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As filed with the Securities and Exchange Commission on July 1, 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. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 27 [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)
[ ] On ____________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] On September 1, 1999 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 Strategic Portfolios: Conservative (the "Fund") series of State Street
Research Financial Trust (the "Registrant") are included herein. The Fund
intends to change its name to State Street Research Strategic Income Plus Fund
concurrent with the effectiveness of this Amendment to the Fund's Registration
Statement.
The Prospectus and Statement of Additional Information of the State Street
Research IntelliQuant Portfolios: Small-Cap Value series of the Registrant are
included in Post-Effective Amendment No. 25.
The Prospectus and Statement of Additional Information of the State Street
Research International Equity Fund series of Registrant are included in
Post-Effective Amendment No. 24.
The Prospectus and Statement of Additional Information of State Street
Research Strategic Portfolios: Moderate 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>
[Front Cover]
[Begin sidebar]
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
[End sidebar]
[STATE STREET RESEARCH Logo w/Line Art of Customs House]
Strategic Income Plus Fund
- --------------------------
An asset allocation fund
investing in a dynamic
mix of securities,
emphasizing bonds
Prospectus
September 1, 1999
<PAGE>
Contents
- --------------------------------------------------------------------------------
1 The Fund
----------
1 Goal and Strategies
2 Principal Risks
6 Volatility and Performance
8 Investor Expenses
10 Investment Management
11 Your Investment
-----------------
11 Opening an Account
11 Choosing a Share Class
13 Sales Charges
15 Dealer Compensation
16 Buying and Selling Shares
20 Account Policies
22 Distributions and Taxes
23 Investor Services
24 Other Information
------------------
24 Other Securities and Risks
26 Financial Highlights
28 Board of Trustees
Back Cover For Additional Information
<PAGE>
The Fund 1
- --------------------------------------------------------------------------------
[Graphic: Knight chess piece]
Goal and Strategies
Fundamental Goal The fund seeks to provide, primarily, a high level of current
income and, secondarily, long-term growth of capital, consistent with the
preservation of capital and reasonable investment risk, by allocating assets
across an actively managed, diversified mix of debt and equity securities.
Principal Strategies In managing its portfolio, the fund uses an asset
allocation strategy, investing under normal conditions approximately 70% of net
assets in government and corporate bonds, and mortgage-related and other debt
securities, and 30% in stocks. Drawing on its analysis of financial trends and
market conditions, the investment manager monitors and adjusts those allocations
from time to time. Generally, the fund will have from 60% to 80% of net assets
invested in bonds and from 20% to 40% invested in stocks.
Most debt held by the fund will be investment grade (bonds that, at the time of
purchase, are rated within or above the Standard & Poor's BBB or the Moody's Baa
major rating categories, or unrated but considered equivalent by the investment
manager). No more than 5% of net assets will be held in lower rated securities.
[Begin sidebar]
[Graphic: Magnifying glass on paper]
Who May Want To Invest
State Street Research Strategic Income Plus Fund is designed for investors who
seek one or more of the following:
o a foundation for a conservative, long-term portfolio
o professional asset allocation within a single fund
o a fund that is highly diversified
The fund is not appropriate for investors who:
o want to avoid even moderate volatility or possible losses
o are seeking either maximum growth or high income
o are making short-term investments
o are investing emergency reserve money
[End sidebar]
<PAGE>
2 The Fund continued
- --------------------------------------------------------------------------------
While most stocks held by the fund will be those of larger, more established
companies, the fund may invest in the full range of capitalization size
companies. The companies can represent growth as well as value investments.
For more information about the fund's investments and practices, see page 24.
[Graphic: Road sign]
Principal Risks
Because the fund pursues an asset allocation strategy, its major risks include
the risk that the fund will not correctly anticipate the relative performance of
different asset categories over specific periods. In such cases, the fund may
underperform other types of asset allocation investments or other types of
investments in general.
To the extent that the fund invests in bonds, it takes on the risks of bond
investing, including the ten-dency of prices to fall when interest rates rise.
The risk is greater for bonds with longer maturities.
A less significant risk is that the bond issuer could default on principal or
interest payments, causing a loss for the fund. Junk bonds have a higher risk of
default than investment grade bonds. In general, the risks associated with
investments in bonds are greater for securities with longer maturities.
Mortgage-related securities, which represent interests in pools of mortgages,
may offer attractive yields but generally carry additional risks. The prices and
yields of mortgage-related securities typically assume that the securities will
be redeemed at a given time before maturity. When interest rates fall
substantially, these securities can be redeemed early because the underlying
mortgages are often prepaid. The fund would then have to reinvest the money at a
lower rate.
<PAGE>
3
----
In addition, the price or yield of mortgage-related securities may fall if those
securities are redeemed later than expected.
To the extent that the fund invests in stocks, it takes on the risks of stock
investing, including sudden and unpredictable drops in value and the potential
for lackluster performance.
In addition, certain categories of stocks may involve particular types of risk.
Growth stocks generally are more sensitive to market movements than value
stocks, in part because their prices tend to reflect future expectations.
Larger, more established companies may be unable to respond as quickly to
competitive challenges. Stocks that appear to be trading below their true worth
may not achieve their expected values because the factors causing them to be
underpriced do not change.
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.
<PAGE>
4 The Fund continued
- --------------------------------------------------------------------------------
Information on other securities and risks appears on page 24.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
<PAGE>
5
----
[Graphic: Magnifying glass on paper]
What is Asset Allocation?
Asset allocation is a strategy used to apportion investments among categories of
assets, such as stocks, bonds and money market instruments. In many instances,
various categories will respond differently to economic conditions. To the
extent that they do, having a portfolio diversified across multiple categories
can help limit volatility by cushioning the impact of poor performance from any
one type of investment. Investing across several different asset categories also
can enhance long-term performance by capturing the opportunities available in
each area at different times.
Through an asset allocation fund, investors can benefit from the experience of a
professional manager who analyzes market and economic conditions to identify the
most promising asset classes. Some funds take a "market timer" approach, that
is, in varying degrees, they make shifts among asset classes in response to
short-term market conditions. Other funds, like this fund, take a more
structured approach to asset allocation, varying slightly from their "neutral"
proportions of stocks and bonds. In so doing, funds such as this fund tend to
avoid large, sudden shifts in the composition of their portfolios, taking a more
incremental approach to asset allocation by focusing on longer term market
conditions.
By pursuing an asset allocation strategy through diligent research and active
management, the fund is designed to be the cornerstone of a conservative
investor's long-term portfolio.
<PAGE>
6 Volatility and Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------
Year-by-Year Total Return (Class S) 1995 1996 1997 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
21.67 9.30 13.14 10.25
</TABLE>
Best quarter: first quarter 1995, up 6.87%
Worst quarter: second quarter 1998, down 0.82%
Return from 1/1/99 - 6/30/99 (not annualized): up _.__%
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------------------
Since
Average Annual Total Return 1 Year 3 Years Inception*
- ------------------------------------------------------------------------------
*Since inception (5/16/94)
<S> <C> <C> <C>
Class A (%)(1) 3.65 8.77 10.17
Class B(1) (%)(2) 4.15 8.94 10.25
Class B (%)(2) 4.15 8.94 10.25
Class C (%)(2) 8.15 9.78 10.55
Class S (%) 10.25 10.89 11.66
Lehman Brothers Aggregate Bond Index 8.69 7.29 8.74
S&P 500 Index (%) 28.74 28.27 26.48
Lipper Flexible Income Funds Index (%) 16.52 16.27 15.46
</TABLE>
*Since inception (5/16/94)
(1) Performance for the period May 16, 1994 to March 27, 1997 reflects actual
performance of the fund prior to the liquidation of Class A. Returns shown
for all other periods, including periods prior to the creation of the
class, reflect performance of Class S shares, adjusted for shareholder and
annual fund operating expenses as described on page 9.
(2) Returns shown are for periods prior to the creation of the class. They
reflect performance of Class S shares, adjusted for shareholder and annual
fund operating expenses as described on page 9.
<PAGE>
7
----
[Graphic: Magnifying glass on paper]
Understanding Volatility and Performance
The chart and table on the opposite page are designed to show two aspects of
the fund's track record:
o Year-by-Year Total Return shows how volatile the fund has been: how much the
difference has been, historically, between its best years and worst years. In
general, funds with higher average annual total returns will also have higher
volatility. The graph includes the effects of fund expenses, but not sales
charges. If sales charges had been included, returns would have been less than
shown.
o Average Annual Total Return is a measure of the fund's performance over time.
It is determined by taking the fund's performance over a given period and
expressing it as an average annual rate. Average annual total return includes
the effects of fund expenses and maximum sales charges for each class, and
assumes that you sold your shares at the end of the period.
Also included are three independent measures of performance. Two are
un-managed: the S&P 500 (officially, the "Standard & Poor's 500 Composite
Stock Price Index") is an index of 500 domestic stocks, and the Lehman
Brothers Aggregate Bond Index is an index primarily composed of fixed-rate
debt issues rated investment grade. The Lipper Flexible Income Funds Index
shows the performance of a category of mutual funds with similar goals. The
Lipper Index shows you how well the fund has done compared to competing funds.
While the fund does not seek to match the returns or the volatility of the S&P
500 or the Lehman Brothers Aggregate Bond Index, they are good indicators of
general stock and bond market performance, respectively, and can be used as
rough guides when gauging the return of this and other investments. When
making comparisons, keep in mind that none of the indices includes the effects
of sales charges. Also, even if your stock and bond portfolio were identical
to the S&P 500 or the Lehman Brothers Index, your returns would always be
lower, because these indices do not include brokerage and administrative
expenses.
Keep in mind that past performance is no guarantee of future results.
<PAGE>
8 Investor Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class descriptions begin on page [11]
---------------------------------------------------------
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 5.75 0.00 0.00 0.00 0.00
Maximum deferred sales charge 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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee(a) 0.60 0.60 0.60 0.60 0.60
Distribution/service (12b-1) fees 0.25 1.00 1.00 1.00 0.00
Other expenses 0.71 0.71 0.71 0.71 0.71
---- ---- ---- ---- ----
Total annual fund operating expenses* 1.56 2.31 2.31 2.31 1.31
==== ==== ==== ==== ====
*Because some of the fund's expenses have
been subsidized, actual total operating
expenses for the prior year were: 1.15 1.90 1.90 1.90 0.90
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $ 725 $734/$234 $734/$234 $334/234 $133
3 $1,039 $1,021/$721 $1,021/$721 $721 $415
5 $1,376 $1,435/$1,235 $1,435/$1,235 $1,235 $715
10 $2,325 $2,458 $2,458 $2,646 $1,579
</TABLE>
(a) Except for investments of $1 million or more; see page 11.
<PAGE>
9
----
[Graphic: Magnifying glass on paper]
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.
o Annual Fund Operating Expenses are deducted from the fund's assets every year,
and are thus paid indirectly by all fund investors.
o The Example is designed to allow you to compare the costs of this fund with
those of other funds. It assumes that you invested $10,000 over the years
indicated, reinvested all distributions, earned a hypothetical 5% annual
return and paid the maximum applicable sales charges. For Class B(1) and Class
B shares, it also assumes the automatic conversion to Class A after eight
years.
Where two numbers are shown separated by a slash, the first one assumes you
sold all your shares at the end of the period, while the second assumes you
stayed in the fund. Where there is only one number, the costs would be the
same either way.
The figures in the Example assume full annual expenses, and would be lower if
they reflected the subsidy.
Investors should keep in mind that the example is for comparison purposes
only. The fund's actual performance and expenses may be higher or lower.
<PAGE>
10 The Fund continued
- --------------------------------------------------------------------------------
[Graphic: Thinking man]
Investment Management
The fund was originally called State Street Research Strategic Portfolios:
Conservative and changed its name to State Street Research Strategic Income Plus
Fund in 1999. 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 $__ billion in assets under
management (as of July 31,1999), including $__ billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.60% of fund assets, annually) as
compensation. The investment manager is a subsidiary of Metropolitan Life
Insurance Company.
Peter C. Bennett has been responsible for the fund's day-to-day portfolio
management since December 1996. An executive vice president and director, he is
the chief investment officer for equities and is a member of the management
committee. He joined the firm in 1968 and has worked as an investment
professional since 1963. Mr. Bennett is supported by an in-house team of
investment professionals. Mr. Bennett assigns varying percentages to individual
investment team members. Some team members are responsible for particular types
of bond investments, such as investment grade securities, junk bonds and
international debt. Other team members are responsible for particular types of
stock investments, such as stocks of larger companies, smaller companies,
companies that appear to be trading below their true worth or international
companies.
