changed by the Fund except by the affirmative vote of a majority of the
outstanding voting securities of the Fund. Restrictions that are not fundamental
may be changed by a vote of a majority of the Trustees of the Trust.
The fundamental and nonfundamental policies of the Fund do not apply to any
matters involving the issuance of multiple classes of shares of the Fund or the
creation or use of structures (e.g. fund of funds, master-feeder structure)
allowing the Fund to invest any or all of its assets in collective investment
vehicles or allowing the Fund to serve as such a collective investment vehicle
for other funds, to the extent permitted by law and regulatory authorities.
The Fund's fundamental investment restrictions are set forth below. Under
these restrictions, it is the Fund's policy:
(1) not to purchase a security of any one issuer (other than securities
issued or guaranteed as to principal or interest by the U.S.
Government or its agencies or instrumentalities or mixed-ownership
Government corporations or sponsored enterprises) if such purchase
would, with respect to 75% of the Fund's total assets, cause more than
5% of the Fund's total assets to be invested in the securities of such
issuer or cause more than 10% of the voting securities of such issuer
to be held by the Fund;
(2) not to issue senior securities, as defined in the 1940 Act, except as
permitted by that Act and the rules thereunder or as permitted by the
Securities and Exchange Commission (the creation of general liens or
security interests under industry
2
<PAGE>
practices for transactions in portfolio assets are not deemed to
involve the issuance of senior securities);
(3) not to underwrite or participate in the marketing of securities of
other issuers, except (a) the Fund may, acting alone or in syndicates
or groups, purchase or otherwise acquire securities of other issuers
for investment, either from the issuers or from persons in a control
relationship with the issuers or from underwriters of such securities,
and (b) to the extent that, in connection with the disposition of the
Fund's securities, the Fund may be a selling shareholder in an
offering or deemed to be an underwriter under certain federal
securities laws;
(4) not to purchase fee simple interest in real estate unless acquired as
a result of ownership of securities or other instruments, although the
Fund may purchase and sell other interests in real estate including
securities which are secured by real estate, or securities of
companies which make real estate loans or own, or invest or deal in,
real estate;
(5) not to invest in physical commodities or physical commodity contracts
or options in excess of 10% of the Fund's total assets, except that
investments in essentially financial items or arrangements such as,
but not limited to, swap arrangements, hybrids, currencies, currency
and other forward contracts, delayed delivery and when-issued
contracts, futures contracts and options on futures contracts on
securities, securities indices, interest rates and currencies shall
not be deemed investments in commodities or commodities contracts;
(6) not to lend money directly to natural persons; however, the Fund may
lend portfolio securities and purchase bonds, debentures, notes, bills
and any other debt related instruments or interests directly from the
issuer thereof or in the open market and may enter into repurchase
transactions collateralized by obligations of the U.S. Government or
its agencies and instrumentalities or other high quality securities;
(7) not to make any investment which would cause more than 25% of the
value of the Fund's total assets to be invested in securities of
issuers principally engaged in any one industry, except securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or mixed-ownership Government corporations or
sponsored enterprises, as described in the Fund's Prospectus or
Statement of Additional Information as amended from time to time; and
(8) not to borrow money, including reverse repurchase agreements in so far
as such agreements may be regarded as borrowings, except for
borrowings not in an amount in excess of 33 1/3% of the value of its
total assets.
3
<PAGE>
The following investment restrictions may be changed without shareholder
approval. Under these restrictions, it is the Fund's policy:
(1) not to purchase any security or enter into a repurchase agreement if
as a result more than 15% of its net assets would be invested in
securities that are illiquid (including repurchase agreements not
entitling the holder to payment of principal and interest within seven
days);
(2) not to engage in transactions in options except in connection with
options on securities, securities indices, currencies and interest
rates, and options on futures on securities, securities indices,
currencies and interest rates;
(3) not to purchase securities on margin or make short sales of securities
or maintain a short position except for short sales "against the box"
(for the purpose of this restriction, escrow or custodian receipts or
letters, margin or safekeeping accounts or similar arrangements used
in the industry in connection with the trading of futures, options and
forward commitments are not deemed to involve the use of margin); and
(4) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or except by
purchases in the open market involving only customary brokers'
commissions, or securities acquired as dividends or distributions or
in connection with a merger, consolidation or similar transaction or
other exchange.
ADDITIONAL RISKS AND INFORMATION
CONCERNING CERTAIN INVESTMENT TECHNIQUES
Derivatives
- -----------
The Fund may buy and sell certain types of derivatives, such as options,
futures contracts, options on futures contracts, and swaps under circumstances
in which such instruments are expected by State Street Research & Management
Company, the Fund's Investment Manager (the "Investment Manager"), to aid in
achieving the Fund's investment objective. The Fund may also purchase
instruments with characteristics of both futures and securities (e.g., debt
instruments with interest and principal payments determined by reference to the
value of a commodity or a currency at a future time) and which, therefore,
possess the risks of both futures and securities investments.
Derivatives, such as options, futures contracts, options on futures
contracts, and swaps enable the Fund to take both "short" positions (positions
which anticipate a decline in the market value of a particular asset or index)
and "long" positions (positions which anticipate an increase in the market value
of a particular asset or index). The Fund may also use strategies
4
<PAGE>
which involve simultaneous short and long positions in response to specific
market conditions, such as where the Investment Manager anticipates unusually
high or low market volatility.
The Investment Manager may enter into derivative positions for the Fund for
either hedging or non-hedging purposes. The term hedging is applied to defensive
strategies designed to protect the Fund from an expected decline in the market
value of an asset or group of assets that the Fund owns (in the case of a short
hedge) or to protect the Fund from an expected rise in the market value of an
asset or group of assets which it intends to acquire in the future (in the case
of a long or "anticipatory" hedge). Non-hedging strategies include strategies
designed to produce incremental income (such as the option writing strategy
described below) or "speculative" strategies which are undertaken to profit (i)
from an expected decline in the market value of an asset or group of assets
which the Fund does not own or (ii) expected increases in the market value of an
asset which it does not plan to acquire. Information about specific types of
instruments is provided below.
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell an
underlying asset or group of assets, such as a currency or an index of
securities, at a future time at a specified price. A contract to buy establishes
a long position while a contract to sell establishes a short position.
The purchase of a futures contract on an equity security or an index of
equity securities normally enables a buyer to participate in the market movement
of the underlying asset or index after paying a transaction charge and posting
margin in an amount equal to a small percentage of the value of the underlying
asset or index. The Fund will initially be required to deposit with the Trust's
custodian or the futures commission merchant effecting the futures transaction
an amount of "initial margin" in cash or securities, as permitted under
applicable regulatory policies.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when the Fund has taken a long
position in a futures contract and the value of the underlying asset has risen,
that position will have increased in value and the Fund will receive from the
broker a maintenance margin payment equal to the increase in value of the
underlying asset. Conversely, when the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position would be less valuable, and the Fund would be required to make a
maintenance margin payment to the broker.
5
<PAGE>
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will terminate the
Fund's position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of such
securities, such delivery and acceptance are seldom made.
In transactions establishing a long position in a futures contract, assets
equal to the face value of the futures contract will be identified by the Fund
to the Trust's custodian for maintenance in a separate account to insure that
the use of such futures contracts is unleveraged. Similarly, assets having a
value equal to the aggregate face value of the futures contract will be
identified with respect to each short position. The Fund will utilize such
assets and methods of cover as appropriate under applicable exchange and
regulatory policies.
Options
The Fund may use options to implement its investment strategy. There are
two basic types of options: "puts" and "calls." Each type of option can
establish either a long or a short position, depending upon whether the Fund is
the purchaser or the writer of the option. A call option on a security, for
example, gives the purchaser of the option the right to buy, and the writer the
obligation to sell, the underlying asset at the exercise price during the option
period. Conversely, a put option on a security gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying asset at the exercise
price during the option period.
Purchased options have defined risk, that is, the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset. In general, a purchased put increases in value
as the value of the underlying security falls and a purchased call increases in
value as the value of the underlying security rises.
The principal reason to write options is to generate extra income (the
premium paid by the buyer). Written options have varying degrees of risk. An
uncovered written call option theoretically carries unlimited risk, as the
market price of the underlying asset could rise far above the exercise price
before its expiration. This risk is tempered when the call option is covered,
that is, when the option writer owns the underlying asset. In this case, the
writer runs the risk of the lost opportunity to participate in the appreciation
in value of the asset rather than the risk of an out-of-pocket loss. A written
put option has defined risk, that is, the difference between the agreed-upon
price that the Fund must pay to the buyer upon exercise of the put and the
value, which could be zero, of the asset at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
its obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a
6
<PAGE>
put option, a covered writer is required to deposit in escrow the underlying
security or other assets in accordance with the rules of the applicable clearing
corporation and exchanges.
Among the options which the Fund may enter are options on securities
indices. In general, options on indices of securities are similar to options on
the securities themselves except that delivery requirements are different. For
example, a put option on an index of securities does not give the holder the
right to make actual delivery of a basket of securities but instead gives the
holder the right to receive an amount of cash upon exercise of the option if the
value of the underlying index has fallen below the exercise price. The amount of
cash received will be equal to the difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple. As with options on equity securities or futures contracts,
the Fund may offset its position in index options prior to expiration by
entering into a closing transaction on an exchange or it may let the option
expire unexercised.
A securities index assigns relative values to the securities included in
the index and the index options are based on a broad market index. In connection
with the use of such options, the Fund may cover its position by identifying
assets having a value equal to the aggregate face value of the option position
taken.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Limitations and Risks of Options and Futures Activity
The Fund may not establish a position in a commodity futures contract or
purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such non-hedging
purposes would exceed 5% of the market value of the Fund's net assets. The Fund
applies to a similar policy to options that are not commodities.
As noted above, the Fund may engage in both hedging and non-hedging
strategies. Although effective hedging can generally capture the bulk of a
desired risk adjustment, no hedge is completely effective. The Fund's ability to
hedge effectively through transactions in futures and options depends on the
degree to which price movements in its holdings correlate with price movements
of the futures and options.
Non-hedging strategies typically involve special risks. The profitability
of the Fund's non-hedging strategies will depend on the ability of the
Investment Manager to analyze both the applicable derivatives market and the
market for the underlying asset or group of assets.
7
<PAGE>
Derivatives markets are often more volatile than corresponding securities
markets and a relatively small change in the price of the underlying asset or
group of assets can have a magnified effect upon the price of a related
derivative instrument.
Derivatives markets also are often less liquid than the market for the
underlying asset or group of assets. Some positions in futures and options may
be closed out only on an exchange which provides a secondary market therefor.
There can be no assurance that a liquid secondary market will exist for any
particular futures contract or option at any specific time. Thus, it may not be
possible to close such an option or futures position prior to maturity. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively carry out their derivative
strategies and might, in some cases, require a Fund to deposit cash to meet
applicable margin requirements. The Fund will enter into an option or futures
position only if it appears to be a liquid investment.
Short Sales Against the Box
- ---------------------------
The Fund may effect short sales, but only if such transactions are short
sale transactions known as short sales "against the box." A short sale is a
transaction in which the Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where the Fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversion, exercise or exchange of
options with respect to securities held in its portfolio. The effect of selling
a security short against the box is to insulate that security against any future
gain or loss.
Swap Arrangements
- -----------------
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap, the Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap, the Fund would agree with the other party to exchange cash flows based on
the relative differences in values of a notional amount of two (or more)
currencies; in an index swap, the Fund would agree to exchange cash flows on a
notional amount based on changes in the values of the selected indices. Purchase
of a cap entitles the purchaser to receive payments from the seller on a
notional amount to the extent that the selected index exceeds an agreed-upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an
agreed-upon interest rate or amount. A collar combines a cap and a floor.
The Fund may enter credit protection swap arrangements involving the sale
by the Fund of a put option on a debt security which is exercisable by the buyer
upon certain events, such
8
<PAGE>
as a default by the referenced creditor on the underlying debt or a bankruptcy
event of the creditor.
Most swaps entered into by the Fund will be on a net basis; for example, in
an interest rate swap, amounts generated by application of the fixed rate and
the floating rate to the notional principal amount would first offset one
another, with the Fund either receiving or paying the difference between such
amounts. In order to be in a position to meet any obligations resulting from
swaps, the Fund will set up a segregated custodial account to hold appropriate
liquid assets, including cash; for swaps entered into on a net basis, assets
will be segregated having a daily net asset value equal to any excess of the
Fund's accrued obligations over the accrued obligations of the other party,
while for swaps on other than a net basis assets will be segregated having a
value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to preserve
the return on an investment or on a portion of the Fund's portfolio. However,
the Fund may, as noted above, enter into such arrangements for income purposes
to the extent permitted by the Commodities Futures Trading Commission (the
"CFTC") for entities which are not commodity pool operators, such as the Fund.
In entering a swap arrangement, the Fund is dependent upon the creditworthiness
and good faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by the counterparty by dealing only with established, reputable
institutions. The swap market is still relatively new and emerging; positions in
swap arrangements may become illiquid to the extent that nonstandard
arrangements with one counterparty are not readily transferable to another
counterparty or if a market for the transfer of swap positions does not develop.
The use of interest rate swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Investment Manager is incorrect in its
forecasts of market values, interest rates and other applicable factors, the
investment performance of the Fund would diminish compared with what it would
have been if these investment techniques were not used. Moreover, even if the
Investment Manager is correct in its forecasts, there is a risk that the swap
position may correlate imperfectly with the price of the asset or liability
being hedged.
Repurchase Agreements
- ---------------------
The Fund may enter into repurchase agreements. Repurchase agreements occur
when the Fund acquires a security and the seller, which may be either (i) a
primary dealer in U.S. Government securities or (ii) an FDIC-insured bank having
gross assets in excess of $500 million, simultaneously commits to repurchase it
at an agreed-upon price on an agreed-upon date within a specified number of days
(usually not more than seven) from the date of purchase. The repurchase price
reflects the purchase price plus an agreed-upon market rate of interest which is
unrelated to the coupon rate or maturity of the acquired security. The Fund will
only enter into repurchase agreements involving U.S. Government securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying
9
<PAGE>
securities. Repurchase agreements will be limited to 30% of the Fund's net
assets, except that repurchase agreements extending for more than seven days
when combined with any other illiquid securities held by the Fund will be
limited to 15% of the Fund's net assets. To the extent excludable under relevant
regulatory interpretations, repurchase agreements involving U.S. Government
securities are not subject to the Fund's investment restrictions which otherwise
limit the amount of the Fund's total assets which may be invested in one issuer
or industry.
Reverse Repurchase Agreements
- -----------------------------
The Fund may enter into reverse repurchase agreements. In a reverse
repurchase agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker or dealer, in return for
a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed-upon rate.
The ability to use reverse repurchase agreements may enable, but does not ensure
the ability of, the Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous.
When effecting reverse repurchase agreements, assets of the Fund in a
dollar amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's record at the trade date and maintained until the
transaction is settled.
When-Issued Securities
- ----------------------
The Fund may purchase "when-issued" securities, which are traded on a price
or yield basis prior to actual issuance. Such purchases will be made only to
achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The Trust's custodian will establish a segregated account when the
Fund purchases securities on a when-issued basis consisting of cash or liquid
securities equal to the amount of the when-issued commitments. Securities
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by the Fund.
Restricted Securities
- ---------------------
It is the Fund's policy not to make an investment in restricted securities,
including restricted securities sold in accordance with Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities") if, as a result, more than 35%
of the Fund's total assets are invested in
10
<PAGE>
restricted securities, provided not more than 10% of the Fund's total assets are
invested in restricted securities other than Rule 144A Securities.
Securities may be resold pursuant to Rule 144A under certain circumstances
only to qualified institutional buyers as defined in the rule, and the markets
and trading practices for such securities are relatively new and still
developing; depending on the development of such markets, Rule 144A Securities
may be deemed to be liquid as determined by or in accordance with methods
adopted by the Trustees. Under such methods the following factors are
considered, among others: the frequency of trades and quotes for the security,
the number of dealers and potential purchasers in the market, market making
activity, and the nature of the security and marketplace trades. Investments in
Rule 144A Securities could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the Fund may be
adversely impacted by the subjective valuation of such securities in the absence
of a market for them. Restricted securities that are not resalable under Rule
144A may be subject to risks of illiquidity and subjective valuations to a
greater degree than Rule 144A Securities.
