As filed with the Securities and Exchange Commission on August 21, 1997
Securities Act of 1933 Registration No. 33-42129
Investment Company Act of 1940 File No. 811-6375
================================================================================
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. 8 |X|
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 9 |X|
---
--------------------
STATE STREET RESEARCH PORTFOLIOS, INC.
--------------------------------------
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
--------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 357-1200
Francis J. McNamara, III
Executive Vice President, Secretary & General Counsel
State Street Research & Management Company
One Financial Center
Boston, Massachusetts 02111
--------------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
Geoffrey R.T. Kenyon, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place, Boston, Massachusetts 02109
It is proposed that this filing will become effective under Rule 485:
|_| Immediately upon filing pursuant to paragraph (b).
|X| On August 25, 1997 pursuant to paragraph (b).
|_| 60 days after filing pursuant to paragraph (a)(1).
|_| On ____________ pursuant to paragraph (a)(1).
|_| 75 days after filing pursuant to paragraph (a)(2).
|_| On ____________ pursuant to paragraph (a)(2).
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
--------------------
<PAGE>
The Registrant hereby declares that, pursuant to Rule 24f-2 promulgated
under the Investment Company Act of 1940, as amended, it has registered an
indefinite number of shares of common stock, par value $.001 per share, in the
State Street Research International Equity Fund series of the Registrant,
which shares are designated as Class A shares, Class B shares, Class C shares
and Class D shares of common stock, in such series.
A Rule 24f-2 Notice for the most recent fiscal year ended October 31, 1996,
was filed by the Registrant on or about December 20, 1996 with respect to such
shares.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Part A
------
CAPTION OR LOCATION IN
PROSPECTUS FOR STATE
STREET RESEARCH
FORM N-1A ITEM NO. INTERNATIONAL EQUITY FUND
- ------------------------------ ----------------------------------
1. Cover Page ............... Same
2. Synopsis ................. Table of Expenses
3. Condensed Financial Financial Highlights;
Information .............. Calculation of Performance
Data
4. General Description The Fund's Investments; Risk
of Registrant ............ Factors; Limiting Investment
Risk; The Fund and Its Shares
5. Management of the Management of the Fund;
Fund ..................... Purchase of Shares
5A. Management's [To be included
Discussion in Financial
of Fund Performance ...... Statements]
6. Capital Stock and Shareholder Services; The
Other Securities ......... Fund and Its Shares;
Management of the
Fund; Dividends
and Distributions; Taxes
7. Purchase of
Securities Being Purchase of Shares;
Offered .................. Shareholder Services
8. Redemption or Redemption of Shares;
Repurchase ............... Shareholder Services
9. Legal Proceedings ........ Not Applicable
i
<PAGE>
Part B
------
CAPTION OR LOCATION IN
PROSPECTUS FOR STATE
STREET RESEARCH
FORM N-1A ITEM NO. INTERNATIONAL EQUITY FUND
- ------------------------------ ----------------------------------
10. Cover Page ............... Same
11. Table of Contents ........ Same
12. General Information
and History .............. Not Applicable
13. Investment Investment Policies and
Objectives Restrictions; Additional
and Policies ............. Information Concerning Certain
Investment Techniques;
Debt Securities Ratings;
Portfolio Transactions
14. Management of the
Registrant ............... Directors and Officers
15. Control Persons and
Principal Holders of
Securities ............... Directors and Officers
16. Investment Investment Advisory Services;
Advisory and Custodian; Independent
Other Services ........... Accountants; Distribution of
Shares of the Fund
17. Brokerage
Allocation ............... Portfolio Transactions
18. Capital Stock and Not Applicable (Description in
Other Securities ......... Prospectus)
19. Purchase, Redemption
and Pricing of
Securities Being Purchase and Redemption of Shares;
Offered .................. Net Asset Value
20. Tax Status ............... Certain Tax Matters
21. Underwriters ............. Distribution of Shares of the
Fund
ii
<PAGE>
CAPTION OR LOCATION IN
PROSPECTUS FOR STATE
STREET RESEARCH
FORM N-1A ITEM NO. INTERNATIONAL EQUITY FUND
- ------------------------------ ----------------------------------
22. Calculation of
Performance
Data ..................... Calculation of Performance Data
23. Financial
Statements ............... Financial Statements
iii
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
Prospectus--August 25, 1997
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND (the "Fund"), seeks to achieve
long-term growth of capital by investing primarily in common stock and
equity-related securities of non-U.S. companies. Current income is not a
specific prerequisite in the selection of portfolio securities.
Management will measure growth in connection with the Fund in U.S.
dollars.
The Fund is a diversified series of State Street Research Portfolios, Inc.
("Portfolios"), an open-end management investment company.
State Street Research & Management Company serves as the investment
adviser for the Fund (the "Investment Manager"). State Street Research
Investment Services, Inc. serves as the distributor for the Fund (the
"Distributor"). GFM International Investors Limited ("GFM" or "Sub-Investment
Manager") serves as the sub-investment adviser of the Fund. As of June 30,
1997, the Investment Manager had assets of approximately $45.4 billion under
management. As of the same date, the Sub-Investment Manager had assets of
approximately $911.2 million under management.
Shareholders may redeem their shares directly from the Fund at net asset
value less the applicable contingent deferred sales charge, if any; redemptions
processed through securities dealers may be subject to processing charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Fund will
achieve its investment objective. The net asset value of a share of the Fund
will fluctuate as market conditions change.
Table of Contents Page
- --------------------------------------------------------------------------------
Table of Expenses ........................................................ 2
Financial Highlights....................................................... 4
The Fund's Investments ................................................. 6
Risk Factors ............................................................ 12
Limiting Investment Risk ................................................ 13
Purchase of Shares ...................................................... 14
Redemption of Shares ..................................................... 22
Shareholder Services ..................................................... 24
The Fund and Its Shares .................................................. 28
Management of the Fund ................................................. 29
Dividends and Distributions; Taxes ........................................ 29
Calculation of Performance Data ........................................... 30
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED ON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
<PAGE>
This Prospectus sets forth concisely the information a prospective
investor ought to know about the Fund before investing. It should be retained
for future reference. A Statement of Additional Information about the Fund
dated August 25, 1997 has been filed with the Securities and Exchange
Commission and is incorporated by reference in this Prospectus. It is
available, at no charge, upon request to the Fund at the address indicated on
the back cover or by calling 1-800-562-0032.
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a deferred
basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5%
and (ii) an annual service fee of 0.25% of the average daily net asset value of
the Class A shares.
Class B shares are subject (i) to a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees of
1% of the average daily net asset value of these shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses) at
the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and
large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution and
service fees of 1% of the average daily net asset value of these shares.
Table of Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C Class D
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) .................. 4.5% None None None
Maximum Deferred Sales Charge (as a percentage
of net asset value at time of purchase or
redemption, whichever is lower) ..................... None(2) 5% None 1%
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) ...... None None None None
Redemption Fees (as a percentage of amount
redeemed, if applicable) ........................... None None None None
Exchange Fee ....................................... None None None None
Annual Fund Operating Expenses (as a percentage of
average net assets)
Management Fee ....................................... 0.95% 0.95% 0.95% 0.95%
12b-1 Fees .......................................... 0.25% 1.00% None 1.00%
Other Expenses ....................................... 1.17% 1.17% 1.17% 1.17%
Less Voluntary Reduction ........................... (0.47%) (0.47%) (0.47%) (0.47%)
------- ------- ------- -------
Total Fund Operating Expenses (after
voluntary reduction) ........................... 1.90% 2.65% 1.65% 2.65%
======= ======= ======= =======
</TABLE>
- ------------
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
thereafter, and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contin-
2
<PAGE>
gent deferred sales charge on any portion of the purchase redeemed within
one year of the sale. Long-term investors in Class A, Class B or Class D
shares may, over a period of years, pay more than the economic equivalent of
the maximum sales charge permissible under applicable rules. See "Purchase
of Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
Example:
You would pay the following expenses on a $1,000 investment including, for
Class A shares, the maximum applicable initial sales charge and assuming (1) 5%
annual return and (2) redemption of the entire investment at the end of each
time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares ......... 63 102 143 257
Class B shares (1) ...... 77 112 161 280
Class C shares ......... 17 52 90 195
Class D shares ......... 37 82 141 298
You would pay the following expenses on the same investment,
assuming no redemption:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class B shares (1) ...... 27 82 141 280
Class D shares ......... 27 82 141 298
- ------------
(1) Ten-year figure assumes conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense levels shown in the table above are based on
experience with expenses for the fiscal year ended October 31, 1996; actual
expense levels for the current fiscal year and future years may vary from the
amounts shown. The table does not reflect charges for optional services elected
by certain shareholders, such as the $7.50 fee for remittance of redemption
proceeds by wire. For further information on sales charges, see "Purchase of
Shares--Alternative Purchase Program"; for further information on management
fees, see "Management of the Funds"; and for further information on 12b-1 fees,
see "Purchase of Shares--Distribution Plan."
The Fund has been advised that the Distributor and its affiliates may from
time to time and in varying amounts voluntarily assume some portion of fees or
expenses relating to the Fund. For the fiscal year ended October 31, 1996,
Total Fund Operating Expenses as a percentage of average net assets of Class A,
Class B, Class C and Class D shares, respectively, would have been 2.36%,
3.11%, 2.12%, and 3.11% in the absence of the voluntary assumption of fees or
expenses by the Distributor or its affiliates. Such assumption of fees or
expenses, as a percentage of average net assets, amounted to 0.46%, 0.46%,
0.47% and 0.46% of the Class A, Class B, Class C and Class D, respectively. The
amount of fees or expenses assumed during the fiscal year ended October 31,
1996 differed among classes because of fluctuating relative levels of assets in
each class and expenses before reimbursement which may not be constant over
time. The Fund expects the subsidization of fees or expenses to continue in the
current year, although it cannot give complete assurance that such assistance
will be received.
3
<PAGE>
Financial Highlights
The data set forth below has been audited by Deloitte & Touche LLP, independent
accountants, and their reports thereon are included in the Statement of
Additional Information. For further information about the performance of the
Funds, see "Financial Statements" in the Statement of Additional Information.
<TABLE>
<CAPTION>
Class A
-----------------
Six months ended
April 30, 1997***
-----------------
<S> <C>
Net asset value, beginning of period $ 9.22
-------
Net investment loss* (0.03)
Net realized and unrealized gain (loss) on investments and foreign currency 0.26
-------
Total from investment operations 0.23
-------
Distribution from net realized gains --
-------
Total distributions --
-------
Net asset value, end of period $ 9.45
=======
Total return 2.49%++
Net assets at end of period (000s) $18,216
Ratio of operating expenses to average net assets* 1.90%[dbldag]
Ratio of net investment loss to average net assets* (0.56)%[dbldag]
Portfolio turnover rate 89.95%
Average commission rate@ $0.0107
- ------------
*Reflects voluntary assumption of fees or expenses per share in each period $ 0.03
<CAPTION>
Year ended October 31
-----------------------
1996*** 1995***
------- --------
<S> <C> <C>
Net asset value, beginning of period $ 9.34 $ 10.98
-------- --------
Net investment loss* (0.04) (0.08)
Net realized and unrealized gain (loss) on investments and foreign currency (0.08) (1.04)
-------- --------
Total from investment operations (0.12) (1.12)
-------- --------
Distribution from net realized gains -- (0.52)
-------- --------
Total distributions -- (0.52)
-------- --------
Net asset value, end of period $ 9.22 $ 9.34
======== ========
Total return (1.28)%+ (10.38)%+
Net assets at end of period (000s) $21,116 $$22,497
Ratio of operating expenses to average net assets* 1.90% 1.90%
Ratio of net investment loss to average net assets* (0.37)% (0.82)%
Portfolio turnover rate 132.36% 100.68%
Average commission rate@ $0.0069 --
- ------------
*Reflects voluntary assumption of fees or expenses per share in each period $ 0.05 $ 0.06
<CAPTION>
1994**
-------
<S> <C>
Net asset value, beginning of period $ 10.54
-------
Net investment loss* (0.04)
Net realized and unrealized gain (loss) on investments and foreign currency 0.48
-------
Total from investment operations 0.44
-------
Distribution from net realized gains --
-------
Total distributions --
-------
Net asset value, end of period $ 10.98
=======
Total return 4.17%++
Net assets at end of period (000s) $22,579
Ratio of operating expenses to average net assets* 1.90%[dbldag]
Ratio of net investment loss to average net assets* (0.87)%[dbldag]
Portfolio turnover rate 80.60%
Average commission rate@ --
- ------------
*Reflects voluntary assumption of fees or expenses per share in each period $ 0.03
</TABLE>
<TABLE>
<CAPTION>
Class B
--------------------------------
Year ended
October 31
Six months ended ----------
April 30, 1997*** 1996***
----------------- ----------
<S> <C> <C>
Net asset value, beginning of period $ 9.04 $ 9.22
------- -------
Net investment loss* (0.06) (0.11)
Net realized and unrealized gain (loss) on investments and foreign currency 0.25 (0.07)
------- -------
Total from investment operations 0.19 (0.18)
------- -------
Distribution from net realized gains -- --
------- -------
Total distributions -- --
------- -------
Net asset value, end of period $ 9.23 $ 9.04
======= =======
Total return 2.10%++ (1.95)%+
Net assets at end of period (000s) $24,363 $28,971
Ratio of operating expenses to average net assets* 2.65%[dbldag] 2.65%
Ratio of net investment loss to average net assets* (1.32)%[dbldag] (1.13)%
Portfolio turnover rate 89.95% 132.36%
Average commission rate@ $0.0107 $0.0069
- ------------
* Reflects voluntary assumption of fees or expenses per share in each period $ 0.03 $ 0.05
<CAPTION>
Year ended October 31
---------------------
1995*** 1994**
------- -------
<S> <C> <C>
Net asset value, beginning of period $ 10.93 $ 10.54
------- -------
Net investment loss* (0.15) (0.06)
Net realized and unrealized gain (loss) on investments and foreign currency (1.04) 0.45
------- -------
Total from investment operations (1.19) 0.39
------- -------
Distribution from net realized gains (0.52) --
------- -------
Total distributions (0.52) --
------- -------
Net asset value, end of period $ 9.22 $ 10.93
======= =======
Total return (11.09)%+ 3.70%++
Net assets at end of period (000s) $27,614 $18,904
Ratio of operating expenses to average net assets* 2.65% 2.65%[dbldag]
Ratio of net investment loss to average net assets* (1.54)% (1.61)%[dbldag]
Portfolio turnover rate 100.68% 80.60%
Average commission rate@ -- --
- ------------
* Reflects voluntary assumption of fees or expenses per share in each period $ 0.06 $ 0.03
</TABLE>
** March 1, 1994 (commencement of share class designations) to October 31,
1994.
*** Per-share figures have been calculated using the average shares
method.
[dbldag] Annualized.
+ Total return figures do not reflect any front-end or contingent
deferred sales charges. Total return would be lower if the Distributor
and its affiliates had not voluntarily assumed a portion of the Fund's
expenses.
++ Represents aggregate return for the period without annualization and
does not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the Distributor and its affiliates had
not voluntarily assumed a portion of the Fund's expenses.
@ Average commission rate per share paid for security trades for fiscal
years beginning on or after November 1, 1995.
4
<PAGE>
<TABLE>
<CAPTION>
Class C
-----------------------------
Year ended
October 31
Six months ended ----------
April 30, 1997*** 1996***
----------------- ----------
<S> <C> <C>
Net asset value, beginning of period $ 9.29 $ 9.39
------- -------
Net investment income (loss)* (0.01) (0.02)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.26 (0.08)
------- -------
Total from investment operations 0.25 (0.10)
------- -------
Dividends from net investment income -- --
Distributions from net realized gains -- --
------- -------
Total distributions -- --
------- -------
Net asset value, end of period $ 9.54 $ 9.29
======= =======
Total return 2.69%++ (1.06)%+
Net assets at end of period (000s) $22,997 $26,649
Ratio of operating expenses to average net assets* 1.65%[dbldag] 1.65%
Ratio of net investment income (loss) to average net assets* (0.31)%[dbldag] (0.16)%
Portfolio turnover rate 89.95% 132.36%
Average commission rate@ $0.0107 $0.0069
- ------------
*Reflects voluntary assumption of fees or expenses per
share in each period $ 0.03 $ 0.05
<CAPTION>
Year ended October 31
-------------------------------------------------
1995*** 1994 1993 1992****
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.01 $ 9.56 $ 6.50 $ 7.40
------- ------- ------- --
Net investment income (loss)* (0.05) (0.07) (0.02) 0.04
Net realized and unrealized gain (loss) on investments
and foreign currency (1.05) 2.09 3.17 (0.94)
------- ------- ------- --
Total from investment operations (1.10) 2.02 3.15 (0.90)
------- ------- ------- --
Dividends from net investment income -- (0.05) (0.04) --
Distributions from net realized gains (0.52) (0.52) (0.05) --
------- ------- ------- --
Total distributions (0.52) (0.57) (0.09) --
------- ------- ------- --
Net asset value, end of period $ 9.39 $ 11.01 $ 9.56 $ 6.50
======= ======= ======= =======
Total return (10.16)%+ 22.73%+ 48.95%+ (12.16)%++
Net assets at end of period (000s) $33,883 $54,631 $27,767 $10,418
Ratio of operating expenses to average net assets* 1.65% 1.65% 1.65% 1.65%[dbldag]
Ratio of net investment income (loss) to average net assets* (0.51)% (0.75)% (0.37)% 0.79%[dbldag]
Portfolio turnover rate 100.68% 80.60% 116.12% 77.83%
Average commission rate@ -- -- -- --
- ------------
*Reflects voluntary assumption of fees or expenses per
share in each period $ 0.06 $ 0.05 $ 0.08 $ 0.10
</TABLE>
<TABLE>
<CAPTION>
Class D
-----------------------------
Year ended
October 31
Six months ended ----------
April 30, 1997*** 1996***
----------------- ----------
<S> <C> <C>
Net asset value, beginning of period $ 9.03 $ 9.22
------- -------
Net investment loss* (0.06) (0.11)
Net realized and unrealized gain (loss) on investments and foreign currency 0.25 (0.08)
------- -------
Total from investment operations 0.19 (0.19)
------- -------
Distribution from net realized gains -- --
------- -------
Total distributions -- --
------- -------
Net asset value, end of period $ 9.22 $ 9.03
======= =======
Total return 2.10%++ (2.06)%+
Net assets at end of period (000s) $ 3,517 $ 5,324
Ratio of operating expenses to average net assets* 2.65%[dbldag] 2.65%
Ratio of net investment loss to average net assets* (1.36)%[dbldag] (1.10)%
Portfolio turnover rate 89.95% 132.36%
Average commission rate@ $0.0107 $0.0069
- ------------
*Reflects voluntary assumption of fees or expenses per share in each period $ 0.03 $ 0.05
<CAPTION>
Year ended October 31
---------------------
1995*** 1994**
-------- ------
<S> <C> <C>
Net asset value, beginning of period $ 10.93 $10.54
------- ------
Net investment loss* (0.15) (0.07)
Net realized and unrealized gain (loss) on investments and foreign currency (1.04) 0.46
------- ------
Total from investment operations (1.19) 0.39
------- ------
Distribution from net realized gains (0.52) --
------- ------
Total distributions (0.52) --
------- ------
Net asset value, end of period $ 9.22 $10.93
======= ======
Total return (11.09)%+ 3.70%++
Net assets at end of period (000s) $ 5,674 $2,134
Ratio of operating expenses to average net assets* 2.65% 2.65%[dbldag]
Ratio of net investment loss to average net assets* (1.55)% (1.62)%[dbldag]
Portfolio turnover rate 100.68% 80.60%
Average commission rate@ -- --
- ------------
*Reflects voluntary assumption of fees or expenses per share in each period $ 0.06 $ 0.03
</TABLE>
** March 1, 1994 (commencement of share class designations) to October 31,
1994.
*** Per-share figures have been calculated using the average shares
method.
**** January 22, 1992 (commencement of operations) to October 31, 1992.
[dbldag] Annualized.
+ Total return figures do not reflect any front-end or contingent
deferred sales charges. Total return would be lower if the Distributor
and its affiliates had not voluntarily assumed a portion of the Fund's
expenses.
++ Represents aggregate return for the period without annualization and
does not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the Distributor and its affiliates had
not voluntarily assumed a portion of the Fund's expenses.
@ Average commission rate per share paid for security trades for fiscal
years beginning on or after November 1, 1995.
5
<PAGE>
The Fund's Investments
The investment objective of the Fund is to achieve long-term growth of capital
by investing primarily in common stocks and equity-related securities of
non-U.S. companies. Non-U.S. companies for these purposes are companies
domiciled outside the United States. Equity-related securities in which the
Fund may invest are: preferred stocks, securities convertible into or
exchangeable for common stocks and warrants. Current income is not a specific
prerequisite in the selection of securities. The performance of the Fund is
measured in U.S. dollars. These investment objectives and policies are not
fundamental and may be changed by the Board of Directors without shareholder
approval. If the Directors should determine that a change in the investment
objective of the Fund is in the best interests of the Fund and its
shareholders, the Fund will provide shareholders with advance written notice of
the change so that each shareholder will have an opportunity to consider
whether the Fund continues to be an appropriate investment in light of his or
her then current needs and financial position.
To achieve its objective, the Fund, under normal circumstances, invests at
least 65% of its net assets in common stocks and equity-related securities of
non-U.S. companies which GFM believes to be either trading at a discount to
fair value or having attractive long-term prospects for growth of capital.
Under normal circumstances, the Fund has at least three different countries
represented in its portfolio. The Fund may also invest its net assets in common
stocks and equity-related securities of emerging growth companies that GFM
expects will achieve above-average long-term earnings growth. Generally,
investments in smaller capitalization companies will be limited to no more than
5% of the Fund's net assets. See "Foreign Securities" below for information
concerning emerging growth companies.
The common stocks and equity-related securities purchased by the Fund
generally are traded on a non-U.S. stock exchange or on an established
over-the-counter market outside the United States. The Fund may invest in
common stocks and equity-related securities of non-U.S. companies through the
purchase of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), and International Depositary Receipts ("IDRs"). See "Foreign
Securities" below for information concerning ADRs, EDRs and IDRs.
Although the Fund is primarily invested in common stocks and
equity-related securities of non-U.S. companies, it may invest up to 35% of its
net assets in (i) high and medium quality debt securities of domestic and
non-U.S. issuers rated at least Baa or its equivalent by a nationally
recognized securities rating organization ("NRSRO") or, if unrated, of
comparable investment quality as determined by GFM and (ii) high-quality
domestic and non-U.S. money market instruments, including repurchase agreements
with non-U.S. banks and broker-dealers and "synthetic" money market positions.
Generally, debt securities rated Baa have speculative elements as well as
investment grade characteristics. These speculative features include a lack of
protective elements or a characteristically unreliability of such elements over
any great length of time which would threaten the ability to make interest and
principal payments. See "Other Investment Practices" for information concerning
repurchase agreements and synthetic money market positions. See the Statement
of Additional Information for a description of the debt ratings of Moody's
Investor Services, Inc. and Standard & Poor's Ratings Group.
Under normal market and economic conditions, the Fund invests primarily in
non-U.S. securities. Nevertheless, if in GFM's view, current or anticipated
political, market, or economic conditions warrant, the Fund may for temporary
defensive purposes invest in domestic money market instruments, debt
securities, and equity securities without limitation. During those time periods
when the Fund has assumed a temporary defensive position, the Fund will not be
pursuing its investment objective.
The Fund intends to invest in a number of companies and countries. The
Fund also has no set limits related to the geography of its investments and
expects to invest in companies located in Europe, the Pacific Basin, and Latin
America. Direct European investments are primarily in Western European
countries, direct Latin American investments are primarily in Mexico and direct
Pacific Basin investments are
6
<PAGE>
primarily in Australia, China, Hong Kong, Japan, Indonesia, Malaysia, New
Zealand, Philippines, Singapore, Taiwan and Thailand. Additionally, the Fund
may make investments in companies, such as those located in Canada, which have
operations in developing or emerging economies. The Fund may also invest
indirectly in non-U.S. securities in other geographical areas through the
purchase of ADRs. See "Foreign Securities" below for more information
concerning ADRs. When allocating investments among geographic regions and
individual countries, GFM considers various factors, such as: prospects for
relative economic growth among countries, regions or geographic areas; expected
levels of inflation; government policies influencing business conditions; and
the outlook for currency relationships.
Foreign Securities
Emerging Growth Companies
Investment in the securities of emerging growth companies involves greater risk
than investment in more established companies. Such risks include the fact that
securities of emerging growth companies may be subject to more abrupt or
erratic market movements than more established companies or the market
generally. Also, these companies may have limited product lines, markets or
financial resources, or they may be dependent on a limited management group.
ADRs, EDRs and IDRs
ADRs are U.S. dollar-denominated certificates issued by U.S. banks or trust
companies and represent the right to receive securities of a foreign issuer
deposited in a domestic bank or foreign branch of a U.S. bank. EDRs and IDRs
are receipts issued in Europe, generally by non-U.S. banks or trust companies,
that evidence ownership of non-U.S. securities. ADRs are traded on domestic
exchanges or in the U.S. over-the-counter market and, generally, are in
registered form. EDRs and IDRs are traded on non-U.S. exchanges or in non-U.S.
over-the-counter markets and, generally, are in bearer form. Investment in ADRs
has certain advantages over direct investment in the underlying non-U.S.
securities because (i) ADRs are U.S. dollar-denominated investments which are
registered domestically, easily transferable, and for which market quotations
are readily available, and (ii) issuers whose securities are represented by
ADRs are generally subject to the same auditing, accounting, and financial
reporting standards as domestic issuers. There may be less information
concerning foreign issuers whose securities are represented by ADRs that are
sponsored by U.S. banks or trust companies rather than by the issuers
themselves ("unsponsored ADRs").
Restricted Securities
The Fund may invest in equity securities restricted as to resale which could
become illiquid. Some restricted securities can be resold pursuant to Rule 144A
under the Securities Act of 1933, which allows for the resale of certain
restricted securities among qualified institutional buyers. However, the Fund
will not invest more than 15% of its total assets in illiquid investments,
which includes securities for which there is no readily available market. The
Board of Directors may adopt guidelines and delegate to GFM the daily function
of determining and monitoring the liquidity of Rule 144A securities. Because
the market for Rule 144A securities is still developing, even restricted
securities resalable pursuant to the rule can be illiquid, however. See the
Statement of Additional Information.
Foreign Government Debt
The obligations of foreign governmental entities have various kinds of
government support and include obligations issued or guaranteed by foreign
governmental entities with taxing powers. These obligations may or may not be
supported by the full faith and credit of a foreign government. The Fund will
invest in foreign government securities of issuers considered stable by GFM,
based on its analysis of factors such as general political or economic
conditions relating to the government and the likelihood of expropriation,
nationalization, freezes or confiscation of private property. GFM does not
believe that the credit risk inherent in the obligations of stable foreign
governments is significantly greater than that of U.S. Government securities.
Supranational Debt
Supranational debt may be denominated in U.S. dollars, a foreign currency or a
multi-national currency unit. Examples of supranational entities include
7
<PAGE>
World Bank, the European Investment Bank, the Asian Development Bank and the
Inter-American Development Bank. The governmental members, or "stockholders",
usually make initial capital contributions to the supranational entity and in
many cases are committed to make additional capital contributions if the
supranational entity is unable to repay its borrowings.
Foreign Currency Units
The Fund may invest in securities denominated in a multi-national currency
unit. An illustration of a multi-national currency unit is the European
Currency Unit (the "ECU"), which is a "basket" consisting of specified amounts
of the currencies of the member states of the European Community, a Western
European economic cooperative organization that includes France, Germany, The
Netherlands and the United Kingdom. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community to reflect changes in relative values of the underlying currencies.
GFM does not believe that such adjustments will adversely affect holders of
ECU-denominated obligations or the marketability of such securities. European
supranational entities, in particular, issue ECU-denominated obligations. The
Fund may invest in securities denominated in the currency of one nation
although issued by a governmental entity, corporation or financial institution
of another nation. For example, the Fund may invest in a British pound
sterling-denominated obligation issued by a United States corporation. Such
investments involve credit risks associated with the issuer and currency risks
associated with the currency in which the obligation is denominated.
Bank Money Market Instruments
Bank money market instruments may be Eurodollar obligations issued by foreign
banks or by foreign branches or subsidiaries of U.S. banks or Yankeedollar
obligations issued by U.S. branches or subsidiaries of foreign banks.
Eurodollar and Yankeedollar obligations may be general obligations of the
parent bank or may be limited to the issuing branch or subsidiary by the terms
of the specific obligations or by government regulation.
Other Investment Practices
Currency Exchange Transactions
The Fund intends to invest in securities denominated in currencies other than
the U.S. dollar, may temporarily hold funds in bank deposits or money market
investments denominated in non-U.S. currencies, and may receive interest,
dividends, and sale proceeds in non-U.S. currencies. As a result, the Fund will
engage in currency exchange transactions to convert currencies to or from U.S.
dollars. These currency transactions may be on a spot (e.g., cash) basis at the
spot rate prevailing in the non-U.S. exchange market. To reduce risks
associated with currency fluctuations, the Fund may also enter into forward
foreign currency exchange contracts to purchase or sell selected currencies,
may write covered put and call options on selected currencies, may purchase put
or call options on selected currencies, may sell or purchase currency futures
contracts, and may sell or purchase put or call options on currency futures
contracts. Such transactions will be used for hedging purposes, but in no event
for speculation.
Writing Covered Put and Call Options and Purchasing Put and Call Options
In order to earn additional income or as a hedge against or to minimize
anticipated declines in the value of its securities, the Fund may write (sell)
covered call options on securities and stock indices and may purchase call
options to close out covered call options previously entered into. In addition,
to earn additional income, the Fund may write covered put options on securities
and stock indices and may purchase put options to close out such covered put
options previously written. The Fund also may write covered call and covered
put options on currencies and may purchase call and put options to close out
covered put and covered call options previously written. The Fund may write
covered call and covered put options on currencies to hedge against anticipated
declines in the exchange rate of the currencies in which the Fund's securities
held or to be purchased are denominated or to earn additional income for the
Fund. These transactions may be done for hedging purposes and also to earn
additional income. These transactions involve greater risk than other hedging
transactions.
8
<PAGE>
As a general matter, a call option gives the holder (purchaser) the right
to buy and obligates the writer (seller) to sell, in return for a premium paid,
the underlying security or currency at the exercise price during the option
period. As a general matter, a put option gives the holder (purchaser) the
right to sell and obligates the writer (seller) to purchase, in return for a
premium paid, the underlying security or currency at the exercise price during
the option period. In economic effect, a stock index call or put option is
similar to an option on a particular security, except that the value of the
option depends on the weighted value of the group of securities comprising the
index, rather than a particular security, and settlements are made in cash
rather than by delivery of a particular security. The Fund will write covered
call options only with respect to equity securities, bonds, and stock and bond
indices which correlate with its portfolio securities and the Fund may write
covered put and covered call options only on currencies that correlate with its
investments. The Fund will write only covered options that are listed on
recognized securities exchanges.
The Fund may also purchase put and call options with respect to securities
and indices that correlate with its particular securities, and the Fund may
also purchase put and call options on currencies that correlate with its
investment. The Fund may purchase put options for defensive purposes in order
to protect against an anticipated decline in the value of its portfolio
securities, or the currencies in which its securities are denominated. As the
holder of a put option with respect to individual securities or currencies, the
Fund has the right to sell the securities or currencies underlying the options
and to receive a cash payment at the exercise price at any time during the
option period. As the holder of a put option on an index, the Fund has the
right to receive, upon exercise of the option, a cash payment equal to a
multiple of any excess of the strike price specified by the option over the
value of the index. The Fund may purchase call options in order to acquire the
securities or currencies underlying the option or, with respect to options on
indices, to receive income equal to the value of such index over the strike
price. As the holder of a call option with respect to individual securities or
currencies, the Fund obtains the right to purchase the underlying security or
currency at the exercise price at any time during the option period. With
respect to options on an index, the holder of a call option obtains the right
to receive, upon exercise of the option, a cash payment equal to the multiple
of any excess of the value of the index on the exercise date over the strike
price specified in the option.
Although these investment practices will be used to generate additional
income and to attempt to reduce the effect of any adverse price movement in the
security or currency subject to the option, they do involve certain risks that
are different in some respects from investment risks associated with similar
funds which do not engage in such activities. These risks include the
following: writing covered call options--the inability to effect closing
transactions at favorable prices and the inability to participate in the
appreciation of the underlying securities or currencies above the exercise
price; writing covered put options--the inability to effect closing
transactions at favorable prices and the obligation to purchase the specified
securities or currencies or to make a cash settlement on the stock index at
prices which may not reflect current market values or exchange rates; and
purchasing put and call options--possible loss of the entire premium paid. In
addition, the effectiveness of hedging through the purchase or sale of index
options will depend upon the extent to which price movements in the portion of
the securities portfolios being hedged correlate with price movements in the
selected index. Perfect correlation may not be possible because the securities
held or to be acquired by the Fund may not exactly match the composition of the
index on which options are written. If the forecasts of GFM regarding movements
in securities prices, interest rates or exchange rates are incorrect, the
Fund's investment results may have been better without the hedge. A more
thorough description of these investment practices, their associated risks and
the covering of certain of these obligations by depositing cash and other
liquid assets in a segregated account is contained in the Statement of
Additional Information.
9
<PAGE>
Futures Contracts and Options on Futures Contracts
The Fund may purchase and sell futures contracts on debt securities and indices
of debt securities (i.e. interest rate futures contracts) as a hedge against or
to minimize adverse principal fluctuations resulting from anticipated interest
rate changes or as an efficient means to adjust its exposure to the bond
market. The Fund may, where appropriate, enter into stock index futures
contracts to provide a hedge for a portion of the Fund's equity holdings. Stock
index futures contracts may be used as a way to implement either an increase or
decrease in portfolio exposure to the equity markets in response to changing
market conditions. The Fund may also purchase and sell currency futures
contracts as a hedge to protect against anticipated changes in currency rates
or as an efficient means to adjust its exposure to the currency market. The
Fund may also write (sell) covered call options on futures contracts, purchase
put and call options on futures contracts of the type which the Fund is
permitted to purchase or sell, and may enter into closing transactions with
respect to such options on futures contracts purchased or sold. The Fund may
also write covered put options on futures contracts and may enter into closing
transactions with respect to such options on futures contracts. When the Fund
purchases a futures contract, or writes a put option or purchases a call option
thereon, an amount of cash and liquid assets will be deposited in a segregated
account with Portfolios' custodian so that the segregated amount, plus the
amount of initial margin deposits held in the account of its broker, equals the
market value of the futures contract, thereby ensuring that the use of the
futures is unleveraged. The Fund will not enter into futures contracts for
speculation and will only enter into futures contracts that are traded on a
recognized futures exchange. 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
derivative positions for nonhedging purposes would exceed 5% of the value of
its total assets; provided, however, that in the case of an option that is
"in-the-money" at the time of purchase, the "in-the-money" amount may be
excluded in calculating the 5% limitation; similar policies apply to options
which are not commodities.
The use of futures contracts by the Fund entails certain risks, including
but not limited to the following: no assurance that futures contracts
transactions can be offset at favorable prices; possible reduction of a Fund's
income due to the use of hedging; possible reduction in value of both the
security or currency hedged and the hedging instrument; possible lack of
liquidity due to daily limits on price fluctuations; imperfect correlation
between the contract and the security or currency being hedged; and potential
losses in excess of the amount initially invested in futures contracts
themselves. If the expectations of GFM regarding movements in securities
prices, interest rates or exchange rates are incorrect, the Fund may have
experienced better investment results without hedging. The use of futures
contracts and options on futures contracts requires special skills in addition
to those needed to select portfolio securities. A further discussion of futures
contracts and their associated risks is contained in the Statement of
Additional Information.
Securities Purchased on "When-Issued" or "Forward Commitment" Basis
These transactions, which are made directly with another party, involve a
commitment by the Fund to purchase or sell particular securities with payment
and delivery taking place at a future date (ordinarily within ten days,
although in some countries settlement may be as much as a month or two later).
These transactions allow the Fund to lock in an attractive price or yield on a
security the Fund owns or intends to purchase, regardless of future changes in
interest rates. The Fund bears the risk, however, that the particular
securities may decline in value between the trade and settlement dates. After
the Fund enters into an agreement to purchase a security, however, no income
will accrue to the Fund until delivery of the security. These transactions
could be viewed as a form of borrowing by the Fund and are, therefore, subject
to the Fund's restrictions with respect to borrowing generally. To ensure
against the risk that the Fund will have insufficient assets to
10
<PAGE>
effect transactions subject to such commitments, cash and other liquid assets
equal in value to the specified transaction price will be maintained in a
segregated account on behalf of the Fund.
Repurchase Agreements
The Fund may invest in securities pursuant to repurchase agreements. Repurchase
agreements may be entered into only with a member bank of the Federal Reserve
System or primary dealer in U.S. Government securities. Under such agreements,
the bank or primary dealer agrees, upon entering into the contract, to
repurchase the security at a mutually agreed upon time and price in a specified
currency, thereby determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market fluctuations during
such period although it may be affected by currency fluctuations. In effect, a
repurchase agreement may be seen as a loan made by the Fund to the bank or
dealer with the security that is the subject of the repurchase agreement acting
as "collateral". If the bank or dealer were to become bankrupt, the Fund may be
delayed in recovering its "collateral" or may lose its rights to its
"collateral". Repurchase agreements maturing in more than seven days are
considered illiquid and subject to the Fund's limiting its investments in
illiquid securities to no more than 15% of the Fund's total assets. In all
instances, the Fund takes possession of the underlying securities when
investing in repurchase agreements. A further discussion of repurchase
agreements and their associated risks is contained in the Statement of
Additional Information.
Forward Foreign Currency Exchange Contracts
When the Fund invests in securities denominated in currencies other than U.S.
dollars, such securities may be affected favorably or unfavorably by changes in
currency rates. The Fund may use forward foreign currency exchange contracts
("forward currency contracts") to hedge the currency risk relating to the
non-U.S. dollar-denominated securities purchased, sold, or held by the Fund. 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 forward currency contract agreed upon by the parties, at a price set at
the time of the contract. These forward currency contracts are principally
traded in the inter-bank market conducted directly between currency traders
(usually large commercial banks) and their customers. The Fund may enter into
forward currency contracts only under two circumstances. First, when the Fund
has entered into a contract to purchase or sell a security denominated in a
foreign currency or anticipates receiving a dividend on a security in the
Fund's portfolio, the Fund may be able to protect itself against a possible
loss, between the trade date and the settlement date or date on which the
dividend is paid for such security, resulting from an adverse change in the
relationship between the U.S. dollar and the foreign currency in which such
security is denominated, by entering into a forward currency contract in U.S.
dollars for the purchase or sale of the amount of the foreign currency involved
in the underlying security transaction (transaction hedge). However, this
practice may limit potential gains which might result from a positive change in
such currency relationships. Second, when GFM believes that the currency of a
particular country may suffer or enjoy a substantial movement against the U.S.
dollar (or another currency), the Fund may enter into a forward currency
contract to sell or buy an amount of foreign currency approximating the value
of some or all of the Fund's securities denominated in such foreign currency
(position hedge). In addition the Fund may cross-hedge currencies by entering
into a transaction to purchase or sell one or more currencies that are expected
to decline in value relative to other currencies to which the Fund has or
expects to have portfolio exposure. The Fund may also engage in proxy hedging
which is defined as entering into positions in one currency to hedge
investments denominated in another currency, where the two currencies are
economically linked. The Fund's entry into forward contracts for position
hedging, as well as any use of cross or proxy hedging techniques, will
generally require the portfolio to hold high-grade, liquid securities or cash
equal to the portfolio's obligations in a segregated account throughout the
duration of the contract. The forecasting of short-term currency
11
<PAGE>
market movements is extremely difficult and whether such a short-term hedging
strategy will be successful is highly uncertain.
Synthetic Non-U.S. Money Market Positions
Money market securities denominated in foreign currencies are permissible
investments of the Fund. In addition to, or in lieu of direct investment in
such securities, the Fund may construct a synthetic non-U.S. money market
position by (i) purchasing a money market instrument denominated in U.S.
dollars and (ii) concurrently entering into a forward currency contract to
deliver a corresponding amount of U.S. dollars in exchange for a foreign
currency on a future date and a specified rate of exchange. Because of the
availability of a variety of highly liquid short-term U.S. dollar-denominated
money market instruments, a synthetic money market position utilizing such U.S.
dollar-denominated instruments may offer greater liquidity than direct
investment in a money market instrument denominated in a foreign currency.
Lending of Portfolio Securities
The Fund may lend portfolio securities with a value of up to 20% of its total
assets. The Fund will receive cash or cash equivalents (e.g., U.S. Government
obligations) as collateral in an amount equal to at least 100% of the current
market value of the loaned securities plus accrued interest. Collateral
received by the Fund will generally be invested in quality short-term
unaffiliated mutual funds, securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities, irrevocable stand-by letters
of credit issued by a bank or repurchase agreements, among 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 will retain most rights of ownership including rights to
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending, although the Fund may call loans to vote proxies
if desired. Should the borrower of the securities fail financially, there is a
risk of delay in recovery of the securities or loss of rights in the
collateral. Loans are made only to borrowers which are deemed by the Investment
Manager to be of good financial standing.
Risk Factors
Investments in securities of foreign issuers, particularly non-governmental
issuers, involve risks which are not ordinarily associated with investments in
domestic issuers. The securities of non-U.S. issuers held by the Fund generally
will not be registered under, nor will the issuers thereof be subject to, the
reporting requirements of the U.S. Securities and Exchange Commission.
Accordingly, there may be less publicly available information about the
securities and about the foreign company or government issuing them than is
available about a domestic company or government entity. Companies outside the
United States are not subject to the same accounting, auditing, and financial
reporting standards, practices, and requirements applicable to domestic
companies. Stock markets outside the United States may not be as developed or
as efficient as those in the United States, and government supervision and
regulation of those stock markets and brokers is not identical to that in the
United States. The securities of some non-U.S. companies may be less liquid and
more volatile than securities of comparable U.S. companies, and settlement of
transactions with respect to such securities may sometimes be delayed beyond
periods customary in the United States, which might present liquidity concerns.