<PAGE>
Your Investment 11
- --------------------------------------------------------------------------------
[Graphic: 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: Checklist]
Choosing a Share Class
The fund generally offers four share classes, each with its own sales charge and
expense structure: Class A, Class B(1), Class C and Class S. The fund also
offers Class B shares, but only to current Class B shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of State Street Research funds.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you may want to consider Class B(1) shares (if
investing for at least six years) or Class C shares (if investing for less than
six years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
financial professionals, 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>
12 Your Investment continued
- --------------------------------------------------------------------------------
Class A -- Front Load
o Initial sales charge of 5.75% or less
o Lower sales charges for larger investments; see sales charge schedule at right
o Lower annual expenses than Class B(1) or Class C shares because of lower
distribution/service (12b-1) fee of 0.25%
Class B(1) -- Back Load
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within six years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Class B -- Back Load
o Available only to current Class B share-holders; see page 13 for details
Class C -- Level Load
o No initial sales charge
o Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
o Lower deferred sales charge than Class B(1) shares
o Annual distribution/service (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do not
decrease
Class S -- Special Programs
o Available only through certain retirement accounts, advisory accounts of the
investment manager and other special programs, including programs through
financial professionals with recordkeeping and other services; these programs
usually involve special conditions and separate fees (consult your financial
professional or your program materials)
o No sales charges of any kind
o No distribution/service (12b-1) fees;
annual expenses are lower than other share classes
Sales Charges
Class A -- Front Load
<TABLE>
<CAPTION>
this % is which equals
deducted this % of
when you invest for sales your net
this amount charges investment
- ---------------------------------------------------
<S> <C> <C>
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
</TABLE>
With Class A shares, you pay a sales charge only when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) of 1% if you sell
<PAGE>
13
----
any shares within one year of purchas-ing them. See "Other CDSC Policies" on
page 14.
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
Class B(1) -- Back Load
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- --------------------------------------------------------
<S> <C>
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year 1.00
Seventh or eighth year None
</TABLE>
With Class B(1) shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for six years or less, as described in the table above.
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(1) 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 this page.
Class B shares automatically convert to Class A shares after eight years.
<PAGE>
14 Your Investment continued
- --------------------------------------------------------------------------------
[Begin sidebar]
[Graphic: Magnifying glass on paper]
Understanding Distribution/Service Fees
As noted in the descriptions on pages 12 to 14, 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 investors.
[End sidebar]
Class C -- Level Load
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- --------------------------------------------------------
<S> <C>
First year 1.00
Second year or later None
</TABLE>
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. See "Other CDSC
Policies" on 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.
<PAGE>
15
----
[Graphic: Cheque]
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.
<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>
Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider the sale of shares of the State Street Research
funds by the broker.
(a) If your financial professional declines this commission, the one-year CDSC
on your investment is waived.
<PAGE>
16 Buying and Selling Shares
- --------------------------------------------------------------------------------
[Graphic: 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:
o $1,000 for accounts that use the Investamatic program(a)
o $2,000 for Individual Retirement Accounts(a)
o $2,500 for all other accounts
Minimum Additional Investments:
o $50 for any account
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Orders received thereafter will be executed the following day, at that
day's closing share price.
Wire Transactions Funds may be wired between 8:00 a.m. and 4:00 p.m. eastern
time. To make a same-day wire investment, please notify State Street Research by
12:00 noon of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. If the New York Stock Exchange closes before 4:00 p.m. eastern time,
you may be unable to make a same-day wire investment. Your bank may charge a fee
for wiring money.
(a) Except $500 for Individual Retirement Accounts during special promotional
periods.
<PAGE>
Instructions for Buying Shares 17
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C> <C>
[Graphic: Briefcase]
Through a Consult your financial professional or your Consult your financial professional or your
Professional program materials. program materials.
or Program
[Graphic: Mailbox]
By Mail Make your check payable to "State Street Research Fill out an investment slip or indicate the fund
Funds." Forward the check and your application to name and account number on your check. Make your
State Street Research. check payable to "State Street Research Funds."
Forward the check and slip to State Street Research.
[Graphic: Domed
building]
By Federal Call to obtain an account number, and forward your Call State Street Research to obtain a control
Funds Wire application to State Street Research. Wire funds number. Instruct your bank to wire funds to:
using the instructions at right. o State Street Bank and Trust Company, Boston, MA
o ABA: 011000028
o BNF: fund name and share class you want to buy
o AC: 99029761
o OBI: your name and your account number
o Control: the number given to you by State Street
Research
[Graphic: Electrical
plug]
By Electronic Verify that your bank is a member of the ACH Call State Street Research to verify that the
Funds Transfer (Automated Clearing House) system. Forward your appli- necessary bank information is on file for your
(ACH) cation to State Street Research. Please be sure to account. If it is, you may request a transfer
inclue the appropriate bank information. Call State with the same phone call. If not, please ask
State Research to request a purchase. State Street Research to provide you with an
EZ Trader application.
[Graphic: Calendar]
By Investamatic Forward your application, with all appropriate sections Call State Street Research to verify that
completed, to State Street Research, along with a check Investamatic is in place on your account, or to
for your initial investment payable to "State Street request a form to add it. Investments are
Research Funds." automatic once Investamatic is in place.
[Graphic: Two (2)
arrows]
By Exchange Call State Street Research or visit our Web site. Call State Street Research or visit our Web site.
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408 Internet www.ssrfunds.com
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
18 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Receipt]
Policies for Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
o you are selling more than $100,000 worth of shares
o the name or address on the account has changed within the last 30 days
o you want the proceeds to go to a name or address not on the account
registration
o you are transferring shares to an account with a different registration or
share class
o you are selling shares held in a corporate or fiduciary account; for these
accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Requests received thereafter will be executed the following day, at that
day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) for those shares has been collected, you will
not receive the proceeds until your initial payment has cleared. This may take
up to 15 days after your purchase was recorded (in rare cases, longer). If you
open an account with shares purchased by wire, you cannot sell those shares
until your application has been processed.
<PAGE>
Instructions for Selling Shares 19
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[Graphic: Briefcase]
Through a Consult your financial professional or your program materials.
Professional
or Program
[Graphic: Mailbox]
By Mail Send a letter of instruction, an endorsed stock power or share certificates (if
you hold certificate shares) to State Street Research. Specify the fund, the
account number and the dollar value or number of shares. Be sure to include all
necessary signatures and any additional documents, as well as signature
guarantees if required (see facing page).
[Graphic: Domed
building]
By Federal Check with State Street Research to make sure that a wire redemption privilege,
Funds Wire including a bank designation, is in place on your account. Once this is
established, you may place your request to sell shares with State Street
Research. Proceeds will be wired to your pre-designated bank account. (See "Wire
Transactions" on facing page.)
[Graphic: Electrical
plug]
By Electronic Check with State Street Research to make sure that the EZ Trader feature,
Funds Transfer including a bank designation, is in place on your account. Once this is
(ACH) established, you may place your request to sell shares with State Street
Research. Proceeds will be sent to your pre-designated bank account.
[Graphic: Telephone
By Telephone As long as the transaction does not require a written request (see facing page),
you or your financial professional can sell shares by calling State Street
Research. A check will be mailed to your address of record on the following
business day.
[Graphic: Two (2)
arrows]
By Exchange Read the prospectus for the fund into which you are exchanging. Call State
Street Research or visit our Web site.
[Graphic: Calendar]
By Systematic See plan information on page 23.
Withdrawal Plan
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408 Internet www.ssrfunds.com
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
20 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Stack of forms] Account Policies
Telephone Requests When you open an account you automatically receive telephone
privileges, allowing you to place requests on your account by telephone. Your
financial professional can also use these privileges to request exchanges on
your account and, with your written permission, redemptions. For your
protection, all telephone calls are recorded.
As long as State Street Research takes certain measures to authenticate
telephone requests on your account, you may be held responsible for unauthorized
requests. Unauthorized telephone requests are rare, but if you want to protect
yourself completely, you can decline the telephone privilege on your
application. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class as your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
You must hold Class A shares of any fund for at least 30 days before you may
exchange them at net asset value for Class A shares of a different fund with a
higher applicable sales charge.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's exchange privilege and may refuse to accept
any exchange request, particularly those associated with "market timing"
strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or, depending on the circumstances, may deduct an annual
maintenance fee (currently $18).
<PAGE>
21
-----
The Fund's Business Hours The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are available
from 8:00 a.m. to 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:
o Requirements for initial or additional investments, reinvestments, periodic
investment plans, retirement and employee benefit plans, sponsored
arrangements and other similar programs, may be changed from time to time
without further notice
o All orders to purchase shares are subject to acceptance by the fund
o At any time, the fund may change or discontinue its sales charge waivers and
any of its order acceptance practices, and may suspend the sale of its shares
o The fund may delay sending you redemption proceeds for up to seven days, or
longer if permitted by the SEC o To permit investors to obtain the current
price, dealers are responsible for transmitting all orders to the State Street
Research Service Center promptly
<PAGE>
22 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Magnifying glass on paper] Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
o investing a large amount in the fund close to the end of its fiscal year or
calendar year (if the fund makes a distribution, you will receive some of your
investment back as a taxable distribution)
o selling shares at a loss for tax purposes and investing in a substantially
identical investment within 30 days before or after that sale (such a
transaction is usually considered a "wash sale," and you will not be allowed
to claim a tax loss in the current year)
[Graphic: Uncle Sam] Distributions and Taxes
Income and Capital Gains Distributions The fund typically distributes any net
income to shareholders four times a year. Net capital gains, if any, are
typically distributed around the end of the fund's fiscal year, which is October
31.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account, or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gain distributions you receive from the fund are taxable as
ordinary income.
Distributions of long-term capital gains are generally taxable as capital gains
- - in most cases, at a different rate from 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 dis-tributed to you for the previous year.
<PAGE>
23
-----
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: 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 the ACH (Automated Clearing House) system.
Dividend Allocation Plan This plan automatically invests your distributions
from the fund into another fund of your choice, without any fees or sales
charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.
Retirement Plans State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
Call 1-800-562-0032 for information on any of the services described above.
<PAGE>
24 Other Information
- --------------------------------------------------------------------------------
[Graphic: 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 1. Below are brief
descriptions of other securities and practices, along with their associated
risks.
Restricted and Illiquid Securities Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and price.
Some of these securities are new and complex, and trade only among institutions;
the markets for these securities are still developing, and may not function as
efficiently as established markets. Owning a large percentage of restricted and
illiquid securities could hamper the fund's ability to raise cash to meet
redemptions. Also, because there may not be an established market price for
these securities, the fund may have to estimate their value, which means that
their valuation (and, to a much smaller extent, the valuation of the fund) may
have a subjective element.
Securities Ratings When securities are rated by one or more independent rating
agencies, the fund uses these ratings to determine credit quality. In cases
where a security is rated in con-flicting categories by different rating
agencies, the fund may choose to follow a higher rating. If a rating agency
downgrades a security, the fund will determine whether to hold or sell the
security.
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.
<PAGE>
25
-----
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from one or more securities, indices
or cur-rencies. The fund may use certain derivatives for hedging (attempting to
offset a potential loss in one position by establishing an interest in an
opposite position). This includes the use of currency-based derivatives for
hedging its positions in foreign securities. The fund may also use 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.
Short-term Trading While the fund ordinarily does not trade securities for
short-term profits, it will sell any security at the time it believes best,
which may result in short-term trading. Short-term trading can increase the
fund's transaction costs and may increase your tax liability if there are
capital gains. In addition, foreign securities generally involve higher
transaction costs per share traded.
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.
Zero (or Step) Coupons A zero coupon security is a debt security that is
purchased and traded at a discount to its face value because it pays no interest
for some of all of its life. Interest, however, is reported as income to the
fund and the fund is required to distribute to shareholders an amount equal to
the amount reported. Those distributions may force the fund to liquidate
portfolio securities at a disadvantageous time.
Asset-backed Securities. Asset-backed securities represent interests in pools of
debt (other than mortgage notes), such as credit card accounts. The principal
risks of asset-backed securities are that on the underlying obligations,
payments may be made more slowly, and rates of default may be higher, than
expected. In addition, because some of these securities are new or complex,
unanticipated problems may affect their value or liquidity.