Foreign Investments
- -------------------
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary
Receipts ("GDRs"). Under current policy, however, the Fund limits such
investments, including ADRs, EDRs and GDRs, to a maximum of 35% of its total
assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign corporation or
other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. GDRs are receipts issued in one country which also
evidence a similar ownership arrangement. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs are designed for use in
European securities markets. GDRs are designed for use when the issuer is
raising capital in more than one market simultaneously, such as the issuer's
local market and the U.S., and have been used to overcome local selling
restrictions to foreign investors. In addition, many GDRs are eligible for
book-entry settlement through Cedel, Euroclear and DTC. The underlying
securities are not always denominated in the same currency as the ADRs, EDRs or
GDRs. Although investment in the form of ADRs, EDRs or GDRs facilitates trading
in foreign securities, it does not mitigate all the risks associated with
investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder 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
11
<PAGE>
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.
These risks are usually higher in less-developed countries. Such countries
include countries that have an emerging stock market on which trade a small
number of securities and/or countries with economies that are based on only a
few industries. The Fund may invest in the securities of issuers in countries
with less developed economies as deemed appropriate by the Investment Manager.
However, it is anticipated that a majority of the foreign investments by the
Fund will consist of securities of issuers in countries with developed
economies.
Currency Transactions
- ---------------------
The Fund may engage in currency exchange transactions in order to protect
against the effect of uncertain future exchange rates on securities denominated
in foreign currencies. The Fund will conduct its currency exchange transactions
either on a spot (i.e., cash) basis at the rate prevailing in the currency
exchange market, or by entering into forward contracts to purchase or sell
currencies. Under current policy, the Fund's dealings in forward currency
exchange contracts will be limited to hedging involving either specific
transactions or aggregate portfolio positions. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
not commodities and are entered into in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
In entering a forward currency contract, the Fund is dependent upon the
creditworthiness and good faith of the counterparty. The Fund attempts to reduce
the risks of nonperformance by the
12
<PAGE>
counterparty by dealing only with established, reputable institutions. Although
spot and forward contracts will be used primarily to protect the Fund from
adverse currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted, which may result in losses to the
Fund. This method of protecting the value of the Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some future point in time. Although such
contracts tend to minimize the risk of loss due to a decline in the value of
hedged currency, they tend to limit any potential gain that might result should
the value of such currency increase.
Securities Lending
- ------------------
The Fund may lend portfolio securities with a value of up to 33 1/3% of its
total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in unaffiliated mutual funds with quality short-term portfolios,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, repurchase agreements or other similar investments. The
investing of cash collateral received from loaning portfolio securities involves
leverage which magnifies the potential for gain or loss on monies invested and,
therefore, results in an increase in the volatility of the Fund's outstanding
securities. Such loans may be terminated at any time.
The Fund may receive a lending fee and will retain rights to dividends,
interest or other distributions, on the loaned securities. Voting rights pass
with the lending, although the Fund may call loans to vote proxies if desired.
Should the borrower of the securities fail financially, there is a risk of delay
in recovery of the securities or loss of rights in the collateral. Loans are
made only to borrowers which are deemed by the Investment Manager or its agents
to be of good financial standing.
Short-Term Trading
- ------------------
The Fund may engage in short-term trading of securities and reserves full
freedom with respect to portfolio turnover. In periods where there are rapid
changes in economic conditions and security price levels or when reinvestment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy remains
relatively constant. The Fund's portfolio turnover rate may involve greater
transaction costs, relative to other funds in general, and may have tax and
other consequences.
Temporary and Defensive Investments
- -----------------------------------
The Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in
13
<PAGE>
the opinion of the Investment Manager, such a position is more likely to provide
protection against adverse market conditions than adherence to the Fund's other
investment policies. The types of short-term instruments in which the Fund may
invest for such purposes include short-term money market securities, such as
repurchase agreements, and securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, certificates of deposit, time
deposits and bankers' acceptances of certain qualified financial institutions
and corporate commercial paper, which at the time of purchase are rated at least
within the "A" major rating category by Standard & Poor's Corporation ("S&P") or
the "Prime" major rating category by Moody's Investor's Service, Inc.
("Moody's"), or, if not rated, issued by companies having an outstanding
long-term unsecured debt issued rated at least within the "A" category by S&P or
Moody's.
Industry Classifications
- ------------------------
In determining how much of the Fund's portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing may be classified according to
the industries of their parent or sponsor companies, or industries that
otherwise most affect such financing companies. Issuers of asset-backed pools
will be classified as separate industries based on the nature of the underlying
assets, such as mortgages and credit card receivables. "Asset-backed-Mortgages"
includes private pools of nongovernment backed mortgages.
14
<PAGE>
<TABLE>
<S> <C> <C>
Autos & Transportation Health Care Components
- ---------------------- ----------- Electronics: Industrial
Air Transport Drugs & Biotechnology Homebuilding
Auto Parts Health Care Facilities Industrial Products
Automobiles Health Care Services Machine Tools
Miscellaneous Transportation Hospital Supply Machinery
Railroad Equipment Service Miscellaneous Miscellaneous Equipment
Railroads Miscellaneous Producer
Recreational Vehicles & Integrated Oils Durables
Boats --------------- Office Furniture & Business
Tires & Rubber Oil: Integrated Domestic Equipment
Truckers Oil: Integrated International Pollution Control and
Environmental Services
Consumer Discretionary Materials & Processing Production Technology
- ---------------------- ---------------------- Equipment
Advertising Agencies Agriculture Telecommunications Equipment
Casino/Gambling, Hotel/Motel Building & Construction
Commercial Services Chemicals Technology
Communications, Media & Containers & Packaging ----------
Entertainment Diversified Manufacturing Communications Technology
Consumer Electronics Engineering & Contracting Computer Software
Consumer Products Computer Technology
Consumer Services Services Electronics
Household Furnishings Electronics: Semi-
Leisure Time Fertilizers Conductors/Components
Photography Forest Products Miscellaneous Technology
Printing & Publishing Gold & Precious Metals
Restaurants Miscellaneous Materials &
Retail Processing Utilities
Shoes Non-Ferrous Metals ---------
Textile Apparel Manufacturers Office Supplies Miscellaneous Utilities
Toys Paper and Forest Products Utilities: Cable TV & Radio
Real Estate & Construction Utilities: Electrical
Consumer Staples Steel Utilities: Gas distribution
- ---------------- Textile Products Utilities: Telecommunications
Beverages Utilities: Water
Drug & Grocery Store Chains Other
Foods -----
Household Products Trust Certificates --
Tobacco Government Related Lending
Asset-backed-Mortgages
Financial Services Asset-backed-Credit Card
- ------------------ Receivables
Banks & Savings and Loans Miscellaneous
Financial Data Processing Multi-Sector Companies
Services & Systems
Insurance Other Energy
Miscellaneous Financial ------------
Real Estate Investment Trusts Gas Pipelines
Rental & Leasing Services: Miscellaneous Energy
Commercial Offshore Drilling
Securities Brokerage & Oil and Gas Producers
Oil Well Equipment & Services
Services
Producer Durables
-----------------
Aerospace
Electrical Equipment &
</TABLE>
15
<PAGE>
Computer -Related Risks
- -----------------------
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates.
The Investment Manager currently is in the process of reviewing its
internal computer systems as they relate to the Fund, as well as the computer
systems of those service providers upon which the Fund relies, in order to
obtain reasonable assurances that the Fund will not experience a material
adverse impact related to the problem. The Fund does not currently anticipate
that the problem will have a material adverse impact on its portfolio
investments, taken as a whole. There can be no assurances in the area, however,
including the possibility that the problem could negatively affect the
investment markets or the economy generally.
Other Investment Companies
- --------------------------
The Fund may invest in securities of other investment companies, including
affiliated investment companies, such as open- or closed-end management
investment companies, hub and spoke (master/feeder) funds, pooled accounts or
other similar, collective investment vehicles. As a shareholder of an investment
company, the Fund may indirectly bear service and other fees in addition to the
fees the Fund pays its service providers. Similarly, other investment companies
may invest in the Fund. Other investment companies that invest in the Fund may
hold significant portions of the Fund and materially affect the sale and
redemption of Fund shares and the Fund's portfolio transactions.
DEBT INSTRUMENTS AND
PERMITTED CASH INVESTMENTS
The Fund may invest in long-term and short-term debt securities. Certain
debt securities and money market instruments in which the Fund may invest are
described below.
U.S. Government and Related Securities
U.S. Government securities are securities which are issued or guaranteed as
to principal or interest by the U.S. Government, a U.S. Government agency or
instrumentality, or certain mixed-ownership Government corporations as described
herein. The U.S. Government securities in which the Fund invests include, among
others:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
16
<PAGE>
o obligations of U.S. Government agencies or instrumentalities such as
the Federal Home Loan Banks, the Federal Farm Credit Banks, the
Federal National Mortgage Association, the Government National
Mortgage Association and the Federal Home Loan Mortgage Corporation;
and
o obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a variety
of ways by the U.S. Government, its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S. Treasury. Other
obligations, such as those of the Federal National Mortgage Association, are
backed by the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities, although the U.S. Government has
no legal obligation to do so. Obligations such as those of the Federal Home Loan
Bank, the Federal Farm Credit Bank, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation are backed by the credit of the
agency or instrumentality issuing the obligations. Certain obligations of
Resolution Funding Corporation, a mixed-ownership Government corporation, are
backed with respect to interest payments by the U.S. Treasury, and with respect
to principal payments by U.S. Treasury obligations held in a segregated account
with a Federal Reserve Bank. Except for certain mortgage-related securities, the
Fund will only invest in obligations issued by mixed-ownership Government
corporations where such securities are guaranteed as to payment of principal or
interest by the U.S. Government or a U.S. Government agency or instrumentality,
and any unguaranteed principal or interest is otherwise supported by U.S.
Government obligations held in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and may
not be deemed U.S. Government securities.
17
<PAGE>
The Fund may also invest from time to time in collective investment
vehicles, the assets of which consist principally of U.S. Government securities
or other assets substantially collateralized or supported by such securities,
such as Government trust certificates.
Bank Money Investments.
-----------------------
Bank money investments include but are not limited to certificates of
deposit, bankers' acceptances and time deposits. Certificates of deposit are
generally short-term (i.e., less than one year), interest-bearing negotiable
certificates issued by commercial banks or savings and loan associations against
funds deposited in the issuing institution. A banker's acceptance is a time
draft drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction (to finance the import, export, transfer or
storage of goods). A banker's acceptance may be obtained from a domestic or
foreign bank, including a U.S. branch or agency of a foreign bank. The borrower
is liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are nonnegotiable deposits for a fixed period of time at
a stated interest rate. The Fund will not invest in any such bank money
investment unless the investment is issued by a U.S. bank that is a member of
the Federal Deposit Insurance Corporation ("FDIC"), including any foreign branch
thereof, a U.S. branch or agency of a foreign bank, a foreign branch of a
foreign bank, or a savings bank or savings and loan association that is a member
of the FDIC and which at the date of investment has capital, surplus and
undivided profits (as of the date of its most recently published financial
statements) in excess of $50 million. The Fund will not invest in time deposits
maturing in more than seven days and will not invest more than 10% of its total
assets in time deposits maturing in two to seven days.
U.S. branches and agencies of foreign banks are offices of foreign banks
and are not separately incorporated entities. They are chartered and regulated
either federally or under state law. U.S. federal branches or agencies of
foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
Short-Term Corporate Debt Instruments
- -------------------------------------
Short-term corporate debt instruments include commercial paper to finance
short-term credit needs (i.e., short-term, unsecured promissory notes) issued
by, among others, (a) corporations and (b) domestic or foreign bank holding
companies or their subsidiaries or
18
<PAGE>
affiliates where the debt instrument is guaranteed by the bank holding company
or an affiliated bank or where the bank holding company or the affiliated bank
is unconditionally liable for the debt instrument. Commercial paper is usually
sold on a discounted basis and has a maturity at the time of issuance not
exceeding nine months.
Lower Rated Debt Securities
- ---------------------------
The Fund may invest in lower quality debt securities rated within the BB
major rating category or lower by S&P or the Ba major rating category or lower
by Moody's or debt securities that are unrated but considered by the Investment
Manager to be of equivalent investment quality to comparable rated securities.
Such securities generally involve more credit risk than higher rated securities
and are considered by S&P and Moody's to be predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. Further, such securities may be subject to greater
market fluctuations and risk of loss of income and principal than lower
yielding, higher rated debt securities. Risks of lower quality debt securities
include (i) limited liquidity and secondary market support, (ii) substantial
market price volatility resulting from changes in prevailing interest rates
an/or investor perception, (iii) subordination to the prior claims of banks and
other senior lenders, (iv) the operation of mandatory sinking fund or
call/redemption provisions during periods of declining interest rates when the
fund may be required to reinvest premature redemption proceeds in lower yielding
portfolio securities; (v) the possibility that earnings of the issuer may be
insufficient to meet its debt service; and (vi) the issuer's low
creditworthiness and potential for insolvency during periods of rising interest
rates and economic downturn. In the event the rating of a security is
downgraded, the Investment Manager will determine whether the security should be
retained or sold depending on an assessment of all facts and circumstances at
that time.
Zero and Step Coupon Securities
- -------------------------------
Zero and step coupon securities are debt securities that may pay no
interest for all or a portion of their life but are purchased at a discount to
face value at maturity. Their return consists of the amortization of the
discount between their purchase price and their maturity value, plus in the case
of a step coupon, any fixed rate interest income. Zero coupon securities pay no
interest to holders prior to maturity even though interest on these securities
is reported as income to the Fund. The Fund will be required to distribute all
or substantially all of such amounts annually to its shareholders. These
distributions may cause the Fund to liquidate portfolio assets in order to make
such distributions at a time when the Fund may have otherwise chosen not to sell
such securities. The market value of such securities may be more volatile than
that of securities which pay interest at regular intervals.
19
<PAGE>
Commercial Paper Ratings
- ------------------------
Commercial paper investments at the time of purchase will be rated within
the "A" major rating category by S&P or within the "Prime" major rating category
by Moody's, or, if not rated, issued by companies having an outstanding
long-term unsecured debt issue rated at least within the "A" category by S&P or
by Moody's. The money market investments in corporate bonds and debentures
(which must have maturities at the date of settlement of one year or less) must
be rated at the time of purchase at least within the "A" category by S&P or
within the "Prime" category by Moody's, or within comparable categories of other
rating agencies or considered to be of comparable quality by the Investment
Manager.
Commercial paper rated within the "A" category (highest quality) by S&P is
issued by entities which have liquidity ratios which are adequate to meet cash
requirements. Long-term senior debt is rated within "A" category or better,
although in some cases credits within the "BBB" category may be allowed. The
issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong position within the industry. The reliability and quality of
management are unquestioned. The relative strength or weakness of the above
factors determines whether the issuer's commercial paper is rated A-1, A-2 or
A-3. (Those A-1 issues determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign: A-1+.)
The rating "Prime" is the highest commercial paper rating category assigned
by Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
THE TRUST, THE FUND AND ITS SHARES
The Fund was organized in 1998 as a separate series of State Street
Research Financial Trust, a Massachusetts business trust. A "series" is a
separate pool of assets of the Trust which is separately managed and may have a
different investment objective and different investment policies from the
objective and policies of another series. The Trust currently is comprised of
the following series: State Street Research Government Income Fund, State Street
Research IntelliQuant Portfolios: Small-Cap Value, State Street Research
Strategic Portfolios: Conservative, State Street Research Strategic Portfolios:
Moderate and State Street Research Strategic Portfolios: Aggressive. The
Trustees of the Trust have authority to issue an unlimited number of shares of
beneficial interest of separate series, $.001 par value per share.