Further, fixed brokerage commissions on certain non-U.S. stock exchanges are
generally higher than negotiated commissions on United States exchange-listed
securities, and custodial costs with respect to these securities generally
exceed domestic costs. Enforcing obligations in other countries may be
difficult. In addition, the tax authorities of some countries impose
restrictions on the payment of dividends and require the Fund to file claims
for payment of certain withheld dividends. With respect to some countries,
there is the possibility of unfavorable changes in investment or exchange
control regulations, expropriation, or confiscatory taxation, limitations on
the removal of funds or other assets of the Fund, political or social
instability, or diplomatic developments that could adversely affect investments
in those countries. In addition, some markets trade at considerably higher
valuation levels than in the United States. This condition results in markets
with
12
<PAGE>
greater potential for volatility and which are more susceptible to the
influence of events which may generally affect the markets and to the trades of
large blocks of securities by large investors. Some countries are also heavily
dependent on international trade and can be affected by retaliatory or
protectionist trade measures instituted by their trading partners and by the
economic conditions of these partners. Further, the value of the Fund's
securities denominated in foreign currencies will be affected favorably or
unfavorably by changes in currency exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions
between various currencies.
Limiting Investment Risk
Portfolios has adopted the following fundamental investment restrictions
relating to the investment of assets of the Fund and its activities. Additional
fundamental investment restrictions are described in the Statement of
Additional Information, at "Investment Practices and Policies." The fundamental
investment restrictions discussed below and in the Statement of Additional
Information, unlike the Fund's investment objective, may not be changed without
approval by the requisite vote of the outstanding voting shares of the Fund.
The Fund may not:
(1) write call options which are not covered options;
(2) write put options, except covered put options or put options to close out
option positions previously entered into;
(3) invest in commodities or commodity contracts, except that: the Fund may
purchase stock index, interest rate, and currency futures contracts, may
write covered stock index, interest rate and currency futures contracts,
may write covered put and call options on such futures contracts, may
purchase put and call options on such futures contracts, and may enter
into closing transactions with respect to options on such futures
contracts; or
(4) make loans, provided, however, that this restriction shall not prohibit
the Fund from (a) entering into repurchase agreements (see "Investment
Practices and Policies," in the Statement of Additional Information), (b)
purchasing bonds, notes, debentures or other obligations of a character
customarily purchased by institutional or individual investors (whether
or not publicly distributed) and (c) making loans of its portfolio
securities which do not thereupon cause in excess of 20% of the value of
the Fund's total assets to consist of loaned securities (see "Lending of
Portfolio Securities," in this Prospectus and in the Statement of
Additional Information for a discussion of risks associated with such
practice).
Nothing in the foregoing investment restrictions shall be deemed to
prohibit the Fund from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the Fund by the issuer, except
that no such purchase may be made if as a result the Fund will no longer be a
diversified investment company as defined in the Investment Company Act of 1940
or fail to meet the diversification requirements of the Internal Revenue Code
of 1986, as amended.
- --------------------------------------------------------------------------------
Information on the Purchase of Shares, Redemption of Shares and
Shareholder Services is set forth on pages 14 to 28 below.
- --------------------------------------------------------------------------------
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers,
Individual Retirement Accounts ("IRAs"), trusts, corporations,
individuals, etc. The applicability of the general information and
administrative procedures set forth below accordingly will vary depending
on the investor and the recordkeeping system established for a
shareholder's investment in the Fund. Participants in 401(k) and other
plans should first consult with the appropriate person at their employer
or refer to the plan materials before following any of the procedures
below. For more information or assistance, anyone may call 1-800-562-0032.
- --------------------------------------------------------------------------------
13
<PAGE>
Purchase of Shares
Methods of Purchase
Through Dealers and Others
Shares of the Fund are continuously offered through securities dealers,
financial institutions and others (collectively referred to herein as
securities dealers or dealers) who have entered into sales agreements with the
Distributor. Purchases through dealers are confirmed at the offering price,
which is the net asset value plus the applicable sales charge, next determined
after the order is duly received as defined herein by State Street Research
Shareholder Services ("Shareholder Services"), a division of the Distributor,
from the dealer. ("Duly received" for purposes herein means in accordance with
the conditions of the applicable method of purchase as described below.) The
dealer is responsible for transmitting the order promptly to Shareholder
Services in order to permit the investor to obtain the current price. See
"Purchase of Shares--Net Asset Value" herein.
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's dealer a completed Application (accompanying this Prospectus),
together with a check for the total purchase price payable to the Fund. The
dealer must forward the Application and check in accordance with the
instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a
check payable to the Fund in the amount of the total purchase price together
with any one of the following: (i) an Application; (ii) the stub from a
shareholder's account statement; or (iii) a letter setting forth the name of
the Fund, the class of shares and the shareholder's account name and number.
Shareholder Services will deliver the purchase order to the transfer agent and
dividend paying agent, State Street Bank and Trust Company (the "Transfer
Agent").
If a check is not honored for its full amount, the purchaser could be
subject to additional charges to cover collection costs and any investment
loss, and the purchase may be cancelled.
By Wire
An investor may purchase shares by wiring Federal funds of not less than $5,000
to State Street Bank and Trust Company, which also serves as Portfolios'
custodian (the "Custodian"), as set forth below. Prior to making an investment
by wire, an investor must notify Shareholder Services at 1-800-562-0032 and
obtain a control number and instructions. Following such notification, Federal
funds should be wired through the Federal Reserve System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research International Equity Fund and class of shares (A,
B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make such
investment by 12 noon Boston time on the day of his or her investment; and (ii)
the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete
the Application accompanying this Prospectus and deliver it to his or her
dealer, who should forward it as required. No redemptions will be effected
until the Application has been duly processed.
The Fund may in its discretion discontinue, suspend or change the practice
of accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by the Fund. The Fund reserves the
right to suspend the sale of shares or to reject any purchase order, including
orders in connection with exchanges, for any reason.
14
<PAGE>
Minimum Investment
Class of Shares
--------------------------------
A B C D
------ ------ ----- ------
Minimum Initial Investment
By Wire .................. $5,000 $5,000 (a) $5,000
IRAs ..................... $2,000 $2,000 (a) $2,000
By Investamatic ............ $1,000 $1,000 (a) $1,000
All other ............... $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire .................. $5,000 $5,000 (a) $5,000
IRAs ..................... $ 50 $ 50 (a) $ 50
By Investamatic ............ $ 50 $ 50 (a) $ 50
All other .................. $ 50 $ 50 (a) $ 50
- ------------
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments as in the case of, for example, exchanges and investments under
various employee benefit plans, sponsored arrangements involving group
solicitations of the members of an organization, or other investment plans for
reinvestment of dividends and distributions or for periodic investments (e.g.,
Investamatic Program).
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount of
their purchase, the length of time they anticipate holding Fund shares, or the
flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject to
certain ongoing charges or to have their entire initial purchase price invested
in the Fund with the investment being subject thereafter to ongoing service
fees and distribution fees.
As described in greater detail below, dealers are paid differing amounts
of commissions and other compensation depending on which class of shares they
sell.
15
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
-------------------- -------------------- --------- -------------------
<S> <C> <C> <C> <C>
Sales Charges Initial sales charge Contingent deferred None Contingent deferred
at time of sales charge of 5% sales charge of 1%
investment of up to to 2% applies to any applies to any
4.5% depending on shares redeemed shares redeemed
amount of within first five within one year
investment years following following their
their purchase; no purchase
contingent deferred
sales charge after
five years
On investments of
$1 million or more,
no initial sales
charge; but
contingent deferred
sales charge of 1%
applies to any shares
redeemed within
one year following
their purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years; Class
B shares convert
automatically to
Class A shares after
eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Above described 4% None 1%
Commission initial sales charge
Received by less 0.25% to
Selling 0.50% retained by
Dealer Distributor
On investments of
$1 million or more,
0.25% to 1.00%
paid to dealer by
Distributor
</TABLE>
16
<PAGE>
In deciding which class of shares to purchase, the investor should
consider the amount of the investment, the length of time the investment is
expected to be held, and the ongoing service fee and distribution fee, among
other factors.
Class A shares are sold at net asset value plus an initial sales charge of
up to 4.5% of the public offering price. Because of the sales charge, not all
of an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class D shareholders also pay no
initial sales charge, but a contingent deferred sales charge of 1% generally
applies to redemptions made within one year of purchase. For Class B and Class
D shareholders, therefore, the entire purchase amount is immediately invested
in the Fund.
An investor who qualifies for a significantly reduced initial sales
charge, or a complete waiver of the sales charge on investments of $1,000,000
or more, on the purchase of Class A shares, might elect that option to take
advantage of the lower ongoing service and distribution fees that characterize
Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual
distribution fee of 0.75% of daily net assets for an eight-year period
following the date of purchase and are then automatically converted to Class A
shares. Class D shares are assessed an annual distribution fee of 0.75% of
daily net assets for as long as the shares are held. The prospective investor
should consider these fees plus the initial or contingent deferred sales
charges in estimating the costs of investing in the various classes of the
Fund's shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its expense,
provide additional cash and noncash incentives to dealers that sell shares.
Such incentives may be extended only to those dealers that have sold or may
sell significant amounts of shares and/or meet other conditions established by
the Distributor; for example, the Distributor may sponsor special promotions to
develop particular distribution channels or to reach certain investor groups.
The Distributor may also compensate those dealers with clients who maintain
their investments in the Fund over a period of years. The incentives may
include merchandise and trips to and attendance at sales seminars at resorts.
The Distributor may also pay additional sales compensation to its affiliate,
MetLife Securities, Inc.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar amount
of the shares purchased as set forth in the table below. A major portion of
this sales charge is reallowed by the Distributor to the dealer responsible for
the sale.
- ---------------------------------------------------------------
Sales
Sales Charge
Charge Paid
Paid By By Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
- ---------------------------------------------------------------
Less than
$100,000 4.50% 4.71% 4.00%
- ---------------------------------------------------------------
$100,000 or
above but less
than $250,000 3.50% 3.63% 3.00%
- ---------------------------------------------------------------
$250,000 or
above but less
than $500,000 2.50% 2.56% 2.00%
- ---------------------------------------------------------------
$500,000 or
above but less
than $1 million 2.00% 2.04% 1.75%
- ---------------------------------------------------------------
See
$1 million following
and above 0% 0% discussion
- ---------------------------------------------------------------
17
<PAGE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor may pay the authorized dealer a commission
based on the aggregate of such sales as follows:
Amount of Sale Commission
- -------------- ----------
(a) $1 million to $3 million ...... 1.00%
(b) Next $2 million ............... 0.50%
(c) Amount over $5 million ......... 0.25%
On such sales of $1,000,000 or more, unless the above commission is waived
by the dealer, the investor is subject to a 1% contingent deferred sales charge
on any portion of the purchase redeemed within one year of the sale. However,
such redeemed shares will not be subject to the contingent deferred sales
charge to the extent that their value represents (1) capital appreciation or
(2) reinvestment of dividends or capital gains distributions. In addition, the
contingent deferred sales charge will be waived for certain other redemptions
as described under "Contingent Deferred Sales Charge Waivers" below (as
otherwise applicable to Class B shares.)
Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of certain other Eligible Funds, as defined
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption within
one year of the Class A shares which are acquired through such exchange. For
federal income tax purposes, the amount of the contingent deferred sales charge
will reduce the gain or increase the loss, as the case may be, on the amount
realized on redemption. The amount of any contingent deferred sales charge will
be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement of
Additional Information, of $100,000 or more of Class A shares of the Fund or a
combination of "Eligible Funds." "Eligible Funds" include the Fund and other
funds so designated by the Distributor from time to time. Class B, Class C and
Class D shares may also be included in the combination under certain
circumstances. Securities dealers should call Shareholder Services for details
concerning the other Eligible Funds and any persons who may qualify for reduced
sales charges and related information. See the Statement of Additional
Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A shares
of the Fund and any other Eligible Funds within a 13-month period. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of shares of
the Fund and other Eligible Funds at reduced sales charges pursuant to a Right
of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call Shareholder
Services for details concerning the Right of Accumulation.
Other Programs
Class A shares of the Fund may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored
arrangements, which include programs under which a company, employee benefit
plan or other organization makes recommendations to, or permits group
solicitation of, its employees, members or participants, except any
organization created primarily for the purpose of obtaining shares of the Fund
at a reduced sales charge or without a sales charge. Sales without a sales
charge, or with a reduced sales charge, may also be made through brokers,
financial planners, institutions, and others, under managed fee-based programs
(e.g., "wrap fee" or similar programs) which meet certain requirements
established from time to time by the Distributor. Information on such
18
<PAGE>
arrangements and further conditions and limitations is available from the
Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, the Distributor, or any affiliated entities, including any
direct or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated Companies,
any relatives of any such individuals whose relationship is directly verified
by such individuals to the Distributor, or any beneficial account for such
relatives or individuals; and (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any spouse
or child of such person, or any beneficial account for any of them. The
purchase must be made for investment and the shares purchased may not be resold
except through redemption. This purchase program is subject to such
administrative policies, regarding the qualification of purchasers, minimum
investments by various groups of eligible persons and any other matters, as may
be adopted by the Distributor from time to time.
Class B Shares--Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of the
investor's purchase payment will be invested in the Fund. However, a contingent
deferred sales charge may be imposed upon certain redemptions of Class B shares
as described below.
The Distributor will pay dealers at the time of sale a 4% commission for
selling Class B shares. The proceeds of the contingent deferred sales charge
and the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class B shares without an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets or (2) reinvestment of dividends or capital gains distributions.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
Contingent Deferred Sales
Charge As A Percentage
Redemption During Of Net Asset Value
- -------------------------------- ---------------------------
1st Year Since Purchase ...... 5%
2nd Year Since Purchase ...... 4%
3rd Year Since Purchase ...... 3%
4th Year Since Purchase ...... 3%
5th Year Since Purchase ...... 2%
6th Year Since Purchase and
Thereafter .................. None
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first of
those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of the Fund acquired through an exchange from another
Eligible Fund will be measured from the date that such shares were initially
acquired in the other Eligible Funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gains distribution reinvestments in such other Eligible Fund. These
determinations will result in any contingent deferred sales charge being
imposed at the lowest possible rate. For federal income tax purposes, the
amount of the contingent deferred sales charge will reduce the gain or increase
the loss, as the case may be, on the amount realized on redemption. The amount
of any contingent deferred sales charge will be paid to the Distributor.
19
<PAGE>
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain conditions.
In addition, the contingent deferred sales charge will be waived for: (i)
redemptions made within one year of the death or total disability, as defined
by the Social Security Administration, of all shareholders of an account; (ii)
redemptions made after attainment of a specific age in an amount which
represents the minimum distribution required at such age under Section
401(a)(9) of the Internal Revenue Code for retirement accounts or plans (e.g.,
age 701/2 for IRAs and Section 403(b) plans), calculated solely on the basis of
assets invested in the Fund or other Eligible Funds; and (iii) a redemption
resulting from a tax-free return of an excess contribution to an IRA. (The
foregoing waivers do not apply to a tax-free rollover or transfer of assets out
of the Fund.) The Fund may modify or terminate the waivers described above at
any time; for example, the Fund may limit the application of multiple waivers
and establish other conditions for employee benefit plans.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to Class
A shares of the Fund at the end of eight years following the issuance of such
Class B shares; consequently, they will no longer be subject to the higher
expenses borne by Class B shares. The conversion rate will be determined on the
basis of the relative per share net asset values of the two classes and may
result in a shareholder receiving either a greater or fewer number of Class A
shares than the Class B shares so converted. As noted above, holding periods
for Class B shares received in exchange for Class B shares of other Eligible
Funds will be counted toward the eight-year period.
Class C Shares--Institutional; No Sales Charge
The purchase price of a Class C share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
In general, Class C shares are only available for new investments by
certain large institutions and employee benefit plans which acquire shares
through programs or products sponsored by Metropolitan and/or its affiliates,
for which Class C shares have been designated. Information on the availability
of Class C shares and further conditions and limitations is available from the
Distributor.
Class C shares may have also been issued directly or through exchanges to
those shareholders of the Fund and other Eligible Funds who previously held
shares not subject to any future sales charge or service fees or distribution
fees.
Class D Shares--Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays dealers a 1% commission for selling Class D shares at the time of
purchase. The proceeds of the contingent deferred sales charge and the
distribution fee are used to offset distribution expenses and thereby permit
the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not
be subject to the contingent deferred sales charge to the extent that the value
of the such shares represents (1) capital appreciation of Fund assets or (2)
reinvestment of dividends or capital gains distributions. For federal income
tax purposes, the amount of the contingent deferred sales charge will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid to
the Distributor.
20
<PAGE>
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of the New York Stock Exchange ("NYSE") exclusive of days on which
the NYSE is closed. The NYSE ordinarily closes at 4 P.M. New York City time.
Assets held by the Fund are valued on the basis of the last reported sale price
or quotations as of the close of business on the valuation date, except that
securities and assets for which market quotations are not readily available are
valued as determined in good faith by or under the authority of the Directors
of Portfolios. In determining the value of certain assets for which market
quotations are not readily available, the Fund may use one or more pricing
services. The pricing services utilize information with respect to market
transactions, quotations from dealers and various relationships among
securities in determining value and may provide prices determined as of times
prior to the close of the NYSE. The Directors have authorized the use of the
amortized cost method to value short-term debt instruments issued with a
maturity of one year or less and having a remaining maturity of 60 days or less
when the value obtained is fair value. Further information with respect to the
valuation of the Fund's assets is included in the Statement of Additional
Information.
Distribution Plan
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, the Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class of
shares as follows:
Class Service Fee Distribution Fee
- ----- ----------- ----------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to 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 and Class D shares are eligible for further
reimbursement after the first year during which such shares have been held of
record by such dealer as nominee for its clients (or by such clients directly).
Any service fees received by the Distributor and not allocated to dealers may
be applied by the Distributor in reduction of expenses incurred by it directly
for personal services and the maintenance or servicing of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by the
Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources of
the Distributor (including the advisory fees paid by the Fund), have also been
authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the Distribution
Plan to 1%, of which 0.75% may be used to pay distribution expenses and 0.25%
may be used to pay shareholder service fees. The NASD rule also limits the
aggregate amount which the Fund may pay for such distribution costs to 6.25% of
gross share sales
21
<PAGE>
of a class since the inception of any asset-based sales charge plus interest at
the prime rate plus 1% on unpaid amounts thereof (less any contingent deferred
sales charges). Such limitation does not apply to shareholder service fees.
Payments to the Distributor or to dealers funded under the Distribution Plan
may be discontinued at any time by the Directors of Portfolios.
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the
NYSE is open for business. Redemptions will be effective at the net asset value
per share next determined (see "Purchase of Shares--Net Asset Value" herein)
after the receipt of the redemption request in accordance with the requirements
described below, by Shareholder Services and delivery of the request by
Shareholder Services to the Transfer Agent. To allow time for the clearance of
checks used for the purchase of any shares which are tendered for redemption
shortly after purchase, the remittance of the redemption proceeds for such
shares could be delayed for 15 days or more after the purchase. Shareholders
who anticipate a potential need for immediate access to their investments
should, therefore, purchase shares by wire. Except as noted, redemption
proceeds from the Fund are normally remitted within seven days after receipt of
the redemption request by the Fund and any necessary documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed for
transfer or accompanied by an endorsed stock power; (3) any required signature
guarantees (see "Redemption of Shares--Signature Guarantees" below); and (4)
any additional documents which may be required for redemption in the case of
corporations, trustees, etc., such as certified copies of corporate
resolutions, governing instruments, powers of attorney and the like. The
Transfer Agent will not process requests for redemption until it has received
all necessary documents in good order. A shareholder will be notified promptly
if a redemption request cannot be accepted. Shareholders having any questions
about the requirements for redemption should call Shareholder Services
toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Fund may
revoke or suspend the telephone redemption privilege at any time and without
notice. See "Shareholder Services--Telephone Services" for a discussion of the
conditions and possible risks associated with Telephone Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
Portfolios' custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800-562-0032 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge is
subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor as
its agent to accept orders from dealers by wire or telephone for the
22
<PAGE>
repurchase of shares by the Distributor from the dealer. The Fund may revoke or
suspend this authorization at any time. The repurchase price is the net asset
value for the applicable shares next determined following the time at which the
shares are offered for repurchase by the dealer to the Distributor. The dealer
is responsible for promptly transmitting a shareholder's order to the
Distributor. Payment of the repurchase proceeds is made to the dealer who
placed the order promptly upon delivery of certificates for shares in proper
form for transfer or, for Open Accounts, upon the receipt of a stock power with
signatures guaranteed as described below, and, if required, any supporting
documents. Neither the Fund nor the Distributor imposes any charge upon such a
repurchase. However, a dealer may impose a charge as agent for a shareholder in
the repurchase of his or her shares.
The Fund has reserved the right to change, modify or terminate the
services described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable sale 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 regular trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the Fund's net asset value; or
(3) during such other periods as the Securities and Exchange Commission may by
order permit for the protection of investors; and (b) payment of redemption
proceeds may be postponed as otherwise provided under "Redemption of Shares"
herein. Portfolios retains the right to redeem the shares of the Fund for other
than cash. Any redemptions other than in cash will be made subject to the
provisions of Securities and Exchange Commission rules. (See discussion of
redemptions in kind in the Statement of Additional Information.)
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees help the Transfer Agent
to determine that the person who has authorized a redemption from the account
is, in fact, the shareholder. Signature guarantees are required for, among
other things: (1) written requests for redemptions for more than $50,000; (2)
written requests for redemptions for any amount if the proceeds are transmitted
to other than the current address of record (unchanged in the past 30 days);
(3) written requests for redemptions for any amount submitted by corporations
and certain fiduciaries and other intermediaries; 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 notari-
23
<PAGE>
zations) from notaries public. The above requirements may be waived by the Fund
in certain instances.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of the Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110.
Certificates representing Class B or Class D shares will not be issued, while
certificates representing Class A or Class C shares will only be issued if
specifically requested by shareholders 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 on their accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through dealers, by
wire or by mailing a check, payable to the Fund, to Shareholder Services
under the terms set forth above under "Purchase of Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
(b) All income dividends in cash; all capital gains distributions
reinvested in additional shares of the Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in any
one available Eligible Fund designated by the shareholder as described
below. See "Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will 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
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for available shares with
corresponding characteristics of any of the other Eligible Funds at any time on
the basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws. Shareholders
of any other Eligible Fund may similarly exchange their shares for Fund shares
with corresponding characteristics. Prior to making an exchange, shareholders
should obtain the prospectus of the Eligible Fund into which they are
exchanging. Under the Direct Program, subject to certain conditions,
shareholders may make arrangements for regular exchanges from the Fund into
other Eligible Funds. To effect an exchange, Class A, Class B and Class D
shares may be redeemed without the payment of any contingent deferred sales
charge that might otherwise be due upon an ordinary redemption of such shares.
The State Street Research Money Market Fund issues Class E shares which are
sold without any sales charge. Exchanges of State Street Research Money Market
Fund Class E shares into Class A shares of the Fund or any other Eligible Fund
are subject to the initial sales charge or contingent deferred sales charge
applicable to an initial investment in such Class A shares, unless a prior
Class A sales charge has been paid directly or indirectly with respect to the
shares redeemed. For purposes of computing the contingent deferred sales charge
that may be payable upon disposition of the acquired Class A, Class B and Class
D shares, the holding period of the redeemed shares is "tacked" to the holding
period of the acquired shares. The period any Class E shares are held is not
tacked to the holding period of any acquired shares. No exchange transaction
fee is currently imposed on any exchange.
24
<PAGE>
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 or Class D 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.
For the convenience of the shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or his
or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-562-0032. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes, each
exchange actually represents the sale of shares of one fund and the purchase of
shares of another. Accordingly, exchanges may produce a capital gain or loss
for tax purposes. The exchange privilege may be terminated or suspended or its
terms changed at any time, subject, if required under applicable regulations,
to 60 days' prior notice. New accounts established for investments upon
exchange from an existing account in another fund will have the same Telephone
Privileges as the existing account, unless Shareholder Services is instructed
otherwise. Related administrative policies and procedures may also be adopted
with regard to a series of exchanges, street name accounts, sponsored
arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer identification
number, may be aggregated for purposes of the six exchange limit.
Notwithstanding the six exchange limit, the Fund reserves the right to refuse
exchanges by any person or group if, in the Investment Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Exchanges may be restricted or refused if the Fund receives or anticipates
simultaneous orders affecting significant portions of the Fund's assets. In
particular, a pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to the Fund. The Fund may impose these restrictions
at any time. The exchange limit may be modified for accounts in certain
institutional retirement plans because of plan exchange limits, Department of
Labor regulations or administrative and other considerations. Subject to the
foregoing, if an exchange request in good order is received by Shareholder
Services and delivered by Shareholder Services to the Transfer Agent by 12 noon
Boston time on any business day, the exchange usually will occur that day. For
further information regarding the exchange privilege, shareholders should
contact Shareholder Services.
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
25
<PAGE>
round off his or her reinvestment to full shares) in shares, of the same class
as the shares redeemed, of the Fund or any other Eligible Fund at net asset
value and without subjecting the reinvestment to an initial sales charge,
provided such reinvestment is made within 120 calendar days after a redemption
or repurchase. Upon such reinvestment, the shareholder will be credited with
any contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal income tax
purposes, a sale on which the shareholder may realize a gain or loss. If a
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for federal
income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once per 12-month period with respect
to his or her shares of the Fund. No charge is imposed by the Fund for such
reinvestment; however, dealers may charge fees in connection with the
reinvestment privilege. The reinvestment privilege may be exercised with
respect to an Eligible Fund only in those states where shares of the relevant
other Eligible Fund may be legally sold.
Investment Plans
The Investamatic Program is available to Class A, Class B and Class D
shareholders. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Application form available from Shareholder Services.
The Distributor also offers IRAs and tax-sheltered retirement plans,
including prototype and other employee benefit plans for employees, sole
proprietors, partnerships and corporations. Details of these investment plans
and their availability may be obtained from securities dealers or from
Shareholder Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Fund's Systematic Withdrawal Plan, to
have periodic checks issued for specified amounts. These amounts may not be
less than certain minimums, depending on the class of shares held. The Plan
provides that all income dividends and capital gains distributions of the Fund
shall be credited to participating shareholders in additional shares of the
Fund. Thus, the withdrawal amounts paid can only be realized by redeeming
shares of the Fund under the Plan. To the extent such amounts paid exceed
dividends and distributions from the Fund, a shareholder's investment will
decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually of
either (a) the value, at the time the Plan is initiated, of the shares then in
the account or (b) the value, at the time of a withdrawal, of the same number
of shares as in the account when the Plan was initiated, whichever is higher.
Expenses of the Plan are borne by the Fund. A participating shareholder
may withdraw from the Plan and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is receiving
payments under the Plan is ordinarily disadvantageous because of duplicative
sales charges. For this reason, a shareholder may not participate in the
Investamatic Check Program and the Systematic Withdrawal Plan at the same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all of 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. The number of shares purchased will be determined as of the dividend
payment date. The Dividend Allocation Plan is subject to
26
<PAGE>
suspension at any time, and to such policies, limitations and restrictions, as
for instance, may be applicable to street name or master accounts, that may be
adopted from time to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by the
Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions for
amounts up to $50,000 to be mailed to the shareholder's address of record
is available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically;
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not
previously request such telephone wire privilege on his or her original
Application may request the privilege by completing a Telephone
Redemption-by-Wire Form which may be obtained by calling 1-800-562-0032.
The Telephone Redemption-by-Wire Form requires a signature guarantee; and
(4) the privilege allowing the shareholder to make telephone purchases or
redemptions transmitted via the Automated Clearing House system into or
from the shareholder's predesignated bank account, is available upon
completion of the requisite initial documentation. For details and forms,
call 1-800-562-0032.
A shareholder may decline the automatic Telephone Privileges set forth in
(1) and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by
advising Shareholder Services that the shareholder wishes to discontinue the
use of such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account; and (2) honor any written instructions for a
change of address regardless of whether such request is accompanied by a
signature guarantee. All telephone calls will be recorded. None of the Fund,
the other Eligible Funds, the Transfer Agent, the Investment Manager or the
Distributor will be liable for any loss, expense or cost arising out of any
request, including any fraudulent or unauthorized requests. Shareholders assume
the risk to the full extent of their accounts that telephone requests may be
unauthorized. Reasonable procedures will be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not be
liable for any losses arising from unauthorized or fraudulent instructions if
such procedures are not followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-562-0032. Although it is unlikely, during periods of extraordinary market
conditions, a shareholder may have difficulty in reaching Shareholder Services
at such telephone number. In that event, the shareholder should contact
Shareholder Services at 1-800-357-7800, or otherwise at its main office at One
Financial Center, Boston, Massachusetts 02111-2690.
27
<PAGE>
Shareholder Account Inquiries: Please call 1-800-562-0032
Call this number for assistance in answering general questions on your account,
including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made in
writing to State Street Research Shareholder Services, P.O. Box 8408, Boston,
Massachusetts 02266-8408. A fee of up to $10 will be charged against an account
for providing additional account transcripts or photocopies of paid redemption
checks or for researching records in response to special requests.
Shareholder Telephone Transactions
Please call 1-800-562-0032
Call this number for assistance in purchasing shares by wire, and for telephone
redemptions or telephone exchange transactions. Shareholder Services will
require some form of personal identification prior to acting upon instructions
received by telephone. Written confirmation of the transactions will be
provided.
The Fund and Its Shares
Portfolios was organized as a Maryland corporation on April 29, 1991 and is
registered with the Securities and Exchange Commission as an open-end
diversified management investment company. The fiscal year end of Portfolios is
October 31. The authorized capital stock of Portfolios consists of 2 billion
shares common stock, par value $0.01 per share. The shares of common stock are
presently divided into one series: State Street Research International Equity
Fund common stock which currently consists of 100,000,000 shares. The Directors
have authorized shares of the Fund to be issued in four classes: Class A, Class
B, Class C and Class D shares. Portfolios reserves the right later to issue
additional classes of shares without the consent of shareholders, and may
allocate its remaining unclassified shares or reallocate any unissued
classified shares.
Except for those differences between the classes of shares described below
and elsewhere in the Prospectus, 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. In the future, certain classes may be
redesignated, for administrative purposes only, to conform to standard class
designations and common usage of terms which may develop in the mutual fund
industry. For example, Class C shares may be redesignated as Class Y shares and
Class D shares may be redesignated as Class C shares. Any redesignation would
not affect any substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund and has identical voting,
dividend, liquidation and other rights with any other shares of the Fund,
except that the shares of each class may be issued and sold subject to
different sales loads or charges, that expenses related solely to a particular
class (including service and distribution fees) are borne only by that class
and are reflected in the dividends and net asset value of the shares of that
class, that the Class B shares have conversion rights, and that the
shareholders of a particular class are not entitled to vote with respect to any
matter which does not affect the interest of that class, unless required
otherwise by applicable law. The different classes of shares of the Fund also
have different exchange privileges.
As a Maryland corporation, Portfolios is not required to hold regular
annual meetings of shareholders. Thus, there will ordinarily be no shareholder
meetings unless required by the 1940 Act or Maryland law or requested by
shareholders holding 10% or more of the outstanding shares of Portfolios. In
the event that less than a majority of the Directors serving as such have been
elected by shareholders of Portfolios, a meeting of shareholders will be called
to elect Directors. A Director may be removed at a special meeting of
shareholders by a vote of a majority of the votes entitled to be cast for the
election of Directors. In connection with such meetings called by shareholders,
the Fund will assist shareholders in shareholder communications to the extent
required by applicable law. On any matter submitted to the shareholders, the
holder of each Fund share is entitled to one vote per share (with proportionate
voting for fractional shares) regardless of the relative net asset value
thereof.
28
<PAGE>
Management of the Fund
Under the provisions of Portfolios' Articles of Incorporation and the laws of
Maryland, responsibility for the management and supervision of the Fund rests
with the Directors.
The Fund's Investment Manager is State Street Research & Management
Company. The Investment Manager and the Distributor are indirect wholly-owned
subsidiaries of Metropolitan Life Insurance Company and both are located at One
Financial Center, Boston, Massachusetts 02111-2690.
The Investment Manager has entered into a Sub-Investment Management Agreement
with Portfolios and GFM with respect to the Fund, pursuant to which GFM has
assumed the overall responsibility for managing the investments of the Fund,
subject to the supervision of the Investment Manager and the authority of the
Board of Directors. GFM receives a fee from the Investment Manager. Formed in
1990, GFM is an English corporation and an indirect wholly-owned subsidiary of
Metropolitan Life Insurance Company. Its address is 5 Upper St. Martins Lane,
London WC2H 9EA England. GFM was formed to provide pension funds, 401(k) plans,
foundations, endowments, corporations and financial institutions with a range
of investment management services related to the international marketplace.
Under its Investment Management Agreement with Portfolios, the Investment
Manager receives a monthly management fee equal to 0.95% (on an annual basis)
of the average daily value of the net assets of the Fund. Management fees for
the Fund are higher than those of most mutual funds, but are not necessarily
higher than other funds with comparable investment objectives and policies. The
Fund bears all costs of its operation other than those incurred by the
Investment Manager under the Investment Management Agreements. In particular,
the Fund pays, among other expenses, investment advisory fees, certain
distribution expenses under the Fund's Distribution Plan and the compensation
and expenses of the Directors who are not otherwise currently affiliated with
the Investment Manager or any of its affiliates. Under the Investment
Management Agreement, the Investment Manager provides Portfolios with office
space, facilities and personnel.
Under its Sub-Investment Management Agreement, the Sub-Investment Manager
receives from the Investment Manager a monthly fee equal to 0.75% (on an annual
basis) of the average daily value of the net assets of the Fund. Portfolios has
no responsibility for payment of fees to GFM.
Subject to the policy of seeking best overall price and execution, sales
of shares of the Fund may be considered by the Sub-Investment Manager in the
selection of broker or dealer firms for the Fund's portfolio transactions.
Ian R. Vose is primarily responsible for the day-to-day management of the
Fund's portfolio. Mr. Vose has managed the Fund since its inception in January
1992. Mr. Vose's principal occupation is Senior Vice President and Chief
Investment Officer of GFM. During the past five years, Mr. Vose has also served
as Chief Executive Officer of GFM. Mr. Vose uses a team approach on behalf of
the Fund and has delegated purchase and sale authority for defined portions of
the portfolio to other officers or portfolio managers of GFM. The team is also
assisted by a strategist who provides guidance on broad international
considerations. Each team member has discretion over his or her portion of the
portfolio and each focuses on a different region of the world.
Dividends and Distributions; Taxes
The Fund has qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code for its most recent
fiscal year and intends to qualify as such in future fiscal years, although it
cannot give complete assurance that it will do so. As long as it so qualifies
and satisfies certain distribution requirements, it will not be subject to
federal income tax on its taxable income (including capital gains, if any)
distributed to its shareholders. Consequently, the Fund intends to distribute
annually to its shareholders substantially all of its net investment income and
any capital gains net income (capital gains net of capital loss). Certain gains
and losses from fluctuations in currency exchange rates are treated as ordinary
income or loss and are included in the net income of the Fund.
Dividends from net investment income, if any, normally will be paid or
distributed annually. Distribu-
29
<PAGE>
tions of capital gain net income, if any, will generally be made after the end
of the fiscal year or as otherwise required for compliance with applicable tax
regulations. Both dividends from net investment income and distributions of
capital gain net income will be declared and paid to shareholders in additional
shares of the Fund at net asset value (except in the case of shareholders who
elect a different available distribution method). In certain foreign countries,
interest and dividends are subject to a tax which is withheld by the issuer.
U.S. income tax treaties with certain countries reduce the rates of these
withholding taxes. The Fund intends to provide the documentation necessary to
achieve the lower treaty rate of withholding whenever applicable or to seek
refund of amounts withheld in excess of the treaty rate. Moreover, the Fund
intends to qualify under the Internal Revenue Code so that its U.S.
shareholders may reduce their U.S. tax liability by claiming a foreign tax
credit for their share of foreign income taxes withheld, to the extent allowed
by the Code, if the amount withheld is material.
The Fund will provide its shareholders of record with annual information
on a timely basis concerning the federal tax status of dividends and
distributions during the preceding calendar year.
Dividends paid by the Fund from net taxable investment income and
distributions of net short-term capital gains, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax
purposes to shareholders as ordinary income. Distributions of net capital gains
(the excess of net long-term capital gains over net short-term capital losses)
which are designated as capital gains distributions, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax
purposes to shareholders as long-term capital gains, regardless of how long
shareholders have held their shares. If shares of the Fund which are sold at a
loss have been held six months or less, the loss will be considered as a
long-term capital loss to the extent of any capital gains distributions
received.
Dividends and other distributions and the proceeds of redemption of Fund
shares paid to individuals and other nonexempt payees will be subject to a 31%
federal backup withholding tax if the Transfer Agent is not provided with the
shareholder's correct taxpayer identification number or certification that the
shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus. Therefore,
prospective investors are urged to consult their own tax advisers regarding tax
matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, the Fund may compare the performance of its Class A,
Class B, Class C or Class D shares to that of other mutual funds with similar
investment objectives, to certificates of deposit and/or to other financial
alternatives. The Fund may also compare its performance to appropriate indices,
such as Standard & Poor's 500 Composite Stock Price Index, Consumer Price
Index, Dow Jones Industrial Average, and The Morgan Stanley Capital
International, Europe, Australia, Far East (EAFE) Index 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 International Funds Group.
Total return is computed separately for each class of shares of the Fund.
The average annual total return ("standard total return") for shares of the
Fund is computed by determining the average annual compounded rate of return
for a designated historical period as applied to a hypothetical $1,000 initial
investment, which is redeemed in total at the end of such period. In making the
calculation, all dividends and distributions are assumed to be reinvested, and
all accrued expenses and recurring charges, including management and
distribution fees, are recognized. The calculation also reflects the highest
applicable initial or contingent deferred sales charge, determined as of the
assumed date of initial investment or the assumed date of redemption, as the
case may be. Standard total return would be calculated for the periods
specified in applicable regulations and may be
30
<PAGE>
accompanied by nonstandard total return information for differing periods
computed in the same manner, with or without annualizing the total return or
taking sales charges into account.
The standard total return results take sales charges into account, if
applicable, but do not take into account recurring and nonrecurring charges for
optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for remittance of redemption proceeds by
wire. Where sales charges are not applicable and therefore not taken into
account in the calculation of standard total return, the results will be
increased. Any voluntary waiver of fees or assumption of expenses by the Fund's
affiliates will also increase performance results.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of the Fund changes in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
performance quotation should be considered a representation as to the Fund's
performance for any future period. In addition, the net asset value of shares
of the Fund will fluctuate with the result that shares of the Fund when
redeemed, may be worth more or less than their original cost. Neither an
investment in the Fund nor its performance is insured or guaranteed; such lack
of insurance or guarantees should accordingly be given appropriate
consideration when comparing the Fund to financial alternatives which have such
features.
Shares of the Fund had no class designations until March 1, 1994, when
designations were assigned based on the pricing and Rule 12b-1 fees applicable
to shares sold thereafter. Performance data for a specified class includes
periods prior to the adoption of class designations. Performance data for
periods prior to March 1, 1994 do not reflect additional Rule 12b-1
Distribution Plan fees, if any, of up to 1% per year depending on the class of
shares, which will adversely affect performance results for periods after such
date. Performance data or rankings for a given class of shares should be
interpreted carefully by investors who hold or may invest in a different class
of shares.
31
<PAGE>
STATE STREET RESEARCH
INTERNATIONAL EQUITY FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SUB-INVESTMENT MANAGER
GFM International
Investors Limited
5 Upper St. Martins Lane
London, WC2H 9EA
England
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA02266
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
[STATE STREET RESEARCH LOGO]
State Street Research
International Equity Fund
August 25, 1997
P R O S P E C T U S
IE/F-446D-897IBS CONTROL NUMBER: 4096-970805(0998)SSR-LD
<PAGE>
State Street Research International Equity Fund
a series of
State Street Research Portfolios, Inc.
STATEMENT OF ADDITIONAL INFORMATION
August 25, 1997
TABLE OF CONTENTS
Investment Policies and Restrictions......................................... 2
Debt Securities Ratings...................................................... 4
Additional Information Concerning Certain Investment Techniques.............. 6
Directors and Officers....................................................... 21
Investment Advisory Services................................................. 25
Purchase and Redemption of Shares............................................ 26
Net Asset Value.............................................................. 29
Portfolio Transactions....................................................... 30
Certain Tax Matters.......................................................... 32
Distribution of Shares of the Fund........................................... 36
Calculation of Performance Data.............................................. 39
Custodian.................................................................... 42
Independent Accountants...................................................... 42
Financial Statements......................................................... 43
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus of State Street Research International
Equity Fund (the "Fund") dated August 25, 1997. A copy of the Prospectus may be
obtained without charge from the offices of State Street Research Portfolios,
Inc. ("Portfolios") or State Street Research Investment Services, Inc. (the
"Distributor"), One Financial Center, Boston, Massachusetts 02111.
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment restrictions not described in the Prospectus are
described below. The following fundamental policies may not be changed without
approval of holders of a majority of the outstanding voting shares of the Fund
affected (which for this purpose and under the Investment Company Act of 1940,
as amended (the "1940 Act") means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares).