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 the fund does this, it is not pursuing its goal.
Year 2000 The investment manager does not currently anticipate that computer
problems related to the year 2000 will have a material effect on the fund.
However, there can be no assurances in this area, including the possibility that
year 2000 computer problems could negatively affect communication systems,
investment markets or the economy in general.
<PAGE>
26 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
-------------------------------------------------------------------------------
Years ended October 31 November 1, 1996
Per Share Data 1994(b) 1995(a) 1996(a) to March 27, 1997(a)
================================================================================================================================
<S> <C> <C> <C> <C>
Net asset value, beginning of period ($) 9.55 9.56 10.56 11.03
------- ------- ------- -------
Net investment income ($)* 0.20 0.47 0.42 0.21
Net realized and unrealized gain (loss)
on investments, foreign currency and
forward contracts ($) (0.09) 1.00 0.66 0.08
------- ------- ------- -------
Total from investment operations ($) 0.11 1.47 1.08 0.29
------- ------- ------- -------
Dividends from net investment income ($) (0.10) (0.47) (0.36) (0.19)
Distributions from net realized gains ($) -- -- (0.25) (0.55)
------- ------- ------- -------
Total distributions ($) (0.10) (0.47) (0.61) (0.74)
------- ------- ------- -------
Net asset value, end of period ($) 9.56 10.56 11.03 10.58
======= ======= ======= =======
Total return (%)(c) 1.15(d) 15.84 10.55 2.67(d)
Ratios/Supplemental Data
================================================================================================================================
Net assets at end of period ($ thousands) 25,014 27,637 552 --
Ratio of operating expenses to average
net assets (%)* 1.15(e) 1.15 1.15 1.15(e)
Ratio of net investment income
to average net assets (%)* 4.48(e) 4.74 4.35 4.18(e)
Portfolio turnover rate (%) 70.35 132.50 126.41 117.66
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.03 0.05 0.07 0.03
</TABLE>
<PAGE>
27
-----
<TABLE>
<CAPTION>
Class S
---------------------------------------------------------------------------------
Six months ended
Years ended October 31 April 30, 1999
Per Share Data 1994(b) 1995(a) 1996(a) 1997(a) 1998(a) (Unaudited)(a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 9.55 9.56 10.56 10.93 11.32 10.92
------ ------ ------- ------- ------- -------
Net investment income ($)* 0.21 0.52 0.50 0.49 0.47 0.21
Net realized and unrealized gain (loss)
on investments, foreign currency,
forward contracts and futures contracts ($) (0.09) 0.97 0.60 0.95 0.42 0.30
------ ------ ------- ------- ------- -------
Total from investment operations ($) 0.12 1.49 1.10 1.44 0.89 0.51
------ ------ ------- ------- ------- -------
Dividends from net investment income ($) (0.11) (0.49) (0.48) (0.50) (0.50) (0.25)
Distributions from net realized gains ($) -- -- (0.25) (0.55) (0.79) (0.69)
------ ------ ------- ------- ------- -------
Total distributions ($) (0.11) (0.49) (0.73) (1.05) (1.29) (0.94)
------ ------ ------- ------- ------- -------
Net asset value, end of period ($) 9.56 10.56 10.93 11.32 10.92 10.49
====== ====== ======= ======= ======= =======
Total return (%)(c) 1.25(d) 16.11 10.82 14.11 8.60 4.84(d)
Ratios/Supplemental Data
===================================================================================================================================
Net assets at end of period ($ thousands) 100 1,433 33,236 38,501 36,236 36,685
Ratio of operating expenses to average
net assets (%)* 0.90(e) 0.90 0.90 0.90 0.90 0.90(e)
Ratio of net investment income
to average net assets (%)* 4.73(e) 4.91 4.50 4.47 4.35 4.11(e)
Portfolio turnover rate (%) 70.35 132.50 126.41 117.66 186.03 103.74
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.03 0.05 0.06 0.05 0.04 0.02
</TABLE>
(a) Per-share figures have been calculated using the
average shares method.
(b) May 16, 1994 (commencement of operations) to
October 31, 1994.
(c) Does not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the dis-
tributor and its affiliates had not voluntarily reduced
the Fund's expenses.
(d) Not annualized.
(e) Annualized.
<PAGE>
28 Board of Trustees
- --------------------------------------------------------------------------------
[Graphic: 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
Chairman of the Board, Chief Executive
Officer and President,
PictureTel Corporation
Steve A. Garban
Former Senior Vice President for Finance
and Operations and Treasurer,
The Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the Board
and Chief Financial Officer,
St. Regis Corp.
Dean O. Morton
Former Executive Vice President,
Chief Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and Public
Management, George Washington
University; former Member of the Board of
Governors of the Federal Reserve System
and Chairman and Commissioner of the
Commodity Futures Trading Commission
Toby Rosenblatt
President,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>
Notes 29
- --------------------------------------------------------------------------------
<PAGE>
For Additional Information
- --------------------------------------------------------------------------------
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.
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
Ticker Symbols
===============================================
Class A
Class B(1) (proposed)
Class B
Class C
Class S SSCSX
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).
prospectus
- -----------------------------------------------
SEC File Number: 811-4911 Control Number:
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME PLUS FUND
a Series of
STATE STREET RESEARCH FINANCIAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVE.......................................................2
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS............................2
ADDITIONAL RISKS AND INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES...........................................4
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS...........................15
THE TRUST, THE FUND AND ITS SHARES........................................20
TRUSTEES AND OFFICERS.....................................................23
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY SERVICES...................27
PURCHASE AND REDEMPTION OF SHARES.........................................29
SHAREHOLDER ACCOUNTS......................................................37
NET ASSET VALUE...........................................................41
PORTFOLIO TRANSACTIONS....................................................42
CERTAIN TAX MATTERS.......................................................46
DISTRIBUTION OF SHARES OF THE FUND........................................48
CALCULATION OF PERFORMANCE DATA...........................................52
CUSTODIAN ...............................................................56
INDEPENDENT ACCOUNTANTS...................................................56
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 Strategic Income Plus Fund (the "Fund") dated September 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 fiscal year ended
October 31, 1998, which are included in the Fund's Annual Report to Shareholders
for that year, are incorporated by reference. The Annual Report is available
without charge, upon request by calling 1-800-562-0032.
CONTROL NUMBER: IT-
<PAGE>
INVESTMENT OBJECTIVE
As set forth under "The Fund--Goal and Strategies--Fundamental Goal"
in the Prospectus of State Street Research Strategic Income Plus Fund (the
"Fund"), the Fund's investment goal, which is to provide, primarily, a high
level of current income and, secondarily, long-term growth of capital,
consistent with the preservation of capital and reasonable investment risk, 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
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 of a structure allowing the Fund to invest substantially all of
its assets in a related collective investment vehicle for similar funds or
allowing the Fund to serve as such a collective investment vehicle for other
similar 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)
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;
(2) not to purchase a security of any one issuer if such purchase would cause
more than 10% of the voting securities of such issuer to be held by the
Fund;
(3) not to issue senior securities as defined in the 1940 Act, except as
permitted by Section 18(f)(2) of that Act and the rules thereunder or as
permitted by an order of the Securities and Exchange Commission;
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(4) not to underwrite or participate in the marketing of securities of other
issuers, except (a) the Fund may, acting alone or in syndicates or groups,
purchase or otherwise acquire securities of other issuers for investment,
either from the issuers or from persons in a control relationship with the
issuers or from underwriters of such securities; and (b) to the extent
that, in connection with the disposition of the Fund's securities, the Fund
may be deemed to be an underwriter under certain federal securities laws;
(5) not to purchase or sell fee simple interests in real estate, although the
Fund may purchase and sell other interests in real estate including
securities which are secured by real estate, or securities of companies
which own or invest or deal in real estate;
(6) not to invest in commodities or commodity contracts in excess of 10% of the
Fund's total assets, except that investments in swap arrangements,
currencies, futures contracts and options on futures contracts on
securities, securities indices and currencies shall not be deemed an
investment in commodities or commodities contracts;
(7) not to make loans, except that the Fund may lend portfolio securities and
purchase bonds, debentures, notes and similar obligations (and enter into
repurchase agreements with respect thereto);
(8) not to make any investment which would cause more than 25% of the value of
the Fund's total assets to be invested in securities of issuers principally
engaged in any one industry [for purposes of this restriction, (a)
utilities may be divided according to their services so that, for example,
gas, gas transmission, electric and telephone companies may each be deemed
in a separate industry, (b) oil and oil related companies may be divided by
type so that, for example, oil production companies, oil service companies
and refining and marketing companies may each be deemed in a separate
industry, (c) finance companies may be classified according to the
industries of their parent companies, and (d) securities issued or
guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities (including repurchase agreements involving
such U.S. Government securities to the extent excludable under relevant
regulatory interpretations) may be excluded]; and
(9) not to borrow money except for borrowings from banks for extraordinary and
emergency purposes, such as permitting redemption requests to be honored,
and then not in an amount in excess of 25% of the value of its total
assets, and except insofar as reverse repurchase agreements may be regarded
as borrowing.
The following investment restrictions may be changed without shareholder
approval. Under these restrictions, it is the Fund's policy:
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(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 and currencies, and options on futures on
securities, securities indices and currencies;
(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";
(4) not to hypothecate, mortgage or pledge any of its assets except as may be
necessary in connection with permitted borrowings (for the purpose of this
restriction, futures, options and forward commitments, and related escrow
or custodian receipts or letters, margin or safekeeping accounts, or
similar arrangements used in the industry in connection with the trading of
such investments, are not deemed to involve a hypothecation, mortgage or
pledge of assets); and
(5) 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 "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
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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 from (i) an expected decline in the market value of an asset or group of
assets which the Fund does not own or (ii) expected increases in the market
value of an asset which it does not plan to acquire. Information about specific
types of instruments is provided below.
Futures Contracts.
Futures contracts are publicly traded contracts to buy or sell an
underlying asset or group of assets, such as a currency or an index of
securities, at a future time at a specified price. A contract to buy establishes
a long position while a contract to sell establishes a short position.
The purchase of a futures contract on an equity security or an index
of equity securities normally enables a buyer to participate in the market
movement of the underlying asset or index after paying a transaction charge and
posting margin in an amount equal to a small percentage of the value of the
underlying asset or index. The Fund will initially be required to deposit with
the Trust's custodian or the 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.
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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
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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,
a Fund may offset its position in index options prior to expiration by entering
into a closing transaction on an exchange or it may let the option expire
unexercised.
A securities index assigns relative values to the securities included
in the index and the index options are based on a broad market index. 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 nonhedging
purposes would exceed 5% of the market value of the Fund's net assets. The Fund
applies a similar policy to options that are not commodities.
As noted above, the Fund may engage in both hedging and nonhedging
strategies. Although effective hedging can generally capture the bulk of a
desired risk adjustment, no hedge is completely effective. The Fund's ability to
hedge effectively through transactions in futures and options depends on the
degree to which price movements in its holdings correlate with price movements
of the futures and options.
Nonhedging strategies typically involve special risks. The
profitability of the Fund's nonhedging strategies will depend on the ability of
the Investment Manager to analyze both the
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applicable derivatives market and the market for the underlying asset or group
of assets. Derivatives markets are often more volatile than corresponding
securities markets and a relatively small change in the price of the underlying
asset or group of assets can have a magnified effect upon the price of a related
derivative instrument.
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.
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The Fund may enter credit protection swap arrangements involving the
sale by the Fund of a put option on a debt security which is exercisable by the
buyer upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
Most swaps entered into by the Fund will be on a net basis; for
example, in an interest rate swap, amounts generated by application of the fixed
rate and the floating rate to the notional principal amount would first offset
one another, with the Fund either receiving or paying the difference between
such amounts. In order to be in a position to meet any obligations resulting
from swaps, the Fund will set up a segregated custodial account to hold
appropriate liquid assets, including cash; for swaps entered into on a net
basis, assets will be segregated having a daily net asset value equal to any
excess of the Fund's accrued obligations over the accrued obligations of the
other party, while for swaps on other than a net basis assets will be segregated
having a value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to
preserve the return on an investment or on a portion of the Fund's portfolio.