20
<PAGE>
The Trustees also have authority, without the necessity of a shareholder vote,
to create any number of new series or classes or to commence the public offering
of shares of any previously established series or classes. The Trustees have
authorized shares of the Fund to be issued in five classes: Class A, Class B(1),
Class B, Class C and Class S shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B(1), Class B and Class C
shares bear the expenses of the deferred sales arrangement and any expenses
(including the higher service and distribution fees) resulting from such sales
arrangement, and certain other incremental expenses related to a class. Each
class will have exclusive voting rights with respect to provisions of the Rule
12b-1 distribution plan pursuant to which the service and distribution fees, if
any, are paid. Although the legal rights of holders of each class of shares are
identical, it is likely that the different expenses borne by each class will
result in different net asset values and dividends. The different classes of
shares of the Fund also have different exchange privileges. Except for those
differences between classes of shares described above, in the Fund's Prospectus
and otherwise this Statement of Additional Information, each share of the Fund
has equal dividend, redemption and liquidation rights with other shares of the
Fund, and when issued, is fully paid and nonassessable by the Fund.
Shareholder rights granted under the Master Trust Agreement may be modified
by the Trustees, provided, however, that the Master Trust Agreement may not be
amended if such amendment (a) repeals the limitations on personal liability of
any shareholder, or repeals the prohibition of assessment upon the shareholders,
without the express consent of each shareholder involved or (b) adversely
modifies any shareholder right without the consent of the holders of a majority
of the outstanding shares entitled to vote. Under the Master Trust Agreement,
the Trustees may reorganize, merge or liquidate the Fund without prior
shareholder approval. On any matter submitted to the shareholders, the holder of
a Fund share is entitled to one vote per share (with proportionate voting for
fractional shares) regardless of the relative net asset value thereof. Except as
provided by law, the Trustees may otherwise modify the rights of shareholders at
any time.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there ordinarily will be no shareholder meetings
unless required by the 1940 Act. Except as otherwise provided under the 1940
Act, the Board of Trustees will be a self-perpetuating body until fewer than
two-thirds of the Trustees serving as such are Trustees who were elected by
shareholders of the Trust. In the event less than a majority of the Trustees
serving as such were elected by shareholders of the Trust, a meeting of
shareholders will be called to elect Trustees. Under the Master Trust Agreement,
any Trustee may be removed by vote of two thirds of the outstanding Trust
shares; holders of 10% or more of the outstanding shares of the Trust can
require that the Trustees call a meeting of shareholders for purposes of voting
on the removal of one or more Trustees. In connection with such meetings called
by shareholders, shareholders will be assisted in shareholder communications to
the extent required by applicable law.
21
<PAGE>
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations for the Trust.
However, the Master Trust Agreement of the Trust disclaims shareholder liability
for acts or obligations of the Trust and provides for indemnification for all
losses and expenses of any shareholder of the Fund held personally liable for
the obligations of the Trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund would be unable to meet its obligations. The Investment
Manager believes that, in view of the above, the risk of personal liability to
shareholders is remote.
The Fund is a "diversified" series of an "open-end" management investment
company as defined in the 1940 Act. Among other things, a diversified fund must,
with respect to 75% of its total assets, not invest more than 5% of its total
assets in any one issuer.
22
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their addresses, and
their principal occupations and positions with certain affiliates of the
Investment Manager are set forth below.
*+Peter C. Bennett, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 60. His principal occupation is currently, and
during the past five years has been, Executive Vice President of State Street
Research & Management Company. Mr. Bennett is also a Director of State Street
Research & Management Company. Mr. Bennett's other principal business
affiliation is Director, State Street Research Investment Services, Inc.
+Bruce R. Bond, 100 Minuteman Road, Andover, MA 01810, serves as Trustee of
the Trust. He is 52. His principal occupation is Chairman of the Board, Chief
Executive Officer and President of PictureTel Corporation. During the past five
years, Mr. Bond has also served as Chief Executive Officer of ANS Communications
(a communications networking company) and as managing director of British
Tele-communications PLC.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 61. He is
retired and was formerly Senior Vice President for Finance and Operations and
Treasurer of The Pennsylvania State University.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville, NC
28803, serves as Trustee of the Trust. He is 71. He is engaged principally in
private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 58. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as portfolio manager for State Street Research &
Management Company.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 48. His principal occupation is currently, and
during the past five years has been, Executive Vice President, Treasurer, Chief
Financial Officer, Chief Administrative Officer and Director of State Street
Research & Management Company. Mr. Maus's other principal business affiliations
include Executive Vice President, Treasurer, Chief Financial Officer, Chief
Administrative Officer and Director of State Street Research Investment
Services, Inc.
- ----------------
* or + see footnotes on page 25 23
<PAGE>
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111, serves
as Secretary and General Counsel of the Trust. He is 43. His principal
occupation is Executive Vice President, General Counsel and Secretary of State
Street Research & Management Company. During the past five years he has also
served as Senior Vice President of State Street Research & Management Company
and as Senior Vice President, General Counsel and Assistant Secretary of The
Boston Company, Inc., Boston Safe Deposit and Trust Company and The Boston
Company Advisors, Inc. Mr. McNamara's other principal business affiliations
include Executive Vice President, Clerk and General Counsel of State Street
Research Investment Services, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 67. He is retired, and was formerly Executive Vice
President, Chief Operating Officer and Director of Hewlett-Packard Company.
+Susan M. Phillips, The George Washington University, 710 21st Street,
Suite 206, Washington, DC 20052, serves as Trustee of the Trust. She is 55. Her
principal occupation is currently Dean and Professor of Finance and
Administration, School of Business and Public Management, The George Washington
University. Previously, she was a member of the Board of Governors of the
Federal Reserve System and Chairman and Commissioner of the Commodity Futures
Trading Commission.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves as
Trustee of the Trust. He is 60. His principal occupations during the past five
years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
*E.K. Easton Ragsdale, Jr., One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. He is 48. His principal occupation is Senior
Vice President of State Street Research & Management Company. During the past
five years he has also served as Vice President of State Street Research &
Management Company and as Senior Vice President and Chief Quantitative Analyst
for Kidder, Peabody & Co.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
61. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+ Thomas A. Shively, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 45. His principal occupation is Executive
Vice President, Director and Chief Investment Officer - Fixed Income of State
Street Research & Management Company. During the past five years he has also
served as Senior Vice President of State Street Research & Management Company.
Mr. Shively's other principal business affiliations include Director of State
Street Research Investment Services, Inc.
- ----------------
* or + see footnotes on page 25 24
<PAGE>
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. He is 56. His principal occupation currently, and during the past five
years, has been Chairman of the Board, President, Chief Executive Officer and
Director of State Street Research & Management Company. Mr. Verni's other
principal business affiliations include Chairman of the Board and Director of
State Street Research Investment Services, Inc. (until February, 1996, prior
positions as President and Chief Executive Officer of that company).
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 52. His principal occupation is Executive Vice
President of State Street Research & Management Company. During the past five
years he has also served as President and Chief Investment Officer of IDS Equity
Advisors.
- --------------------
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations with
the Fund's investment adviser.
+ Serves as a Trustee/Director and/or officer of one or more of the following
investment companies, each of which has an advisory relationship with the
Investment Manager or its parent, Metropolitan Life Insurance Company:
State Street Research Equity Trust, State Street Research Financial Trust,
State Street Research Income Trust, State Street Research Money Market
Trust, State Street Research Tax-Exempt Trust, State Street Research
Capital Trust, State Street Research Exchange Trust, State Street Research
Growth Trust, State Street Research Master Investment Trust, State Street
Research Securities Trust, State Street Research Portfolios, Inc. and
Metropolitan Series Fund, Inc.
25
<PAGE>
As of May 31,1999, the Trustees and principal officers of the Trust owned
as a group approximately 5.9% of the outstanding Class A shares of the Fund and
none of the Fund's Class B(1), Class B, Class C or Class S shares.
Record ownership of shares of the Fund as of May 31, 1999 was as follows:
<TABLE>
<CAPTION>
Class Holder % of Class
<S> <C> <C>
A R. F. Verni 5.9%
</TABLE>
The full name and address of the person or institution is:
R. F. Verni
c/o State Street Research Service Center
One Financial Center
Boston, MA 02111
Ownership of 25% or more of a voting security is deemed "control," as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
As of the approximate date of this Statement of Additional Information, the
Investment Manager, the Distributor and/or Metropolitan Life Insurance Company
("Metropolitan"), their indirect parent, were the beneficial owners of all or a
substantial amount of the outstanding Class A, Class B(1), Class B, Class C and
Class S shares of the Fund, and may be deemed to be in "control," as defined in
the 1940 Act. Although sales of Fund shares to other investors will reduce their
percentage ownership, so long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
26
<PAGE>
The Trustees were compensated as follows:
<TABLE>
<CAPTION>
Total
Compensation
From All State
Total Street Research
Compensation Funds and
Aggregate From All State Street Metropolitan
Compensation Research Funds Series Fund, Inc.
Name of Trustee From Fund (a) Paid to Trustees(b) Paid to Trustees (c)
--------------- ------------- --------------------- -------------------
<S> <C> <C> <C>
Bruce R. Bond* $ 0 $ 0 $ 0
Steve A. Garban $ 700 $ 81,300 $ 110,300
Malcolm T. Hopkins $ 500 $ 69,700 $ 97,200
Dean O. Morton $ 700 $ 84,700 $ 110,700
Susan M. Phillips $ 500 $ 12,145 $ 12,145
Toby Rosenblatt $ 600 $ 72,600 $ 72,600
Michael S. Scott Morton $ 900 $ 89,500 $ 115,500
Ralph F. Verni $ 0 $ 0 0
</TABLE>
- ----------------
* Elected Trustee as of April 19, 1999 and therefore did not earn any fees
for the period ended February 28, 1999
(a) For the period November 30, 1998 through February 28, 1999.
(b) Includes compensation on behalf of all series of 11 investment companies
for which the Investment Manager serves as a sole investment adviser. The
figure in this column is for the 12 months ended December 31, 1998. The
Trust does not provide any pension or retirement benefits for the Trustees.
(c) Includes compensation on behalf of all series of 11 investment companies
for which the Investment Manager serves as sole investment adviser and all
series of Metropolitan Series Fund, Inc. The primary adviser to
Metropolitan Series Fund, Inc. is Metropolitan Life Insurance Company,
which has retained State Street Research & Management Company as
sub-adviser to certain series of Metropolitan Series Fund, Inc. The figure
in this column includes compensation relating to series of Metropolitan
Series Fund, Inc. which are not advised by State Street Research &
Management Company. The figure is for the 12 months ended December 31,
1998.
27
<PAGE>
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY SERVICES
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.
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Investment
Manager was founded by Paul Cabot, Richard Saltonstall and Richard Paine to
serve as investment adviser to one of the nation's first mutual funds, presently
known as State Street Research Investment Trust, which they had formed in 1924.
Their investment management philosophy emphasized comprehensive fundamental
research and analysis, including meetings with the management of companies under
consideration for investment. The Investment Manager's portfolio management
group has extensive investment industry experience managing equity and debt
securities. The Investment Manager is charged with the overall responsibility
for managing the investments and business affairs of the Fund, subject to the
authority of the Board of Trustees.
The Advisory Agreement provides that the Investment Manager shall furnish
the Fund with an investment program, office facilities and such investment
advisory, research and administrative services as may be required from time to
time. The Investment Manager compensates all executive and clerical personnel
and Trustees of the Trust if such persons are employees of the Investment
Manager or its affiliates. The Investment Manager is an indirect wholly-owned
subsidiary of Metropolitan.
The advisory fee payable monthly by the Fund to the Investment Manager is
computed as a percentage of the average of the value of the net assets of the
Fund as determined at the close of regular trading on the New York Stock
Exchange (the "NYSE") on each day the NYSE is open for trading. For the period
November 30, 1998 (commencement of operations) through February 28, 1999, the
Fund's investment advisory fee was $9,722.
The Distributor and its affiliates have from time to time and in varying
amounts voluntarily reduced the Fund's expenses. For the period November 30,
1998 (commencement of operations) through February 28, 1999, the voluntary
reduction of fees or assumption of expenses amounted to $102,250.
The Advisory Agreement provides that it shall continue in effect with
respect to the Fund for a period of two years after its initial effectiveness
and will continue from year to year thereafter as long as it is approved at
least annually both (i) by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by the Trustees of the
Trust, and (ii) in either event by a vote of a majority of the Trustees who are
not parties to the Advisory Agreement or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated on 60 days' written notice by
either party and will terminate automatically in the event of its assignment, as
defined under the 1940 Act and
28
<PAGE>
regulations thereunder. Such regulations provide that a transaction which does
not result in a change of actual control or management of an adviser is not
deemed an assignment.
Under the Code of Ethics of the Investment Manager, investment management
personnel are only permitted to engage in personal securities transactions in
accordance with certain conditions relating to such person's position, the
identity of the security, the timing of the transaction, and similar factors.
Such personnel must report their personal securities transactions quarterly and
supply broker confirmations of such transactions to the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by State Street Research Investment
Services, Inc. The Fund generally offers four classes of shares. Class A, Class
B(1), Class C and Class S are available to all eligible investors. The Fund also
offers Class B shares, which are only available to current Class B shareholders
through reinvestment of dividends and capital gains or through exchanges from
existing Class B accounts of the State Street Research funds. Class A, Class
B(1), Class B, Class C and Class S shares of the Fund may be purchased at the
next determined net asset value per share plus, in the case of such classes
except Class S shares, a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B(1), Class B and Class C shares). General information
on how to buy shares of the Fund, as well as sales charges involved, is set
forth under "Your Investment" in the Prospectus. The following supplements that
information.
Public Offering Price. The public offering price for each class of shares
is based on their net asset value determined as of the close of regular trading
on the NYSE on the day the purchase order is received by State Street Research
Service Center (the "Service Center"), provided that the order is received prior
to the close of regular trading on the NYSE on that day; otherwise the net asset
value used is that determined as of the close of the NYSE on the next day it is
open for unrestricted trading. When a purchase order is placed through a dealer,
that dealer is responsible for transmitting the order promptly to the Service
Center in order to permit the investor to obtain the current price. Any loss
suffered by an investor which results from a dealer's failure to transmit an
order promptly is a matter for settlement between the investor and the dealer.
Alternative Purchase Program. Alternative classes of shares permit
investors to select a purchase program which they believe will be the most
advantageous for them, given the amount of their purchase, the length of time
they anticipate holding Fund shares, or the flexibility they desire in this
regard, and other relevant circumstances. Investors will be able to determine
whether in their particular circumstances it is more advantageous to incur an
initial sales charge and not be subject to certain ongoing charges or to have
their entire purchase price invested in the Fund with the investment being
subject thereafter to ongoing service fees and distribution fees.
As described in greater detail below, financial professionals are paid
differing amounts of compensation depending on which class of shares they sell.