The Fund may not:
1. borrow money or purchase securities on margin, provided, however, that
this restriction shall not prohibit the Fund from (a) obtaining such
short-term credits as are necessary for the clearance of portfolio
transactions, (b) temporarily borrowing up to 5% of the value of the
Fund's total assets for extraordinary or emergency purposes, such as
for permitting redemption requests to be honored which might otherwise
require the sale of securities at a time when it is not in the Fund's
best interests or (c) purchasing securities on a "when-issued" or
"forward commitment" basis. Collateral arrangements entered into by
the Fund to make margin deposits in connection with futures contracts,
including options on futures contracts, are not for these purposes
deemed to be the purchase of a security on margin. The aggregate
amount of obligations identified in (a), (b) and (c) above, when
incurred, will not exceed one-third of the amount by which the Fund's
total assets exceed its total liabilities (excluding the liabilities
represented by such obligations). If at any time the Fund's
obligations of such type exceed the foregoing limitation, such
obligations will be promptly reduced to the extent necessary to comply
with the limitation. The Fund will not issue senior securities, other
than those which represent obligations under (a), (b) and (c). For
purposes hereof, writing covered call and put options and entering
into futures contracts and options thereon to the extent permitted by
the investment policies described in the Prospectus shall not be
deemed to involve the issuance of senior securities or borrowings;
2. engage in the underwriting of securities of other issuers, except to
the extent that in selling portfolio securities, it may be deemed to
be a "statutory" underwriter for purposes of the Securities Act of
1933;
3. purchase or sell real estate or real estate interests (except that the
Fund may invest up to 10% of its total assets in: (i) readily
marketable securities of issuers which deal in real estate or
mortgages; and (ii) readily marketable securities which are secured by
real estate or interests therein, and the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of the
Fund's ownership of such securities;
4. acquire securities for the purpose of exercising control over the
management of any company or if such acquisition would thereupon cause
more than 25% of the value of the Fund's total assets to consist of
(1) securities (other than securities issued or guaranteed by the
United States government, its agencies and instrumentalities) which,
2
<PAGE>
together with other securities of the same issuer, constitute more
than 5% of the value of the Fund's total assets and (2) voting
securities of issuers more than 10% of whose outstanding voting
securities are owned by Portfolios; and
5. make any investment which would thereupon cause more than 25% of the
value of the total assets of the Fund to be invested in securities
issued by companies principally engaged in any one industry, provided,
however, that (a) utilities will be divided according to their
services so that, for example, gas, gas transmission, electric and
telephone will each be deemed a separate industry, (b) oil and oil
related companies will be divided by type so that, for example,
domestic crude oil and gas producers, domestic integrated oil
companies, international oil companies and oil service companies will
each be deemed a separate industry, and (c) savings and loan
associations and finance companies will each be deemed a separate
industry. To the extent that 25% of the total assets of the Fund may
become invested in the four oil related industries listed above in the
aggregate, such fact will be disclosed. For purposes of this
limitation, all debt securities issued by foreign governments, their
agencies or instrumentalities will be treated as foreign government
debt and all debt securities issued by supranational organizations
will be treated as supranational debt.
The following investment restrictions may be changed without approval of
shareholders.
1. The Fund will not purchase securities of other investment companies if
such purchase would thereupon cause more than 10% of the value of the
total assets in the Fund to be invested in the securities of
investment companies or more than 5% of such value to be invested in
the securities of any one investment company, or would cause
Portfolios to own more than 3% of the total outstanding voting stock
of any such company (or together with other investment companies
having the same investment adviser to own more than 10% of the total
outstanding voting stock of any closed-end investment company).
Securities of investment companies may also be acquired as part of a
merger, consolidation, acquisition of assets or reorganization.
2. The Fund will not purchase any security or enter into a repurchase
agreement if as a result more than 15% of its net assets would be
invested in securities that are illiquid (including repurchase
agreements not entitling the holder to payment of principal and
interest within seven days.
3. The Fund will not make any short sale or participate on a joint or
joint and several basis in any trading account in securities. The
latter policy, however, does not prohibit combining orders for
portfolio securities.
4. The Fund will not invest in oil, gas or other mineral exploration or
development programs (although it may invest in issuers which own or
invest in such interests).
5. The Fund will not purchase securities of any issuer with a record of
less than three years continuous operations, including predecessors,
except obligations issued or guaranteed
3
<PAGE>
by the U.S. Government or by any foreign government, their agencies or
instrumentalities, if such purchase would cause the investments of the
Fund in all such issuers to exceed 5% of the total assets of the Fund
taken at market value.
The investment restrictions set forth in the Prospectus contain an
exception that permits the Fund to purchase securities pursuant to the exercise
of subscription rights, subject to the condition that such purchase will not
result in the Fund ceasing to be a diversified investment company. Japanese and
European corporations frequently issue additional capital stock by means of
subscription rights offerings to existing shareholders at a price substantially
below the market price of the shares.
The failure to exercise such rights would result in the Fund's interest in
the issuing company being diluted. The market for such rights is not well
developed and, accordingly, the Fund may not always realize full value of the
sale of rights. Therefore, the exception applies in cases where the limits set
forth in the investment restrictions in the Prospectus would otherwise be
exceeded by exercising rights or have already been exceeded as a result of
fluctuations in the market value of the Fund's portfolio securities with the
result that the Fund would otherwise be forced either to sell securities at a
time when it might not otherwise have done so, or to forego exercising the
rights.
DEBT SECURITIES RATINGS
The ratings of certain debt instruments in which the Fund may invest are
described below.
Description Of Certain Corporate Bond And Debenture Ratings Of Moody's
Investors Service, Inc. ("Moody's")
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 edged." 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 greater
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.
4
<PAGE>
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 both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
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.
Description Of Certain Corporate Bond And Debenture Ratings Of Standard &
-------------------------------------------------------------------------
Poor's Corporation ("S&P"):
- ---------------------------
AAA: An obligation rated with 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 obligations only in small degree. Capacity to meet the financial
commitment on the 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
obligations in higher rated categories. However, capacity to meet the financial
commitment on the obligation is still strong.
BBB: An obligation rated within the BBB category exhibits adequate
protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to meet the
financial commitment on the obligation.
Obligations rated within the BB or B categories are regarded as having
significant speculative characteristics. The BB category indicates the least
degree of speculation. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties to
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.
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.
5
<PAGE>
Description Of Commercial Paper Ratings
- ---------------------------------------
Commercial paper rated within the "A" category (highest quality) by S&P
has the following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated A 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 determine 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
strength of any parent company and the relationships which exist with the
issuer; and recognition by the 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.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Money Market Instruments. Certain money market instruments are described
below. The Fund may invest in such instruments to the extent otherwise
consistent with its investment objective.
United States Treasury Securities. These consist of various types of
marketable securities issued by the United States Treasury: i.e. bills, notes
and bonds. Such securities are direct obligations of the United States
Government and differ mainly in the length of their maturity. Treasury bills,
the most frequently issued marketable government security, have a maturity of up
to one year and are issued on a discount basis.
Government Agency Securities. These consist of debt securities issued by
agencies and instrumentalities of the United States Government, including the
various types of instruments currently outstanding or which may be offered in
the future. Agencies include, among others, the Federal Housing Administration,
Government National Mortgage Association, Farmers Home Administration,
Export-Import Bank of the United States, Maritime Administration, General
Services Administration and Tennessee Valley Authority. Instrumentalities
include, for example, the National Bank of Cooperatives, each of the Federal
Home Loan Banks, Federal Home Loan
6
<PAGE>
Mortgage Corporation, Farm Credit Banks, Federal National Mortgage Association
and the United States Postal Service. Such securities are backed by the full
faith and credit of the United States (e.g., U.S. Treasury Bills), guaranteed by
the United States Treasury (e.g. Government National Mortgage Association
mortgage-backed securities), supported by the issuing agency's or
instrumentality's right to borrow from the United States Treasury (e.g. Federal
National Mortgage Association Discount Notes) or supported by the issuing
agency's or instrumentality's credit.
Bank Money Market Instruments. These include certificates of deposit and
bankers' acceptances. Certificates of deposit are generally short-term,
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). 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. The Fund
will not invest in any security issued by a commercial bank or a savings and
loan association unless the bank or association is organized and located in the
United States, has total assets of at least $1 billion and is a member of the
Federal Deposit Insurance Corporation; provided that this limitation shall not
prohibit investments in foreign branches of banks or agencies which meet the
foregoing requirements. Negotiable time deposits with maturities of 30 days or
less may be purchased for the Fund without limit. There is no limit on the
amount of non-negotiable time deposits maturing in seven days or less.
Non-negotiable time deposits with maturities exceeding seven days may be
purchased for the Fund, subject to its 15% limit on its aggregate holdings of
illiquid securities.
Short-Term Corporate Debt Instruments. These include commercial paper
(including variable amount master demand notes): i.e., short-term, unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at the
time of issuance not exceeding nine months. Variable amount master demand notes
are obligations of companies that permit the Fund to invest fluctuating amounts
at varying rates of interest pursuant to arrangements between the Fund as
lender, and the companies, as borrowers. The Fund will have the right, at any
time, to increase the amount lent up to the full amount provided by a note or to
decrease the amount. The borrower will have the right, at any time, to prepay up
to the full amount of the amount borrowed without penalty. Because the notes are
direct lending obligations between the Fund and borrowers, they are generally
not traded and there is no secondary market. However, the Fund will have the
right to redeem a note at any time and receive face value plus accrued interest.
Consequently, the Fund's ability to receive repayment will depend upon the
borrower's ability to pay principal and interest on the Fund's demand. The Fund
will invest only in either notes that have the ratings described above for
commercial paper, or (because notes are not typically rated by credit rating
agencies) unrated notes that are issued by companies that have the ratings
described below for issuers of commercial paper. The Fund's investment manager,
State Street Research & Management Company (the "Investment Manager") or the
Fund's sub-investment adviser, GFM International Investors Limited (the
"Sub-Investment Manager") do not expect that the notes will be backed by bank
letters of credit. The Investment Manager and Sub-Investment Manager will value
the notes
7
<PAGE>
held by the Fund taking into account such factors as the issuer's earning power,
cash flows and other liquidity ratios. Also included are non-convertible
corporate debt securities (e.g. bonds and debentures) with no more than two
years remaining to maturity at the date of settlement. Corporate debt securities
with a remaining maturity of less than one year are liquid (and tend to become
more liquid as their maturities lessen) and are traded as money market
securities. Issues with between one and two years remaining to maturity tend to
have greater liquidity and considerably less market value fluctuation than
longer term issues.
Repurchase Agreements. Under these arrangements, the Fund invests in
securities subject to repurchase agreements with a bank or dealer. A repurchase
agreement is an instrument under which the purchaser (i.e., the Fund) acquires
ownership of an obligation (debt security) and the seller agrees, at the time of
the sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. This
results in a fixed rate of return insulated from market fluctuations during such
period, unless the seller defaults on its repurchase obligations. The underlying
securities will consist only of U.S. Government or government agency securities,
certificates of deposit, commercial paper or banker's acceptances. Repurchase
agreements will be collateralized by the purchased securities, and, during the
term of a repurchase agreement, the seller will be required to provide such
additional collateral as is necessary to maintain the value of all of the
collateral at a level at least equal to the repurchase price. Repurchase
agreements usually are for short periods, such as under one week. Repurchase
agreements will be entered into with primary dealers for periods not to exceed
30 days and only with respect to underlying money market securities in which the
Fund may otherwise invest as described above. Repurchase agreements will not be
entered into for a duration of more than seven days if, as a result, more than
15% of the value of the Fund's total assets would be invested in such agreements
or other illiquid securities. Repurchase agreements could be viewed as a form of
loan made by the Fund to the seller of the agreement, with the security subject
to repurchase, in effect, serving as "collateral" for the loan. The Fund will in
all cases seek to assure that the amount of collateral with respect to any
repurchase agreement is adequate. As with a true extension of credit, however,
there is risk of delay in recovery or inadequacy of the "collateral", should the
seller of the repurchase agreement fail financially. Also, the Fund could incur
disposition costs in connection with disposition of the collateral if the seller
defaults. The Fund will enter into repurchase agreements only with sellers
deemed to be creditworthy and only when the economic benefit to the Fund is
believed to justify the attendant risks. The Fund has adopted standards for
the sellers with whom it will enter into repurchase agreements which it believes
are reasonably designed to assure that such a party presents no serious risk of
becoming involved in bankruptcy proceedings within the time frame contemplated
by the repurchase agreement.
Restricted Securities
The Fund's policy is to not make an investment in restricted securities,
including Rule 144A and other restricted securities if as a result more than 35%
of its total assets are invested in such securities provided not more than 10%
of its total assets are invested in non-Rule 144A restricted 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
8
<PAGE>
for such securities are still developing; depending on the development of such
markets, such Rule 144A securities may be deemed to be liquid as determined by
or in accordance with methods adopted by the Trustees. Under such methods the
following factors are considered, among others: the frequency of trades and
quotes for the security, the number of dealers and potential purchasers in the
market, marketmaking activity, and the nature of the security and marketplace
trades. Investments in Rule 144A securities could have the effect of increasing
the level of the Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing such securities. Also, the
Fund may be adversely impacted by the possible illiquidity and subjective
valuation of such securities in the absence of a market for them.
Restricted securities which are not resalable under Rule 144A can be
subject to risks of illiquidity and subjective valuations to a greater degree
than Rule 144A securities.
Zero Coupon Bonds. Zero coupon bonds do not require the periodic payment
of interest and are issued at a significant discount from face value. The
discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Such investments benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash. Such investments may experience greater volatility in
market value than debt obligations which make regular payments of interest. The
Fund will accrue income on such investments for tax and accounting purposes,
which is distributable to shareholders. When distributed to shareholders, any
such income resulting from zero coupon bonds will be paid from the Fund's cash
assets, or, if necessary to pay the distribution, from the proceeds of sales of
portfolio securities held by the Fund. Furthermore, the Fund will be unable to
purchase additional portfolio securities with any cash used to make such
distributions and its current income may be reduced.
Industry Classifications
- ------------------------
In determining how much of the Fund's portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing will be classified according to
the industries of their parent companies or industries that otherwise most
affect such financing companies. Issuers of asset-backed pools will be
classified as separate industries based on the nature of the underlying assets,
such as mortgages and credit card receivables. "Asset-backed--Mortgages"
includes private pools of nongovernment backed mortgages.
9
<PAGE>
Energy Materials Capital Equipment
- ------ --------- -----------------
Energy Resources Building Materials Aerospace
Utilities Chemicals Construction & Housing
Forest Products & Paper Data Processing
Metals (non-ferrous) Electronics
Metals (steel) Electronic Components
Misc. materials Industrial Components
Machinery/Engineering
Consumer Goods Services Financial
- -------------- -------- ---------
Appliances Broadcasting/Publishing Banking
Automobiles Business/Public Services Financial Services
Beverages/Tobacco Leisure/Tourism Insurance
Food/Household Merchandising
Health/Personal Care Telecommunications Miscellaneous
Recreation Transportation (airlines) -------------
Textiles/Apparel Transportation (road/rail) Real Estate
Transportation (shipping) Multi-industry
Wholesale/Trade Gold Mining
Options And Futures
- -------------------
Options on Portfolio Securities and Currencies. Subject to the fundamental
investment restrictions, the Fund may write (sell) covered call options and may
purchase put options with respect to securities in its portfolio. The Fund may
also purchase call options and may write covered put options on securities or
currencies.
A call option gives the purchaser of such option, in exchange for the
option premium, the right to buy (and obligates the writer to sell) the
underlying security or currency at the price specified in the option (the
"exercise price") at any time until the option expires, generally within three
to nine months. The exercise price, plus the option premium paid, will always be
greater than the market price of the underlying security or currency at the time
the option is written. A put option gives the purchaser of such option, in
exchange for the option premium, the right to sell (and obligates the writer to
purchase) the underlying security or currency at the exercise price at any time
before the option expires. If a covered call or put option written by the Fund
expires unexercised, the Fund will realize as income, in the form of a
short-term capital gain, the premium it received for the sale of the option,
less the brokerage commission it paid i.e., the "net premium." If a call option
written by the Fund is exercised, a decision over which the Fund has no control,
the Fund must sell the underlying security or currency to the option holder at
the exercise price. By writing a covered call option, the Fund foregoes, in
exchange for the net premium, the opportunity to profit from any increase in the
value of the underlying security or currency above the exercise price plus the
premium paid. Therefore, call options may be written
10
<PAGE>
when the Sub-Investment Manager believes that the security or currency should be
held, but no increase in price or only a moderate increase within the option
period is expected. By writing a covered put option, the Fund receives premium
income but obligates itself to purchase from the option holder, at the price
specified in the option, the particular security or currency underlying the
option at any time prior to the expiration of the option period, regardless of
the market value of the security or currency during the option period.
Therefore, put options will be written when the Sub-Investment Manager believes
that the security's or currency's price will rise during the exercise period
and, consequently, the option will not be exercised. If an option purchased by
the Fund expires unexercised, the Fund will experience a loss in the amount of
the premium paid for the option. The Fund will generally decide to exercise a
put option if the market price of the underlying security or currency falls
below the exercise price plus the premium paid; it will generally decide to
exercise a call option if the market price of the underlying security or
currency exceeds the exercise price plus the premium paid. Therefore, options
may be purchased when the Sub-Investment Manager believes that, in the case of a
put, the security or currency should be held but its market price may fall, or,
in the case of a call, the security or currency should be purchased in the
future and its market price may rise. In order to reduce the risk of loss, the
Fund will not purchase options unless the Sub-Investment Manager believes the
market is sufficiently developed. The Fund will not sell the securities or
currencies against which options have been written until after the option period
has expired, a closing purchase transaction, if available, has been executed, a
corresponding put or call option has been purchased or the written option is
otherwise covered.
Options are traded or on certain recognized securities exchanges including
the following United States and foreign exchanges: the Chicago Board Options
Exchange, American Stock Exchange, New York Stock Exchange, Pacific Stock
Exchange and Philadelphia Stock Exchange, the Toronto Stock Exchange, Montreal
Stock Exchange, European Options Exchange (in the Netherlands) and London Stock
Exchange.
The Fund may terminate its obligation as the writer of an option by
purchasing an option with the same exercise price and expiration date as the
option previously written (a "closing purchase transaction"). If the Fund cannot
enter into a closing purchase transaction (for example, because no such options
are available for purchase), the Fund will continue to bear the risk of loss of
the appreciation, if any, in the price of the underlying security or currency
during the remaining term of the option, if it has written a call option, or the
Fund will continue to be obligated to purchase the specified securities or
currencies at the exercise price, regardless of the market value or exchange
rate, if it has written a put option.
Both sales and purchases of options require the Fund to pay brokerage
commissions. To the extent that an option sold by the Fund is exercised, the
Fund may incur brokerage commissions or other transaction costs in reinvesting
the proceeds received upon such exercise. Also, writing covered call options can
increase the Fund's turnover rate.
When the Fund sells a covered call or put option, an amount equal to the
net premium (the premium less the commission) received by the Fund is included
in the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit
11
<PAGE>
subsequently will be marked-to-market to reflect the current value of the option
written. If an option expires on its stipulated expiration date or if the Fund
enters into a closing purchase transaction, the Fund will realize a gain (or
loss, if the cost of a closing purchase transaction exceeds the net premium
received when the option was sold), and the deferred credit related to such
option will be eliminated. If a call option sold by the Fund is exercised, the
Fund will realize a long-term or short-term gain or loss from the sale of the
underlying security or currency, and the proceeds of the sale will be increased
by the premium previously received on the option. The writing of such call
options will not affect the holding period of the underlying security. If a put
option sold by the Fund is exercised, the Fund's cost for the security or
currency purchased will be reduced by the premium previously received on the
option written.
Options on Indices. The Fund intends to utilize options on stock indices.
Options on stock indices are similar to options on stock, except that all
settlements are made in cash rather than by delivery of the stock, and gains or
losses depend on price movements in the stock market generally (or in a
particular industry or segment of the market represented by the index) rather
than price movements in individual stocks.
Upon payment of a specified premium at the time an option on a stock index
is entered into, the purchaser of a call option on a stock index obtains the
right to receive, upon exercise of the option, a sum of money equal to a
multiple of any excess of the value of the specified stock index, on the
exercise date, over the exercise or "strike" price specified by the option. The
purchaser of a put option on a stock index obtains the right to receive, upon
exercise of the option, a sum of money equal to a multiple of any excess of the
strike price over the value of the stock index.
The writer of a stock index option has obligations which correspond to the
purchaser's rights. Thus, for example, the writer of a call option on a stock
index, in consideration of the option premium received, has the obligation to
pay, upon exercise, a dollar amount equal to a multiple of any excess of the
value of the specified stock index on the date of exercise over the strike price
specified in the option. The writer of a put option on a stock index, in
consideration of the option premium received, has the obligation to pay, upon
exercise, a dollar amount equal to a multiple of any excess of the value of the
strike price specified in the option over the value of the specified stock in
index on the date of exercise.
The Fund will cover call options on a stock index written by, for example,
holding in a segregated account, with the custodian for Portfolios, portfolio
securities that substantially replicate the movement of the particular index
upon which the call option was written or sufficient cash or liquid assets to
cover the outstanding position. In addition, the Fund may also choose to cover
call options written by holding a separate call option permitting the purchase
of the same stock index at the same strike price. The Fund will cover put
options on a stock index written by, for example, holding in a segregated
account, with the custodian for Portfolios, cash or liquid assets equal to the
strike price of the put option or by holding a separate put option permitting
the purchase of the same stock index at the same strike price.
The Fund intends to write covered call and put options on a stock index
for the same purposes as it might write covered call and put options on its
portfolio securities.
12
<PAGE>
A securities index fluctuates with changes in the market values of the
securities included in the index. For example, some options on securities
indices are based on a broad market index such as the Nikkei Index of 225
Japanese stocks traded on the Singapore International Monetary Exchange ("Nikkei
Index") or the Standard & Poor's 500 Index, or a narrower market index such as
the Standard & Poor's 100 or the Osaka Index of 50 Japanese Stocks traded on the
Osaka Exchange. Indices may also be based on an industry or market segment such
as the AMEX Oil and Gas Index or the Computer and Business Equipment Index.
Options on stock indices are currently traded on the following exchanges, among
others: the London Traded Options Market, The Chicago Board Options Exchange;
New York Stock Exchange; and American Stock Exchange. Options on other types of
securities indices, which do not currently exist, may be introduced and traded
on exchanges in the future.
Options on indices relating to certain debt securities, referred to as
interest rate indices, may be introduced in the future. In the event that a
liquid market develops for options on an interest rate index, and the Board of
Directors of Portfolios authorizes the Fund to use such an option, the Fund may
do so. Where permitted, the Fund intends to utilize options on interest rate
indices in a manner similar to that described above with respect to options on
stock indices.
The Fund's purchase and sale of options on indices will be subject to the
same risks as those applicable to options on individual securities. In addition,
the distinctive characteristics of options on indices create certain risks that
are not present with options on individual securities. For example, index prices
may be distorted if trading of certain securities included in the index is
interrupted. Trading in the index options also may be interrupted in certain
circumstances, such as, for example, if trading were halted in a substantial
number of securities included in the index. If this occurred, the Fund would not
be able to close out options which it had purchased or written and, if
restrictions on exercise were imposed, would be unable to exercise an option it
holds, which could result in substantial losses to the Fund. The Fund intends to
purchase or write options only on indices which include a sufficient number of
securities to minimize the likelihood of a trading halt in such options. In
addition, the ability to establish and close out positions on options on indices
will be subject to the development and maintenance of a liquid secondary market
for such options. The Fund will not purchase or sell any option on an index
unless and until, in the opinion of the Sub-Investment Manager, the market for
such options has developed sufficiently that the risk in connection with such
transactions is acceptable.
The effectiveness of hedging through the purchase of options on indices
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
index. Perfect correlation is not possible because the securities held or to be
acquired by the Fund will not exactly match the composition of the indices on
which options are written. In the purchase of options on indices, the principal
risk is that the premium and transaction costs paid by the Fund in purchasing an
option will be lost as a result of unanticipated movements in the price of the
securities comprising the index for which the option has been purchased. In
writing call options on indices, the principal risks are the inability to effect
closing transactions at favorable prices and the inability to participate in the
appreciation of the underlying securities. In writing put options on indices,
the principal risks are the inability
13
<PAGE>
to effect closing transactions at favorable prices and the obligation to make a
cash settlement relating to the stock index at prices which may not reflect
current market values.
Futures Transactions. A futures contract is an agreement to buy or sell a
security or currency (or deliver a final cash settlement price, in the case of a
contract relating to an index or otherwise not calling for physical delivery at
the end of trading in the contract) for a set price in the future. Trading in
futures is regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission ("CFTC"). Futures contracts trade on certain regulated
contract markets through an open outcry auction on the exchange floor. The Fund,
as described more fully below, may purchase or sell futures contracts to effect
hedging transactions. A hedge, as defined by the CFTC, is a transaction in which
the Fund utilizes futures contracts in order to protect the value of underlying
portfolio securities or the currencies in which they are denominated from
adverse fluctuations in the financial markets.
Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but instead are liquidated through
offsetting transactions that may result in a gain or a loss. While futures
positions taken by the Fund will usually be liquidated in this manner, the Fund
may instead make or take delivery of underlying securities or currencies
whenever it appears economically advantageous for the Fund to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing out transactions and guarantees that, as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
Upon entering into a futures contract, the Fund is required to deposit
with a futures commission merchant or in a segregated custodial account a
certain percentage (presently less than ten percent) of the futures contract's
market value as "initial margin." Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned upon
termination of the futures contract if all contractual obligations have been
satisfied. The initial margin in most cases consists of cash or U.S. Government
securities. Subsequent cash payments, called "variation margin," may be required
as a result of marking the contracts to market on a daily basis as the contract
value fluctuates.
The use of futures contracts entails certain risks in addition to those
stated below, including but not limited to; possible reduction in the Fund's
income due to the use of hedging; possible reduction in value of both securities
or currencies hedged and the futures contract; and potential losses in excess of
the amount initially invested in the futures contracts themselves. The use of
futures contracts requires special skills in addition to those needed to select
portfolio securities or currencies.
Stock Index Futures Contracts. The Fund, consistent with its investment
objective and policies, may attempt to reduce the risk of investments in equity
securities by hedging portions of its underlying portfolio through the use of
standardized stock index futures contracts. These contracts currently are
actively traded on the Chicago Board of Trade, the Chicago Mercantile Exchange,
the New York Futures Exchange and the Kansas City Board of Trade. Foreign stock
14
<PAGE>
index futures traded outside the United States include the Nikkei Index traded
on the Singapore International Monetary Exchange, Osaka Index traded on the
Osaka Exchange, Financial Times Stock Exchange Index of the 100 largest stocks
on the London Stock Exchange traded on the London International Financial
Futures Exchange, the All Ordinaries Share Price Index of 307 stocks on the
Sydney, Melbourne Exchanges, Hang Seng Index of 33 stocks on the Hong Kong Stock
Exchange, Barclays Share Price Index of 40 stocks on the New Zealand Stock
Exchange and Toronto Index of 35 stocks on the Toronto Stock Exchange. Futures
and futures options on the Nikkei Index are traded on the Chicago Mercantile
Exchange. U.S. commodity exchanges may develop futures and futures options on
other indices of foreign securities; futures and options on a U.S. devised index
of foreign stocks are also being developed. A stock index futures contract is an
agreement in which the seller of the contract agrees to deliver to the buyer an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made.
The Fund intends to engage in stock index futures transactions as a hedge
against market risk resulting from market conditions and over-all economic
prospects with respect to the value of portfolio securities held by the Fund or
which the Fund intends to purchase, as distinguished from stock-specific risk
resulting from the market's evaluation of the merits of a particular security.
For example, the Fund might sell stock index futures contracts to hedge against
a decline in the value of securities held in its portfolio. Alternatively, the
Fund might buy stock index futures contracts to hedge against a rise in the
value of securities that the Fund intends to acquire.
The Fund's successful use of stock index futures contracts depends upon
the ability of the Sub-Investment Manager to accurately assess the direction of
the stock market and is subject to various additional risks. The correlation
between movement in the price of the stock index futures contract and the price
of the securities being hedged is imperfect and the risk from imperfect
correlation increases as the composition of the Fund's portfolio diverges from
the composition of the relevant index. In addition, the ability of the Fund to
close out a futures position depends on a liquid secondary market. There is no
assurance that liquid secondary markets will exist for any particular futures
contract at any particular time. See also the risks noted above under "Futures
Transactions."
Interest Rate Futures Contracts. The Fund, consistent with its investment
objective and policies, may buy and sell futures contracts on interest-bearing
securities (such as U.S. Treasury Bonds, U.S. Treasury Notes, three-month U.S.
Treasury Bills, Eurodollar Certificates of Deposit and GNMA Certificates) for
hedging purposes. Futures contracts on interest-bearing securities are actively
traded on the Chicago Board of Trade, London International Financial Futures
Exchange, Tokyo Stock Exchange, Paris Stock Exchange and International Monetary
Market at the Chicago Mercantile Exchange. Further, in the event that a liquid
market develops for futures contracts based on an interest rate index, and the
Board of Directors of Portfolios authorizes the Fund to use such futures
contracts, the Fund may do so. Futures contracts on interest-bearing securities
and interest rate indices are referred to collectively as "interest rate futures
contracts." The Fund will engage in transactions in only those interest rate
futures contracts that are traded
15
<PAGE>
on a commodities exchange or a board of trade and are standardized as to
maturity date and the underlying financial instrument.
For example, the Fund might sell an interest rate futures contract to
hedge against a decline in the market value of debt securities owned by the
Fund. The Fund might also purchase an interest rate futures contract to hedge
against an anticipated increase in the value of debt securities the Fund intends
to acquire. The risks of interest rate futures contracts are briefly described
above in connection with the proposed use of stock index futures contracts and
in the general description of "Futures Transactions." In addition, the Fund's
successful use of interest rate futures contracts depends upon the ability of
the Sub-Investment Manager to accurately assess interest rate moves. Further,
because there are a limited number of types of interest rate futures contracts,
it is likely that the financial futures contracts available to the Fund will not
exactly match the debt securities that the Fund intends to hedge or acquire. To
compensate for differences in historical volatility between securities that the
Fund intends to hedge or acquire and the interest rate futures contracts
available to it, the Fund could purchase or sell futures contracts with a
greater or lesser value than the debt securities it wished to hedge or intended
to purchase. This imperfect correlation between the interest rate futures
contract and the debt securities being hedged is another risk.
Currency Futures Contracts. The Fund may buy and sell futures contracts on
currencies. The Fund will engage in transactions in only those currency futures
contracts that are traded on a national or foreign commodities exchange or a
board of trade and are standardized as to maturity date and the underlying
financial instrument. Currency futures contracts may be used on currencies as a
hedge against changes in prevailing currency exchange rates in order to
establish more definitively the return on foreign securities held or intended to
be acquired by the Fund. In this regard, the Fund could sell currency futures
contracts to offset the effect of expected decreases in currency exchange rates
and purchase such contracts to offset the effect of expected increases in
currency exchange rates. Although techniques other than the sale and purchase of
currency futures contracts could be used for these purposes, currency futures
contracts may be an effective and relatively low cost means of implementing
these strategies.
Options on Futures. The Fund may purchase put and call options on stock
index futures contracts, write (i.e., sell) covered call options on stock index
futures contracts and enter into closing transactions with respect to such
options. The Fund may also write covered put options on stock index futures
options or currency futures contracts and may enter into closing transactions
with respect to such options. In addition, the Fund is permitted to purchase or
write covered put and call options on interest rate futures with respect to such
options. Such transactions will only be for bona fide hedging purposes, as
defined by the CFTC. A call option on a futures contract gives the purchaser the
right, in return for the premium paid, to purchase a futures contract (assume a
"long" position) at a specified exercise price at any time before the option
expires. A put option gives the purchaser the right, in return for the premium
paid, to sell a futures contract (assume a "short" position), for a specified
exercise price, at any time before the option expires. Upon the exercise of a
call, the writer of the option is obligated to sell the futures contract (to
deliver a "long" position to the option holder) at the option exercise price,
which will presumably be lower than the current market price of the contract in
the futures market. Upon
16
<PAGE>
exercise of a put, the writer of the option is obligated to purchase the futures
contract (to deliver a "short" position to the option holder) at the option
exercise price, which will presumably be higher than the current market price of
the contract in the futures market. When the Fund as a purchaser of an option on
a futures contract exercises such option and assumes a long futures position in
the case of a call, or a short futures position in the case of a put, its gain
will be credited to its futures margin account. Any loss suffered by the writer
of the option on a futures contract will be debited to its futures variation
margin account. However, as with the trading of futures, most participants in
the options markets do not seek to realize their gains or losses by exercise of
their option rights. Instead, the holder of an option will usually realize a
gain or loss by buying or selling an offsetting option (i.e., entering into a
closing transaction) at a market price that will reflect an increase or a
decrease from the premium originally paid as a purchaser or required as a
writer.
Options on futures contracts can be used by the Fund to hedge the same
risks as might be addressed by the direct purchase or sale of the underlying
futures contracts themselves. Depending on the pricing of the option, compared
to either the futures contract upon which it is based or upon the price of the
underlying securities or currencies themselves, it may or may not be less risky
than direct ownership of the futures contract or the underlying securities or
currencies.
In contrast to a futures transaction, in which only transaction costs are
involved, benefits received by the Fund as a purchaser in an option transaction
will be reduced by the amount of the premium paid as well as by transaction
costs. In the event of an adverse market movement, however, the Fund which
purchased an option will not be subject to a risk of loss on the option
transaction beyond the price of the premium it paid plus its transaction costs.
Purchasers of options who do not exercise their options prior to the expiration
date will suffer a loss of the entire premium.
If the Fund writes covered call or put options on futures contracts, the
Fund will receive a premium but will assume a risk of adverse movement in the
price of the underlying futures contract comparable to that involved in holding
a futures position. If the option is not exercised, the Fund will realize a gain
in the amount of the premium, which may partially offset unfavorable changes in
the value of securities held in the Fund or to be acquired for the Fund. If the
option is exercised, the Fund will incur a loss in the option transaction, which
will be reduced by the amount of the premium it has received, but which may also
partially offset favorable changes in the value of its securities or currencies.
For example, the writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the underlying securities or
currencies. If the futures price at expiration is below the exercise price, the
Fund will retain the full amount of the option premium, which provides a partial
hedge against any decline that may have occurred in the value of the Fund's
holdings of securities or currencies.
While the purchaser or writer of an option on a futures contract may
normally terminate its position by selling or purchasing an offsetting option of
the same series, the Fund's ability to establish and close out options at fairly
established prices will be subject to the existence of a liquid market. The Fund
will not purchase or write options on futures contracts unless, in the
17
<PAGE>
opinion of the Sub-Investment Manager, the market for such options has
sufficient liquidity that the risks associated with such options transactions
are not unacceptable.
Limitations On The Use Of Futures Contracts And Options Thereon And
Options On Indices. Regulations of the CFTC currently require certain limits to
be placed on the use of futures contracts and options thereon. To ensure that
the transactions constitute bona fide hedges, in instances involving the
purchase or sale of a futures contract or the writing of covered call options on
futures contracts, the Fund will be required to either (i) segregate sufficient
cash or liquid assets to cover the outstanding position or (ii) cover the
futures contract or option written on such contract by owning the instruments or
currency underlying the futures contract or option thereon or by holding a
separate option permitting it to purchase or sell the same futures contract or
option at the same strike price or better. In instances involving the writing of
covered put options on futures contracts, the Fund will be required to (i)
segregate sufficient cash or liquid assets equal to the strike price of the put
options written or (ii) purchase a put option on the same futures contract at
the same strike price as that written by the Fund. Where such positions are
covered by the segregation of sufficient cash, cash equivalents or underlying
securities, such amounts will be held in a segregated account with the Fund's
custodian to collateralize the position, thereby insuring that the use of such
futures contracts and options thereon is unleveraged. The Fund may not establish
a position in a commodites futures contract or purchase or sell a commodities
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 derivative positions for nonhedging purposes would
exceed 5% of the market value of the Fund's total assets; provided however, that
in the case of an option that is "in-the-money" at the time of the purchase, the
"in-the-money" amount may be excluded in calculating the 5% limitation; similar
policies apply to options which are not commodities. In addition, shares of the
Fund may not be sold or advertised as a participation in a commodity pool or
other vehicle for trading in the commodity futures or options markets. Finally,
the Fund must agree to submit information to the CFTC, as requested, to
demonstrate compliance with applicable regulations and to assist the CFTC in
collecting data and refining its hedging standards.
With respect to options on indices, in order to insure that call options
written by the Fund on indices are covered and, therefore, unleveraged, the Fund
would be required to: (i) hold in a segregated account, with Portfolios'
custodian, portfolio securities that substantially replicate the movement of the
particular index upon which the call option was written or sufficient cash or
liquid assets to cover the outstanding position, or (ii) hold a separate option
permitting the purchase or sale of the same stock index at the same strike price
or better. With respect to put options written on stock indices, the Fund will
(i) segregate sufficient cash or liquid assets equal to the strike price of the
put option written or (ii) purchase a put option on the same index at the same
strike price as that written by the Fund.
Forward Foreign Currency Exchange Contracts. The Fund may use forward
foreign currency exchange contracts ("forward currency contracts") to hedge the
currency risk relating to the non-U.S. dollar-denominated securities purchased,
sold, or held by the Fund.
18
<PAGE>
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 as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable forward currency contract, the holder
has the unilateral right to cancel the contract at maturity by paying a
specified fee. Forward currency contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. They generally have no deposit requirement, and no commissions
are charged at any stage for trades. Although foreign exchange traders do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies.
Thus, a trader may offer to sell a foreign currency to the Fund at one
rate, while offering a lower rate of exchange should the Fund desire to resell
that currency to the trader.
At the maturity of a forward currency contract, the Fund may either accept
or make delivery of the currency specified in the contract, or at or prior to
maturity, the Fund may enter into a closing transaction involving the purchase
or sale of an offsetting contract. Closing transactions with respect to forward
currency contracts are usually effected with the currency trader that is a party
to the original forward contract.
As described in the Prospectus, the Fund may enter into a forward currency
contract under two circumstances. First, when the Fund has entered into a
contract to purchase or sell a non-U.S. security, it may protect itself against
a possible loss between the trade date and the settlement date resulting from an
adverse change in the relationship between the U.S. dollar and the foreign
currency in which such security is denominated by entering into a forward
currency contract in U.S. dollars for the purchase or sale of the amount of the
foreign currency involved in the underlying security transaction. Second, when
management of the Fund believes a particular foreign currency may suffer or
enjoy a substantial movement against the U.S. dollar, the Fund may enter into a
forward currency contract to sell or buy an amount of such currency (or another
currency in a cross hedging transaction) approximating the value of some or all
of the Fund's securities denominated in such foreign currency. However, the
precise matching of the amounts of forward currency contracts and the value of
the portfolio securities being hedged will not generally be possible, because
the future value of such securities in foreign currencies will change as a
consequence of movements in the market value of those securities between the
dates the forward currency contracts are entered into and the dates they mature.
Since it is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward currency
contract, it may be necessary for the Fund to purchase additional foreign
currency on the spot (i.e. cash) market (and bear the expense of such purchase)
if the market value of the securities being hedged is less than the amount of
foreign currency the Fund would be obligated to deliver upon the sale of such
securities. Conversely, it may be necessary for the Fund to sell some of the
foreign currency received upon the sale of portfolio securities on the spot
market if the market value of such securities exceeds the amount of foreign
currency the Fund is obligated to deliver.
19
<PAGE>
The Fund may enter into forward currency contracts or maintain a net
exposure on such contracts only if (i) the consummation of the contracts would
not obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's securities or other assets denominated in that currency or
(ii) the Fund maintains with its custodian cash, U.S. government securities, or
liquid cash in a segregated account in an amount not less than the value of the
Fund's total assets committed to the consummation of the contracts.
The use of forward currency contracts involves various risks. The Fund may
not always be able to enter into a forward currency contract when management
deems it advantageous to do so, for instance, if the Fund is unable to find a
counterparty to the transaction at an attractive price. Furthermore, the Fund
may not be able to purchase forward currency contracts with respect to all of
the foreign currencies in which its portfolio securities may be denominated. In
those circumstances, and in a cross hedging forward currency contract, the
correlation between the movements in the exchange rates of the subject currency
and the currency in which the portfolio security is denominated may not be
precise. Forward currency contracts are not guaranteed by a third party and,
accordingly, each party to a forward currency contract is dependent upon the
creditworthiness and good faith of the other party. A default on the contract
would deprive the Fund of unrealized profits or force the Fund to cover its
commitments for purchase or sale of currency, if any, at the current market
price. Finally, the cost of purchasing forward currency contracts in a
particular currency will reflect, in part, the rate of return available on
instruments denominated in that currency. The cost of purchasing forward
currencies that generally yield high rates of return may thus tend to reduce the
rate of return toward the rate of return that would be earned on assets
denominated in U.S. dollars.
20
<PAGE>
DIRECTORS AND OFFICERS
The directors and principal officers of Portfolios, their addresses, 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 Portfolios. He is 59. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President of State
Street Research & Management Company. Mr. Bennett's other principal business
affiliation is Director, State Street Research Investment Services, Inc.
*Steven J. Brunnock, Five Upper St. Martins Lane, London, WC2H 9EA
England, serves as Vice President of Portfolios. He i 37. His principal
occupation during the past five years has been portfolios manager for GFM
International Investors Limited.
*Justin T. Donegan, Five Upper St. Martins Lane, London, WC2H 9EA
England, serves as Vice President of Portfolios. He is 38. His principal
occupation is portfolio manager for GFM International Investors Limited. During
the past five years he has also served as a self-employed financial consultant,
as the Japanese Portfolio Manager for Pictet Asset Management, and as the Far
Eastern Portfolio Manager for Johnson Capital Management.
+Steve A. Garban, The Pennsylvania State University, 208 Old Main,
University Park, PA 16802, serves as Director of Portfolios. He is 59. He is
retired and was formerly Senior Vice President Finance and Operations and
Treasurer Emeritus of The Pennsylvania State University.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville, NC
28803, serves as Director of the Portfolios. He is 69. 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 Portfolios. He is 56. Mr. Kallis's 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.
_____________
* or + See footnotes on page 23.
21
<PAGE>
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791, serves
as Director of Portfolios. He is 70. He is engaged principally in private
investments and civic affairs and is an author of business history. Previously,
he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Director of Portfolios. He is 71. His principal occupation is
Associate of Saltonstall & Co., a private investment firm. During the past five
years he has also served as Partner of that firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of Portfolios. He is 46. His principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer and Director of State Street
Research & Management Company. During the past five years he has also served as
Executive Vice President and Chief Financial Officer of New England Investment
Companies and as Senior Vice President and Vice President of New England Mutual
Life Insurance Company. Mr. Maus's other principal business affiliations include
Executive Vice President, Treasurer, Chief Financial Officer and Director of
State Street Research Investment Services, Inc.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111,
serves as Secretary and General Counsel of Portfolios. He is 42. 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 Senior Vice President, Clerk and General Counsel of State Street
Research Investment Services, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Director of Portfolios. He is 65. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director, Hewlett-Packard Company.
*Rosamunde M. Price, Five Upper St. Martins Lane, London, WC2H 9EA
England, serves as Vice President of Portfolios. She is 45. Her principal
occupation during the past five years has been portfolios manager for GFM
International Investors Limited.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves as
Director of Portfolios. He is 59. His principal occupations during the past five
years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
______________
* or + See footnotes on page 23.