However, the Fund may, as noted above, enter into such arrangements for income
purposes to the extent permitted by the Commodities Futures Trading Commission
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
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will only enter into repurchase agreements involving U.S. Government securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. Repurchase
agreements will be limited to 30% of the Fund's net assets, except that
repurchase agreements extending for more than seven days when combined with any
other illiquid securities held by the Fund will be limited to 15% of the Fund's
net assets. 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. However, the
Fund may not engage in reverse repurchase agreements in excess of 5% of the
Fund's total assets. In a reverse repurchase agreement the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed-upon rate. The ability to use reverse
repurchase agreements may enable, but does not ensure the ability of, the Fund
to avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous.
When effecting reverse repurchase agreements, assets of the Fund in a
dollar amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
When-Issued Securities
The Fund may purchase "when-issued" securities, which are traded on a
price or yield basis prior to actual issuance. Such purchases will be made only
to achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The 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.
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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 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.
Mortgage-Related Securities
The Fund may invest in mortgage-related securities. Mortgage-related
securities represent interests in pools of commercial or residential mortgage
loans. Some mortgage-related securities provide the Fund with a flow-through of
interest and principal payments as such payments are received with respect to
the mortgages in the pool. Mortgage-related securities may be issued by private
entities such as investment banking firms, insurance companies, mortgage bankers
and home builders. Mortgage-related securities may be issued by U.S. Government
agencies, instrumentalities or mixed-ownership corporations or sponsored
enterprises, and the securities may or may not be supported by the credit of
such entities. An issuer may offer senior or subordinated securities backed by
the same pool of mortgages. The senior securities have priority to the interest
and/or principal payments on the mortgages in the pool; the subordinate
securities have a lower priority with respect to such payments on the mortgages
in the pool. The Fund does not presently expect to invest in mortgage pool
residuals.
Mortgage-related securities also include stripped securities which have
been divided into separate interest and principal components. Holders of the
interest components of mortgage related securities will receive payments of the
interest only on the current face amount of the mortgages and holders of the
principal components will receive payments of the principal on the mortgages.
"Interest only" securities are known as IOs; "principal only" securities are
known as POs.
In the case of mortgage-related securities, the possibility of
prepayment of the underlying mortgages which might be motivated, for instance,
by declining interest rates, could lessen the potential for total return in
mortgage-related securities. When prepayments of mortgages occur during periods
of declining interest rates, the Fund will have to reinvest the proceeds in
instruments with lower effective interest rates.
In the case of stripped securities, in periods of low interest rates
and rapid mortgage prepayments, the value of IOs for mortgage-related securities
can decrease significantly. The market for IOs and POs is new and there is no
assurance it will operate efficiently or provide liquidity in the future.
Stripped securities are extremely volatile in certain interest rate
environments.
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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") and European Depositary Receipts ("EDRs"). Under
current policy, however, the Fund limits such investments, including ADRs and
EDRs, to a maximum of 25% 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. Generally, ADRs in registered form are designed
for use in U.S. securities markets and EDRs are designed for use in European
securities markets. The underlying securities are not always denominated in the
same currency as the ADRs or EDRs. Although investment in the form of ADRs or
EDRs facilitates trading in foreign securities, it does not mitigate all the
risks associated with investing in foreign securities.
ADRs are available through facilities which may be either "sponsored"
or "unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the issuer
than are unsponsored ADRs. More and higher fees are generally charged in an
unsponsored program compared to a sponsored facility. Only sponsored ADRs may be
listed on the New York or American Stock Exchanges. Unsponsored ADRs may prove
to be more risky due to (a) the additional costs involved to the Fund; (b) the
relative illiquidity of the issue in U.S. markets; and (c) the possibility of
higher trading costs in the over-the-counter market as opposed to exchange based
tradings. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include
those resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or expropriation, the possible imposition of currency exchange
blockages, higher operating expenses, foreign withholding and other taxes which
may reduce investment return, reduced availability of public information
concerning issuers, the difficulties in obtaining and enforcing a judgment
against a foreign issuer and the fact that foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of securities of comparable
domestic issuers.
These risks are usually higher in less-developed countries. Such
countries include countries that have an emerging stock market on which trade a
small number of securities and/or countries with economies that are based on
only a few industries. The Fund may invest in the securities of issuers in
countries with less developed economies as deemed appropriate by the Investment
Manager. However, it is anticipated that a majority of the foreign investments
by the Fund will consist of securities of issuers in countries with developed
economies.
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Currency Transactions
The Fund may engage in currency exchange transactions in order to
protect against the effect of uncertain future exchange rates on securities
denominated in foreign currencies. The Fund will conduct its currency exchange
transactions either on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, or by entering into forward contracts to purchase or
sell currencies. The Fund's dealings in forward currency exchange contracts will
be limited to hedging involving either specific transactions or aggregate
portfolio positions. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are not commodities and
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. In entering a
forward currency contract, the Fund is dependent upon the creditworthiness and
good faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by the counterparty by dealing only with established, reputable
institutions. Although spot and forward contracts will be used primarily to
protect the Fund from adverse currency movements, they also involve the risk
that anticipated currency movements will not be accurately predicted, which may
result in losses to the Fund. This method of protecting the value of the Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange that can be achieved at some future point in
time. Although such contracts tend to minimize the risk of loss due to a decline
in the value of hedged currency, they tend to limit any potential gain that
might result should the value of such currency increase.
Securities Lending
The Fund may lend portfolio securities with a value of up to 33-1/3%
of its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in unaffiliated mutual funds with quality short-term portfolios,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or certain unaffiliated mutual funds, irrevocable stand-by
letters of credit issued by a bank, or 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.
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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 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 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.
Equity Securities Classifications:
Autos & Transportation
Air Transport
Auto Parts
Automobiles
Miscellaneous
Transportation
Railroad Equipment
Railroads
Recreational Vehicles &
Boats
Tires & Rubber
Truckers
Consumer Discretionary
Advertising Agencies
Casino/Gambling,
Hotel/Motel
Commercial Services
Communications, Media &
Entertainment
Consumer Electronics
Consumer Products
Consumer Services
Household Furnishings
Leisure Time
Photography
Printing & Publishing
Restaurants
Retail
Shoes
Textile Apparel
Manufacturers
Toys
Consumer Staples
Beverages
Drug & Grocery Store
Chains
Foods
Household Products
Tobacco
Financial Services
Banks & Savings and Loans
Financial Data Processing
Services & Systems
Insurance
Miscellaneous Financial
Real Estate Investment
Trusts
Rental & Leasing Services: Commercial
Securities Brokerage &
Services
Health Care
Drugs & Biotechnology
Health Care Facilities
Health Care Services
Hospital Supply
Service Miscellaneous
Integrated Oils
Oil: Integrated Domestic
Oil: Integrated International
Materials & Processing
Agriculture
Building & Construction
Chemicals
Containers & Packaging
Diversified Manufacturing
Engineering & Contracting
Services
Fertilizers
Forest Products
Gold & Precious Metals
Miscellaneous Materials &
Processing
Non-Ferrous Metals
Office Supplies
Paper and Forest Products
Real Estate & Construction
Steel
Textile Products
Other
Trust Certificates --
Government Related Lending
Asset-backed-Mortgages
Asset-backed-Credit Card
Receivables
Miscellaneous
Multi-Sector Companies
Other Energy
Gas Pipelines
Miscellaneous Energy
Offshore Drilling
Oil and Gas Producers
Oil Well Equipment &
Services
Producer Durables
Aerospace
Electrical Equipment &
Components
Electronics: Industrial
Homebuilding
Industrial Products
Machine Tools
Machinery
Miscellaneous Equipment
Miscellaneous Producer
Durables
Office Furniture & Business
Equipment
Pollution Control and
Environmental Services
Production Technology
Equipment
Telecommunications
Equipment
Technology
Communications Technology
Computer Software
Computer Technology
Electronics
Electronics: Semi-
Conductors/Components
Miscellaneous Technology
Utilities
Miscellaneous Utilities
Utilities: Cable TV & Radio
Utilities: Electrical
Utilities: Gas Distribution
Utilities:Telecommunications
Utilities: Water
Fixed Income Securities Classifications:
Government
Treasury
Strips
TIPS
Agency/GSE
Mortgage
Pass-Through
CMO
Whole Loan
Commercial Loan
Project Loan
Corporate
Industrial
Utility
Financial
Yankee
ABS
Auto
Credit Cards
Dealer
Equipment
Home Equity
Manuf Housing
Recreation
Rate Reduction
Other ABS
High Yield
High Yield
Commingled Funds
$ Block
Private Placement
Municipal
Notes
Pre-Refunded Bonds
Escrowed to Maturity Bonds
General Obligation Bonds
Revenue Bonds
Mutual Funds
Non Dollar
Non Dollar
Dollar Bloc
Euro Bloc - EMU In Countries
Euro Bloc - EMU Out Countries
Yen Bloc
Commingled Funds
Emerging Mkt
Latin America
EAME
Asia
Futures
Options
Cash & Equivalents
Computer-Related Risks
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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.
Managing Volatility In administering the Fund's portfolio, the
Investment Manager attempts to manage volatility in part by managing the
duration and weighted average maturity of the Fund's bond position.
Duration is an indicator of the expected volatility of a bond
position in response to changes in interest rates. In calculating duration, the
Fund measures the average time required to receive all cash flows associated
with those debt securities held in the Fund's portfolio -- representing payments
of principal and interest -- by considering the timing, frequency and amount of
payment expected from each portfolio security. The higher the duration, the
greater the gains and losses when interest rates change. Duration generally is a
more accurate measure of potential volatility with a portfolio composed of
high-quality debt securities, such as U.S. Government securities, municipal
securities and high-grade U.S. corporate bonds, than with lower-grade
securities.
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<PAGE>
The Investment Manager may use several methods to manage the duration
of the Fund's bond position in order to increase or decrease its exposure to
changes in interest rates. First, the Investment Manager may adjust portfolio
duration by adjusting the mix of debt securities held by the Fund. For example,
if the Investment Manager intends to shorten duration, it may sell debt
instruments that individually have a long duration and purchase other debt
instruments that individually have a shorter duration. Among the factors that
will affect a debt security's duration are the length of time to maturity, the
timing of interest and principal payments, and whether the terms of the security
give the issuer of the security the right to call the security prior to
maturity. Second, the Investment Manager may adjust bond portfolio duration
using derivative transactions, especially with interest rate futures and options
contracts. For example, if the Investment Manager wants to lengthen the duration
of the Fund's bond position, it could purchase interest rate futures contracts
instead of buying longer-term bonds or selling shorter-term bonds. Similarly,
during periods of lower interest rate volatility, the Investment Manager may use
a technique to extend duration in the event rates rise by writing an out-of-the-
money put option and receiving premium income with the expectation that the
option could be exercised. In managing duration, the use of such derivatives may
be faster and more efficient than trading specific portfolio securities.
Weighted average maturity is another indicator of potential
volatility used by the Investment Manager with respect to the Fund's bond
portfolio, although for certain types of debt securities, such as high-quality
debt securities, it is not as accurate as duration in quantifying potential
volatility. Weighted average maturity is the average of all maturities of the
individual debt securities held by the Fund, weighted by the market value of
each security. Generally, the longer the weighted average maturity, the more
bond prices will vary in response to changes in interest rates.
U.S. Government and Related Securities. U.S. Government securities
are securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
o obligations of U.S. Government agencies or instrumentalities, such as
the Federal Home Loan Banks, the Federal Farm Credit Banks, the
Federal National Mortgage Association, the Government National
Mortgage Association and the Federal Home Loan Mortgage Corporation;
and
o obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
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<PAGE>
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.
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
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<PAGE>
Bank money investments include, but are not limited to,
certificates of deposit, bankers' acceptances and time deposits. Certificates of
deposit are generally short-term (i.e., less than one year), interest-bearing
negotiable certificates issued by commercial banks or savings and loan
associations against funds deposited in the issuing institution. A banker's
acceptance is a time draft drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods). A banker's acceptance may be obtained
from a domestic or foreign bank, including a U.S. branch or agency of a foreign
bank. The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. Time deposits are nonnegotiable deposits
for a fixed period of time at a stated interest rate. The Fund will not invest
in any such bank money investment unless the investment is issued by a U.S. bank
that is a member of the Federal Deposit Insurance Corporation ("FDIC"),
including any foreign branch thereof, a U.S. branch or agency of a foreign bank,
a foreign branch of a foreign bank, or a savings bank or savings and loan
association that is a member of the FDIC and which at the date of investment has
capital, surplus and undivided profits (as of the date of its most recently
published financial statements) in excess of $50 million. The Fund will not
invest in time deposits maturing in more than seven days and will not invest
more than 10% of its total assets in time deposits maturing in two to seven
days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
Short-Term Corporate Debt Instruments
Short-term corporate debt instruments include commercial paper to
finance short-term credit needs (i.e., short-term, unsecured promissory notes)
issued by corporations including but not limited to (a) domestic or foreign bank
holding companies or (b) their subsidiaries or affiliates where the debt
instrument is 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.
