<PAGE>
REGISTRATION NOS. 33-42129/811-6375
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 7 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 9
(CHECK APPROPRIATE BOX OR BOXES)
----------------
STATE STREET RESEARCH PORTFOLIOS, INC.
(Exact name of registrant as specified in charter)
One Financial Center 02111
(Zip code)
Boston, Massachusetts
(Address of principal executive office)
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, ESQ.
GOODWIN, PROCTOR & HOAR LLP
Exchange Place
Boston, Massachusetts 02109
----------------
It is proposed that the filing will become effective:
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on March 1, 1997 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on (date) pursuant to paragraph (a)(1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_] on (date) pursuant to paragraph (a)(2) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of Class A, Class B, Class C and
Class D shares. The Registrant's Rule 24f-2 Notice for the fiscal year ended
October 31, 1996 was filed with the Commission on or about December 20, 1996.
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<PAGE>
STATE STREET RESEARCH PORTFOLIOS, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a)
<TABLE>
<CAPTION>
N-1A ITEM NO. PROSPECTUS HEADING
------------- ------------------
<S> <C>
1. Cover.......................... Cover Page
2. Synopsis....................... Table of Expenses
3. Condensed Financial Informa-
tion........................... Financial Highlights; Calculation of Per-
formance Data
4. General Description of Regis-
trant.......................... The Funds' Investments; Limiting Investment
Risk; The Funds and Their Shares
5. Management of the Fund......... The Funds and Their Shares; Management of
the Funds; Purchase of Shares; Redemption
of Shares
5A. Management's Discussion of Fund
Performance.................... [To be included in Annual Report to Share-
holders]
6. Capital Stock and other Securi-
ties........................... The Funds and Their Shares; Dividends and
Distributions; Taxes; Shareholder Services
7. Purchase of Securities Being
Offered........................ Purchase of Shares
8. Redemption or Repurchase....... Redemption of Shares
9. Pending Legal Proceedings...... Not Applicable
STATEMENT OF ADDITIONAL
INFORMATION HEADING
<CAPTION>
N-1A ITEM NO.
-------------
<S> <C>
10. Cover Page..................... Cover Page
11. Table of Contents.............. Table of Contents
12. General Information and Histo-
ry............................. Not Applicable
13. Investment Objectives and Poli-
cies........................... Investment Practices and Policies; Portfo-
lio Transactions
14. Management of the Registrant... Directors and Officers
15. Control Persons and Principal
Holders of
Securities..................... Control Persons
16. Investment Advisory and Other
Services....................... Investment Management Arrangements;
Custodian; Independent Accountants
17. Brokerage Allocation........... Investment Management Agreements and Sub-
Investment Management Agreements;
Allocation of Portfolio Brokerage
18. Capital Stock and Other Securi-
ties........................... Distribution of Shares of the Funds
19. Purchase, Redemption and Pric-
ing of Securities Being Of-
fered.......................... Purchase of Shares; Redemption In-Kind; Net
Asset Value
20. Tax Status..................... Certain Tax Matters
21. Underwriters................... Distribution of Shares of the Funds
22. Calculations of Performance Da-
ta............................. Calculation of Performance Data
23. Financial Statements........... Financial Statements
</TABLE>
<PAGE>
SUPPLEMENT NO. 1 DATED MARCH 1, 1997
TO
PROSPECTUS DATED MARCH 1, 1997
FOR
STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND
A SERIES OF STATE STREET RESEARCH PORTFOLIOS, INC.
AVAILABILITY OF SHARES;
PROPOSED REORGANIZATION OR LIQUIDATION
Shares of the State Street Research International Fixed Income Fund ("Fund")
are currently available only to existing shareholders of the Fund through
reinvestment of dividends and distributions, additional investments or
exchanges.
Consideration is currently being given to the possibility of combining the
Fund with another fund and/or liquidating the Fund, among other alternatives.
If the Directors of Portfolios determine that such action is in the best
interest of shareholders, a Special Meeting of Shareholders may be convened in
early 1997.
CONTROL NUMBER 3958-860820(0997)SSR-LD IE/F-492E-89818
<PAGE>
STATE STREET RESEARCH
INTERNATIONAL EQUITY FUND
STATE STREET RESEARCH
INTERNATIONAL FIXED INCOME FUND
Prospectus
March 1, 1997
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND (the "International Equity
Fund" or "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.
STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND (the "International
Fixed Income Fund" or "Fund"), seeks to achieve the highest possible total re-
turn, consisting of income and realized and unrealized capital gains, consis-
tent with prudent investment risk and preservation of capital, by investing
primarily in high quality debt securities of non-U.S. issuers.
Management will measure growth in connection with both Funds in U.S. dollars.
See pp. 5, 6.
Each Fund is a diversified series of State Street Research Portfolios, Inc.,
an open-end management investment company.
State Street Research & Management Company serves as the investment adviser
for the Funds (the "Investment Manager").
State Street Research Investment Services, Inc. serves as the distributor for
the Funds (the "Distributor"). GFM International Investors Limited ("GFM" or
"Sub-Investment Manager") is the sub-investment adviser of the Funds. The In-
vestment Manager and the Distributor are each an indirect wholly-owned subsidi-
ary and the Sub-Investment Manager is substantially a wholly-owned indirect
subsidiary of Metropolitan Life Insurance Company ("Metropolitan"), the na-
tion's second largest insurer.
Shareholders may redeem their shares directly from the Funds 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 eco-
nomic and market conditions, and there is no assurance that a Fund will achieve
its investment objective. The net asset value of a share of a Fund will fluctu-
ate as market conditions change.
(Continued on Next Page)
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- --------------------------------------------------------------------------------
<S> <C>
Table of Expenses.......................................................... 2
Financial Highlights....................................................... 4
The Funds' Investments..................................................... 5
Risk Factors............................................................... 12
Limiting Investment Risk................................................... 13
Purchase of Shares......................................................... 14
Redemption of Shares....................................................... 22
Shareholder Services....................................................... 24
The Funds and Their Shares................................................. 28
Management of the Funds.................................................... 29
Dividends and Distributions; Taxes......................................... 30
Calculation of Performance Data............................................ 31
- --------------------------------------------------------------------------------
</TABLE>
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 FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND IN-
VOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVEST-
ED.
<PAGE>
(Continued from Previous Page)
This Prospectus sets forth concisely the information a prospective investor
ought to know about the Funds before investing. It should be retained for fu-
ture reference. A Statement of Additional Information about the Funds dated
March 1, 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 Portfolios at the address indicated on the back cover or by
calling 1-800-562-0032.
--------------
Each Fund offers four classes of shares which may be purchased at the next de-
termined 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 (declin-
ing 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 percent-
age 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 Fees............................... None None None None
</TABLE>
- -------
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
thereafter, and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the sale.
Long-term investors in 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 of the National Association of
Securities Dealers, Inc. 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."
- --------------------------------------------------------------------------------
2
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND CLASS A CLASS B CLASS C CLASS D
------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a percent-
age of average net assets)
Management Fees............................. 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........... 1.90% 2.65% 1.65% 2.65%
<CAPTION>
INTERNATIONAL FIXED INCOME FUND CLASS A CLASS B CLASS C CLASS D
------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a percent-
age of average net assets)
Management Fees............................. 0.75% 0.75% 0.75% 0.75%
12b-1 Fees.................................. 0.25% 1.00% None 1.00%
Other Expenses.............................. 1.30% 1.30% 1.30% 1.30%
Less Voluntary Reduction.................. (0.55%) (0.55%) (0.55%) (0.55%)
------ ------ ------ ------
Total Fund Operating Expenses........... 1.75% 2.50% 1.50% 2.50%
</TABLE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment including, for
Class A shares, the maximum applicable initial sales charge and assuming a 5%
annual return and (1) redemption of the entire investment at the end of each
time period or (2) no redemption at the end of each time period.
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------- ------- ------- ------- ---------
(1) (2) (1) (2) (1) (2) (1) (2)
--- --- --- --- --- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A shares............................... 63 63 102 102 143 143 257 257
Class B shares (1)........................... 77 27 112 82 161 141 280 280
Class C shares............................... 17 17 52 52 90 90 195 195
Class D shares............................... 37 27 82 82 141 141 298 298
<CAPTION>
INTERNATIONAL FIXED INCOME FUND
-------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A shares............................... 62 62 98 98 136 136 242 242
Class B shares (1)........................... 75 25 108 78 153 133 265 265
Class C shares............................... 15 15 47 47 82 82 179 179
Class D shares............................... 35 25 78 78 133 133 284 284
</TABLE>
- -------
(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--Alter-
native Purchase Program"; for further information on management fees, see "Man-
agement of the Funds"; and for further information on 12b-1 fees, see "Purchase
of Shares--Distribution Plan."
The Funds have been advised that the Distributor and its affiliates may from
time to time and in varying amounts voluntarily assume some portion of fees or
expenses relating to the Funds. For the fiscal year ended October 31, 1996, To-
tal Fund Operating Expenses as a percentage of average net as-sets of Class A,
Class B, Class C and Class D shares, respectively, would have been 2.36%,
3.11%, 2.12%, and 3.11% of the International Equity Fund; and 2.31%, 3.05%,
2.04% and 3.05% of the International Fixed Income Fund, in the absence of the
voluntary assumption of fees or expenses by the Investment Manager/Distributor.
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, of the International Equity Fund; and 0.56%, 0.55%,
0.54% and 0.55% of Class A, Class B, Class C and Class D, respectively, of the
International Fixed Income Fund. The amount of fees or expenses assumed during
the fiscal year ended October 31, 1996 differed among classes because of fluc-
tuating relative levels of assets in each class and expenses before reimburse-
ment which may not be constant over time. The Funds expect the voluntary as-
sumption of fees or expenses to continue in the current year, although they
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 Addi-
tional Information. For further information about the performance of the Funds,
see "Financial Statements" in the Statement of Additional Information.
INTERNATIONAL EQUITY FUND
<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
income
(loss)*........ (.04) (.08) (.04) (.11) (.15) (.06)
Net realized and
unrealized gain
(loss) on
investments and
foreign
currency....... (.08) (1.04) .48 (.07) (1.04) .45
Dividends from
net investment
income......... -- -- -- -- -- --
Distributions
from net
realized gains. -- (.52) -- -- (.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
income (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........... $ . $ .06 $ .03 $ .05 $ .06 $ .03
<CAPTION>
CLASS C CLASS D
------------------------------------------------------------- --------------------------------
JANUARY 22, 1992
YEAR ENDED OCTOBER 31, (COMMENCEMENT YEAR ENDED OCTOBER 31,
------------------------------------------- OF OPERATIONS) TO --------------------------------
1996*** 1995*** 1994 1993 OCTOBER 31, 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)*........ (.02) (.05) (.07) (.02) .04 (.11) (.15) (.07)
Net realized and
unrealized gain
(loss) on
investments and
foreign
currency....... (.08) (1.05) 2.09 3.17 (.94) (.08) (1.04) .46
Dividends from
net investment
income......... -- -- (.05) (.04) -- -- -- --
Distributions
from net
realized gains. -- (.52) (.52) (.05) -- -- (.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........... $ .05 $ .06 $ .05 $ .08 $ .10 $ .05 $ .06 $ .03
INTERNATIONAL FIXED INCOME FUND
<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........... $ 8.80 $ 8.31 $ 7.99 $ 8.77 $ 8.28 $ 7.99
Net investment
income*........ .27 .40 .30 .21 .34 .27
Net realized and
unrealized gain
(loss) on
investments and
foreign
currency....... (.16) .72 .27 (.16) .72 .26
Dividends from
net investment
income......... (.40) (.59) (.25) (.34) (.53) (.24)
Distributions
from net
realized gains. (.06) (.04) -- (.06) (.04) --
------- ------- ------- ------- ------- -------
Net asset value,
end of year.... $ 8.45 $ 8.80 $ 8.31 $ 8.42 $ 8.77 $ 8.28
======= ======= ======= ======= ======= =======
Total return.... 1.31%+ 14.26 %+ 7.33 %++ 0.61%+ 13.53 %+ 6.73 %++
Net assets at
end of year
(000s)......... $ 2,807 $ 2,106 $ 1,079 $ 4,028 $ 2,851 $ 1,439
Ratio of
operating
expenses to
average net
assets*........ 1.75% 1.74 % 1.69 %++ 2.50% 2.49 % 2.43 %++
Ratio of net
investment
income to
average net
assets*........ 3.25% 4.71 % 5.79 %++ 2.50% 3.94 % 5.06 %++
Portfolio
turnover rate.. 45.84% 23.31 % 38.84 % 45.84% 23.31 % 38.84 %
*Reflects
voluntary
assumption of
fees or
expenses per
share in each
year........... $ .05 $ .06 $ .01 $ .05 $ .06 $ .02
<CAPTION>
CLASS C CLASS D
------------------------------------------------------------- --------------------------------
JANUARY 22, 1992
YEAR ENDED OCTOBER 31, (COMMENCEMENT YEAR ENDED OCTOBER 31,
------------------------------------------- OF OPERATIONS) TO --------------------------------
1996*** 1995*** 1994 1993 OCTOBER 31, 1992 1996*** 1995*** 1994**
------- ------- ---- ---------- ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year........... $ 8.81 $ 8.32 $ 8.24 $ 7.85 $ 7.40 $ 8.78 $ 8.29 $ 7.99
Net investment
income*........ .30 .44 .14 .41 .32 .21 .34 .27
Net realized and
unrealized gain
(loss) on
investments and
foreign
currency....... (.17) .70 .46 .34 .13 (.17) .72 .26
Dividends from
net investment
income......... (.42) (.61) (.49) (.36) -- (.35) (.53) (.23)
Distributions
from net
realized gains. (.06) (.04) (.03) -- -- (.06) (.04) --
---------- ---------- ---------- ---------- ----------------- ---------- ---------- ----------
Net asset value,
end of year.... $ 8.46 $ 8.81 $ 8.32 $ 8.24 $ 7.85 $ 8.41 $ 8.78 $ 8.29
========== ========== ========== ========== ================= ========== ========== ==========
Total return.... 1.54%+ 14.51 %+ 7.72 %+ 9.98 %+ 6.08 %++ 0.39%+ 13.49 %+ 6.81 %++
Net assets at
end of year
(000s)......... $24,840 $24,516 $23,319 $24,965 $22,299 $ 1,806 $1,173 $ 536
Ratio of
operating
expenses to
average net
assets*........ 1.50% 1.49 % 1.47 % 1.50 % 1.50 %++ 2.50% 2.49 % 2.45 %++
Ratio of net
investment
income to
average net
assets*........ 3.50% 5.14 % 5.62 % 5.48 % 5.63 %++ 2.50% 3.94 % 4.98 %++
Portfolio
turnover rate.. 45.84% 23.31 % 38.84 % 20.44 % 56.31 % 45.84% 23.31 % 38.84 %
*Reflects
voluntary
assumption of
fees or
expenses per
share in each
year........... $ .05 $ .06 $ .03 $ .03 $ .04 $ .05 $ .06 $ .01
</TABLE>
** March 1, 1994 (commencement of share class designations) to October 31,
1994.
*** Per-share figures have been calculated using the average share method.
++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.
@ Average commission rate per share paid for security trades for fiscal years
beginning on or after November 1, 1995.
4
<PAGE>
THE FUNDS' INVESTMENTS
Each of the International Equity Fund and the International Fixed Income Fund
has its own investment objective and policies, as described below. These in-
vestment objectives and policies are not fundamental and may be changed by the
Board of Directors without shareholder approval. If the Directors should deter-
mine that a change in the investment objective of either 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 invest-
ment in light of his or her then current needs and financial position.
INTERNATIONAL EQUITY FUND
The investment objective of the International Equity Fund is to achieve long-
term growth of capi-tal by investing primarily in common stocks and equity-re-
lated 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 International Equity Fund may invest are: preferred stocks, securi-
ties convertible into or exchangeable for common stocks and warrants. Current
income is not a specific prerequisite in the selection of International Equity
Fund securities. The performance of the International Equity Fund is measured
in U.S. dollars.
To achieve its objective, the International Equity Fund, under normal circum-
stances, invests at least 65% of its net assets in common stocks and equity-re-
lated 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 International Equity Fund may also
invest its net assets in common stocks and equity-related securities of emerg-
ing 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 Secu-
rities" below for information concerning emerging growth companies.
The common stocks and equity-related securities purchased by the International
Equity Fund generally are traded on a non-U.S. stock exchange or on an estab-
lished 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 Re-
ceipts ("EDRs"), and International Depositary Receipts ("IDRs"). See "Foreign
Securities" below for information concerning ADRs, EDRs and IDRs.
Although the International Equity 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 recog-
nized 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 ele-
ments 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 repur-
chase agreements and synthetic money market positions. See the Statement of Ad-
ditional 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 International Equity Fund in-
vests primarily in non-U.S. securities. Nevertheless, if in GFM's view, current
or anticipated political, market, or economic conditions warrant, the Interna-
tional Equity Fund may for temporary defensive purposes invest in domestic
money market instruments, debt securities, and equity securities without limi-
tation. During those time periods when the Fund has assumed a temporary defen-
sive position, the Fund will not be pursuing its investment objective.
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The International Equity Fund intends to invest in a number of companies and
countries. The Fund also has no set limits related to the geography of its in-
vestments and expects to invest in companies located in Europe, the Pacific Ba-
sin, 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 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 econo-
mies. The Fund may also invest indirectly in non-U.S. securities in other geo-
graphical areas through the purchase of ADRs. See "Foreign Securities" below
for more information concerning ADRs. When allocating investments among geo-
graphic regions and individual countries, GFM considers various factors, such
as: prospects for relative economic growth among countries, regions or geo-
graphic areas; expected levels of inflation; government policies influencing
business conditions; and the outlook for currency relationships.
INTERNATIONAL FIXED INCOME FUND
The investment objective of the International Fixed Income Fund is to achieve
the highest possible total return, consisting of income and realized and
unrealized capital gains, consistent with prudent investment risk and preserva-
tion of capital, by investing primarily in high quality debt securities of non-
U.S. issuers. Non-U.S. issuers for these purposes are those domiciled outside
the United States. The performance of the International Fixed Income Fund is
measured in U.S. dollars. The type of securities (fixed income) in which the
Fund primarily invests may preclude it from achieving its objective of highest
total return under certain market conditions. The International Fixed Income
Fund has no policy which limits the range of maturities of the debt obligations
it will purchase. Because the Fund seeks the highest total return, the Fund
maintains the flexibility to invest in debt securities at all maturity levels.
To achieve its objective, the International Fixed Income Fund, under normal
circumstances, invests at least 65% of its assets in high quality debt securi-
ties. Under normal circumstances, the Fund has at least three different coun-
tries represented in its portfolio. High quality debt securities of non-U.S.
issuers are those rated at least AA- or its equivalent by an NRSRO, or, if
unrated, of comparable investment quality as determined by GFM. See the State-
ment of Additional Information for a description of the debt ratings of Moody's
Investor Services, Inc. and Standard & Poor's Ratings Group. GFM will not pur-
chase securities consisting of new long-term debt issues for the International
Fixed Income Fund where those offerings are less than $100 million or its
equivalent. Should any of the Fund's securities become rerated below AA--or its
equivalent by an NRSRO, GFM has the freedom to sell the securities or to retain
the securities in the Fund's portfolio if, in GFM's view, such investment is
considered appropriate under the circumstances.
Because of the high credit standards established for the International Fixed
Income Fund, it is currently expected that investments in debt obligations is-
sued or guaranteed by foreign national governments, their agencies, instrumen-
talities or political subdivisions ("foreign government debt") will constitute
over 25% of the value of the Fund's assets. However, if these securities are
impacted by adverse economic conditions, the Fund may temporarily have less
than 25% of the value of its assets invested in foreign government or govern-
ment agency debt. The Fund may also invest in debt obligations issued or guar-
anteed by international organizations ("supranational debt"), or issued by non-
U.S. corporations or financial institutions. Securities of corporations and fi-
nancial institutions in which the Fund may invest include corporate and commer-
cial obligations, such as medium-term notes. For more information concerning
foreign government debt or supranational debt, see "Foreign Securities."
Under normal circumstances, when in GFM's view prevailing market or economic
conditions warrant, the International Fixed Income Fund may be invested in
short-term instruments, including repurchase agreements with non-U.S. banks and
broker-
6
<PAGE>
dealers and "synthetic money market positions", such as described in "Other In-
vestment Practices" below. Shorter-term investments in the Fund's portfolio may
also include short-term foreign government debt, certificates of deposit, bank-
ers' acceptances and deposit notes and certain other short-term obligations
such as commercial paper with nine months or less remaining until maturity. For
more information concerning bank money market instruments, see "Foreign Securi-
ties."
Although the International Fixed Income Fund does not intend to invest in eq-
uity or equity-related securities, such as preferred stocks or securities con-
vertible into or exchangeable for common stocks, the Fund retains the freedom
to invest up to 35% of its assets in equity or equity-related securities under
normal circumstances, when such securities provide significant opportunities,
especially when the yields in the debt market are deemed to be unattractive.
The International Fixed Income Fund intends to achieve its objective by in-
vesting in a number of foreign issuers to take advantage of opportunities that
may exist world-wide for its investors, including those opportunities that will
enhance the value and increase the protection of their investment against in-
flation. By investing in a number of different countries, it is believed that
the Fund will not be affected by events in any one country. Nevertheless, if in
GFM's view, current or anticipated political, market, or economic conditions
warrant, the International Fixed Income Fund may for temporary defensive pur-
poses invest in domestic money market instruments, debt securities and equity
securities without limitation. During those time periods when the Fund has as-
sumed a temporary defensive position, the Fund will not be pursuing its invest-
ment objective.
Where appropriate, to enhance return, the International Fixed Income Fund pur-
chases foreign securities where the general economic climate and interest rate
environment provide an opportunity for capital appreciation. Fixed income secu-
rities appreciate in value where interest rates decline. If the currency in
which the investment is held appreciates relative to the U.S. dollar, the In-
ternational Fixed Income Fund's total investment will also appreciate. However,
if interest rates rise or the currency in which the investment is held depreci-
ates relative to the dollar, the Fund's total investment would be negatively
affected. When allocating investments among particular countries, GFM considers
primarily the interest rate environment and the strength of the currency rela-
tive to the dollar. The strength of currency is weighed by considering the
prospects for relative economic growth, relative levels of inflation and
trends, government economic policies and balance of payments. For more informa-
tion concerning currency transactions, see "Other Investment Practices--Cur-
rency Exchange Transactions."