22
<PAGE>
*Nicholas Sanjana, Five Upper St. Martins Lane, London, WC2H 9EA England,
serves as Vice President of Portfolios. He is 33. His principal occupation
during the past five years has been portfolios manager for GFM International
Investors Limited.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Director of the Portfolios.
He is 60. 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.
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Director of
Portfolios. He is 54. His principal occupation is Chairman of the Board,
President, Chief Executive Officer and Director of State Street Research &
Management Company. During the past five years he also served as President and
Chief Executive Officer of New England Investment Companies and as Chief
Investment Officer and Director, New England Mutual Life Insurance 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.
*Ian R. Vose, Five Upper St. Martins Lane, London, WC2H 9EA England,
serves as Vice President of Portfolios. He is 40. His principal occupation is
Senior Vice President and Chief Investment Officer of GFM International
Investors Limited. During the past five years he has also served as Chief
Executive Officer of GFM International Investors Limited.
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves as Vice
President of Portfolios. He is 51. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as President and Chief Investment Officer of IDS
Advisory Group, Inc. and as Senior Vice President of Stein, Roe & Farnham.
____________
* These Directors and/or officers are or may be deemed to be interested
persons of Portfolios under the 1940 Act because of their affiliations
with the Fund's investment adviser and sub-investment adviser.
+ Serves as 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 affiliates: 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 Master Investment Trust,
State Street Research Equity Trust, State Street Research Securities
Trust, State Street Research Growth Trust, State Street Research Exchange
Trust, State Street Research Portfolios, Inc.
and Metropolitan Series Fund, Inc.
23
<PAGE>
The Directors have been compensated as follows:
Total
Compensation
Aggregate From Portfolios
Name of Compensation and Complex paid
Director From Portfolios (a) to Directors (b)
- ------------------------------------------------------------------
Steve A. Garban $9,000 $ 34,750
Malcolm T. Hopkins $8,500 $ 34,750
Edward M. Lamont (c) $ 0 $ 59,375
Robert A. Lawrence $8,000 $ 92,125
Dean O. Morton $8,000 $ 96,125
Toby Rosenblatt (c) $ 0 $ 59,375
Michael S. Scott Morton $6,000 $100,325
Ralph F. Verni (c) $ 0 $ 0
(a) For the fiscal year ended October 31, 1996.
(b) Includes compensation on behalf of all series of 12 investment companies
for which the Investment Manager served directly or indirectly as the
primary investment adviser or for which the Investment Manager served as
sub-investment adviser, and series of State Street Research Portfolios,
Inc., for which State Street Research Investment Services, Inc. served as
distributor. "Total Compensation from Portfolios and Complex Paid to
Directors" is for the 12 months ended December 31, 1996. Portfolios does
not provide any pension or retirement benefits for the Directors.
(c) Did not serve as a Director during the fiscal year ended October 31, 1996.
As of July 31, 1997, the Directors and principal officers of Portfolios
as a group owned approximately 1.1% of the Fund's outstanding Class A shares.
24
<PAGE>
As of July 31, 1997, the following persons or entities were the record
and/or beneficial owners of the approximate amount of each class of shares of
the Fund as set forth beside their names:
PERCENTAGE
SHAREHOLDER ADDRESS OWNERSHIP
----------- ------- ---------
Class A Merrill Lynch Pierce 4800 Deer Lake Drive E. 13.4%
Fenner & Smith, Inc. (a) Jacksonville, FL 32246
Class B Merrill Lynch Pierce 4800 Deer Lake Drive E. 12.6%
Fenner & Smith, Inc. (a) Jacksonville, FL 32246
Class C Chase Manhattan Bank, 770 Broadway 57.1%
Bank, N.A. (b) New York, NY 10003
Class D Merrill Lynch Pierce 4800 Deer Lake Drive E. 44.4%
Fenner & Smith, Inc. (a) Jacksonville, FL 32246
(a) The Fund believes that the entity does not have beneficial ownership of
such shares.
(b) Chase Manhattan Bank, N.A. holds the shares as trustee for various
employee benefit plans and Portfolios believes that Chase Manhattan Bank
does not have beneficial ownership of such shares.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
INVESTMENT ADVISORY SERVICES
Portfolios has entered into an Investment Management Agreement with State
Street Research & Management Company, One Financial Center, Boston, MA 02111
with respect to the Fund and into a separate Sub-Investment Management Agreement
with the Investment Manager and GFM International Investors Limited, with
respect to the Fund. The Sub-Investment Manager has overall responsibility for
the investment management, and provides the portfolio managers for the Fund. The
Investment Manager compensates all executive and clerical personnel and Trustees
of Portfolios if such persons are employees or affiliates of the Investment
Manager or its affiliates. The Investment Manager and the Sub-Investment Manager
are indirect wholly-owned subsidiaries of Metropolitan Life Insurance Company
("Metropolitan").
25
<PAGE>
The Fund compensates the Investment Manager at the annual rate of 0.95% of
the average daily value of its net assets. For providing sub-investment
management services for the Fund, the Sub-Investment Manager receives from the
Investment Manager a monthly fee equal to 0.75% (on an annual basis) of the
average daily value of the Fund's net assets. The Fund has no responsibility for
the payment of fees to the Sub-Investment Manager. For fiscal years ending
October 31, 1994, 1995 and 1996, the investment advisory fees paid by the Fund
were $597,501, $830,476 and $921,649, respectively. For the same periods, the
voluntary reduction of management fees and assumption of expenses by the
Distributor or its affiliates amounted to $386,279, $529,341 and $452,847. For
fiscal years ending October 31, 1994, 1995 and 1996, sub-investment management
fees for the Fund were $471,711, 655,639 and $727,618, respectively.
The Investment Management Agreement and the Sub-Investment Management
Agreement relating to the Fund were approved by the shareholders of the Fund at
the first annual meeting of shareholders. Unless earlier terminated, each
Agreement will continue in effect from year to year with respect to the Fund, if
approved annually (a) by the Board of Directors of Portfolios or by a majority
of the outstanding shares of the Fund (as determined pursuant to the 1940 Act),
and (b) by a majority of the Board of Directors who are not "interested persons"
(within the meaning of the 1940 Act) of any party of such Agreement. The
Agreements are not assignable and may be terminated without penalty on 60 days'
written notice at the option of either party or, with respect to the Fund, by
the requisite vote of the shareholders of the Fund.
Under a Shareholders' Administrative Services Agreement between Portfolios
and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from shareholders
respecting the purchase and redemption of shares of the Fund, and is entitled to
reimbursement 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, such as employee benefit
plans, through or under which the Fund's shares may be purchased.
Under the Code of Ethics of the Investment Manager, its employees in
Boston and selected other persons elsewhere involved in investment management
operations, 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 persons must report their personal securities transactions quarterly and
supply broker confirmations of such transactions to the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by the Distributor. The Fund offers
four classes of shares which may be purchased at the next determined net asset
value per share plus, in the case of all
26
<PAGE>
classes except Class C shares, a sales charge which, at the election of the
investor, may be imposed (i) at the time of purchase (the Class A shares) or
(ii) on a deferred basis (the Class B and Class D shares). General information
on how to buy shares of the Fund, as well as sales charges involved, are set
forth under "Purchase of Shares" in the Prospectus. The following supplements
that information.
Public Offering Price
- ---------------------
The public offering price for each class of shares of the Fund is based on
its net asset values determined as of the close of the New York Stock Exchange
("NYSE") on the day the purchase order is received by State Street Research
Shareholder Services provided that the order is received prior to the close of
the NYSE on that day; otherwise the net asset value used is that determined as
of the close of the NYSE on the next day it is open for unrestricted trading.
When a purchase order is placed through a dealer, that dealer is responsible for
transmitting the order promptly to State Street Research Shareholder Services in
order to permit the investor to obtain the current price. Any loss suffered by
an investor which results from a dealer's failure to transmit an order promptly
is a matter for settlement between the investor and the dealer.
Reduced Sales Charges
- ---------------------
For purposes of determining whether a purchase of Class A shares qualifies
for reduced sales charges, the term "person" includes: (i) an individual, or an
individual combining with his or her spouse and their children and purchasing
for his, her or their own account; (ii) a "company" as defined in Section
2(a)(8) of the 1940 Act; (iii) a trustee or other fiduciary purchasing for a
single trust estate or single fiduciary account (including a pension, profit
sharing or other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Internal Revenue Code); (iv) a tax-exempt organization
under Section 501(c)(3) or (13) of the Internal Revenue Code; and (v) an
employee benefit plan of a single employer or of affiliated employers.
Investors may purchase Class A shares of the Fund at reduced sales charges
by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of Eligible Funds as
designated by the Distributor within a 13-month period. The sales charge
applicable to each purchase made pursuant to a Letter of Intent will be that
which would apply if the total dollar amount set forth in the Letter of Intent
were being bought in a single transaction. Purchases made within a 90-day period
prior to the execution of a Letter of Intent may be included therein; in such
case the date of the earliest of such purchases marks the commencement of the
13-month period.
An investor may include toward completion of a Letter of Intent the value
(at the current public offering price) of all of his or her Class A shares of
the Fund and of any of the other Class A shares of Eligible Funds held of record
as of the date of his or her Letter of Intent, plus the value (at the current
offering price) as of such date of all of such shares held by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances.
27
<PAGE>
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the Right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
Class C Shares
- --------------
Class C shares are currently available to certain employee benefit plans
such as qualified retirement plans which meet criteria relating to number of
participants (currently a minimum of 100 eligible employees), service
arrangements, or similar factors; insurance companies; investment companies;
endowment funds of nonprofit organizations with substantial minimum assets
(currently a minimum of $10,000,000); and other similar institutional investors.
Reorganizations
- ---------------
In the event of mergers or reorganizations with other public or private
collective investment entities, including investment companies as defined in the
1940 Act, as amended, the Fund may issue its shares at net asset value (or more)
to such entities or to their security holders.
Redemption In Kind
- ------------------
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.
28
<PAGE>
NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily as
of the close of regular trading on the NYSE, ordinarily 4 P.M. New York City
time, Monday through Friday, on each day during which the NYSE is open for
unrestricted trading. The NYSE is currently closed on New Year's Day,
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.
Securities held by the Fund will be valued as follows. Portfolio
securities which are traded on domestic stock exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued, or, lacking any sales, at the mean between closing bid and asked prices.
Portfolio securities which are traded on NASDAQ, or other system, are valued at
the last reported sales price. Each portfolio security which is primarily traded
on non-domestic securities exchanges is generally valued at the preceding
closing value of such security on the exchange where it is primarily traded. A
security that is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security
by the Board of Directors or its delegates. If no closing price is available,
then such security is valued first by using the mean between the last current
bid and asked prices or, second, by using the last available closing price.
Domestic securities traded in the over-the-counter market are valued at the mean
between the bid and asked prices or yield equivalent as obtained from two or
more dealers which make markets in the securities. All non-U.S. securities
traded in the over-the-counter securities market are valued at the last sale
quote, if market quotations are available, or the last closing bid price, if
there is no active trading in a particular security for a given day. Where
market quotations are not readily available for such non-domestic
over-the-counter securities, then such securities will be valued in good faith
by a method that the Board of Directors, or its delegates, believe accurately
reflects fair value. Portfolio securities which are traded both in the
over-the-counter market and on a securities exchange are valued according to the
broadest and most representative market, and it is expected that for debt
securities this ordinarily will be the over-the-counter market. Securities and
assets for which market quotations are not readily available, e.g. certain
long-term bonds and notes, are valued at fair value as determined in good faith
by or under the direction of the Board of Directors of Portfolios.
In determining the values of portfolio assets as provided below, the
Directors 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 may provide prices determined as of times prior to the close of the
NYSE.
The Directors have determined that unless the particular circumstances
otherwise indicate, the fair value of short-term instruments with a remaining
maturity of sixty days or less is their
29
<PAGE>
amortized cost value. If for any reason the fair value of any security is not
fairly reflected by such method, such security will be valued by the same
methods as securities having a maturity of more than sixty days.
Options, whether on securities, indices, or futures contracts, are valued
at the last sales price available as of the close of business on the day of
valuation or, if no sale, at the mean between the bid and asked prices. Options
on currencies are valued at the spot price each day. As a general matter,
futures contracts are marked-to-market daily. The value of futures contracts
will be the sum of the margin deposit plus or minus the difference between the
value of the futures contract on each day the net asset value is calculated and
the value on the date the futures contract originated, value being that
established on a recognized commodity exchange, or by reference to other
customary sources, with gain or loss being recognized when the futures contract
closes or expires.
Generally, trading in foreign securities, as well as corporate bonds,
United States Government securities and money market instruments, is
substantially completed each day at various times prior to the close of regular
trading on the NYSE. The values of such securities used in computing the net
asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of
regular trading on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of regular trading on the NYSE which will not be
reflected in the computation of the Fund's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at their fair value as determined in good faith by the
Directors.
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 securities whose maturities or expiration
date at the time of their acquisition were one year or less).
The Fund's portfolio turnover rate for the fiscal years ending October
31, 1995 and 1996, was 100.68% and 132.36% respectively. The Fund experienced a
higher portfolio turnover rate in 1996 than in 1995 as a result of some
portfolio restructuring effected in the Fund during 1996. The Fund reserves full
freedom with respect to portfolio turnover. In periods when there are rapid
changes in economic conditions or security price levels, portfolio turnover may
be significantly higher than during times of economic and market price stability
or when investment strategy remains relatively constant. An actual portfolio
turnover rate of 100% or more may result in greater transaction costs, and may
have tax and other consequences as well. See "Brokerage Allocation" and "Certain
Tax Matters" herein.
30
<PAGE>
Brokerage Allocation
- --------------------
Under the Investment Management Agreement, the Investment Manager has
ultimate responsibility for selecting broker-dealers through which investments
are to be purchased and sold for the Fund. Under the Sub-Investment Management
Agreement, the Sub-Investment Manager has day-to-day responsibility for
selecting broker-dealers through which securities or other investments are to be
purchased and sold for the Fund.
In selecting brokers or dealers to effect portfolio transactions for the
Fund, the Sub-Investment Manager seeks the best available combination of
execution and overall price (which includes the cost of the transaction). The
Sub-Investment Manager will utilize brokers which provide it solely with
brokerage services, as well as brokers which provide the Sub-Investment Manager
with such research services as economic, political and social trend analysis and
reports on the equity and credit markets and analyses of industries and
individual companies. The Sub-Investment Manager is authorized, pursuant to the
Sub-Investment Management Agreement with the Fund, to cause the Fund to pay to
the brokers that furnish brokerage and research services (as such services are
defined under Section 28(e) of the 1934 Act) a brokerage commission in excess of
that which another broker might have charged for effecting the same transaction,
in recognition of the value of research services provided by the broker.
However, such higher commissions must be deemed by the Sub-Investment Manager to
be reasonable in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall decision-making responsibilities of the Sub-Investment Manager with
respect to the Fund or other accounts, if any, as to which it exercises
investment discretion (as such term is defined under Section 3(a)(35) of the
1934 Act).
In all transactions, the Sub-Investment Manager seeks on behalf of the
Fund brokerage commissions at least as reasonable as those generally secured by
those advisers that generate annually comparable amounts of commissions paid to
brokers that provide brokerage and research services to those advisers.
Research services rendered to the Sub-Investment Manager by brokers
selected to execute transactions for the Fund may be used in providing service
to all of the Sub-Investment Manager's clients. Also all research services may
not be utilized by the Sub-Investment Manager in connection with the client
accounts which paid commissions to the broker providing such services.
On the basis of the best service provided for the benefit of the Fund in
terms of execution capability, execution cost, and research, the Sub-Investment
Manager will allocate business proportionally among a number of brokers and will
regularly review such allocations. During the fiscal years ending October 31,
1994, 1995 and 1996, the amount of brokerage commissions paid by the Fund was
$391,200, $400,465 and $569,761 respectively.
Subject to the policy of seeking best overall price and execution, sales
of shares of the Fund may be considered in the selection of broker or dealer
firms for the Fund's portfolio transactions.
31
<PAGE>
Securities held by the Fund may also be held by other accounts managed by
the Investment Manager or by the Sub-Investment Manager. When selecting
securities for purchase or sale for the Fund, the Investment Manager and the
Sub-Investment Manager may at the same time be purchasing or selling the same
securities for one or more of such other accounts. It is the policy of the
Investment Manager and the Sub-Investment Manager not to favor any one account
over the other, and any purchase or sale orders executed contemporaneously are
allocated at the average price and as nearly as practicable on a pro-rata basis
in proportion to the amounts desired to be purchased or sold by each account.
While it is conceivable that in certain instances this procedure could adversely
affect the price or number of shares involved in the Fund's transactions, it is
believed that the procedure generally contributes to better overall execution of
portfolio transactions. The Board of Directors has adopted guidelines governing
the procedure and will monitor the procedure to determine that the guidelines
are being followed and that the procedure continues to be in the best interests
of the Fund and its shareholders.
CERTAIN TAX MATTERS
Taxation Of The Fund--In General
- --------------------------------
The Fund intends to qualify and elects to be treated each taxable year as
a "regulated invest-ment 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, for each of the Fund's
taxable years that began prior to August 5, 1997, the Fund must, among other
things, (a) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities; (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies) or (iii) foreign currencies
(or options, futures or forward contracts on foreign currencies) but only if
such currencies (or options, futures or forward contracts) are not directly
related to the Fund's principal business of investing in stocks or securities
(or options and futures with respect to stocks or securities); and (c) satisfy
certain diversification requirements. For each taxable year of the Fund
beginning after August 5, 1997, the Fund will have to comply with each of the
requirements listed above except the 30% test in order to qualify to be treated
as a regulated investment company under Subchapter M.
Beginning November 1, 1997 (the start of the Fund's first taxable year
that begins after August 5, 1997), when the Fund no longer will have to comply
with the 30% test in order to qualify under Subchapter M, the Fund will have
greater flexibility in buying and selling securities and in the use of futures
and options in managing risk. The 30% test has the effect of limiting the extent
to which the Fund may sell securities held for less than three months; write
options which expire in less than three months; and effect closing transactions
with respect to call or put options that the Fund has written or purchased
within the preceding three months. (If the Fund purchases a put option for the
purpose of hedging an underlying portfolio security, the acquisition of the
option is treated as a short sale of the underlying security unless, for
purposes only of the 30% test, the option and the security are acquired on the
same date.) The 30% test may also limit investments by the Fund in options on
stock indices, listed options on nonconvertible debt securities, futures
contracts, options on interest rate futures contracts and certain foreign
currency contracts.
32
<PAGE>
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 ordinary income
(not taking into account any capital gains or losses) for the calendar year, and
its capital gain net income for the 12-month period ending on October 31, in
addition to any undistributed portion of the respective balances from the prior
year. The Fund intends to make sufficient distributions to avoid this 4% excise
tax.
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, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for income tax
purposes. In the case of any debt security having a fixed maturity date of more
than one year from the date of issue and having market discount, the gain
realized on disposition will be treated as interest to the extent it does not
exceed the accrued market discount on the security (unless the Fund elects to
include such accrued market discount in income in the tax year to which it is
attributable). For debt securities acquired before May 1, 1993, this rule
applies only if the debt security was issued after July 18, 1984. Generally,
market discount is accrued on a daily basis. The Fund may be required to
capitalize, rather than deduct currently, part or all of any direct interest
expense incurred to purchase or carry any debt security having market discount,
unless the Fund makes the election to include market discount in income
currently. Because the Fund must include original issue discount in income, it
will be more difficult for the Fund to make the distributions required for the
Fund to maintain its status as a
33
<PAGE>
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, the 30% test
(until October 31, 1997), the excise tax and the distribution requirements
applicable to regulated investment companies; (ii) defer recognition of realized
losses; and (iii) characterize both realized and unrealized gain or loss as
short-term or long-term gain or loss. Such provisions generally apply to, among
other investments, options on debt securities, indices on securities and futures
contracts. 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. The
ability of the Fund to engage in option and futures transactions may be limited
by the 30% test.
Gains or losses attributable to foreign currency contracts or fluctuations
in exchange rates that occur between the time the Fund accrues income or
expenses denominated in a foreign currency and the time the Fund actually
collects such income or pays such expenses are treated as ordinary income or
loss. The portion of any gain or loss on the disposition of a debt security
denominated in a foreign currency that is attributable to fluctuations in the
value of the foreign currency during the holding period of the debt security
will likewise be treated as ordinary income or loss. Such ordinary income or
loss will increase or decrease the amount of the Fund's net investment income.
If the Fund invests in the stock of certain "passive foreign investment
companies" ("PFICs"), income of such companies may become taxable to the Fund
prior to its distribution to the Fund or, alternatively, ordinary income taxes
and interest charges may be imposed on the Fund on "excess distributions"
received by the Fund or on gain from the disposition of such investments by the
Fund. The Fund does not intend to invest in PFICs. Because of the broad scope of
the PFIC rules, however, there can be no assurance that the Fund can avoid doing
so.
Taxation Of The Fund's Shareholders
- -----------------------------------
The Fund may be subject to foreign taxes, including foreign income taxes.
If so, the Fund intends to meet the requirements of the Code for passing through
to its shareholders the tax benefit of foreign income taxes paid, although there
is no assurance that it will be able to do so. Under this provision, if more
than half of the value of the total assets of the Fund at the close of its
taxable year consists of stock or securities of foreign corporations, the Fund
will be eligible and intends to elect to pass through to its shareholders the
amount of foreign taxes it paid if such amounts are material. Pursuant to this
election, a United States shareholder will, in general, be required to (i)
include in gross income, in addition to taxable distributions actually received,
his or her pro rata share of the foreign taxes paid by the Fund, (ii) treat that
share of taxes as having been paid directly by him or her, and (iii) either
deduct such share of taxes or treat such share of taxes as a credit against
United States income tax liability. A tax-exempt shareholder will ordinarily not
benefit from this election.
34
<PAGE>
Generally, a credit for foreign taxes paid by the Fund may not exceed a
shareholder's United States income tax attributable to the shareholder's foreign
source income. This limitation applies separately to different categories of
income, one of which is foreign-source passive income, which is likely to
include all of the foreign-source income of the Fund. As a result of these
limitations, some shareholders may not be able to utilize fully any foreign tax
credits generated by an investment in the Fund. The Fund will provide its
shareholders with information about the source of its income and the foreign
taxes it has paid for use in preparing the shareholder's United States income
tax return.
Dividends from domestic corporations are not expected to comprise a
substantial part of the income of the Fund. If such dividends are earned by the
Fund, then a portion of the dividends paid by the Fund may qualify for the 70%
deduction for dividends received which is available to corporate shareholders of
the Fund. Shareholders will be informed of any portion of the dividends paid by
the Fund which qualifies for this deduction. The dividends-received deduction is
reduced to the extent the dividends received are treated as debt-financed, under
the Code, and is eliminated if the stock is held for less than 46 days.
Any dividend declared in October, November or December and made payable to
shareholders of record in any such month is treated as received by such
shareholder on December 31, provided that the Fund pays the dividend during
January of the following calendar year.
Distributions by the Fund result in a reduction in the fair market value
of the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless may be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a taxable distribution will then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
The foregoing discussion of United States federal income tax law relates
solely to the application of that law to United States persons, that is, United
States citizens and residents and United States corporations, partnerships,
trusts and estates. Each shareholder who is not a United States person should
consider the United States and foreign tax consequences of ownership of shares
of the Fund, including the possibility that such a shareholder may be subject to
United States withholding at a rate of 30% (or at a lower rate under an
applicable treaty) on amounts constituting ordinary income received by him or
her, where such amounts are treated as income from United States sources under
the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
35
<PAGE>
DISTRIBUTION OF SHARES OF THE FUND
Portfolios is currently comprised of the following series: State Street
Research International Equity Fund. The Directors of Portfolios have authorized
shares of the Fund to be issued in four classes: Class A, Class B, Class C and
Class D shares. The Directors of Portfolios have authority to issue an unlimited
number of shares, $.01 par value per share. A "series" is a separate pool of
assets of Portfolios which is separately managed and has a different investment
objective and different investment policies from those of another series. The
Directors have authority, without the necessity of a shareholder vote, to create
any number of new series or classes or to commence the public offering of shares
of any previously established series or class.
The Fund 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 (the Class B or Class D shares). The Distributor may reallow all
or portions of such sales charges as concessions to dealers. The Distributor may
also pay its affiliate, MetLife Securities, Inc., additional sales compensation
of up to 0.25% of certain sales. For the fiscal year ending October 31, 1993 and
for the period November 1, 1993 through February 28, 1994, total sales charges
amounted to $271,323 and $215,107, respectively. For the same periods, $31,551
and $24,764 was retained by the Distributor after reallowance of concessions to
dealers. For the period March 1, 1994 (commencement of share class designation)
through October 31, 1994, and the fiscal years ending October 31, 1995 and 1996,
total sales charges for the Class A shares amounted to $411,711, $255,655 and
$157,855, respectively. For the same periods, $91,079, $29,729 and $19,830,
respectively was retained by the Distributor after reallowance of concessions to
dealers. No information is presented for Class A, Class B and Class D shares for
the fiscal year ended October 31, 1993, and the period ended November 1, 1993
through February 28, 1994, because no shares of those classes were outstanding
during those periods.
For the periods shown below, the Distributor received contingent deferred
sales charges upon redemption of Class A, Class B and Class D shares of the Fund
and paid initial commissions to securities dealers for sales of such shares as
follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
October 31, 1996 October 31, 1995 October 31, 1994
---------------- ---------------- ----------------
Contingent Commissions Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers Sales Charges Dealers
------------- ------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Class A $ 0 $138,025 $ 0 $222,926 $ 0 $320,623
Class B $139,376 $413,917 $81,190 $558,930 $ 0 $617,850
Class D $ 4,578 $ 32,126 $ 2,446 $ 45,585 $ 0 $ 15,663
</TABLE>
36
<PAGE>
Differences in the price at which the Fund's Class A shares are offered
due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort will be necessary for sales of shares at net asset
value to certain Directors, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements and managed fee-based programs, the
amount of the sales charge reduction will similarly reflect the anticipated
reduction in sales expenses associated with such arrangements. The reduction in
sales expenses, and therefore the reduction in sales charge, will vary depending
on factors such as the size and other characteristics of the organization or
program, and the nature of its membership or the participants. The Fund reserves
the right to make variations in, or eliminate, sales charges at any time or to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
arrangements at any time.
On any sale of Class A shares of $1,000,000 or more, the Distributor will
pay the authorized securities dealer making such sale commission on the shares
sold. Such commission also is payable to authorized securities dealers upon
sales of Class A shares made pursuant to a Letter of Intent to purchase shares
having a net asset value of $1,000,000 or more. Shares sold with such
commissions payable are subject to a one-year contingent deferred sales charge
of 1.00% on any portion (excluding capital appreciation and dividends) 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.
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1" (the
"Distribution Plan") under which the Fund may engage, directly or indirectly, in
financing any activities primarily intended to result in the sale of Class A,
Class B and Class D shares, including, but not limited to, (1) the payment of
commissions and/or reimbursement of expenses 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 of expenses to securities
dealers (which securities dealers may be affiliates of the Distributor) engaged
in the distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the servicing of investor accounts including expenses relating to the
formulation and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, the preparation, printing and
distribution of Prospectuses of the Fund and reports for recipients other than
existing shareholders of the Fund, and obtaining such information, analyses and
reports with respect to marketing and promotional activities and investor
accounts as the Fund may, from time to time,
37
<PAGE>
deem advisable, and (3) reimbursement of expenses incurred by the Distributor in
connection with the servicing of shareholder accounts including payments to
securities dealers and others in consideration of the provision of personal
services to investors and/or the maintenance or servicing of shareholder
accounts and expenses associated with the provision of personal services by the
Distributor directly to investors. In addition, the Distribution Plan is deemed
to authorize the Distributor to make payments out of general profits, revenues
or other sources to underwriters, securities dealers and others in connection
with sales of shares, to the extent, if any, that such payments may be deemed to
be within the scope of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class D shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class D
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class D shares (as the case may be) to make payments for personal
services and/or the maintenance or servicing of shareholder accounts. Proceeds
from the service fee will be used by the Distributor to compensate securities
dealers and others selling shares of the Fund for rendering service to
shareholders on an ongoing basis. Such amounts are based on the net asset value
of shares of the Fund held by such dealers as nominee for their customers or
which are owned directly by such customers for so long as such shares are
outstanding and the Distribution Plan remains in effect with respect to the
Fund. Any amounts received by the Distributor and not so allocated may be
applied by the Distributor as reimbursement for expenses incurred in connection
with the servicing of investor accounts. The distribution and servicing expenses
of a particular class will be borne solely by that class.
During the fiscal year ended October 31, 1996, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
38
<PAGE>
Class A Class B Class D
------- ------- -------
Advertising $ 0 $ 0 $ 3,150
Printing and mailing of
prospectuses to other
than current
shareholder 0 0 1,136
Compensation to
dealers 61,863 329,552 45,493
Compensation to
sales personnel 0 0 15,094
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing,
general 0 0 7,270
------- -------- -------
Total fees $61,863 $329,552 $72,143
======= ======== =======
The Distributor may also use additional resources of its own for further
expenses on behalf of the Fund.
No interested Director of Portfolios has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Fund will make alternative
arrangements for such services for shareholders who acquired shares through such
institutions.
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") of the Class A,
Class B, Class C and Class D 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 data for a specified class includes periods prior to the adoption of
class designations. Shares of the Fund had no class designations
39
<PAGE>
until March 1, 1994, when designations were assigned based on the pricing and
Rule 12b-1 fees applicable to shares sold thereafter.
The performance data reflects Rule 12b-1 fees and sales charges as set
forth below:
Rule 12b-1 Fees Sales Charges
- ------------------------------------------------ --------------------
Current
Class Amount Period
- ----- ------ ------
A 0.25% March 1, 1994 Maximum 4.5% sales
to present; fee charge reflected
will reduce
performance for
periods after
March 1, 1994
B 1.00% March 1, 1994 to 1- and 5-year
present; fee will periods reflect a
reduce performance 5% and a 2%
for periods after contingent deferred
March 1, 1994 deferred sales
charge, respectively
C 0.00% Since commencement None
of operations to
present
D 1.00% March 1, 1994 to 1-year period
present; fee will reflects a 1%
reduce performance contingent deferred
for periods after sales charge
March 1, 1994
All calculations of performance data in this section reflect the voluntary
measures by the Fund's affiliates to reduce fees or expenses relating to the
Fund; see "Accrued Expenses" later in this section. Without such measures,
performance would be lower. Performance data is based on historical figures;
past performance is not a guarantee of future returns.
Total Return
- ------------
The average annual total returns ("standard total return") of each class of the
Fund's shares were as follows:
40
<PAGE>
Commencement of
Operations (Jan. 22, 1992) One Year Ended
to April 30, 1997 April 30, 1997
----------------- --------------
With Subsidy Without Subsidy With Subsidy Without Subsidy
------------ --------------- ------------ ---------------
Class A 6.29% 5.41% -9.39% -9.87%
Class B 6.43% 5.59% -10.82% -11.32%
Class C 7.41% 6.52% -4.89% -5.38%
Class D 6.73% 5.84 % -6.86% -7.36%
Standard total return is computed 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, according to
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 applicable to the
investment is deducted and that all dividends and distributions by the Fund are
reinvested at net asset value on the reinvestment dates during the periods. All
accrued expenses are also taken into account as described later herein.
Accrued Expenses
- ----------------
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total returns 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.
41
<PAGE>
Accrued expenses do not include the subsidization, if any, by affiliates
of fees or expenses. 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, Class C and Class D shares for periods which end no earlier
than the most recent calendar quarter end and which begin twelve months before
and at the time of commencement of the Fund's operations. In addition, the Fund
may provide nonstandardized total return results for differing periods, such as
for the most recent six months, and/or without taking sales charges into
account. Such nonstandardized total return is computed as otherwise described
under "Total Return" except that 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. The Fund's
nonstandardized total return for Class A, Class B, Class C and Class D shares
for the six months ended April 30, 1997 were as follows:
With Without
Subsidy Subsidy
------- -------
Class A 2.49% 2.23%
Class B 2.10% 1.83%
Class C 2.69% 2.42%
Class D 2.10% 1.83%
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Fund'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
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts 02110, is
the Fund's independent accountants, providing professional services including
(1) audit of the Fund's annual statements, (2) assistance and consultation in
connection with Securities and Exchange Commission filings and (3) review of the
annual income tax returns filed on behalf of the Fund.
42
<PAGE>
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a semiannual
basis, other supplementary 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 Shareholder Services.
The following financial statements of the Fund are for the fiscal year
ended October 31, 1996 and for the semiannual period ended April 30, 1997.
43
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
INVESTMENT PORTFOLIO
October 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------------------------------------------------------ --------------
<S> <C> <C>
COMMON STOCKS 84.8%
Australia 4.2%
Amcor Ltd.* 40,000 $ 248,573
Broken Hill Propietary Co. Ltd. 20,000 265,536
Burns, Philp & Co. Ltd.* 150,000 237,793
Coles Myer Ltd. 60,000 219,245
Foster's Brewing Group Ltd. 120,000 218,770
Lend Lease Corp.* 15,000 254,320
Mayne Nickless Ltd. 55,000 365,330
MIM Holdings Ltd.* 305,000 396,481
National Australia Bank* 40,000 439,125
News Corp. Ltd.* 40,000 227,647
Resolute Samantha Ltd. 95,000 192,771
Santos Ltd. 100,000 399,493
--------------
3,465,084
--------------
Austria 1.6%
Bohler Uddeholm AG 3,000 224,412
EVN Energie-Versorgung AG* 2,000 271,247
Flughafen Wien AG 4,000 197,175
OMV Handels AG 3,000 293,679
VA Stahl AG 9,000 298,648
--------------
1,285,161
--------------
Belgium 0.8%
GPE Bruxelles* 2,500 310,597
Petrofina SA* 1,000 307,470
--------------
618,067
--------------
Bermuda 0.8%
China North Industries 465,000 202,275
Isleinvest Ltd.*+ 95,821 464,734
--------------
667,009
--------------
Canada 2.4%
Advanced Material Resources Ltd.* 855,000 478,473
Akiko Gold Resources Ltd.*+ 477,000 156,604
Epicore Networks Inc.*+ 450,000 651,395
Kemgas Ltd.* 200,000 305,925
Turbo Genset Inc. Cl. A* 500,000 167,885
TVI Pacific Inc.* 185,600 207,730
--------------
1,968,012
--------------
Croatia 0.5%
Zagrebacka Banka GDR* 20,000 387,500
--------------
Czech Republic 0.3%
Komercni Banka GDR 10,000 248,750
--------------
Denmark 0.5%
Novo Nordisk AS* 2,320 386,381
--------------
Finland 0.5%
UPM-Kymmene Corp. 7,500 $ 152,150
Valmet Corp. 19,250 293,738
--------------
445,888
--------------
France 7.6%
AXA 5,000 312,274
Cie Fin Paribas 4,500 289,584
Clarins 2,000 275,403
Credit Local De Fractional* 4,000 344,098
Eaux Cie Generale* 3,750 448,166
Elf Aquitaine SA* 3,660 292,657
Hermes International* 1,600 406,220
Lafarge 3,000 180,029
Lagardere Group 6,000 189,536
Lyonnaise Des Eaux SA 4,000 353,643
Pathe* 1,350 364,137
Peugeot SA* 2,500 260,636
Rhone-Poulenc SA 17,800 527,472
Scor SA* 3,500 134,523
Synthelabo 4,000 381,809
Total SA Cl. B* 7,500 586,650
Union Assured Federales 2,500 281,174
Usinor Sacilor* 20,000 296,724
Valeo SA 5,000 300,049
--------------
6,224,784
--------------
Germany 6.9%
BASF AG 17,500 559,297
Bayer AG 10,000 377,839
Bayer Motoren Werken AG 550 321,778
Commerzbank AG* 21,500 481,280
Daimler-Benz AG* 15,500 909,898
Deutsche Bank AG* 7,000 324,208
Mannesmann AG 900 349,445
Preussag AG 1,100 264,831
RWE AG* 10,500 432,231
Siemens AG 7,500 387,530
Thyssen AG 2,200 393,687
Veba AG 6,500 346,675
Volkswagen AG 350 137,802
Wella AG* 600 339,937
--------------
5,626,438
--------------
Ghana 0.4%
Ashanti Goldfields Ltd. GDR 20,000 327,500
--------------
Hong Kong 2.9%
Bank of East Asia Ltd.* 60,000 234,345
Cathay Pacific Airways 135,000 211,259
China Merchants Direct 375,000 169,745
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
Value
Shares (Note 1)
------------------------------------------------------ --------------
Hong Kong (cont'd)
Cosco Pacific Ltd. 275,000 $ 263,185
Goldlion Holdings Ltd.* 250,000 203,694
Hong Kong & China Gas Co. Ltd. 135,000 237,449
Hong Kong Telecommunications Ltd. 250,000 441,336
Johnson Electric Holdings Ltd. 155,000 338,778
South China Morning Post Ltd. 365,000 311,554
--------------
2,411,345
--------------
Indonesia 0.3%
Anglo-Eastern Plantations PLC 125,000 238,037
--------------
Ireland 2.1%
Bank of Ireland 165,000 1,356,201
World Fluids PLC* 3,521,073 344,023
--------------
1,700,224
--------------
Israel 0.6%
Koor Industries Ltd. ADR 30,000 521,250
--------------
Italy 2.1%
Autostrade SPA* 250,000 369,974
Edison SPA 70,000 416,447
ENI SPA 124,000 593,843
Italgas 100,000 369,150
--------------
1,749,414
--------------
Japan 22.4%
Asatsu Inc. 25,000 924,421
Canon Inc. 65,000 1,244,565
Chugai Pharmaceutical Co. Ltd. 61,000 562,293
Clarion Co.* 100,000 512,055
Itoham Foods Inc.* 65,000 422,467
Kandenko Co. 90,000 972,289
Kansai Electric Power 70,000 1,469,413
Keyence Corp. 6,500 753,590
Misawa Homes Co. 100,000 809,802
Mitsubishi Estate 100,000 1,247,200
Mitsukoshi 51,000 443,907
Nippon Hodo Co. 20,000 279,303
Nippon Shinpan Co. 210,000 1,270,827
Nomura Securities* 50,000 825,611
Omron Corp.* 50,000 891,485
Pioneer Electronic 21,000 415,002
Prospect Japan Fund 105,000 893,025
Sumitomo Realty & Development Co. 190,000 1,381,757
Takara Co.* 45,000 328,049
TDK Corp. 19,000 1,114,751
Tokio Marine & Fire Insurance Co. 125,000 1,372,360
Tokyo Nissan Auto Sales Co.* 45,000 276,669
--------------
18,410,841
--------------
Korea 0.3%
Yukong GDR* 32,500 $ 207,187
--------------
Luxembourg 0.6%
Quilmes Industrial SA ADR 21,000 220,500
Arbed SA* 2,000 233,907
--------------
454,407
--------------
Malaysia 1.3%
Magnum Corp. BHD 205,000 353,770
Malaysian Airline System BHD 85,000 213,636
Sime Darby BHD* 72,000 255,056
UMW Holdings BHD 60,000 275,480
--------------
1,097,942
--------------
Mexico 0.2%
Grupo Carso SA de CV 45,000 201,835
--------------
Netherlands 4.8%
ABN Amro Holdings NV 5,000 282,607
Ahold Kon NV 6,500 379,266
Akzo Nobel NV* 2,500 315,023
ASM Lithography Holding NV* 8,000 287,617
DSM NV* 1,750 167,605
Gist-Brocades NV 7,500 224,112
ING Groep NV 20,000 623,563
Kon Ptt* 6,000 217,127
Royal Dutch Petroleum Co. 5,500 908,293
Ver Ned Uitgevers 17,500 317,675
SGS-Thomson Microelectronics NV* 4,500 238,445
--------------
3,961,333
--------------
New Zealand 0.5%
Fletcher Challenge 80,000 216,767
Telecom Corp.* 40,000 207,994
--------------
424,761
--------------
Norway 1.0%
Orkla ASA 6,000 383,651
Storebrand ASA* 75,000 439,600
--------------
823,251
--------------
Panama 0.3%
Banco Latinoamericano de Exportaciones SA
Cl. E* 4,000 209,000
--------------
Poland 0.3%
Bank Gdanski SA GDR 15,000 228,750
--------------
Russia 0.1%
Rao Gazprom ADR* 3,200 60,000
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
INVESTMENT PORTFOLIO (cont'd)
Value
Shares (Note 1)
------------------------------------------------------ --------------
Singapore 1.4%
Development Bank of Singapore Ltd.* 25,000 $ 299,965
Keppel Corp. 45,000 335,463
Singapore Press Holdings Ltd.* 18,000 299,042
United Overseas Bank Ltd.* 25,000 243,166
--------------
1,177,636
--------------
South Africa 0.2%
Sun International 180,000 161,108
--------------
Spain 2.0%
Acerinox SA 2,500 299,777
Banco Bilbao Vizcaya SA 9,000 437,321
Banco Popular Espanol SA* 1,500 286,727
Iberdrola SA 20,250 215,046
Telefonica de Espana* 18,000 361,143
--------------
1,600,014
--------------
Sweden 1.2%
ABB AB Series A* 2,500 283,240
Nordbanken AB* 27,500 723,497
--------------
1,006,737
--------------
Switzerland 3.5%
ABB AG 250 308,940
Ciba-Geigy AG 850 1,047,033
CS Holding AG* 3,000 299,644
Elektrowatt AG 750 284,810
Nestle SA 225 244,403
Schweiz Bankverein AG* 2,000 385,285
SMH Neuenburg AG* 500 306,566
--------------
2,876,681
--------------
Taiwan 0.3%
Tung Ho Steel Enterprise GDR 27,500 261,250
--------------
United Kingdom 9.9%
Alexon Group PLC* 230,000 625,163
Arjo Wiggins Appleton PLC 100,000 267,741
Barclays PLC 32,000 502,344
British Biotech PLC* 200,000 735,677
British Petroleum Co. PLC 55,000 591,044
BTR PLC 79,000 331,095
Euro Sales Finance PLC* 163,560 332,764
Glaxo Wellcome PLC 50,000 785,319
Guardian Royal Exchange PLC 115,500 473,730
Inn Business Group PLC 591,055 673,403
J. Sainsbury PLC 50,000 296,224
Royal Bank Scotland Group PLC* 40,000 327,474
Tarmac PLC 200,000 291,341
Unilever PLC 30,000 630,371
Upton & Southern Holdings PLC* 7,500,000 427,246
United Kingdom (cont'd)
Waverley Mining Finance PLC* 814,280 $ 861,462
--------------
8,152,398
--------------
Total Common Stocks (Cost $68,563,233) 69,585,975
--------------
EQUITY-RELATED SECURITIES 2.0%
Amoy Properties Ltd. Cv. Pfd. 510,000 493,425
Ashurst Technology Ltd. Units+ 1,600,000 644,680
Baltic Republics Fund Pfd.* 2,208 301,392
Upton & Southern Holdings PLC Cv. Pfd. 115,207 171,573
Upton & Southern Holdings PLC Wts.* 750,000 19,836
--------------
Total Equity-Related Securities (Cost $2,486,701) 1,630,906
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal Maturity
Amount Date
------------------------------- --------------- ------------- --------------
<S> <C> <C> <C>
CONVERTIBLE BONDS 9.6%
Asahi Glass Co. Cv. Bond, 1.90% Japanese Yen
95,000,000 12/26/2008 922,006
Kawasaki Heavy Industries Cv.