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<PAGE>
Lower Rated Debt Securities
The Fund may invest in lower quality debt securities within the BB
major rating category or lower by S&P or the Ba major rating category or lower
by Moody's or debt securities that are unrated but considered by the Investment
Manager to be of equivalent investment quality to comparable rated securities.
Such securities generally involve more credit risk than higher rated securities
and are considered by S&P and Moody's to be predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. Further, such securities may be subject to greater
market fluctuations and risk of loss of income and principal than lower
yielding, higher rated debt securities. Risks of lower quality debt securities
include (i) limited liquidity and secondary market support, (ii) substantial
market price volatility resulting from changes in prevailing interest rates
and/or investor perception, (iii) subordination to the prior claims of banks and
other senior lenders, (iv) the operation of mandatory sinking fund or
call/redemption provisions during periods of declining interest rates when the
fund may be required to reinvest premature redemption proceeds in lower yielding
portfolio securities; (v) the possibility that earnings of the issuer may be
insufficient to meet its debt service; and (vi) the issuer's low
creditworthiness and potential for insolvency during periods of rising interest
rates and economic downturn. For further information concerning the ratings of
debt securities, see "--Commercial Paper Ratings" below. In the event the
lowering of ratings of debt instruments held by the Fund by applicable rating
agencies results in a material decline in the overall quality of the Fund's
portfolio, the Trustees of the Trust will review the situation and take such
action as they deem in the best interests of the Fund's shareholders, including,
if necessary, changing the composition of the portfolio.
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.
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
19
<PAGE>
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, 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 the "A" category or
better, although in some cases credits within the "BBB" category may be allowed.
The issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong position within the industry. The reliability and quality of
management are unquestioned. The relative strength or weakness of the above
factors determines whether the issuer's commercial paper is rated A-1, A-2 or
A-3. (Those A-1 issues determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating category
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: evaluation of the management of the issuer; economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial management of obligations which may be present or may arise as
a result of public interest questions and preparations to meet such obligations.
These factors are all considered in determining whether the commercial paper is
rated Prime-1, Prime-2 or Prime-3.
In the event the lowering of ratings of debt instruments held by the
Fund by applicable rating agencies results in a material decline in the overall
quality of the Fund's portfolio, the Trustees of the Trust will review the
situation and take such action as they deem in the best interests of the Fund's
shareholders, including, if necessary, changing the composition of the
portfolio.
Rating Categories of Debt Securities
Set forth below is a description of S&P corporate bond and debenture
rating categories.
AAA: An obligation rated within the AAA category has the highest rating
assigned by S&P. Capacity to meet the financial commitment on the obligation is
extremely strong.
AA: An obligation rated within the AA category differs from the highest
rated obligation only in small degree. Capacity to meet the financial obligation
is very strong.
A: An obligation rated within the A category is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. However, capacity to meet the
financial commitment on the obligation is still strong.
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<PAGE>
BBB: An obligation rated within the BBB category exhibits adequate
protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to meet the
financial commitment on the obligation.
Obligations rated within the BB, B, CCC, CC and C categories are
regarded as having significant speculative characteristics. BB indicates that
least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated within the BB category is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet the financial commitment on the
obligation. The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB rating.
B: An obligation rated within the B category is more vulnerable to
nonpayment than obligations rated within the BB category, but currently has the
capacity to meet the financial commitment on the obligation. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
meet the financial commitment on the obligation. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: An obligation rated within the CCC category is vulnerable to
nonpayment and is dependent upon favorable business, financial and economic
conditions to meet the financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to meet the financial commitment on the obligation.
CC: An obligation rated within the CC category is currently highly
vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy
petition has been filed, but payments on this obligation are being continued.
D: An obligation rated within the D category is in payment default. The
D rating category is used when payments on an obligation are not made on the due
date even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
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<PAGE>
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayments risks such as interest only (IO) and
principal only (PO) mortgage securites; and obligations with unusually risky
terms, such as inverse floaters.
Set forth below is a description of Moody's corporate bond and
debenture rating categories.
Aaa: Bonds which are rated within the Aaa category are judged to be of
the best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated within the Aa category are judged to be of
high quality by all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A: Bonds which are rated within the A category possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds which are rated within the Baa category are considered as
medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds which are rated within the Ba category are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
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<PAGE>
B: Bonds which are rated within the B category generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
Caa: Bonds which are rated within the Caa category are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Bonds which are rated within the Ca category represent obligations
which are speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C: Bonds which are rated within the C category are the lowest rated
class of bonds, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the
addition of a numeral indicating a bond's rank within its rating category.
THE TRUST, THE FUND AND ITS SHARES
The Fund was organized in 1994 and is a separate series of State
Street Research Financial Trust. The Trust is currently comprised of [three]
series: State Street Research Strategic Income Plus Fund (formerly, State Street
Research Strategic Portfolios: Conservative), State Street Research Government
Income Fund and State Street Research IntelliQuant Portfolios: Small-Cap Value .
A "series" is a separate pool of assets of the Trust which is separately managed
and has a different investment objective and different investment policies from
those of another series. The Trustees of the Trust have authority to issue an
unlimited number of shares of beneficial interest of separate series, $.001 par
value per share.
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<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
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. 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.
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<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.
25
<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 and 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 51. His principal occupation is President, Chief
Executive Officer and Director of PictureTel Corporation. His other principal
business affiliation is Director of WITCO Corporation, a specialty chemical
company. During the past five years, he has also served as Chief Executive
Officer of ANS Communications (the networking subsidiary of America Online,
Inc.) and as an executive of British Telecom.
+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 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 70. 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 47. 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 and
Director of State Street Research Investment Services, Inc.
- -------------------
* or +, see footnotes on page 28.
26
<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 66. 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. Dr. Phillips' other principal business affiliations include Director
of Cantor Fitzgerald Futures Exchange, Inc. and State Farm Life Insurance
Company. Previously, she was a member of the Board of Governors of the Federal
Reserve System and Chairman and Commissioner of the Commodity Futures Trading
Commission.
*E.K. Easton Ragsdale, Jr., 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. Previously,
he has also served as Vice President for State Street Research & Management
Company and was a Senior Vice President and Chief Quantitative Analyst for
Kidder, Peabody & Company, Inc.
+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.
+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.
- -------------------
* or +, see footnotes on page 28.
27
<PAGE>
*+Thomas A. Shively, One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. He is 44. 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.
*+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 is currently, and during the past five
years has been, Chairman of the Board, President, Chief Executive Officer and
Director of State Street Research & Management Company. Mr. Verni's other
principal business affiliations include Chairman of the Board and Director of
State Street Research Investment Services, Inc. (and until February 1996, prior
positions as President and Chief Executive Officer of that company).
- -----------------
* 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 ("Metropolitan"): 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.
28
<PAGE>
As of May 31, 1999, the Trustees and principal officers of the
Trust as a group owned none of the outstanding shares of the Fund.
Record ownership of shares of the Fund as of May 31, 1999 was as
follows:
<TABLE>
<CAPTION>
Class Holder % of Class
- ----- ------ ----------
<S> <C> <C>
S Metropolitan Life Insurance Company (a) 73.1
One Madison Avenue
New York, NY 10010
S Chase Manhattan Bank, N.A. (b)(c) 26.9
770 Broadway
New York, NY 10003
</TABLE>
- ------------------
(a) Metropolitan, a New York corporation, was the record and/or
beneficial owner, directly or indirectly through its subsidiaries or
affiliates, of such shares.
(b) Chase Manhattan Bank, N.A. holds such shares as trustee under certain
employee benefits plans serviced by Metropolitan.
(c) The Fund believes that each named recordholder does not have
beneficial ownership of such shares.
Ownership of 25% or more of a voting security is deemed "control," as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
29
<PAGE>
The Trustees were compensated as follows:
<TABLE>
<CAPTION>
Total
Total Compensation
Compensation From All State
From All Street Research
State Street Funds and
Aggregate Research Funds Metropolitan
Name of Compensation Paid to Series Fund, Inc.
Trustee From Fund(a) Trustees(b) Paid to Trustees (c)
------- ------------ ----------- --------------------
<S> <C> <C> <C>
Bruce R. Bond* $ 0 $ 0 $ 0
Steve A. Garban $2,400 $81,300 $110,300
Malcolm T. Hopkins $1,900 $69,700 $ 97,200
Dean O. Morton $2,500 $84,700 $110,700
Susan M. Phillips $ 225 $12,145 $ 12,145
Toby Rosenblatt $2,100 $72,600 $ 72,600
Michael S. Scott Morton $2,700 $89,500 $115,500
Ralph F. Verni $ 0 $ 0 $ 0
</TABLE>
* Elected Trustee on January 1, 1999 and therefore did not earn any fees for the
year ended December 31, 1998.
- --------------------
(a) For the Fund's fiscal year ended October 31, 1998.
(b) Includes compensation on behalf of all series of 11 investment
companies for which the Investment Manager serves as sole investment
adviser. "Total Compensation from All State Street Research Funds
Paid to Trustees" is for the 12 months ended December 31, 1998. The
Fund does not provide any pension or retirement benefits for the
Trustees.
(c) Includes compensation on behalf of all series of 11 investment
companies for which the Investment Manager serves as sole investment
adviser 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. This figure is
for the 12 months ended December 31, 1998.
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 State Street Research Investment Trust, one of
the nation's first mutual funds, which they had formed in 1924. Their investment
management philosophy emphasized comprehensive fundamental research and
analysis, including
30
<PAGE>
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 Life Insurance Company
("Metropolitan").
The advisory fee payable monthly by the Fund to the Investment
Manager is computed as a percentage of the average of the value of the net
assets of the Fund as determined at the close of regular trading on the New York
Stock Exchange (the "NYSE") on each day the NYSE is open for trading, at the
annual rate of 0.60% of the Fund net assets, annually.
The advisory fees paid by the Fund to the Investment Manager for the
last three fiscal years, prior to the assumption of fees or expenses, were as
follows: 1998, $223,748; 1997, $213,881; and 1996, $201,690. For the same
period, the voluntary reduction of fees or expenses were as follows: 1998;
$152,851; 1997, $172,748; and 1996, $197,940.
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 such Fund (as defined in the 1940 Act) or by the Trustees of the
Trust, and (ii) in either event by a vote of a majority of the Trustees who are
not parties to the Advisory Agreement or "interested persons" of any party
thereto, case in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated on 60 days' written notice by
either party and will terminate automatically in the event of its assignment, as
defined under the 1940 Act and regulations thereunder. Such regulations provide
that a transaction which does not result in a change of actual control or
management of an adviser is not deemed an assignment.
Under a Funds Administration Agreement between the Investment Manager
and the Distributor, the Distributor provides assistance to the Investment
Manager in performing certain fund administrative services for the Trust, such
as assistance in determining the daily net asset value of shares of the Fund and
in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the
Trust and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the
31
<PAGE>
Fund, and is entitled to reimbursements of its costs for providing such
services. Under certain arrangements for Metropolitan to provide
subadministration services, Metropolitan may receive a fee for the maintenance
of certain share ownership records for participants in sponsored arrangements,
employee benefit plans, and similar programs or plans through or under which the
Fund's shares may be purchased.
Under the Code of Ethics of the Investment Manager, personnel are
only permitted to engage in personal securities transactions in accordance with
certain conditions relating to such person's position, the identity of the
security, the timing of the transaction, and similar factors. Such personnel
must report their personal securities transactions quarterly and supply broker
confirmations of such transactions to the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by State Street Research
Investment Services, Inc., the Distributor. The Fund generally offers four
classes of shares. Class A, Class B(1), Class C and Class S shares are available
to all eligible investors. The Fund also offers Class B shares, which are
available only to current Class B shareholders through reinvestment of dividends
and capital gains distributions or through exchanges from existing Class B
accounts of the State Street Research Funds. Class A, Class B(1), Class B, Class
C and Class S shares of the Fund may be purchased at the next determined net
asset value per share plus, in the case of all classes except Class S shares, a
sales charge which, at the election of the investor, may be imposed (i) at the
time of purchase (the Class A shares) or (ii) on a deferred basis (the Class
B(1), Class B and Class C shares). General information on how to buy shares of
the Fund, as well as sales charges involved, are set forth under "Your
Investment" in the Prospectus. The following supplements that information.