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 er-
ratic market movements than more established companies or the market generally.
Also, these companies may have limited product lines, markets or financial re-
sources, 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 de-
posited 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 ex-
changes or in the U.S. over-the-counter market and, generally, are in regis-
tered 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
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ADRs are generally subject to the same auditing, accounting, and financial re-
porting 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").
Privately Placed Securities
The Funds may acquire privately placed equity securities including securities
that are not registered under the Securities Act of 1933, but that can be of-
fered and sold to qualified institutional buyers under Rule 144A under that Act
("144A securities"). However, a Fund will not invest more than 10% 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 dele-
gate to GFM the daily function of determining and monitoring the liquidity of
144A securities. Since the institutional market for 144A securities is not
fully developed, the Board of Directors will carefully monitor the Funds' in-
vestments in these securities, focusing on such factors, among others, as valu-
ation, liquidity and availability of information.
Foreign Government Debt
The obligations of foreign governmental entities have various kinds of govern-
ment support and include obligations issued or guaranteed by foreign governmen-
tal entities with taxing powers. These obligations may or may not be supported
by the full faith and credit of a foreign government. The Funds 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 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 suprana-
tional entity is unable to repay its borrowings.
Foreign Currency Units
The Funds may invest in securities denominated in a multi-national currency
unit. An illustration of a multi-national currency unit is the European Cur-
rency Unit (the "ECU"), which is a "basket" consisting of specified amounts of
the currencies of the member states of the European Community, a Western Euro-
pean economic cooperative organization that includes France, Germany, The Neth-
erlands 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-denomi-
nated obligations or the marketability of such securities. European suprana-
tional entities, in particular, issue ECU-denominated obligations. The Funds
may invest in securities denominated in the currency of one nation although is-
sued by a governmental entity, corporation or financial institution of another
nation. For example, the Funds may invest in a British pound sterling-denomi-
nated obligation issued by a United States corporation. Such investments in-
volve 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 ob-
ligations issued by U.S. branches or subsidiaries of foreign banks. Eurodollar
and Yankeedollar obligations may be general obliga-
8
<PAGE>
tions 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
Both Funds intend 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, divi-
dends, and sale proceeds in non-U.S. currencies. As a result, the Funds 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 asso-
ciated with currency fluctuations, each Fund may also enter into forward for-
eign 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 con-
tracts, and may sell or purchase put or call options on currency futures con-
tracts. 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 antici-
pated declines in the value of its securities, each Fund may write (sell) cov-
ered 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 Funds may write covered put options on securities and
stock indices and may purchase put options to close out such covered put op-
tions previously written. The Funds also may write covered call and covered put
options on currencies and may purchase call and put options to close out cov-
ered put and covered call options previously written. The Funds may write cov-
ered call and covered put options on currencies to hedge against anticipated
declines in the exchange rate of the currencies in which the Funds' securities
held or to be purchased are denominated or to earn additional income for the
Funds. The International Fixed Income Fund may also write covered call and put
options on the yield "spread" or the difference in yield between two securi-
ties, rather than prices of individual securities or indices. These transac-
tions may be done for hedging purposes and also to earn additional income.
These transactions involve greater risk than other hedging transactions.
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 pe-
riod. 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 op-
tion 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 de-
livery of a particular security. Each Fund will write covered call options only
with respect to equity securities, bonds, and stock and bond indices which cor-
relate with that Fund's particular portfolio securities and the Fund may write
covered put and covered call options only on currencies that correlate with
that Fund's investments. The Funds will write only covered options that are
listed on recognized securities exchanges.
Each Fund may also purchase put and call options with respect to securities
and indices that correlate with each Fund's particular securities, and the
Funds may also purchase put and call options on currencies that correlate with
each Fund's investment. A Fund may purchase put options for defensive purposes
in order to protect against an anticipated decline in the value of its portfo-
lio securities, or the currencies in which its securities are denominated. As
the holder of a put option with respect to individual securities or currencies,
a Fund has the right to sell the securities or currencies underlying the op-
tions and to receive a cash
9
<PAGE>
payment at the exercise price at any time during the option period. As the
holder of a put option on an index, a Fund has the right to receive, upon exer-
cise 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. A Fund may
purchase call options in order to acquire the securities or currencies under-
lying 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, a 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 op-
tion, 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 secu-
rity 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 cur-
rent market values or exchange rates; and purchasing put and call options--pos-
sible loss of the entire premium paid. In addition, the effectiveness of hedg-
ing 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 correla-
tion may not be possible because the securities held or to be acquired by a
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, in-
terest rates or exchange rates are incorrect, a Fund's investment results may
have been better without the hedge. A more thorough description of these in-
vestment 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.
Futures Contracts and Options on Futures Contracts
Each Fund may purchase and sell futures contracts on debt securities and indi-
ces of debt securities (i.e. interest rate futures contracts) as a hedge
against or to minimize adverse principal fluctuations resulting from antici-
pated 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 that particular Fund's
equity holdings. Stock index futures contracts may be used as a way to imple-
ment either an increase or decrease in portfolio exposure to the equity markets
in response to changing market conditions. The Funds 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. Each Fund may also write (sell) covered call options on futures con-
tracts, purchase put and call options on futures contracts of the type which
that Fund is permitted to purchase or sell, and may enter into closing transac-
tions 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 a
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 seg-
regated 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 Funds will not enter into futures contracts for
speculation and will only enter into futures con-
10
<PAGE>
tracts that are traded on a recognized futures exchange. No Fund will enter
into futures contracts or options thereon if immediately thereafter the sum of
the amounts of initial margin deposits on the Fund's open futures contracts and
premiums paid for unexpired options on futures contracts would exceed 5% of the
value of that Fund's 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.
The use of futures contracts by the Funds 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 cur-
rency 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 expecta-
tions of GFM regarding movements in securities prices, interest rates or ex-
change rates are incorrect, a Fund may have experienced better investment re-
sults without hedging. The use of futures contracts and options on futures con-
tracts 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 com-
mitment by a 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 trans-
actions 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 de-
cline in value between the trade and settlement dates. After a 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 a Fund and are, therefore, subject to the Funds' restrictions with
respect to borrowing generally. To ensure against the risk that the Funds will
have insufficient assets to 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 Funds.
Repurchase Agreements
Each 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 each Fund's limiting its
investments in illiquid securities to no more than 10% of the Fund's total
assets. In all instances, the Funds take 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 a 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. Each 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 that Fund. A
forward currency contract involves an obligation to purchase or sell a specific
11
<PAGE>
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 Funds may enter into
forward currency contracts only under two circumstances. First, when a 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, that 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), a 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 that Fund's securities denominated in such foreign currency (position
hedge). In addition the Funds 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 a Fund has or expects to
have portfolio exposure. Each 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. A 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 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 Funds. In addition to, or in lieu of direct investment in
such securities, the Funds 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
From time to time, the Funds may lend some of their portfolio securities to
third parties such as brokers, dealers and other financial institutions. In re-
turn the Funds receive collateral in the form of cash or United States Treasury
securities that is maintained by the borrower at all times while the loan is
outstanding in an amount equal to 100% of the current market value of the
loaned securities. The Funds continue to have full ownership rights in the
loaned securities and still bear market risks while the securities are in the
hands of these third parties. The collateral may also be invested and such
gains or losses would also inure to the Funds. The Funds bear the risk that
borrowers may default on their obligation and that income from the loaned secu-
rities may not be "qualified" under the tax laws. The Funds do not intend to
loan their securities in any transaction which would jeopardize their tax sta-
tus or in which the borrowers are not judged to be creditworthy. A further dis-
cussion of loans of portfolio securities is contained in the Statement of Addi-
tional Information.
RISK FACTORS
Investments in securities of foreign issuers, particularly non-governmental
issuers, involve risks
12
<PAGE>
which are not ordinarily associated with investments in domestic issuers. The
securities of non-U.S. issuers held by the Funds generally will not be regis-
tered under, nor will the issuers thereof be subject to, the reporting require-
ments 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 com-
parable U.S. companies, and settlement of transactions with respect to such se-
curities may sometimes be delayed beyond periods customary in the United
States, which might present liquidity concerns. Further, fixed brokerage com-
missions on certain non-U.S. stock exchanges are generally higher than negoti-
ated commissions on United States exchange-listed securities, and custodial
costs with respect to these securities generally exceed domestic costs. Enforc-
ing obligations in other countries may be difficult. In addition, the tax au-
thorities of some countries impose restrictions on the payment of dividends and
require the Funds 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 Funds, po-
litical or social instability, or diplomatic developments that could adversely
affect investments in those countries. In addition, some markets trade at con-
siderably higher valuation levels than in the United States. This condition re-
sults in markets with greater potential for volatility and which are more sus-
ceptible 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 retal-
iatory or protectionist trade measures instituted by their trading partners and
by the economic conditions of these partners. Further, the value of each Fund's
securities denominated in foreign currencies will be affected favorably or un-
favorably by changes in currency exchange rates and exchange control regula-
tions, and the Funds may incur costs in connection with conversions between
various currencies. Some of these risks are heightened for investments in Latin
America. For example, governments of many Latin American countries exercise
substantial influence over the private sector through their own investments in
various companies, and the actions of these governments could have a signifi-
cant effect on economic conditions in any particular country in the region.
LIMITING INVESTMENT RISK
Portfolios has adopted the following fundamental investment restrictions relat-
ing to the investment of assets of each Fund and its activities. Additional
fundamental investment restrictions are described in the Statement of Addi-
tional Information, at "Investment Practices and Policies." The fundamental in-
vestment restrictions discussed below and in the Statement of Additional Infor-
mation, unlike a Fund's investment objective, may not be changed without ap-
proval by the requisite vote of the outstanding voting shares of each Fund af-
fected.
No Fund may:
(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: both Funds 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 pur-
chase 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 a
Fund from (a) entering into repurchase agreements (see "In-
13
<PAGE>
vestment Practices and Policies," in the Statement of Additional Informa-
tion), (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 Portfo-
lio Securities," in this Prospectus and in the Statement of Additional In-
formation for a discussion of risks associated with such practice).
Nothing in the foregoing investment restrictions shall be deemed to prohibit
either 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 SER-
VICES is set forth on pages
14 to 27 below.
- --------------------------------------------------------------------------------
A Fund is available for in-
vestment by many kinds of
investors including partic-
ipants investing through
401(k) or other retirement
plan sponsors, employees
investing through savings
plans sponsored by employ-
ers, 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 RECORD-
KEEPING SYSTEM ESTABLISHED
FOR A SHAREHOLDER'S INVEST-
MENT IN A FUND. PARTICI-
PANTS IN 401(K) AND OTHER
PLANS SHOULD FIRST CONSULT
WITH THE APPROPRIATE PERSON
AT THEIR EMPLOYER OR REFER
TO THE PLAN MATERIALS BE-
FORE FOLLOWING ANY OF THE
PROCEDURES BELOW. FOR MORE
INFORMATION OR ASSISTANCE,
ANYONE MAY CALL 1-800-562-
0032.
PURCHASE OF SHARES
METHODS OF PURCHASE
Through Dealers and Others
Shares of the Funds are continuously offered through securities dealers, finan-
cial institutions and others (collectively referred to herein as "securities
dealers" or "dealers") who have entered into sales agreements with the Distrib-
utor. 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 con-
ditions of the applicable method of purchase as described below.) The dealer is
responsible for transmitting the order promptly to Shareholder Services in or-
der to permit the investor to obtain the current price. See "Purchase of
Shares--Net Asset Value" herein.
By Mail
Initial investments in a Fund may be made by mailing or delivering to the in-
vestor's dealer a completed Application (accompanying this Prospectus), to-
gether with a check for the total purchase price payable to the applicable
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
14
<PAGE>
Bank and Trust Company, which also serves as Portfolios' custodian (the "Custo-
dian"), 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=Name of Fund and class of shares (A, B, C or D)
AC=99029761
OBI=Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the in-
vestor 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 securi-
ties dealer, who should forward it as required. No redemptions will be effected
until the Application has been duly processed.
Each Fund may in its discretion discontinue, suspend or change the practice of
accepting orders by any of the methods described above. Orders for the purchase
of shares are subject to acceptance by a Fund. A Fund reserves the right to
suspend the sale of shares or to reject any purchase order, including orders in
connection with exchanges, for any reason.
MINIMUM INVESTMENT
<TABLE>
<CAPTION>
CLASS OF SHARES
------------------------
A B C D
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum Initial Investment
By Wire............................................... $5,000 $5,000 (a) $5,000
IRAs.................................................. $2,000 $2,000 (a) $2,000
By Investamatic....................................... $1,000 $1,000 (a) $1,000
All other............................................. $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire............................................... $5,000 $5,000 (a) $5,000
IRAs.................................................. $ 50 $ 50 (a) $ 50
By Investamatic....................................... $ 50 $ 50 (a) $ 50
All other............................................. $ 50 $ 50 (a) $ 50
</TABLE>
- -------
(a) Special conditions apply; contact Distributor.
Each 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 solici-
tations of the members of an organization, or other investment plans for rein-
vestment 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. In-
vestors will be able to determine whether in their particular circumstances it
is more advantageous to incur an initial sales charge and not be subject to
certain ongoing charges or to have their entire initial purchase price invested
in a Fund with the investment being subject thereafter to ongoing service fees
and distribution fees.
As described in greater detail below, 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 Contingent None Contingent
charge at time deferred sales deferred sales
of investment charge of 5% charge of 1%
of up to 4.5% to 2% applies applies to any
depending on to any shares shares
amount of redeemed redeemed
investment within first within one
five years year following
following their purchase
their
purchase; no
contingent
deferred sales
charge after
five years
On investments
of $1 million
or more, no
initial sales
charge; but
contingent
deferred sales
charge of 1%
applies to any
shares
redeemed
within one
year following
their purchase
DISTRIBUTION FEE None 0.75% for None 0.75% each
first eight year
years; Class B
shares convert
automatically
to Class A
shares after
eight years
SERVICE FEE 0.25% each 0.25% each None 0.25% each
year year year
INITIAL COMMISSION RE- Above 4% None 1%
CEIVED BY SELLING DEALER described
initial sales
charge less
0.25% to 0.50%
retained by
Distributor
On investments
of $1 million
or more, 0.25%
to 1% 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 de-
ferred 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, there-
fore, the entire purchase amount is immediately invested in a Fund.
An investor who qualifies for a significantly reduced initial sales charge, or
a complete waiver of the sales charge on investments of $1,000,000 or more, on
the purchase of Class A shares, might elect that option to take advantage of
the lower ongoing service and distribution fees that characterize Class A
shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual dis-
tribution 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 con-
sider these fees plus the initial or contingent deferred sales charges in esti-
mating the costs of investing in the various classes of a Fund's shares.
Only certain employee benefit plans and large institutions may make invest-
ments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see "Dis-
tribution Plan" below). In addition, the Distributor may, at its expense, pro-
vide additional cash and noncash incentives to dealers that sell shares. Such
incentives may be extended only to those dealers who have sold or may sell sig-
nificant amounts of shares and/or meet other conditions established by the Dis-
tributor; 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 a Fund over a period of years. The incentives may include
merchandise and trips to and attendance at sales seminars at resorts.
CLASS A SHARES--INITIAL SALES CHARGES
Sales Charges
The purchase price of a Class A share of a Fund is the Fund's per share net as-
set 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.
<TABLE>
<CAPTION>
SALES SALES
CHARGE CHARGE
PAID BY PAID BY DEALER
DOLLAR INVESTOR INVESTOR CONCESSION
AMOUNT OF AS % OF AS % OF AS % OF
PURCHASE PURCHASE NET ASSET PURCHASE
TRANSACTION PRICE VALUE PRICE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than
$100,000 4.50% 4.71% 4.00%
- ---------------------------------------------------------------------------------------------
$100,000 or above
but less than
$250,000 3.50% 3.63% 3.00%
- ---------------------------------------------------------------------------------------------
$250,000 or above
but less than
$500,000 2.50% 2.56% 2.00%
- ---------------------------------------------------------------------------------------------
$500,000 or above
but less than
$1 million 2.00% 2.04% 1.75%
- ---------------------------------------------------------------------------------------------
See
$1 million and following
above 0% 0% discussion
</TABLE>
17
<PAGE>
On any sale of International Equity Fund Class A shares to a single investor
in the amount of $1,000,000 or more, the Distributor will pay the authorized
dealer a commission based on the aggregate of such sales as follows:
<TABLE>
<CAPTION>
AMOUNT OF SALE COMMISSION
- -------------- ----------
<S> <C>
(a)$1 million to $3 million.......................................... 1.00%
(b)Next $2 million................................................... 0.50%
(c)Amount over $5 million............................................ 0.25%
</TABLE>
On any sale of International Fixed Income Fund Class A shares to a single in-
vestor in the amount of $1,000,000 or more, the Distributor will pay the autho-
rized securities dealer a commission as follows:
<TABLE>
<CAPTION>
AMOUNT OF SALE COMMISSION
- -------------- ----------
<S> <C>
(a)$1 million to $3 million.......................................... 0.70%
(b)Next $2 million................................................... 0.50%
(c)Amount over $5 million............................................ 0.25%
</TABLE>
On such sales of $1,000,000 or more, 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) rein-
vestment of dividends or capital gains distributions. In addition, the contin-
gent deferred sales charge will be waived for certain other redemptions as de-
scribed under "Contingent Deferred Sales Charge Waivers" below (as otherwise
applicable to Class B shares.)
Class A shares of a Fund that are purchased without a sales charge may be ex-
changed for Class A shares of certain other Eligible Funds, as defined below,
without the imposition of a contingent deferred sales charge, although contin-
gent deferred sales charges may apply upon a subsequent redemption within one
year of the Class A shares which are acquired through such exchange. For fed-
eral 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 pur-
chases made at any one time by any "person," as defined in the Statement of Ad-
ditional Information, of $100,000 or more of Class A shares of a Fund or a com-
bination of "Eligible Funds." "Eligible Funds" include the Funds and other
funds so designated by the Distributor from time to time. Class B, Class C and
Class D shares may also be included in the combination under certain circum-
stances. Securities dealers should call Shareholder Services for details con-
cerning the other Eligible Funds and any persons who may qualify for reduced
sales charges and related information. See the Statement of Additional Informa-
tion.
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 Funds 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 cer-
tain circumstances. Additional information on a Letter of Intent is available
from dealers, or from the Distributor, and also appears in the Statement of Ad-
ditional Information.
Right of Accumulation
Investors may purchase Class A shares of a Fund or a combination of shares of
the Funds and other Eligible Funds at reduced sales charges pursuant to a Right
of Accumulation. Under the Right of Accumulation, the sales charge is deter-
mined 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 de-
tails concerning the Right of Accumulation.
Other Programs
Class A shares of the Funds may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored arrange-
ments, which include programs under
18
<PAGE>
which a company, employee benefit plan or other organization makes recommenda-
tions to, or permits group solicitation of, its employees, members or partici-
pants, except any organization created primarily for the purpose of obtaining
shares of the Funds at a reduced sales charge or without a sales charge. Sales
without a sales charge, or with a reduced sales charge, may also be made
through brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor. Information on
such arrangements and further conditions and limitations is available from the
Distributor.
In addition, no sales charge is imposed in connection with the sale of Class A
shares of a Fund to the following entities and persons: (A) the Investment Man-
ager, Distributor, or any affiliated entities, including any direct or indirect
parent companies and other subsidiaries of such parents (collectively "Affili-
ated 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 invest-
ment 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 Funds. However, a contin-
gent 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 sell-
ing Class B shares. The proceeds of the contingent deferred sales charge and
the distribution fee are used to offset distribution expenses and thereby per-
mit the sale of Class B shares without an initial sales charge.
Class B shares that are redeemed within a five-year period after their pur-
chase 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 as-
sets or (2) reinvestment of dividends or capital gains distributions. The
amount of any applicable contingent deferred sales charge will be calculated by
multiplying the net asset value of such shares at the time of redemption or at
the time of purchase, whichever is lower, by the applicable percentage shown in
the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
NET ASSET VALUE
REDEMPTION DURING AT REDEMPTION
- ----------------- -------------------
<S> <C>
1st Year Since Purchase..................................... 5%
2nd Year Since Purchase..................................... 4
3rd Year Since Purchase..................................... 3
4th Year Since Purchase..................................... 3
5th Year Since Purchase..................................... 2
6th Year Since Purchase and Thereafter...................... None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first of
those shares having the greatest capital appreciation, next of shares repre-
senting reinvestment of dividends and capital gains distributions and finally
of remaining shares held by the shareholder for the longest period of time. The
holding period for purposes of applying a contingent deferred sales charge on
Class B shares of a Fund acquired through an exchange from another Eligible
Fund will be measured from the date that such
19
<PAGE>
shares were initially acquired in the other Eligible Funds, and Class B shares
being redeemed will be considered to represent, as applicable, capital appreci-
ation 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 re-
demption. The amount of any contingent deferred sales charge will be paid to
the Distributor.
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to redemp-
tions under a systematic withdrawal plan which meets certain conditions. In ad-
dition, the contingent deferred sales charge will be waived for: (i) redemp-
tions made within one year of the death or total disability, as defined by the
Social Security Administration, of all shareholders of an account; (ii) redemp-
tions 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 Inter-
nal Revenue Code for retirement accounts or plans (e.g., age 70 1/2 for IRAs
and Section 403(b) plans), calculated solely on the basis of assets invested in
the Funds or other Eligible Funds; and (iii) a redemption resulting from a tax-
free return of an excess contribution to an IRA. (The foregoing waivers do not
apply to a tax-free rollover or transfer of assets out of a Fund.) The Funds
may modify or terminate the waivers described above at any time; for example,
the Funds may limit the application of multiple waivers 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 a 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 ex-
penses 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 re-
sult in a shareholder receiving either a greater or fewer number of Class A
shares than the Class B shares so converted. As noted above, holding periods
for Class B shares received in exchange for Class B shares of other Eligible
Funds will be counted toward the eight-year period.