Bond, 0.50% 180,000,000 09/30/1998 1,822,055
Mitsui & Co. Cv. Bond, 1.05% 95,000,000 9/30/2009 892,802
Swiss Franc
NEC Corp. Cv. Bond, 1.00% 1,700,000 3/31/1999 1,529,865
Bank of Tokyo/Mitsubishi Cv.
Bond, 3.50% $ 2,450,000 3/31/2004 2,500,531
Yageo Corp. Cv. Bond, 1.25% 200,000 7/24/2003 216,500
--------------
Total Convertible Bonds (Cost $8,282,452) 7,883,759
--------------
Total Investments (Cost $79,332,386)--96.4% 79,100,640
Other Assets, Less Liabilities--3.6% 2,959,659
--------------
Net Assets--100.0% $82,060,299
==============
Federal Income Tax Information:
AtOctober 31, 1996, the net unrealized depreciation of investments based on
cost for Federal income tax purposes of $79,382,605 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost $ 5,818,105
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value (6,100,070)
--------------
$ (281,965)
==============
</TABLE>
* Nonincome-producing securities.
ADR and GDR stand for American Depositary Receipt and Global Depositary
Receipt, respectively, representing ownership of foreign securities.
+ Security determined to be illiquid by the Directors.
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments, at value (Cost $79,332,386) (Note 1) $79,100,640
Foreign currency, at value (Cost $4,563,890) 4,576,284
Receivable for securities sold 2,530,517
Dividends and interest receivable 162,412
Foreign tax receivable 126,972
Receivable for fund shares sold 60,378
Receivable from investment manager (Note 3) 41,660
Deferred organization costs and other assets (Note 1) 2,713
---------------
86,601,576
Liabilities
Payable for securities purchased 3,258,637
Payable to custodian 476,476
Payable for fund shares redeemed 303,690
Accrued transfer agent and shareholder services
(Note 2) 148,603
Accrued management fee (Note 2) 73,518
Accrued distribution and service fees (Note 5) 37,425
Accrued directors' fees (Note 2) 18,639
Other accrued expenses 224,289
---------------
4,541,277
---------------
Net Assets $82,060,299
===============
Net Assets consist of:
Unrealized depreciation of investments and foreign
currency $ (216,904)
Accumulated net realized loss on investments and
foreign currency (2,108,047)
Shares of beneficial interest 84,385,250
---------------
$82,060,299
===============
Net Asset Value and redemption price per share of Class A
shares ($21,116,261 / 2,289,362 shares of beneficial
interest) $9.22
===============
Maximum Offering Price per share of Class A shares ($9.22
/ .955) $9.65
===============
Net Asset Value and offering price per share of Class B
shares ($28,970,611 / 3,205,065 shares of beneficial
interest)* $9.04
===============
Net Asset Value, offering price and redemption price per
share of Class C shares ($26,649,162 / 2,867,029 shares
of beneficial interest) $9.29
===============
Net Asset Value and offering price per share of Class D
shares ($5,324,265 / 589,346 shares of beneficial
interest)* $9.03
===============
</TABLE>
* Redemption price per share for Class B and Class D is equal to net asset value
less any applicable contingent deferred sales charge.
STATEMENT OF OPERATIONS
For the year ended October 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $154,813 $ 1,219,761
Interest, net of foreign taxes of $1,116 252,990
---------------
1,472,751
Expenses
Management fee (Note 2) 921,649
Transfer agent and shareholder services (Note 2) 501,162
Custodian fee 331,794
Reports to shareholders 102,872
Registration fees 74,104
Service fee--Class A (Note 5) 61,863
Distribution and service fees--Class B (Note 5) 329,552
Distribution and service fees--Class D (Note 5) 72,143
Audit fee 44,551
Directors' fees (Note 2) 18,639
Amortization of organization costs (Note 1) 17,536
Legal fees 10,728
Miscellaneous 31,243
---------------
2,517,836
Expenses borne by the investment manager (Note 3) (452,847)
---------------
2,064,989
---------------
Net investment loss (592,238)
---------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency
Net realized loss on investments (Notes 1 and 4) (1,497,472)
Net realized loss on foreign currency (Note 1) (880,450)
---------------
Total net realized loss (2,377,922)
---------------
Net unrealized appreciation of investments 1,038,313
Net unrealized appreciation of foreign currency 562,951
---------------
Total net unrealized appreciation 1,601,264
---------------
Net loss on investments and foreign currency (776,658)
---------------
Net decrease in net assets resulting from operations $(1,368,896)
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended October 31
-------------------------------
1996 1995
------------------------------- --------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss $ (592,238) $ (794,085)
Net realized loss on
investments and foreign
currency* (2,377,922) (441,233)
Net unrealized appreciation
(depreciation) of investments
and foreign currency 1,601,264 (9,361,750)
--------------- ---------------
Net decrease resulting from
operations (1,368,896) (10,597,068)
--------------- ---------------
Distribution from net realized gains:
Class A -- (1,132,506)
Class B -- (1,086,016)
Class C -- (2,059,288)
Class D -- (138,131)
--------------- ---------------
-- (4,415,941)
--------------- ---------------
Net increase (decrease) from
fund share transactions
(Note 6) (6,239,509) 6,433,624
--------------- ---------------
Total decrease in net assets (7,608,405) (8,579,385)
Net Assets
Beginning of year 89,668,704 98,248,089
--------------- ---------------
End of year $82,060,299 $ 89,668,704
=============== ===============
*Net realized loss for Federal
income tax purposes (Note 1) $(1,469,788) $ (588,041)
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
Note 1
State Street Research International Equity Fund (the "Fund"), is a diversified
series of State Street Research Portfolios, Inc. ("Portfolios"), which was
organized as a Maryland corporation in April, 1991 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund commenced operations in January, 1992. Portfolios consists
presently of two separate funds: State Street Research International Equity Fund
and State Street Research International Fixed Income Fund.
The investment objective of the fund is to achieve long-term growth of
capital by investing primarily in common stocks and equity-related securities
of non-U.S. companies. Non-U.S. companies for these purposes are companies
domiciled outside the United States.
The Fund offers four classes of shares. Class A shares are subject to an initial
sales charge of up to 4.50% and annual service fees of 0.25% of average daily
net assets. Class B shares are subject to a contingent deferred sales charge on
certain redemptions made within five years of purchase and pay annual
distribution and service fees of 1.00%. Class B shares automatically convert
into Class A shares (which pay lower ongoing expenses) at the end of eight years
after the issuance of the Class B shares. Class C shares are only offered to
certain employee benefit plans and large institutions. No sales charge is
imposed at the time of purchase or redemption of Class C shares. Class C shares
do not pay any distribution or service fees. Class D shares are subject to a
contingent deferred sales charge of 1.00% on any shares redeemed within one year
of their purchase. Class D shares also pay annual distribution and service fees
of 1.00%. The Fund's expenses are borne pro-rata by each class, except that each
class bears expenses, and has exclusive voting rights with respect to provisions
of the Plan of Distribution, related specifically to that class. The Directors
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Securities traded on domestic stock exchanges are valued at the last sale price
as of the close of business on the day the securities are being valued, or,
lacking any sales, at the mean between closing bid and asked prices. Securities
traded on the National Association of Securities Dealers Automated Quotation
("NASDAQ") system are valued at the last reported sales price. Each security
traded primarily on non-domestic securities exchanges is generally valued at the
preceding closing value of such security on the exchange where it is primarily
traded. A security that is listed or traded on more than one exchange is valued
at the quotation on the exchange determined to be the primary market for such
security by the Board of Directors or its delegates. If no closing price is
available, then such security is valued at the mean between the last current bid
and asked prices or
48
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
by using the last available closing price. Domestic securities traded in the
over-the-counter market are valued at the mean between the bid and asked prices
or yield equivalent as obtained from two or more dealers that make markets in
the securities. All non-U.S. securities traded in the over-the-counter market
are valued at the last sale quote or the last closing bid price, if there is no
active trading in a particular security for a given day. Portfolio securities
traded both in the over-the-counter market and on a securities exchange are
valued according to the broadest and most representative market. Securities for
which market quotations are not readily available are valued as determined in
good faith by or under the authority of the Directors. Short-term securities
maturing within sixty days are valued at amortized cost. Securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments.
C. Net Investment Income
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to it,
while indirect expenses are allocated between both funds in the Portfolios.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
annually. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for foreign currency transactions.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods. At October 31, 1996, the Fund had a capital
loss carryforward of $2,057,829 available, to the extent provided in
regulations, to offset future capital gains, if any, of which $588,041 and
$1,469,788 expires on October 31, 2003 and 2004, respectively.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a period
of five years.
G. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Fund and State Street Research Investment Services, Inc., the Fund's
investment manager and principal underwriter (the "Investment Manager" and
"Distributor"), a wholly owned, indirect subsidiary of Metropolitan Life
Insurance Company ("Metropolitan"), have entered into an agreement under which
the Investment Manager receives monthly fees at an annual rate of 0.95% of the
Fund's average daily net assets. The Investment Manager has entered into a
Sub-Investment Management Agreement with GFM International Investors Limited
(the "Sub-Investment Manager"), a substantially wholly owned, indirect
subsidiary of Metropolitan, pursuant to which the Sub-Investment Manager has
assumed the overall responsibility for managing the investments of the Fund.
During the year ended October 31, 1996, the Fund paid the Investment Manager
$921,649 in management fees. The Fund has no responsibility for the payment of
fees to the Sub-Investment Manager.
State Street Research Shareholder Services, a division of the Distributor,
provides certain shareholder services to the Fund such as responding to
inquiries and instructions from investors with respect to the purchase and
redemption of shares of the Fund. In addition, Metropolitan receives a fee for
maintenance of the accounts of certain shareholders who are participants in
sponsored arrangements, employee benefit plans and similar programs or plans,
through or under which shares of the Fund may be purchased. During the year
ended October 31, 1996, the amount of such expenses was $158,321.
The fees of the Directors not currently affiliated with the Investment Manager
amounted to $18,639 during the year ended October 31, 1996.
Note 3
The Investment Manager or affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended October 31, 1996, the amount of such assumed
expenses was $452,847.
Note 4
For the year ended October 31, 1996, purchases and sales of securities,
exclusive of short-term obligations, aggregated $112,506,420 and $107,280,061,
respectively.
49
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
NOTES (cont'd)
Note 5
Portfolios has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940, as amended. Under the Plan,
the Fund pays annual service fees to the Distributor at a rate of 0.25% of
average daily net assets for Class A, Class B and Class D shares. In addition,
the Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class D shares. The Distributor uses such payments for personal
services and/or the maintenance or servicing of shareholder accounts, to
reimburse securities dealers for distribution and marketing services, to furnish
ongoing assistance to investors and to defray a portion of its distribution and
marketing expenses. For the year ended October 31, 1996, fees pursuant to such
plan amounted to $61,863, $329,552 and $72,143 for Class A, Class B and Class D,
respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $19,830 and $93,794, respectively, on sales of Class A shares of the
Fund during the year ended October 31, 1996, and that MetLife Securities, Inc.
earned commissions aggregating $170,143 on sales of Class B shares, and that the
Distributor collected contingent deferred sales charges of $139,376 and $4,578
on redemptions of Class B and Class D shares, respectively, during the same
period.
Note 6
The authorized capital stock of the Fund currently consists of 100,000,000
shares, $.01 par value per share. The Fund reserves the right to issue
additional classes of shares.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended October 31
--------------------------------------------------------------
1996 1995
------------------------------ -------------------------------
Class A Shares Amount Shares Amount
- - ----------------------------------------------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 1,219,188 $ 11,886,027 1,597,600 $ 15,459,854
Issued upon reinvestment of distribution from net
realized gains -- -- 112,688 1,095,324
Shares repurchased (1,339,064) (12,879,562) (1,357,862) (12,966,664)
-------------- --------------- -------------- ----------------
Net increase (decrease) (119,876) $ (993,535) 352,426 $ 3,588,514
============== =============== ============== ================
Class B Shares Amount Shares Amount
- - ----------------------------------------------------- -------------- --------------- -------------- ----------------
Shares sold 1,649,800 $ 15,674,421 1,891,639 $ 18,088,917
Issued upon reinvestment of distribution from net
realized gains -- -- 108,264 1,045,778
Shares repurchased (1,439,371) (13,641,573) (734,821) (6,927,600)
-------------- --------------- -------------- ----------------
Net increase 210,429 $ 2,032,848 1,265,082 $ 12,207,095
============== =============== ============== ================
Class C Shares Amount Shares Amount
- - ----------------------------------------------------- -------------- --------------- -------------- ----------------
Shares sold 945,704 $ 9,234,435 1,440,157 $ 13,962,911
Issued upon reinvestment of distribution from net
realized gains -- -- 207,652 2,026,671
Shares repurchased (1,687,889) (16,384,857) (3,000,375) (29,391,886)
-------------- --------------- -------------- ----------------
Net decrease (742,185) $ (7,150,422) (1,352,566) $(13,402,304)
============== =============== ============== ================
Class D Shares Amount Shares Amount
- - ----------------------------------------------------- -------------- --------------- -------------- ----------------
Shares sold 377,202 $ 3,629,056 555,007 $ 5,321,534
Issued upon reinvestment of distribution from net
realized gains -- -- 13,592 131,305
Shares repurchased (403,584) (3,757,456) (148,231) (1,412,520)
-------------- --------------- -------------- ----------------
Net increase (decrease) (26,382) $ (128,400) 420,368 $ 4,040,319
============== =============== ============== ================
</TABLE>
50
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Class B
------------------------------------ ------------------------------------
Year ended October 31 Year ended October 31
------------------------------------ ------------------------------------
1996*** 1995*** 1994** 1996*** 1995*** 1994**
- - ------------------------------------------ ----------- ------------ ------------ ----------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.34 $ 10.98 $ 10.54 $ 9.22 $ 10.93 $ 10.54
Net investment loss* (0.04) (0.08) (0.04) (0.11) (0.15) (0.06)
Net realized and unrealized gain (loss) on
investments and foreign currency (0.08) (1.04) 0.48 (0.07) (1.04) 0.45
Distributions from net realized gains -- (0.52) -- -- (0.52) --
----------- ------------ ------------ ----------------------- -----------
Net asset value, end of year $ 9.22 $ 9.34 $ 10.98 $ 9.04 $ 9.22 $ 10.93
=========== ============ ============ ======================= ===========
Total return (1.28)%+ (10.38)%+ (4.17)%+++ (1.95)%+ (11.09)%+ 3.70%+++
Net assets at end of year (000s) $21,116 $22,497 $22,579 $28,971 $27,614 $18,904
Ratio of operating expenses to average net
assets* 1.90% 1.90% 1.90%++ 2.65% 2.65% 2.65%++
Ratio of net investment loss to average
net assets* (0.37)% (0.82)% (0.87)%++ (1.13)% (1.54)% (1.61)%++
Portfolio turnover rate 132.36% 100.68% 80.60% 132.36% 100.68% 80.60%
Average commission rate@ $0.0069 -- -- $0.0069 -- --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) $ 0.05 $ 0.06 $ 0.03 $ 0.05 $ 0.06 $ 0.03
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
----------------------------------------------------------- -----------------------------------
Year ended October 31 Year ended October 31
----------------------------------------------------------- -----------------------------------
1996*** 1995*** 1994 1993 1992**** 1996*** 1995*** 1994**
- - ----------------------------- ----------- ------------ --------- ---------------------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 9.39 $ 11.01 $ 9.56 $ 6.50 $ 7.40 $ 9.22 $ 10.93 $10.54
Net investment income (loss)* (0.02) (0.05) (0.07) (0.02) 0.04 (0.11) (0.15) (0.07)
Net realized and unrealized
gain (loss) on investments
and foreign currency (0.08) (1.05) 2.09 3.17 (0.94) (0.08) (1.04) 0.46
Dividends from net investment
income -- -- (0.05) (0.04) -- -- -- --
Distributions from net
realized gains -- (0.52) (0.52) (0.05) -- -- (0.52) --
------- ------- ------- ------- ------- ------- ------- ------
Net asset value, end of year $ 9.29 $ 9.39 $ 11.01 $ 9.56 $ 6.50 $ 9.03 $ 9.22 $10.93
======= ======= ======= ======= ======= ======= ======= ======
Total return (1.06)%+ (10.16)%+ 22.73%+ 48.95%+ (12.16)%+++ (2.06)%+ (11.09)%+ 3.70%+++
Net assets at end of year
(000s) $26,649 $33,883 $54,631 $27,767 $10,418 $ 5,324 $ 5,674 $2,134
Ratio of operating expenses
to average net assets* 1.65% 1.65% 1.65% 1.65% 1.65%++ 2.65% 2.65% 2.65%++
Ratio of net investment
income (loss) to average
net assets* (0.16)% (0.51)% (0.75)% (0.37)% 0.79%++ (1.10)% (1.55)% (1.62)%++
Portfolio turnover rate 132.36% 100.68% 80.60% 116.12% 77.83% 132.36% 100.68% 80.60%
Average commission rate@ $0.0069 -- -- -- -- $0.0069 -- --
*Reflects voluntary
assumption of fees or
expenses per share in each
year (Note 3) $ 0.05 $ 0.06 $ 0.05 $ 0.08 $ 0.10 $ 0.05 $ 0.06 $ 0.03
</TABLE>
** March 1, 1994 (commencement of share class designations) to October 31,
1994.
*** Per-share figures have been calculated using the average shares method.
**** January 22, 1992 (commencement of operations) to October 31, 1992.
++ Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Investment Manager and
its affiliates had not voluntarily assumed a portion of the Fund's
expenses.
+++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Investment Manager and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
@ For fiscal years beginning on or after November 1, 1995, the Fund is
required to disclose its average commission rate per share paid for
security trades.
51
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of State Street
Research Portfolios, Inc. and the Shareholders of
State Street Research International Equity Fund
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of State Street Research International Equity Fund (a
series of State Street Research Portfolios, Inc.) as of October 31, 1996, and
the related statement of operations for the year then ended, the statement of
changes in net assets for the two years then ended and the financial highlights
for each of the years in the five year period ended October 31, 1996. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on the financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of State Street
Research International Equity Fund (a series of State Street Research
Portfolios, Inc.) at October 31, 1996, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
December 16, 1996
52
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
International stocks significantly trailed the returns offered by U.S. stocks in
the past year, in part because the overseas economies have recovered more slowly
than the U.S. economy. International Equity Fund underperformed the average
return provided by Lipper Analytical Services' International Funds category
(does not reflect sales charge).
International Equity Fund underperformed because of disappointing results in
certain key markets, such as Japan earlier in the year and France more recently.
In addition, a significant position in raw materials-related stocks hurt
performance in late 1995 and early 1996. Lastly, small-company stocks
underperformed larger-cap stocks, and value stocks underperformed growth-
oriented stocks.
The Fund increased its position in financial stocks in order to take advantage
of declining interest rates overseas. Another change was a reduction in the
Fund's positions in stocks of companies engaged in gold mining. In late 1995,
gold stocks represented approximately 6% of the portfolio; currently they stand
at approximately 1%.
Over the past year, the Fund has reduced its holdings in small-capitalization
stocks and increased its holdings in stocks represented in the EAFE index.
The Morgan Stanley EAFE (Europe, Australia, Far East) Index is a commonly-used
measure of international stock market performance. The index is unmanaged and
does not take sales charges into account. Direct investment in the index is not
possible; results are for illustrative purposes only. All returns represent past
performance, which is no guarantee of future results. The investment return and
principal value of an investment made in the Fund will fluctuate and shares,
when redeemed, may be worth more or less than their original cost. All returns
assume reinvestment of capital gain distributions and income dividends. Shares
of the Fund had no class designations until March 1, 1994, when designations
were assigned based on the pricing and 12b-1 fees applicable to shares sold
thereafter. Performance for a class include periods prior to the adoption of
class designations. Performance prior to March 1, 1994, does not reflect annual
12b-1 fees of .25% for "A" shares and 1% for "B" and "D" shares, which will
reduce subsequent performance. "C" shares, offered without a sales charge, are
available only to certain employee benefit plans and large institutions.
Performance results for the Fund are increased by the investment manager's
voluntary reduction of fees and expenses related to the Fund. The first figure
reflects expense reduction; the second shows what results would have been
without subsidization.
Change In Value Of $10,000
Based On The Morgan Stanley EAFE Index Compared
To Change In Value of $10,000 Invested In
International Equity Fund
[Data for Line Charts]
Class A Shares
Average Annual Total Return
- - -------------------------------
1 Year Life of Fund
- - -------------------------------
- - -5.73%/-6.31% -6.41%/+5.48%
$22,000
18,000
14,000
10,000
6,000
$14,732 $13,460
1/22/92 9550 10000
10/31/92 8389 8845
10/31/93 12430 12158
10/31/94 15213 13385
10/31/95 13635 13335
10/31/96 13460 14732
Class B Shares
Average Annual Total Return
- - -------------------------------
1 Year Life of Fund
- - -------------------------------
- - -6.85%/-7.47% +6.68%/+5.73%
$22,000
18,000
14,000
10,000
6,000
$14,732 $13,623
1/22/92 10000 10000
10/31/92 8784 8845
10/31/93 13015 12158
10/31/94 15858 13385
10/31/95 14098 13335
10/31/96 13623 14732
Class C Shares
Average Annual Total Return
- - -------------------------------
1 Year Life of Fund
- - -------------------------------
- - -1.06%/-1.67% -7.61%/+6.66%
$22,000
18,000
14,000
10,000
6,000
$14,732 $14,198
1/22/92 10000 10000
10/31/92 8784 8845
10/31/93 13015 12158
10/31/94 15974 13385
10/31/95 14351 13335
10/31/96 14198 14732
Class D Shares
Average Annual Total Return
- - -------------------------------
1 Year Life of Fund
- - -------------------------------
- - -3.04%/-3.66% +6.98%/+6.04%
$22,000
18,000
14,000
10,000
6,000
$14,732 $13,808
1/22/92 10000 10000
10/31/92 8784 8845
10/31/93 13015 12158
10/31/94 15858 13385
10/31/95 14098 13335
10/31/96 13808 14732
LEGEND:
Solid Line: International Equity Fund
Dashed Line: Morgan Stanley EAFE Index
53
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS 98.7%
Australia 5.6%
Amcor Ltd. .............................. 45,000 $ 296,046
Broken Hill Proprietary Co. Ltd. ...... 40,000 563,987
CRA Ltd.* .............................. 32,000 477,143
GIO Australia Holdings Ltd. ............ 140,000 414,879
Lend Lease Corp. ........................ 10,000 191,375
National Australia Bank ............... 35,000 479,022
News Corp. Ltd. ........................ 75,000 345,668
Normandy Mining Ltd.* .................. 150,000 183,654
North Ltd.* ........................... 115,000 405,634
Pasminco Ltd.* ........................ 115,000 218,826
Woolworths Ltd. ........................ 100,000 294,783
-----------
3,871,017
-----------
Austria 0.9%
Bohler Uddeholm AG* ..................... 3,000 216,458
EVN Energie-Versorgung AG ............... 1,500 185,553
VA Stahl AG* ........................... 5,950 234,923
-----------
636,934
-----------
Belgium 1.1%
GPE Bruxelles* ........................ 1,890 277,553
Kredietbank* ........................... 750 292,133
Societe Generale de Belgique* ......... 2,340 208,145
-----------
777,831
-----------
Bermuda 0.5%
Isleinvest Ltd.*+ ..................... 95,821 377,248
-----------
Canada 0.8%
Advanced Material Resources Ltd.* ...... 133,000 337,974
Kemgas Ltd.* ........................... 200,000 239,800
-----------
577,774
-----------
Channel Islands 0.2%
India Fund Cl. B+ ..................... 100,000 162,075
-----------
China 0.6%
Beijing Datang Power
Generation Co. Ltd. .................. 395,000 205,238
Guangshen Railway* ..................... 365,000 174,337
-----------
379,575
-----------
Croatia 0.6%
Pliva d.d. GDR*[dbldag] ............... 9,000 143,824
Zagrebacka Banka GDR* .................. 7,000 247,625
-----------
391,449
-----------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
France 9.6%
Alcatel Alsthom* ........................ 4,400 $ 489,266
AXA* .................................... 9,000 553,739
Axime* ................................. 1,125 135,312
Cap Gemini* ........................... 5,150 311,921
Cie de Michelin Cl. B* .................. 6,000 335,235
Cie de St. Gobain* ..................... 1,600 214,375
Cie Financiere Paribas Cl. A* ......... 5,200 327,957
Credit Commerce France* ............... 6,000 266,255
Credit Local de Fractional* ............ 4,075 377,024
Danone* ................................. 3,200 466,033
Eaux Cie Generale* ..................... 3,500 487,535
Elf Aquitaine SA* ..................... 3,000 290,928
L'Air Liquide* ........................ 2,300 346,389
Lafarge* .............................. 6,000 393,524
Schneider SA* ........................ 7,000 394,586
Total SA Cl. B* ........................ 4,750 393,900
Union Assured Federales* ............... 2,500 297,696
Usinor Sacilor* ........................ 15,200 229,699
Valeo SA .............................. 5,000 308,404
-----------
6,619,778
-----------
Germany 9.5%
Adidas AG* .............................. 1,600 166,763
Allianz AG* ........................... 4,350 843,977
BASF AG* .............................. 17,575 677,913
Bayer AG* .............................. 7,650 304,357
Commerzbank AG* ........................ 17,750 476,087
Daimler-Benz AG* ........................ 8,275 614,485
Deutsche Bank AG* ..................... 4,000 211,110
Deutsche Telekom AG* .................. 13,500 292,950
MAN AG* ................................. 1,013 291,885
Metallgesellschaft AG* .................. 8,100 167,444
Siemens AG .............................. 13,075 708,185
Thyssen AG .............................. 2,445 532,964
Viag AG* .............................. 1,220 542,442
Volkswagen AG* ........................ 1,120 712,045
-----------
6,542,607
-----------
Hong Kong 1.8%
Hong Kong & China Gas Co. Ltd. ......... 222,000 352,495
Hutchison Whampoa* ..................... 30,000 222,681
Swire Pacific Ltd. Cl. A* ............... 40,000 308,526
Swire Pacific Ltd. Cl. B* ............... 50,000 66,482
Television Broadcasts Ltd.* ............ 65,000 266,830
-----------
1,217,014
-----------
Indonesia 0.3%
PT Indosat ADR* ........................ 6,300 173,250
-----------
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Ireland 0.1%
Peterhead Group PLC* ........................ 58,107 $ 58,875
-----------
Israel 0.2%
Koor Industries Ltd. ADR .................. 9,500 165,062
-----------
Italy 2.4%
Assic Generali* ........................... 12,500 209,164
Banca Popular di Milano* .................. 45,000 221,560
Credito Italiano* ........................... 235,000 329,405
Edison SPA* ................................. 32,500 172,354
ENI SPA* ................................. 60,000 304,525
Stet* ....................................... 85,000 401,872
-----------
1,638,880
-----------
Japan 28.1%
Alps Electric Co.* ........................ 35,000 408,083
Amada Co.* ................................. 36,000 269,146
Asahi Bank* ................................. 90,000 550,912
Bank of Tokyo* .............................. 40,000 633,395
Canon Inc. ................................. 15,000 355,694
Clarion Co.* .............................. 105,000 363,966
Dai Nippon Printing* ........................ 20,000 360,815
Dai-Ichi Kangyo Bank Ltd.* .................. 100,000 1,095,049
Denso Corp. ................................. 17,000 387,048
Fanuc* .................................... 10,000 341,119
Fujikura .................................... 65,000 485,445
Kao Corp.* ................................. 31,000 361,445
Kirin Brewery Co.* ........................ 50,000 433,293
Kubota Corp.* .............................. 115,000 530,902
Kumagai Gumi Co.* ........................... 120,000 160,712
Mitsubishi Chemical Corp.* .................. 105,000 353,212
Mitsubishi Estate Co. Ltd. .................. 60,000 756,293
Mitsubishi Heavy Industries Ltd.* ......... 50,000 330,090
Mitsui & Co. .............................. 49,000 374,058
Mitsui Engineering & Shipbuilding Co. Ltd.* 210,000 360,657
Nippon Telegraph & Telephone Corp.* ......... 155 1,092,882
Nissan Fire & Marine Insurance ............ 89,250 305,855
Nomura Securities ........................... 150,000 1,678,024
Ono Pharmaceutical ........................ 20,000 567,219
Rohm Co. .................................... 5,000 387,600
Secom Co.* ................................. 6,000 356,875
Sekisui Chemical ........................... 75,000 720,841
Sharp Corp.* .............................. 27,000 350,967
Showa Denko* .............................. 150,000 356,875
Sony Corp. ................................. 5,000 363,966
Sumitomo Electric Industries ............... 25,000 338,756
TDK Corp. ................................. 5,000 360,421
Teijin Ltd.* .............................. 100,000 404,144
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Japan (cont'd)
Tokio Marine & Fire Insurance Co. Ltd. ...... 36,000 $ 351,676
Tokyo Nissan Auto Sales Co. Ltd.* ......... 23,000 72,478
Tokyo Steel Manufacturing* .................. 35,000 374,995
Toto* ....................................... 40,000 400,894
Toyo Seikan Kaisha* ........................ 20,000 367,117
Toyoda Automatic Loom Works* ............... 20,000 359,239
Yamanouchi Pharmaceutical Co.* ............ 17,000 362,942
Yasuda Trust & Banking* .................. 220,000 514,752
Yokogawa Electric* ........................ 55,000 385,197
-----------
19,385,049
-----------
Korea 0.5%
Korea Electric Power Corp. ADR* ............ 8,400 142,800
Samsung Electronics Ltd. GDR*[dbldag] ...... 10,000 233,700
-----------
376,500
-----------
Luxembourg 0.3%
Arbed SA* ................................. 2,000 204,040
-----------
Malaysia 0.5%
Commerce Asset Holdings BHD* ............... 25,000 149,355
Renong BHD* ................................. 150,000 205,512
-----------
354,867
-----------
Mexico 0.3%
Grupo Carso SA de CV* ..................... 30,000 173,284
-----------
Netherlands 6.2%
ABN Amro Holdings NV* ..................... 5,000 343,633
Ahold Kon NV* .............................. 5,000 341,323
Akzo Nobel NV* .............................. 2,500 322,076
Gucci Group NV* ........................... 5,600 388,500
ING Groep NV* .............................. 21,250 834,381
Kon Ptt* ................................. 12,000 426,218
Royal Dutch Petroleum Co.* .................. 7,200 1,286,783
Ver Ned Uitgevers ........................... 16,000 330,955
-----------
4,273,869
-----------
New Zealand 0.2%
Fletcher Challenge ........................ 55,000 154,419
-----------
Norway 0.6%
Storebrand ASA Series A* .................. 65,000 399,792
-----------
Panama 0.2%
Banco Latinoamericano de Exportaciones
SA Cl. E ................................. 3,500 160,563
-----------
Philippines 0.2%
Philippine Long Distance Telephone Co. ADR* 3,000 167,250
-----------
Poland 0.3%
Bank Gdanski SA GDR*++ ..................... 15,000 202,986
-----------
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Russia 0.2%
Rao Gazprom ADR*++ ................................ 8,800 $ 137,280
-----------
Singapore 1.6%
Development Bank of Singapore Ltd.* ................ 25,000 297,064
Keppel Corp.* ..................................... 81,250 353,627
Parkway Holdings Ltd.* ............................ 50,000 203,799
United Overseas Bank Ltd.* ......................... 25,000 234,888
-----------
1,089,378
-----------
Spain 2.9%
Acerinox SA ........................................ 2,000 292,193
Banco Bilbao Vizcaya SA ............................ 5,950 400,451
Banco Popular Espagnol SA ......................... 1,264 268,007
Repsol SA ........................................ 7,250 303,974
Tabacalera SA Series A* ......................... 6,750 338,874
Telefonica de Espagna ............................ 15,040 385,245
-----------
1,988,744
-----------
Sweden 1.0%
ABB AB Series A .................................. 25,000 304,345
Skandia Foersaekrings AB ......................... 14,150 409,455
-----------
713,800
-----------
Switzerland 5.6%
Ciba Specialty Chemicals AG* ...................... 2,653 228,567
CS Holding AG* ..................................... 2,820 317,563
Holderbank Financiere Glarus AG* ................... 76 59,136
Nestle SA* ........................................ 745 904,654
Novartis AG ........................................ 853 1,123,754
Roche Holdings AG* ............................... 72 608,100
Schweiz Bankverein AG* ............................ 1,010 220,623
Sudelektra Holding* ............................... 180 151,414
Zurich Versicherun* ............................... 850 279,086
-----------
3,892,897
-----------
United Kingdom 15.8%
Arjo Wiggins Appleton PLC ......................... 100,000 298,217
Ascot Holdings PLC* ............................... 16,000 73,647
Ashurst Technology Ltd.+ ......................... 250,000 178,955
Bass PLC* ........................................ 25,000 322,528
BAT Industries PLC ............................... 81,000 681,345
BG PLC* ........................................... 119,000 343,306
BOC Group PLC ..................................... 25,000 382,800
British Biotech PLC* ............................... 59,000 232,366
British Petroleum Co. PLC ......................... 90,000 1,032,739
British Telecom PLC* ............................... 155,000 1,135,494
BTR PLC ........................................... 79,000 322,658
Cable & Wireless PLC* ............................ 45,000 346,526
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
United Kingdom (cont'd)
Commercial Union PLC ............................... 26,000 $ 286,548
Euro Sales Finance PLC Cl. A+* ................... 163,560 331,362
Glaxo Wellcome PLC ............................... 55,000 1,081,280
Great University Stores PLC* ...................... 34,000 352,674
Guinness PLC* ..................................... 75,000 619,935
J. Sainsbury PLC .................................. 50,000 268,233
Lasmo PLC ........................................ 45,000 162,642
Marks & Spencer PLC* ............................... 45,000 356,645
National Westminster Bank PLC ...................... 28,000 331,280
Northern Foods PLC* ............................... 62,000 209,011
Rank Group PLC ..................................... 48,000 330,632
Rolls Royce PLC .................................. 55,000 216,613
Sun Life & Provincial Holdings PLC ................ 36,000 173,874
Unilever NV ........................................ 33,000 866,986
-----------
10,938,296
-----------
Total Common Stocks (Cost $64,918,412) ............. 68,202,383
-----------
EQUITY-RELATED SECURITIES 0.9%
General Property Trust Units ...................... 100,000 183,264
Daimler-Benz AG Rts.* ............................ 8,275 956
GEA AG Pfd.* ..................................... 700 238,480
Upton & Southern Holdings PLC Cv. Pfd. * .......... 115,207 187,655
-----------
Total Equity-Related Securities (Cost $620,154) .... 610,355
-----------
Total Investments (Cost $65,538,566)--99.6% ....... 68,812,738
Cash and Other Assets, Less Liabilities--0.4% .... 279,792
-----------
Net Assets--100.0% ............................... $69,092,530
===========
Federal Income Tax Information:
At April 30, 1997, the net unrealized appreciation
of investments based on cost for Federal income
tax purposes of $65,538,566 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost .......................... $ 6,123,632
Aggregate gross unrealized depreciation for
all investmentsin which there is an excess of (2,849,460)
tax cost over value ............................. -----------
$ 3,274,172
===========
- -------------------------------------
* Nonincome-producing securities.
ADR and GDR stand for American Depositary Receipt and Global Depositary
Receipt, respectively, representing ownership of foreign securities.
+ Security determined to be illiquid by the Directors.
++ Security restricted as to public resale. At April 30, 1997, there
were no outstanding unrestricted securities of the same class as those
held. The total cost and market value of restricted securities at
April 30, 1997 were $661,808 and $717,790 (1.04% of net assets),
respectively.
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1997
Assets
Investments, at value (Cost $65,538,566) (Note 1) ... $68,812,738
Foreign currency, at value (Cost $2,536,420) ......... 2,525,377
Receivable for securities sold ..................... 3,798,606
Dividends and interest receivable .................. 229,273
Foreign tax receivable .............................. 115,207
Receivable from Distributor (Note 3) ............... 76,356
Receivable for fund shares sold ..................... 48,645
-----------
75,606,202
Liabilities
Payable for securities purchased ..................... 5,733,007
Accrued transfer agent and shareholder services
(Note 2) .......................................... 212,877
Payable for fund shares redeemed ..................... 93,739
Payable to custodian ................................. 76,084
Accrued management fee (Note 2) ..................... 56,959
Accrued directors' fees (Note 2) ..................... 45,308
Accrued distribution and service fees (Note 5) ...... 28,238
Other accrued expenses .............................. 267,460
-----------
6,513,672
-----------
Net Assets $69,092,530
===========
Net Assets consist of:
Unrealized appreciation of investments
and foreign currency .............................. $ 3,252,296
Accumulated net realized loss on investments
and foreign currency .............................. (3,388,496)
Shares of beneficial interest ..................... 69,228,730
-----------
$69,092,530
===========
Net Asset Value and redemption price per share of
Class A shares ($18,216,398 [dividedby] 1,927,565
shares of beneficial interest) .................... $9.45
=====
Maximum Offering Price per share of Class A shares
($9.45 [dividedby] .955) ........................... $9.90
=====
Net Asset Value and offering price per share of
Class B shares ($24,362,549 [dividedby] 2,640,018
shares of beneficial interest)* .................... $9.23
=====
Net Asset Value, offering price and redemption price
per share of Class C shares ($22,996,762 [dividedby]
2,411,598 shares of beneficial interest) ........... $9.54
=====
Net Asset Value and offering price per share of
Class D shares ($3,516,821 [dividedby] 381,292
shares of beneficial interest)* .................... $9.22
=====
- -------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the six months ended April 30, 1997
Investment Income
Dividends, net of foreign taxes of $71,402 ............ $ 472,064
Interest, net of foreign taxes of $48.................. 17,839
----------
489,903
Expenses
Management fee (Note 2) .............................. 349,709
Transfer agent and shareholder services (Note 2) ...... 208,231
Custodian fee ....................................... 154,709
Reports to shareholders .............................. 63,813
Audit fee ............................................. 22,330
Service fee-Class A (Note 5) ........................ 23,853
Distribution and service fees-Class B (Note 5) ...... 131,871
Distribution and service fees-Class D (Note 5) ...... 21,399
Directors' fees (Note 2) .............................. 7,743
Legal fees .......................................... 3,072
Amortization of organization costs (Note1) ............ 2,697
Registration fees .................................... 1,140
Miscellaneous ....................................... 9,571
----------
1,000,138
Expenses borne by the Distributor (Note 3) ............ (216,427)
----------
783,711
----------
Net investment loss ................................. (293,808)
----------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Net realized loss on investments (Notes 1 and 4) ...... (1,179,201)
Net realized loss on foreign currency (Note 1) ...... (101,248)
----------
Total net realized loss ........................... (1,280,449)
----------
Net unrealized appreciation of investments ............ 3,505,918
Net unrealized depreciation of foreign currency ...... (36,718)
----------
Total net unrealized appreciation .................. 3,469,200
----------
Net gain on investments and foreign currency ......... 2,188,751
----------
Net increase in net assets resulting from operations $1,894,943
==========
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
April 30, 1997
Six months ended Year ended
April 30, 1997 October 31, 1996
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss ............... $ (293,808) $ (592,238)
Net realized loss on investments
and foreign currency* ........... (1,280,449) (2,377,922)
Net unrealized appreciation of
investments and foreign
currency ........................ 3,469,200 1,601,264
------------ ------------
Net increase (decrease) resulting
from operations ................. 1,894,943 (1,368,896)
------------ ------------
Net decrease from fund share
transactions (Note 6) ......... (14,862,712) (6,239,509)
------------ ------------
Total decrease in net assets ...... (12,967,769) (7,608,405)
Net Assets
Beginning of period ............... 82,060,299 89,668,704
------------ ------------
End of period ..................... $ 69,092,530 $ 82,060,299
============ ============
* Net realized loss for Federal
income tax purposes (Note 1) ... $ (965,200) $ (1,469,788)
============ ============
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1997
Note 1
State Street Research International Equity Fund (the "Fund"), is a diversified
series of State Street Research Portfolios, Inc. ("Portfolios"), which was
organized as a Maryland corporation in April, 1991 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund commenced operations in January, 1992. Portfolios
consists presently of two separate funds: State Street Research International
Equity Fund and State Street Research International Fixed Income Fund.
The investment objective of the Fund is to achieve long-term growth of capital
by investing primarily in common stocks and equity-related securities of
non-U.S. companies. Non-U.S. companies for these purposes are companies
domiciled outside the United States.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and pay
annual distribution and service fees of 1.00%. Class B shares automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years after the issuance of the Class B shares. Class C shares are only
offered to certain employee benefit plans and large institutions. No sales
charge is imposed at the time of purchase or redemption of Class C shares.