Public Offering Price. The public offering price for each class of
shares is based on their net asset value determined as of the close of regular
trading on the NYSE on the day the purchase order is received by State Street
Research Service Center (the "Service Center"), provided that the order is
received prior to the close of regular trading on the NYSE on that day;
otherwise the net asset value used is that determined as of the close of the
NYSE on the next day it is open for unrestricted trading. When a purchase order
is placed through a dealer, that dealer is responsible for transmitting the
order promptly to the Service Center in order to permit the investor to obtain
the current price. Any loss suffered by an investor which results from a
dealer's failure to transmit an order promptly is a matter for settlement
between the investor and the dealer.
Alternative Purchase Program. Alternative classes of shares permit
investors to select a purchase program which they believe will be the most
advantageous for them, given the amount of their purchase, the length of time
they anticipate holding Fund shares, or the flexibility they desire in this
regard, and other relevant circumstances. Investors will be able to determine
whether in their particular circumstances it is more advantageous to incur an
initial sales charge and not be
32
<PAGE>
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.
33
<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 charge Contingent deferred Contingent deferred Contingent deferred None
by Investor to at time of sales charge of 5% sales charge of 5% sales charge of 1%
Distributor investment of up to to 1% applies to to 2% applies to applies to any
5.75% depending any shares any shares shares redeemed
on 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 deferred contingent deferred
sales charge after sales charge after
six years five years
On investments of $1
million or more, no
initial sales charge;
but contingent deferred
sales charge of 1%
applies to any shares
redeemed within one
year following
their purchase
Initial Commission Above described 4% 4% 1% None
Paid by initial sales charge
Distributor to less 0.25% to
Financial 0.75% retained by
Professional 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 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
to Distributor
Paid by 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
Distributor to commencing after commencing after commencing after
Financial one year following one year following one year following
Professional purchase purchase purchase
Rule 12b-1
Distribution Fee
Paid by Fund None 0.75% for first 0.75% for first 0.75% each year None
to Distributor eight years; Class eight years; Class B
B(1) shares convert shares convert
automatically to automatically to
Class A shares after Class A shares after
eight years eight years
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Paid by None None None 0.75% each year None
Distributor to commencing after
Financial one year following
Professional purchase
</TABLE>
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
35
<PAGE>
the value (at the current public offering price) of all Class A shares of the
other Eligible Funds owned as of the purchase date by the investor plus the
value (at the current public offering price) of all such shares owned as of such
date by any "person" described herein as eligible to join with the investor in a
single purchase. Class B(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 from time to time by the Distributor. Information on such
arrangements and further conditions and limitations is available from the
Distributor.
In addition, no sales charge is imposed in connection with the sale
of Class A shares of the Fund to the following entities and 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 and any other matters, as
may be adopted by the Distributor from time to time.
36
<PAGE>
Conversion of Class B(1) and Class B Shares to Class A Shares. A
shareholder's Class B(1) and Class B shares of the Fund, including all shares
received as dividends or distributions with respect to such shares, will
automatically convert to Class A shares of the Fund at the end of eight years
following the issuance of such Class B shares; consequently, they will no longer
be subject to the higher expenses borne by Class B(1) and Class B shares. The
conversion rate will be determined on the basis of the relative per share net
asset values of the two classes and may result in a shareholder receiving either
a greater or fewer number of Class A shares than the Class B shares so
converted. As noted above, holding periods for Class B(1) shares received in
exchange for Class B(1) shares of other Eligible Funds and for Class B shares
received in exchange for Class B shares of other Eligible Funds, will be counted
toward the eight-year period.
Contingent Deferred Sales Charges. The amount of any contingent
deferred sales charge paid on Class A shares (on sales of $1 million or more and
which do not involve an initial sales charge) or on Class B(1), Class B or Class
C shares of the Fund will be paid to the Distributor. The Distributor will pay
dealers at the time of sale a 4% commission for selling Class B(1) and Class B
shares and a 1% commission for selling Class C shares. In certain cases, a
dealer may elect to waive the 4% commission on Class B(1) and Class B shares and
receive in lieu thereof an annual fee, usually 1%, with respect to such
outstanding shares. The proceeds of the contingent deferred sales charges and
the distribution fees are used to offset distribution expenses and thereby
permit the sale of Class B(1), Class B and Class C shares without an initial
sales charge.
In determining the applicability and rate of any contingent deferred
sales charge of Class B(1), Class B or Class C shares, it will be assumed that a
redemption of the shares is made first of those shares having the greatest
capital appreciation, next of shares representing reinvestment of dividends and
capital gains distributions and finally of remaining shares held by shareholder
for the longest period of time. Class B(1) shares that are redeemed within a
six-year period after purchase, Class B shares that are redeemed within a
five-year period after their purchase, and Class C shares that are redeemed
within a one-year period after their purchase, will not be subject to a
contingent deferred sales charge to the extent that the value of such shares
represents (1) capital appreciation of Fund assets or (2) reinvestment of
dividends or capital gains distributions. The holding period for purposes of
applying a contingent deferred sales charge for a particular class of shares of
the Fund acquired through an exchange from another Eligible Fund will be
measured from the date that such shares were initially acquired in the other
Eligible Fund, and shares of the same class being redeemed will be considered to
represent, as applicable, capital appreciation or dividend and capital gains
distribution reinvestments in such other Eligible Fund. These determinations
will result in any contingent deferred sales charge being imposed at the lowest
possible rate. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case may
be, on the amount realized on redemption.
Contingent Deferred Sales Charge Waivers. With respect to Class A
shares (on sales of $1 million or more and which do not involve an initial sales
charge), and Class B(1), Class B and Class C shares of the Fund, the contingent
deferred sales charge does not apply to exchanges or to redemptions under a
systematic withdrawal plan which meets certain conditions. The contingent
deferred sales charge will be waived for participant initiated distributions
from State Street Research prototype employee retirement plans. In addition, the
contingent deferred sales charge will be waived for: (i) redemptions made within
one year of the death or total disability, as defined by the Social Security
Administration, of all shareholders of an account; (ii) redemptions made after
attainment of a specific age in an amount which represents the minimum
distribution required at such age under Section 401(a)(9) of the Internal
Revenue Code of 1986, as amended, for retirement accounts or plans (e.g., age
70-1/2 for Individual Retirement Accounts and Section
37
<PAGE>
403(b) plans), calculated solely on the basis of assets invested in the Fund or
other Eligible Funds; and (iii) a redemption resulting from a tax-free return of
an excess contribution to an Individual Retirement Account. (The foregoing
waivers do not apply to a tax-free rollover or transfer of assets out of the
Fund). The contingent deferred sales charge may also be waived on Class A shares
under certain exchange arrangements for selected brokers with substantial asset
allocation programs. The Fund may modify or terminate the waivers at any time;
for example, the Fund may limit the application of multiple waivers and
establish other conditions for employee benefit plans. Certain employee benefit
plans sponsored by a financial professional may be subject to other conditions
for waivers under which the plans may initially invest in Class B(1) or Class B
shares and then Class A shares of certain funds upon meeting specific criteria.
Class S Shares. Class S shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants, service arrangements, or similar factors;
insurance companies; investment companies; advisory accounts of the Investment
Manager; endowment funds of nonprofit organizations with substantial minimum
assets (currently a minimum of $10 million); and other similar institutional
investors. Class S shares may be acquired through programs or products sponsored
by Metropolitan, its affiliates, or both for which Class S shares have been
designated. In addition, Class S shares are available through programs under
which, for example, investors pay an asset-based fee and/or a transaction fee to
intermediaries. Class S share availability is determined by the Distributor and
intermediaries based on the overall direct and indirect costs of a particular
program, expected assets, account sizes and similar considerations.
Reorganizations. In the event of mergers or reorganizations with
other public or private collective investment entities, including investment
companies as defined in the 1940 Act, the Fund may issue its shares at net asset
value (or more) to such entities or to their security holders.
Redemptions. The Fund reserves the right to pay redemptions in kind
with portfolio securities in lieu of cash. In accordance with its election
pursuant to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of
redemption proceeds paid in cash. Although it has no present intention to do so,
the Fund may, under unusual circumstances, limit redemptions in cash with
respect to each shareholder during any ninety-day period to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of the Fund at the beginning of such
period. In connection with any redemptions paid in kind with portfolio
securities, brokerage and other costs may be incurred by the redeeming
shareholder in the sale of the securities received.
Systematic Withdrawal Plan. A shareholder who owns noncertificated
Class A or Class S shares with a value of $5,000 or more, or Class B(1), Class B
or Class C shares with a value of $10,000 or more, may elect, by participating
in the Fund's Systematic Withdrawal Plan, to have periodic checks issued for
specified amounts. These amounts may not be less than certain minimums,
depending on the class of shares held. The Plan provides that all income
dividends and capital gains distributions of the Fund shall be credited to
participating shareholders in additional shares of the Fund. Thus, the
withdrawal amounts paid can only be realized by
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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.
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.
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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.
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.
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The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made
through dealers, by wire or by mailing a check payable to
"State Street Research Funds" under the terms set forth
above under "Purchase and Redemption of Shares" in this
Statement of Additional Information.
2. The following methods of receiving dividends from
investment income and distributions from capital gains
generally are available:
(a) All income dividends and capital gains
distributions reinvested in additional shares of
the Fund.
(b) All income dividends and capital gains distributions
in cash.
(c) All income dividends and capital gains
distributions invested in any one available
Eligible Fund designated by the shareholder as
described below. See "--Dividend Allocation Plan"
herein.
Dividend and distribution selections should be made on the
Application accompanying the initial investment. If no selection is indicated on
the Application, that account will be automatically coded for reinvestment of
all dividends and distributions in additional shares of the same class of the
Fund. Selections may be changed at any time by telephone or written notice to
the Service Center. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privileges. Shareholders of the Fund may exchange their
shares for available shares with corresponding characteristics of any of the
other Eligible Funds on the basis of the relative net asset values of the
respective shares to be exchanged, and subject to compliance with applicable
securities laws. Shareholders of any other Eligible Fund may similarly exchange
their shares for Fund shares with corresponding characteristics. Prior to making
an exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class A, Class B(1),
Class B and Class C shares may be redeemed without the payment of any contingent
deferred sales charge that might otherwise be due upon an ordinary redemption of
such shares. The State Street Research Money Market Fund issues Class E shares
which are sold without any sales charge. Exchanges of State Street Research
Money Market Fund Class E shares into Class A shares of the Fund or any other
Eligible Fund are subject to the initial sales charge or contingent deferred
sales charge applicable to an initial investment in such Class A shares, unless
a prior Class A sales charge has been paid directly or indirectly with respect
to the shares redeemed. Class A shares acquired through a new investment after
January 1, 1999, are subject to an incremental sales charge if exchanged within
30 days of acquisition for Class A shares of a Fund
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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 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
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plan exchange limits, Department of Labor regulations or administrative and
other considerations. The exchange limit may also be modified under certain
exchange arrangements for selected brokers with substantial asset allocation
programs. Subject to the foregoing, if an exchange request in good order is
received by the Service Center and delivered by the Service Center to the
Transfer Agent by 12 noon Boston time on any business day, the exchange usually
will occur that day. For further information regarding the exchange privilege,
shareholders should contact the Service Center.
Reinvestment Privilege. A shareholder of the Fund who has redeemed
shares or had shares repurchased at his or her request may reinvest all or any
portion of the proceeds (plus that amount necessary to acquire a fractional
share to round off his or her reinvestment to full shares) in shares, of the
same class as the shares redeemed, of the Fund or any other Eligible Fund at net
asset value and without subjecting the reinvestment to an initial sales charge,
provided such reinvestment is made within 120 calendar days after a redemption
or repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the amount
reinvested. The redemption of shares is, for federal income tax purposes, a sale
on which the shareholder may realize a gain or loss. If a redemption at a loss
is followed by a reinvestment within 30 days, the transaction may be a "wash
sale" resulting in a denial of the loss for federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be
subject to any applicable minimum account standards imposed by the fund into
which the reinvestment is made. Shares are sold to a reinvesting shareholder at
the net asset value thereof next determined following timely receipt by the
Service Center of such shareholder's written purchase request and delivery of
the request by the Service Center to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once per 12-month period with respect
to his or her shares of the Fund.