CLASS C SHARES--INSTITUTIONAL; NO SALES CHARGE
The purchase price of a Class C share of a Fund is the Fund's per share net as-
set value next determined after the purchase order is duly received, as defined
herein. No sales charge is imposed at the time of purchase or redemption. The
Funds will receive the full amount of the investor's purchase payment.
In general, Class C shares are only available for new investments by certain
large institutions and employee benefit plans which acquire shares through pro-
grams 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 Distribu-
tor.
Class C shares may have also been issued directly or through exchanges to
those shareholders of the Funds 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 a Fund is the Fund's per share net as-
set value next determined after the purchase order is duly received, as defined
herein. No sales charge is imposed at the time of purchase; thus the full
amount of the investor's purchase payment will be invested in the Funds. Class
D shares are subject to a 1% contingent deferred sales charge on any portion of
the purchase redeemed within one year of the sale. The contingent deferred
sales charge will be 1% of the lesser of the net asset value of the shares at
the time of purchase or at the time of redemption. The Distributor pays dealers
a 1% commission for selling Class D shares at the time of purchase. The pro-
ceeds of the contingent deferred sales charge
20
<PAGE>
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) rein-
vestment 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 re-
demption. The amount of any contingent deferred sales charge will be paid to
the Distributor.
NET ASSET VALUE
Each Fund's per share net asset values are determined Monday through Friday as
of the close of 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 a 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 quo-
tations are not readily available, Portfolios may use one or more pricing serv-
ices. The pricing services utilize information with respect to market transac-
tions, 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 ob-
tained is fair value. Further information with respect to the valuation of each
Fund's assets is included in the Statement of Additional Information.
DISTRIBUTION PLAN
Portfolios has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the "Dis-
tribution Plan") in accordance with the regulations under the Investment Com-
pany Act of 1940, as amended (the "1940 Act"). Under the provisions of the Dis-
tribution Plan, each Fund makes payments to the Distributor based on an annual
percentage of the average daily value of the net assets of each class of shares
as follows:
<TABLE>
<CAPTION>
DISTRIBUTION
CLASS SERVICE FEE FEE
- ----- ----------- ------------
<S> <C> <C>
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
</TABLE>
Some or all of the service fees are used to pay or reimburse dealers (includ-
ing dealers that are affiliates of the Distributor or others) for personal
services and/or the maintenance of shareholder accounts. A portion of any ini-
tial commission paid to dealers for the sale of shares of a Fund represents
payment for personal services and/or the maintenance or servicing of share-
holder accounts by such dealers. Dealers who have sold Class A shares are eli-
gible 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 commis-
sions paid to securities dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by the
Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by securities
dealers.
The Distributor provides distribution services on behalf of other funds having
distribution plans and receives similar payments from, and incurs similar ex-
penses on behalf of, such other funds. When expenses of the Distributor cannot
be identified as relating to a specific fund, the Distributor allocates ex-
penses among the funds in a manner deemed fair and equitable to each fund. Such
allocations are subject to review by Portfolios' Directors.
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<PAGE>
Commissions and other cash and noncash incentives and payments to dealers, to
the extent payable out of the general profits, revenues or other sources of the
Distributor (including the advisory fees paid by the Funds), have also been au-
thorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD") limits
the annual expenditures which a Fund may incur under the Distribution Plan to
1%, of which 0.75% may be used to pay distribution expenses and 0.25% may be
used to pay shareholder service fees. The NASD rule also limits the aggregate
amount which a Fund may pay for such distribution costs to 6.25% of gross share
sales of a class since the inception of any asset-based sales charge plus in-
terest 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 Share-
holder 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 pro-
ceeds from a Fund are normally remitted within seven days after receipt of the
redemption request by the Fund and any necessary documents in good order.
METHODS OF REDEMPTION
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for redemp-
tion 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 trans-
fer or accompanied by an endorsed stock power; (3) any required signature guar-
antees (see "Redemption of Shares--Signature Guarantees" below); and (4) any
additional documents which may be required for redemption in the case of corpo-
rations, 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 docu-
ments in good order. A shareholder will be notified promptly if a redemption
request cannot be accepted. Shareholders having any questions about the re-
quirements 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 transmit-
ted by check or by wire (see "Proceeds By Wire" below). A shareholder can re-
quest 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. Portfolios 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
22
<PAGE>
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 share-
holder's bank may also impose a charge for receiving wires of redemption pro-
ceeds. The minimum redemption by wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, Portfolios has authorized the Distributor
as its agent to accept orders from dealers by wire or telephone for the repur-
chase of shares by the Distributor from the dealer. Portfolios 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 Distribu-
tor. 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 signa-
tures guaranteed as described below, and, if required, any supporting docu-
ments. Neither Portfolios 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.
Portfolios 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,
EACH FUND RESERVES THE RIGHT TO INVOLUNTARILY REDEEM AT ITS OPTION ANY SHARE-
HOLDER 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. Each Fund may increase such minimum account
value above such amount in the future after notice to affected shareholders.
Involuntarily redeemed shares will be priced at the net asset value on the date
fixed for redemption by a Fund, and the proceeds of the redemption will be
mailed to the affected shareholder at the address of record. CURRENTLY, THE
MAINTENANCE FEE IS $18 ANNUALLY, which is paid to the Transfer Agent. The fee
does not apply to certain retirement accounts or if the shareholder has more
than an aggregate $50,000 invested in a Fund and other Eligible Funds combined.
Imposition of a maintenance fee on a small account could, over time, exhaust
the assets of such account.
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.
Portfolios may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for a Fund 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 re-
sult of which disposal of portfolio securities is not reasonably practicable or
it is not reasonably practicable to fairly determine a 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 a Fund for other
than cash. Any redemptions other than in cash will be made subject to the pro-
visions of Securities and Exchange Commission rules. (See discussion of redemp-
tions in kind in the Statement of Additional Information.)
SIGNATURE GUARANTEES
To protect shareholder accounts, the Transfer Agent, Portfolios, the Investment
Manager and the Distributor from possible fraud, signature guarantees are re-
quired 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
23
<PAGE>
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 sub-
mitted by corporations and certain fiduciaries and other intermediaries; and
(4) requests to transfer the registration of shares to another owner. Signa-
tures must be guaranteed by a bank, a member firm of a national stock exchange,
or other eligible guarantor institution. The Transfer Agent will not accept
guarantees (or notarizations) from notaries public. The above requirements may
be waived by Portfolios in certain instances.
SHAREHOLDER SERVICES
THE OPEN ACCOUNT SYSTEM
Under the Open Account System full and fractional shares of each Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110. Cer-
tificates representing Class B or Class D shares will not be issued, while cer-
tificates representing Class A or Class C shares will only be issued if specif-
ically requested by shareholders in writing and, in any case, will only be is-
sued for full shares, with any fractional shares to be carried on the share-
holder's account. Shareholders will receive periodic statements of transactions
on their accounts.
Portfolios' Open Account System provides the following options:
1. Additional purchases of shares of any Fund may be made through dealers, by
wire or by mailing a check, payable to the applicable 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 ad-
ditional shares of the applicable Fund.
(b) All income dividends in cash; all capital gains distributions rein-
vested in additional shares of the applicable Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in any
one available Eligible Fund designated by the shareholder as described
below. See "Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application accom-
panying the initial investment. If no selection is indicated on the Applica-
tion, that account will be automatically coded for reinvestment of all divi-
dends and distributions in additional shares of the same class of the applica-
ble Fund. Selections may be changed at any time by telephone or written notice
to Shareholder Services. Dividends and distributions are reinvested at net as-
set value without a sales charge.
EXCHANGE PRIVILEGE
Shareholders of a Fund may exchange their shares for available shares with cor-
responding 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 ex-
changed, 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 exchang-
ing. Under the Direct Program, subject to certain conditions, shareholders may
make arrangements for regular exchanges from a Fund into other Eligible Funds.
To effect an exchange, Class A, Class B and Class D shares may be redeemed
without the payment of any contingent deferred sales charge that might other-
wise be due upon an ordinary redemption of such shares. The State Street Re-
search 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 Funds or any other Eligible Fund are subject to the
initial sales charge or contingent deferred sales charge applicable to an ini-
tial 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 pur-
poses of computing the contingent deferred sales charge that may be
24
<PAGE>
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 cur-
rently imposed on any exchange.
Shares of a 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 nec-
essary to implement the program). Each Fund and Summit Cash Reserves are re-
lated mutual funds for purposes of investment and investor services. Upon the
acquisition of shares of Summit Cash Reserves by exchange for redeemed shares
of a Fund, (a) no sales charge is imposed by Summit Cash Reserves, (b) no con-
tingent deferred sales charge is imposed by the Fund on the Fund shares re-
deemed, 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 a 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 ap-
plicable 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, Portfo-
lios permits exchanges by telephone request from either the shareholder or his
or her dealer. Shares may be exchanged by telephone provided that the registra-
tion 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 ex-
change 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 arrange-
ments and other matters.
The exchange privilege is not designed for use in connection with short-term
trading or market timing strategies. To protect the interests of shareholders,
each Fund reserves the right to temporarily or permanently terminate the ex-
change 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,
in-cluding accounts with the same taxpayer identification number, may be aggre-
gated 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 re-
fused if the Fund receives or anticipates simultaneous orders affecting signif-
icant 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 modi-
fied for ac-
counts in certain institutional retirement plans be-cause of plan exchange lim-
its, Department of Labor regulations or administrative and other considera-
tions. Subject to the foregoing, if an exchange request in good order is re-
ceived 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
25
<PAGE>
that day. For further information regarding the exchange privilege, sharehold-
ers should contact Shareholder Services.
REINVESTMENT PRIVILEGE
A shareholder of a Fund who has redeemed shares or had shares repurchased at
his or her request may reinvest all or any portion of the proceeds (plus that
amount necessary to acquire a fractional share to round off his or her rein-
vestment to full shares) in shares, of the same class as the shares redeemed,
of a 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 reinvest-
ment, 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 rein-
vestment 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 rein-
vestment 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 re-
investment privilege only once per 12-month period with respect to his or her
shares of a Fund. No charge is imposed by Portfolios 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 share-
holders. Under this Program, shareholders may make regular investments by au-
thorizing withdrawals from their bank accounts each month or quarter on the Ap-
plication 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 Serv-
ices.
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 Funds' 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 des-
ignated Fund shall be credited to participating shareholders in additional
shares of that 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 relevant Fund or Funds, a share-
holder'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 ac-
count 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 Funds. A participating shareholder may
withdraw from the Plan and Portfolios 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.
26
<PAGE>
DIVIDEND ALLOCATION PLAN
The Dividend Allocation Plan allows shareholders to elect to have all of their
dividends and any other distributions from a Fund or any Eligible Fund automat-
ically invested at net asset value in one other such Eligible Fund designated
by the shareholder, provided the account into which the dividends and distribu-
tions 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 state securities law requirements,
to suspension at any time, and to such policies, limitations and restrictions,
as for instance, may be applicable to street name or master accounts, that may
be adopted from time to time.
AUTOMATIC BANK CONNECTION
A shareholder may elect, by participating in Portfolios' Automatic Bank Connec-
tion ("ABC"), to have dividends and other distributions, including Systematic
Withdrawal Plan payments, automati- cally deposited in the shareholder's bank
account by electronic funds transfer. Some contingent deferred sales charges
may apply. See "Systematic Withdrawal Plan" herein.
REPORTS
Reports for each Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by the
applicable Fund as well as the Fund's financial statements.
SHAREHOLDER SERVICES--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 tele-
phone 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 previ-
ously request such telephone wire privilege on his or her original Appli-
cation 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 re-
demptions transmitted via the Automated Clearing House system into or
from the shareholder's predesignated bank account, is available upon com-
pletion 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 au-
thorize Shareholder Services and the Transfer Agent to: (1) act upon the tele-
phone 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 guar-
antee. All telephone calls will be recorded. None of the Fund(s), the other El-
igible Funds, the Transfer Agent, the Investment Manager or the Distributor
will be liable for any loss, expense or cost arising out of any request, in-
cluding any fraudulent or unauthorized requests. Shareholders assume the risk
to the full extent of their accounts that telephone requests may be unautho-
rized. Reasonable procedures will be followed to confirm that instructions com-
municated by telephone are genuine. The shareholder will not
27
<PAGE>
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 condi-
tions, a shareholder may have difficulty in reaching Shareholder Services at
such telephone number. In that event, the shareholder should contact Share-
holder Services at 1-800-562-0032, or otherwise at its main office at One Fi-
nancial Center, Boston, Massachusetts 02111-2690.
SHAREHOLDER ACCOUNT INQUIRIES:
PLEASE CALL 1-800-562-0032
Call this number for assistance in answering general questions on your account,
including account balance, available shareholder services, statement informa-
tion and performance of the Funds. Account inquiries may also be made in writ-
ing to State Street Research Shareholder Services, P.O. Box 8408, Boston, Mas-
sachusetts 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 re-
quire some form of personal identification prior to acting upon instructions
received by telephone. Written confirmation of the transactions will be provid-
ed.
THE FUNDS AND THEIR 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 diversi-
fied management investment company. The fiscal year end of Portfolios is Octo-
ber 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 pres-
ently divided into two series: International Equity Fund common stock and In-
ternational Fixed Income Fund common stock. Each series currently consists of
100,000,000 shares. The Directors have authorized shares of the Funds to be is-
sued 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 con-
sent of shareholders, and may allocate its remaining unclassified shares or re-
allocate any unissued classified shares.
Except for those differences between the classes of shares described below and
elsewhere in the Prospectus, each share of a Fund has equal dividend, redemp-
tion 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 in-
dustry. 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.
The shares of each class of a Fund represent the same interest in the Fund and
have identical voting, dividend, liquidation and other rights with any other
shares of that 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 Funds 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 meet-
ings unless required by the 1940 Act or Maryland law or requested by sharehold-
ers holding 10% or more of the outstanding shares of
28
<PAGE>
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 meet-
ing 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 relevant Fund or Funds will assist shareholders in share-
holder 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.
As of January 31, 1997, Metropolitan was the record and/or beneficial owner,
directly or indirectly through its subsidiaries or affiliates, of approximately
94.1% of the outstanding Class C shares of the International Fixed Income Fund,
and may be deemed to be in control of such classes of the Fund. 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 pre-
sumed to be in control of such class of shares for purposes of voting on cer-
tain matters, such as any Distribution Plan for a given class.
MANAGEMENT OF THE FUNDS
Under the provisions of Portfolios' Articles of Incorporation and the laws of
Maryland, responsibility for the management and supervision of Portfolios and
its Funds rests with the Directors.
The Funds' Investment Manager is State Street Research & Management Company.
The Investment Manager and the Distributor are indirect wholly-owned subsidiar-
ies of Metropolitan and both are located at One Financial Center, Boston, Mas-
sachusetts 02111-2690.
The Investment Manager has entered into Sub-Investment Management Agreements
with Portfolios and GFM with respect to each Fund, pursuant to which GFM has
assumed the overall responsibility for managing the investments of the Funds,
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 subsidiary of Metropolitan.
Its address is 5 Upper St. Martins Lane, London WC2H 9EA England. The firm was
formed to provide pension funds, 401(k) plans, foundations, endowments, corpo-
rations and financial institutions with a range of investment management serv-
ices related to the international marketplace. On December 31, 1996, GFM had
investment management arrangements in effect for over $1.518 billion in assets.
Under the Investment Management Agreements with Portfolios on behalf of each
Fund, 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 Inter-
national Equity Fund and 0.75% (on an annual basis) of the average daily value
of the net assets of the International Fixed Income Fund. Each Fund bears all
costs of its operation other than those incurred by the Investment Manager un-
der the Investment Management Agreements. Management fees for the International
Equity and International Fixed Income Funds are higher than those of most mu-
tual funds, but are not necessarily higher than other funds with comparable in-
vestment objectives and policies. In particular, the Funds pay, among other ex-
penses, investment advisory fees, certain distribution expenses under the
Funds' 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. The Investment Manager will reduce the management fee payable
by each Fund up to the amount of any expenses (excluding permissible items,
such as brokerage commissions, Rule 12b-1 payments, interest, taxes and litiga-
tion expenses) paid or incurred in any year in excess of the most restrictive
expense limitation imposed by any state in which the Fund sells shares, if any.
Under the Investment Management Agreements, the Investment Manager provides
Portfolios with office space, facilities and personnel.
Under its Sub-Investment Management Agreements, the Sub-Investment Manager re-
ceives from
29
<PAGE>
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 International Equity Fund and
0.55% (on an annual basis) of the average daily value of the net assets of the
International Fixed Income 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 a Fund may be considered by the Sub-Investment Manager in the selec-
tion of broker or dealer firms for the Funds' portfolio transactions.
The International Equity Fund is managed by Rosamunde M. Price, Steven J.
Brunnock, Justin Donegan and Ian R. Vose. Mrs. Price's, Mr. Brunnock's and Mr.
Donegan's principal occupation is as a portfolio manager with GFM. Mrs. Price
and Mr. Brunnock have managed the Fund since its inception in January 1992 and
have been with GFM since its formation in 1990. Mr. Vose's principal occupation
is Chief Executive and Chief Investment Officer of GFM. For the five years
prior to joining GFM, Mrs. Price served as Chief Investment Manager (Equities)
at Deutsche Bank Capital Management (UK) Ltd., Senior Fund Manager at Nippon
Credit International Ltd. and Investment Director of the Civil Aviation Author-
ity Pension Fund. For the five years prior to joining GFM, Mr. Brunnock served
as United Kingdom Portfolio Manager of MGM Assurance plc. before which he was a
Portfolio Manager for Philips Electronics Pension Fund. Mr. Donegan joined GFM
in October 1996. For the five years prior to joining GFM, Mr. Donegan served as
a self-employed financial consultant, Japanese Portfolio Manager with Pictet
Asset Management, and Far Eastern Portfolio Manager with Johnson Capital Man-
agement. Prior to joining GFM as a Portfolio Manager in 1992, Mr. Vose served
as Director of MG International Fund Management and Chief Investment Officer of
MG-Tokai Bank Fund Management.
The International Fixed Income Fund is managed by Nicholas Sanjana. Mr.
Sanjana's principal occupation is as a portfolio manager with GFM. He has man-
aged the Fund since its inception in January 1992. For the five years prior to
joining GFM, he served as Associate Director at Chase Investment Management
Group which he joined in 1989, before which he was Senior Portfolio Manager of
Deutsche Bank Capital Management (UK) Ltd.
DIVIDENDS AND DISTRIBUTIONS; TAXES
Each Fund is treated as a separate entity for federal tax purposes. Each Fund
qualified and elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code for its most recent fiscal year and
intends to qualify as such in future fiscal years, although it cannot give com-
plete assurance that it will do so. As long as a Fund so qualifies and satis-
fies certain distribution requirements, it will not be subject to federal in-
come tax on its taxable income (including capital gains, if any) distributed to
its shareholders. Consequently, each Fund intends to distribute annually to its
shareholders substantially all of its net investment income and any capital
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 a Fund.
Dividends from net investment income, if any, normally will be paid or dis-
tributed annually for the International Equity Fund and quarterly for the In-
ternational Fixed Income Fund. Distributions of capital gain net income, if
any, will generally be made after the end of the fiscal year or as otherwise
required for compliance with applicable tax regulations. Both dividends from
net investment income and distributions of capital gain net income for each
Fund will be declared and paid to shareholders in additional shares of the rel-
evant Fund at net asset value (except in the case of shareholders who elect a
different available distribution method). In certain foreign countries, inter-
est 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 withhold-
ing taxes. The Funds intend 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 Funds intend to
qualify under the
30
<PAGE>
Internal Revenue Code so that their 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.
Each Fund will provide its shareholders of record with annual information on a
timely basis concerning the federal tax status of dividends and distributions
during the preceding calendar year.
Dividends paid by a Fund from net taxable investment income and distributions
of net short-term capital gains, whether paid in cash or reinvested in addi-
tional 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 a Fund which are sold at a loss have been held six months
or less, the loss will be considered as a long-term capital loss to the extent
of any capital gains distributions received.
Dividends and other distributions and the proceeds of redemption of Fund
shares paid to individuals and other nonexempt payees will be subject to a 31%
federal backup withholding tax if the Transfer Agent is not provided with the
shareholder's correct taxpayer identification number or certifi-cation 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, prospec-
tive investors are urged to consult their own tax advisers regarding tax mat-
ters, including state and local tax consequences.
CALCULATION OF PERFORMANCE DATA
From time to time, in advertisements or in communications to shareholders or
prospective investors, a Fund may compare the performance of its Class A, Class
B, Class C or Class D shares to that of other mutual funds with similar invest-
ment objectives, to certificates of deposit and/or to other financial alterna-
tives. A 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, The Morgan Stanley Capital International, Europe,
Australia, Far East (EAFE) Index, J.P. Morgan Global Traded Bond Index and Sal-
omon Brothers Non-U.S. Dollar World Government Bond 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
International Equity Fund might be compared to the Lipper International Funds
Group and the performance of the International Fixed Income Fund might be com-
pared to the Lipper General World Income Funds Group.
Total return is computed separately for each class of shares of the Funds. The
average annual total return ("standard total return") for shares of a Fund is
computed by determining the average annual compounded rate of return for a des-
ignated historical period as applied to a hypothetical $1,000 initial invest-
ment, which is redeemed in total at the end of such period. In making the cal-
culation, all dividends and distributions are assumed to be reinvested, and all
accrued expenses and recurring charges, including management and distribution
fees, are recognized. Standard total return may be accompanied with nonstandard
total return information computed in the same manner, but for differing periods
and with or without annualizing the total return or taking sales charges into
account.
A Fund's yield is computed separately for each class of shares by dividing the
net investment income, after recognition of all recurring charges, per share
earned during the most recent month or other specified 30-day period by the ap-
plicable maximum offering price per share on the last day of such period and
annualizing the result.
The standard total return and yield results take sales charges into account,
if applicable, but do not take into account recurring and nonrecurring charges
for optional services which only certain
31
<PAGE>
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 applica-
ble and therefore not taken into account in the calculation of standard total
return and yield, the results will be increased. Any voluntary waiver of fees
or assumption of expenses by the Funds' affiliates will also increase perfor-
mance results.