Class C shares do not pay any distribution or service fees. Class D shares are
subject to a contingent deferred sales charge of 1.00% on any shares redeemed
within one year of their purchase. Class D shares also pay annual distribution
and service fees of 1.00%. The Fund's expenses are borne pro-rata by each
class, except that each class bears expenses, and has exclusive voting rights
with respect to provisions of the Plan of Distribution, related specifically to
that class. The Directors declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Securities traded on domestic stock exchanges are valued at the last sale price
as of the close of business on the day the securities are being valued, or,
lacking any sales, at the mean between closing bid and asked prices. Securities
traded on the National Association of Securities Dealers Automated Quotation
("NASDAQ") system are valued at the last reported sales price. Each security
traded primarily on non-domestic securities exchanges is generally valued at
the preceding closing value of such security on the exchange where it is
primarily traded. A security that is listed or traded on more than one exchange
is valued at the quotation on the exchange determined to be the primary market
for such security by the Board of Directors or its delegates. If no closing
price is available, then such security is valued at the mean between the last
current bid and asked prices or
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
by using the last available closing price. Domestic securities traded in the
over-the-counter market are valued at the mean between the bid and asked prices
or yield equivalent as obtained from two or more dealers that make markets in
the securities. All non-U.S. securities traded in the over-the-counter market
are valued at the last sale quote or the last closing bid price, if there is no
active trading in a particular security for a given day. Portfolio securities
traded both in the over-the-counter market and on a securities exchange are
valued according to the broadest and most representative market. Securities for
which market quotations are not readily available are valued as determined in
good faith by or under the authority of the Directors. Short-term securities
maturing within sixty days are valued at amortized cost. Securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments.
C. Net Investment Income
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to it,
while indirect expenses are allocated between both funds in the Portfolios.
D. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for foreign currency transactions.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods. At October 31, 1996, the Fund had a capital
loss carryforward of $2,057,829 available, to the extent provided in
regulations, to offset future capital gains, if any, of which $588,041 and
$1,469,788 expires on October 31, 2003 and 2004, respectively.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and amortized under the straight-line method over a period of five
years.
G. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Note 2
The Fund and State Street Research & Management Company (the "Investment
Manager"), a wholly owned, indirect subsidiary of Metropolitan Life Insurance
Company ("Metropolitan"), have entered into an agreement under which the
Investment Manager receives monthly fees at an annual rate of 0.95% of the
Fund's average daily net assets. The Investment Manager has entered into a
Sub-Investment Management Agreement with GFM International Investors Limited
(the "Sub-Investment Manager"), an affiliate of the Investment Manager and a
substantially wholly owned, indirect subsidiary of Metropolitan, pursuant to
which the Sub-Investment Manager has assumed the overall responsibility for
managing the investments of the Fund. During the six months ended April 30,
1997, the Fund paid the Investment Manager $349,709 in management fees. The
Fund has no responsibility for the payment of fees to the Sub-Investment
Manager.
State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Fund's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the six months ended
April 30, 1997, the amount of such expenses was $78,809.
The fees of the Directors not currently affiliated with the Investment Manager
amounted to $7,743 during the six months ended April 30, 1997.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund.
During the six months ended April 30, 1997, the amount of such expenses assumed
by the Distributor and its affiliates was $216,427.
Note 4
For the six months ended April 30, 1997, purchases and sales of securities,
exclusive of short-term obligations, aggregated $67,266,713 and $81,060,532,
respectively.
59
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 5
Portfolios has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940, as amended. Under the Plan,
the Fund pays annual service fees to the Distributor at a rate of 0.25% of
average daily net assets for Class A, Class B and Class D shares. In addition,
the Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class D shares. The Distributor uses such payments for personal
services and/or the maintenance or servicing of shareholder accounts, to
reimburse securities dealers for distribution and marketing services, to
furnish ongoing assistance to investors and to defray a portion of its
distribution and marketing expenses. For the six months ended April 30, 1997,
fees pursuant to such plan amounted to $23,853, $131,871 and $21,399 for Class
A, Class B and Class D shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $2,943 and $17,117, respectively, on sales of Class A shares of the
Fund during the six months ended April 30, 1997, and that MetLife Securities,
Inc. earned commissions aggregating $30,449 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges of $77,069 and
$742 on redemptions of Class B and Class D shares, respectively, during the
same period.
Note 6
The authorized capital stock of the Fund currently consists of 100,000,000
shares, $.01 par value per share. The Fund reserves the right to issue
additional classes of shares.
Share transactions were as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
April 30, 1997 October 31, 1996
--------------------------------- ----------------------------------
Class A Shares Amount Shares Amount
- -------------------------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold .................. 182,957 $ 1,728,260 1,219,188 $ 11,886,027
Shares repurchased ............ (544,754) (5,129,501) (1,339,064) (12,879,562)
--------- ------------ ----------- ------------
Net decrease .................. (361,797) $ (3,401,241) (119,876) $ (993,535)
========= ============ =========== ============
Class B Shares Amount Shares Amount
- -------------------------------- --------------- --------------- --------------- ----------------
Shares sold .................. 279,753 $ 2,589,692 1,649,800 $ 15,674,421
Shares repurchased ............ (844,800) (7,799,376) (1,439,371) (13,641,573)
--------- ------------ ----------- ------------
Net increase (decrease) ...... (565,047) $ (5,209,684) 210,429 $ 2,032,848
========= ============ =========== ============
Class C Shares Amount Shares Amount
- -------------------------------- --------------- --------------- --------------- ----------------
Shares sold .................. 436,870 $ 4,162,901 945,704 $ 9,234,435
Shares repurchased ............ (892,301) (8,493,584) (1,687,889) (16,384,857)
--------- ------------ ----------- ------------
Net decrease .................. (455,431) $ (4,330,683) (742,185) $ (7,150,422)
========= ============ =========== ============
Class D Shares Amount Shares Amount
- -------------------------------- --------------- --------------- --------------- ----------------
Shares sold .................. 68,503 $ 629,806 377,202 $ 3,629,056
Shares repurchased ............ (276,557) (2,550,910) (403,584) (3,757,456)
--------- ------------ ----------- ------------
Net decrease .................. (208,054) $ (1,921,104) (26,382) $ (128,400)
========= ============ =========== ============
</TABLE>
60
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class A
-----------------------------------------
Six months
ended Year ended October 31
April 30, ----------------------------------------
1997*** 1996*** 1995*** 1994**
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.22 $ 9.34 $ 10.98 $ 10.54
------- ------- ------- -------
Net investment loss* (0.03) (0.04) (0.08) (0.04)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.26 (0.08) (1.04) 0.48
------- ------- ------- --------
Total from investment operations 0.23 (0.12) (1.12) 0.44
------- ------- ------- --------
Distribution from net realized gains -- -- (0.52) --
------- ------- ------- --------
Total distributions -- -- (0.52) --
------- ------- ------- --------
Net asset value, end of period $ 9.45 $ 9.22 $ 9.34 $ 10.98
======= ======= ======= =======
Total return 2.49%++ (1.28)%+ (10.38)%+ 4.17%++
Net assets at end of period (000s) $18,216 $21,116 $22,497 $22,579
Ratio of operating expenses to average net assets* 1.90%+++ 1.90% 1.90% 1.90%+++
Ratio of net investment loss to average net assets* (0.56)%+++ (0.37)% (0.82)% (0.87)%+++
Portfolio turnover rate 89.95% 132.36% 100.68% 80.60%
Average commission rate@ $0.0107 $0.0069 -- --
*Reflects voluntary assumption of fees or expenses
per share in each period (Note 3) $ 0.03 $ 0.05 $ 0.06 $ 0.03
</TABLE>
<TABLE>
<CAPTION>
Class B
----------------------------------------------------
Six months
ended Year ended October 31
April 30, --------------------------------------
1997*** 1996*** 1995*** 1994**
----------- -------- ------- ------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.04 $ 9.22 $ 10.93 $ 10.54
------- ------- -------- -------
Net investment loss* (0.06) (0.11) (0.15) (0.06)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.25 (0.07) (1.04) 0.45
------- ------- -------- -------
Total from investment operations 0.19 (0.18) (1.19) 0.39
------- ------- -------- -------
Distribution from net realized gains -- -- (0.52) --
------- ------- -------- -------
Total distributions -- -- (0.52) --
------- ------- -------- -------
Net asset value, end of period $ 9.23 $ 9.04 $ 9.22 $ 0.93
======= ======= ======= ======
Total return 2.10%++ (1.95)%+ (11.09)%+ 3.70%++
Net assets at end of period (000s) $24,363 $28,971 $27,614 $18,904
Ratio of operating expenses to average net assets* 2.65%+++ 2.65% 2.65% 2.65%+++
Ratio of net investment loss to average net assets* (1.32)%+++ (1.13)% (1.54)% (1.61)%+++
Portfolio turnover rate 89.95% 132.36% 100.68% 80.60%
Average commission rate@ $0.0107 $0.0069 -- --
* Reflects voluntary assumption of fees or expenses
per share in each period (Note 3) $ 0.03 $ 0.05 $ 0.06 $ 0.03
</TABLE>
- --------------------------------------------------------------------------------
** March 1, 1994 (commencement of share class designations) to October 31,
1994.
*** Per-share figures have been calculated using the average shares method.
+++ Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
@ For fiscal years beginning on or after November 1, 1995, the Fund is
required to disclose its average commission rate per share paid for
security trades.
61
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
--------------------------------------------------------------------------
Six months
ended Year ended October 31
April 30, ----------------------------------------------------------
1997*** 1996*** 1995*** 1994 1993 1992***
------- ------- ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.29 $ 9.39 $ 11.01 $ 9.56 $ 6.50 $ 7.40
------- ------- ------- ------- ------- -------
Net investment income (loss)* (0.01) (0.02) (0.05) (0.07) (0.02) 0.04
Net realized and unrealized gain (loss)
on investments and foreign currency 0.26 (0.08) (1.05) 2.09 3.17 (0.94)
------- ------- ------- ------- ------- ---------
Total from investment operations 0.25 (0.10) (1.10) 2.02 3.15 (0.90)
------- ------- ------- ------- ------- ---------
Dividends from net investment income -- -- -- (0.05) (0.04) --
Distributions from net realized gains -- -- (0.52) (0.52) (0.05) --
------- ------- ------- ------- ------- ---------
Total distributions -- -- (0.52) (0.57) (0.09) --
------- ------- ------- ------- ------- ---------
Net asset value, end of period $ 9.54 $ 9.29 $ 9.39 $ 11.01 $ 9.56 $ 6.50
======= ======= ======= ======= ======= ========
Total return 2.69%++ (1.06)%+ (10.16)%+ 22.73%+ 48.95%+ (12.16)%++
Net assets at end of period (000s) $22,997 $26,649 $33,883 $54,631 $27,767 $10,418
Ratio of operating expenses to average net assets* 1.65%+++ 1.65% 1.65% 1.65% 1.65% 1.65%+++
Ratio of net investment income (loss)
to average net assets* (0.31)%+++ (0.16)% (0.51)% (0.75)% (0.37)% 0.79%+++
Portfolio turnover rate 89.95% 132.36% 100.68% 80.60% 116.12% 77.83%
Average commission rate@ $0.0107 $0.0069 -- -- -- --
* Reflects voluntary assumption of fees or expenses
per share in each period (Note 3) $ 0.03 $ 0.05 $ 0.06 $ 0.05 $ 0.08 $ 0.10
</TABLE>
<TABLE>
<CAPTION>
Class D
-----------------------------------------------------------------------
Six months Year ended October 31
ended -----------------------------------------
April 30, 1997*** 1996*** 1995*** 1994**
----------------- ---------- --------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.03 $ 9.22 $ 10.93 $ 10.54
------- ------- ------- -------
Net investment loss* (0.06) (0.11) (0.15) (0.07)
Net realized and unrealized gain (loss)
on investmentsand foreign currency 0.25 (0.08) (1.04) 0.46
------- ------- ------- -------
Total from investment operations 0.19 (0.19) (1.19) 0.39
------- ------- ------- -------
Distribution from net realized gains -- -- (0.52) --
------- ------- ------- -------
Total distributions -- -- (0.52) --
------- ------- ------- -------
Net asset value, end of period $ 9.22 $ 9.03 $ 9.22 $ 10.93
======= ====== ======== =======
Total return 2.10%++ (2.06)%+ (11.09)%+ 3.70%++
Net assets at end of period (000s) $ 3,517 $ 5,324 $5,674 $2,134
Ratio of operating expenses to average net assets* 2.65%+++ 2.65% 2.65% 2.65%+++
Ratio of net investment loss to average net assets* (1.36)%+++ (1.10)% (1.55)% (1.62)%+++
Portfolio turnover rate 89.95% 132.36% 100.68% 80.60%
Average commission rate@ $0.0107 $0.0069 -- --
* Reflects voluntary assumption of fees or expenses
per share in each period (Note 3) $ 0.03 $ 0.05 $ 0.06 $0.03
</TABLE>
- --------------------------------------------------------------------------------
** March 1, 1994 (commencement of share class designations) to October 31,
1994.
*** Per-share figures have been calculated using the average shares method.
**** January 22, 1992 (commencement of operations) to October 31, 1992.
+++ Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
@ For fiscal years beginning on or after November 1, 1995, the Fund is
required to disclose its average commission rate per share paid for
security trades.
62
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors of State Street
Research Portfolios, Inc. and the Shareholders of
State Street Research International Equity Fund
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of State Street Research International Equity Fund (a
series of State Street Research Portfolios, Inc.) as of April 30, 1997, and the
related statement of operations for the six months then ended, the statement of
changes in net assets for the six months then ended and the year ended October
31, 1996 and the financial highlights for the six months ended April 30, 1997
and for each of the years in the five year period ended October 31, 1996. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on the financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at April
30, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of State Street
Research International Equity Fund (a series of State Street Research
Portfolios, Inc.) at April 30, 1997, the results of its operations, the changes
in its net assets, and its financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
June 6, 1997
63
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Financial Statements in Part A (Prospectus) of this Registration
Statement:
Financial Highlights for State Street Research International
Equity Fund for the period January 22, 1992 (commencement of
operations) through April 30, 1997.
(2) Financial Statements included in Part B (Statement of Additional
Information) of this Registration Statement:
For State Street Research International Equity Fund for the
six-month period ended April 30, 1997 and for fiscal year ended
October 31, 1996 (except as provided below):
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets (six-month period
ended April 30, 1997 and fiscal years ended October
31, 1995 and October 31, 1996)
Notes to Financial Statements (including financial
highlights)
Independent Auditors' Report
Management's Discussion of Fund Performance (for fiscal
year ended October 31, 1996)
(b) Exhibits:
(1) Amended and restated Articles of Incorporation of Registrant
(1)
(1)(a) Articles Supplementary (1)
(1)(b) Articles Supplementary (1)
(2) Amended By-Laws of Registrant (1)
(3) None
(4) Specimen certificates for shares of common stock of
Registrant (1)
(5)(a) Investment Management Agreements relating to the MetLife
International Equity Fund between MetLife - State Street
Investment Services, Inc. and MetLife Portfolios, Inc. (1)*
(5)(b) Sub-Investment Management Agreements relating to the MetLife
International Equity Fund among MetLife - State Street
Investment Services, Inc., GFM International Investors
Limited, and MetLife Portfolios, Inc. (1)*
C-1
<PAGE>
(5)(c) Transfer and Assumption of Responsibilities and Rights
Relating to the Investment Management Agreements between
State Street Research Investment Services, Inc. and State
Street Research & Management Company
(6)(a) Distribution Agreement with MetLife - State Street Investment
Services, Inc. (1)
(6)(b) Form of Selected Dealer Agreement (1)
(6)(c) Form of Bank and Bank Affiliated Broker-Dealer Agreement (1)
(6)(d) Form of Supplement No. 1 to Selected Dealer Agreement (2)
(7) Not Applicable
(8)(a) Custodian Contract with State Street Bank and Trust
Company (1)
(9) Not applicable
(10) Opinion and consent of counsel
(11) Consent of Deloitte & Touche LLP
(12) None
(13) Purchase Agreement and Investment Letter (1)
(14)(b) State Street Research IRA: Disclosure Statement, Forms
Booklet and Transfer of Assets/Direct Rollover Form (1)
(14)(c) State Street Research 403(b): Brochure, Maximum Salary
Reduction Worksheet, Account Application, Salary Reduction
Agreement and Transfer of 403(b) Assets Form (2)
(14)(d) State Street Research SIMPLE IRA: Application, Terms and
Conditions and Disclosures Statement
(15) Distribution Plan (1)
(16) Schedule of Performance Data (1)
(17)(a) Powers of Attorney
(17)(b) Board Resolution Respecting Powers of Attorney
(18) Multiple Class Expense Allocation Plan Adopted Pursuant to
Rule 18f-3 (1)
(19) Application Forms
(27) Financial Data Schedules
(1) Incorporated by reference to the filing of Post-Effective Amendment No. 6
to this Registration Statement on February 29, 1996.
(2) Incorporated by reference to the filing of Post-Effective Amendment No. 7
to this Registration Statement on February 27, 1997.
* The series of the Registrant have changed their names at various times.
MetLife-State Street Investment Services, Inc. has changed its name to
State Street Research Investment Services, Inc. Documents in this listing
of Exhibits which were effective prior to the most recent name change
accordingly refer to a prior name.
C-2
<PAGE>
Item 25. Persons Controlled By Or Under Common Control With Registrant.
Not applicable.
Item 26. Number Of Holders Of Securities
As of July 31, 1997, the number of record holders of the Registrant's
Fund were as follows:
Number of
Title of Class Record Holders
Shares of Common Stock, par value $0.01 per share
Class A 3,649
Class B 3,181
Class C 1,838
Class D 191
Item 27. Indemnification.
(a) Maryland Law And By-Laws.
The Registrant is required by Article V of its By-Laws to indemnify or
advance expenses to directors and officers (or former directors and
officers) to the extent permitted or required by the Maryland General
Corporation Law ("MGCL") and, in the case of officers (or former
officers), only to the extent specifically authorized by resolution of
the Board of Directors. Section 2-418 of the MGCL permits
indemnification of a director against judgments, penalties, fines,
settlements and reasonable expenses actually incurred in connection with
any proceeding to which he has been made a party by reason of service as
a director, unless it is established that (i) the directors's act or
omission was material to the matter giving rise to the proceeding and
was committed in bad faith or was the result of active or deliberate
dishonesty; (ii) the director actually received an improper personal
benefit; or (iii) in the case of a criminal proceeding, the director had
reasonable cause to believe that the act or omission was unlawful.
However, indemnification may not be made in any roceeding by or in the
right of the corporation in which the director has been adjudged to be
liable to the corporation. Section 2-418 of the MGCL also requires a
corporation, unless limited by its charter, to indemnify a director who
has been successful in the defense of a proceeding against reasonable
expenses incurred. In addition, reasonable expenses incurred by a
director may be paid or reimbursed by a corporation in advance the final
disposition of a proceeding upon the receipt of certain written
affirmations and undertakings required by Section 2-418. A Maryland
corporation may indemnify and advance expenses to an officer to the same
extent it may indemnify a director, and is required to indemnify an
officer to the extent required for a director.
Notwithstanding the foregoing, Article V of the Registrant's By-Laws
provides that nothing contained therein shall be construed to protect
any director or officer against any liability to the
C-3
<PAGE>
Registrant or its security holders to which he would otherwise by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(b) 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.
C-4
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
State Street Investment Adviser Various investment Boston, MA
Research & advisory clients
Management
Company
Arpiarian, Tanya None
Vice President
Bangs, Linda L. None
Vice President
Bennett, Peter C. Executive Vice GFM International Investors
Director and President Limited London, England
Executive Vice Vice President State Street Research Capital Trust Boston, MA
President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Financial Trust Boston, MA
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
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Director State Street Research Investment Services, Inc Boston, MA
Director Boston Private Bank & Trust Co. Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Bochman, Kathleen None
Vice President
Bray, Michael J. Employee Merrill Lynch & Co. Boston, MA
Vice President
Brown, Susan H. None
Vice President
Buffum, Andrea Project Manager BankBoston Boston, MA
Vice President (until 12/96)
Managing Director State Street Global Advisors Boston, MA
(until 12/95)
Burbank, John F. None
Senior Vice President
(Vice President until
7/96)
Cabrera, Jesus A. Vice President First Chicago Investment Management Co. Chicago, IL
Vice President (until 5/96)
Vice President State Street Research Capital Trust Boston, MA
Canavan, Joseph W. Vice President GFM International Investors Limited London, England
Vice President Assistant Treasurer State Street Research Equity Trust Boston, MA
Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust 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
C-5
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Carmen, Michael Portfolio Manager Montgomery Asset Management San Francisco, CA
Vice President (until 11/96)
Vice President State Street Research & Management Company Boston, MA
(until 4/96)
Vice President State Street Research Capital Trust Boston, MA
Carstens, Linda C. None
Vice President
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President
D'Vari, Ronald None
Vice President
DeVeuve, Donald None
Vice President
DiFazio, Susan M.W. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Dillman, Thomas J Director of Research Bank of New York New York, NY
Senior Vice President (until 6/95)
Drake, Susan W. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President (until 2/96)
Duggan, Peter J. None
Senior Vice
President
Evans, Gordon Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President (Vice President until 3/96)
Federoff, Alex G. None
Vice President
Feliciano, Rosalina None
Vice President
Gardner, Michael D. Partner Prism Group Seattle, WA
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
Govoni, Electra None
Vice President
C-6
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Granger, Allison 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
Hanson, Phyllis None
Vice President
Haverty, Jr., Lawrence J. None
Senior Vice President
Heineke, George R. None
Vice President
Jackson, Jr., Trustee Certain trusts of related and
F. Gardner non-related individuals
Senior Vice President Trustee and Chairman Vincent Memorial Hospital Boston, MA
of the Board
Jamieson, Frederick H. Vice President and Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Senior Vice President Vice President and Asst. Treasurer SSRM Holdings, Inc. Boston, MA
Vice President and Controller MetLife Securities, Inc. New York, NY
Senior Vice President GFM International Investors Limited London, England
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 Portfolios, Inc. Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Director and President K&G Enterprises Washington, D.C.
Kasper, M. Katherine None
Vice President
C-7
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Vice President
Kobrick, Frederick R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice Vice President State Street Research Capital Trust Boston, MA
President Vice President State Street Research Growth Trust Boston, MA
Member Harvard Business School Association Cambridge, MA
Member National Alumni Council, Boston University Boston, MA
Koski, Karen None
Vice President
Langholm, Knut None
Vice President
Leary, Eileen M. None
Vice President
McNamara, III, Francis J. Director and Executive GFM International Investors
Executive Vice Vice President Limited London, England
President, Senior Vice President, Clerk State Street Research Investment Services, Inc. Boston, MA
Secretary and and General Counsel
General Counsel Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
(Senior Vice President, Secretary and General Counsel State Street Research Capital Trust Boston, MA
Secretary and General Secretary and General Counsel State Street Research Exchange Trust Boston, MA
Counsel until 7/96) 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 Portfolios, Inc. Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
C-8
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Maus, Gerard P. Executive Vice President GFM International Investors
Director, Executive and Director Limited London, England
Vice President, Treasurer State Street Research Equity Trust Boston, MA
Treasurer, Chief Treasurer State Street Research Financial Trust Boston, MA
Financial Officer and Treasurer State Street Research Income Trust Boston, MA
Chief Administrative Treasurer State Street Research Money Market Trust Boston, MA
Officer Treasurer State Street Research Tax-Exempt Trust Boston, MA
Treasurer State Street Research Capital Trust Boston, MA
Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Portfolios, Inc. Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Treasurer and Chief
Financial Officer
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Treasurer and Chief Financial SSRM Holdings, Inc. Boston, MA
Officer
Treasurer (until 1/97) MetLife Securities, Inc. New York, NY
Milder, Judith J. None
Senior Vice President
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
(Vice President
until 7/96)
Moore, Jr., Thomas P. Vice President State Street Research Capital Trust Boston, MA
Senior Vice (until 11/96)
President Vice President State Street Research Exchange Trust Boston, MA
(until 2/97)
Vice President State Street Research Growth Trust Boston, MA
(until 2/97)
Vice President State Street Research Master Investment Trust Boston, MA
(until 2/97)
Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Energy, Inc. Boston, MA
Director Hibernia Savings Bank Quincy, MA
Governor on the Association for Investment Management
Board of Governors and Research Charlottesville, VA
Mulligan, JoAnne C. Vice President State Street Research Money Market Trust Boston, MA
Senior Vice President
(Vice President
until 7/96)
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
C-9
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Paddon, Steven W. Employee Metropolitan Life Insurance Company New York, NY
Vice President (until 10/96)
Pannell, James C. None
Vice President
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Ragsdale, E.K. Easton Senior Vice President GFM International Investors, Limited London, England
Senior Vice President
(Vice President
until 7/96)
Rawlins, Jeffrey A. None
Senior Vice President
(Vice President
until 7/96)
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Richards, Scott None
Vice President
Romich, Douglas A. Vice President GFM International Investors Limited London, England
Vice President Assistant Treasurer State Street Research Equity Trust Boston, MA
Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
Saperstone, Paul None
Vice President
C-10
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Schrage, Michael None
Vice President
Schultz, David C. Director and Treasurer Mafraq Hospital Association Mafraq, Jordan
Executive Vice Member Association of Investment
President Management Sales Executives Atlanta, GA
Member, Investment Committee Lexington Christian Academy Lexington, MA
Shaver, Jr. C. Troy President and Chief Executive State Street Research Investment Services, Inc. Boston, MA
Executive Vice Officer
President President and Chief Executive John Hancock Funds, Inc. Boston, MA
Officer (until 1/96)
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
President Director State Street Research Investment Services, Inc Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Shoemaker, Richard D. Senior Vice President GFM International Investors Limited London, England
Senior Vice President
Strelow, Dan R. None
Senior Vice President
C-11
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Swanson, Amy McDermott None
Senior Vice President
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
(Vice President
until 6/95)
Verni, Ralph F. Chairman, President, GFM International Investors
Chairman, President, CEO and Director Limited London, England
Chief Executive Chairman, President, Chief State Street Research Capital Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Executive Officer and Trustee
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 Trustee
Chairman, President, Chief State Street Research Portfolios, Inc. 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 and Director MetLife Securities, Inc. New York, NY
(until 1/97)
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director CML Group, Inc. Boston, MA
Director Colgate University Hamilton, NY
C-12
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wade, Dudley Vice President State Street Research Growth Trust Boston, MA
Freeman Vice President State Street Research Master Investment Trust Boston, MA
Senior Vice
President
Wallace, Julie K. None
Vice President
Ward, Geoffrey None
Senior Vice President
Weiss, James M. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Capital Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
President and Chief Investment IDS Equity Advisors Minneapolis, MN
Officer (until 12/95)
Westvold, Vice President State Street Research Securities Trust Boston, MA
Elizabeth McCombs
Senior Vice President
(Vice President
until 7/96)
Wilson, John T. Vice President State Street Research Equity Trust Boston, MA
Vice President Vice President State Street Research Master Investment Trust Boston, MA
Vice President Phoenix Investment Counsel, Inc. Hartford, CT
(until 6/96)
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Vice President, Asst. Clerk (Vice President
Assistant Secretary until 6/95)
and Assistant Vice President and GFM International Investors, Limited London, England
General Counsel Assistant General Counsel
Assistant Secretary State Street Research Capital Trust Boston, MA
Assistant Secretary State Street Research Exchange Trust Boston, MA
Assistant Secretary State Street Research Growth Trust Boston, MA
Assistant Secretary State Street Research Master Investment Trust Boston, MA
Assistant Secretary State Street Research Securities Trust Boston, MA
Assistant Secretary State Street Research Equity Trust Boston, MA
Assistant Secretary State Street Research Financial Trust Boston, MA
Assistant Secretary State Street Research Income Trust Boston, MA
Assistant Secretary State Street Research Money Market Trust Boston, MA
Assistant Secretary State Street Research Portfolios, Inc. Boston, MA
Assistant Secretary State Street Research Tax-Exempt Trust Boston, MA
Assistant Secretary SSRM Holdings, Inc. Boston, MA
Woodbury, Robert S. Employee Metropolitan Life Insurance Company New York, NY
Vice President
Woodworth, Jr., Kennard Vice President State Street Research Exchange Trust Boston, MA
Senior Vice Vice President State Street Research Growth Trust Boston, MA
President (until 2/96)
C-13
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
GFM International Sub-Investment Advisor Various investment advisory accounts London, England
Investors Limited
Barrett, Robert G. None London, England
Senior Vice President
Bennett, Peter C. Director and Executive State Street Research & Management Company Boston, MA
Executive Vice Vice President
President Vice President State Street Research Capital Trust Boston, MA
Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Financial Trust Boston, MA
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
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Director State Street Research Investment Services, Inc Boston, MA
Director Boston Private Bank & Trust Co. Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Brunnock, Steven J. Vice President State Street Research Portfolios, Inc. Boston, MA
Vice President
Canavan, Joseph W. Vice President State Street Research & Management Company Boston, MA
Vice President Assistant Treasurer State Street Research Equity Trust Boston, MA
Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust 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
Donegan, Justin T. Vice President State Street Research Portfolios, Inc. Boston, MA
Vice President
C-14
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Grace, Gerry None London, England
Vice President
Jamieson, Frederick H. Senior Vice President State Street Research & Management Company Boston, MA
Senior Vice President Vice President and State Street Research Investment Services, Inc. Boston, MA
Asst. Treasurer
Vice President and SSRM Holdings, Inc. Boston, MA
Asst. Treasurer
Vice President and MetLife Securities, Inc. New York, NY
Controller
Maus, Gerard P. Director, Executive Vice State Street Research & Management Company Boston, MA
Director, President, Treasurer, Chief
Executive Vice Financial Officer and
President, Chief Chief Administrative Officer
Financial Officer and Treasurer State Street Research Equity Trust Boston, MA
Administrative Treasurer State Street Research Financial Trust Boston, MA
Officer Treasurer State Street Research Income Trust Boston, MA
Treasurer State Street Research Money Market Trust Boston, MA
Treasurer State Street Research Tax-Exempt Trust Boston, MA
Treasurer State Street Research Capital Trust Boston, MA
Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Treasurer State Street Research Portfolios, Inc. Boston, MA
Director, Executive State Street Research Investment Services, Inc. Boston, MA
Vice 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
Treasurer (until 1/97) MetLife Securities, Inc. New York, NY
McNamara, III, Francis J. Executive Vice President, State Street Research & Management Company Boston, MA
Director, Executive Secretary and General Counsel
Vice President Senior Vice President, Clerk State Street Research Investment Services, Inc. Boston, MA
and General Counsel and General Counsel
Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
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 State Street Research Portfolios, Inc. Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
C-15
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Price, Rosamunde M. Vice President State Street Research Portfolios, Inc. Boston, MA
Vice President
Ragsdale, E.K. Easton Senior Vice President State Street Research & Management Company Boston, MA
Senior Vice President
Romich, Douglas A. Vice President State Street Research & Management Company Boston, MA
Vice President Assistant Treasurer State Street Research Equity Trust Boston, MA
Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
Sanjana, Nicholas Vice President State Street Research Portfolios, Inc. Boston, MA
Senior Vice President
Shoemaker, Richard D. Senior Vice President State Street Research & Management Company Boston, MA
Senior Vice President
Verni, Ralph F. Chairman, President, Chief State Street Research & Management Company Boston, MA
Chairman, President Executive Officer and
and Chief Executive Director
Officer Chairman, President, Chief State Street Research Capital Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Executive Officer and Trustee
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 Trustee
Chairman, President, Chief State Street Research Tax-Exempt Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Portfolios, Inc. Boston, MA
Executive Officer and Director
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 and MetLife Securities, Inc. New York, NY
Director (until 1/97)
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director CML Group, Inc. Boston, MA
Director Colgate University Hamilton, NY
C-16
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Vose, Ian R. Vice President State Street Research Portfolios, Inc. Boston, MA
Senior Vice President
and Chief Investment
Officer
Wing, Darman A. Vice President, Assistant State Street Research & Management Company Boston, MA
Vice President Secretary and Assistant
General Counsel
Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Asst. Clerk
Assistant Secretary State Street Research Capital Trust Boston, MA
Assistant Secretary State Street Research Exchange Trust Boston, MA
Assistant Secretary State Street Research Growth Trust Boston, MA
Assistant Secretary State Street Research Master Investment Trust Boston, MA
Assistant Secretary State Street Research Securities Trust Boston, MA
Assistant Secretary State Street Research Equity Trust Boston, MA
Assistant Secretary State Street Research Financial Trust Boston, MA
Assistant Secretary State Street Research Income Trust Boston, MA
Assistant Secretary State Street Research Money Market Trust Boston, MA
Assistant Secretary State Street Research Portfolios, Inc. Boston, MA
Assistant Secretary State Street Research Tax-Exempt Trust Boston, MA
Assistant Secretary SSRM Holdings, Inc. Boston, MA
</TABLE>
C-17
<PAGE>
Item 29. Principal Underwriters
(a) State Street Research Investment Services, Inc., Registrant's
principal underwriter, also acts as principal underwriter for 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 Master Investment Trust, State Street Research Equity Trust,
State Street Research Securities Trust and State Street Research
Growth Trust.
(b) Directors and Officers of State Street Research Investment Services,
Inc. are as follows:
<TABLE>
<CAPTION>
(1) (2) (3)
Name And Principal Positions and Positions and
Business Address Offices with Offices with
Underwriter Registrant
<S> <C> <C>
Ralph F. Verni Chairman of the Board Chairman of the Board,
One Financial Center and Director President, Chief Executive
Boston, MA 02111 Officer and Director
Peter C. Bennett Director Vice President
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice President, Treasurer
One Financial Center Treasurer, Chief Financial
Boston, MA 02111 Officer and Director
Thomas A. Shively Director None
One Financial Center
Boston, MA 02111
C. Troy Shaver, Jr. President and Chief None
One Financial Center Executive Officer
Boston, MA 02111
George B. Trotta Executive Vice President None
One Madison Avenue
New York, NY 10010
Dennis C. Barghaan Senior Vice President None
One Financial Center
Boston, MA 02111
C-18
<PAGE>
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
Paul V. Daly Senior Vice President None
One Financial Center
Boston, MA 02111
Susan M.W. DiFazio Senior Vice President None
One Financial Center
Boston, MA 02111
Gordon Evans Senior Vice President None
One Financial Center
Boston, MA 02111
Robert Haeusler Senior Vice President None
One Financial Center
Boston, MA 02111
Francis J. McNamara, III Senior Vice President, Secretary
One Financial Center General Counsel and
Boston, MA 02111 Clerk
Gregory R. McMahan Senior Vice President None
One Financial Center
Boston, MA 02111
Joan D. Miller Senior Vice President None
One Financial Center
Boston, MA 02111
Darman A. Wing Senior Vice President, Assistant Secretary
One Financial Center Assistant General Counsel
Boston, MA 02111 and Assistant Clerk
Linda Grasso Vice President None
One Financial Center
Boston, MA 02111
Robert M. Gunville Vice President None
One Financial Center
Boston, MA 02111
C-19
<PAGE>
Frederick H. Jamieson Vice President and None
One Financial Center Assistant Treasurer
Boston, MA 02111
Susan V. Martin Vice President None
One Financial Center
Boston, MA 02111
Amy L. Simmons Vice President Assistant Secretary
One Financial Center
Boston, MA 02111
Kevin Wilkins Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
(c) Not Applicable.
Item 30. Location Of Accounts And Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 31. Management Services
Inapplicable
Item 32. Undertakings
(a) Inapplicable
(b) Inapplicable
(c) Inapplicable
(d) The Registrant hereby undertakes to call a meeting of shareholders for
the purpose of voting upon the question of removal of a director if
requested to do so by the holders of at least 10% of Portfolios'
outstanding shares.
(e) The Registrant hereby undertakes to furnish a copy of the Registrant's
latest annual report to shareholders without charge upon the request
of each person to whom a prospectus is delivered.
C-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 8 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 Commonwealth of Massachusetts, on the 21st day of August, 1997.
State Street Research Portfolios, Inc.
By: *
-------------------------------------
Ralph F. Verni
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed on the above date by the following persons in the
capacities indicated.
Signature Title
Director, Chairman of the Board and
* Chief Executive Officer
- --------------------------------------- (Principal Executive Officer)
Ralph F. Verni
* Treasurer (Principal Financial
- --------------------------------------- and Accounting Officer)
Gerard P. Maus
* Director
- ---------------------------------------
Steve A. Garban
* Director
- ---------------------------------------
Malcolm T. Hopkins
* Director
- ---------------------------------------
Edward M. Lamont
* Director
- ---------------------------------------
Robert A. Lawrence
* Director
- ---------------------------------------
Dean O. Morton
C-21
<PAGE>
* Director
- ---------------------------------------
Toby Rosenblatt
* Director
- ---------------------------------------
Michael S. Scott Morton
*By: /s/ Francis J. McNamara, III
----------------------------
Francis J. McNamara, III
Attorney-in-Fact under Powers
of Attorney dated August 21, 1997
filed herewith.
C-22
<PAGE>
1933 Act Registration No. 33-42129
1940 Act File No. 811-6357
- --------------------------------------------------------------------------------
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. 8 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ ]
Amendment No. 10 [X]
STATE STREET RESEARCH PORTFOLIOS, INC.
(Exact Name of Registrant as Specified in Declaration of Trust)
EXHIBITS
<PAGE>
Index to Exhibits
(5)(c) Transfer and Assumption of Responsibilities and Rights Relating
to the Investment Management Agreements between State Street
Research Investment Services, Inc. and State Street Research &
Management Company
(11) Consent of Deloitte & Touch LLP
(14)(d) State Street Research SIMPLE IRA: Application, Terms & Conditions
and Disclosure Statement
(17)(a) Powers of Attorney
(17)(b) Board Resolution Respecting Powers of Attorney
(19) Application Forms
(27) Financial Data Schedules
TRANSFER AND ASSUMPTION OF RESPONSIBILITIES AND RIGHTS
In accordance with the vote unanimously adopted by all of the Directors of
State Street Research Portfolios, Inc. ("Portfolios") who were present at a
meeting of such Directors duly called and held on February 4, 1997, being a
majority of such Directors, including a majority of Directors who are not
parties to the attached Investment Management Agreements dated January 17, 1992
(the "Management Agreements") by and between State Street Research Investment
Services, Inc. (formerly MetLife - State Street Investment Services, Inc.) and
Portfolios (formerly MetLife Portfolios, Inc.) on behalf of its series, State
Street Research International Fixed Income Fund (formerly MetLife International
Fixed Income Fund) and State Street Research International Equity Fund (formerly
MetLife International Equity Fund), or "interested persons" (as defined in the
Investment Company Act of 1940) of any such party, effective as of the
commencement of business on March 1, 1997, all of the duties and
responsibilities of State Street Research Investment Services, Inc. to provide
services and facilities to Portfolios as set forth in the Management Agreements
and all of the rights of State Street Research Investment Services, Inc.,
including but not limited to the right to be compensated by Portfolios as
described in the Management Agreements, are hereby transferred from State Street
Research Investment Services, Inc., a Massachusetts corporation, to State Street
Research & Management Company, a Delaware corporation, and State Street Research
& Management Company hereby assumes such responsibilities and rights, all of the
foregoing transactions being effected in reliance on Rule 2a-6 under the
Investment Company Act of 1940, as amended.
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By: /s/ C. Troy Shaver, Jr.
-----------------------
C. Troy Shaver, Jr.
President and Chief
Executive Officer
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Francis J. McNamara, III
----------------------------
Francis J. McNamara, III
Secretary
Date: March 1, 1997
INDEPENDENT AUDITORS' CONSENT
State Street Research Portfolios, Inc.
We consent to the use in Post-Effective Amendment No. 8 to Registration
Statement No. 33-42129 of State Street Research Portfolios, Inc. ("Portfolios")
of our reports dated December 16, 1996 and June 6, 1997 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement and to the reference to us under the caption "Independent Accountants"
in such Statement of Additional Information and to the reference to us under the
caption "Financial Highlights" appearing in the Prospectus, which is also part
of such Registration Statement.
Deloitte & Touche LLP
Boston, Massachusetts
August 21, 1997
EXHIBIT (14)(c)
[logo] STATE STREET RESEARCH IRA
SIMPLE IRA Application
Upon completion, send this application to the address listed on the back.
(1) What type of SIMPLE IRA are you opening?
[ ] Check if this IRA will receive contributions under your employer's SIMPLE
IRA plan, and complete the following employer information:
- -------------------------------------------------(---)-------------------------
Name of employer Telephone
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
[ ] Check if this IRA will receive a transfer or a rollover from another
SIMPLE IRA to which contributions were made by your current or former
employer under a SIMPLE IRA plan, and complete the following:
- Amount to be transferred: $___________________________
- Date of first contribution to your other SIMPLE IRA under
the employer's SIMPLE IRA plan:__________________________________.
Your employer must complete the following to verify the date.
Verification: On behalf of the employer maintaining the SIMPLE IRA plan, I
verify that the date stated above (the date of the first contribution to the
Depositor's prior SIMPLE IRA under the employer's SIMPLE IRA plan) is correct.
I acknowledge that verifying an incorrect date may result in additional
income taxes or penalties.
- -------------------------------------------------------------------------------
Name of Employer: _____________________________________________________________
By: ___________________________________________________________________________
Authorized Officer
Note: For a transfer directly from the current SIMPLE IRA custodian or
trustee, complete the Transfer of Assets/Rollover Form. For a rollover (which
is a distribution from the current SIMPLE IRA custodian or trustee to you,
followed by a contribution on that amount by you to this SIMPLE IRA),
complete the Transfer of Assets/Rollover Form and attach the check for the
amount rolled over, payable to "State Street Bank and Trust Company,
Trustee." Consult your tax advisor on IRS requirements for a valid rollover.
(2) What is your name and address?
(Please print.)
/ /
- -------------------------------------------------------------------------------
Your name Date of birth
- -------------------------------------------------------------------------------
Street address
- -------------------------------------------------------------------------------
City State ZIP
- -------------------------------------------------------------------------------
Daytime telephone number Evening telephone number
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number
(3) What fund(s) have you selected?
- -------------------------------------------------------------------------------
Fund name
[ ] A [ ] B [ ] D
- -------------------------------------------------------------------------------
Percentage Share class**
- -------------------------------------------------------------------------------
Fund name
[ ] A [ ] B [ ] D
- -------------------------------------------------------------------------------
Percentage Share class**
- -------------------------------------------------------------------------------
Fund name
[ ] A [ ] B [ ] D
- -------------------------------------------------------------------------------
Percentage Share class**
[ ] $ _______________________
Total proceeds enclosed
**Investments in Money Market Fund will purchase class E shares.
If a check is enclosed, make it payable to "State Street Bank and Trust Company,
Trustee." Please add $10 for the first year's fiduciary fee; otherwise, the fee
will be deducted from your account at year end.