29
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
Class A Class B(1) Class B Class C Class S
------- ---------- ------- ------- -------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales Charges Paid Initial sales Contingent Contingent Contingent None
by Investor to charge at time deferred sales deferred sales deferred sales
Distributor of investment of charge of 5% to charge of 5% to charge of 1%
up to 5.75% 1% applies to 2% applies to applies to any
depending on any shares any shares shares redeemed
amount of redeemed within redeemed within within one year
investment first six years first five years following their
following their following their purchase
purchase; no purchase; no
contingent contingent
deferred sales deferred sales
charge after six charge after
years five six 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
- --------------------------------------------------------------------------------------------------------------------
Initial Commission Above described 4% 4% 1% None
Paid by Distributor initial sales
to Financial charge less
Professional 0.25% to 0.75%
retained by
distributor
On investments
of $1 million or
more, 0.25% to
1% paid to
dealer by
Distributor
- --------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Service
Fee
- --------------------------------------------------------------------------------------------------------------------
Paid by Fund to 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
Distributor
- --------------------------------------------------------------------------------------------------------------------
Paid by Distributor 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
to Financial commencing after commencing after commencing after
Professional one year one year one year
following following following
purchase purchase purchase
- --------------------------------------------------------------------------------------------------------------------
Rule 12b-1
Distribution Fee
- --------------------------------------------------------------------------------------------------------------------
Paid by Fund to None 0.75% for first 0.75% for first 0.75% each year None
Distributor eight years; eight years;
Class B(1) shares Class B shares
convert convert
automatically to automatically to
Class A shares Class A shares
after eight years after eight years
- --------------------------------------------------------------------------------------------------------------------
Paid by Distributor None None None 0.75% each year None
to Financial commencing after
Professional one year
following
purchase
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
Class A Shares--Reduced Sales Charges. The reduced sales charges set forth
under "Your Investment--Choosing a Share Class" in the Prospectus apply to
purchases made at any one time by any "person," which includes: (i) an
individual, or an individual combining with his or her spouse and their children
and purchasing for his, her or their own account; (ii) a "company" as defined in
Section 2(a)(8) of the 1940 Act; (iii) a trustee or other fiduciary purchasing
for a single trust estate or single fiduciary account (including a pension,
profit sharing or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Internal Revenue Code); (iv) a tax-exempt
organization under Section 501(c)(3) or (13) of the Internal Revenue Code; and
(v) an employee benefit plan of a single employer or of affiliated employers.
Investors may purchase Class A shares of the Fund at reduced sales charges
by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds"
(which include the Fund and other funds as designated by the Distributor from
time to time) within a 13-month period. The sales charge applicable to each
purchase made pursuant to a Letter of Intent will be that which would apply if
the total dollar amount set forth in the Letter of Intent were being bought in a
single transaction. Purchases made within a 90-day period prior to the execution
of a Letter of Intent may be included therein; in such case the date of the
earliest of such purchases marks the commencement of the 13-month period.
An investor may include toward completion of a Letter of Intent the value
(at the current public offering price) of all of his or her Class A shares of
the Fund and of any of the other Class A shares of Eligible Funds held of record
as of the date of his or her Letter of Intent, plus the value (at the current
offering price) as of such date of all of such shares held by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B(1), Class B, Class C and Class S shares may also be included in the
combination under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described
31
<PAGE>
herein as eligible to join with the investor in a single purchase. Class B(1),
Class B, Class C and Class S shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
Other Programs Related to Class A Shares. Class A shares of the Fund may be
sold or issued in an exchange, at a reduced sales charge or without sales charge
pursuant to certain sponsored arrangements for designated classes of investors.
These arrangements include programs sponsored by the Distributor or others under
which, for example, a company, employee benefit plan or other organization makes
recommendations to, or permits group solicitation of, its employees, members or
participants to purchase Fund shares. (These arrangements are not available to
any organization created primarily for the purpose of obtaining shares of the
Fund at a reduced sales charge or without a sales charge.) Sponsored
arrangements may be established for non-profit organizations, holders of
individual retirement accounts, or participants in limited, promotional
campaigns, such as a special offering to shareholders of funds in other
complexes that may be liquidating. Sales without a sales charge, or with a
reduced sales charge, may also be made through brokers, registered investment
advisers, financial planners, institutions, and others, under managed fee-based
programs (e.g., "wrap fee" or similar programs) which meet certain requirements
established by the Distributor. Information on such arrangements and further
conditions and limitations is available from the Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and person: (A) the
Investment Manager, Distributor or any affiliated entities, including any direct
or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated Companies,
any relatives of any such individuals whose relationship is directly verified by
such individuals to the Distributor, or any beneficial account for such
relatives or individuals; and (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any spouse
or child of such person, or any beneficial account for any of them. The purchase
must be made for investment and the shares purchased may not be resold except
through redemption. This purchase program is subject to such administrative
policies, regarding the qualification of purchasers, minimum investments by
various groups of eligible persons, and any other matters, as may be adopted by
the Distributor from time to time.
Conversion of Class B(1) and Class B Shares to Class A Shares. A
shareholder's Class B(1) and Class B shares of the Fund, including all shares
received as dividends or distributions with respect to such shares, will
automatically convert to Class A shares of the Fund at the end of eight years
following the issuance of such shares; consequently, they will no longer be
subject to the higher expenses borne by Class B(1) and Class B shares. The
conversion rate will be determined on the basis of the relative per share net
asset values of the
32
<PAGE>
two classes and may result in a shareholder receiving either a greater or fewer
number of Class A shares than the shares so converted. As noted above, holding
periods for Class B(1) shares received in exchange for Class B(1) shares of
other Eligible Funds and for Class B shares received in exchange for Class B
shares of other Eligible Funds will be counted toward the eight-year period.
Contingent Deferred Sales Charges. The amount of any contingent deferred
sales charge paid on Class A shares (on sales of $1 million or more and which do
not involve an initial sales charge) or on Class B(1), Class B or Class C shares
of the Fund will be paid to the Distributor. The Distributor will pay dealers at
the time of sale a 4% commission for selling Class B(1) and Class B shares and a
1% commission for selling Class C shares. In certain cases, a dealer may elect
to waive the 4% commission on Class B(1) and Class B shares and receive in lieu
thereof an annual fee, usually 1%, with respect to such outstanding shares. The
proceeds of the contingent deferred sales charges and the distribution fees are
used to offset distribution expenses and thereby permit the sale of Class B(1),
Class B and Class C shares without an initial sales charge.
In determining the applicability and rate of any contingent deferred sales
charge of Class B(1), Class B or Class C shares, it will be assumed that a
redemption of the shares is made first of those shares having the greatest
capital appreciation, next of shares representing reinvestment of dividends and
capital gains distributions and finally of remaining shares held by a
shareholder for the longest period of time. Class B(1) shares that are redeemed
within a six-year period after purchase, Class B shares that are redeemed within
a five-year period after their purchase, and Class C shares that are redeemed
within a one-year period after their purchase, will not be subject to a
contingent deferred sales charge to the extent that the value of such shares
represents (1) capital appreciation of Fund assets or (2) reinvestment of
dividends or capital gains distributions. The holding period for purposes of
applying a contingent deferred sales charge for a particular class of shares of
the Fund acquired through an exchange from another Eligible Fund will be
measured from the date that such shares were initially acquired in the other
Eligible Fund, and shares of the same class being redeemed will be considered to
represent, as applicable, capital appreciation or dividend and capital gains
distribution reinvestments in such other Eligible Fund. These determinations
will result in any contingent deferred sales charge being imposed at the lowest
possible rate. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case may
be, on the amount realized on redemption.
Contingent Deferred Sales Charge Waivers. With respect to Class A shares
(on sales of $1 million or more and which do not involve an initial sales
charge), and Class B(1), Class B and Class C shares of the Fund, the contingent
deferred sales charge does not apply to exchanges or to redemptions under a
systematic withdrawal plan which meets certain conditions. The contingent
deferred sales charge will be waived for participant initiated distributions
from State Street Research prototype employee retirement plans. In addition, the
contingent deferred sales charge will be waived for: (i) redemptions made within
one year of the death or total disability, as defined by the Social Security
Administration, of all
33
<PAGE>
shareholders of an account; (ii) redemptions made after attainment of a specific
age in an amount which represents the minimum distribution required at such age
under Section 401(a)(9) of the Internal Revenue Code of 1986, as amended, for
retirement accounts or plans (e.g., age 70-1/2 for Individual Retirement
Accounts and Section 403(b) plans), calculated solely on the basis of assets
invested in the Fund or other Eligible Funds; and (iii) a redemption resulting
from a tax-free return of an excess contribution to an Individual Retirement
Account. (The foregoing waivers do not apply to a tax-free rollover or transfer
of assets out of the Fund). The contingent deferred sales charge may also be
waived on Class A shares under certain exchange arrangements for selected
brokers with substantial asset allocation programs. The Fund may modify or
terminate the waivers at any time; for example, the Fund may limit the
application of multiple waivers and establish other conditions for employee
benefit plans. Certain employee benefit plans sponsored by a financial
professional may be subject to other conditions under which the plans may
initially invest in Class B(1) shares and subsequently invest in Class A shares
upon meeting specific criteria.
Class S Shares. Class S shares are currently available to certain employee
benefit plans such as qualified retirement plans which meet criteria relating to
number of participants, service arrangements, or similar factors; insurance
companies; investment companies; advisory accounts of the Investment Manager;
endowment funds of nonprofit organizations with substantial minimum assets
(currently a minimum of $10 million); and other similar institutional investors.
Class S shares may be acquired through programs or products sponsored by
Metropolitan, its affiliates, or both for which Class S shares have been
designated. In addition, Class S shares are available through programs under
which, for example, investors pay an asset-based fee and/or a transaction fee to
intermediaries. Class S share availability is determined by the Distributor and
intermediaries based on the overall direct and indirect costs of a particular
program, expected assets, account sizes and similar considerations.
Reorganizations. In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined in the 1940 Act, the Fund may issue its shares at net asset value (or
more) to such entities or to their security holders.
Redemptions. The Fund reserves the right to pay redemptions in kind with
portfolio securities in lieu of cash. In accordance with its election pursuant
to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of redemption
proceeds paid in cash. Although it has no present intention to do so, the Fund
may, under unusual circumstances, limit redemptions in cash with respect to each
shareholder during any ninety-day period to the lesser of (i) $250,000 or (ii)
1% of the net asset value of the Fund at the beginning of such period. In
connection with any redemptions paid in kind with portfolio securities,
brokerage and other costs may be incurred by the redeeming shareholder in the
sale of the securities received.
34
<PAGE>
Systematic Withdrawal Plan. A shareholder who owns noncertificated Class A
or Class S shares with a value of $5,000 or more, or Class B(1), Class B or
Class C shares with a value of $10,000 or more, may elect, by participating in
the Fund's Systematic Withdrawal Plan, to have periodic checks issued for
specified amounts. These amounts may not be less than certain minimums,
depending on the class of shares held. The Plan provides that all income
dividends and capital gains distributions of the Fund shall be credited to
participating shareholders in additional shares of the Fund. Thus, the
withdrawal amounts paid can only be realized by redeeming shares of the Fund
under the Plan. To the extent such amounts paid exceed dividends and
distributions from the Fund, a shareholder's investment will decrease and may
eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 12% annually
(minimum $50 per withdrawal) of either (a) the value, at the time the Systematic
Withdrawal Plan is initiated, of the shares then in the account or (b) the
value, at the time of a withdrawal, of the same number of shares as in the
account when the Systematic Withdrawal Plan was initiated, whichever is higher.
Expenses of the Systematic Withdrawal Plan are borne by the Fund. A
participating shareholder may withdraw from the Systematic Withdrawal Plan, and
the Fund may terminate the Systematic Withdrawal Plan at any time on written
notice. Purchase of additional shares while a shareholder is receiving payments
under a Systematic Withdrawal Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate in
the Investamatic Program (see "Your Investment--Investor Services--Investamatic
Program" in the Fund's Prospectus) and the Systematic Withdrawal Plan at the
same time.
Request to Dealer to Repurchase. For the convenience of shareholders, the
Fund has authorized the Distributor as its agent to accept orders from dealers
by wire or telephone for the repurchase of shares by the Distributor from the
dealer. The Fund may revoke or suspend this authorization at any time. The
repurchase price is the net asset value for the applicable shares next
determined following the time at which the shares are offered for repurchase by
the dealer to the Distributor. The dealer is responsible for promptly
transmitting a shareholder's order to the Distributor.
Signature Guarantees. Signature guarantees are required for, among other
things: (1) written requests for redemptions for more than $100,000; (2) written
requests for redemptions for any amount if the proceeds are transmitted to other
than the current address of record (unchanged in the past 30 days); (3) written
requests for redemptions for any amount submitted by corporations and certain
fiduciaries and other intermediaries; and (4) requests to transfer the
registration of shares to another owner. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived in certain instances.
35
<PAGE>
Dishonored Checks. If a purchaser's check is not honored for its full
amount, the purchaser could be subject to additional charges to cover collection
costs and any investment loss, and the purchase may be canceled.
Processing Charges. Purchases and redemptions processed through securities
dealers may be subject to processing charges imposed by the securities dealer in
addition to sales charges that may be imposed by the Fund or the Distributor.
SHAREHOLDER ACCOUNTS
General information on shareholder accounts is included in the Fund's
Prospectus under "Your Investment." The following supplements that information.
Maintenance Fees and Involuntary Redemption. Because of the relatively high
cost of maintaining small shareholder accounts, the Fund reserves the right to
redeem at its option any shareholder account which remains below $1,500 for a
period of 60 days after notice is mailed to the applicable shareholder, or to
impose a maintenance fee on such account after 60 days' notice. Such
involuntarily redemptions will be subject to applicable sales charges, if any.
The Fund may increase such minimum account value above such amount in the future
after notice to affected shareholders. Involuntarily redeemed shares will be
priced at the net asset value on the date fixed for redemption by the Fund, and
the proceeds of the redemption will be mailed to the affected shareholder at the
address of record. Currently, the maintenance fee is $18 annually, which is paid
to the Transfer Agent. The fee does not apply to certain retirement accounts or
if the shareholder has more than an aggregate $50,000 invested in the Fund and
other Eligible Funds combined. Imposition of a maintenance fee on a small
account could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it may
elect to suspend the redemption of shares or postpone the date of payment of
redemption proceeds: (1) during any period that the NYSE is closed (other than
customary weekend and holiday closings) or trading on the NYSE is restricted;
(2) during any period in which an emergency exists as a result of which disposal
of portfolio securities is not reasonably practicable or it is not reasonably
practicable to fairly determine the Fund's net asset values; or (3) during such
other periods as the Securities and Exchange Commission (the "SEC") may by order
permit for the protection of investors; and (b) the payment of redemption
proceeds may be postponed as otherwise provided under "Purchase and Redemption
of Shares" in this Statement of Additional Information.
36
<PAGE>
The Open Account System. Under the Open Account System full and fractional
shares of the Fund owned by shareholders are credited to their accounts by the
Transfer Agent, State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110. Certificates representing Class B(1), Class B or
Class C shares will not be issued, while certificates representing Class A or
Class S shares will only be issued if specifically requested in writing and, in
any case, will only be issued for full shares, with any fractional shares to be
carried on the shareholder's account. Shareholders will receive periodic
statements of transactions in their accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through
dealers, by wire or by mailing a check payable to "State Street
Research Funds" under the terms set forth above under "Purchase and
Redemption of Shares" in this Statement of Additional Information.
2. The following methods of receiving dividends from investment income
and distributions from capital gains generally are available:
(a) All income dividends and capital gains distributions reinvested
in additional shares of the Fund.
(b) All income dividends and capital gains distributions in cash.
(c) All income dividends and capital gains distributions invested in
any one available Eligible Fund designated by the shareholder as
described below. See "--Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to the
Service Center. Dividends and distributions are reinvested at net asset value
without a sales charge.
Exchange Privileges. Shareholders of the Fund may exchange their shares for
available shares with corresponding characteristics of any of the other Eligible
Funds , subject to any applicable initial holding period on the basis of the
relative net asset values of the respective shares to be exchanged and subject
to compliance with applicable securities laws. Shareholders of any other
Eligible Fund may 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
37
<PAGE>
exchange, Class A, Class B(1), Class B and Class C shares may be redeemed
without the payment of any contingent deferred sales charge that might otherwise
be due upon an ordinary redemption of such shares. The State Street Research
Money Market Fund issues Class E shares which are sold without any sales charge.
Exchanges of State Street Research Money Market Fund Class E shares into Class A
shares of the Fund or any other Eligible Fund are subject to the initial sales
charge or contingent deferred sales charge applicable to an initial investment
in such Class A shares, unless a prior Class A sales charge has been paid
directly or indirectly with respect to the shares redeemed. Class A shares
acquired through a new investment after January 1, 1999, are subject to an
incremental sales charge if exchanged within 30 days of acquisition for Class A
shares of a Fund with a higher applicable sales charge. For purposes of
computing the contingent deferred sales charge that may be payable upon
disposition of any acquired Class A, Class B(1), Class B and Class C shares, the
holding period of the redeemed shares is "tacked" to the holding period of any
acquired shares. No exchange transaction fee is currently imposed on any
exchange.