Dividend Allocation Plan. The Dividend Allocation Plan allows
shareholders to elect to have all their dividends and any other distributions
from the Fund or any Eligible Fund automatically invested at net asset value in
one other such Eligible Fund designated by the shareholder, provided the account
into which the dividends and distributions are directed is initially funded with
the requisite minimum amount.
Telephone Privileges. The following telephone privileges are
available:
o Telephone Exchange Privilege for Shareholder and Shareholder's
Financial Professional
o Shareholders automatically receive this privilege unless
declined.
o This privilege allows a shareholder or a shareholder's
financial professional to request exchanges into other
State Street Research funds.
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o Telephone Redemption Privilege for Shareholder
o Shareholders automatically receive this privilege unless
declined.
o This privilege allows a shareholder to phone requests to
sell shares, with the proceeds sent to the address of
record.
o Telephone Redemption Privilege for Shareholder's Financial
Professional (This privilege is not automatic; a shareholder
must specifically elect it)
o This privilege allows a shareholder's financial professional
to phone requests to sell shares, with the proceeds sent to
the address of record on the account.
A shareholder with the above telephone privileges is deemed to
authorize the Service Center and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be any of the shareholders of
an account or a shareholder's financial professional; and (2) honor any written
instructions for a change of address regardless of whether such request is
accompanied by a signature guarantee. All telephone calls will be recorded.
Neither the Fund, the other Eligible Funds, the Transfer Agent, the Investment
Manager nor the Distributor will be liable for any loss, expense or cost arising
out of any request, including any fraudulent or unauthorized requests.
Shareholders assume the risk to the full extent of their accounts that telephone
requests may be unauthorized. Reasonable procedures will be followed to confirm
that instructions communicated by telephone are genuine. The shareholder will
not be liable for any losses arising from unauthorized or fraudulent
instructions if such procedures are not followed.
Alternative Means of Contacting 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.
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.
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In determining the values of portfolio assets as provided below, the
Trustees utilize one or more pricing services in lieu of market quotations for
certain securities which are not readily available on a daily basis. Such
services utilize information with respect to market transactions, quotations
from dealers and various relationships among securities in determining value and
may provide prices determined as of times prior to the close of the NYSE.
In general, securities are valued as follows. Securities which are
listed or traded on the New York or American Stock Exchange are valued at the
price of the last quoted sale on the respective exchange for that day.
Securities which are listed or traded on a national securities exchange or
exchanges, but not on the New York or American Stock Exchange, are valued at the
price of the last quoted sale on the exchange for that day prior to the close of
the NYSE. Securities not listed on any national securities exchange which are
traded "over the counter" and for which quotations are available on the National
Association of Securities Dealers, Inc.'s (the "NASD") NASDAQ System are valued
at the closing price supplied through such system for that day at the close of
the NYSE. Other securities are, in general, valued at the mean of the bid and
asked quotations last quoted prior to the close of the NYSE if there are market
quotations readily available, or in the absence of such market quotations, then
at the fair value thereof as determined by or under authority of the Trustees of
the Trust with the use of such pricing services as may be deemed appropriate or
methodologies approved by the Trustees. The Trustees also reserve the right to
adopt other valuations based on fair value in pricing in unusual circumstances
where use of other methods as discussed in part above, could otherwise have a
material adverse effect on the Fund as a whole.
The Trustees have authorized the use of the amortized cost method to
value short-term debt instruments issued with a maturity of one year or less and
having a remaining maturity of 60 days or less when the value obtained is fair
value, provided that during any period in which more than 25% of the Fund's
total assets is invested in short-term debt securities the current market value
of such securities will be used in calculating net asset value per share in lieu
of the amortized cost method. Under the amortized cost method of valuation, the
security is 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
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their acquisition were one year or less). The Fund's portfolio turnover rates
for the fiscal years ended October 31, 1997 and 1998 were 117.66% and 186.03%,
respectively.
The portfolio turnover rate for the Fund for the most recent fiscal
year was significantly higher than the portfolio turnover rate for the previous
fiscal year because of steps taken throughout the most recent fiscal year to
reduce the Fund's exposure to the volatile equities markets.
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Fund occur. Against this background, the Investment Manager
evaluates the reasonableness of a commission or a net price with respect to a
particular transaction by considering such factors as difficulty of execution or
security positioning by the executing firm. The Investment Manager may or may
not solicit competitive bids based on its judgment of the expected benefit or
harm to the execution process for that transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given by the Investment Manager to services other than execution services which
certain of such firms have provided in the past or may provide in the future.
Negotiated commission rates and prices, however, are based upon the Investment
Manager's judgment of the rate which reflects the execution requirements of the
transaction without regard to whether the broker provides services in addition
to execution. Among such other services are the supplying of supplemental
investment research; general economic, political and business information;
analytical and statistical data; relevant market 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
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brokerage and research purposes; computer software and databases (including
those contained in certain trading systems and used for portfolio analysis and
modeling and also including software providing investment personnel with
efficient access to current and historical data from a variety of internal and
external sources) and portfolio evaluation services and relative performance of
accounts.
In the case of the Fund and other registered investment companies
advised by the Investment Manager or its affiliates, the above services may
include data relating to performance, expenses and fees of those investment
companies and other investment companies. This information is used by the
Trustees or Directors of the investment companies to fulfill their
responsibility to oversee the quality of the Investment Manager's advisory
contracts between the investment companies and the Investment Manager. The
Investment Manager considers these investment company services only in
connection with the execution of transactions on behalf of its investment
company clients and not its other clients. Certain of the nonexecution services
provided by broker-dealers may in turn be obtained by the broker-dealers from
third parties who are paid for such services by the broker-dealers.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. The Investment Manager's investment management
personnel seek to evaluate the quality of the research and other services
provided by various broker-dealer firms, and the results of these efforts are
made available to the equity trading department, which uses this information as
consideration to the extent described above in the selection of brokers to
execute portfolio transactions.
Some services furnished by broker-dealers may be used for research
and investment decision-making purposes, and also for marketing or
administrative purposes. Under these circumstances, the Investment Manager
allocates the cost of the services to determine the proportion which is
allocable to research or investment decision-making and the proportion allocable
to other purposes. The Investment Manager pays directly from its own funds for
that portion allocable to uses other than research or investment
decision-making. Some research and execution services may benefit the Investment
Manager's clients as a whole, while others may benefit a specific segment of
clients. Not all such services will necessarily be used exclusively in
connection with the accounts which pay the commissions to the broker-dealer
providing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which the firm may
expect to receive for services supplied to the Investment Manager or otherwise.
There may be, however, understandings with certain firms that in order for such
firms to be able to continuously supply 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.
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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. Brokerage commissions paid
by the Fund in secondary trading during the last three fiscal years were as
follows: 1998, $29,000, 1997, $26,000, and 1996, $38,000.
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 as a single transaction
for the purchase or sale of a particular security. Among other reasons why best
execution may not be achieved with directed brokerage is that, in an effort to
achieve orderly execution of transactions, execution of orders that have
designated particular brokers may, at the discretion of the trading desk, be
delayed until execution of other non-designated orders has been completed.
When more than one client of the Investment Manager is seeking to buy
or sell the same security, the sale or purchase is carried out in a manner which
is considered fair and equitable to all accounts. In allocating investments
among various clients (including in what sequence orders for trades are placed),
the Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the size of the order, the amount already
committed for each client to a specific investment and the relative risks of the
investments, all in order to provide on balance a
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fair and equitable result to each client over time. Although sharing in large
transactions may sometimes affect price or volume of shares acquired or sold,
overall it is believed there may be an advantage in execution. The Investment
Manager may follow the practice of grouping orders of various clients for
execution to get the benefit of lower prices or commission rates. In certain
cases where the aggregate order may be executed in a series of transactions at
various prices, the transactions are allocated as to amount and price in a
manner considered equitable to each so that each receives, to the extent
practicable, the average price of such transactions. Exceptions may be made
based on such factors as the size of the account and the size of the trade. For
example, the Investment Manager may not aggregate trades where it believes that
it is in the best interests of clients not to do so, including situations where
aggregation might result in a large number of small transactions with consequent
increased custodial and other transactional costs which may disproportionately
impact smaller accounts. Such disaggregation, depending on the circumstances,
may or may not result in such accounts receiving more or less favorable
execution relative to other clients.
CERTAIN TAX MATTERS
Federal Income Taxation of 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 (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 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 an amount equal to at least 98% of the sum of its
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ordinary income (not taking into account any capital gains or losses) for the
calendar year, and its capital gain net income for the 12-month period ending on
October 31, in addition to any undistributed portion of the respective balances
from the prior year. For that purpose, any income or gain retained by the Fund
that is subject to corporate tax will be considered to have been distributed by
year-end. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
Taxation of the Fund's Investments
Original Issue Discount; Market Discount. For federal income tax
purposes, debt securities purchased by the Fund may be treated as having
original issue discount. Original issue discount represents interest for federal
income tax purposes and can generally be defined as the excess of the stated
redemption price at maturity of a debt obligation over the issue price. Original
issue discount is treated for federal income tax purposes as income earned by
the Fund, whether or not any income is actually received, and therefore is
subject to the distribution requirements of the Code. Generally, the amount of
original issue discount is determined on the basis of a constant yield to
maturity which takes into account the compounding of accrued interest. Under
section 1286 of the Code, an investment in a stripped bond or stripped coupon
may result in original issue discount.
Debt securities may be purchased by the Fund at a discount that
exceeds the original issue discount plus previously accrued original issue
discount remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for federal
income tax purposes. In the case of any debt security issued after July 18,
1984, having a fixed maturity date of more than one year from the date of issue
and having market discount, the gain realized on disposition will be treated as
interest to the extent it does not exceed the accrued market discount on the
security (unless the Fund elects to include such accrued market discount in
income in the tax year to which it is attributable). Generally, market discount
is accrued on a daily basis. The Fund may be required to capitalize, rather than
deduct currently, part or all of any direct interest expense incurred or
continued to purchase or carry any debt security having market discount, unless
the Fund makes the election to include market discount currently. Because the
Fund must include original issue discount in income, it will be more difficult
for the Fund to make the distributions required for the Fund to maintain its
status as a regulated investment company under Subchapter M of the Code or to
avoid the 4% excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments
may be subject to provisions of the Code that (i) require inclusion of
unrealized gains or losses in the Fund's income for purposes of the 90% test,
and require inclusion of unrealized gains in the Fund's income for the purposes
of the excise tax and the distribution requirements applicable to regulated
investment companies; (ii) defer recognition of realized losses; and (iii)
characterize both realized and unrealized gain or loss as short-term and
long-term gain, irrespective of the holding period of the investment. Such
provisions generally apply to, among other investments, options on debt
50
<PAGE>
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.
Federal Income Taxation of Shareholders
Dividends paid by the Fund may be eligible for the 70%
dividends-received deduction for corporations. The percentage of the Fund's
dividends eligible for such tax treatment may be less than 100% to the extent
that less than 100% of the Fund's gross income may be from qualifying dividends
of domestic corporations. Any dividend declared in October, November or December
and made payable to shareholders of record in any such month is treated as
received by such shareholder on December 31, provided that the Fund pays the
dividend during January of the following calendar year.
Distributions by the Fund can result in a reduction in the fair
market value of the Fund's shares. Should a distribution reduce the fair market
value below a shareholder's cost basis, such distribution nevertheless may be
taxable to the shareholder as ordinary income or capital gain, even though, from
an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a taxable distribution will then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
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
fiscal years ended October 31, 1998, 1997 or 1996. For the same periods, the
Distributor reallowed no concessions to dealers. The Distributor may 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
51
<PAGE>
Prospectus, result from cost savings inherent in economies of scale among other
factors. Management believes that the cost of sales efforts of the Distributor
and broker-dealers tends to decrease as the size of purchases increases, or does
not involve any incremental sales expenses as in the case of, for example,
exchanges, reinvestments or dividend investments at net asset value. Similarly,
no significant sales effort is necessary for sales of shares at net asset value
to certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements, managed fee-based programs and
so-called "mutual fund supermarkets," among other special programs, the amount
of the sales charge reduction will similarly reflect the anticipated reduction
in sales expenses associated with such arrangements. The reductions in sales
expenses, and therefore the reduction in sales charges, will vary depending on
factors such as the size and other characteristics of the organization or
program, and the nature of its membership or the participants. The Fund reserves
the right to make variations in, or eliminate, sales charges at any time or to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
arrangements or similar programs at any time.