A Fund's distribution rate is calculated separately for each class of shares
by annualizing the latest distribution and dividing the result by the maximum
offering price per share as of the end of the period to which the distribution
relates. The distribution rate is not computed in the same manner as the above
described yield, and therefore, can be significantly different from it. In its
supplemental sales literature, a Fund may quote its distribution rate together
with the above described standard total return and yield information. The use
of such distribution rates would be subject to an appropriate explanation of
how the components of the distribution rate differ from the above described
yield.
Performance information may be useful in evaluating a Fund and for providing a
basis for comparison with other financial alternatives. Since the per-formance
of a Fund changes in response to fluctua-tions in economic and market condi-
tions, interest rates and Fund expenses, among other things, no performance
quotation should be considered a representation as to a Fund's performance for
any future period. In addition, the net asset value of shares of a Fund will
fluctuate with the result that shares of a Fund when redeemed, may be worth
more or less than their original cost. Neither an investment in a Fund nor its
performance is insured or guaranteed; such lack of insurance or guarantees
should accordingly be given appropriate consideration when comparing a Fund to
financial alternatives which have such features.
Shares of the Funds had no class designations until March 1, 1994, when desig-
nations 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 will not reflect additional Rule 12b-1 Distribution Plan fees,
if any, of up to 1% per year depending on the class of shares, which will ad-
versely 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.
32
<PAGE>
[LOGO] State Street Research
State Street Research
Portfolios, Inc.
International Equity Fund
International Fixed Income Fund
STATE STREET RESEARCH PORTFOLIOS, INC.
ONE MADISON AVENUE
NEW YORK, NY 10010
INVESTMENT MANAGER
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, MA 02266
1-800-562-0032
CUSTODIAN
STATE STREET BANK AND
TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MA 02110
LEGAL COUNSEL
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, DC 20036
INDEPENDENT ACCOUNTANTS
DELOITTE & TOUCHE LLP
125 SUMMER STREET
BOSTON, MA 02110
MARCH 1, 1997
PROSPECTUS
IE/F-446D-397
CONTROL NUMBER: 3747-970301(0498)SSR-
LD
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR
STATE STREET RESEARCH
PORTFOLIOS, INC.
March 1, 1997
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 and State Street Research International Fixed Income Fund dated
March 1, 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.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<S> <C>
Investment Practices and Policies......................................... B-1
Money Market Instruments................................................ B-1
Description of Certain Corporate Bond and Debenture Ratings of Moody's
Investors Service, Inc................................................. B-4
Description of Certain Corporate Bond and Debenture Ratings of Standard
and Poor's Ratings Group............................................... B-4
Description of Commercial Paper
Ratings................................................................ B-4
Certain Investment Limitations............................................ B-5
Certain Investment Practices.............................................. B-7
Lending of Portfolio Securities......................................... B-7
Options and Futures..................................................... B-8
Limitations on the Use of Futures Contracts and Options Thereon and Op-
tions on Indices....................................................... B-14
Forward Foreign Currency Exchange Contracts............................. B-14
Directors and Officers.................................................... B-16
Control Persons........................................................... B-17
Investment Management Arrangements........................................ B-18
Investment Management Agreements and Sub-Investment Management Agree-
ments.................................................................. B-18
</TABLE>
1285J-960301 (0398) SSR-LD
<TABLE>
<CAPTION>
TABLE OF CONTENTS (CONT'D)
- ---------------------------------------------------------------------------------
<S> <C>
Allocation of Portfolio Brokerage......................................... B-20
Purchase of Shares.......................................................... B-20
Redemption In Kind.......................................................... B-22
Net Asset Value............................................................. B-22
Portfolio Transactions...................................................... B-23
Portfolio Turnover........................................................ B-23
Certain Tax Matters......................................................... B-23
Taxation of the Funds--in General......................................... B-23
Taxation of the Funds' Investments........................................ B-24
Taxation of the Funds' Shareholders....................................... B-25
Distribution of Shares of the Funds......................................... B-26
Calculation of Performance Data............................................. B-29
Total Return.............................................................. B-30
Yield..................................................................... B-30
Accrued Expenses.......................................................... B-31
Nonstandardized Total Return.............................................. B-31
Distribution Rates........................................................ B-31
Custodian................................................................... B-32
Independent Accountants..................................................... B-32
Financial Statements........................................................ B-32
</TABLE>
INVESTMENT PRACTICES AND POLICIES
MONEY MARKET INSTRUMENTS:
Certain money market instruments are described below. The International Equity
and International Fixed Income Funds may invest in such instruments to the ex-
tent otherwise consistent with their investment objectives.
United States Treasury Securities: These consist of various types of market-
able 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.
IE/F-879D-396
B-1
<PAGE>
Government Agency Securities:
These consist of debt securities issued by agencies and instrumentalities of
the United States Government, including the various types of instruments cur-
rently 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 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 de-
posited 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 uncondi-
tionally 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 sec-
ondary markets prior to maturity. A Fund will not invest in any security issued
by a commercial bank or a savings and loan association unless the bank or asso-
ciation 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 each 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 each Fund, subject to each Fund's 10%
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 Funds to invest fluctuating amounts at varying rates of interest pursuant
to arrangements between the Funds as lenders, and the companies, as borrowers.
The Funds 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 bor-
rowed without penalty. Because the notes are direct lending obligations between
the Funds and borrowers, they are generally not traded and there is no second-
ary market. However, the Funds will have the right to redeem a note at any time
and receive face value plus accrued interest. Consequently, the Funds' ability
to receive repayment will depend upon the borrower's ability to pay principal
and interest on the Funds' demand. The Funds will invest only in either notes
that have the ratings described below for commercial paper, or (because notes
are not typically rated by credit rating agencies) unrated notes that are is-
sued by companies that have the ratings described below for issuers of commer-
cial paper. GFM International Investors Limited ("GFM" or "Sub-Investment Man-
ager") does not expect that the notes will be backed by bank letters of credit.
The Funds' Investment Manager and Sub-Investment Manager will value the notes
held by the Funds taking into account such factors as the issuer's earning pow-
er, cash flows and other liquidity ratios.
B-2
<PAGE>
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, a 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 ob-
ligation 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 ac-
ceptances. Repurchase agreements will be collateralized by the purchased secu-
rities, and, during the term of a repurchase agreement, the seller will be re-
quired 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 peri-
ods not to exceed 30 days and only with respect to underlying money market se-
curities in which a 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 10% of the value of a Fund's total assets would be in-
vested in such agreements or other illiquid securities.
Repurchase agreements could be viewed as a form of loan made by a Fund to the
seller of the agreement, with the security subject to repurchase, in effect,
serving as "collateral" for the loan. A Fund will in all cases seek to assure
that the amount of collateral with respect to any repurchase agreement is ade-
quate. 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, a Fund could incur disposition costs in con-
nection with disposition of the collateral if the seller defaults. The Funds
will enter into repurchase agreements only with sellers deemed to be credit-
worthy and only when the economic benefit to the Funds is believed to justify
the attendant risks. Portfolios has adopted standards for the sellers with whom
it will enter into repurchase agreements which it believes are reasonably de-
signed to assure that such a party presents no serious risk of becoming in-
volved in bankruptcy proceedings within the time frame contemplated by the re-
purchase agreement.
Zero Coupon Bonds
Zero coupon bonds do not require the periodic payment of interest and are is-
sued at a significant discount from face value. The discount approximates the
total amount of interest the bonds will accrue and compound over the period un-
til 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 invest-
ments may experience greater volatility in market value than debt obligations
which make regular payments of interest. The Funds will accrue income on such
investments for tax and accounting purposes, which is distributable to share-
holders. When distributed to shareholders, any such income resulting from zero
coupon bonds will be paid from a Fund's cash assets, or, if necessary to pay
the distribution, from the proceeds of sales of portfolio securities held by a
Fund. Furthermore, a Fund will be unable to purchase additional portfolio secu-
rities with any cash used to make such distributions and its current income may
be reduced.
B-3
<PAGE>
Debt Instrument Ratings
The ratings of certain debt instruments in which the Funds may invest are de-
scribed below.
DESCRIPTION OF CERTAIN CORPORATE BOND AND DEBENTURE RATINGS OF MOODY'S
INVESTORS SERVICE, INC.:
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all stan-
dards. 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 protec-
tive elements may be of greater amplitude or there may be other elements pres-
ent which make the long term risks appear somewhat greater than in Aaa securi-
ties.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position charac-
terizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable in-
vestment. 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 RATINGS GROUP:
AAA--This is the highest rating assigned by Standard & Poor's to a debt obliga-
tion and indicates an extremely strong capacity to pay principal and interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest, al-
though they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection parame-
ters, adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal for debt in
this category than in higher rated categories.
BB or B--Bonds rated BB or B are regarded, on balance, as predominantly specu-
lative with respect to capacity to pay interest and repay principal in accor-
dance with the terms of the obligation. BB indicates the lowest degree of spec-
ulation and B a relatively higher degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighted
by large uncertainties or major risk exposures to adverse conditions.
DESCRIPTION OF COMMERCIAL PAPER RATINGS:
Commercial paper rated A (highest quality) by Standard & Poor's has the follow-
ing characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated A or better, although in some cases BBB credits
may
B-4
<PAGE>
be allowed. The issuer has access to at least two additional channels of bor-
rowing. 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 charac-
teristics are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
evaluation of the management of the issuer; economic evaluation of the issuer's
industry or industries and an appraisal of speculative-type risks which may be
inherent in certain areas; evaluation of the issuer's products in relation to
competition and customer acceptance; liquidity; amount and quality of long-term
debt; trend of earnings over a period of 10 years; financial strength of any
parent company and the relationships which exist with the issuer; and recogni-
tion 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.
CERTAIN INVESTMENT LIMITATIONS
The investment limitations not described in the Prospectus and generally common
to the Funds are described below. The following four fundamental policies may
not be changed without approval of holders of a majority of the outstanding
voting shares of each Fund affected (which for this purpose and under the In-
vestment 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).
No Fund may:
1. borrow money or purchase securities on margin, provided, however, that
this restriction shall not prohibit a 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 a 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 securi-
ties at a time when it is not in the Fund's best interests or (c) purchas-
ing securities on a "when-issued" or "forward commitment" basis. Collat-
eral arrangements entered into by the Fund to make margin deposits in con-
nection with futures contracts, including options on futures contracts,
are not for these purposes deemed to be the purchase of a security on mar-
gin. 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 liabili-
ties represented by such obligations). If at any time a 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 Funds will not issue senior securities, other than those which repre-
sent obligations under (a), (b) and (c). For purposes hereof, writing cov-
ered 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 secu-
rities 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; or
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 inter-
ests therein, and the Fund reserves freedom of action to hold and to sell
real estate
B-5
<PAGE>
acquired as a result of the Fund's ownership of such securities.
4. acquire securities for the purpose of exercising control over the manage-
ment 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 govern-
ment, its agencies and instrumentalities) which, together with other secu-
rities 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.
The International Equity Fund may not:
1. 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. No Fund will purchase securities of other investment companies if such
purchase would thereupon cause more than 10% of the value of the total as-
sets 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. No Fund will make any investment in repur-chase agreements having a matu-
rity of more than seven days or any other illiquid assets if, as a result,
more than 10% of the Fund's total assets would be invested in illiquid as-
sets or more than 5% of the Fund's total assets would be invested in re-
stricted securities. For purposes of this limitation, privately placed se-
curities that are not registered under the Securities Act of 1933, but
that can be offered and sold to qualified institutional buyers under Rule
144A under that Act are not considered restricted securities.
3. Portfolios 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 as
described in "Investment Management Agreements and Sub-Investment Manage-
ment Agreements," on page B-18.
4. No Fund will invest in oil, gas or other mineral exploration or develop-
ment programs (although it may invest in issuers which own or invest in
such interests).
5. No Fund will purchase securities of any issuer with a record of less than
three years continuous operations, including predecessors, except obliga-
tions issued or guaranteed by the U.S. Government or by any foreign gov-
ernment or
B-6
<PAGE>
their agencies or instrumentalities, if such purchase would cause the in-
vestments of the Fund in all such issuers to exceed 5% of the total assets
of the Fund taken at market value.
6. No Fund will purchase or retain securities of an issuer any of whose offi-
cers, directors, trustees or security holders is an officer, director or
trustee of the Fund or a member, officer, director or trustee of the in-
vestment adviser of the Fund if one or more of such individuals owns bene-
ficially more than one-half of one percent ( 1/2%) of the outstanding
shares or securities or both (taken at market value) of such issuer and
such individuals owning more than one-half of one percent ( 1/2%) of such
shares or securities together own beneficially more than 5% of such shares
or securities or both.
The investment restrictions set forth in the Pro- spectus contain an exception
that permits the Funds to purchase securities pursuant to the exercise of sub-
scription rights, subject to the condition that such purchase will not result
in a 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 a Fund's interest in the
issuing company being diluted. The market for such rights is not well developed
and, accordingly, a 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 a Fund's portfolio securities with the result that a 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.
CERTAIN INVESTMENT PRACTICES
LENDING OF PORTFOLIO SECURITIES:
Subject to Portfolios' fundamental investment restrictions, each Fund from time
to time may lend some of its securities to brokers, dealers and financial in-
stitutions and receive as collateral cash or United States Treasury securities
which at all times while the loan is outstanding will be maintained by the bor-
rower in amounts equal to at least 100% of the current market value of the
loaned securities. Any cash collateral will be invested in short-term high-
grade securities, which can increase the current income of the Fund lending its
securities, since the Fund continues to receive interest and dividends on the
loaned securities during the period of the loan. Any gain or loss in the market
value of loaned securities or securities in which cash collateral is invested
during the term of the loan would also inure to the Fund.
Loans of portfolio securities will not have terms longer than 30 days and will
be terminable at any time. The Funds will have the right to retain record own-
ership of loaned securities to exercise beneficial rights such as voting
rights, subscription rights and rights to dividends, interest or other distri-
butions. Portfolios on behalf of the Funds may pay reasonable finders, adminis-
trative and custodial fees to persons unaffiliated with the Funds for services
in connection with such loans.
The dividends, interest, and other distributions received by a Fund on loaned
securities may, for tax purposes, be treated as income other than qualified in-
come for the 90% test discussed under "Certain Tax Matters," on page B-24. The
Funds intend to lend portfolio securities only to the extent that such activity
does not jeopardize the Funds' qualification as regulated investment companies
under the Internal Revenue Code of 1986, as amended (the "Code").
If the borrower fails to maintain the requisite amount of collateral, the loan
automatically terminates, and the Fund could use the collateral to replace the
securities, while holding the borrower liable for any excess of the replacement
cost over the amount of collateral. As with any extension of credit, there are
risks of delay in recovery, and in some cases even loss of rights in the col-
lateral, should the borrower of the securities fail financially. However, loans
of portfolio securities will be made only to firms deemed to be creditworthy
and only when the economic benefit to the Funds is believed to justify the at-
tendant risks. On termination of a loan, the borrower is required to return the
loaned securities to the Fund.
B-7
<PAGE>
OPTIONS AND FUTURES:
Options on Portfolio Securities and Currencies: Subject to the fundamental in-
vestment restrictions, all the Funds may write (sell) covered call options and
may purchase put options with respect to securities in their portfolio. The
Funds may also purchase call options and may write covered put options on secu-
rities 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 se-
curity 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 a Fund expires unexercised, the
Fund will realize as income, in the form of a short-term capital gain, the pre-
mium 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 a Fund is exercised,
a decision over which the Fund has no control, the Fund must sell the under-
lying security or currency to the option holder at the exercise price. By writ-
ing 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 se-
curity or currency above the exercise price plus the premium paid. Therefore,
call options may be written when GFM 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, a Fund receives premium income but obligates
itself to purchase from the option holder, at the price specified in the op-
tion, 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 GFM 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 a Fund expires unexercised, the Fund will experience
a loss in the amount of the premium paid for the option. The Fund will gener-
ally decide to exercise a put option if the market price of the underlying se-
curity 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 un-
derlying security or currency exceeds the exercise price plus the premium paid.
Therefore, options may be purchased when GFM 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 fu-
ture and its market price may rise.
In order to reduce the risk of loss, the Funds will not purchase options un-
less GFM believes the market is sufficiently developed. The Funds will not sell
the securities or currencies against which options have been written until af-
ter the option period has expired, a closing purchase transaction, if avail-
able, 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 Ex-
change, American Stock Exchange, New York Stock Exchange, Pacific Stock Ex-
change and Philadelphia Stock Exchange, the Toronto Stock Exchange, Montreal
Stock Exchange, European Options Exchange (in the Netherlands) and London Stock
Exchange.
A 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 previ-
ously written (a "closing purchase transaction"). If a Fund cannot enter into a
closing purchase transaction (for example, because no such options are avail-
able for purchase), the Fund will continue to bear the risk of loss of the ap-
preciation, 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 curren-
cies at the exercise price, regardless of the market value or exchange rate, if
it has written a put option.
B-8
<PAGE>
Both sales and purchases of options require the Funds to pay brokerage commis-
sions. To the extent that an option sold by the Funds is exercised, the Funds
may incur brokerage commissions or other transaction costs in reinvesting the
proceeds received upon such exercise. Also, writing covered call options can
increase a Fund's turnover rate.
When a 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 subsequently will be marked-
to-market to reflect the current value of the option written. If an option ex-
pires 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 previ-
ously 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 Funds intend to utilize options on stock indices. Options on stock indi-
ces 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 individ-
ual 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 pre-mium 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-
dex on the date of exercise.
The Funds 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 Funds 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 Funds will cover put op-
tions on a stock index written by, for example, holding in a segregated ac-
count, 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 Funds intend to write covered call and put options on a stock index for
the same purposes as they might write covered call and put options on their
portfolio securities.
A securities index fluctuates with changes in the market values of the securi-
ties 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
B-9
<PAGE>
("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 mar-
ket 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 in-
troduced and traded on exchanges in the future.
Options on indices relating to certain debt securities, referred to as inter-
est 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 Direc-
tors of Portfolios authorizes a particular Fund to use such an option, the Fund
may do so. Where permitted, each Fund intends to utilize options on interest
rate indices in a manner similar to that described above with respect to op-
tions on stock indices.
The Funds' 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 in-
terrupted. Trading in the index options also may be interrupted in certain cir-
cumstances, such as, for example, if trading were halted in a substantial num-
ber 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 restric-
tions on exercise were imposed, would be unable to exercise an option it holds,
which could result in substantial losses to the Fund. The Funds intend to pur-
chase or write options only on indices which include a sufficient number of se-
curities to minimize the likelihood of a trading halt in such options. In addi-
tion, 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 Funds will not purchase or sell any option on an index
unless and until, in the opinion of GFM, the market for such options has devel-
oped sufficiently that the risk in connection with such transactions is accept-
able.
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 securi-
ties portfolio being hedged correlate with price movements in the selected in-
dex. Perfect cor-relation is not possible because the securities held or to be
acquired by a 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 a 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 ef-
fect closing transactions at fav-orable prices and the inability to participate
in the appreciation of the underlying securities. In writing put options on in-
dices, the principal risks are the inability 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 Funds, as described more
fully below, may purchase or sell futures contracts to effect hedging transac-
tions. A hedge, as defined by the CFTC, is a transaction in which the Funds
utilize futures contracts in order to protect the value of underlying portfolio
securities or the currencies in which they are denominated from adverse fluctu-
ations in the financial markets.
B-10
<PAGE>
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 a Fund will usually be liquidated in this manner, the Fund may instead make
or take delivery of underlying securities or currencies whenever it appears ec-
onomically advantageous for the Fund to do so. A clearing organization associ-
ated 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, a Fund is required to deposit with a
futures commission merchant or in a segregated custodial account a certain per-
centage (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 re-
sult 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 Funds, consistent with their investment objectives and policies, may at-
tempt to reduce the risk of investments in equity securities by hedging por-
tions 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 index futures traded outside
the United States include the Nikkei Index traded on the Singapore Interna-
tional Monetary Exchange, Osaka Index traded on the Osaka Exchange, Financial
Times Stock Exchange Index of the 100 largest stocks on the London Stock Ex-
change 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 ex-
changes may develop futures and futures options on other indices of foreign se-
curities; futures and options on a U.S. devised in-dex 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 under-
lying stocks in the index is made.
The Funds intend 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 Funds
or which the Funds intend to purchase, as distinguished from stock-specific
risk resulting from the market's evaluation of the merits of a particular secu-
rity. For example, a Fund might sell stock index futures contracts to hedge
against a decline in the value of securities held in that Fund. Alternatively,
a Fund might buy stock index futures contracts to hedge against a rise in the
value of securities the Fund intends to acquire.
A Fund's successful use of stock index futures contracts depends upon the
ability of GFM to ac-
B-11
<PAGE>
curately assess the direction of the stock market and is subject to various ad-
ditional risks. The correlation between movement in the price of the stock in-
dex 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 portfolio diverges from the composition of the relevant index. In addi-
tion, the ability of a Fund to close out a futures position
depends on a liquid secondary market. There is no assurance that liquid second-
ary 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:
Each of the Funds, 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, Eurodol-
lar 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 Merchantile Exchange. Further, in the event that a liquid market devel-
ops for futures contracts based on an interest rate index, and the Board of Di-
rectors of Portfolios authorizes a particular Fund to use such futures con-
tracts, 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 Funds will engage in transactions in only those inter-
est rate futures contracts that are traded on a commodities exchange or a board
of trade and are standardized as to maturity date and the underlying financial
instrument.
For example, a Fund might sell an interest rate futures contract to hedge
against a decline in the market value of debt securities the Fund owns. A Fund
might also purchase an interest rate futures contract to hedge against an an-
ticipated 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, a Fund's successful
use of interest rate futures contracts depends upon the ability of GFM to accu-
rately 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 a Fund will not exactly match the debt securi-
ties the Fund intends to hedge or acquire. To compensate for differences in
historical volatility between securities a 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 an-
other risk.