Shares of the Fund may also be acquired or redeemed in exchange for shares
of the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers of
Merrill Lynch, Pierce, Fenner & Smith Incorporated (subject to completion of
steps necessary to implement the program). The Fund and Summit Cash Reserves are
related mutual funds for purposes of investment and investor services. Upon the
acquisition of shares of Summit Cash Reserves by exchange for redeemed shares of
the Fund, (a) no sales charge is imposed by Summit Cash Reserves, (b) no
contingent deferred sales charge is imposed by the Fund on the Fund shares
redeemed, and (c) any applicable holding period of the Fund shares redeemed is
"tolled," that is, the holding period clock stops running pending further
transactions. Upon the acquisition of shares of the Fund by exchange for
redeemed shares of Summit Cash Reserves, (a) the acquisition of Class A shares
shall be subject to the initial sales charges or contingent deferred sales
charges applicable to an initial investment in such Class A shares, unless a
prior Class A sales charge has been paid indirectly, and (b) the acquisition of
Class B(1), Class B or Class C shares of the Fund shall restart any holding
period previously tolled, or shall be subject to the contingent deferred sales
charge applicable to an initial investment in such shares.
The exchange privilege may be terminated or suspended or its terms changed
at any time, subject, if required under applicable regulations, to 60 days'
prior notice. New accounts established for investments upon exchange from an
existing account in another fund will have the same telephone privileges with
respect to the Fund (see "Your Investment--Account Policies--Telephone Requests"
in the Fund's Prospectus and "--Telephone Privileges," below) as the existing
account unless the Service Center is instructed otherwise. Related
administrative policies and procedures may also be adopted with regard to a
series of exchanges, street name accounts, sponsored arrangements and other
matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any
38
<PAGE>
person who makes more than six exchanges out of or into the Fund per calendar
year. Accounts under common ownership or control, including accounts with the
same taxpayer identification number, may be aggregated for purposes of the six
exchange limit. Notwithstanding the six exchange limit, the Fund reserves the
right to refuse exchanges by any person or group if, in the Investment Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. Exchanges may be restricted or refused if the Fund receives or
anticipates simultaneous orders affecting significant portions of the Fund's
assets. In particular, a pattern of exchanges that coincides with a "market
timing" strategy may be disruptive to the Fund. The Fund may impose these
restrictions at any time. The exchange limit may be modified for accounts in
certain institutional retirement plans because of plan exchange limits,
Department of Labor regulations or administrative and other considerations. The
exchange limit may also be modified under certain exchange arrangements for
selected brokers with substantial asset allocation programs. Subject to the
foregoing, if an exchange request in good order is received by the Service
Center and delivered by the Service Center to the Transfer Agent by 12 noon
Boston time on any business day with normal trading conditions, the exchange
usually will occur that day. For further information regarding the exchange
privilege, shareholders should contact the Service Center.
Reinvestment Privilege. A shareholder of the Fund who has redeemed shares
or had shares repurchased at his or her request may reinvest all or any portion
of the proceeds (plus that amount necessary to acquire a fractional share to
round off his or her reinvestment to full shares) in shares, of the same class
as the shares redeemed, of the Fund or any other Eligible Fund at net asset
value and without subjecting the reinvestment to an initial sales charge,
provided such reinvestment is made within 120 calendar days after a redemption
or repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the amount
reinvested. The redemption of shares is, for federal income tax purposes, a sale
on which the shareholder may realize a gain or loss. If a redemption at a loss
is followed by a reinvestment within 30 days, the transaction may be a "wash
sale" resulting in a denial of the loss for federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by the Service
Center of such shareholder's written purchase request and delivery of the
request by the Service Center to the Transfer Agent. A shareholder may exercise
this reinvestment privilege only once per 12-month period with respect to his or
her shares of the Fund.
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
39
<PAGE>
shareholder, provided the account into which the dividends and distributions are
directed is initially funded with the requisite minimum amount.
Telephone Privileges. The following telephone privileges are available:
o Telephone Exchange Privilege for Shareholder and Shareholder's
Financial Professional
o Shareholders automatically receive this privilege unless
declined.
o This privilege allows the shareholder or the shareholder's
financial professional to request exchanges into other State
Street Research funds.
o Telephone Redemption Privilege for Shareholder
o Shareholders automatically receive this privilege unless
declined.
o This privilege allows the shareholder to phone requests to sell
shares, with the proceeds sent to the address of record.
o Telephone Redemption Privilege for Shareholder's Financial
Professional (This privilege is not automatic; a shareholder must
specifically elect it)
o This privilege allows the shareholder's financial professional to
phone requests to sell shares, with the proceeds to be sent to
the address of record on the account.
A shareholder with the above telephone privileges is deemed to authorize
the Service Center and the Transfer Agent to: (1) act upon the telephone
instructions of any person purporting to be the shareholder or the shareholder's
financial professional; and (2) honor any written instructions for a change of
address regardless of whether such request is accompanied by a signature
guarantee. All telephone calls will be recorded. Neither the Fund, the other
Eligible Funds, the Transfer Agent, the Investment Manager nor the Distributor
will be liable for any loss, expense or cost arising out of any request,
including any fraudulent or unauthorized requests. Shareholders assume the risk
to the full extent of their accounts that telephone requests may be
unauthorized. Reasonable procedures will be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not be
liable for any losses arising from unauthorized or fraudulent instructions if
such procedures are not followed.
Alternative Means of Contacting the Fund. It is unlikely, during periods of
extraordinary market conditions, that a shareholder may have difficulty in
reaching the Service Center. In that event, however, the shareholder should
contact the Service Center at 1-800-562-0032, 1-617-357-7800 or otherwise at its
main office at One Financial Center, Boston, Massachusetts 02111-2690.
40
<PAGE>
NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily as
of the close of regular trading on the NYSE, ordinarily 4 P.M. New York City
time, Monday through Friday, on each day during which the NYSE is open for
unrestricted trading. The NYSE is currently closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of the Fund is computed by dividing the sum
of the value of the securities held by the Fund plus any cash or other assets
minus all liabilities by the total number of outstanding shares of the Fund at
such time. Any expenses, except for extraordinary or nonrecurring expenses,
borne by the Fund, including the investment management fee payable to the
Investment Manager, are accrued daily.
In determining the values of portfolio assets as provided below, the
Trustees utilize one or more pricing services in lieu of market quotations for
certain securities which are not readily available on a daily basis. Such
services utilize information with respect to market transactions, quotations
from dealers and various relationships among securities in determining value and
may provide prices determined as of times prior to the close of the NYSE.
In general, securities are valued as follows. Securities which are listed
or traded on the New York or American Stock Exchange are valued at the price of
the last quoted sale on the respective exchange for that day. Securities which
are listed or traded on a national securities exchange or exchanges, but not on
the New York or American Stock Exchange, are valued at the price of the last
quoted sale on the exchange for that day prior to the close of the NYSE.
Securities not listed on any national securities exchange which are traded "over
the counter" and for which quotations are available on the National Association
of Securities Dealers, Inc.'s (the "NASD") NASDAQ System, or other system, are
valued at the closing price supplied through such system for that day at the
close of the NYSE. Other securities are, in general, valued at the mean of the
bid and asked quotations last quoted prior to the close of the NYSE if there are
market quotations readily available, or in the absence of such market
quotations, then at the fair value thereof as determined by or under authority
of the Trustees of the Trust with the use of such pricing services as may be
deemed appropriate or methodologies approved by the Trustees. The Trustees also
reserve the right to adopt valuations based on fair value pricing in unusual
circumstances where use of other methods as described in part above could
otherwise have a material adverse effect on the Fund as a whole.
The Trustees have authorized the use of the amortized cost method to value
short-term debt instruments issued with a maturity of one year or less and
having a remaining maturity of 60 days or less when the value obtained is fair
value, provided that during any period in which more than 25% of the Fund's
total assets is invested in short-term debt securities the
41
<PAGE>
current market value of such securities will be used in calculating net asset
value per share in lieu of the amortized cost method. Under the amortized cost
method of valuation, the security is initially valued at cost on the date of
purchase (or in the case of short-term debt instruments purchased with more than
60 days remaining to maturity, the market value on the 61st day prior to
maturity), and thereafter a constant amortization to maturity of any discount or
premium is assumed regardless of the impact of fluctuating interest rates on the
market value of the security.
PORTFOLIO TRANSACTIONS
Portfolio Turnover
- ------------------
The Fund's portfolio turnover rate is determined by dividing the lesser of
securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). For the period November 30, 1998 (commencement of operations)
through February 28, 1999 the portfolio turnover rate was 0.66%.
Brokerage Allocation
- --------------------
The Investment Manager's policy is to seek for its clients, including the
Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Fund occur. Against this background, the Investment Manager
evaluates the reasonableness of a commission or a net price with respect to a
particular transaction by considering such factors as difficulty of execution or
security positioning by the executing firm. The Investment Manager may or may
not solicit competitive bids based on its judgment of the expected benefit or
harm to the execution process for that transaction.
42
<PAGE>
When it appears that a number of firms could satisfy the required standards
in respect of a particular transaction, consideration may also be given by the
Investment Manager to services other than execution services which certain of
such firms have provided in the past or may provide in the future. Negotiated
commission rates and prices, however, are based upon the Investment Manager's
judgment of the rate which reflects the execution requirements of the
transaction without regard to whether the broker provides services in addition
to execution. Among such other services are the supplying of supplemental
investment research; general economic, political and business information;
analytical and statistical data; relevant market information, quotation
equipment and services; reports and information about specific companies,
industries and securities; purchase and sale recommendations for stocks and
bonds; portfolio strategy services; historical statistical information; market
data services providing information on specific issues and prices; financial
publications; proxy voting data and analysis services; technical analysis of
various aspects of the securities markets, including technical charts; computer
hardware used for brokerage and research purposes; computer software and
databases (including those contained in certain trading systems used for
portfolio analysis and modeling and also software providing investment personnel
with efficient access to current and historical data from a variety of internal
and external sources); and portfolio evaluation services and relative
performance of accounts.
In the case of the Fund and other registered investment companies advised
by the Investment Manager or its affiliates, the above services may include data
relating to performance, expenses and fees of those investment companies and
other investment companies. This information is used by the Trustees or
Directors of the investment companies to fulfill their responsibility to oversee
the quality of the Investment Manager's advisory contracts between the
investment companies and the Investment Manager. The Investment Manager
considers these investment company services only in connection with the
execution of transactions on behalf of its investment company clients and not
its other clients. Certain of the nonexecution services provided by
broker-dealers may in turn be obtained by the broker-dealers from third parties
who are paid for such services by the broker-dealers.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. The Investment Manager's investment management
personnel seek to evaluate the quality of the research and other services
provided by various broker-dealer firms, and the results of these efforts are
made available to the equity trading department, which uses this information as
a consideration to the extent described above in the selection of brokers to
execute portfolio transactions.
Some services furnished by broker-dealers may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of the services to determine the proportion which is allocable to research or
investment decision-making and the proportion allocable to other purposes. The
Investment Manager pays directly from its own funds for that portion that is
allocable to uses other than research or investment decision-making. Some
research and execution services may benefit the Investment Manager's clients as
a whole,
43
<PAGE>
while others may benefit a specific segment of clients. Not all such services
will necessarily be used exclusively in connection with the accounts which pay
the commissions to the broker-dealer providing the services.
The Investment Manager has no fixed agreements or understandings with any
broker-dealer as to the amount of brokerage business which the firm may expect
to receive for services supplied to the Investment Manager or otherwise. There
may be, however, understandings with certain firms that in order for such firms
to be able to continuously supply certain services, they need to receive an
allocation of a specified amount of brokerage business. These understandings are
honored to the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, the Investment Manager relies on the provisions of
Section 28(e) of the Securities Exchange Act of 1934. For the period November
30, 1998 (commencement of operations) through February 28, 1999 the Fund paid
$4,480 in brokerage commissions in secondary trading.
During and at the end of its most recent fiscal year, the Fund did not hold
in its portfolio securities of any entity that might be deemed to be a regular
broker-dealer of the Fund as defined under the 1940 Act.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling commissions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Investment Manager may make such allocations
to broker-dealers which have provided the Investment Manager with research and
brokerage services.
In some instances, certain clients of the Investment Manager request it to
place all or part of the orders for their account with certain brokers or
dealers, which in some cases provide services to those clients. The Investment
Manager generally agrees to honor these requests to the extent practicable.
Clients may request that the Investment Manager only effect transactions with
the specified broker-dealers if the broker-dealers are competitive as to price
and execution. Where the request is not so conditioned, the Investment Manager
may be unable to negotiate commissions or obtain volume discounts or best
execution. In cases where the Investment Manager is requested to use a
particular broker-dealer, different commissions may be charged to clients making
the requests. A client who requests the use of a particular broker-dealer should
understand that it may lose the possible advantage which non-requesting clients
derive from aggregation of orders for several clients
44
<PAGE>
as a single transaction for the purchase or sale of a particular security. Among
other reasons why best execution may not be achieved with directed brokerage is
that, in an effort to achieve orderly execution of transactions, execution of
orders that have designated particular brokers may, at the discretion of the
trading desk, be delayed until execution of other non-designated orders have
been completed.
When more than one client of the Investment Manager is seeking to buy or
sell the same security, the sale or purchase is carried out in a manner which is
considered fair and equitable to all accounts. In allocating investments among
various clients (including in what sequence orders for trades are placed), the
Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the size of the order, the amount already
committed for each client to a specific investment and the relative risks of the
investments, all in order to provide on balance a fair and equitable result to
each client over time. Although sharing in large transactions may sometimes
affect price or volume of shares acquired or sold, overall it is believed there
may be an advantage in execution. The Investment Manager may follow the practice
of grouping orders of various clients for execution to get the benefit of lower
prices or commission rates. In certain cases where the aggregate order may be
executed in a series of transactions at various prices, the transactions are
allocated as to amount and price in a manner considered equitable to each so
that each receives, to the extent practicable, the average price of such
transactions. Exceptions may be made based on such factors as the size of the
account and the size of the trade. For example, the Investment Manager may not
aggregate trades where it believes that it is in the best interests of clients
not to do so, including situations where aggregation might result in a large
number of small transactions with consequent increased custodial and other
transactional costs which may disproportionately impact smaller accounts. Such
disaggregation, depending on the circumstances, may or may not result in such
accounts receiving more or less favorable execution relative to other clients.
Subject to the policy of seeking best overall price and execution, sales of
shares of the Fund and other State Street Research Funds may be considered by
the Investment Manager in the selection of broker-dealer firms for the Fund's
portfolio transactions.
CERTAIN TAX MATTERS
Taxation Of The Fund--In General
- --------------------------------
The Fund intends to qualify and elects to be treated each taxable year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), although it cannot give complete assurance
that it will qualify to do so. Accordingly, the Fund must, among other things,
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
45
<PAGE>
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); and (b) satisfy certain
diversification requirements on a quarterly basis.
If in any year the Fund derives more than 10% of its gross income (as
defined in the Code, which disregards losses for that purpose) from investments
made directly in commodities, including precious metal investments, or
commodity-related options, futures or indices, the Fund in such year may fail to
qualify as a regulated investment company under the Code. The Investment Manager
intends to manage the Fund's portfolio so as to minimize the risk of such
disqualification.
If the Fund should fail to qualify as a regulated investment company in any
year, it would lose the beneficial tax treatment accorded regulated investment
companies under Subchapter M of the Code and all of its taxable income would be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of the Fund's current or
accumulated earnings and profits. Also, the shareholders, if they received a
distribution in excess of current or accumulated earnings and profits, would
receive a return of capital that would reduce the basis of their shares of the
Fund to the extent thereof. Any distribution in excess of a shareholder's basis
in the shareholder's shares would be taxable as gain realized from the sale of
such shares.