<PAGE>
(4) Who is your beneficiary?
Primary beneficiary
(Only one required per account. If you have more than
two, include them on a separate sheet. If two or more
are named, they will receive equal amounts unless you
specify otherwise; also if one of the named primary
beneficiaries predeceases you, that person's share will
be distributed pro-rata to the other primary beneficiaries
who survive you, unless you specify otherwise.)
- -------------------------------------------------------------------------------
Name
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City State ZIP
/ /
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
- -------------------------------------------------------------------------------
Name
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City State ZIP
/ /
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
Second beneficiary
(If the person(s) named as primary beneficiary fails to
survive you.)
- -------------------------------------------------------------------------------
Name
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City State ZIP
/ /
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
(5) We need your signature.
I hereby establish a State Street Research SIMPLE IRA, appoint
State Street Bank and Trust Company as Trustee, direct that contributions to
my SIMPLE IRA be invested as specified by this application, and designate the
individual(s) named above, or in any signed attachment, as my
beneficiary(ies). I have received a current prospectus for the Fund(s)
indicated above and the Terms and Conditions of the State Street Research
SIMPLE IRA (which are incorporated herein by reference) and have read its
Disclosure Statement.
Under penalties of perjury, I certify that: (1) the number shown on this form
is my correct taxpayer identification number (or I am waiting for a number to
be issued to me), and (2) I am not subject to backup withholding because (a)
I am exempt from backup withholding, or (b) I have not been notified by the
Internal Revenue Service that I am subject to backup withholding as a result
of a failure to report all interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withholding. (You must cross out
item (2) above if you have been notified by the IRS that you are currently
subject to backup withholding because of under-reporting interest or
dividends on your tax return.)
I confirm that all the information, instructions and agreements set forth
hereon shall apply to the account, and if applicable, shall also apply to any
other fund account with shares acquired upon exchange of share of the Fund.
[graphic of pencil] -----------------------------------------------------------
Signature Date
Signature Guarantee
(fill out if your Dealer does not complete section)
- -------------------------------------------------------------------------------
Name of bank or eligible guarantor
- -------------------------------------------------------------------------------
Authorized signature of bank or eligible guarantor
- -------------------------------------------------------------------------------
Street address
- -------------------------------------------------------------------------------
City State ZIP
<PAGE>
(6) Dealer information
- -------------------------------------------------------------------------------
Dealer name
- -------------------------------------------------------------------------------
Street address of home office
- -------------------------------------------------------------------------------
City State ZIP
- -------------------------------------------------------------------------------
Authorized signature of dealer
- -------------------------------------------------------------------------------
Agency/branch office number
- -------------------------------------------------------------------------------
Street address of agency/branch office servicing account
- -------------------------------------------------------------------------------
City State ZIP
- -------------------------------------------------------------------------------
Registered representative's name and number
If this application is for an account introduced through the above-named
Dealer, the Dealer further agrees to all applicable provisions in this
application and in the Prospectus. The Dealer warrants that this application
is completed in accordance with the shareholder's instructions and agrees to
indemnify the Transfer Agent, the Fund, any other eligible Funds, State
Street Research Shareholder Services, the Investment Manager or the
Distributor for any loss or liability from acting or relying upon such
instructions and information. The terms and conditions of the currently
effective Selected Dealer Agreement or sales agreement are included by
reference in this section. The dealer represents that it may lawfully sell
shares of the designated Fund(s) in the state designated as the Applicant's
address of record, and that it has a currently effective selected dealer
agreement with a Distributor authorizing the Dealer to sell shares of the
Fund and the Eligible Funds.
Telephone Exchange Privilege
Telephone Exchange By Shareholder OR DEALER
State Street Research Shareholder Services may effect exchanges for my account
according to telephone instructions FROM ME OR MY DEALER as set forth in the
Prospectus, and may register the shares of the fund to be acquired exactly the
same as my existing account. Authorizing an exchange constitutes an
acknowledgement that I have received the current prospectus of the Fund to be
acquired.
I will not hold the Transfer Agent, the Fund, any other Eligible Funds, State
Street Research Shareholder Services, the Investment Manager or the Distributor
liable for any loss, injury, damage or expense as a result of acting upon any
telephone instructions or responsible for the authenticity of any telephone
instructions. I understand that all telephone calls are tape recorded. My
liability shall be subject to the use of reasonable procedures to confirm that
instructions communicated by telephone are genuine.
The account will automatically have this privilege unless you expressly decline
it by providing your initials below.
I do not want the Telephone Exchange Privilege.
[graphic of pencil] (initial here.)__________________
State Street Bank and Trust Company, Trustee:
You are hereby authorized and appointed on behalf of the above-signed dealer to
execute the purchase transactions in accordance with the terms and conditions of
this Application, and to confirm each purchase.
Acceptance by the Trustee:
This plan shall be deemed to have been accepted by the Trustee, State Street
Bank and Trust Company, after all necessary forms, properly completed, are
received by State Street Research Shareholder Services, and delivered by
Shareholder Services to the agent for the Trustee.
Once completed, send application and check (if you are making a contribution at
this time) made payable to "State Street Bank and Trust Company, Trustee" to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
<PAGE>
Control Number: 3720-970130(0298)SSR-LD IR-567E-0197
<PAGE>
[logo] STATE STREET RESEARCH IRA
SIMPLE IRA Terms & Conditions
These Terms and Conditions are in the form promulgated by the Internal Revenue
Service in Form 5305-S for use in establishing a simple individual retirement
trust account.
ARTICLE I.
The Trustee will accept cash contributions made on behalf of the Participant by
the Participant's employer under the terms of a SIMPLE plan described in section
408(p). In addition, the Trustee will accept transfers or rollovers from other
SIMPLE IRAs of the Participant. No other contributions will be accepted by the
Trustee.
ARTICLE II.
The Participant's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III.
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state.
ARTICLE IV.
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Participant's interest in the custodial account shall be
made in accordance with the following requirements and shall otherwise comply
with section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are herein incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Participant under paragraph 3, or to the surviving spouse under paragraph 4,
other than in the case of life annuity, life expectancies shall be recalculated
annually. Such election shall be irrevocable as to the Participant and the
surviving spouse and shall apply to all subsequent years. The life expectancy of
a nonspouse beneficiary may not be recalculated.
3. The Participant's entire interest in the custodial account must be, or begin
to be, distributed by the Participant's required beginning date (April 1
following the calendar year end in which the Participant reaches age 70-1/2).
By that date, the Participant may elect, in a manner acceptable to the Trustee,
to have the balance in the custodial account distributed in:
(a) A single sum payment
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Participant.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Participant and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Participant's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor expectancy of
the Participant and his or her designated beneficiary.
4. If the Participant dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Participant dies on or after distribution of his or her interest
has begun, distribution must continue to be made in accordance with
paragraph 3.
(b) If the Participant dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Participant or, if the Participant has not so elected, at the election of
the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Participant's death, or
(ii) Be distributed in equal or substantially equal payments over the
life or life expectancy of the designated beneficiary or beneficiaries
starting by December 31 of the year following the year of the
Participant's death. If, however, the beneficiary is the Participant's
surviving spouse, then this distribution is not required to begin
before December 31 of the year in which the Participant would have
turned age 70-1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Participant's required beginning date, even though payments may actually
have been made before that date.
(d) If the Participant dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in
the account.
5. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Participant's entire interest in the custodial account as of the
close of business on December 31 of the preceding year by the life expectancy of
the Participant (or the joint life and last survivor expectancy of the
Participant and the Participant's designed beneficiary, or the life expectancy
of the designated beneficiary, whichever applies). In the case of distributions
under paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Participant and designated
beneficiary as of their birthdays in the year the Participant reaches age
70-1/2. In the case of a distribution in accordance with paragraph 4(b)(ii),
determine life expectancy using the attained age of the designated beneficiary
as of the beneficiary's birthday in the year distributions are required to
commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C. B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
ARTICLE V.
1. The Participant agrees to provide the Trustee with information necessary for
the Trustee to prepare any reports required under section 408(i) and Regulations
sections 1.408-5 and 1.408-6.
2. The Trustee agrees to submit reports to the Internal Revenue Service and the
Participant as prescribed by the Internal Revenue Service.
3. The Trustee also agrees to provide the Participant's employer the summary
description described in section 408(1)(2) unless this SIMPLE IRA is a transfer
SIMPLE IRA.
-1-
<PAGE>
ARTICLE VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and 408(p) and
related regulations will be invalid.
ARTICLE VII.
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear below. article VIII.
1. The amount of each contribution credited to the Participant's individual
retirement trust account shall (except to the extent applied to pay fees or
other charges under section 7 below) be applied to purchase full and fractional
shares of beneficial interest of one or more classes in one or more mutual funds
(hereinafter collectively the "Funds" or individually a "Fund"), as designated
from time to time by State Street Research Investment Services, Inc. ("SSRIS")
as available for investment under this agreement (provided always that such
shares may legally be offered for sale in the state of the Participant's
residence), in accordance with instructions of the Participant given under
Section 3 below. The Trustee (or any party appointed to act as agent for the
Trustee under section 16 of this Article VIII-the "Agent"; whenever an Agent is
acting for the Trustee, references to the Trustee will be deemed to include the
Agent) may retain the Participant's initial deposit for a period of up to ten
days after receipt thereof without liability for any loss of interest, earnings
or appreciation, and may invest such initial deposit at the end of such period
if the Participant has not revoked his account. If and to the extent permitted
by IRS regulations or rulings pertaining to SIMPLE IRA accounts under Code
Section 408(p), the Participant may revoke the account by following such
procedures as may be specified in applicable regulations or rulings (if any),
with such time limits as are provided in such regulations or rulings. Upon
revocation, the amount of the Participant's initial deposit will be returned to
him as provided in such regulations or rulings.
2. All dividends and capital gain distributions received on the shares of a
particular class of any Fund held in the Participant's account shall be retained
in the account and (unless received in additional shares of such class) shall be
reinvested in full and fractional shares of such class of such Fund.
3. For each contribution, the Participant shall designate the portion that will
be invested in each Fund. A contribution may be invested entirely in one Fund,
or may be invested in two or more Funds. However, investment designations will
be subject to any minimum initial or additional investment rules applicable to a
Fund. In addition, the Participant shall designate which class of shares of each
such Fund the Participant's contribution shall be invested in.
The Participant shall make such designation on the State Street Research
Simple Individual Retirement Account Application or other written notice
acceptable to the Trustee.
4. Subject to the minimum initial or additional investment, minimum balance
and other exchange rules applicable to a Fund, the Participant may at any time
direct the Trustee to exchange all or a specified portion of the shares of a
Fund in the Participant's account for shares and fractional shares of one or
more other Funds.
The Participant shall give such directions by written, telephonic,
electronic or other notice acceptable to the Trustee and the Trustee will
process such directions as soon as practicable after receipt thereof.
If any investment designation or direction relating to investments under
these Terms and Conditions is, in the opinion of the Trustee (or SSRIS or the
Agent), ambiguous or incomplete, the Trustee may refrain from carrying out such
designation or other investment direction until the designation or other
investment direction has been clarified or completed to the Trustee's
satisfaction, and neither the Trustee, SSRIS, the Agent nor any Fund (nor any of
their affiliates) will have any liability for loss of interest, earnings or
investment gains or appreciation during such period.
5. The Participant by written notice to the Trustee, may designate one or more
beneficiaries to receive the balance (if any) remaining in the Participant's
account after his death and the time and manner of payment of such balance
(subject to the applicable requirements of the preceding Articles of these Terms
and Conditions). A designation may be on a form provided by the Trustee or on a
written instrument acceptable to the Trustee executed by the Participant and
filed with the Trustee. The Participant may revoke or change such designation in
like manner, at any time and from time to time. No designation will be effective
until received by the Trustee. Any designation filed with the Trustee (whether
or not such designation fully disposes of the Participant's account) will revoke
all other designations previously filed with the Trustee. If no such designation
is in effect upon the Participant's death, or if such designation is in effect
but does not fully dispose of the Participant's account, the balance in the
account shall be paid in a single sum, as soon as is practicable, to the
Participant's estate.
Subject to the applicable requirements of the preceding Articles of these
Terms and Conditions, the Participant may designate a form of payment to the
beneficiary by filing an instrument so specifying with the Trustee. In the
absence of such written instructions from the Participant, the Trustee will pay
the beneficiary in such form as the beneficiary selects.
Except as provided in the first sentence of the preceding paragraph,
following the Participant's death, each beneficiary (or the representative of
the Participant's estate) will exercise the powers and responsibilities of the
Participant hereunder with respect to the portion of the Participant's account
passing to such beneficiary (or estate).
6. The Trustee shall forward to the Participant any notices, prospectuses,
reports to shareholders, financial statements, proxies and proxy soliciting
materials, relating to the Fund shares in the Participant's account. The Trustee
shall vote any such shares held in the account in accordance with the timely
written instructions of the Participant if received. If no timely written
instructions are received from the Participant, the Trustee may vote such shares
in such manner as it deems appropriate (including "present" or in accordance
with the recommendations of SSRIS).
7. The Trustee's fee for performing its duties hereunder shall be such
reasonable amounts as shall be agreed to from time to time by the Trustee and
SSRIS. Such fee, any taxes of any kind and any liabilities with respect to the
account, and any and all expenses reasonably incurred by the Trustee shall, if
not paid by the Participant, be paid from the Participant's account.
8. The Trustee shall make distributions from the account at such times and in
such manner as the Participant directs in writing, subject (except where
otherwise specifically provided in this Article VIII) to the applicable
requirements of the preceding Articles of these Terms and Conditions.
The recalculation of life expectancy of the Participant and/or the
Participant's spouse in connection with distributions from the account before
the Participant's death will be made only at the written election of the
Participant. The recalculation of life expectancy of the surviving spouse in
connection with distributions from the account after the Participant's death
will be made only at the written election of the surviving spouse. By
establishing the account, the Participant (for himself and his surviving spouse,
if any) determines not to recalculate life expectancies unless the Participant
(or surviving spouse) specifically elects the recalculation of life expectancies
approach in accordance with the following sentence. Any such election may be
made in such form as the Participant (or surviving spouse) provides for
(including instructions to such effect to the Trustee or the calculation of
minimum distribution amounts in accordance with a method that provides for
recalculation of life expectancy and instructions to the Trustee to make
distributions in accordance with such method).
9. It shall be the sole responsibility of the Participant (or the Participant's
employer) to determine the time and amount of salary
-2-
<PAGE>
reduction or other contributions to the account and the time, amount and manner
of payment of distributions from the account (and to instruct the Trustee or the
Agent accordingly), and the federal and state tax treatment of any contributions
to or distributions from the account. SSRIS, the Agent, the Trustee and the
Funds shall be fully protected in following the direction of the Participant
with respect to the time, amount and manner of payment of such distributions, or
in not acting in the absence of such direction. If the Participant (or
beneficiary) does not direct the Trustee to make distributions from the account
by the time that such distributions are required to commence in accordance with
the preceding Articles of these Terms and Conditions, the Trustee (and SSRIS and
the Agent) will assume that the Participant (or beneficiary) is meeting the
minimum distribution requirements from another individual retirement arrangement
maintained by the Participant (or beneficiary) and will be fully protected in so
doing. SSRIS, the Agent, the Trustee and the Funds shall not be liable for any
taxes, penalties, liabilities or other costs to the Participant or any other
person resulting from contributions to or distributions from the Participant's
account.
10. SSRIS, the Agent, the Trustee and the Funds shall not be responsible for any
loss or diminution in the value of the Participant's account arising out of the
Participant's establishment of a State Street Research SIMPLE Individual
Retirement Account or arising out of any investment instructions of the
Participant, whether relating to the portion of contributions invested in one or
more of the Funds, the selection of a particular class of shares of a particular
Fund, or the exchange of shares of one Fund for shares of one or more other
Funds. SSRIS, the Agent, the Trustee and the Funds shall not render any
investment advice to the Participant (or beneficiary) and will have no duty of
inquiry concerning the Participant's (or beneficiary's) investment directions
(subject to the right of the Trustee, SSRIS or the Agent to obtain clarification
or completion of any investment directions under section 4 above). The
Participant (or beneficiary) will have exclusive investment control over the
account.
11. Whenever the Participant (or beneficiary) is responsible for any direction,
notice, representation or instruction under these Terms and Conditions, SSRIS,
the Agent, the Trustee and the Funds shall be entitled to assume the propriety
and truth of any statement made by the Participant (or beneficiary), and shall
be under no duty of further inquiry with respect thereto, and shall have no
liability with respect to any action taken in reliance upon such statement.
However, the Trustee (or Agent or SSRIS) shall be entitled to receive such
information or documentation (including signature guarantees, waivers or
indemnifications) as it may reasonably request before carrying out any
direction, notice or instruction from the Participant (or beneficiary).
Participant agrees to provide information to the Trustee at such times as
may be necessary to enable the Trustee to administer the account hereunder.
Except to the extent provided by applicable law, the account will not be
subject to assignment, transfer, pledge or hypothecation, nor shall it be
liable for the debts of the Participant (or beneficiary) or subject to
seizure, attachment, execution or other legal process. However, the Trustee
(or Agent or SSRIS) may carry out the requirements of any apparently valid
order of a governmental authority (including a court) relating to the
Participant's account and will have no liability for so doing.
12. These Term and Conditions shall terminate upon the complete distribution of
the account to the Participant or his beneficiaries or to a successor individual
retirement account. The Trustee shall have the right to terminate this account
upon 60 days notice to the Participant, or to his beneficiaries if he is then
dead. In such event, upon expiration of such 60 day period, the Trustee shall
transfer the amount in the account into such successor individual retirement
accounts as the Participant (or his beneficiaries) shall designate, or, in the
absence of such designation, to the Participant, or if he is then dead, to the
beneficiaries or the Participant's estate as their interests shall appear.
13. The Trustee may resign at any time upon 60 days' notice in writing to SSRIS
and may be removed by SSRIS at any time upon 60 days' notice in writing to the
Trustee. Upon such resignation or removal, SSRIS shall appoint a successor
trustee which satisfies the requirements of Section 408 of the Internal Revenue
code.
14. Upon receipt by the Trustee of written notice of appointment of a successor
trustee or custodian and of written acceptance of such appointment by the
successor, the Trustee shall transfer to such successor the assets of the
account and copies of all records pertaining thereto. The Trustee may reserve
such sum of money as it deems advisable for payment of its fees, taxes, costs,
expenses or liabilities with respect to the account, with the balance (if any)
of such reserve remaining after the payment of such items to be paid over to the
successor. The successor shall hold the assets paid over to it under terms that
satisfy the requirements of Section 408 of the Internal Revenue Code.
15. If, within 60 days after the Trustee's resignation or removal, SSRIS has not
appointed a successor trustee which has accepted such appointment, the Trustee
shall appoint such a successor unless it elects to terminate the Agreement under
section 12 of this Article VIII.
16. The Trustee may employ or designate one or more parties to serve as agents
or contractors to perform any or all of its duties hereunder.
17. Any notice sent to the Participant or to his beneficiaries or estate, if he
is then dead, shall be effective if sent by first class mail to him or them at
his or their last addresses of record as provided to the Trustee.
18. Any distributions from the account may be mailed, first-class postage
prepaid to the last known address of the person who is to receive such
distribution, as shown on the Trustee's records, and such distribution shall, to
the extent of the amount thereof, completely discharge the Trustee's liability
of such payment.
19. Any purchase or redemption of shares of any class of a Fund for or from the
Participant's account will be affected at the public offering price or net asset
value of such Fund (as described in the then effective prospectus for such Fund)
next established after the Fund's transfer agent receives the contribution or
other directions.
Any purchase, exchange, transfer or redemption of shares of any class of
a Fund for or from the Participant's account will be subject to any sales
charge, distribution fee or redemption charge, or other fee or charge
applicable to shares of such class, as described in the then effective
prospectus for such Fund. In addition, shares of any class of a Fund will be
subject to any service fee, charge or other annual maintenance or servicing
fees or charges applicable to shares of such class as described in the then
effective prospectus for such Fund (unless the imposition of such fee or
charge is prohibited under applicable regulations or rulings).
20. SSRIS may amend these Terms and Conditions from time to time, and shall give
written notice of any material amendment to the Participant within a reasonable
time after the amendment is adopted or becomes effective, whichever is later.
The Participant hereby expressly delegates authority to SSRIS to amend these
Terms and Conditions and consents to any such amendments.
21. The Terms and Conditions shall be construed, administered and enforced
according to the laws of Massachusetts. The Participant agrees that any legal
proceedings relating to the Participant's account must be brought in a court
(including a federal district court) located in Massachusetts.
22. The term "Trustee" refers to the person serving as the Trustee of the SIMPLE
Individual Retirement Account established hereby, and the term "Participant"
refers to the person for whose benefit such Account was established.
23. Articles I through VII of these Terms and Conditions are in the form
promulgated by the Internal Revenue Service. It is anticipated that if and when
the Internal Revenue Service promulgates changes to Form 5305-S, SSRIS will
adopt such changes as an amendment to these Terms and Conditions. Pending the
adoption of any amendment necessary or desirable to conform these Terms and
Conditions to the requirements of any amendments to the Internal
-3-
<PAGE>
Revenue Code or regulations or rulings thereunder, the Trustee (and SSRIS and
the Agent) may operate the Participant's account in accordance with such
requirements to the extent deemed necessary to preserve the tax benefits of the
account.
24. The Participant acknowledges that he or she has received and read the
current prospectus for each Fund in which his or her account is invested and the
State Street Research SIMPLE Individual Retirement Account Disclosure Statement.
(References are to the Internal Revenue Code.)
(a) SSRIS, the Agent, the Trustee and the Funds will have no responsibility
for compliance with the requirements of Code Section 408(p) and any other
applicable requirements (including, if applicable, whether any transferee
individual retirement account or annuity which the participant designates
to receive a transfer from his account hereunder meets the requirements to
be a SIMPLE IRA or whether any penalty taxes may be payable in connection
therewith), which matters shall be the sole responsibility of the
Depositor.
(b) This Agreement is intended to establish a valid SIMPLE Individual
Retirement Account operating in conjunction with a SIMPLE IRA plan operated
by the Participant's employer, and to meet all applicable requirements of
Code Section 408(p) (and other applicable legal requirements for SIMPLE
IRAs). This Agreement will be interpreted and the custodial account
hereunder administered in a manner that carries out such intent. In
addition, if future regulations or rulings provide guidance concerning the
requirements for a valid SIMPLE IRA, this Agreement will be interpreted and
the custodial account hereunder will be administered in a manner that
complies with such regulations or rulings pending the adoption of any
required amendment to this Agreement.
Control Number: 3735-970215(0398)SSR-LD IR-593E-0297
-4-
<PAGE>
[logo] STATE STREET RESEARCH IRA
SIMPLE IRA Disclosure Statement
The following information is provided to you in accordance with the requirements
of the Internal Revenue Code (the "Code") and Treasury regulations and should be
reviewed in conjunction with the State Street Research SIMPLE IRA Terms and
Conditions (the "Terms and Conditions"), SIMPLE IRA Application (the
"Application") and the current prospectus for each fund in which your account is
invested. The provisions of the Terms and Conditions, Application and prospectus
govern in any instance where the Disclosure Statement is incomplete or appears
to conflict. This Disclosure Statement reflects the provisions of the Internal
Revenue Code in effect on January 1, 1997. This Disclosure Statement provides a
nontechnical summary of the law. Please consult with your tax advisor for more
complete information and refer to IRS Publication 590.
The information in this Disclosure Statement relates to SIMPLE Individual
Retirement Accounts. SIMPLE IRAs operate as part of an employer SIMPLE IRA plan
maintained by your employer. Other IRAs, which are not part of an employer
SIMPLE IRA plan, are available and may be established using a different
Application. This Disclosure Statement does not describe such regular IRAs. For
more information on regular IRAs, contact State Street Research at the address
below to request forms and descriptive information.
Right to Revoke
To the extent provided by IRS rules for SIMPLE IRAs, you have the right to
revoke your IRA after signing the Application if you act within the time limits
provided under the IRS rules. You may revoke your IRA by mail or by delivery of
written notice to:
State Street Research
P.O. Box 8408
Boston, MA02266
Your notice will be considered mailed on the date of postmark, or the date
of certification or registration if it is sent by certified or registered mail.
If you revoke your IRA, you are entitled to a return of the amount
contributed. If you have any questions concerning your right of revocation,
please call 800-562-0032 during regular business hours.
Statutory Requirements of an IRA
An IRA is a trust or custodial account established for the exclusive benefit of
you and your beneficiaries. Current law requires that your SIMPLE IRA agreement
be in writing and meet the following requirements:
1. Contributions to your SIMPLE IRA must be in cash, and, for any taxable year,
cannot exceed the limits described below, unless the contribution is a rollover
or transfer to the account.
2. The custodian or trustee must be a bank, savings and loan association, credit
union or other institution or person approved by the Internal Revenue Service to
administer your IRA in accordance with current tax laws.
3. None of your IRA assets may be commingled with the assets of other people
except in a common trust fund or common investment fund.
4. No portion of your IRA may be invested in life insurance contracts or in
collectibles (within the meaning of Internal Revenue Code Section 408[m]). A
collectible is defined as a work of art, rug or antique, metal or gem, stamp or
coin, alcoholic beverage, or any other tangible personal property specified by
the Internal Revenue Service. Specially minted U.S. gold and silver bullions and
certain state issued coins are permissible IRA investments.
5. You are required to take minimum distributions from your IRA at certain times
in accordance with Proposed Regulations Section 1.408-8.
A. During Your Life
You are required to begin making withdrawals from your SIMPLE IRA for the
year in which you reach age 70-1/2 and each year thereafter. Generally, you must
withdraw an amount at least equal to the minimum distribution by December 31 of
each year. However, you may delay your first required withdrawal until the April
1 following the year in which you reached age 70-1/2. (This means that if you
wait to make your withdrawal for the 70-1/2 year until April 1 of the following
year, your total withdrawal in that year must equal the minimum distributions
for two years - one representing the minimum distribution for your 70-1/2 year
and a second withdrawal by December 31 representing the minimum distribution for
that year.)
The minimum distribution for any taxable year is equal to the amount
obtained by dividing the account balance at the end of the prior year (less any
required distributions taken between January 1 and April 1 of the year following
the year you attain age 70-1/2) by the joint life expectancy of you and your
designated beneficiary. If you have not designated a beneficiary for your IRA by
your required beginning date, your single life expectancy will be used. Your
single or joint life expectancy is determined by using the IRS unisex life
expectancy tables. You can find these tables in
1
<PAGE>
Treasury Regulations Section 1.72-9. See Article IV in your Terms and Conditions
for a more detailed explanation of how to calculate the minimum distribution.
If you name someone other than your spouse as your beneficiary, and your
beneficiary is more than ten years younger than you, your required minimum
distribution must satisfy the minimum incidental benefit rule (MDIB) described
in IRS regulations. The MDIB rule generally requires that your required minimum
distributions be calculated as if your beneficiary were exactly ten years
younger than you.
The minimum distribution required must be calculated separately for each
IRA you own, but the amounts so determined may be totalled and taken from any
one of your IRAs (SIMPLE IRAs and regular IRAs).
B. After Your Death
If you die on or after your required beginning date, distributions must be made
to your beneficiary or beneficiaries as least as rapidly as under the method
being used to determine minimum distributions as of the date of your death. If
your beneficiary is your spouse, your beneficiary can elect to treat your
SIMPLE IRA as his or her own IRA.
If you die before your required beginning date, the entire amount remaining
in your account must, in general, be distributed by December 31 of the year
containing the fifth anniversary of your death. If your beneficiary is a natural
person, he or she may instead choose to receive the remaining balance in your
account over his or her lifetime or over a period not exceeding his or her life
expectancy. Such payments must begin no later than the end of the year following
the year of your death. If your designated beneficiary is your spouse,
distribution need not commence until December 31 of the year you would have
attained 70-1/2, if later than the December 31st of the year following the year
of your death. See Article IV in the Terms and Conditions for a more detailed
explanation of how to calculate the minimum distributions.
Employer Information Requirements
The rules for SIMPLE IRA plans require your employer to give you a "Summary
Description" of the features of the employer's SIMPLE IRA plan. This requirement
to provide a Summary Description may be satisfied by your employer's giving you
a copy of IRS Form 5304-SIMPLE or Form 5305-SIMPLE, as filled out by the
employer to establish its SIMPLE IRA plan. As completed by the employer, this
form will include information such as eligibility requirements applicable to the
employer's SIMPLE IRA plan. Alternatively, your employer may satisfy the Summary
Description requirement by giving the same information in a different format.
In addition, your employer must give you a notice stating how much the
employer will contribute for a year to the SIMPLE IRA plan accounts of
participating employees.
Eligibility
A. Employer Eligibility
Only small employers (those with 100 or fewer employees in the previous
calendar year who received $5,000 or more in compensation from the
employer) may maintain SIMPLE IRA plans. There are other rules as well.
Your employer will determine if it is eligible to have a SIMPLE IRA plan.
B. Employee Eligibility
All employees must participate in the employer's SIMPLE IRA plan unless
specifically excluded. The employer may decide to exclude any of the
following:
-employees who did not receive $5,000 or more in compensation from the
employer in at least two prior calendar years (not necessarily
consecutive);
-employees who are not reasonably expected to receive $5,000 or more in
compensation from the employer for the current calendar year;
-employees in a collective bargaining unit, provided that there was good
faith bargaining over the issue of retirement benefits;
-employees who are non-resident aliens and receive no U.S. source income
from the employer.
The summary description of the employer's SIMPLE IRA plan should indicate
whether any of these groups of employees will be excluded from the
employer's SIMPLE IRA plan.
Contributions
Only two kinds of contributions are permitted: (i) employee contributions
elected by the employee in a salary reduction agreement with the employer and
(ii) employer contributions, which may be either matching or nonmatching
contributions.
Employee Contribution Limits
An eligible employee may elect to have a percentage of compensation contributed
by the employer to the employee's SIMPLE IRA. The maximum contribution amount is
$6,000 for a calendar year. The $6,000 limit is indexed for future
cost-of-living increases.
You elect the desired percentage of compensation to contribute by entering
into a salary reduction agreement with your employer. Your employer will have a
form for you to use. Salary reductions may be made only from compensation you
earn after signing the salary reduction agreement.
2
<PAGE>
Your employer must transfer your salary reduction contributions to your SIMPLE
IRA as soon as the employer can reasonably do so. However, this may not be later
than the 30th day of the month following the month when you would have received
the compensation except for the salary reduction.
Employer Contribution Requirements
For each calendar year that it maintains a SIMPLE IRA plan, your employer must
make contributions on behalf of participants. The employer may elect either
matching or nonmatching contributions for a particular calendar year.
If the employer elects matching contributions, you must elect salary
reduction contributions from your own compensation in order to receive a
matching contribution to your account by your employer. Your employer will match
your contributions, dollar for dollar, up to a cap of from 1% to 3% of your
compensation for the calendar year. Your employer decides the cap (subject to
certain IRS requirements--these requirements restrict how frequently an employer
may choose a matching contributions cap of less than 3%).
If your employer decides to make nonmatching contributions, it must
contribute 2% of your compensation for the calendar year (provided that you
receive $5,000 or more in compensation from the employer for the calendar year).
For this purpose only, compensation is subject to an IRS limit. The limit for
1997 is $160,000 (this amount is indexed for future cost-of-living changes).
Each calendar year, your employer must give you a notice specifying whether
it will make nonmatching or matching contributions (and specifying the matching
cap) for that calendar year. Employer nonmatching or matching contributions must
be transferred to the SIMPLE IRA accounts of eligible employees no later than
the due date (including any extension) for the employer to file its federal
income tax return for the year.
Rollovers and Transfers
Amounts in your SIMPLE IRA may be rolled over or transferred to another IRA of
yours, or your SIMPLE IRA may receive rollover or transfer contributions from
another SIMPLE IRA, provided all the applicable rollover rules are followed. A
"transfer" is a payment from one IRA trustee or custodian directly to another
IRA trustee or custodian, without passing through the hands of the participant.
A "rollover" is a distribution to the participant from one IRA trustee or
custodian, followed by the participant's depositing the amount received (all or
part of it) with another trustee or custodian within the time allowed by law.
The rollover rules are generally summarized below. If you have any questions
regarding these rules, please contact your tax advisor.
1. Rollovers from or to other IRA
You may make a transfer or rollover contribution to your State Street
Research SIMPLE IRA of amounts held in another SIMPLE IRA. Transfers or
rollovers to this SIMPLE IRA may come only from another SIMPLE IRA, not from a
regular IRA. There are no limits on the amount of the transfer or rollover
contributions made from one SIMPLE IRA to another SIMPLE IRA. A proper IRA to
IRA rollover is completed if all or part of the distribution is rolled over
within 60 days after the distribution is received. No more than one distribution
per year from an IRA may be rolled over into another IRA. The
one-rollover-per-year rule does not apply to transfers from one IRA trustee or
custodian directly to another; these may be made more often than once per year.
You may also transfer amounts held in this State Street Research SIMPLE IRA
account to another IRA with a different trustee or custodian, or you may make a
withdrawal from this IRA and within 60 days make a rollover of the amount
withdrawn to another IRA. However, during the first two years after your
participation in your employer's SIMPLE IRA plan begins, you may transfer or
roll over only to another SIMPLE IRA (not a regular IRA).
2. Transfers to Change Investments
The rules governing transfers to change investments depend on whether your
employer has established its SIMPLE IRA plan with a "designated financial
institution" or not. Normally, SIMPLE IRA plans established by employers through
State Street Research will not have a designated financial institution. However,
if your employer has established its SIMPLE IRA plan with another sponsor, the
designated financial institution rules may apply. The summary description (or
other information) about your employer's SIMPLE IRA plan should indicate whether
the plan uses a designated financial institution or not.
Under the designated financial institution rules, all employee and employer
contributions are initially paid to that institution. However, you may elect to
have contributions to your SIMPLE IRA account with the designated financial
institution transferred to another SIMPLE IRA you have established, for example
with State Street Research, where the contributions will be invested in
accordance with your directions. If you make this election during the 60-day
period when you elect your salary reduction contributions to the plan for a
calendar year, then contributions for that calendar year are required to be
transferred without a transfer fee or other cost or penalty. While held by the
designated financial institution pending transfer to your other SIMPLE IRA,
contributions, the contributions for you may be invested in a specified
investment, such as a money market fund or a deposit account, and you will have
no choice of investments. Other transfer may be made to another SIMPLE IRA or
3
<PAGE>
regular IRA, but they will be subject to normal custodian or trustee fees and
any redemption or other charges imposed by the investment fund in which
contributions are invested. More information on this subject should appear in
the summary description of your employer's SIMPLE IRA plan.
Your employer may decide to operate its SIMPLE IRA plan without a
designated financial institution. Normally, SIMPLE IRA plans established through
State Street Research will not have a designated financial institution. Each
eligible employee is required to establish a SIMPLE IRA with a financial
institution of his or her choice. Contributions on your behalf will be sent to
your SIMPLE IRA account, wherever you have set it up, and invested according to
your instructions.
Taxation of Withdrawals
Withdrawals by you (or your beneficiary) from your SIMPLE IRA will be includable
as income in the taxable year in which received.
Federal Tax Penalties
A. Early Withdrawal Penalty
If you make a withdrawal from your SIMPLE IRA prior to attaining age 59 1\2, an
additional penalty tax will be imposed on the amount of the distribution, unless
an exception to the penalty is available. The penalty tax will be 25% of the
amount withdrawn for withdrawals you make during the first two years after the
date of the first contribution to your SIMPLE IRA account. For withdrawals after
the first two years, the penalty is 10% of the amount withdrawn. Certain
exceptions to the imposition of this penalty are available. The penalty will not
be imposed if the distribution was made on account of death, disability, or was
a qualifying rollover or a direct transfer. The additional penalty tax may not
apply if the distribution is made in a series of substantially equal periodic
payments, at least annually, based on your life expectancy or the joint life
expectancy of you and your beneficiary. Finally, an exception to the penalty tax
is available if the withdrawal does not exceed either (i) the amount of your
deductible medical expenses for the year of the withdrawal (consult your tax
advisor on the deductibility or medical expenses; generally, medical expenses
paid during a year are deductible to the extent they exceed 7 1\2% of your
adjusted gross income for the year), or (ii) the amount you paid for health
insurance covering yourself, your spouse or dependents (this health insurance
exception applies only if you are unemployed and receive federal or state
unemployment benefit payments for at least 12 weeks, and is available for
withdrawals during the year in which you receive such unemployment compensation
benefits or in the following year, but not to withdrawals made after you have
been reemployed for 60 days).
B. Excess Accumulation Penalty
If you do not receive your required minimum distribution for the year you attain
age 70-1\2 and by the end of each subsequent year, you will be subject to a 50%
excise tax on the amount of the required minimum distribution which should have
been taken but was not. If the distribution you actually receive falls short of
the required minimum distribution, the 50% excise tax will be imposed on the
amount by which the distribution falls short. The IRS has authority to waive or
reduce the 50% penalty tax upon proof that the failure to receive the required
minimum distribution was due to reasonable cause and that reasonable steps are
being taken to remedy the failure.
C. Excess Distribution Penalty
There is a 15% excise tax assessed against annual distributions from tax-favored
retirement plans, including IRAs (regular and SIMPLE IRAs), which exceed
$160,000 (for 1997; this amount is indexed for future cost-of-living increases).
To determine whether you have distributions in excess of the limit, you must
aggregate the amounts of all distributions received by you during the calendar
year, including IRAs. If you had account balances or accrued benefits equal to
at least $562,500 as of August 1, 1986, you may have a portion of the excess
distributions exempted from the 15% additional tax if you made a timely
grandfather election on your tax return. If the penalty tax on both excess
distributions and premature distributions apply to the same distribution, the
penalty tax on excess distributions is reduced by the penalty tax on the
premature distributions. Under a recent amendment to the tax law, the 15% excise
tax for annual distributions above $160,000 will not apply to withdrawals during
calendar years 1997, 1998 and 1999. A related 15% excise tax on your estate for
certain excess accumulations remaining in all of your tax-favored retirement
plans at your death continues to apply during these three years. Please consult
your tax advisor for more complete information on penalty taxes, including
advice on whether you should consider making withdrawals from your SIMPLE IRA
during the three-year period when the 15% excess distribution penalty does not
apply.
D. Excess Retirement Accumulation Penalty
Your estate will have to pay additional federal estate tax if you die with an
excess retirement accumulation. The increased estate tax will be equal to 15% of
the excess retirement accumulation. An excess retirement accumulation exists if,
at the time of your death, the value of all your interests in tax-favored
retirement plans, including IRAs, exceeds the present value of an annuity with
annual payments of $160,000 (for 1997; this amount is indexed for future
cost-of-living increases) payable over your life expectancy immediately before
your death.
4
<PAGE>
Other Tax Considerations
A. Federal Tax Withholding
Federal income tax will be withheld on amounts withdrawn by you from your IRA
unless you elect not to have withholding. Generally, tax will be withheld at a
10% rate. The mandatory 20% federal income tax withholding rule that applies to
most distributions from qualified profit sharing or pension plans that are not
directly rolled over to another plan or IRA do not apply to withdrawals from
your simple IRA account. Depending on your state of residence, state income tax
withholding may also apply.
B. Special Tax Treatment
Capital gains treatment and the favorable 5- or 10-year forward averaging tax
treatment, available for certain lump sum distributions from qualified profit
sharing or pension plans, do not apply to IRA distributions.
C. Prohibited Transactions
If you or your beneficiary engage in a prohibited transaction with your IRA, as
described in IRC Section 4975, your IRA will lose its tax-exempt status and you
must include the value of your account in your gross income for that taxable
year. If you pledge any portion of your IRA as collateral for a loan, the amount
so pledged will be treated as a distribution to you and will be included in your
gross income for that year. If you are under age 59-1/2 at the time such a
transaction occurs, you may be subject to the 25% or 10% penalty tax on
premature distributions.
D. Reporting for Tax Purposes
Additional reporting is required in the event that special taxes or penalties
described herein are due. You must file Form 5329 with the IRS for each taxable
year in which a premature distribution takes place, less than the required
minimum distribution amount is distributed from your IRA, or excess
distributions are made.
IRS Approval and Information
The agreement used to establish this IRA (IRS Form 5305-S) has been approved by
the Internal Revenue Service. The Internal Revenue Service approval is a
determination only to its form. It is not an endorsement of the plan in
operation or of the investments offered. This Disclosure Statement provides only
a summary of the laws governing SIMPLE IRAs. Please note that SIMPLE IRA plans
are governed by new provisions of the tax laws and the IRS has not yet issued
regulations or other definitive rulings on SIMPLE IRA plan requirements. While
the information in this Disclosure Statement is accurate as of the date of its
publication, you should consult with your tax advisor or the IRS for latest
developments. You should consult your personal tax advisor or IRS Publication
590, Individual Retirement Arrangements, for more detailed information. This
publication is available from your local IRS office or by calling
1-800-TAX-FORMS.
5
POWER OF ATTORNEY
We, the undersigned State Street Research Portfolios, Inc. ("Portfolios"),
a Maryland corporation, its directors, its principal executive officer and its
principal financial and accounting officer, hereby severally constitute and
appoint Francis J. McNamara, III and Darman A. Wing, as our true and lawful
attorneys, with full power to each of them alone to sign for us, in our names
and in the capacities indicated below, any Registration Statements and any and
all amendments thereto of Portfolios filed with the Securities and Exchange
Commission and generally to do all such things in our names and in the indicated
capacities as are required to enable Portfolios to comply with provisions of the
Securities Act of 1933, as amended, and/or the Investment Company Act of 1940,
as amended, and all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they have been and
may be signed by our said attorneys to said Registration Statements, and any and
all amendments thereto.
IN WITNESS WHEREOF, we have hereunto set our hands, on this 21st day of
August, 1997.
SIGNATURES
STATE STREET RESEARCH PORTFOLIOS, INC.