Currency Futures Contracts:
The Funds may buy and sell futures contracts on currencies. The Funds will en-
gage 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 stan-
dardized 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 defin-
itively the return on foreign securities held or intended to be acquired by the
Funds. In this regard, the Funds could sell currency futures contracts to off-
set 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 Funds may purchase put and call options on stock index futures contracts,
write (i.e., sell) covered call options on stock index futures con-
B-12
<PAGE>
tracts and enter into closing transactions with respect to such options. The
Funds may also write covered put options on stock index futures options or cur-
rency futures contracts and may enter into closing transactions with respect to
such options. In addition, the Funds are 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 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 a 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 con-
tract 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 a 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 ei-
ther the futures contract upon which it is based or upon the price of the un-
derlying 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 in-
volved, benefits received by a Fund as a purchaser in an option transaction
will be reduced by the amount of the pre-mium paid as well as by transaction
costs. In the event of an adverse market movement, however, a Fund which pur-
chased an option will not be subject to a risk of loss on the option transac-
tion beyond the price of the premium it paid plus its transaction costs. Pur-
chasers of options who do not exercise their options prior to the expiration
date will suffer a loss of the entire premium.
If a 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 securi-
ties 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 pro-
vides 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 posi-tion by selling or purchasing an offsetting option of the
same series, a Fund's ability to establish and close out options at fairly es-
tablished prices will be
B-13
<PAGE>
subject to the existence of a liquid market. The Funds will not purchase or
write options on futures contracts unless, in the opinion of GFM, 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,
each 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 under-
lying 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 Funds will be required to (i) segregate suf-
ficient 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 Funds. 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 Portfolios' custodian to
collateralize the position, thereby insuring that the use of such futures con-
tracts and options thereon is unleveraged. A Fund may not establish a position
in a futures contract or purchase an option thereon if immediately thereafter
the sum of the amount of initial margin deposits on all open futures contracts
and premiums paid for unexpired options on futures contracts would exceed 5% of
the market value of that 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. In addi-
tion, shares of the Funds 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 Funds 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 writ-
ten by the Funds on indices are covered and, therefore, unleveraged, the Funds
would be required to: (i) hold in a segregated account, with Portfolios' custo-
dian, 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
Funds 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 Funds.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS:
Each Fund may use forward foreign currency exchange contracts ("forward cur-
rency contracts") to hedge the currency risk relating to the non-U.S. dollar-
denominated securities purchased, sold, or held by that Fund.
A forward currency contract involves an obligation to purchase or sell a spe-
cific 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 speci-
fied fee. Forward currency contracts are traded in the interbank market con-
ducted 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.
B-14
<PAGE>
Thus, a trader may offer to sell a foreign currency to a 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, a Fund may either accept or
make delivery of the currency specified in the contract, or at or prior to ma-
turity, a 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, each Fund may enter into a forward currency
contract under two circumstances. First, when a Fund has entered into a con-
tract 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 be-tween the U.S. dollar and the foreign
currency in which such security is denominated by entering into a forward cur-
rency 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 a Fund believes a particular foreign currency may suffer or enjoy
a substantial movement against the U.S. dollar, the Fund may enter into a for-
ward 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 con-
sequence 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 portfo-
lio securities at the expiration or maturity of a forward currency contract, it
may be necessary for a 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. Converse-
ly, it may be necessary for the Fund to sell some of the foreign currency re-
ceived 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 ob-
ligated to deliver.
Each 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 obli-
gate 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 liq-
uid 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. A 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, a 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 cor-
relation between the movements in the exchange rates of the subject currency
and the currency in which the portfolio security is denominated may not be pre-
cise. Forward currency contracts are not guaranteed by a third party and, ac-
cordingly, 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 a Fund of unrealized profits or force the Fund to cover its com-
mitments for purchase or sale of currency, if any, at the current market price.
Finally, the cost of purchasing forward currency contracts in a particular cur-
rency will reflect, in part, the rate of return available on instruments denom-
inated in that currency. The cost of purchasing forward currencies that gener-
ally yield high rates of return may thus tend to reduce the rate of return to-
ward the rate of return that would be earned on assets denominated in U.S. dol-
lars.
B-15
<PAGE>
DIRECTORS AND OFFICERS
The directors and officers of Portfolios and their principal occupations for
at least the last five years are set forth below. Unless otherwise noted, the
address of each executive officer and director is One Madison Avenue, New
York, New York 10010.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME, (AGE) AND ADDRESS POSITION(S) DURING PAST 5 YEARS
----------------------- ----------- ------------------------
<C> <S> <C>
Steve A. Garban (59)+....... Director Retired, formerly Senior Vice-
The Pennsylvania State Uni- President Finance and Operations and
versity Treasurer Emeritus, The Pennsylvania
208 Old Main State University
University Park, PA 16802
Malcolm T. Hopkins (68)+.... Director Former Vice-Chairman of the Board
14 Brookside Road and Chief Financial Officer, St.
Biltmore Forest Regis Corp.
Asheville, NC 28803
Edward M. Lamont (70)+...... Director Private investor and author of
Box 1234 business history; prior thereto,
Moores Hill Road employed by Morgan Guaranty Trust
Syosset, NY 11791 Company of New York
Robert A. Lawrence (70)+.... Director Partner, Saltonstall & Co. (private
50 Congress Street investment firm)
Boston, MA 02109
Dean O. Morton (64)+........ Director Retired; formerly Executive Vice-
3200 Hillview Avenue President, Chief Operating Officer
Palo Alto, CA 94304 and Director, Hewlett--Packard
Company
Michael S. Scott Morton Director Jay W. Forrester Professor of
(59)+....................... Management at Sloan School of
Massachusetts Institute of Management, MIT
Technology ("MIT")
77 Massachusetts Avenue
Cambridge, MA 02139
Toby Rosenblatt (58)+....... Director President, The Glen Ellen Company
3409 Pacific Avenue and Vice President, Founders
San Francisco, CA 94118 Investments Ltd.
Ralph F. Verni (54)(*)+..... Chairman of the Board, Chairman of the Board, President and
One Financial Center President, Chief Chief Executive Officer, State
Boston, MA 02111 Executive Officer and Street Research & Management
Director Company, since 1992; prior thereto,
President and Chief Executive
Officer, New England Investment
Companies, and Chief Investment
Officer, New England Mutual Life
Insurance Company
Gary Lineberry (46)......... Vice President Vice-President, Metropolitan since
1994; prior thereto National
Director, 1992-1994; prior thereto
Vice President, Mutual of New York
Ronald Zito (38)............ Controller Director-Accounting and Financial
Controls-Pensions, Metropolitan Life
since 1995; Director-Retirement
Savings Center, 1993-1994; prior
thereto, Manager
Christopher P. Nicholas Vice-President and Associate General Counsel,
(47)+....................... Assistant Secretary Metropolitan Life
Elliot Reiter (45).......... Treasurer Vice-President, Metropolitan Life
Elaine Stevenson (37)+...... Vice-President and Vice-President Metropolitan Life
Chief Operating Officer since 1996; Assistant Vice-
President, 1993-1996; prior thereto,
Director-Retirement and Savings
Center
Patricia S. Worthington Secretary Associate Counsel, Metropolitan Life
(40)+....................... since 1992; prior thereto, Attorney
</TABLE>
- -------
(*) Interested Person, as defined in the Investment Company Act of 1940 ("1940
Act"), of the Funds.
(+) Serves as a trustee, director and/or officer of one or more of the
following investment companies, each of which has an advisory relationship
with the Investment Manager or its 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 and
Metropolitan Series Fund, Inc.
B-16
<PAGE>
The Directors have been compensated as follows:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
(5)
(3) TOTAL
PENSION OR COMPENSATION
RETIREMENT (4) FROM
BENEFITS ESTIMATED PORTFOLIOS
(2) ACCRUED AS ANNUAL AND FUND
(1) AGGREGATE PART OF BENEFITS COMPLEX PAID
NAME OF COMPENSATION FROM PORTFOLIOS UPON TO DIRECTORS
DIRECTOR PORTFOLIOS (A)(C) EXPENSE RETIREMENT (B)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steve A. Garban........... $9,000 0 0 $ 34,750
Malcolm T. Hopkins........ $8,500 0 0 $ 34,750
Edward M. Lamont (d)...... 0 0 0 $ 59,375
Robert A. Lawrence........ $8,000 0 0 $ 92,125
Dean O. Morton............ $8,000 0 0 $ 96,125
Toby Rosenblatt (d)....... 0 0 0 $ 59,375
Michael S. Scott Morton... $6,000 0 0 $100,325
Ralph F. Verni (d)........ 0 0 0 0
</TABLE>
- -------
(a) For the fiscal year ended October 31, 1996.
(b) Complex is comprised of 10 trusts and two corporations with a total of 31
funds and/or series. "Total Compensation from Portfolios and Fund Complex
Paid to Directors" is for the 12 months ended December 31, 1996.
(c) Directors and officers who are affiliated with the Investment Manager or
Sub-Investment Manager or their affiliates ("interested persons" as defined
under the Investment Company Act of 1940) do not receive any compensation
for services rendered to Portfolios in addition to their compensation for
services rendered to Metropolitan Life or such affiliated companies. The
Directors who are not affiliated with the Investment Manager or Sub-
Investment Manager or their affiliates are paid a fee of $4,000 for each
full calendar year during which services are rendered to Portfolios. In
addition, they are paid a fee of $750 for attending each of the directors'
meetings and $250 for attending each audit committee meeting and are
reimbursed for out-of-pocket expenses. Messrs. Garban and Hopkins also are
each paid $500 for attending each contract committee meeting. The chairman
of the audit committee receives a fee of $500 for each full calendar year
during which he/she serves as chairman.
(d) Did not serve as a Director during the fiscal year ended October 31, 1996.
As of January 31, 1997, the directors and officers of Portfolios as a group
owned no shares of either the International Equity Fund or the International
Fixed Income Fund.
CONTROL PERSONS
As of January 31, 1997, the following persons or entities were the record
and/or beneficial owners of the approximate amount of each Class of shares of
each Fund as set forth beside their names:
<TABLE>
<CAPTION>
PERCENTAGE
SHAREHOLDER ADDRESS OWNERSHIP
----------- ------- ----------
<C> <S> <C> <C>
INTERNATIONAL EQUITY FUND
-------------------------
Class A....... Merrill Lynch Pierce 4800 Deer Lake Drive 12.2%
Fenner & Smith, Inc.(b) East
Jacksonville, FL 32246-
6484
Class B....... Merrill Lynch Pierce 4800 Deer Lake Drive 15.6%
Fenner & Smith, Inc.(b) East
Jacksonville, FL 32246-
6484
Class C....... Chase Manhattan 770 Broadway 54.2%
Bank, N.A.(c) New York, NY 10003
Class D....... Wachovia Bank of North 301 N. Main Street 8.0%
Carolina(b) Winston Salem, NC 27150
Merrill Lynch Pierce 4800 Deer Lake Drive 45.6%
Fenner & Smith, Inc.(b) East
Jacksonville, FL 32246-
6484
</TABLE>
B-17
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
SHAREHOLDER ADDRESS OWNERSHIP
----------- ------- ----------
<C> <S> <C> <C>
INTERNATIONAL FIXED INCOME FUND
-------------------------------
Class A....... State Street Bank and 225 Franklin Street 5.3%
Trust Company(d) Boston, MA 02110
Metropolitan Life(a) One Madison Avenue 23.0%
New York, NY 10010
Class B....... State Street Bank and 225 Franklin Street 5.6%
Trust Company(d) Boston, MA 02110
Merrill Lynch Pierce 4800 Deer Lake Drive 42.0%
Fenner & Smith, Inc.(b) East
3rd Floor
Jacksonville, FL 32246-
6484
Class C....... Metropolitan Life(a) One Madison Avenue 94.1%
New York, NY 10010
Class D....... Paine Webber(b) P.O. Box 3321 34.9%
Weehawken, NJ 07087-8154
Merrill Lynch Pierce 4800 Deer Lake Drive 13.2%
Fenner & Smith, Inc.(b) East
Jacksonville, FL 32246-
6484
Fifth Third Bank(b) P.O. Box 630074 5.2%
Cincinnati, OH 45263-
0001
</TABLE>
- -------
(a) Metropolitan Life was the record and/or beneficial owner, directly or
indirectly through its subsidiaries or affiliates, of such shares.
(b) Portfolios believes that the entity does not have beneficial ownership of
such shares.
(c) 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.
(d) State Street Bank and Trust Company holds such shares as custodian for
individual retirement accounts and Portfolios believes that State Street Bank
does not have beneficial ownership of such shares.
Ownership of 25% or more of a voting security is deemed "control" as defined
in the 1940 Act. So long as 25% of a class of a Fund's 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 MANAGEMENT ARRANGEMENTS
INVESTMENT MANAGEMENT AGREEMENTS AND
SUB-INVESTMENT MANAGEMENT AGREEMENTS:
Portfolios has entered into separate Investment Management Agreements with the
Investment Manager (State Street Research & Management Company, One Financial
Center, Boston, MA 02111) with respect to each Fund and separate Sub-Investment
Management Agreements with the Investment Manager and GFM, the Sub-Investment
Manager, with respect to each Fund. GFM has overall responsibility for the in-
vestment management, and provides the portfolio managers for the Funds. The
portfolio managers consider analyses from various sources, make the necessary
investment decisions and effect transactions accordingly. State Street Research
& Management Company is an indirect wholly-owned Metropolitan Life subsidiary
and is the investment manager of the other State Street Research mutual funds.
Securities held by any Fund may also be held by other accounts managed by the
Investment Man-ager, by Metropolitan Life, and by GFM, including Metropolitan
Life's general and separate accounts, the other Funds of Portfolios, Metropoli-
tan Life advisory clients, the advisory clients of the Investment Manager and
the advisory clients of GFM. When selecting securities for purchase or sale for
a Fund, the Investment Manager and GFM 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
B-18
<PAGE>
Manager and GFM 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 a 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 Funds and their
shareholders.
Portfolios compensates the Investment Manager at the annual rate of 0.95% of
the average daily value of the net assets of the International Equity Fund and
0.75% of the average daily value of the net assets of the International Fixed
Income Fund, respectively. For providing sub-investment management services for
the International Equity and International Fixed Income Funds, GFM 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 International Equity Fund
and 0.55% (on an annual basis) of the average daily value of the net assets of
the International Fixed Income Fund. Portfolios has no responsibility for the
payment of fees to GFM. For fiscal years ending October 31, 1994, October 31,
1995 and October 31, 1996 the investment advisory fees for the International
Equity Fund were $597,501, $830,476 and $921,649, respectively. For fiscal
years ending October 31, 1994, October 31, 1995 and October 31, 1996 the in-
vestment advisory fees for the International Fixed Income Fund were $188,723,
$210,657 and $246,122, respectively. For the same periods, the voluntary reduc-
tion of management fees and assumption of expenses by the Investment
Manager/Distributor or its affiliates amounted to $386,279, $529,341 and
$452,847 for the International Equity Fund and $85,904, $149,825 and $179,424
for the International Fixed Income Fund. For fiscal years ending October 31,
1994, October 31, 1995, and October 31, 1996, sub-investment management fees
for the International Equity and International Fixed Income Funds were
$471,711, 655,639 and $727,618 and $138,397, $154,482 and $180,489, respective-
ly.
The Investment Management Agreements relating to the International Equity and
International Fixed Income Funds and the Sub-Investment Management Agreements
relating to the Funds were approved by the shareholders of the Funds at the
first annual meeting of shareholders held on April 28, 1993. Unless earlier
terminated, each Agreement will continue in effect from year to year with re-
spect to each Fund, if approved annually (a) by the Board of Directors of Port-
folios or by a majority of the outstanding shares of that 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 any Fund, by the requisite vote of the shareholders of that
Fund.
No person other than Portfolios and the Investment Manager pays any of the
fees, expenses or costs of the Funds. Under a Shareholders' Administrative
Services Agreement between Portfolios and the Investment Manager, the Invest-
ment Manager provides shareholders' administrative services, such as responding
to inquiries and instructions from shareholders respecting the purchase and re-
demption of shares of the Funds, and is entitled to reimbursement of its costs
for providing such services subject to the limitations described below. Under a
Sub-Administration Agreement between the Funds' transfer agent and dividend
disbursing agent, State Street Bank and Trust Company and Metropolitan Life In-
surance Company, Metropolitan Life Insurance Company receives a fee for the
maintenance of certain share ownership records for participants in sponsored
arrangements, such as employee benefit plans, through or under which a Fund's
shares may be purchased. The Funds' liability for all of the fees and costs
payable by the Funds for services provided by the Funds' transfer agent and
dividend disbursing agent, the fees for shareholders' administrative services,
paid by the
B-19
<PAGE>
Funds, and any other fees or costs under any sub-administration agreements en-
tered on behalf of the Funds in the aggregate, is limited to 0.30% of the aver-
age daily net assets of the Funds. Any excess is a liability of the Investment
Manager as provided under the Shareholders' Administrative Ser- vices Agree-
ment, which may be terminated by Portfolios upon 60 days notice and by the In-
vestment Manager upon six months notice.
ALLOCATION OF PORTFOLIO BROKERAGE:
Under the Investment Management Agreements, the Investment Manager has ultimate
responsibility for selecting broker-dealers through which investments are to be
purchased and sold for Portfolios. Under the Sub-Investment Management Agree-
ments, GFM has day-to-day responsibility for selecting broker-dealers through
which securities or other investments are to be purchased and sold for the
Funds.
In selecting brokers or dealers to effect portfolio transactions for the
Funds, GFM seeks the best available combination of execution and over-all price
(which includes the cost of the transaction). GFM will utilize brokers which
provide it solely with brokerage services, as well as brokers which provide GFM
with such research services as economic, political and social trend analysis
and reports on the equity and credit markets and analyses of industries and in-
dividual companies. GFM is authorized, pursuant to the Sub-Investment Manage-
ment Agreement with respect to the Funds, to cause Portfolios on behalf of the
Funds 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 com-
mission 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 GFM 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 GFM with respect to the Funds 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, GFM seeks on behalf of the Funds 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 broker-
age and research services to those advisers.
Research services rendered to GFM by brokers selected to execute transactions
for the Funds may be used in providing service to all of GFM's clients. Also
all research services may not be utilized by GFM 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 Funds in
terms of execution capability, execution cost, and research, GFM will allocate
business proportionally among a number of brokers and will regularly review
such allocations. During the fiscal years ending October 31, 1994, October 31,
1995 and October 31, 1996, the dollar amount of brokerage commissions paid by
the International Equity Fund was $391,200, $400,465 and $569,761 respectively.
The International Fixed Income Fund did not incur any brokerage commissions for
the same periods. Substantially all commissions were paid to firms which pro-
vided research and statistical services either to Metropolitan Life, State
Street Research & Management Company or GFM.
Subject to the policy of seeking best overall price and execution, sales of
shares of the Funds may be considered in the selection of broker or dealer
firms for the Funds' portfolio transactions.
PURCHASE OF SHARES
Shares of the Funds are distributed by the Distributor. The Funds offer four
classes of shares which may be purchased at the next determined net asset value
per share plus, in the case of all classes except Class C shares, a sales
charge which, at the election of the investor, may be imposed (i) at the time
of purchase (the Class A shares) or (ii) on a deferred basis (the Class B and
Class D shares). General information on how to buy shares of the
B-20
<PAGE>
Funds, as well as sales charges involved, are set forth under "Purchase of
Shares" in the Prospectus. The following supplements that information.
Public Offering Price--The public offering price for each class of shares of
the Funds is based on their net asset value determined as of the close of 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 Re-
search Shareholder Services in order to permit the investor to obtain the cur-
rent 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-ex-
empt 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 employ-
ers.
Investors may purchase Class A shares of the Funds at reduced sales charges by
executing a Letter of Intent to purchase no less than an aggregate of $100,000
of a 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 ap-
ply if the total dollar amount set forth in the Letter of Intent were being
bought in a single transaction. Purchases made within a 90-day period prior to
the execution of a Letter of Intent may be included therein; in such case the
date of the earliest of such purchases marks the commencement of the 13-month
period.
An investor may include toward completion of a Letter of Intent the value (at
the current public offering price) of all of his or her Class A shares of the
Funds and of any of the other Class A shares of Eligible Funds held of record
as of the date of his or her Letter of Intent, plus the value (at the current
offering price) as of such date of all of such shares held by any "person" de-
scribed 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 un-
der certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is com-
pleted 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 dis-
tributions with respect to the escrowed shares will be credited to the invest-
or's account.
Investors may purchase Class A shares of the Funds or a combination of Eligi-
ble Funds at reduced sales charges pursuant to a Right of Accumulation. The ap-
plicable 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 pub-
lic 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 of-
fering price) of all such shares owned as of such date by any "person" de-
scribed 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 un-
B-21
<PAGE>
der 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 com-
panies; endowment funds of nonprofit organizations with substantial minimum as-
sets (currently a minimum of $10,000,000); and other similar institutional in-
vestors.
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, a Fund may issue its shares at net asset
value (or more) to such entities or to their security holders.
REDEMPTION IN KIND
Portfolios reserves the right to pay redemptions in kind with portfolio secu-
rities in lieu of cash. In accordance with its election pursuant to Rule 18f-1
under the 1940 Act, a Fund may limit the amount of redemption proceeds paid in
cash. Although it has no present intention to do so, a Fund may, under unusual
circumstances, limit redemptions in cash with respect to each shareholder dur-
ing any ninety-day period to the lesser of (i) $250,000 or (ii) 1% of the net
asset value of such Fund at the beginning of such period. In connection with
any redemptions paid in kind with portfolio securities, brokerage and other
costs may be incurred by the redeeming shareholder in the sale of the securi-
ties received.
NET ASSET VALUE
The net asset value of the shares of each 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 unre-
stricted trading. The NYSE is currently closed on New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The net asset value per share of a Fund is computed by dividing the sum of the
value of the secu-rities 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
a Fund, including the investment management fee payable to the Investment Man-
ager, are accrued daily.
Securities held by each 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. Domes-
tic securities traded in the over-the-counter market are valued at the mean be-
tween 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 quota-
tions are not readily available for such non-domestic over-the-counter securi-
ties, 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
B-22
<PAGE>
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 other-
wise indicate, the fair value of short-term instruments with a remaining matu-
rity of sixty days or less is their amortized cost value. If for any reason the
fair value of any security is not fairly reflected by such method, such secu-
rity 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 valua-
tion 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 Funds' 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 compu-
tation of the Funds' net asset value. If events materially affecting the value
of such securities occur during such period, then these securities will be val-
ued at their fair value as determined in good faith by the Directors.