The Fund will be liable for a nondeductible 4% excise tax on amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement. To avoid the tax, during each calendar year, the Fund must
distribute, or be deemed to have distributed, an amount equal to the sum of (1)
at least 98% of its ordinary income (not taking into account any capital gains
or losses) for the calendar year, (2) at least 98% of its capital gains in
excess of its capital losses (adjusted for certain ordinary losses) for the
12-month period ending on October 31 of the calendar year and (3) all ordinary
income and capital gains for previous years that were not distributed during
such years. For this purpose, any income or gain retained by the Fund that is
subject to corporate tax will be considered to have been distributed by
year-end. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
Taxation Of The Fund's Investments
- ----------------------------------
Original Issue Discount; Market Discount. For federal income tax purposes,
debt securities purchased by the Fund may be treated as having original issue
discount. Original issue discount represents interest for federal income tax
purposes and can generally be defined as the excess of the stated redemption
price at maturity of a debt obligation over the issue price. Original issue
discount is treated for federal income tax purposes as income earned by the
Fund, whether or not any cash is actually received, and therefore is subject to
the distribution requirements of the Code. Generally, the amount of original
issue discount is determined on the basis of a constant yield to maturity which
takes into account the
46
<PAGE>
compounding of accrued interest. Under section 1286 of the Code, an investment
in a stripped bond or stripped coupon may result in original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds the
original issue discount, if any, at the time the Fund purchases the securities.
This additional discount represents market discount for federal income tax
purposes. In the case of any debt security having a fixed maturity date of more
than one year from the date of issue and having market discount, the gain
realized on disposition will be treated as interest to the extent it does not
exceed the accrued market discount on the security (unless the Fund elects to
include such accrued market discount in income in the tax year to which it is
attributable). For debt securities acquired before May 1, 1993, this rule
applies only if the debt security was issued after July 18, 1984. Generally,
market discount is accrued on a daily basis. The Fund may be required to
capitalize, rather than deduct currently, part or all of any direct interest
expense incurred to purchase or carry any debt security having market discount,
unless the Fund makes the election to include market discount in income
currently. Because the Fund must include original issue discount in income, it
may need to liquidate securities to generate cash needed to make the
distributions required for the Fund to maintain its status as a regulated
investment company under Subchapter M of the Code or to avoid the 4% excise tax
described above.
Options and Futures Transactions. Certain of the Fund's investments may be
subject to provisions of the Code that (i) require inclusion of unrealized gains
or losses in the Fund's income for purposes of the 90% test, and require
inclusion of unrealized gains in the Fund's income for purposes of the excise
tax and the distribution requirements applicable to regulated investment
companies; (ii) defer recognition of realized losses; and (iii) characterize
both realized and unrealized gain or loss as short-term and long-term gain ,
irrespective of the holding period of the investment. Such provisions generally
apply to, among other investments, options on debt securities, indices on
securities and futures contracts. The Fund will monitor its transactions and may
make certain tax elections available to it in order to mitigate the impact of
these rules and prevent disqualification of the Fund as a regulated investment
company.
Gains or losses attributable to fluctuations in exchange rates that occur
between the time the Fund accrues income or expenses denominated in a foreign
currency and the time the Fund actually collects such income or pays such
expenses are treated as ordinary income or loss. The portion of any gain or loss
on the disposition of a debt security denominated in a foreign currency that is
attributable to fluctuations in the value of the foreign currency during the
holding period of the debt security may likewise be treated as ordinary income
or loss. Such ordinary income or loss will increase or decrease the amount of
the Fund's net investment income.
If the Fund invests in the stock of certain "passive foreign investment
companies" ("PFICs"), income of such companies may become taxable to the Fund
prior to its distribution to the Fund or, alternatively, ordinary income taxes
and interest charges may be
47
<PAGE>
imposed on the Fund on "excess distributions" received by the Fund or on gain
from the disposition of such investments by the Fund. The Fund does not intend
to invest in PFICs. Because of the broad scope of the PFIC rules, however, there
can be no assurance that the Fund can avoid doing so.
Taxation Of The Fund's Shareholders
- -----------------------------------
The Fund may be subject to foreign taxes, including foreign income taxes.
If so, the Fund intends to meet the requirements of the Code for passing through
to its shareholders the tax benefit of foreign income taxes paid, although there
is no assurance that it will be able to do so. Under this provision, if more
than half of the value of the total assets of the Fund at the close of its
taxable year consists of stock or securities of foreign corporations, the Fund
will be eligible and intends to elect to pass through to its shareholders the
amount of foreign taxes it paid if such amounts are material. Pursuant to this
election, a United States shareholder will, in general, be required to (i)
include in gross income, in addition to taxable distributions actually received,
his or her pro rata share of the foreign taxes paid by the Fund, (ii) treat that
share of taxes as having been paid directly by him or her, and (iii) either
deduct such share of taxes or treat such share of taxes as a credit against
United States income tax liability. A tax-exempt shareholder will ordinarily not
benefit from this election.
Generally, a credit for foreign taxes paid by the Fund may not exceed a
shareholder's United States income tax attributable to the shareholder's foreign
source income. This limitation applies separately to different categories of
income, one of which is foreign-source passive income, which is likely to
include all of the foreign-source income of the Fund. As a result of these
limitations, some shareholders may not be able to utilize fully any foreign tax
credits generated by an investment in the Fund. The Fund will provide its
shareholders with information about the source of its income and the foreign
taxes it has paid for use in preparing the shareholder's United States income
tax return.
Dividends from domestic corporations are not expected to comprise a
substantial part of the income of the Fund. If such dividends are earned by the
Fund, then a portion of the dividends paid by the Fund may qualify for the 70%
deduction for dividends received which is available to corporate shareholders of
the Fund. Shareholders will be informed of any portion of the dividends paid by
the Fund which qualifies for this deduction. The dividends-received deduction is
reduced to the extent the dividends received are treated as debt-financed, under
the Code, and is eliminated if the stock is held for less than 46 days.
Any dividend declared in October, November or December and made payable to
shareholders of record in any such month is treated as received by such
shareholder on December 31, provided that the Fund pays the dividend during
January of the following calendar year.
Distributions by the Fund can result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost
48
<PAGE>
basis, such distribution nevertheless may be taxable to the shareholder as
ordinary income or long-term capital gain, even though, from an investment
standpoint, it may constitute a partial return of capital. In particular,
investors should be careful to consider the tax implications of buying shares
just prior to a taxable distribution. The price of shares purchased at that time
includes the amount of any forthcoming distribution. Those investors purchasing
shares just prior to a taxable distribution will then receive a return of
investment upon distribution which will nevertheless be taxable to them.
The foregoing discussion of United States federal income tax law relates
solely to the application of that law to United States persons, that is, United
States citizens and residents and United States corporations, partnerships,
trusts and estates. Each shareholder who is not a United States person should
consider the United States and foreign tax consequences of ownership of shares
of the Fund, including the possibility that such a shareholder may be subject to
United States withholding tax at a rate of up to 30% (or at a lower rate under
an applicable treaty) on distributions from the Fund.
Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this Statement of Additional Information in
light of their particular tax situations.
DISTRIBUTION OF SHARES OF THE FUND
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B(1), Class B and Class C shares). The Distributor may
reallow all or portions of such sales charges as concessions to dealers.
The Distributor received no sales charges on Class A shares for the period
November 30, 1998 (commencement of operations) through February 28, 1999.
For the same period, the Distributor reallowed no concessions to dealers.
The Distributor may also pay its affiliate MetLife Securities, Inc. additional
sales compensation of up to 0.25% of certain sales or assets.
The differences in the price at which the Fund's Class A shares are offered
due to scheduled variations in sales charges, or Class S shares are offered, as
described in the Fund's Prospectus, result from cost savings inherent in
economies of scale, among other factors. Management believes that the cost of
sales efforts of the Distributor and broker-dealers tends
49
<PAGE>
to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements, managed fee-based programs and
so-called "mutual fund supermarkets," among other special programs, the amount
of the sales charge reduction will similarly reflect the anticipated reduction
in sales expenses associated with such arrangements. The reductions in sales
expenses, and therefore the reduction in sales charges, will vary depending on
factors such as the size and other characteristics of the organization or
program, and the nature of its membership or the participants. The Fund reserves
the right to make variations in, or eliminate, sales charges at any time or to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
arrangements or similar programs at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
For the period November 30, 1998 (commencement of operations) through
February 28, 1999, the Distributor did not receive any contingent deferred sales
charges upon redemption of Class A, Class B(1), Class B or Class C shares of the
Fund and did not pay initial commissions to dealers for sales of such shares.
The Fund has adopted a Rule 12b-1 Plan (the "Distribution Plan") under
which the Fund shall pay the Distributor (a) a service fee at the end of each
month at the annual rate of 0.25% of average daily net assets attributable to
the Class A, Class B(1), Class B and Class C Shares to compensate the
Distributor and any securities firms or other third parties who render personal
services to and/or maintain shareholder accounts for the shareholders of the
respective class and (b) a distribution fee under the Distribution Plan at the
end of each month at the annual rate of 0.75% of average daily net assets
attributable to the Class B(1), Class B and Class C Shares to compensate the
Distributor for services provided and expenses incurred by it in connection with
sales, promotional and marketing activities relating to the respective class.
Any amounts not used in this manner may be retained by the Distributor as
50
<PAGE>
compensation. To the extent that any payments made by the Fund to the
Distributor or the Investment Manager, including payment of investment
management fees, should be deemed to be an indirect financing of any activity
primarily resulting in the sale of shares of the Fund within the scope of Rule
12b-1 under the 1940 Act, then such payments shall be deemed to be authorized by
the Distribution Plan. Payments to the Distributor or to dealers funded under
the Distribution Plan may be discontinued at any time.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits annual expenditures to 0.75% for distribution expenses and 0.25% for
service fees. The NASD Rule also limits the aggregate amount that the Fund may
pay for such distribution costs to 6.25% of gross share sales of a class since
the inception of any asset-based sales charge plus interest at the prime rate
plus 1% on unpaid amounts thereof (less any contingent deferred sales charges).
Such limitation does not apply to service fees.
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance or servicing of
shareholder accounts by such dealers. Dealers who have sold Class A shares are
eligible for further reimbursement commencing as of the time of such sale.
Dealers who have sold Class B(1), Class B and Class C shares are eligible for
further reimbursement after the first year during which such shares have been
held of record by such dealer as nominee for its clients (or by such clients
directly).
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares and for other sales and
marketing expenditures.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs similar
expenses on behalf of, such other funds. When expenses of the Distributor cannot
be identified as relating to a specific fund, the Distributor allocates expenses
among the funds in a manner deemed fair and equitable to each fund.
The payment of service and distribution fees may continue even if the Fund
ceases, temporarily or permanently, to sell one or more classes of shares to new
accounts. During the period the Fund is closed to new accounts, the distribution
fee will not be used for promotion expenses. The service and distribution fees
are used during a closed period to cover services provided to current
shareholders and to cover the compensation of financial professionals in
connection with the prior sale of Fund shares, among other non-promotional
distribution expenditures.
The Distributor may pay certain dealers and other intermediaries additional
compensation for sales and administrative services. The Distributor may provide
cash and noncash incentives to intermediaries who, for example, sell significant
amounts of shares or
51
<PAGE>
develop particular distribution channels. The Distributor may compensate dealers
with clients who maintain their investments in the Fund over a period of years.
The incentives can include merchandise and trips to, and attendance at, sales
seminars at resorts. The Distributor may pay for administrative services, such
as technological and computer systems support for the maintenance of pension
plan participant records, for subaccounting, and for distribution through mutual
fund supermarkets or similar arrangements.
During the period November 30, 1998 (commencement of operations) through
February 28, 1999, the Fund paid the Distributor fees under the Distribution
Plan and the Distributor used all such payments for expenses incurred on behalf
of the Fund as follows:
<TABLE>
<CAPTION>
Class A Class B(1) Class B Class C
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Advertising $ 2 $ 0 $ 0 $ 0
Printing and mailing of prospectuses $ 1 $ 0 $ 0 $ 0
to other than current shareholders
Compensation to dealers $ 0 $ 0 $ 0 $ 0
Compensation to sales personnel $ 154 $ 589 $ 503 $ 617
Interest $ 0 $ 0 $ 0 $ 0
Carrying or other financing charges $ 0 $ 0 $ 0 $ 0
Other expenses: marketing; general $ 148 $ 624 $ 257 $ 596
------- ---------- ------- -------
Pending allocation* $ $ $ 453 $
------- ---------- ------- -------
Total fees received $ 305 $ 1,213 $ 1,213 $ 1,213
======= ========== ======= =======
</TABLE>
- --------------------
* To be allocated against pending expenditures
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as prohibiting
banks and other depository institutions from being paid for performing services
under the Distribution Plan, the Fund will make alternative arrangements for
such services for shareholders who acquired shares through such institutions.
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<PAGE>
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(1), Class B, Class C or Class S shares to the performance of other
mutual funds with similar investment objectives, to certificates of deposit
and/or to other financial alternatives. The Fund may also compare its
performance to appropriate indices, such as Standard & Poor's 500 Composite
Stock Price Index, Consumer Price Index and Dow Jones Industrial Average and/or
to appropriate rankings and averages such as those compiled by Lipper Analytical
Services, Inc., Morningstar, Inc., Money Magazine, Business Week, Forbes
Magazine, The Wall Street Journal and Investor's Daily. For example, the
performance of the Fund might be compared to the Lipper Small Cap Value Funds
Average or the Russell 2000 Value Index.
The average annual total return ("standard total return") of the Class A,
Class B(1), Class B, Class C and Class S shares of the Fund will be calculated
as set forth below. Total return is computed separately for each class of shares
of the Fund.
All calculations of performance data in this section reflect the voluntary
measures, if any, by the Fund's affiliates to reduce fees or expenses relating
to the Fund; see "Accrued Expenses and Recurring Charges" later in this section.
Total Return
The average annual total return ("standard total return") of each class of
the Fund's shares was as follows:
<TABLE>
<CAPTION>
November 30,
(commencement of operations)
to February 28, 1999
Aggregate
Total Return
(Not Annualized)*
<S> <C>
Class A -10.55%
Class B(1) -10.04%
Class B -10.04%
Class C -6.25%
Class S -5.09%
</TABLE>
53
<PAGE>
* Reflects maximum sales charges, if any.
The numbers shown above in the column entitled "SEC Total Return
(Annualized)*" result from the annualization of actual returns for the
approximately 91-day period involved and should be interpreted carefully since
annualization in this instance presumes that the performance for the 91-days
continues for a full year.
Standard total return is computed separately for each class of shares by
determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
designated period assuming a hypothetical
$1,000 payment made at the beginning of the
designated period
The calculation is based on the further assumptions that the highest
applicable initial or contingent deferred sales charge is deducted, and that all
dividends and distributions by the Fund are reinvested at net asset value on the
reinvestment dates during the periods. All accrued expenses and recurring
charges are also taken into account as described later herein.
Accrued Expenses and Recurring Charges
- --------------------------------------
Accrued expenses include all recurring charges that are charged to all
shareholder accounts during the base period. The standard total return results
take sales charges, if applicable, into account, although the results do not
take into account recurring and nonrecurring charges for optional services which
only certain shareholders elect and which involve nominal fees, such as the
$7.50 fee for wire orders.
Accrued expenses are determined without giving effect to the subsidization,
if any, by affiliates of fees or expenses during the subject period. In
calculating performance, the accrued expenses are reduced by the amount of any
subsidy. In the absence of such subsidization, the performance of the Fund would
be lower.
54
<PAGE>
Nonstandardized Total Return
- ----------------------------
The Fund may provide the above described standard total return results for
Class A, Class B(1), Class B, Class C and Class S shares for periods which end
no earlier than the most recent calendar quarter end and which begin twelve
months before, five years before and at the time of commencement of the Fund's
operations. In addition, the Fund may provide nonstandardized total return
results for differing periods, such as for the most recent six months, and/or
without taking sales charges into account. Such nonstandardized total return is
computed as otherwise described under "Total Return" except the result may or
may not be annualized, and as noted any applicable sales charge may not be taken
into account and therefore not deducted from the hypothetical initial payment of
$1,000. For example, the Fund's nonstandardized total returns for the period
November 30, 1998 (commencement of operations) through February 28, 1999 without
taking sales charges into account, were as follows:
<TABLE>
<S> <C>
Class A -5.09%
Class B(1) -5.30%
Class B -5.30%
Class C -5.30%
Class S -5.09%
</TABLE>
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as the Trust's independent accountants, providing professional
services including (1) audits of the Fund's annual financial statements, (2)
assistance and consultation in connection with SEC filings and (3) review of the
annual income tax returns filed on behalf of the Fund.