By: /s/ Ralph F. Verni
-------------------------------
Ralph F. Verni, Chief Executive
Officer and President
/s/ Ralph F. Verni /s/ Robert A. Lawrence
- ----------------------------------- ---------------------------------
Ralph F. Verni, Director and Robert A. Lawrence, Director
principal executive officer
/s/ Gerard P. Maus /s/ Dean O. Morton
- ----------------------------------- ---------------------------------
Gerard P. Maus, Principal financial Dean O. Morton, Director
and accounting officer
/s/Steve A. Garban /s/ Toby Rosenblatt
- ----------------------------------- ---------------------------------
Steve A. Garban, Director Toby Rosenblatt, Director
/s/ Malcolm T. Hopkins /s/ Michael S. Scott Morton
- ----------------------------------- ---------------------------------
Malcolm T. Hopkins, Director Michael S. Scott Morton, Director
/s/ Edward M. Lamont
- -----------------------------------
Edward M. Lamont, Director
Certificate of Resolution
I, the undersigned Darman A. Wing, hereby certify that I am Assistant
Secretary of State Street Research Portfolios, Inc. (the "Investment Company"),
a Delaware corporation duly authorized and validly existing under Delaware law,
and that the following is a true, correct and complete statement of a vote duly
adopted by the Directors of such Investment Company on May 7, 1997:
"VOTED: That Francis J. McNamara, III and Darman A.
----- Wing be, and each hereby is, authorized and
empowered, for and on behalf of the Investment
Company, its principal financial and accounting
officer, and in their name, to execute, and file
a Power of Attorney relating to, the Investment
Company's Registration Statements under the
Investment Company Act of 1940 and/or the
Securities Act of 1933, and amendments thereto,
the execution and delivery of such Power of
Attorney, Registration Statements and amendments
thereto, to constitute conclusive proof of such
authorization."
I further certify that said vote has not been amended or revoked and that
the same is now in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand on this 21th day of August,
1997.
/s/ Darman A. Wing
-------------------------
Assistant Secretary
[STATE STREET RESEARCH LOGO]
MUTUAL FUND ACCOUNT APPLICATION
Mail this application to State Street Research Shareholder Services,
P.O. Box 8408, Boston, MA 02266-8408
1 Type of Account (PLEASE PRINT FULL NAME(S) CONSISTENT WITH YOUR SIGNATURE(S)
IN SECTION 5.)
<TABLE>
<S> <C> <C>
[ ] Individual-complete (a) only [ ] Joint Tenant-complete (a & b) [ ] Gift to a Minor-complete (c) only
[ ] Trust(1)-complete (d) only [ ] Corporation(1)-complete (e) only [ ] Partnership/Other Entity-complete (e) only
</TABLE>
Note: If the investment is to be used for an Individual Retirement Account
(IRA), a separate IRA application must be used.
(1)Call 1-800-562-0032 for additional forms.
Individual or Joint Tenant
a _____________________________________________________________-______-_________
Name of Investor Social Security Number
b ______________________________________________________________________________
Name(s) of Joint Tenant(s)
Gift to a Minor
c _____________________________________ as custodian for _____________ under the
Name of Custodian (one only) Name of Minor (one only)
___________________________ "Uniform Gifts to Minors Act" _____-______-_________
Minor's State of Residence Minor's Social Security Number
Trust Account
d ______________________________________________________________________________
Trustee(s) Name(s)
_______________________________________________________________-______-_________
Name and Date of Trust Agreement Tax Identification
Number
Corporation, Partnership or Other Entity (Please include corporate resolution.)
e ______________________________________________________________________________
Name of Corporation or Other Entity
________________________________________________________________________________
Type of Business (specify corporation, Tax Identification Number
partnership, estate, guardian, etc.)
2 Your Mailing Address (PLEASE PRINT.)
( )
________________________________________________________________________________
Street Address Home Telephone Number
( )
________________________________________________________________________________
City State ZIP Business Telephone
Number
Residency [ ] U.S. (State _______________) [ ] Other __________________
Specify Country
3 Fund Selection(s) and Distribution Option(s) (Choose only one distribution
option per Fund; see Fund prospectus for minimum initial investment
requirements.)
[ ] By Mail-Make check payable to "State Street Research" [ ] By Dealer
[ ] By Federal Funds Wire (Control #__________)
<TABLE>
<CAPTION>
Wire Order
Fund Name Class Designation(2) Amount Distribution Option by Dealer
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends & Dividends in Dividends & Dividend
Capital Gains Cash; Capital Capital Gains Allocation Confirmation
A B D Reinvested Gains Reinvested(3) in Cash Plan (DAP)(4) Number
<S> <C> <C> <C> <C> <C> <C> <C>
_________________ [ ] [ ] [ ] $_____ [ ] [ ] [ ] [ ] ____________
_________________ [ ] [ ] [ ] $_____ [ ] [ ] [ ] [ ] ____________
_________________ [ ] [ ] [ ] $_____ [ ] [ ] [ ] [ ] ____________
_________________ [ ] [ ] [ ] $_____ [ ] [ ] [ ] [ ] ____________
</TABLE>
(2)All Money Market Fund investments will purchase Class E shares. Be sure to
designate share class for Money Market Fund DAP allocations.
(3)Does not apply to Money Market Fund.
(4)Dividend Allocation Plan: The Transfer Agent is authorized to invest all
dividends and distributions from________________________________________________
Fund Name
in the following Eligible Fund:_________________________________________________
Fund Name (Fund must meet Account
minimum investment requirements) Number (if
existing
account)
Authorization of Dividend Allocation Plan constitutes an acknowledgment that the
shareholder has received the current prospectus of the Fund to be acquired.
Except for Money Market Fund Class E, DAP must be allocated to same class
designation.
<PAGE>
4 Reduced Sales Charges (Applies to Class A shares only)
[ ] Right of Accumulation (ROA): I apply for Right of Accumulation reduced sales
charges subject to the Transfer Agent's confirmation of the following holdings
of certain designated persons, e.g. family members, in the Eligible Funds:
________________________________________________________________________________
Name on Account Account Number
________________________________________________________________________________
Name on Account Account Number
[ ] Letter of Intent (LOI): Although I am not obligated to purchase and the
Funds are not obligated to sell, I intend to invest over a 13-month period
beginning _______________, 19__ (purchase date not more than 90 days prior to
this letter) at least an aggregate of
[ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000 of Eligible Funds.
5 Your Signature (All registered shareholders must sign.)
I have received the current prospectus of the Fund and confirm that all the
information, instructions and agreements set forth hereon shall apply to the
account, and if applicable, shall also apply to any other fund account with
shares acquired upon exchange of shares of the Fund.
Under penalties of perjury, I certify that (1) the number shown on this form is
my correct taxpayer identification number (or I am waiting for a number to be
issued to me), and (2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the Internal
Revenue Service that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
Certification instructions: You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup withholding.
________________________________________________________________________________
Signature of Shareholder (exactly as your name appears in Section 1) Date
________________________________________________________________________________
Signature of Joint Tenant (if any) Date
6 Signature Guarantee and Dealer Information (Complete section (a) or (b) as
applicable.)
The undersigned guarantees the signature and legal capacity of the shareholder.
a. Signature Guarantee (fill out if your Dealer does not complete section below)
_______________________________________ _______________________________________
Name of Bank or Eligible Guarantor Street Address
_______________________________________ _______________________________________
Authorized Signature of Bank or City State ZIP
Eligible Guarantor
b. Dealer Information and Signature Guarantee (for Dealer use only)
_______________________________________ _______________________________________
Dealer Name Branch Office Number
_______________________________________ _______________________________________
Street Address of Home Office Address of Branch Office
Servicing Account
_______________________________________ _______________________________________
City State ZIP City State ZIP
_______________________________________ _______________________________________
Authorized Signature of Dealer Registered Representative's
Name and Number
If this application is for an account introduced through the above-named Dealer,
the Dealer agrees to all applicable provisions in this application and in the
Prospectus, and represents that it has provided a current Prospectus to the
Applicant and that the application is properly executed by a person authorized
by the Dealer to guarantee signatures. The Dealer warrants that this application
is completed in accordance with the shareholder's instructions and agrees to
indemnify the Fund, any other Eligible Funds, the Distributor, the Investment
Manager, State Street Research Shareholder Services and the Transfer Agent for
any loss or liability from acting or relying upon such instructions and
information. The terms and conditions of the Distributor's currently effective
Selected Dealer Agreement or sales agreement are included by reference in this
section. The Dealer represents that it has a currently effective Selected Dealer
Agreement or sales agreement with the Distributor authorizing the Dealer to sell
shares of the Fund and the Eligible Funds, and that it may lawfully sell shares
of the designated Fund(s) in the state designated as the Applicant's address of
record.
<PAGE>
Application for Optional Shareholder Services
Your Bank Account (You must complete this section if you request Section A, B, D
or E.)
Type of Bank Account: [ ] Checking [ ] NOW or Money Market
________________________________________________________________________________
Account Title (print exactly as it Bank Routing Number
appears on bank records)
________________________________________________________________________________
Bank Account Number Bank Name
________________________________________________________________________________
Bank Address City State ZIP
________________________________________________________________________________
Depositor's Signature(s) (exactly Date
as it appears on bank records)
________________________________________________________________________________
Depositor's Address City State ZIP
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
A Telephone Redemption and Exchange Privileges (Service available only for
shares held on deposit with Transfer Agent)
None of the Transfer Agent, the Fund, any other Eligible Funds, State Street
Research Shareholder Services, the Investment Manager or the Distributor will be
liable for any loss, injury, damage or expense as a result of acting upon, and
will not be responsible for the authenticity of, any telephone instructions. I
understand that all telephone calls are tape recorded. My liability shall be
subject to the use of reasonable procedures to confirm that instructions
communicated by telephone are genuine.
Telephone Exchange By Shareholder OR DEALER
The Transfer Agent may effect exchanges for my account according to telephone
instructions FROM ME OR MY DEALER as set forth in the Prospectus, and may
register the shares of the fund to be acquired exactly the same as my existing
account. Authorizing an exchange constitutes an acknowledgment that the
shareholder has received the current prospectus of the fund to be acquired. The
account will automatically have this privilege unless it is expressly declined
by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE EXCHANGE PRIVILEGE. ______ (Initial here.)
Telephone Redemption By Shareholder Only
1. Proceeds to Shareholder's Address of Record. The Transfer Agent may effect
redemptions of shares from my account according to telephone instructions from
me, as set forth in the Prospectus, and send the proceeds to my address of
record. The account will automatically have this privilege unless it is
expressly declined by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE REDEMPTION PRIVILEGE (to address of record).
_____ (Initial here.)
2. Proceeds to Bank Designated by Shareholder. The Telephone Redemption
Privilege (to bank designated by shareholder) is not provided automatically;
please check the box below if you want this Privilege for the account. ATTACH A
BLANK CHECK MARKED "VOID" AND FILL OUT "YOUR BANK ACCOUNT" SECTION.
The Transfer Agent may effect redemptions of shares from my account according to
telephone instructions from me, as set forth in the Prospectus, and send the
proceeds to the bank named in "Your Bank Account." [ ] (Check here.)
B Investamatic Check Program (YOU MUST ATTACH A BLANK CHECK MARKED "VOID.")
I hereby request and authorize the bank named in "Your Bank Account" section to
pay and charge checks drawn on, or debits against, my account initiated by and
payable to the order of the mutual fund transfer agent designated by the
Distributor. I agree that the named Bank's rights in respect to each such check
or debit shall be the same as if it were a check drawn on or debit against my
account authorized personally by me. This authority is to remain in effect until
revoked by me in writing, and until the named Bank actually receives such
notice, I agree that the named Bank shall be fully protected in honoring any
such check or debit authorization. I further agree that if any check or debit
authorization be dishonored, whether with or without cause and whether
intentionally or inadvertently, the named Bank shall be under no liability
whatsoever, unless the nonpayment is because of insufficient funds. I understand
that this Program may be revoked by the Transfer Agent or the Distributor
without prior notice if any check is not paid upon presentation, and that this
Program may be discontinued by the Distributor, the Transfer Agent or me upon
thirty (30) business days' notice prior to the due date of any deposit.
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
_____________________________________
Total Amount of Investment: $______ Account Registration (exactly as it
appears on Fund records)
[ ] Monthly Investment Date: [ ] 5th or [ ] 20th If you do not choose a date,
[ ] Quarterly Investment Date: [ ] 5th or [ ] 20th the 5th will be chosen
automatically.
C Checkwriting Privilege
(Available for Class A shares and
Money Market Fund Class E shares only)
[ ] I request the checkwriting feature and have
completed the signature card to the right.
_______________________________________________
Account Number (if existing account)
_______________________________________________
Account Number (if existing account)
Signature Card Complete and sign this card and return it with your application
and investment. Do not detach.
Check applicable Fund(s) TO: State Street Bank and Trust Company ("Bank")
[ ]Government Income ________________________________________________
[ ]NY Tax-Free Name (please print)
[ ]Money Market, Class E ________________________________________________
[ ]High Income Name (please print)
[ ]Tax-Exempt ________________________________________________
[ ]Strategic Income Address City State ZIP
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Indicate the number of signatures required
______-_________________________________________
Tax Identification Number
Corporate and other accounts must include appropriate resolution forms. In
signing this signature card, the signator(s) signifies his/her or their
agreement to be subject to the rules and regulations of State Street Bank and
Trust Company pertaining thereto, as amended from time to time, and subject
to the conditions printed on the reverse side.
<PAGE>
D Automatic Bank Connection (ABC) Not available for retirement plan accounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate $___________ (minimum-$50) from
my fund account beginning the month of __________________ to provide
[ ] monthly, [ ] quarterly, [ ] semiannual or [ ] annual payments. I would like
the following payment to be deposited directly into the bank account named in
"Your Bank Account" section. (Choose only one.)
[ ] Income dividends only
[ ] Income dividends and capital gains
[ ] Systematic Withdrawal Plan payments (see below)
Specify Fund(s):
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
I hereby authorize the Fund and the Transfer Agent to effect the deposit of the
above indicated items by initiating credit entries to my account at the bank
named in "Your Bank Account" section. The named Bank shall not be responsible
for the correctness of the items, and the Transfer Agent is authorized to
correct and adjust any incorrect items to my bank account. This authorization
may be terminated at any time by written notification to the Fund, the Transfer
Agent and the Bank.
E Systematic Withdrawal Plan (SWP) Not available for retirement plan accounts.
See the prospectus for minimum account size and maximum withdrawal amounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate shares in and withdraw cash
(minimum-$50) from my fund account beginning the month of _____________ to
provide [ ] monthly, [ ] quarterly, [ ] semiannual or [ ] annual Systematic
Withdrawal Plan (SWP) payments in the amount of $________________ to [ ] me,
[ ] the bank named in "Your Bank Account" section, or [ ] the following payee.
(Note: If you authorize a SWP, you may not receive dividend or capital gain
distributions in cash.)
________________________________________________________________________________
Name of Payee
________________________________________________________________________________
Street Address City State ZIP
Specify Fund(s):
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
The payment of monies is authorized by the signature(s) on the reverse side.
If the shareholder's account with the Fund is joint, all checks drawn upon this
account must include the signatures of all persons named in the account, unless
the persons signing this card have indicated on the reverse side of this card
that the Bank is authorized to accept any one signature. Each person guarantees
the genuineness of the other's signature. Checks may not be for less than $500
or such other minimum or maximum amounts as may from time to time be established
by the Fund.
The Bank is hereby appointed agent by the person(s) signing this card (the
"Depositor(s)") and, as agent, is authorized and directed to present checks
drawn on this checking account to the Fund or its redemption agent as requests
to redeem shares of the Fund registered in the name of the Depositor(s) in the
amounts of such checks and to deposit the proceeds of such redemptions in this
checking account. The Bank shall be liable only for its own negligence.
Depositor(s) hereby authorize(s) the Fund or its redemption agent to honor
redemption requests presented in the above manner by the Bank. The Fund and its
redemption agent will not be liable for any loss, expense or cost arising out of
check redemptions. If shares of the Fund are purchased by check, redemption
proceeds will ordinarily be withheld until the Fund is reasonably assured that
payment has been collected on the check. The Bank has the right not to honor
checks in amounts exceeding the value of the depositor(s) shareholder account at
the time the check is presented for payment.
The Bank reserves the right to change, modify or terminate this checking account
at any time upon notification mailed to the address of record of the
Depositor(s).
SSR-543E-197
<PAGE>
[STATE STREET RESEARCH LOGO] [METLIFE SECURITIES LOGO]
MUTUAL FUND ACCOUNT APPLICATION
Mail this application to MetLife Securities, Inc., P.O. Box 30421, Tampa, FL
33630
[ ] New Application [ ] Change-Account #____________________________
Type of Account (PLEASE PRINT FULL NAME(S) CONSISTENT WITH YOUR SIGNATURE(S) IN
SECTION 6.)
<TABLE>
<S> <C> <C>
[ ] Individual-complete (a) only [ ] Joint Tenant-complete (a & b) only [ ] Gift to a Minor-complete (c) only
[ ] Trust(1)-complete (d) only [ ] Corporation(1)-complete (e) only [ ] Partnership/Other Entity-complete (e) only
</TABLE>
Note: If the investment is to be used for an Individual Retirement Account
(IRA), a separate IRA application must be used.
(1)Call 1-800-638-8378 for additional forms.
Do you have any other mutual fund accounts with State Street Research?
[ ] Yes [ ] No
Individual or Joint Tenant
a _____________________________________________________________-______-_________
Name of Investor Social Security Number
b ______________________________________________________________________________
Name(s) of Joint Tenant(s)
Gift to a Minor
c _____________________________________ as custodian for _____________ under the
Name of Custodian (one only) Name of Minor (one only)
___________________________ "Uniform Gifts to Minors Act" _____-______-_________
Minor's State of Residence Minor's Social Security Number
Trust Account
d ______________________________________________________________________________
Trustee(s) Name(s)
_______________________________________________________________-______-_________
Name and Date of Trust Agreement Tax Identification
Number
Corporation, Partnership or Other Entity (Please include corporate resolution.)
e ______________________________________________________________________________
Name of Corporation or Other Entity
________________________________________________________________________________
Type of Business (specify corporation, Tax Identification Number
partnership, estate, guardian, etc.)
2 Your Mailing Address (PLEASE PRINT.)
( )
________________________________________________________________________________
Street Address Home Telephone Number
( )
________________________________________________________________________________
City State ZIP Business Telephone
Number
Residency [ ] U.S. (State _______________) [ ] Other(2) __________________
Specify Country
(2)Call 1-800-638-8378 for additional forms.
3 Fund Selection(s) and Distribution Option(s) (Choose only one distribution
option per Fund; see Fund prospectus for minimum initial investment
requirements.)
[ ] By Mail-Make check payable to "State Street Research"
[ ] By Federal Funds Wire
<TABLE>
<CAPTION>
Fund Name Class Designation(3) Amount Distribution Option
- ---------------------------------------------------------------------------------------------------------------------
Dividends & Dividends in Dividends & Dividend
Capital Gains Cash; Capital Capital Gains Allocation
A B(4) Reinvested Gains Reinvested(5) in Cash Plan (DAP)(6)
<S> <C> <C> <C> <C> <C> <C>
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
</TABLE>
(3)All Money Market Fund investments will purchase Class E shares. Be sure to
designate Class A or B shares for Money Market Fund DAP allocations.
(4)For purchase of Class B shares of more than $250,000, I hereby acknowledge
that I am aware of the reduced front-end sales charges available to me for the
purchase of Class A shares, and have chosen to purchase Class B shares. I am
aware that Class B shares have higher asset-based charges than Class A shares
for the first eight years.
(5)Does not apply to Money Market Fund.
(6)Dividend Allocation Plan: The Transfer Agent is authorized to invest all
dividends and distributions from________________________________________________
Fund Name
in the following Eligible Fund:_________________________________________________
Fund Name (Fund must meet Account
minimum investment requirements) Number (if
existing
account)
Authorization of Dividend Allocation Plan constitutes an acknowledgment that the
shareholder has received the current prospectus of the Fund to be acquired.
Except for Money Market Fund Class E, DAP must be allocated to same class
designation.
<PAGE>
4 Reduced Sales Charges (Applies to Class A shares only)
[ ] Right of Accumulation (ROA): I apply for Right of Accumulation reduced sales
charges subject to the Transfer Agent's confirmation of the following holdings
of certain designated persons, e.g. family members, in the Eligible Funds:
________________________________________________________________________________
Name on Account Account Number
________________________________________________________________________________
Name on Account Account Number
[ ] Letter of Intent (LOI): Although I am not obligated to purchase and the
Funds are not obligated to sell, I intend to invest over a 13-month period
beginning _______________, 19__ (purchase date not more than 90 days prior to
this letter) at least an aggregate of
[ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000 of Eligible Funds.
5 Optional Shareholder Services
Your Bank Account (You must complete this section if you request Section A, B, C
or D below.)
Type of Bank Account: [ ] Checking [ ] NOW or Money Market
________________________________________________________________________________
Account Title (print exactly as it Bank Routing Number
appears on bank records)
________________________________________________________________________________
Bank Account Number Bank Name
________________________________________________________________________________
Bank Address City State ZIP
________________________________________________________________________________
Depositor's Signature(s) (exactly as it Date
appears on bank records)
________________________________________________________________________________
Depositor's Address City State ZIP
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
A Telephone Redemption and Exchange Privileges (Service available only for
shares held on deposit with Transfer Agent)
None of the Transfer Agent, the Fund, any other Eligible Funds, State Street
Research Shareholder Services, the Investment Manager or the Distributor will be
liable for any loss, injury, damage or expense as a result of acting upon, and
will not be responsible for the authenticity of, any telephone instructions. I
understand that all telephone calls are tape recorded. My liability shall be
subject to the use of reasonable procedures to confirm that instructions
communicated by telephone are genuine.
Telephone Exchange By Shareholder OR DEALER
The Transfer Agent may effect exchanges for my account according to telephone
instructions FROM ME OR MY DEALER as set forth in the Prospectus, and may
register the shares of the fund to be acquired exactly the same as my existing
account. Authorizing an exchange constitutes an acknowledgment that the
shareholder has received the current prospectus of the fund to be acquired. The
account will automatically have this privilege unless it is expressly declined
by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE EXCHANGE PRIVILEGE. _____ (Initial here.)
Telephone Redemption By Shareholder Only
1. Proceeds to Shareholder's Address of Record. The Transfer Agent may effect
redemptions of shares from my account according to telephone instructions from
me, as set forth in the Prospectus, and send the proceeds to my address of
record. The account will automatically have this privilege unless it is
expressly declined by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE REDEMPTION PRIVILEGE (to address of record).
_____ (Initial here.)
2. Proceeds to Bank Designated by Shareholder. The Telephone Redemption
Privilege (to bank designated by shareholder) is not provided automatically;
please check the box below if you want this Privilege for the account. ATTACH A
BLANK CHECK MARKED "VOID" AND FILL OUT "YOUR BANK ACCOUNT" SECTION.
The Transfer Agent may effect redemptions of shares from my account according to
telephone instructions from me, as set forth in the Prospectus, and send the
proceeds to the bank named in "Your Bank Account." [ ] (Check here.)
<PAGE>
B Investamatic Check Program (YOU MUST ATTACH A BLANK CHECK MARKED "VOID.")
I hereby request and authorize the bank named in "Your Bank Account" section to
pay and charge checks drawn on, or debits against, my account initiated by and
payable to the order of the mutual fund transfer agent designated by the
Distributor. I agree that the named Bank's rights in respect to each such check
or debit shall be the same as if it were a check drawn on or debit against my
account authorized personally by me. This authority is to remain in effect until
revoked by me in writing, and until the named Bank actually receives such
notice, I agree that the named Bank shall be fully protected in honoring any
such check or debit authorization. I further agree that if any check or debit
authorization be dishonored, whether with or without cause and whether
intentionally or inadvertently, the named Bank shall be under no liability
whatsoever, unless the nonpayment is because of insufficient funds. I understand
that this Program may be revoked by the Transfer Agent or the Distributor
without prior notice if any check is not paid upon presentation, and that this
Program may be discontinued by the Distributor, the Transfer Agent or me upon
thirty (30) business days' notice prior to the due date of any deposit.
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
_____________________________________
Total Amount of Investment: $______ Account Registration (exactly as it
appears on Fund records)
[ ] Monthly Investment Date: [ ] 5th or [ ] 20th If you do not choose a date,
[ ] Quarterly Investment Date: [ ] 5th or [ ] 20th the 5th will be chosen
automatically.
C Automatic Bank Connection (ABC) Not available for retirement plan accounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate $______________ (minimum-$50)
from my fund account beginning the month of to provide [ ] monthly,
[ ] quarterly, [ ] semiannual or [ ] annual payments. I would like the following
payment to be deposited directly into the bank account named in "Your Bank
Account" section. (Choose only one.)
[ ] Income dividends only [ ] Income dividends and capital gains
[ ] Systematic Withdrawal Plan payments (see below)
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
I hereby authorize the Fund and the Transfer Agent to effect the deposit of the
above indicated items by initiating credit entries to my account at the bank
named in "Your Bank Account" section. The named Bank shall not be responsible
for the correctness of the items, and the Transfer Agent is authorized to
correct and adjust any incorrect items to my bank account. This authorization
may be terminated at any time by written notification to the Fund, the Transfer
Agent and the Bank.
D Systematic Withdrawal Plan (SWP) Not available for retirement plan accounts.
See the prospectus for minimum account size and maximum withdrawal amounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate shares in and withdraw cash
(minimum-$50) from my fund account beginning the month of ____________________
to provide [ ] monthly, [ ] quarterly, [ ] semiannual or [ ] annual Systematic
Withdrawal Plan (SWP) payments in the amount of $_________________ to [ ] me
[ ] the bank named in "Your Bank Account" section, or [ ] the following payee.
(Note: If you authorize a SWP, you may not receive dividend or capital gain
distributions in cash.)
________________________________________________________________________________
Name of Payee
________________________________________________________________________________
Street Address City State ZIP
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
E Checkwriting Privilege
(Available for Class A shares and Money Market
Fund Class E shares only)
[ ] I request the checkwriting feature and have
completed the signature card below.
_______________________________________________
Account Number (if existing account)
_______________________________________________
Account Number (if existing account)
Signature Card Complete and sign this card and return it with your application
and investment. Do not detach.
Check applicable Fund(s) TO: State Street Bank and Trust Company ("Bank")
[ ] Money Market, Class E ________________________________________________
[ ] High Income Name (please print)
[ ] Tax-Exempt ________________________________________________
[ ] Government Income Name (please print)
[ ] NY Tax-Free ________________________________________________
[ ] Strategic Income Address City State ZIP
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Indicate the number of signatures required
______-_________________________________________
Tax Identification Number
Corporate and other accounts must include appropriate resolution forms. In
signing this signature card, the signator(s) signifies his/her or their
agreement to be subject to the rules and regulations of State Street Bank and
Trust Company pertaining thereto, as amended from time to time, and subject to
the conditions printed on the reverse side.
<PAGE>
MetLife Securities, Inc. Customer Profile
1
________________________________________________________________________________
Client's Name (or minor if U.G.M.A.) Age Social Security Number
________________________________________________________________________________
Joint Tenant Name (if any, or Age Social Security Number
custodian if U.G.M.A.)
Occupation ______________________ State of Residence ______________________
Name/Address of Employer _______________________________________________________
Is client an associated person of a broker/dealer? [ ] Yes [ ] No
If yes, furnish name and address _______________________________________________
2 Client's Estimated Annual Income (Not including income from this investment)
(N/A for UGMA, Trust, Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000+
3 Savings and Investments (Exclusive of personal residence, home furnishings,
personal automobiles, and the amount of this investment) (N/A for UGMA, Trust,
Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999 [ ] $400,000+
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000-399,999
4 Net Worth (Assets minus liabilities exclusive of assets and liabilities
relating to personal residence, home furnishings and automobiles) (N/A for
UGMA, Trust, Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999 [ ] $400,000+
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000-399,999
<TABLE>
<CAPTION>
5 Main Investment Objective (select one) Secondary Investment Objective (optional)
<S> <C> <C> <C> <C> <C>
[ ] Aggressive Growth [ ] Growth & Income [ ] Tax Advantages [ ] Aggressive Growth [ ] Growth & Income [ ] Tax Advantages
[ ] Growth [ ] Current Income [ ] Growth [ ] Current Income
</TABLE>
<TABLE>
<CAPTION>
6 Source of Funds for This Investment
<S> <C> <C>
[ ] CD (Certificate of Deposit) [ ] Savings [ ] Money Market Fund
[ ] Surrender Life/Annuity Contract [ ] Rollover/Transfer of Pension Assets [ ] Another MetLife Policy, Account or Contract
[ ] Discretionary Income [ ] Loan [ ] Other ___________________________________
</TABLE>
7 This account was: [ ] Solicited [ ] Unsolicited
8 Tax Status of These Funds: [ ] Qualified [ ] Non-Qualified
9 Prior Investment Experience: Stocks ___ yrs. Bonds ___ yrs.
(complete all that apply) Mutual Funds ___ yrs. Margin ___ yrs.
Limited Partnerships ___ yrs. Options ___ yrs.
Other __________________ None ___
Investor Receipt and Arbitration Agreement
1. Arbitration
(i) Arbitration is final and binding on the parties.
(ii) The parties are waiving their right to seek remedies in court, including
the right to jury trial.
(iii) Pre-arbitration discovery is generally more limited than and different
from court proceedings.
(iv) The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification of
rulings by the arbitrators is strictly limited.
(v) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
(vi) No person shall bring a putative or certified class action to
arbitration, nor seek to enforce any pre-dispute arbitration agreement
against any person who has initiated in court a putative class action; or who
is a member of a putative class who has not opted out of the class with
respect to any claims encompassed by the putative class action until: (i) the
class certification is denied; or (ii) the class is decertified; or (iii) the
customer is excluded from the class by the court. Such forbearance to enforce
an agreement to arbitrate shall not constitute a waiver of any rights under
this agreement except to the extent stated herein.
2. MetLife Securities, Inc. (hereinafter "MSI") and the purchaser of the
shares, who is the signatory below (hereinafter the "Customer"), agree that
any controversy between MSI, its employees, directors, agents, officers or
affiliates and the Customer arising out of or relating to any transactions
between such parties shall be determined by arbitration. Any arbitration
pursuant to this agreement shall be conducted before, and under the rules of,
the National Association of Securities Dealers, Inc. Judgment upon the award
of the arbitrators may be entered in any federal or state court having
jurisdiction.
3. This agreement and any arbitration hereunder shall be governed and
construed in accordance with the laws of the State of New York, United States
of America, including New York procedural and substantive arbitration laws
and rules, without giving effect to conflicts of law principles.
The predispute arbitration agreement located immediately above is accepted and
agreed to. I have also received the current prospectus of the fund and have
given a check in the amount of $___________________ on this, the ____________
day of ________________ 19__
_______________________________________ ________________________________________
Customer Signature (exactly as your Registered Representative's Signature
name appears in Section 1)
/s/ Elaine S. Stevenson
_______________________________________ ________________________________________
Customer Signature MetLife Securities, Inc.; by:
Elaine S. Stevenson, President
_______________________________________ ________________________________________
Capacity
<PAGE>
6 Your Signature (All registered shareholders must sign.)
The undersigned confirms that all the information, instructions and agreements
set forth hereon shall apply to the account, and if applicable, shall also apply
to any other fund account with shares acquired upon exchange of shares of the
Fund.
Under penalties of perjury, I certify that (1) the number shown on this form is
my correct taxpayer identification number (or I am waiting for a number to be
issued to me), and (2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the Internal
Revenue Service that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
Certification instructions: You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return.
1. Arbitration
(i) Arbitration is final and binding on the parties.
(ii) The parties are waiving their right to seek remedies in court, including
the right to jury trial.
(iii) Pre-arbitration discovery is generally more limited than and different
from court proceedings.
(iv) The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification of
rulings by the arbitrators is strictly limited.
(v) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
(vi) No person shall bring a putative or certified class action to
arbitration, nor seek to enforce any pre-dispute arbitration agreement
against any person who has initiated in court a putative class action; or who
is a member of a putative class who has not opted out of the class with
respect to any claims encompassed by the putative class action until (i) the
class certification is denied; or (ii) the class is decertified; or (iii) the
customer is excluded from the class by the court. Such forbearance to enforce
an agreement to arbitrate shall not constitute a waiver of any rights under
this agreement except to the extent stated herein.
2. MetLife Securities, Inc. (hereinafter "MSI") and the purchaser of the shares,
who is the signatory below (hereinafter the "Customer"), agree that any
controversy between MSI, its employees, directors, agents, officers or
affiliates and the Customer arising out of or relating to any transactions
between such parties shall be determined by arbitration. Any arbitration
pursuant to this agreement shall be conducted before, and under the rules of,
the National Association of Securities Dealers, Inc. Judgment upon the award of
the arbitrators may be entered in any federal or state court having
jurisdiction.
3. This agreement and any arbitration hereunder shall be governed and construed
in accordance with the laws of the State of New York, United States of America,
including New York procedural and substantive arbitration laws and rules,
without giving effect to conflicts of law principles.
The predispute arbitration agreement located immediately above is accepted and
agreed to. I have also received the current prospectus of the fund and have
given a check in the amount of $_________________ on this, the ______________
day of ___________________________ 19__
The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup withholding.
_______________________________________ ________________________________________
Customer Signature (exactly as your Registered Representative's Signature
name appears in Section 1)
/s/ Elaine S. Stevenson
_______________________________________ ________________________________________
Customer Signature MetLife Securities, Inc.;
by: Elaine S. Stevenson, President
_______________________________________
Capacity
7 Dealer Information and Signature Guarantee (For Dealer use only)
The Dealer agrees to all applicable provisions in this application and in the
Prospectus, guarantees the signature and legal capacity of the shareholder, and
represents that it has provided a current Prospectus to the Applicant and that
the application is properly executed by a person authorized by the Dealer to
guarantee signatures. The Dealer warrants that this application is completed in
accordance with the shareholder's instructions and information and agrees to
indemnify the Fund, any other Eligible Funds, the Investment Manager, the
Distributor, State Street Research Shareholder Services and the Transfer Agent
for any loss or liability from acting or relying upon such instructions and
information. Signature(s) Guaranteed By
MetLife Securities, Inc.
_______________________________________ ________________________________________
Dealer Name Branch Office Number
P.O. Box 30421
_______________________________________ ________________________________________
Address of Home Office Address of Branch Office
Servicing Account
Tampa, FL 33630
_______________________________________ ________________________________________
City State ZIP City State ZIP
_______________________________________ ________________________________________
Authorized Signature of Dealer Registered Representative's
- Tampa, FL Name and Number
_______________________________________
Signature Guarantee
The payment of monies is authorized by the signature(s) on the reverse side.
If the shareholder's account with the Fund is joint, all checks drawn upon this
account must include the signatures of all persons named in the account, unless
the persons signing this card have indicated on the reverse side of this card
that the Bank is authorized to accept any one signature. Each person guarantees
the genuineness of the other's signature. Checks may not be for less than $500
or such other minimum or maximum amounts as may from time to time be established
by the Fund.
The Bank is hereby appointed agent by the person(s) signing this card (the
"Depositor(s)") and, as agent, is authorized and directed to present checks
drawn on this checking account to the Fund or its redemption agent as requests
to redeem shares of the Fund registered in the name of the Depositor(s) in the
amounts of such checks and to deposit the proceeds of such redemptions in this
checking account. The Bank shall be liable only for its own negligence.
Depositor(s) hereby authorize(s) the Fund or its redemption agent to honor
redemption requests presented in the above manner by the Bank. The Fund and its
redemption agent will not be liable for any loss, expense or cost arising out of
check redemptions. If shares of the Fund are purchased by check, redemption
proceeds will ordinarily be withheld until the Fund is reasonably assured that
payment has been collected on the check. The Bank has the right not to honor
checks in amounts exceeding the value of the depositor(s) shareholder account at
the time the check is presented for payment.
The Bank reserves the right to change, modify or terminate this checking account
at any time upon notification mailed to the address of record of the
Depositor(s).
The terms and conditions of the Distributor's currently effective Selected
Dealer Agreement are included by reference in this section. The Dealer
represents that it has a currently effective Selected Dealer Agreement with the
Distributor authorizing the Dealer to sell shares of the Fund and the Eligible
Funds, and that it may lawfully sell shares of the designated Fund(s) in the
state designated as the Applicant's address of record.
- -------------------------------
DO NOT COMPLETE
MSI - Tampa
Dealer #__________ ST _____
Rep #______________________
Rep Name __________________
- -------------------------------
CONTROL NUMBER: 3672-970214(0398)SSR-LD
ML-598E-297
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000878059
<NAME> STATE STREET RESEARCH PORTFOLIOS, INC.
<SERIES>
<NUMBER> 011
<NAME> STATE STREET RESEARCH INTERNATIONAL EQUITY FUND CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 65,538,566
<INVESTMENTS-AT-VALUE> 68,812,738
<RECEIVABLES> 4,268,087
<ASSETS-OTHER> 2,525,377
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 75,606,202
<PAYABLE-FOR-SECURITIES> 5,733,007
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 780,665
<TOTAL-LIABILITIES> 6,513,672
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,228,730
<SHARES-COMMON-STOCK> 1,927,565
<SHARES-COMMON-PRIOR> 2,289,362
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,388,496)
<ACCUM-APPREC-OR-DEPREC> 3,252,296
<NET-ASSETS> 69,092,530
<DIVIDEND-INCOME> 472,064
<INTEREST-INCOME> 17,839
<OTHER-INCOME> 0
<EXPENSES-NET> 783,711
<NET-INVESTMENT-INCOME> (293,808)
<REALIZED-GAINS-CURRENT> (1,280,449)
<APPREC-INCREASE-CURRENT> 3,469,200
<NET-CHANGE-FROM-OPS> 1,894,943
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 182,957
<NUMBER-OF-SHARES-REDEEMED> (544,754)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (12,967,769)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,108,047)
<GROSS-ADVISORY-FEES> 349,709
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,000,138
<AVERAGE-NET-ASSETS> 73,623,158
<PER-SHARE-NAV-BEGIN> 9.22
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.45
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000878059
<NAME> STATE STREET RESEARCH PORTFOLIOS, INC.
<SERIES>
<NUMBER> 012
<NAME> STATE STREET RESEARCH INTERNATIONAL EQUITY FUND CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 65,538,566
<INVESTMENTS-AT-VALUE> 68,812,738
<RECEIVABLES> 4,268,087
<ASSETS-OTHER> 2,525,377
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 75,606,202
<PAYABLE-FOR-SECURITIES> 5,733,007
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 780,665
<TOTAL-LIABILITIES> 6,513,672
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,228,730
<SHARES-COMMON-STOCK> 2,640,018
<SHARES-COMMON-PRIOR> 3,205,065
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,388,496)
<ACCUM-APPREC-OR-DEPREC> 3,252,296
<NET-ASSETS> 69,092,530
<DIVIDEND-INCOME> 472,064
<INTEREST-INCOME> 17,839
<OTHER-INCOME> 0
<EXPENSES-NET> 783,711
<NET-INVESTMENT-INCOME> (293,808)
<REALIZED-GAINS-CURRENT> (1,280,449)
<APPREC-INCREASE-CURRENT> 3,469,200
<NET-CHANGE-FROM-OPS> 1,894,943
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 279,753
<NUMBER-OF-SHARES-REDEEMED> (844,800)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (12,967,769)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,108,047)
<GROSS-ADVISORY-FEES> 349,709
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,000,138
<AVERAGE-NET-ASSETS> 73,623,158
<PER-SHARE-NAV-BEGIN> 9.04
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> 0.25
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.23
<EXPENSE-RATIO> 2.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000878059
<NAME> STATE STREET RESEARCH PORTFOLIOS, INC.
<SERIES>
<NUMBER> 013
<NAME> STATE STREET RESEARCH INTERNATIONAL EQUITY FUND CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 65,538,566
<INVESTMENTS-AT-VALUE> 68,812,738
<RECEIVABLES> 4,268,087
<ASSETS-OTHER> 2,525,377
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 75,606,202
<PAYABLE-FOR-SECURITIES> 5,733,007
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 780,665
<TOTAL-LIABILITIES> 6,513,672
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,228,730
<SHARES-COMMON-STOCK> 2,411,598
<SHARES-COMMON-PRIOR> 2,867,029
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,388,496)
<ACCUM-APPREC-OR-DEPREC> 3,252,296
<NET-ASSETS> 69,092,530
<DIVIDEND-INCOME> 472,064
<INTEREST-INCOME> 17,839
<OTHER-INCOME> 0
<EXPENSES-NET> 783,711
<NET-INVESTMENT-INCOME> (293,808)
<REALIZED-GAINS-CURRENT> (1,280,449)
<APPREC-INCREASE-CURRENT> 3,469,200
<NET-CHANGE-FROM-OPS> 1,894,943
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 436,870
<NUMBER-OF-SHARES-REDEEMED> (892,301)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (12,967,769)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,108,047)
<GROSS-ADVISORY-FEES> 349,709
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,000,138
<AVERAGE-NET-ASSETS> 73,623,158
<PER-SHARE-NAV-BEGIN> 9.29
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.54
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000878059
<NAME> STATE STREET RESEARCH PORTFOLIOS, INC.
<SERIES>
<NUMBER> 014
<NAME> STATE STREET RESEARCH INTERNATIONAL EQUITY FUND CLASS D
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 65,538,566
<INVESTMENTS-AT-VALUE> 68,812,738
<RECEIVABLES> 4,268,087
<ASSETS-OTHER> 2,525,377
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 75,606,202
<PAYABLE-FOR-SECURITIES> 5,733,007
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 780,665
<TOTAL-LIABILITIES> 6,513,672
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,228,730
<SHARES-COMMON-STOCK> 381,292
<SHARES-COMMON-PRIOR> 589,346
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,388,496)
<ACCUM-APPREC-OR-DEPREC> 3,252,296
<NET-ASSETS> 69,092,530
<DIVIDEND-INCOME> 472,064
<INTEREST-INCOME> 17,839
<OTHER-INCOME> 0
<EXPENSES-NET> 783,711
<NET-INVESTMENT-INCOME> (293,808)
<REALIZED-GAINS-CURRENT> (1,280,449)
<APPREC-INCREASE-CURRENT> 3,469,200
<NET-CHANGE-FROM-OPS> 1,894,943
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 68,503
<NUMBER-OF-SHARES-REDEEMED> (276,557)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (12,967,769)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,108,047)
<GROSS-ADVISORY-FEES> 349,709
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,000,138
<AVERAGE-NET-ASSETS> 73,623,158
<PER-SHARE-NAV-BEGIN> 9.03
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> 0.25
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.22
<EXPENSE-RATIO> 2.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