PORTFOLIO TRANSACTIONS
PORTFOLIO TURNOVER:
A Fund's turnover rate is determined by dividing the lesser of securities pur-
chases 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 International Equity Fund's turnover rates for the fiscal years ending Oc-
tober 31, 1995 and October 31, 1996, were 100.68% and 132.36% respectively. The
International Fixed Income Fund's turnover rates for the same periods were
23.31% and 45.84%. Both Funds experienced higher portfolio turnover rates in
1996 than in 1995 as a result of some portfolio restructuring effected in each
Fund during 1996. Each Fund reserves full freedom with respect to portfolio
turnover. In periods when there are rapid changes in economic conditions or se-
curity price levels, portfolio turnover may be significantly higher than during
times of economic and market price stability or when investment strategy re-
mains relatively constant. A high rate of portfolio turnover will result in in-
creased transaction costs for the Fund.
CERTAIN TAX MATTERS
TAXATION OF THE FUNDS--IN GENERAL:
Each Fund intends to qualify and elect 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 they cannot give complete assur-
B-23
<PAGE>
ance that they will qualify to do so. Accordingly, a Fund must, among other
things, (a) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock, se-
curities 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 secu-
rities; (ii) options, futures or forward contracts (other than options, futures
or forward contracts on foreign currencies) or (iii) foreign currencies (or op-
tions, 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 op-
tions and futures with respect to stocks or securities); and (c) satisfy cer-
tain diversification requirements.
The 30% test will limit the extent to which a Fund may sell securities held
for less than three months; write options which expire in less than three
months; and effect closing transactions with respect to call or put options
that have been written or purchased within the preceding three months. (If a
Fund purchases a put option for the purpose of hedging an underlying portfolio
security, the acquisition of the option is treated as a short sale of the un-
derlying security unless, for purposes only of the 30% test, the option and the
security are acquired on the same date.) Finally, as discussed below, this re-
quirement may also limit investments by a Fund in options on stock indices,
listed options on nonconvertible debt securities, futures contracts, options on
interest rate futures contracts and certain foreign currency contracts.
If a Fund should fail to qualify as a regulated investment company in any
year, it would lose the beneficial tax treatment accorded regulated investment
companies under Subchapter M of the Code and all of its taxable income would be
subject to tax at regular corporate rates without any deduction for distribu-
tions to shareholders, and such distributions will be taxable to shareholders
as ordinary income to the extent of such Fund's current or accumulated earnings
and profits. Also, the shareholders, if they received a distribution in excess
of current or accumulated earnings and profits, would receive a return of capi-
tal that would reduce the basis of their shares of such Fund to the extent
thereof. Any distribution in excess of a shareholder's basis in the sharehold-
er's shares would be taxable as gain realized from the sale of such shares.
A Fund will be liable for a nondeductible 4% excise tax on amounts not dis-
tributed on a timely basis in accordance with a calendar year distribution re-
quirement. To avoid the tax, during each calendar year a Fund must distribute
an amount equal to at least 98% of the sum of its ordinary income (not taking
into account any capital gains or losses) for the calendar year, and its capi-
tal gain net income for the 12-month period ending on October 31, in addition
to any undistributed portion of the respective balances from the prior year.
Each Fund intends to make sufficient distributions to avoid this 4% excise tax.
TAXATION OF THE FUNDS' INVESTMENTS:
Original Issue Discount; Market Discount:
For federal income tax purposes, debt securities purchased by a Fund may be
treated as having original issue discount. Original issue discount represents
interest for federal income tax purposes and can generally be defined as the
excess of the stated redemption price at maturity of a debt obligation over the
issue price. Original issue discount is treated for federal income tax purposes
as income earned by a Fund, whether or not any income is actually received, and
therefore is subject to the distribution requirements of the Code. Generally,
the amount of original issue discount is determined on the basis of a constant
yield to maturity which takes into account the compounding of accrued interest.
Under section 1286 of the Code, an investment in a stripped bond or stripped
coupon may result in original issue discount.
B-24
<PAGE>
Debt securities may be purchased by a Fund at a discount that exceeds the
original issue discount, if any, at the time a Fund purchases the securities.
This additional discount represents market discount for income tax purposes. In
the case of any debt security having a fixed maturity date of more than one
year from the date of issue and having market discount, the gain realized on
disposition will be treated as interest to the extent it does not exceed the
accrued market discount on the security (unless a Fund elects to include such
accrued market discount in income in the tax year to which it is attributable).
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 ac-
crued on a daily basis. A Fund may be required to capitalize, rather than de-
duct currently, part or all of any direct interest expense incurred to purchase
or carry any debt security having market discount, unless a Fund makes the
election to include market discount in income currently. Because each Fund must
include original issue discount in income, it will be more difficult for such
Fund to make the distributions required for such Fund to maintain its status as
a regulated investment company under Subchapter M of the Code or to avoid the
4% excise tax described above.
Options and Futures Transactions:
Certain of a Fund's investments may be subject to provisions of the Code that
(i) require inclusion of unrealized gains or losses in a Fund's income for pur-
poses of the 90% test, the 30% test, the excise tax and the distribution re-
quirements 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. Each 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 compa-
ny. The ability of a 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 a 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 por-
tion 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 for-
eign 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 a Fund invests in the stock of certain "passive foreign investment compa-
nies" ("PFICs"), income of such companies may become taxable to the Fund prior
to its distribution to the Fund or, alter- natively, 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.
Neither Fund intends to invest in PFICs. Because of the broad scope of the PFIC
rules, however, there can be no assurance that they can avoid doing so.
TAXATION OF THE FUNDS' SHAREHOLDERS:
A Fund may be subject to foreign taxes, including foreign income taxes. If so,
each 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 a Fund at the close of its tax-
able 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) in-
clude 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
B-25
<PAGE>
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 share
holder will ordinarily not benefit from this election.
Generally, a credit for foreign taxes paid by the Funds may not exceed a
shareholder's United States income tax attributable to the shareholder's for-
eign 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 a Fund. As a result of these limi-
tations, some shareholders may not be able to utilize fully any foreign tax
credits generated by an investment in a Fund. Each Fund will provide its share-
holders with information about the source of its income and the for-eign taxes
it has paid for use in preparing the shareholder's United States income tax re-
turn.
Dividends from domestic corporations are not expected to comprise a substan-
tial part of the income of either Fund. If such dividends are earned by a Fund,
then a portion of the dividends paid by that Fund may qualify for the 70% de-
duction for dividends received which is available to corporate shareholders of
the Fund. Shareholders will be informed of any portion of the dividends paid by
a Fund which qualifies for this deduction. The dividends-received deduction is
reduced to the extent the dividends received are treated as debt-financed, un-
der 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 share-
holder on December 31, provided that such Fund pays the dividend during January
of the following calendar year.
Distributions by a Fund result in a reduction in the fair market value of such
Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless may be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In par-
ticular, 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 re-
turn 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 Funds, 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 ap-
plicable 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.
DISTRIBUTION OF SHARES OF THE FUNDS:
Portfolios is currently comprised of the following series: International Equity
Fund and International Fixed Income Fund. The Directors of Portfolios have au-
thorized shares of the Funds 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 of each series, $.01 par value per share. A "se-
ries" 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 share
B-26
<PAGE>
holder 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 Funds have entered into a Distribution Agreement with State Street Re-
search Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Funds. Shares of the Funds are
sold through dealers who have entered into sales agreements with the Distribu-
tor. The Distributor distributes shares of the Funds on a continuous basis at
an offering price which is based on the net asset value per share of the appli-
cable 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 Dis-
tributor may reallow all or portions of such sales charges as concessions to
dealers. For the fiscal year ending October 31, 1993 and for the period Novem-
ber 1, 1993 through February 28, 1994, total sales charges amounted to $271,323
and $215,107, respectively, for the International Equity Fund and $42,560 and
$10,346, respectively, for the International Fixed Income Fund. For the same
periods, $31,551 and $24,764 was retained by the Distributor after reallowance
of concessions to dealers for the International Equity Fund and $4,804 and
$1,306 for the International Fixed Income Fund. For the period March 1, 1994
(commencement of share class designation) through October 31, 1994, and the
fiscal years ending October 31, 1995 and October 31, 1996 total sales charges
for the Class A shares amounted to $411,711, $255,655 and $157,855, respec-
tively for the International Equity Fund and $9,827, $25,177 and $32,117, re-
spectively for the International Fixed Income Fund. For the same periods,
$91,079, $29,729 and $19,830, respectively was retained by the Distributor af-
ter reallowance of concessions to dealers for the International Equity Fund and
$4,121, $3,148 and $3,914, respectively for the International Fixed Income
Fund. 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
Funds and paid initial commissions to securities dealers for sales of such
shares as follows:
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
PERIOD
MARCH 1, 1994
(COMMENCEMENT
OF SHARE
FISCAL YEAR FISCAL YEAR CLASS DESIGNATION)
ENDING ENDING THROUGH
OCTOBER 31, 1996 OCTOBER 31, 1995 OCTOBER 31, 1994
------------------- ------------------- -------------------
CONTINGENT COM- CONTINGENT COM- CONTINGENT COM-
DEFERRED MISSIONS DEFERRED MISSIONS DEFERRED MISSIONS
SALES PAID TO SALES PAID TO SALES PAID TO
CHARGES DEALERS CHARGES DEALERS CHARGES DEALERS
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A............ $ 0 $138,025 $ 0 $225,926 $ 0 $320,632
Class B............ $139,376 $413,917 $81,190 $558,930 $ 0 $617,850
Class D............ $ 4,578 $ 30,126 $ 2,446 $ 45,585 $ 0 $ 15,663
</TABLE>
INTERNATIONAL FIXED INCOME FUND
<TABLE>
<CAPTION>
PERIOD
MARCH 1, 1994
(COMMENCEMENT
OF SHARE
FISCAL YEAR FISCAL YEAR CLASS DESIGNATION)
ENDING ENDING THROUGH
OCTOBER 31, 1996 OCTOBER 31, 1995 OCTOBER 31, 1994
------------------- ------------------- -------------------
CONTINGENT COM- CONTINGENT COM- CONTINGENT COM-
DEFERRED MISSIONS DEFERRED MISSIONS DEFERRED MISSIONS
SALES PAID TO SALES PAID TO SALES PAID TO
CHARGES DEALERS CHARGES DEALERS CHARGES DEALERS
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A............ $ 0 $28,203 $ 0 $22,029 $ 0 $ 5,706
Class B............ $8,598 $90,567 $3,822 $44,683 $ 0 $30,667
Class D............ $ 867 $12,735 $ 430 $ 5,961 $ 0 $ 163
</TABLE>
Differences in the price at which the Funds' Class A shares are offered due to
scheduled variations in sales charges, as described in the Funds' Prospectus,
result from cost savings inherent in economies of scale. Management believes
that the cost of sales efforts of the Distributor and broker-dealers tends to
decrease as the size of purchases increases, or does not involve any incremen-
tal 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 Funds or associated entities. Where shares of the Funds are of-
fered 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 re-
duction will similarly reflect the anticipated reduction in sales expenses as-
sociated with such arrange-
B-27
<PAGE>
ments. The reduction in sales expenses, and therefore the reduction in sales
charge, will vary depending on factors such as the size and other characteris-
tics of the organization or program, and the nature of its membership or the
participants. Portfolios reserves the right to make variations in, or elimi-
nate, sales charges at any time or to revise the terms of or to suspend or dis-
continue 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 commis-
sions 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 pur-
chase 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 dis-
counts or commissions otherwise payable to such dealer in respect of shares ac-
tually sold. If an in-vestor 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.
Portfolios has adopted a "Plan of Distribution Pursuant to Rule 12b-1" (the
"Distribution Plan") under which the Funds may engage, directly or indirectly,
in financing any activities primarily intended to result in the sale of Class
A, Class B and Class D shares, including, but not limited to, (1) the payment
of commissions and/or reimbursement 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 Distribu-
tor) 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 ac-
tivities such as direct mail promotions and television, radio, newspaper, maga-
zine and other mass media advertising, the preparation, printing and distribu-
tion of Prospectuses of the Funds and reports for recipients other than exist-
ing shareholders of the Funds, and obtaining such information, analyses and re-
ports with respect to marketing and promotional activities and investor ac-
counts as the Funds may, from time to time, deem advisable, and (3) reimburse-
ment of expenses incurred by the Distributor in connection with the servicing
of shareholder accounts including payments to securities dealers and others in
consideration of the provision of personal services to investors and/or the
maintenance of shareholder accounts and expenses associated with the provision
of personal services by the Distributor directly to investors. In addition, the
Distribution Plan is deemed to authorize the Distributor/ Investment Manager to
make payments out of general profits, revenues or other sources to underwrit-
ers, 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 re-
spect to Class B and Class D shares, an annual rate of 0.75% of the average
daily value of the net assets represented by such Class B or Class D shares (as
the case may be) to finance sales or promotion expenses and an annual rate of
0.25% of the average daily value of the net assets represented by such Class B
or Class D shares (as the case may be) to make payments for personal services
and/or the maintenance of shareholder accounts. Proceeds from the service fee
will be used by the Distributor to compensate securities dealers and others
selling shares of the Funds for rendering service to shareholders on an ongoing
basis. Such amounts are
B-28
<PAGE>
based on the net asset value of shares of the Funds held by such dealers as
nominee for their customers or which are owned directly by such customers for
so long as such shares are outstanding and the Distribution Plan remains in ef-
fect with respect to the Funds. Any amounts received by the Distributor and not
so allocated may be applied by the Distributor as reimbursement for expenses
incurred in connection with the servicing of investor accounts. The distribu-
tion and servicing expenses of a particular class will be borne solely by that
class.
During the fiscal year ended October 31, 1996, the Funds 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:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- -------- -------
<S> <C> <C> <C>
INTERNATIONAL EQUITY FUND
Advertising........................................... $ 0 $ 0 $ 3,150
Printing and mailing of prospectuses to other than
current shareholders................................. 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
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
INTERNATIONAL FIXED INCOME FUND
Advertising............................................ $ 0 $ 314 $ 414
Printing and mailing of prospectuses to other than
current shareholders.................................. 0 113 149
Compensation to dealers................................ 6,258 35,660 12,955
Compensation to sales personnel........................ 0 1,503 1,988
Interest............................................... 0 0 0
Carrying or other financing charges.................... 0 0 0
Other expenses: marketing; general..................... 0 723 956
------ ------- -------
Total fees............................................. $6,258 $38,313 $16,462
====== ======= =======
</TABLE>
The Distributor may also use additional resources of its own for further ex-
penses on behalf of the Funds.
No interested Director of Portfolios has any direct or indirect financial in-
terest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as prohibiting
banks and other depository institutions from being paid for performing services
under the Distribution Plan, the Funds will make alternative arrangements for
such services for shareholders who acquired shares through such institutions.
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") and yield of the
Class A, Class B, Class C and Class D shares of the Funds will be calculated as
set forth below. Total return and yield are computed separately for each class
of shares of the Funds. Performance data for a specified class includes periods
prior to the adoption of class designations. Shares of the Funds 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.
The performance data reflects Rule 12b-1 fees and sales charges as set forth
below:
<TABLE>
<CAPTION>
RULE 12B-1 FEES
---------------------------------------------------
CLASS AMOUNT PERIOD SALES CHARGES
- ----- ------ -------------- ---------------
<S> <C> <C> <C>
A 0.25% March 1, 1994 Maximum 4.5%
to present; sales charge
fee will reflected
reduce
performance
for periods
after March 1,
1994
B 1.00% March 1, 1994 1- and 5-year
to present; periods reflect
fee will a 5% and a 2%
reduce contingent
performance deferred sales
for periods charge,
after March 1, respectively
1994
C 0.00% Since None
commence-ment
of operations
to present
D 1.00% March 1, 1994 1-year period
to present; reflects a 1%
fee will contingent
reduce deferred sales
performance charge
for periods
after March 1,
1994
</TABLE>
All calculations of performance data in this section reflect the voluntary
measures by the Funds'
B-29
<PAGE>
affiliates to reduce fees or expenses relating to the Funds; see "Accrued Ex-
penses" later in this section. Without such measures, performance would be low-
er. 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
each Fund's shares were as follows:
<TABLE>
<CAPTION>
COMMENCEMENT OF
OPERATIONS
(JANUARY 22, 1992) ONE YEAR ENDED
TO OCTOBER 31, 1996 OCTOBER 31, 1996
---------------------- ------------------
WITH WITHOUT WITH WITHOUT
FUND SUBSIDY SUBSIDY SUBSIDY SUBSIDY
---- ---------- --------- -------- --------
<S> <C> <C> <C> <C>
International Equity Fund
Class A............................ 6.41% 5.48% -5.73% -6.31%
Class B............................ 6.68% 5.73% -6.85% -7.47%
Class C............................ 7.61% 6.66% -1.06% -1.67%
Class D............................ 6.98% 6.04% -3.04% -3.66%
International Fixed Income Fund
Class A............................ 7.08% 6.55% -3.25% -3.70%
Class B............................ 7.37% 6.81% -4.19% -4.67%
Class C............................ 8.26% 7.70% 1.54% 1.06%
Class D............................ 7.65% 7.12% -0.56% -1.04%
</TABLE>
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 assum-
ing a hypothetical $1,000 payment made at the beginning of the des-
ignated period
The calculation is based on the further assumptions that the maximum initial
or contingent deferred sales charge applicable to the investment is deducted
and that all dividends and distributions by a 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.
YIELD:
The annualized yield for the International Fixed Income Fund's Class A, Class
B, Class C and Class D based on the month of October 1996 was as follows:
<TABLE>
<CAPTION>
WITH WITHOUT
SUBSIDY SUBSIDY
------- -------
<S> <C> <C>
Class A......................................................... 2.30% 0.99%
Class B......................................................... 1.68% 0.32%
Class C......................................................... 2.65% 1.28%
Class D......................................................... 1.68% 0.31%
</TABLE>
Yield for the International Fixed Income Fund's Class A, Class B, Class C and
Class D shares is computed by dividing the net investment income per share
earned during a recent month or other specified 30-day period by the maximum
offering price per share on the last day of the period and annualizing the re-
sult, according to the following formula:
YIELD = 2[(a-b+1)/6/- 1]
cd
Where: a= dividends and interest earned during the period
b= expenses accrued for the period (net of voluntary expense reduc-
tions by the Investment Manager)
c= the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d= the maximum offering price per share on the last day of the peri-
od.
To calculate interest earned (for the purpose of "a" above) on debt obliga-
tions, a Fund computes the yield to maturity of each obligation held by such
Fund based on the market value of the obligation (including actual accrued in-
terest) at the close of the last business day of the preceding period, or, with
respect to obligations purchased during the period, the purchase price (plus
actual accrued interest). The yield to maturity is then divided by 360 and the
quotient is multiplied by the market value of the obligation (including actual
accrued interest) to determine the interest income on the obligation for each
day of the period that the obligation is in the portfolio. Dividend income is
recognized daily based on published rates.
B-30
<PAGE>
Undeclared earned income, computed in accordance with generally accepted ac-
counting principles, may be subtracted from the maximum offering price. Unde-
clared earned income is the net investment income which, at the end of the base
period, has not been declared as a dividend, but is reasonably expected to be
declared as a dividend shortly thereafter. The maximum offering price includes
a maximum sales charge of 4.5% with respect to Class A shares.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing a Fund's performance, but because
yields fluctuate, such information cannot necessarily be used to compare an in-
vestment in a Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often are insured and/or provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remem-
ber that yield is a function of the kind and quality of the instruments in a
Fund's portfolio, portfolio maturity and operating expenses and
market conditions.
ACCRUED EXPENSES:
Accrued expenses include all recurring expenses that are charged to all share-
holder accounts in proportion to the length of the base period. The standard
total return and yield results take sales charges, if applicable, into account,
although the results do not take into account recurring and nonrecurring
charges for optional services which only certain shareholders elect and which
involve nominal fees, such as the $5 fee for certain reinvestments, the $7.50
fee for wire orders, the $15 annual fee for administration of an IRA account,
the $15 annual fee for a participant in a prototype pension plan, the $10 fee
for special requests or photocopies of paid checks and the $20 fee applied to a
shareholder account that has been determined to be escheatable under applicable
state laws.
Accrued expenses reflect the Investment Manager's/Distributor's or its affili-
ates' voluntary reduction of management fees and assumption of a portion of ex-
penses relating to a Fund during the subject period.
Each Fund will be responsible for payment of expenses directly attributable to
it, while indirect expenses are allocated among all Funds in Portfolios.
NONSTANDARDIZED TOTAL RETURN:
A Fund may provide the above described standard total return results for Class
A, Class B, Class C and Class D shares for periods which end no earlier than
the most recent calendar quarter end and which begin twelve months before and
at the time of commencement of such Fund's operations. In addition, a 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 "To-
tal 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 de-
ducted from the hypothetical initial payment of $1,000. The International Eq-
uity Fund's and International Fixed Income Fund's nonstandardized total return
for Class A, Class B, Class C and Class D shares for the six months ended Octo-
ber 31, 1996 were as follows:
<TABLE>
<CAPTION>
WITH WITHOUT
INTERNATIONAL EQUITY FUND SUBSIDY SUBSIDY
- ------------------------- ------- -------
<S> <C> <C>
Class A........................................................ -7.43% -7.72%
Class B........................................................ -7.76% -8.05%
Class C........................................................ -7.38% -7.67%
Class D........................................................ -7.86% -8.15%
<CAPTION>
WITH WITHOUT
INTERNATIONAL FIXED INCOME FUND SUBSIDY SUBSIDY
- ------------------------------- ------- -------
<S> <C> <C>
Class A........................................................ 3.29% 3.05%
Class B........................................................ 2.94% 2.70%
Class C........................................................ 3.28% 3.03%
Class D........................................................ 2.84% 2.59%
</TABLE>
DISTRIBUTION RATES:
A Fund may also quote its distribution rate for each class of shares. The dis-
tribution rate is calculated by annualizing the latest per-share distribution
from ordinary income and dividing the result by the maximum offering price per
share as of the
B-31
<PAGE>
end of the period to which the distribution relates. A distribution can include
gross investment income from debt obligations purchased at a premium and in ef-
fect include a portion of the premium paid. A distribution can also include
nonrecurring, gross short-term capital gains without recognition of any
unrealized capital losses. Further, a distribution can include income from the
sale of options by a Fund even though such option income is not considered in-
vestment income under generally accepted accounting principles.