55
<PAGE>
FINANCIAL STATEMENTS
The Fund's financial statements for the period November 30, 1998
(commencement of operations) through February 28, 1999, including the Investment
Portfolio, Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets, Notes to Financial Statement, Financial
Highlights and Report of Independent Accountants are hereby incorporated by
reference from the Fund's Annual Report, filed with the Securities and Exchange
Commission (EDGAR accession number 0000950156-99-000337).
In addition to the reports provided to holders of record on a semiannual
basis, other supplementary financial reports may be made available from time to
time through electronic or other media. Shareholders with substantial holdings
in one or more State Street Research Funds may also receive reports and other
information which reflect or analyze their positions in a consolidated manner.
Shareholder reports are available without charge upon request. For more
information, call The State Street Research Service Center at (800) 562-0032.
DOCSC\ 658063.7
56
<PAGE>
STATE STREET RESEARCH FINANCIAL TRUST
PART C
OTHER INFORMATION
Item 23. Exhibits*
(1)(a) First Amended and Restated Master Trust Agreement and
Amendment No. 1 and Amendment No. 2 to First Amended and
Restated Master Trust Agreement (9)
(1)(b) Amendment No. 3 to First Amended and Restated Master Trust
Agreement(10)
(1)(c) Amendment No. 4 to First Amended and Restated Master Trust
Agreement(12)
(1)(d) Amendment No. 5 to the First Amended and Restated Master Trust
Agreement(12)
(2)(a) By-Laws of the Registrant(1)**
(2)(b) Amendment No. 1 to By-Laws effective September 30, 1992(4)**
(2)(c) Amendment No. 2 to By-Laws(17)
(3) Not applicable
(4) Deleted
(5)(a) Advisory Agreement with MetLife - State Street Investment
Services, Inc.(2)**
(5)(c) Transfer and Assumption of Responsibilities and Rights relating
to the Advisory Agreement between State Street Financial
Services, Inc. and State Street Research & Management
Company(4)**
(5)(d) Letter Agreement with respect to the Advisory Agreement
relating to MetLife - State Street Research Balanced Fund(6)**
C-1
<PAGE>
(5)(e) Letter Agreement with respect to the Advisory Agreement
relating to State Street Research Strategic Portfolios:
Conservative and State Street Research Strategic Portfolios:
Aggressive(8)**
(5)(f) Letter Agreement with respect to the Advisory Agreement
relating to State Street Research IntelliQuant Portfolios:
Small-Cap Value(17)
(5)(g) Form of Letter Agreement with respect to the Advisory Agreement
relating to State Street Research International Equity Fund(17)
(6)(a) First Amended and Restated Distribution Agreement with State
Street Research Investment Services, Inc.(10)
(6)(b) Form of Selected Dealer Agreement(9)
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement(8)**
(6)(d) Form of Revised Supplement No. 1 to Selected Dealer
Agreement(10)
(6)(e) Letter Agreement with respect to the Distribution Agreement
relating to State Street Research IntelliQuant Portfolios:
Small-Cap Value(17)
(6)(f) Form of Letter Agreement with respect to the Distribution
Agreement relating to State Street Research International
Equity Fund(17)
(7) Not applicable
(8)(a) Custodian Contract with State Street Bank and Trust
Company(2)**
(8)(b) Letter Agreement with respect to Custodian Contract relating to
MetLife - State Street Research Balanced Fund(6)**
(8)(c) Letter Agreement with respect to the Custodian Contract
relating to State Street Research Strategic Portfolios:
Conservative and State Street Research Strategic Portfolios:
Aggressive(8)**
(8)(d) Amendment to the Custodian Contract with State Street Bank and
Trust Company(3)**
(8)(e) Letter Agreement with respect to the Custodian Contract
relating to State Street Research IntelliQuant Portfolios:
Small-Cap Value(17)
(8)(f) Data Access Services Addendum to Custodian Agreement(15)
(8)(g) Form of Letter Agreement with respect to the Custodian Contract
relating to State Street Research International Equity Fund(17)
(9) Not applicable
(10)(a) Opinion and consent of Goodwin, Procter & Hoar LLP(7)**
(10)(b) Opinion and Consent of Goodwin, Procter & Hoar LLP with respect
to State Street Research IntelliQuant Portfolios: Small-Cap
Value(12)
(10)(c) Opinion and Consent of Goowdin, Procter & Hoar LLP with respect
to State Street Research International Equity Fund(17)
(11)(a) Consent of PricewaterhouseCoopers LLP
C-2
<PAGE>
(11)(b) Consent of Deloitte & Touche LLP(17)
(12) Not applicable
(13)(a) Purchase Agreement and Investment Letter(1)**
(13)(b) Purchase Agreement and Investment Letter(2)**
(13)(c) Subscription and Investment Letter -- MetLife - State Street
Research Balanced Fund(6)**
(13)(d) Subscription and Investment Letters -- Street Research
Strategic Portfolios: Conservative and State Street Research
Strategic Portfolios: Aggressive(8)**
(14)(a) Deleted
(14)(b) Deleted
(14)(c) Deleted
(15)(a) Amended and Restated Plan of Distribution Pursuant to Rule
12b-1(5)**
(15)(b) Letter Agreement with respect to Amended and Restated Plan of
Distribution Pursuant to Rule 12b-1 relating to MetLife State
Street Research Balanced Fund(6)**
(15)(c) Letter Agreement with respect to Amended and Restated Plan of
Distribution Pursuant to Rule 12b-1 relating to State Street
Research Strategic Portfolios: Conservative and State Street
Research Strategic Portfolios: Aggressive(8)**
(15)(d) Rule 12b-1 Plan for State Street Research IntelliQuant
Portfolios: Small-Cap Value(17)
(15)(e) Rule 12b-1 Plan for Class B(1) shares relating to State Street
Research Government Income Fund, State Street Research
Strategic Portfolios: Conservative, State Street Research
Strategic Portfolios: Moderate and State Street Research
Strategic Portfolios: Aggressive(15)
(15)(f) Form of Letter Agreement with respect to Amended and Restated
Plan of Distribution Pursuant to Rule 12b-1 relating to State
Street Research International Equity Fund(17)
(15)(g) Form of Letter Agreement with respect to Rule 12b-1 Plan for
Class B(1) shares relating to State Street Research
International Equity Fund(17)
(16)(a) Deleted
(16)(b) Deleted
(16)(c) Deleted
(17)(a) First Amended and Restated Multiple Class Expense Allocation
Plan Adopted Pursuant to Rule 18f-2(10)
(17)(b) Addendum to First Amended and Restated Multiple Class Expense
Allocation Plan Adopted Pursuant to Rule 18f-3(17)
(18)(a) Powers of Attorney(11)
(18)(b) Power of Attorney for Susan M. Phillips(13)
(18)(c) Power of Attorney for Bruce R. Bond
C-3
<PAGE>
(19) Certificate of Board Resolution Respecting Powers of
Attorney
(20)(a) New Account Application(14)
(20)(b) Additional Services Application(14)
(20)(c) MetLife Securities, Inc. New Account Application(14)
(27)(a) deleted
(27)(b) deleted
- ----------------
* MetLife - State Street Investment Services, Inc. changed its name to State
Street Financial Services, Inc. effective as of June 18, 1992, and
subsequently changed its name to State Street Research Investment Services,
Inc. effective October 28, 1992. Documents in this listing of Exhibits
which were effective prior to the most recent name change accordingly refer
to MetLife - State Street Investment Services, Inc. or State Street
Financial Services, Inc. The Series of the Registrant have changed their
names at various times. Documents in this listing of Exhibits which were
immediately effective prior to the most recent name change accordingly
refer to a prior name of a series.
** Restated in electronic format in Post-Effective Amendment No. 17 filed
on December 31, 1997.
C-4
<PAGE>
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
<TABLE>
<CAPTION>
Footnote Securities Act of 1933
Reference Registration/Amendment Date Filed
<S> <C> <C>
1 Initial Registration November 21, 1986
2 Pre-Effective Amendment No. 1 February 13, 1987
3 Post-Effective Amendment No. 3 February 22, 1989
4 Post-Effective Amendment No. 7 February 26, 1993
5 Post-Effective Amendment No. 9 July 8, 1993
6 Post-Effective Amendment No. 10 February 9, 1994
7 Post-Effective Amendment No. 11 February 18, 1994
8 Post-Effective Amendment No. 13 November 30, 1994
9 Post-Effective Amendment No. 15 December 28, 1995
10 Post-Effective Amendment No. 16 February 27, 1997
11 Post-Effective Amendment No. 17 December 31, 1997
12 Post-Effective Amendment No. 19 August 19, 1998
13 Post-Effective Amendment No. 20 November 17, 1998
14 Post-Effective Amendment No. 21 November 27, 1998
15 Post-Effective Amendment No. 22 December 29, 1998
16 Post-Effective Amendment No. 23 February 12, 1999
17 Post-Effective Amendment No. 24 May 3, 1999
</TABLE>
Item 24. Persons Controlled by or under Common Control with Registrant
Not applicable.
C-5
<PAGE>
Item 25. Indemnification
Under Article VI of the Registrant's Master Trust Agreement each of its
Trustees and officers or persons serving in such capacity with another entity at
the request of the Registrant ("Covered Person") shall be indemnified against
all liabilities, including, but not limited to, amounts paid in satisfaction of
judgments, in compromises or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered Person, in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such person may be or may have been involved as a
party or otherwise or with which such Covered Person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, director or trustee, except with respect to any
matter as to which it has been determined that such Covered Person had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office (such conduct
referred to hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before which the proceeding was brought that the
person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of a court action or an administrative proceeding against a Covered
Person for insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable
C-6
<PAGE>
by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Registrant as defined in
section 2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion.
Under the Distribution Agreement between the Registrant and State Street
Research Investment Services, Inc., the Registrant's distributor, the Registrant
has agreed to indemnify and hold harmless State Street Research Investment
Services, Inc. and each person who has been, is, or may hereafter be an officer,
director, employee or agent of State Street Research Investment Services, Inc.
against any loss, damage or expense reasonably incurred by any of them in
connection with any claim or in connection with any action, suit or proceeding
to which any of them may be a party, which arises out of or is alleged to arise
out of or is based upon a violation of any of its covenants herein contained or
any untrue or alleged untrue statement of material fact, or the omission or
alleged omission to state a material fact necessary to make the statements made
not misleading, in a Registration Statement or Prospectus of the Registrant, or
any amendment or supplement thereto, unless such statement or omission was made
in reliance upon written information furnished by State Street Research
Investment Services, Inc.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to trustees, officers, underwriters
and controlling persons of the Registrant, pursuant to Article VI of the
Registrant's Master Trust Agreement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
C-7
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
State Street Research & Investment Adviser Various investment advisory Boston, MA
Management Company clients
Arpiarian, Tanya None
Vice President
Bangs, Linda L. None
Vice President
Barnwell, Amy F.
Vice President
Beaudry, Matthew F. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice
President
Bennett, Peter C. Vice President State Street Research Capital Trust Boston, MA
Director and Vice President State Street Research Exchange Trust Boston, MA
Executive Vice Vice President State Street Research Financial Trust Boston, MA
President Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Director State Street Research Investment Services, Inc. Boston, MA
Director and Chairman Boston Private Bank & Trust Co. Boston, MA
of Exec. Comm.
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Bochman, Kathleen None
Vice President
Borzilleri, John None
Senior Vice President
(Vice President
until 4/98)
Bray, Michael J. None
Senior Vice President
(Vice President
until 4/98)
Brezinski, Karen None
Vice President
Brown, Susan H. None
Vice President
Buffum, Andrea L. None
Vice President
Burbank, John F. None
Senior Vice President
Cabrera, Jesus A. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
(Vice President
until 4/98)
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Calame, Mara D. Vice President and State Street Research Energy, Inc. Boston, MA
Vice President and Assistant Counsel
Assistant Secretary
Canavan, Joseph W. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President Assistant Treasurer State Street Research Income Trust Boston, MA
until 4/98) Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust Boston, MA
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
Carstens, Linda C. Vice President State Street Research Investment Boston, MA
Vice President Services, Inc.
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Senior Vice President
Coleman, Thomas J. None
Vice President
Cullen, Terrence J. Vice President Keystone-Evergreen Boston, MA
Vice President and Counsel
and Assistant (until 2/98)
Secretary Vice President and State Street Research Investment Services, Inc. Boston, MA
Assistant Counsel
D'Vari, Ronald None
Senior Vice President
Depp, Maureen G. Vice President Wellington Management Company Boston, MA
Vice President (until 9/97)
DeVeuve, Donald None
Vice President
DiFazio, Susan M.W. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Dillman, Thomas J. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Drake, Susan W. None
Vice President
Dudley, Catherine Senior Portfolio Manager Chancellor Capital Management Boston, MA
Senior Vice President (until 2/98)
Duggan, Peter J. None
Senior Vice President
Ebel, Bruce A. Vice President Loomis, Sayles & Company, L.P. Chicago, IL
Senior Vice President (since 3/99)
Egel, David J. Vice President Sun Life of Canada Boston, MA
Vice President (since 4/98)
Vice President State Street Research Investment Services, Inc. Boston, MA
Even, Karen K. None
Vice President
Fazo, Steven A. None
Vice President
Federoff, Alex G. None
Vice President
Fee, Richard E. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Feliciano, Rosalina None
Vice President
Ficco, Bonnie A. None
Vice President
Fochtman, Jr., Leo None
Vice President
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Gardner, Michael D. None
Senior Vice President
Geer, Bartlett R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Giroux, June M. None
Vice President
Goodman, Stephanie B. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Govoni, Electra None
Vice President
Grace, Evan None
Vice President
Granger, Allison None
Vice President
Haggerty, Bryan D. None
Vice President
Hamilton, Jr., William A. Treasurer and Director Ellis Memorial and Eldredge House Boston, MA
Senior Vice President Treasurer and Director Nautical and Aviation Publishing Company, Inc. Baltimore, MD
Treasurer and Director North Conway Institute Boston, MA
Hasson, Ira P. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Haverty, Jr., Lawrence J. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
Heineke, George R. None
Vice President
Hickman, Joanne Managing Director Zurich Investment Management Chicago, IL
Senior Vice President (until 1/98)
Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Huang, Jesse C. None
Vice President
Jackson, Jr., Vice President State Street Research Equity Trust Boston, MA
F. Gardner Trustee Certain trusts of related and
Senior Vice President non-related individuals
Trustee and Chairman of the Vincent Memorial Hospital Boston, MA
Board
Jamieson, Frederick H. Vice President and
Senior Vice President Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Vice President and Asst.