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 fiscal years ended October 31, 1998, 1997 and 1996, the
Distributor received no contingent deferred sales charges upon redemption of
Class A, Class B and Class C shares of the Fund and paid no initial commissions
to securities dealers for sales of such shares.
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1"
(the "General Distribution Plan") under which the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of Class A, Class B and Class C shares, including, but not limited to, (1) the
payment of commissions and/or reimbursement to underwriters, securities dealers
and others engaged in the sale of shares, including payments to the Distributor
to be used to pay commissions and/or reimbursement to securities dealers (which
securities dealers may be affiliates of the Distributor) engaged in the
distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the
52
<PAGE>
servicing of investor accounts, and (3) reimbursement of expenses incurred by
the Distributor in connection with the servicing of shareholder accounts
including payments to securities dealers and others in consideration of the
provision of personal service to investors and/or the maintenance or servicing
of shareholder accounts and expenses associated with the provision of personal
service by the Distributor directly to investors. In addition, the General
Distribution Plan is deemed to authorize the Distributor and the Investment
Manager to make payments out of general profits, revenues or other sources to
underwriters, securities dealers and others in connection with sales of shares,
to the extent, if any, that such payments may be deemed to be within the scope
of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the General Distribution Plan
may not exceed (i) with respect to Class A shares, an annual rate of 0.25% of
the average daily value of net assets represented by such Class A shares, and
(ii) with respect to Class B and Class C shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class C
shares ( as the case may be) to finance sales or promotion expenses and an
annual rate of 0.25% of the average daily value of the net assets represented by
such Class B or Class C shares (as the case may be) to make payments for
personal services and/or the maintenance or servicing of shareholder accounts.
The Fund also has adopted a "Rule 12b-1 Plan for Distribution of
Shares" (the "Share 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 B(1) 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 at the end of
each month at the annual rate of 0.75% of average daily net assets attributable
to the Class B(1) 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. 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 Share Distribution Plan.
A rule of the National Association of Securities Dealers, Inc.
("NASD") limits annual expenditures that the Fund may incur to 0.75% for
distribution expenses and 0.25% for service fees. The NASD Rule also limits the
aggregate amount that the Fund may pay for such distribution costs to 6.25% of
gross share sales of a class since the inception of any asset-based sales charge
plus interest at the prime rate plus 1% on unpaid amounts thereof (less any
contingent deferred sales charges). Such limitation does not apply to the
service fees. Payments to the Distributor or to dealers funded under either the
General Distribution Plan or the Share Distribution Plan may be discontinued at
any time.
53
<PAGE>
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 amount of shares or develop particular distribution channels. The
Distributor may compensate dealers with clients who maintain their investments
in the Fund over a period of years. The incentives can include merchandise and
trips to, and attendance at, sales seminars at resorts. The Distributor may pay
for administrative services, such as technological and computer systems support
for the maintenance of pension plan participant records, for subaccounting, and
for distribution through mutual fund supermarkets or similar arrangements.
During the fiscal year ended October 31, 1998, the Fund paid no fees
to the Distributor under the Distribution Plan.
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.
54
<PAGE>
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.
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 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 Flexible Income Funds 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.
Performance for Class A shares reflects actual Class A results for
the period May 16, 1994 (commencement of fund operations) through the
liquidation of all the then outstanding Class A shares on March 27, 1997.
Returns for periods between March 27, 1997 and September 1, 1999 reflect
performance of Class S shares, adjusted for sales charges and annual fund
operating expenses, including Rule 12b-1 fees, as presented in the fee and
expense tables in the prospectus dated September 1, 1999. Performance after
September 1, 1999, when Class A shares were reintroduced, will reflect actual
Class A results.
Performance for Class B(1), Class B and Class C shares reflect
performance of Class S shares prior to the introduction of such Class B(1),
Class B and Class C shares on September 1, 1999. Performance figures have been
adjusted for sales charges and annual fund operating expenses, including Rule
12b-1 fees, as presented in the fee and expense tables in the prospectus dated
September 1, 1999. Performance after September 1, 1999, will reflect actual
Class B(1), Class B and Class C results.
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 Fund's standard average annual total returns ("standard total
return") of each class of shares were as follows:
<TABLE>
<CAPTION>
Commencement of Operations One Year
(May 16, 1994) through Ended
October 31, 1998 October 31, 1998
---------------- ----------------
<S> <C> <C>
Class A 9.58% 2.10%
Class B(1) 10.15% 4.15%
Class B 10.15% 4.15%
Class C 10.79% 8.15%
Class S 11.66% 10.25%
</TABLE>
55
<PAGE>
Standard total return is computed separately for each class of shares
by determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
P(1+T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated
period assuming a hypothetical $1,000 payment made at
the beginning of the designated period
The calculation is based on the further assumptions that the highest
applicable initial or contingent deferred sales charge is deducted, and that all
dividends and distributions by the Fund are reinvested at net asset value on the
reinvestment dates during the periods. All accrued expenses and recurring
charges are also taken into account as described later herein.
Yield
The annualized yield of each of the Fund's Class A, Class B(1), Class
B, and Class C and Class S shares, based on the month of October 1998, was
as follows:
[to be completed upon effectiveness]
<TABLE>
<S> <C>
Class A %
Class B(1) %
Class B %
Class C %
Class S 3.96%
</TABLE>
Yield is computed separately for each class of shares by dividing the
net investment income per share earned during a recent month or other specified
30-day period by the maximum offering price per share on the last day of the
period and annualizing the result in accordance with the following formula:
56
<PAGE>
YIELD = 2 [(a -- b + 1)(6) -- 1]
------
c d
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
voluntary expense reductions by the Investment
Manager)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the
last day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, a Fund computes the yield to maturity of each obligation held by
such Fund based on the market value of the obligation (including actual accrued
interest) at the close of the last business day of the preceding period, or,
with respect to obligations purchased during the period, the purchase price
(plus actual accrued interest). The yield to maturity is then divided by 360 and
the quotient is multiplied by the market value of the obligation (including
actual accrued interest) to determine the interest income on the obligation for
each day of the period that the obligation is in the portfolio. Dividend income
is recognized daily based on published rates.
With respect to the treatment of discount and premium on mortgage or
other receivables- backed obligations which are expected to be subject to
monthly payments of principal and interest ("paydowns"), each Fund accounts for
gain or loss attributable to actual monthly paydowns as realized capital gain or
loss during the period. Each Fund has elected not to amortize discount or
premium on such securities.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be declared as a dividend shortly thereafter. The maximum offering
price includes, as applicable, a maximum sales charge of 5.75%.
All accrued expenses are taken into account as described later
herein.
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often are insured and/or provide an agreed
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that yield is a function of the kind and quality of the instruments in
the Fund's portfolio, portfolio maturity and operating expenses and market
conditions.
57
<PAGE>
Accrued Expenses and Recurring Charges
Accrued expenses include all recurring charges that are charged to
all shareholder accounts in during the base period. The standard total return
and yield results take sales charges, if applicable, into account, although the
results do not take into account recurring and nonrecurring charges for optional
services which only certain shareholders elect and which involve nominal fees,
such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return
results for Class A, Class B(1), Class B, Class C and Class S shares for periods
which end no earlier than the most recent calendar quarter end and which begin
twelve months before, five years before and ten years before (or the
commencement of operations, whichever is earlier). In addition, the Fund may
provide nonstandardized total return results for differing periods, and/or
without taking sales charges into account. Such nonstandardized total return is
computed as otherwise described under "--Total Return" except the result may or
may not be annualized, and as noted any applicable sales charge may not be taken
into account and therefore not deducted from the hypothetical initial payment of
$1,000. For example, the Fund's nonstandardized total returns for the six months
ended December 31, 1998, without taking sales charges into account, were as
follows:
[to be completed upon effectiveness]
<TABLE>
<S> <C>
Class A %
Class B(1)
Class B %
Class C %
Class S 1.37%
</TABLE>
Distribution Rates
The Fund may also quote its distribution rate for each class of
shares. The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the maximum
offering price per share as of the end of the period. A distribution can include
gross investment income from debt obligations purchased at a premium and in
effect include a portion of the premium paid. A distribution can also include
nonrecurring, gross short-term capital gains without recognition of any
unrealized capital losses. Further, a distribution can include income from the
sale of options by the Fund even though such option income is not considered
investment income under generally accepted accounting principles.
58
<PAGE>
Because a distribution can include such premiums, capital gains and
option income, the amount of the distribution may be susceptible to control by
the Investment Manager through transactions designed to increase the amount of
such items. Also, because the distribution rate is calculated in part by
dividing the latest distribution by the offering price, which is based on net
asset value plus any applicable sales charge, the distribution rate will
increase as the net asset value declines. A distribution rate can be greater
than the yield rate calculated as described above.
The distribution rate of each of the Fund's Class A, Class B(1),
Class B, Class C and Class S shares, based on the month ended October 31, 1998,
was as follows:
[to be completed upon effectiveness]
<TABLE>
<S> <C>
Class A
Class B(1)
Class B
Class C
Class S 3.66%
</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.
FINANCIAL STATEMENTS
Each of the Investment Portfolio, Statement of Assets and
Liabilities, Statement of Operations and Statement of Changes in Net Assets
included in the Fund's Annual Report to Shareholders as of and for the fiscal
year ended October 31, 1998, including any notes thereto or Report of
Independent Accountants, is hereby incorporated by reference from the Fund's
Annual Report, filed with the Securities and Exchange Commission (EDGAR
accession number 0000950156-99-000023). Each of the Investment Portfolio,
Statement of Assets and Liabilities, Statement of Operations and Statement of
Changes in Net Assets included in the Fund's Semiannual Report to Shareholders
as of and for the fiscal period ended April 30, 1999, including any notes
thereto, is hereby incorporated by reference from the Fund's Semiannual Report,
filed with the Securities and Exchange Commission (EDGAR accession number
______-__-______). Shareholder reports are available without charge upon
request. For more information, call the State Street Research Service Center at
(800) 562-0032.
In addition to the reports provided to holders of record on a
semiannual basis, other supplementary financial reports may be made available
from time to time through electronic or other media. Shareholders with
substantial holdings in one or more State Street Research Funds may also receive
reports and other information which reflect or analyze their positions in a
consolidated manner. For more information, call State Street Research Service
Center.
59
<PAGE>
DOCSC\357797.13
60
<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)
(1)(e) Form of Amendment No. 6 to the First Amended and Restated
Master Trust Agreement
(2)(a) By-Laws of the Registrant(1)**
(2)(b) Amendment No. 1 to By-Laws effective September 30, 1992(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(18)
(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(18)
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(18)
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
18 Post-Effective Amendment No. 25 June 29, 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 has duly caused
this Post-Effective Amendment No. 26 to its Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Boston and The Commonwealth of Massachusetts on the 1st day of July,
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
Amendments Nos. 17, 20 and 25.
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. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 27 [X]
--------------------
STATE STREET RESEARCH FINANCIAL TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
--------------------
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(1)(e) Form of Amendment No. 6 to the First Amendment and Restated Master
Trust Agreement
EXHIBIT (1)(e)
Amendment No. 6 to First Amended and
Restated Master Trust Agreement
INSTRUMENT OF AMENDMENT
Pursuant to Article IV, Sections 4.1 and 4.2 and Article VII, Section
7.3 of the First Amended and Restated Master Trust Agreement of the State Street
Research Financial Trust (the "Trust") dated June 1, 1993 ("Master Trust
Agreement"), as heretofore amended, the Master Trust Agreement is hereby amended
to change the name of one of the series of shares under such Trust, currently a
Sub-Trust designated as
"State Street Research Strategic Portfolios: Conservative"
to
"State Street Research Strategic Income Plus Fund."
This Amendment shall be effective as of September 1, 1999.
IN WITNESS WHEREOF, the undersigned officer or assistant officer of the
Trust hereby adopts the foregoing on behalf of the Trust pursuant to
authorization by the Trustees of the Trust.
______________________________
Darman A. Wing
Assistant Secretary