Because a distribution can include such premiums, capital gains and option in-
come, the amount of the distribution may be susceptible to control by the In-
vestment Manager through transactions designed to increase the amount of such
items. Also, because the distribution rate is calculated in part by dividing
the latest distribution by the offering price, which is based on net asset
value plus a sales charge, the distribution rate will increase as the net asset
value declines. A distribution rate can be greater than the yield rate calcu-
lated as described above.
The distribution rates for Class A, Class B, Class C and Class D shares based
on the quarter ended October 31, 1996 for the International Fixed Income Fund
were 3.42%, 2.85%, 3.78% and 2.85%, respectively.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, is Portfo- lios' custodian. As custodian, State Street Bank and Trust
Company is responsible for, among other things, safeguarding and controlling
the Funds' cash and securities, handling the receipt and delivery of securities
and collecting interest and dividends on the Funds' investments. State Street
Bank and Trust Company is not an affiliate of the Investment Manager or its af-
filiates.
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts 02110, are
Portfolios' independent accountants, providing professional services including
(1) audit of the Funds' 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 Funds.
FINANCIAL STATEMENTS
The following financial statements of the International Equity Fund and the In-
ternational Fixed Income Fund are for the fiscal year ending October 31, 1996.
B-32
<PAGE>
STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND
INVESTMENT PORTFOLIO
October 31, 1996
<TABLE>
<CAPTION>
Principal Maturity Value
Amount Date (Note 1)
- -------------------------------------------- ------------------------ ----------------- --------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 87.0%
Australia 3.6% Australian Dollar
Government of Australia, 7.50% 1,500,000 7/15/2005 $ 1,202,758
--------------
Austria 1.8% Pound Sterling
Oest Kontrollbank AG, 9.25% 350,000 7/15/2002 613,457
--------------
Belgium 1.4% Belgian Franc
Kingdom of Belgium, 9.00% 12,000,000 6/27/2001 448,721
--------------
Canada 3.5% Canadian Dollar
Government of Canada, 7.00% 1,500,000 12/01/2006 1,163,893
--------------
Denmark 5.1% Danish Krone
Kingdom of Denmark, 9.00% 3,000,000 11/15/2000 583,246
Kingdom of Denmark, 8.00% 6,000,000 11/15/2001 1,130,361
--------------
1,713,607
--------------
France 12.2% Deutsche Mark
Credit Foncier de France, 7.25% 1,500,000 2/24/2003 1,058,835
Japanese Yen
Credit Local de France, 6.00% 100,000,000 10/31/2001 1,048,483
French Franc
Government of France, 8.50% 4,500,000 11/25/2002 1,026,484
Government of France, 6.75% 4,500,000 10/25/2003 945,330
--------------
4,079,132
--------------
Germany 17.0% Pound Sterling
Bayerische Landesbank Girozentrale, 7.88% 750,000 12/07/2006 1,223,755
Deutsche Mark
Federal Republic of Germany, 6.50% 1,500,000 7/15/2003 1,039,422
KFW International Finance, 6.25% 2,000,000 10/15/2003 1,358,452
LKB Baden Wurttemb, 6.63% 1,500,000 8/20/2003 1,040,016
Sudwest Landesbank, 6.75% 1,500,000 8/26/2003 1,040,946
--------------
5,702,591
--------------
Italy 5.2% Italian Lira
Republic of Italy, 10.50% 1,000,000,000 4/01/2005 750,626
Republic of Italy, 9.50% 1,400,000,000 2/01/1999 969,479
--------------
1,720,105
--------------
Japan 10.3% Japanese Yen
Asian Development Bank, 5.63% 100,000,000 2/18/2002 1,040,798
Export Import Bank, 4.38% 180,000,000 10/01/2003 1,790,435
Japan Development Bank, 6.50% 23,000,000 9/20/2001 246,580
Pound Sterling
Tokyo Electric Power Co. Inc., 11.00% 200,000 6/05/2001 $ 367,432
--------------
3,445,245
--------------
Netherlands 5.2% Guilder
Government of Netherlands, 6.50% 2,800,000 4/15/2003 1,745,978
--------------
Spain 2.0% Spanish Peseta
Government of Spain, 8.00% 85,000,000 5/30/2004 682,358
--------------
Sweden 2.3% Swedish Krona
Kingdom of Sweden, 13.00% 4,000,000 6/15/2001 764,056
--------------
United Kingdom 5.1% Pound Sterling
United Kingdom Treasury, 6.75% 1,100,000 11/26/2004 1,710,357
--------------
Supranational 12.3% Deutsche Mark
European Economic Community, 6.50% 1,500,000 3/10/2000 1,050,416
Japanese Yen
European Investment Bank, 6.63% 100,000,000 3/15/2000 1,033,112
Inter-American Development Bank, 6.75% 100,000,000 2/20/2001 1,064,402
International Bank for Reconstruction &
Development, 4.50% 100,000,000 6/20/2000 977,669
--------------
4,125,599
--------------
Total Fixed Income Securities and Investments
(Cost $26,621,548)--87.0% 29,117,857
Cash and Other Assets, Less Liabilities--13.0% 4,362,788
--------------
Net Assets--100.0% $33,480,645
==============
Federal Income Tax Information:
At October 31, 1996 the net unrealized appreciation of investments based on cost for
Federal income tax purposes of $26,621,548 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess
of value over tax cost $ 2,658,545
Aggregate gross unrealized depreciation for all investments in which there is an excess
of tax cost over value (162,236)
--------------
$ 2,496,309
==============
</TABLE>
The principal amount of each security is stated in the currency in which the
security is denominated.
The accompanying notes are an integral part of the financial statements.
B-33
<PAGE>
STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
Assets
Investments, at value (Cost $26,621,548) (Note 1) $ 29,117,857
Foreign currency, at value (Cost $5,894,892) 5,798,618
Cash 357,519
Interest receivable 817,804
Receivable from investment manager (Note 3) 38,332
Foreign tax receivable 10,406
Receivable for fund shares sold 838
Deferred organization costs and other assets (Note 1) 13,483
--------------
36,154,857
Liabilities
Payable for securities purchased 2,484,901
Accrued management fee (Note 2) 21,216
Accrued transfer agent and shareholder services (Note 2) 20,196
Accrued directors' fees (Note 2) 14,297
Accrued distribution and service fees (Note 5) 5,577
Payable for fund shares redeemed 2,298
Other accrued expenses 125,727
--------------
2,674,212
--------------
$33,480,645
==============
Net Assets
Net Assets consist of:
Undistributed net investment income $ 293,705
Unrealized appreciation of investments
and foreign currency 2,401,275
Accumulated net realized gain on investments
and foreign currency 277,438
Shares of beneficial interest 30,508,227
--------------
$ 33,480,645
==============
Net Asset Value and redemption price per share of Class A shares
($2,806,572 / 332,131 shares of beneficial interest) $8.45
==============
Maximum Offering Price per share of Class A shares
($8.45 / .955) $8.85
==============
Net Asset Value and offering price per share of Class B shares
($4,028,022 / 478,504 shares of beneficial interest)* $8.42
==============
Net Asset Value, offering price and redemption price per share
of Class C shares ($24,840,299 / 2,934,746 shares of
beneficial interest) $8.46
==============
Net Asset Value and offering price per share of Class D shares
($1,805,752 / 214,595 shares of beneficial interest)* $8.41
==============
*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
Investment Income
Interest, net of foreign taxes of $17,063 $ 1,644,032
Expenses
Management fee (Note 2) 246,122
Custodian fee 147,686
Transfer agent and shareholder services (Note 2) 104,744
Audit fee 64,035
Registration fees 35,448
Reports to shareholders 24,799
Amortization of organization costs (Note 1) 17,297
Directors' fees (Note 2) 14,297
Legal fees 11,861
Service fee--Class A (Note 5) 6,258
Distribution and service fees--Class B (Note 5) 38,313
Distribution and service fees--Class D (Note 5) 16,462
Miscellaneous 6,438
--------------
733,760
Expenses borne by the investment manager (Note 3) (179,424)
--------------
554,336
--------------
Net investment income 1,089,696
--------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency
Net realized gain on investments (Notes 1 and 4) 290,826
Net realized gain on foreign currency (Note 1) 30,346
--------------
Total net realized gain 321,172
--------------
Net unrealized depreciation of investments (639,506)
Net unrealized depreciation of foreign currency (307,408)
--------------
Total net unrealized depreciation (946,914)
--------------
Net loss on investments and foreign currency (625,742)
--------------
Net increase in net assets resulting from operations $ 463,954
==============
The accompanying notes are an integral part of the financial statements.
B-34
<PAGE>
STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Year ended October 31
--------------------------------
1996 1995
- ------------------------------------------ --------------- ----------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 1,089,696 $ 1,405,292
Net realized gain on investments and
foreign currency* 321,172 684,995
Net unrealized appreciation (depreciation)
of investments and foreign currency (946,914) 1,568,923
--------------- ----------------
Net increase resulting from operations 463,954 3,659,210
--------------- ----------------
Dividends from net investment income:
Class A (113,884) (88,114)
Class B (143,579) (113,623)
Class C (1,216,944) (1,691,435)
Class D (59,902) (41,936)
--------------- ----------------
(1,534,309) (1,935,108)
--------------- ----------------
Distributions from net realized gains:
Class A (14,778) (5,975)
Class B (20,669) (8,086)
Class C (155,630) (123,136)
Class D (7,956) (2,986)
--------------- ----------------
(199,033) (140,183)
--------------- ----------------
Net increase from fund share transactions
(Note 6) 4,103,576 2,690,071
--------------- ----------------
Total increase in net assets 2,834,188 4,273,990
Net Assets
Beginning of year 30,646,457 26,372,467
--------------- ----------------
End of year (including undistributed net
investment income of $293,705 and
$696,597, respectively) $ 33,480,645 $ 30,646,457
=============== ================
* Net realized gain for Federal income tax
purposes (Note 1) $ 279,451 $ 197,316
=============== ================
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
Note 1
State Street Research International Fixed Income 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
Fixed Income Fund and State Street Research International Equity Fund.
The investment objective of the fund is to achieve the highest possible total
return, consisting of income and realized and unrealized capital gains,
consistent with prudent investment risk and preservation of capital, by
investing primarily in high quality debt securities of non-U.S. issuers.
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 by using the last available closing price. Domestic
securities traded in
B-35
<PAGE>
STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND
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
Investment income is accrued daily as earned. 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
quarterly. Net realized capital gains, if any, are distributed annually,
unless additional distributions are required for compliance with applicable
tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. 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.
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 0.75% 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
$246,122 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 $21,704.
The fees of the Directors not currently affiliated with the Invest-
ment Manager amounted to $14,297 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 $179,424.
Note 4
For the year ended October 31, 1996, purchases and sales of securities,
exclusive of short-term obligations, aggregated $18,021,481 and $11,266,940,
respectively.
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 $6,258, $38,313 and $16,462 for Class A, Class B and Class D,
respectively.
B-36
<PAGE>
STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND
NOTES (cont'd)
Note 5 (cont'd)
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $3,914 and $7,073, 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 $11,721 on sales of Class B shares, and that the
Distributor collected contingent deferred sales charges of $8,598 and $867 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. At October 31, 1996, Metropolitan owned 2,745,384
Class C shares of the Fund.
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 239,978 $ 2,018,281 154,393 $1,349,055
Issued upon reinvestment of:
Distributions from net realized gains 1,644 14,223 737 5,712
Dividends from net investment income 10,609 89,660 5,748 47,607
Shares repurchased (159,405) (1,342,020) (51,420) (442,983)
-------------- -------------- -------------- --------------
Net increase 92,826 $ 780,144 109,458 $ 959,391
============== ============== ============== ==============
Class B Shares Amount Shares Amount
-------------------------------------------------------- -------------- -------------- --------------
Shares sold 332,479 $ 2,810,842 189,985 $1,645,022
Issued upon reinvestment of:
Distributions from net realized gains 2,095 18,040 931 7,205
Dividends from net investment income 11,765 99,331 6,879 57,359
Shares repurchased (192,808) (1,619,138) (46,537) (393,423)
-------------- -------------- -------------- --------------
Net increase 153,531 $ 1,309,075 151,258 $1,316,163
============== ============== ============== ==============
Class C Shares Amount Shares Amount
-------------------------------------------------------- -------------- -------------- --------------
Shares sold 356,166 $ 3,010,729 34,745 $ 311,510
Issued upon reinvestment of:
Distributions from net realized gains 17,927 154,527 15,646 121,415
Dividends from net investment income 11,325 96,005 16,717 137,775
Shares repurchased (232,104) (1,931,942) (88,669) (760,263)
-------------- -------------- -------------- --------------
Net increase (decrease) 153,314 $ 1,329,319 (21,561) $ (189,563)
============== ============== ============== ==============
Class D Shares Amount Shares Amount
-------------------------------------------------------- -------------- -------------- --------------
Shares sold 189,105 $ 1,599,158 73,243 $ 639,413
Issued upon reinvestment of:
Distributions from net realized gains 889 7,646 385 2,985
Dividends from net investment income 4,851 40,579 894 7,531
Shares repurchased (113,909) (962,345) (5,482) (45,849)
-------------- -------------- -------------- --------------
Net increase 80,936 $ 685,038 69,040 $ 604,080
============== ============== ============== ==============
</TABLE>
B-37
<PAGE>
STATE STREET RESEARCH INTERNATIONAL FIXED INCOME 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 $ 8.80 $ 8.31 $ 7.99 $ 8.77 $ 8.28 $ 7.99
Net investment income* 0.27 0.40 0.30 0.21 0.34 0.27
Net realized and unrealized gain (loss) on
investments and foreign currency (0.16) 0.72 0.27 (0.16) 0.72 0.26
Dividends from net investment income (0.40) (0.59) (0.25) (0.34) (0.53) (0.24)
Distributions from net realized gains (0.06) (0.04) -- (0.06) (0.04) --
--------- --------- --------- --------- -------------------
Net asset value, end of year $ 8.45 $ 8.80 $ 8.31 $ 8.42 $ 8.77 $ 8.28
========= ========= ========= ========= ===================
Total return 1.31%+ 14.26%+ 7.33%+++ 0.61%+ 13.53%+ 6.73%+++
Net assets at end of year (000s) $2,807 $2,106 $1,079 $4,028 $2,851 $1,439
Ratio of operating expenses to average net
assets* 1.75% 1.74% 1.69%++ 2.50% 2.49% 2.43%++
Ratio of net investment income to average
net assets* 3.25% 4.71% 5.79%++ 2.50% 3.94% 5.06%++
Portfolio turnover rate 45.84% 23.31% 38.84% 45.84% 23.31% 38.84%
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) $ 0.05 $ 0.06 $ 0.01 $ 0.05 $ 0.06 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
------------------------------------------------------------ -------------------------------
January 22, 1992
(Commencement of
Year ended October 31 Operations) to Year ended October 31
------------------------------------------ -------------------------------
1996*** 1995*** 1994 1993 October 31, 1992 1996*** 1995*** 1994**
- ------------------ --------- --------- --------- --------- ----------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 8.81 $ 8.32 $ 8.24 $ 7.85 $ 7.40 $ 8.78 $ 8.29 $ 7.99
Net investment income* 0.30 0.44 0.14 0.41 0.32 0.21 0.34 0.27
Net realized and
unrealized gain (loss)
on investments and
foreign currency (0.17) 0.70 0.46 0.34 0.13 (0.17) 0.72 0.26
Dividends from net
investment income (0.42) (0.61) (0.49) (0.36) -- (0.35) (0.53) (0.23)
Distributions from
net realized gains (0.06) (0.04) (0.03) -- -- (0.06) (0.04) --
--------- --------- --------- --------- ----------------- --------- --------- ----------
Net asset value,
end of year $ 8.46 $ 8.81 $ 8.32 $ 8.24 $ 7.85 $ 8.41 $ 8.78 $ 8.29
========= ========= ========= ========= ================= ========= ========= ==========
Total return 1.54%+ 14.51%+ 7.72%+ 9.98%+ 6.08%+++ 0.39%+ 13.49%+ 6.81%+++
Net assets at end
of year (000s) $24,840 $24,516 $23,319 $24,965 $22,299 $1,806 $1,173 $ 536
Ratio of operating
expenses to average
net assets* 1.50% 1.49% 1.47% 1.50% 1.50%++ 2.50% 2.49% 2.45%++
Ratio of net investment
income to average net
assets* 3.50% 5.14% 5.62% 5.48% 5.63%++ 2.50% 3.94% 4.98%++
Portfolio turnover rate 45.84% 23.31% 38.84% 20.44% 56.31% 45.84% 23.31% 38.84%
*Reflects voluntary
assumption of fees or
expenses per share in
each year (Note 3) $ 0.05 $ 0.06 $ 0.03 $ 0.03 $ 0.04 $ 0.05 $ 0.06 $ 0.01
</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 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.
B-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of State Street
Research Portfolios, Inc. and the Shareholders of
State Street Research International Fixed Income Fund
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of State Street Research International Fixed Income
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. 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 Fixed Income 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
B-39
<PAGE>
STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
International Fixed Income Fund had a disappointing year. The Fund
underperformed the average total return of the 42 funds in Lipper Analytical
Services' International Income category.
Despite what Fund management perceived as evidence that economic activity in
Europe and Japan had begun to recover in 1996, underlying activity remained
sluggish. Additionally, inflation pressures remained subdued. This was apparent
in the U.S. In the absence of inflationary pressures, central banks allowed
monetary policy to remain easy. Many central banks continued to ease monetary
policy. Against this background, global bond markets rallied.
The Fund underperformed in three key areas. First, Fund management wasn't very
optimistic on the outlook for the U.S. dollar at the beginning of the period, so
the Fund wasn't focused on U.S. dollar or dollar-block (Canada and Australia)
assets and/or currencies. The dollar wound up stronger than expected, which hurt
Fund performance relative to other funds that had more exposure there. Second,
The Fund was underweighted in the bonds of the peripheral European markets
(Italy, Sweden and Spain), which offered strong performance. Third, the Fund was
positioned more defensively than many of its peers, which caused it to miss the
markets' rallies. Fund management took an overall bearish position on the global
bond markets and held as much as 25% of the Fund's exposure in cash.
The Salomon Brothers Non-U.S. Dollar World Bond Index is a commonly used measure
of overseas bond market performance. The index is unmanaged and does not take
sales charges into consideration. 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 includes 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 reflects maximum 4.5% "A" share front-end sales charge or 5% "B"
share or 1% "D" share contingent deferred sales charges, where applicable.
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 Salomon Brothers
Non-U.S. Dollar World Bond Index Compared
To Change In Value Of $10,000 Invested In
International Fixed Income Fund
[LINE CHARTS]
Class A Shares
Average Annual Total Return
- -------------------------------
1 Year Life of Fund
- -------------------------------
- -3.25%/-3.70% +7.08%/+6.55%
$17,000
16,000
15,000
14,000
13,000
12,000
11,000
10,000
$16,154 $13,868
1/22/92 10/31/92 10/31/93 10/31/94 10/31/95 10/31/96
1/22/92 9550 10000
10/31/92 10131 10990
10/31/93 11142 12222
10/31/94 11979 13299
10/31/95 13688 15319
10/31/96 13868 16154
Class B Shares
Average Annual Total Return
- -------------------------------
1 Year Life of Fund
- -------------------------------
- -4.19%/-4.67% +7.37%/+6.81%
$17,000
16,000
15,000
14,000
13,000
12,000
11,000
10,000
$16,154 $14,048
1/22/92 10/31/92 10/31/93 10/31/94 10/31/95 10/31/96
1/22/92 10000 10000
10/31/92 10608 10990
10/31/93 11667 12222
10/31/94 12473 13299
10/31/95 14161 15319
10/31/96 14048 16154
Class C Shares
Average Annual Total Return
- -------------------------------
1 Year Life of Fund
- -------------------------------
+1.54%/+1.06% +8.26%/+7.70%
$17,000
16,000
15,000
14,000
13,000
12,000
11,000
10,000
$16,154 $14,613
1/22/92 10/31/92 10/31/93 10/31/94 10/31/95 10/31/96
1/22/92 10000 10000
10/31/92 10608 10990
10/31/93 11667 12222
10/31/94 12567 13299
10/31/95 14391 15319
10/31/96 14613 16154
Class D Shares
Average Annual Total Return
- -------------------------------
1 Year Life of Fund
- -------------------------------
- -0.56%/-1.04% +7.65%/+7.12%
$17,000
16,000
15,000
14,000
13,000
12,000
11,000
10,000
$16,154 $14,223
1/22/92 10/31/92 10/31/93 10/31/94 10/31/95 10/31/96
1/22/92 10000 10000
10/31/92 10608 10990
10/31/93 11667 12222
10/31/94 12483 13299
10/31/95 14167 15319
10/31/96 14223 16154
LEGEND:
Solid Line: International Fixed Income Fund
Dashed Line: Salomon Brothers Non-U.S. Dollar World Bond Index
B-40
<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
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-41
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------------------------------------------------------ --------------
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-42
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO (cont'd)
Value
Shares (Note 1)
------------------------------------------------------ --------------
<S> <C> <C>
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:
At October 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.
B-43
<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.
B-44
<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
B-45
<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.
B-46
<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>
B-47
<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.
B-48
<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
B-49
<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
B-50
<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 International Equity Fund and International
Fixed Income Fund for the period January 22, 1992 (commencement of
operations) through October 31, 1996.
(2) Financial Statements included in Part B (Statement of Additional
Information) of this Registration Statement:
For International Equity Fund and International Fixed Income Fund
for the 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 (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
(b) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C> <C>
1 --Amended and restated Articles of Incorporation of Registrant.*
1(a) --Articles Supplementary.*
1(b) --Articles Supplementary.*
2 --Amended By-Laws of Registrant.*
3 --None
4 --Specimen certificates for shares of common stock of Registrant.*
5(a) --Investment Management Agreements relating to the MetLife International Equity
and MetLife International Fixed Income Funds between MetLife-State Street
Investment Services, Inc. and MetLife Portfolios, Inc.*(1)
(b) --Sub-Investment Management Agreements relating to the MetLife International
Equity and MetLife International Fixed Income Funds among MetLife-State Street
Investment Services, Inc., GFM International Investors Limited, and MetLife
Portfolios, Inc.*(1)
(c) --Form of 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.*
(b) --Form of Selected Dealer Agreement.*
(c) --Form of Bank and Bank Affiliated Broker-Dealer Agreement.*
(d) --Form of Supplement No. 1 to Selected Dealer Agreement.