Treasurer SSRM Holdings, Inc. Boston, MA
Jodka, Richard Portfolio Manager Frontier Capital Management Boston, MA
Senior Vice President (until 1/98)
Vice President State Street Research Capital Trust Boston, MA
Joseph, Robert I. None
Vice President
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Kallis, John H. Vice President State Street Research Financial Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Money Market Trust Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Kasper, M. Katherine Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Kern, Stephen None
Vice President
Kiessling, Dyann H. Vice President State Street Research Money Market Trust Boston, MA
Vice President
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
(Vice President
until 4/98)
Kuhn, Stephen P. None
Vice President
Langholm, Knut Director State Street Research Luxembourg
Senior Vice President
Leary, Eileen M. None
Vice President
Lomasney, Mary T. None
Vice President
Marinella, Mark A. Portfolio Manager STW Fixed Income Management, Ltd. Boston, MA
Senior Vice President (Until 8/98)
Markel, Gregory S. None
Vice President
Maurer, Jacqueline J. None
Vice President
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
McKown, Elizabeth Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
McNamara, III, Francis J. Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Executive Vice Clerk and General Counsel
President, Secretary Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
and General Counsel Secretary and General Counsel State Street Research Capital Trust Boston, MA
Secretary and General Counsel State Street Research Exchange Trust Boston, MA
Secretary and General Counsel State Street Research Growth Trust Boston, MA
Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel State Street Research Equity Trust Boston, MA
Secretary and General Counsel State Street Research Financial Trust Boston, MA
Secretary and General Counsel State Street Research Income Trust Boston, MA
Secretary and General Counsel State Street Research Money Market Trust Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
Maus, Gerard P. Treasurer State Street Research Equity Trust Boston, MA
Director, Executive Treasurer State Street Research Financial Trust Boston, MA
Vice President Treasurer State Street Research Income Trust Boston, MA
Treasurer, Chief Treasurer State Street Research Money Market Trust Boston, MA
Financial Officer and Treasurer State Street Research Tax-Exempt Trust Boston, MA
Chief Administrative Treasurer State Street Research Capital Trust Boston, MA
Officer Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice State Street Research Investment Services, Inc. Boston, MA
President, Treasurer and
Chief Financial Officer
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Treasurer and Chief SSRM Holdings, Inc. Boston, MA
Financial Officer
Director State Street Research Luxembourg
Milder, Judith J. None
Senior Vice President
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
</TABLE>
C-12
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Moore, Jr., Thomas P. Vice President State Street Research Equity Trust Boston, MA
Senior Vice Director Hibernia Savings Bank Quincy, MA
President Governor on the Board Association for Investment Management Charlottesville, VA
of Governors and Research
Morey, Andrew None
Vice President
Mulligan, JoAnne C. None
Senior Vice President
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
Paddon, Steven W. None
Vice President
Pannell, James C. None
Executive Vice President
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Pierce, James D. None
Vice President
Poritzky, Dean E. None
Vice President
Pyle, David J. None
Vice President
Ragsdale, E.K. Easton Vice President State Street Research Financial Trust Boston, MA
Senior Vice President
Ransom, Clifford Director of NatWest Markets
Vice President Special Situations
Rawlins, Jeffrey A. None
Senior Vice President
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
</TABLE>
C-13
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Romich, Douglas A. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President Assistant Treasurer State Street Research Income Trust Boston, MA
until 4/98) Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust Boston, MA
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Ryan, Michael J. Vice President Delaware Management Philadelphia, PA
Senior Vice President (until 1/98)
Sanderson, Derek Senior Vice President Freedom Capital Management Boston, MA
Senior Vice President (until 10/97)
Saperstone, Paul None
Vice President
Schrage, Michael None
Vice President
Schultz, David C. Director and Treasurer Mafraq Hospital Association Mafraq, Jordan
Executive Vice President Member Association of Investment
Management Sales Executives Atlanta, GA
Member, Investment Committee Lexington Christian Academy Lexington, MA
Shaver, Jr. C. Troy President, Chief State Street Research Investment Services, Inc. Boston, MA
Executive Vice Executive Officer and
President Executive Vice President
Shean, William G. None
Vice President
Shively, Thomas A. Vice President State Street Research Financial Trust Boston, MA
Director and Vice President State Street Research Money Market Trust Boston, MA
Executive Vice Vice President State Street Research Tax-Exempt Trust Boston, MA
President Director State Street Research Investment Services, Inc Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Shoemaker, Richard D. None
Senior Vice President
Simi, Susan None
Vice President
Stambaugh, Kenneth None
Vice President
(Assistant Vice
President until 9/97)
Strelow, Dan R. None
Senior Vice President
</TABLE>
C-14
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Stolberg, Thomas None
Vice President
Swanson, Amy McDermott None
Senior Vice President
Tice, Robyn S. None
Vice President
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
Verni, Ralph F. Chairman, President, Chief State Street Research Capital Trust Boston, MA
Chairman, President, Executive Officer and Trustee
Chief Executive Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Growth Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Master Investment Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Securities Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Equity Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Financial Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Income Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Money Market Trust Boston, MA
Executive Officer and Director
Chairman, President, Chief State Street Research Tax-Exempt Trust Boston, MA
Executive Officer and Trustee
Chairman and Director State Street Research Investment Services, Inc. Boston, MA
(President and Chief Executive
Officer until 2/96)
Chairman and Director Metric Holdings, Inc. San Francisco, CA
Director and Officer Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Chairman of the Board MetLife Securities, Inc. New York, NY
and Director (until 1/97)
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director Colgate University Hamilton, NY
Director State Street Research Luxembourg
Chairman and Director SSR Realty Advisors, Inc. San Francisco, CA
</TABLE>
C-15
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Wade, Dudley Vice President State Street Research Growth Trust Boston, MA
Freeman Vice President State Street Research Master Investment Trust Boston, MA
Senior Vice
President
Wallace, Julie K. None
Vice President
Walsh, Denis J. None
Vice President
Walsh, Tucker None
Vice President
Watts, Evan D., Jr. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Weiss, James M. Vice President State Street Research Exchange Trust Boston, MA
Executive Vice President Vice President State Street Research Financial Trust Boston, MA
(Senior Vice President) Vice President State Street Research Growth Trust Boston, MA
until 6/98) Vice President State Street Research Securities Trust Boston, MA
Vice President State Street Research Capital Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Welch, Timothy M. None
Vice President
Westvold, Vice President State Street Research Securities Trust Boston, MA
Elizabeth McCombs
Senior Vice President
Wilkins, Kevin Senior Vice President State Street Research Investment Boston, MA
Senior Vice President (Vice President until 9/98) Services, Inc.
(Vice President
until 9/98)
Wilson, John T. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Master Investment Trust Boston, MA
(Vice President
until 4/98)
</TABLE>
C-16
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Senior Vice President, Asst. Clerk
Assistant Secretary Assistant Secretary and State Street Research Capital Trust Boston, MA
and Assistant Assistant General Counsel
General Counsel Assistant Secretary and State Street Research Exchange Trust Boston, MA
(Vice President Assistant General Counsel
until 4/98) Assistant Secretary and State Street Research Growth Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Master Investment Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Securities Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Equity Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Financial Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Income Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Money Market Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Tax-Exempt Trust Boston, MA
Assistant General Counsel
Assistant Secretary and SSRM Holdings, Inc. Boston, MA
Assistant General Counsel
Woodbury, Robert S. None
Vice President
Woodworth, Jr., Kennard Vice President State Street Research Exchange Trust Boston, MA
Senior Vice Vice President State Street Research Growth Trust Boston, MA
President Vice President State Street Research Securities Trust Boston, MA
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
Zuger, Peter A. Vice President State Street Research Equity Trust Boston, MA
Senior Vice Portfolio Manager American Century
President (until 9/98) Investment Management
</TABLE>
C-17
<PAGE>
Item 27. Principal Underwriters
(a) State Street Research Investment Services, Inc. serves as principal
underwriter for State Street Research Equity Trust, State Street Research
Financial Trust, State Street Research Income Trust, State Street Research Money
Market Trust, State Street Research Tax-Exempt Trust, State Street Research
Capital Trust, State Street Research Growth Trust, State Street Research Master
Investment Trust, State Street Research Securities Trust, State Street Research
Portfolios, Inc. and State Street Research Institutional Funds.
(b) Directors and Officers of State Street Research Investment
Services, Inc. are as follows:
(1) (2) (3)
Positions Positions
Name and Principal and Offices and Offices
Business Address with Underwriter with Registrant
Ralph F. Verni Chairman of the Chairman of
One Financial Center Board and Director the Board,
Boston, MA 02111 President,
Chief Executive
Officer and
Trustee
Peter C. Bennett Director Vice President
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice Treasurer
One Financial Center President, Treasurer,
Boston, MA 02111 Chief Financial
Officer, Chief
Administrative Officer
and Director
Thomas A. Shively Director Vice President
One Financial Center
Boston, MA 02111
C. Troy Shaver, Jr. President, None
One Financial Center Chief Executive
Boston, MA 02111 Officer and
Executive Vice President
Francis J. McNamara, III Executive Vice Secretary
One Financial Center President, General Counsel
Boston, MA 02111 and Clerk
Matthew F. Beaudry Senior Vice President None
One Financial Center
Boston, MA 02111
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
C-18
<PAGE>
Paul V. Daly Senior Vice President None
One Financial Center
Boston, MA 02111
Susan M.W. DiFazio Senior Vice President None
One Financial Center
Boston, MA 02111
Joanne Hickman Senior Vice President None
One Financial Center
Boston, MA 02111
Russell A. Labrasca Senior Vice President None
One Financial Center
Boston, MA 02111
Joan D. Miller Senior Vice President None
One Financial Center
Boston, MA 02111
Kevin Wilkins Senior Vice President None
One Financial Center
Boston, MA 02111
Darman A. Wing Senior Vice President, Assistant
One Financial Center Assistant General Counsel Secretary
Boston, MA 02111 and Assistant Clerk
Amy F. Barnwell Vice President None
One Financial Center
Boston, MA 02111
Linda C. Carstens Vice President None
One Financial Center
Boston, MA 02111
Terrence J. Cullen Vice President and None
One Financial Center Counsel
Boston, MA 02111
David J. Egel Vice President None
One Financial Center
Boston, MA 02111
Richard E. Fee Vice President None
One Financial Center
Boston, MA 02111
Stephanie B. Goodman Vice President None
One Financial Center
Boston, MA 02111
Ira P. Hasson Vice President None
One Financial Center
Boston, MA 02111
Frederick H. Jamieson Vice President and None
One Financial Center Assistant Treasurer
Boston, MA 02111
M. Katharine Kasper Vice President None
One Financial Center
Boston, MA 02111
Elizabeth G. McKown Vice President None
One Financial Center
Boston, MA 02111
Amy L. Simmons Vice President Assistant
One Financial Center Secretary
Boston, MA 02111
Evan D. Watts, Jr. Vice President None
One Financial Center
Boston, MA 02111
C-19
<PAGE>
Item 28. Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 29. Management Services
Under a Shareholders' Administrative Services Agreement between the
Registrant and the Distributor, the Distributor provides shareholders'
administrative services, such as responding to inquiries and instructions from
investors respecting the purchase and redemption of shares of series of the
Registrant and received the amounts set forth below:
<TABLE>
<CAPTION>
Year-end Year-end Year-end
Fund 10/31/96 10/31/97 10/31/98
- ---- -------- -------- --------
<S> <C> <C>
Govt.Income $153,521 $144,064 $245,271
Fund
Strat. Port.: $ 16,492 $ 24,412 $ 35,756
Aggressive
Strat. Port.: $ 25,077 $ 38,744 $ 52,456
Moderate
Strat. Port.: $ 12,185 $ 14,920 $ 21,681
Conservative
International $ 88,147 $ 66,732 $ 79,618
Equity Fund
<CAPTION>
Year-end
2/28/99
--------
IntelliQuant Portfolios:
Small-Cap Value $ 1,234
</TABLE>
Item 30. Undertakings
(a) Inapplicable.
(b) Deleted.
(c) The Registrant undertakes to hold a special meeting of shareholders
for the purpose of voting upon the question of removal of any trustee or
trustees when requested in writing to do so by the record holders of not less
than 10 per centum of the outstanding shares of the Trust and, in connection
with such meeting, to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
(d) Deleted.
C-20
<PAGE>
NOTICE
A copy of the Master Trust Agreement of the Registrant is on file with
the Secretary of State of the Commonwealth of Massachusetts and notice is hereby
given that the obligations of the Registrant hereunder, and the authorization,
execution and delivery of this Registration Statement and Amendment, shall not
be binding upon any of the Trustees, shareholders, nominees, officers, assistant
officers, agents or employees of the Registrant as individuals or personally,
but shall bind only the property of the series of the Registrant, as provided in
the Master Trust Agreement. Each series of the Registrant shall be solely and
exclusively responsible for all of its direct or indirect debts, liabilities,
and obligations, and no other series shall be responsible for the same.
C-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 has duly caused this Post-Effective
Amendment No. 25 to its Registration Statement on Form N-1A to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 29th day of June, 1999.
STATE STREET RESEARCH FINANCIAL TRUST
By: *
-------------------------------------
Ralph F. Verni
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed on the
above date by the following persons in the capacities indicated:
* Trustee, Chairman of the Board
- ------------------------------------ and Chief Executive Officer
Ralph F. Verni (principal executive officer)
* Treasurer (principal financial
- ------------------------------------ and accounting officer)
Gerard P. Maus
*
- ------------------------------------ Trustee
Bruce R. Bond
*
- ------------------------------------ Trustee
Steve A. Garban
*
- ------------------------------------ Trustee
Malcolm T. Hopkins
* Trustee
- ------------------------------------
Dean O. Morton
* Trustee
- ------------------------------------
Susan M. Phillips
*
- ------------------------------------ Trustee
Toby Rosenblatt
* Trustee
- ------------------------------------
Michael S. Scott Morton
<PAGE>
*By: /s/ Francis J. McNamara, III
----------------------------
Francis J. McNamara, III,
Attorney-in-Fact under Powers of
Attorney incorporated by
reference from Post-Effective
Amendment No. 17 filed December 31, 1997, a
Power of Attorney incorporated by reference from
Post-Effective Amendment No. 20 filed November 17, 1998,
and under a Power of Attorney filed herein.
C-22
<PAGE>
1933 Act Registration No. 33-10327
1940 Act File No. 811-4911
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 25 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 26 [X]
--------------------
STATE STREET RESEARCH FINANCIAL TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
--------------------
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(11)(b) Consent of PricewaterhouseCoopers LLP
(18)(c) Power of Attorney for Bruce R. Bond
(19) Certificate of Resolution
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 25
to the registration statement (No. 33-10327) on Form N-1A (the "Registration
Statement") of our report dated April 9, 1999 relating to the financial
statements and financial highlights appearing in the February 28, 1999 Annual
Report of State Street Research IntelliQuant Portfolios: Small-Cap Value (a
series of State Street Research Financial Trust), which report is also
referenced in the Prospectus. We also consent to the reference to us under the
heading "Independent Accountants" in such Statement of Additional Information
and to the reference to us under the heading "Financial Highlights" in such
Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 29, 1999
POWER OF ATTORNEY
The undersigned, a Trustee of State Street Research Financial Trust
("Trust"), a Massachusetts business trust, hereby constitutes and appoints
Francis J. McNamara, III and Darman A. Wing as the true and lawful attorneys of
the undersigned, with full power to each of them alone to sign for the
undersigned, in the name and in the capacity of the undersigned indicated below,
any Registration Statements and any and all amendments thereto of the Trust
filed with the Securities and Exchange Commission and generally to do all such
things in the name and in the indicated capacity of the undersigned as are
required to enable the Trust to comply with provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming the signature of the undersigned as it has been and may
be signed by said attorneys to said Registration Statements, and any and all
amendments thereto.
IN WITNESS WHEREOF, executed the 29th day of June, 1999.
Signature Capacity
- --------- --------
/s/ Bruce R. Bond Trustee
- ----------------------
Bruce R. Bond
Certificate of Resolution
I, the undersigned Darman A. Wing, hereby certify that I am Assistant
Secretary of State Street Research Financial Trust (the "Trust"), a
Massachusetts business trust duly authorized and validly existing under
Massachusetts law, and that the following is a true, correct and complete
statement of a vote duly adopted by the Trustees of said Trust on May 5, 1995:
"VOTED: That Francis J. McNamara, III and Darman A. Wing be, and each
hereby is, authorized and empowered, for and on behalf of the
Trust, its principal financial and accounting officer, and in
their name, to execute, and file a Power of A ttorney relating
to, the Trust's Registration Statements under the Investment
Company Act of 1940 and/or the Securities Act of 1933, and
amendments thereto, the execution and delivery of such Power of
Attorney, Registration Statements and amendments thereto, to
constitute conclusive proof of such authorization."
I further certify that said vote has not been amended or revoked and
that the same is now in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand on this 29th day of
June, 1999.
/s/ Darman A. Wing
-----------------------
Assistant Secretary