7 --Not Applicable.
8(a) --Custodian Contract with State Street Bank and Trust Company.*
(b) --Form of Transfer Agent and Service Agreement with State Street Bank and Trust
Company.*
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C> <C>
(c) --Shareholders' Administrative Services Agreement with MetLife-State Street
Investment Services, Inc.*(1)
(d) --Service Agreement among MetLife Portfolios, Inc., Metropolitan Life Insurance
Company, and MetLife-State Street Investment Services, Inc.*
(e) --Sub-Administration Agreement with State Street Bank and Trust Company,
Metropolitan Life Insurance Company and State Street Research Investment
Services, Inc.*
9 --License Agreement with Metropolitan Life Insurance Company.*
10 --Opinion and consent of counsel.*
11 --Consent of Deloitte & Touche.
12 --None
13 --Purchase Agreement and Investment Letter.*
14(b) --State Street Research IRA: Disclosure Statement, Forms Booklet and Transfer
of Assets/Direct Rollover Form*
14(c) --State Street Research 403(b): Brochure, Maximum Salary Reduction Worksheet,
Account Application, Salary Reduction Agreement and Transfer of 403(b) Assets
Form.
15 --Distribution Plan.*
16 --Schedule of Performance Data.*
17 --Powers of Attorney.*
18 --Multiple Class Expense Allocation Plan adopted pursuant to Rule 18f-3.*
19 --Application Forms.
27 --Financial Data Schedules
</TABLE>
- --------
* Incorporated by reference to the filing of Post-Effective Amendment No. 6
to this Registration Statement on February 29, 1996.
(1) 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.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
(REST OF PAGE LEFT INTENTIONALLY BLANK)
C-2
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ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1996
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1996. Those entities which are listed at
the left margin (labelled with capital letters) are direct subsidiaries of
Metropolitan. Unless otherwise indicated, each entity which is indented under
another entity is a subsidiary of such indented entity and, therefore, an
indirect subsidiary of Metropolitan. Certain inactive subsidiaries have been
omitted from the Metropolitan Organizational listing. The voting securities
(excluding directors' qualifying shares, if any) of the subsidiaries listed are
100% owned by their respective parent corporations, unless otherwise indicated.
The jurisdiction of domicile of each subsidiary listed is set forth in the
parenthetical following such subsidiary.
A. Metropolitan Tower Corp. (Delaware)
1. Metropolitan Property and Casualty Insurance Company (Rhode Island)
a. Metropolitan Group Property and Casualty Insurance Company
(Rhode Island)
i. Metropolitan Reinsurance Company (U.K.) Limited (Great
Britain)
b. Metropolitan Casualty Insurance Company (Rhode Island)
c. Metropolitan General Insurance Company (Rhode Island)
d. First General Insurance Company (Georgia)
e. Metropolitan P&C Insurance Services, Inc. (California)
f. Metropolitan Lloyds, Inc. (Texas)
g. Met P&C Managing General Agency, Inc. (Texas)
2. Metropolitan Insurance and Annuity Company (Delaware)
a. MetLife Europe I, Inc. (Delaware)
b. MetLife Europe II, Inc. (Delaware)
c. MetLife Europe III, Inc. (Delaware)
d. MetLife Europe IV, Inc. (Delaware)
e. MetLife Europe V, Inc. (Delaware)
3. MetLife General Insurance Agency, Inc. (Delaware)
a. MetLife General Insurance Agency of Alabama, Inc. (Alabama)
b. MetLife General Insurance Agency of Kentucky, Inc. (Kentucky)
c. MetLife General Insurance Agency of Mississippi, Inc.
(Mississippi)
d. MetLife General Insurance Agency of Texas, Inc. (Texas)
e. MetLife General Insurance Agency of North Carolina, Inc. (North
Carolina)
f. MetLife General Insurance Agency of Massachusetts, Inc.
(Massachusetts)
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<PAGE>
4. Metropolitan Asset Management Corporation (Delaware)
a. MetLife Capital Holdings, Inc. (Delaware)
i. MetLife Capital Corporation (Delaware)
(1) Searles Cogeneration, Inc. (Delaware)
(2) MLYC Cogen, Inc. (Delaware)
(3) MCC Yerkes Inc. (Washington)
(4) MetLife Capital, Limited Partnership (Delaware).
Partnership interests in MetLife Capital, Limited
Partnership are held by Metropolitan (90%) and MetLife
Capital Corporation (10%).
(5) CLJFinco, Inc. (Delaware)
(a) MetLife Capital Credit L.P. (Delaware).
Partnership interests in MetLife Capital Credit
L.P. are held by Metropolitan (90%) and CLJ
Finco, Inc. (10%).
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
(7) MetLife Capital Funding Corp. II (Delaware)
ii. MetLife Capital Financial Corporation (Delaware)
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<PAGE>
iii. MetLife Financial Acceptance Corporation (Delaware).
MetLife Capital Holdings, Inc. holds 100% of the voting
preferred stock of MetLife Financial Acceptance Corporation.
Metropolitan Property and Casualty Insurance Company holds
100% of the common stock of MetLife Financial Acceptance
Corporation.
iv. MetLife Capital International Ltd. (Delaware).
b. MetLife Investment Management Corporation (Delaware)
i. MetLife Investments Limited (United Kingdom). 23rd Street
Investments, Inc. holds one share of MetLife Investments
Limited.
c. MetLife Investments Asia Limited (Hong Kong). One share of
MetLife Investments Asia Limited is held by W&C Services, Inc., a
nominee of Metropolitan Asset Management Corporation.
d. GFM International Investors Limited (United Kingdom). The common
stock of GFM International Investors Limited ("GFM") is held by
Metropolitan (99.5%) and by the former CEO of GFM (.5%). GFM is a
sub-investment manager for the International Stock Portfolio of
Metropolitan Series Fund, Inc.
i. GFM Investments Limited (United Kingdom)
5. SSRM Holdings, Inc. (Delaware)
a. State Street Research & Management Company (Delaware). Is a sub-
investment manager for the Growth, Income, Diversified and
Aggressive Growth Portfolios of Metropolitan Series Fund, Inc.
i. State Street Research Energy, Inc. (Massachusetts)
ii. State Street Research Investment Services, Inc.
(Massachusetts)
iii. SSRM Management Company (Luxembourg).
b. Metric Holdings, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Realty Corp. (Delaware)
(1) Metric Realty Services, Inc. (Delaware). Metric
Holdings, Inc. and Metric Realty Corp. each hold 50% of
the common stock of Metric Realty Services, Inc.
(a) Metric Colorado, Inc. (Colorado). Metric Realty
Services, Inc. holds 80% of the common stock of
Metric Colorado, Inc.
(2) Metric AV, Inc.
iii. Metric Realty (Illinois). Metric Realty Corp. and Metric
Holdings, Inc. each hold 50% of the common stock of Metric
Realty.
(1) Metric Capital Corporation (California)
(2) Metric Assignor, Inc. (California)
(3) Metric Institutional Realty Advisors, Inc. (California)
(4) Metric Institutional Realty Advisors, L.P.
(California).
Metric Realty holds a 99% limited partnership interest
and Metric Institutional Realty Advisors, Inc. holds a
1%
C-5
<PAGE>
interest as general partner in Metric Institutional
Realty Advisors, L.P.
(5) Metric Institutional Apartment Fund II, L.P.
(California). Metric Realty holds a 1% interest as
general partner and Metropolitan holds an approximately
14.6% limited partnership interest in Metric
Institutional Apartment Fund II, L.P.
iv. MetLife Realty Group, Inc. (Delaware)
6. MetLife Holdings, Inc. (Delaware)
a. MetLife Funding, Inc. (Delaware)
b. MetLife Credit Corp. (Delaware)
7. Metropolitan Tower Realty Company, Inc. (Delaware)
8. Met Life Real Estate Advisors, Inc. (California)
9. MetLife HealthCare Holdings, Inc. (Delaware)
B. Metropolitan Tower Life Insurance Company (Delaware)
C. MetLife Security Insurance Company of Louisiana (Louisiana)
D. MetLife Texas Holdings, Inc. (Delaware)
1. Texas Life Insurance Company (Texas)
a. Texas Life Agency Services, Inc. (Texas)
b. Texas Life Agency Services of Kansas, Inc. (Kansas)
E. MetLife Securities, Inc. (Delaware)
F. 23rd Street Investments, Inc. (Delaware)
G. Metropolitan Life Holdings Limited (Ontario, Canada)
1. Metropolitan Life Financial Services Limited (Ontario, Canada)
2. Metropolitan Life Financial Management Limited (Ontario, Canada)
a. Metropolitan Life Insurance Company of Canada (Canada)
C-6
<PAGE>
3. Morguard Investments Limited (Ontario, Canada)
Shares of Morguard Investments Limited ("Morguard") are held by
Metropolitan Life Holdings Limited (80%) and by employees of Morguard
(20%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
5. 3309347 Canada, Inc. (Canada)
H. MetLife (UK) Limited (Great Britain). One share held by Metropolitan Tower
Corp.
1. Albany Life Assurance Company Limited (Great Britain)
a. Albany Pension Managers and Trustees Limited (Great Britain)
2. Albany Home Loans Limited (Great Britain)
3. ACFC Corporate Finance Limited (Great Britain)
4. Metropolitan Unit Trust Managers Limited (Great Britain)
5. Albany International Assurance Limited (Isle of Man)
6. MetLife Group Services Limited (Great Britain)
I. Santander Met, S.A. (Spain). Shares of Santander Met, S.A. are held by
Metropolitan (50%) and by an entity (50%) unaffiliated with Metropolitan.
1. Seguros Genesis, S.A. (Spain)
2. Genesis Seguros Generales, Sociedad Anomina de Seguros y Reaseguros
(Spain)
J. Kolon-Met Life Insurance Company (Korea). Shares of Kolon-MetLife Insurance
Company are held by Metropolitan (51%) and by an entity (49%) unaffiliated
with Metropolitan.
C-7
<PAGE>
K. Metropolitan Life Seguros de Vida S.A. (Argentina)
L. Metropolitan Life Seguros de Retiro S.A. (Argentina).
M. Met Life Holdings Luxembourg (Luxembourg)
N. Metropolitan Life Holdings, Netherlands BV (Netherlands)
O. MetLife International Holdings, Inc. (Delaware)
P. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
C-8
<PAGE>
Q. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. Cross & Brown Associates of New York, Inc. (New York)
b. Cross & Brown Construction Corp. (New York)
c. CBNJ, Inc. (New Jersey)
d. SubBrown Corp. (New York)
R. MetPark Funding, Inc. (Delaware)
S. 2154 Trading Corporation (New York)
T. Transmountain Land & Livestock Company (Montana)
U. Met West Agribusiness, Inc. (Delaware)
V. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
C-9
<PAGE>
W. MetLife Trust Company, National Association. (United States)
X. PESCO Plus, L.C. (Florida). Metropolitan holds a 50% interest in
PESCO Plus, L.C. and an unaffiliated party holds a 50% interest.
1. Public Employees Equities Services Company (Florida)
Y. Benefit Services Corporation (Georgia)
Z. G.A. Holding Corporation (MA)
A.A. TNE-Y, Inc. (DE)
A.B. CRH Companies, Inc. (MA)
A.C. NELRECO Troy, Inc. (MA)
A.D. TNE Funding Corporation (DE)
A.E. L/C Development Corporation (CA)
A.F. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.G. CRB Co., Inc. (MA) AEW Real Estate Advisors, Inc. holds 49,000 preferred
non-voting shares of CRB Co., Inc. AEW Advisors, Inc. holds 1,000
preferred non-voting shares of CRB Co., Inc.
A.H. DPA Holding Corp. (MA)
A.I. Lyon/Copley Development Corporation (CA)
A.J. NEL Partnership Investments I, Inc. (MA)
A.K. New England Life Mortgage Funding Corporation (MA)
A.L. Mercadian Capital L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian Capital
L.P.
A.M. Mercadian Funding L.P. ( DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian
Funding L.P.
A.N. MetLife New England Holdings, Inc. (DE)
1. New England Life Insurance Company (MA)
a. New England Securities Corporation (MA)
b. Hereford Insurance Agency, Inc. (MA)
c. Hereford Insurance Agency of Alabama, Inc. (AL)
d. Hereford Insurance Agency of Minnesota, Inc. (MN)
e. Newbury Insurance Company, Limited (Bermuda)
f. TNE Information Services, Inc. (MA)
g. Exeter Reassurance Company, Ltd. (MA)
h. Omega Reinsurance Corporation (AZ)
i. New England Pension and Annuity Company (DE)
j. TNE Advisers, Inc. (MA)
k. New England Investment Companies, Inc. (MA)
1. New England Investment Companies, L.P. (DE) New England
Investment Companies, Inc. hold a 0.29% general partnership
interest in New England Investment Companies, L.P. MetLife New
England Holdings, Inc. holds a 54.90% limited partnership
interest in New England Investment Companies, L.P.
a. NEIC Holdings, Inc. (MA)
i. (1) Back Bay Advisors, Inc. (MA)
(2) Back Bay Advisors, L.P. (DE)
Back Bay Advisors, Inc.
holds a 1% general partner
interest and NEIC
Holdings, Inc. holds a 99%
limited partner interest
in Back Bay Advisors, L.P.
ii. Reich & Tang Asset Management, Inc. (MA)
(1) Reich & Tang Distributors, L.P. (DE)
Reich & Tang Asset Management Inc.
holds a 1% general interest and
Reich & Tang Asset Management, L.P.
holds a 99.5% limited partner
interest in Reich Tang Distributors, L.P.
(2) Reich & Tang Asset Management L.P.
Reich & Tang Asset Management, Inc.
holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited
partner interest in Reich & Tang
Asset Management, L.P.
(3) Reich & Tang Services, L.P. (DE)
Reich & Tang Asset Management, Inc.
holds a 1% general partner interest and
Reich & Tang Asset Management, L.P.
holds a 99% limited partner interest
in Reich & Tang Services, L.P.
iii. Loomis, Sayles & Company, Inc. (MA)
(1) Loomis Sayles & Company, L.P. (DE)
Loomis Sayles & Company, Inc.
holds a 1% general partner interest and
Reich & Tang Asset Management, Inc. holds a 99%
limited partner interest in Loomis Sayles &
Company, L.P.
iv. Westpeak Investment Advisors, Inc. (MA)
(1) Westpeak Investment Advisors, L.P. (DE)
Westpeak Investment Advisors, Inc.
holds a 1% general partner interest and
Reich & Tang holds a 99% limited
partner interest in Westpeak Investment
Advisors, L.P.
v. VNSM, Inc. (DE)
(1) Vaughan, Nelson Scarborough & McConnell, L.P. (DE)
VNSM, Inc. holds a 1% general partner interest and
Reich & Tang Asset Management, Inc. holds a 99%
limited partner interest in Vaughan, Nelson
Scarborough & McConnell, L.P.
vi. MC Management, Inc. (MA)
(1) MC Management, L.P. (DE)
MC Management, Inc. holds a 1% general partner
interest and Reich & Tang Asset Management,
Inc. holds a 99% limited partner interest in MC
Management, L.P.
vii. Harris Associates, Inc. (DE)
(1) Harris Associates Securities L.P. (DE)
Harris Associates, Inc. holds a 1% general partner
interest and Harris Associates L.P. holds a
99% limited partner interest in Harris Associates
Securities, L.P.
(2) Harris Associates L.P. (DE)
Harris Associates, Inc. holds a 0.33% general
partner interest and New England Investment Company,
L.P. Inc. holds a 99.67% limited partner interest in
Harris Associates L.P.
(a) Harris Partners, Inc. (DE)
(b) Harris Partners L.L.C. (DE)
Harris Partners, Inc. holds a 1%
membership interest and
Harris Associates L.P. holds a 99%
membership interest in Harris Partners L.L.C.
(i) Aurora Limited Partnership (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(ii) Perseus Partners L.P. (DE) Harris Partners
L.L.C. holds a 1% general partner interest
(iii) Pleiades Partners L.P. (DE) Harris
Partners L.L.C. holds a 1% general partner
interest
(iv) Stellar Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(v) SPA Partners L.P. (DE) Harris Partners
L.L.C. holds a 1% general partner interest
viii. Graystone Partners, Inc. (MA)
(1) Graystone Partners, L.P. (DE)
Graystone Partners, Inc. holds a 1%
general partner interest and New England
Investment Company, L.P.
holds a 99% limited partner interest in
Graystone Partners, L.P.
ix. NEF Corporation (MA)
(1) New England Funds, L.P. (DE) NEF Corporation holds a
1% general partner interest and New England
Investment Company, L.P. holds a 99% limited partner
interest in New England Funds, L.P.
(2) New England Funds Management, L.P. (DE) NEF
Corporation holds a 1% general partner interest and
New England Investment Company, L.P. holds a 99%
limited partner interest in New England Funds
Management, L.P.
l. Capital Growth Management, L.P. (DE)
New England Investment Companies, L.P. holds a 50% limited partner
interest in Capital Growth Management, L.P.
m. AEW Capital Management L.P. (DE)
New England Investment Companies, L.P. holds a 99% limited partner
interest and AEW Capital Management, Inc. holds a 1% general partner
interest in AEW Capital Management, L.P.
1. AEW Investment Group, Inc. (MA)
a. BBC Investment Advisors, Inc. (MA)
b. Copley/Ochard Investors, Inc. (MA)
i. Copley/Ochard Investors, L.P. (DE)
Copley/Ochard Investors, Inc.
holds a 1% general partner interest in
Copley/Ochard Investors, L.P.
c. AEW Real Estate Advisors, Inc. (MA)
i. AEW Advisors, Inc. (MA)
(1) Copley Management Partnership (MA)
Copley Advisors, Inc. holds a 1% general partner
interest in Copley Management Partnership.
(2) Coptel Associates L.P. (DE)
Copley Advisors, Inc. holds a 1% general partner
interest in Coptel Associates L.P.
(3) CIIF Associates (MA)
Copley Advisors, Inc. holds a .15% general partner
interest in CIIF Associates.
(4) CIIF Associates II Limited Partnership (DE)
Copley Advisors, Inc. holds a .15% general partner
interest in CIIF Associates II Limited Partnership.
(5) CIIF McInnes Associates (MA)
AEW Advisors, Inc. holds a .15% general partnership
interest in CIIF McInnes Associates.
(6) CIIF Oxnard Associates (MA)
AEW Advisors, Inc. holds a .15% general partnership
in CIIF Oxnard Associates.
(7) CIIF II Crossroads Limited Partnership (DE)
AEW Advisors, Inc. holds a 1% general partnership
in CIIF II Crossroads Limited Partnership.
(8) CIIF II Tech Center Associates L.P. (DE)
AEW Advisors, Inc. holds a 1% general partnership
in CIIF II Tech Center Associates L.P.
(9) CIIF II Tech Center, Inc. (MA)
AEW Advisors, Inc. holds a 5% interest in CIIF
II Tech Center Associates, Inc.
ii. Copley Properties Company, Inc. (MA)
(1) New England Life Pension Properties (MA).
Copley Properties Company, Inc. holds a 1% general
partner interest in New England Life Pension
Properties.
iii. Copley Properties Company II, Inc. (MA)
(1) New England Life Pension Properties II (MA).
Copley Properties Company II, Inc. holds a 1%
general partner interest in New England Life
Pension Properties II.
iv. Copley Properties Company III, Inc. (MA)
(1) New England Life Pension Properties III (MA).
Copley Properties Company III, Inc. holds a 1%
general partner interest in New England Life
Pension Properties III.
v. Copley Securities Corporation (MA)
vi. Copley Margarita Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 0.001% general
partner interest in Copley Margarita Associates L.P.
vii. Fourth Copley Corp. (MA)
(1) New England Life Pension Properties IV (MA).
Fourth Copley Corp. holds a 1% general partner
interest in New England Life Pension Properties IV.
viii. Fifth Copley Corp. (MA)
(1) New England Life Pension Properties V (MA).
Fifth Copley Corp. holds a 1% general partner
interest in New England Life Pension Properties V.
ix. Sixth Copley Corp. (MA)
(1) Copley Pension Properties VI (MA).
Sixth Copley Corp. holds a 1% general partner
interest in Copley Pension Properties VI.
x. Seventh Copley Corp. (MA).
(1) Copley Pension Properties VII (MA).
Seventh Copley Corp. holds a 1% general partner
interest in Copley Pension Properties VII.
xi. Eighth Copley Corp. (MA).
xii. First Income Corp. (MA).
(1) Copley Realty Income Partners 1 (MA).
First Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 1.
xiii. Second Income Corp. (MA).
(1) Copley Realty Income Partners 2 (MA).
Second Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 2.
xiv. Third Income Corp. (MA).
(1) Copley Realty Income Partners 3 (MA).
Third Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 3.
xv. Fourth Income Corp. (MA).
(1) Copley Realty Income Partners 4 (MA).
Fourth Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 4.
xvi. Third Singleton Corp. (MA).
(1) Copley Business Parks Associates L.P. (MA).
Third Singleton Corp. holds a 1% general partner
interest in Copley Business Parks Associates L.P.
xvii. Fourth Singleton Corp. (MA)
xviii. Fifth Singleton Corp. (MA)
(1) Copley Regional Centers Associates L.P. (MA).
Fifth Singleton Corp. holds a 1% general partner
interest in Copley Regional Centers Associates L.P.
xix. Sixth Singleton Corp. (MA).
(1) Copley Commerce Centers Associates L.P. (MA).
Sixth Singleton Corp. holds a 1% general partner
interest in Copley Commerce Centers Associates L.P.
xx. CTR Corp. (MA ).
xxi. New England Investment Associates, Inc. (DE)
xxii. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general
partner interest in BCOP Associates L.P.
xxiii AEW Real Estate Advisors Limited Partnership.
AEW Real Estate Advisors, Inc. holds a 25% general
partner interest in AEW Real Estate Advisors, Limited
Partnership.
d. BBC Investment Advisors, Inc. (MA)
AEW Investment Group, Inc. holds a 60% general partner
interest in BBC Investment Advisors, Inc. and Back Bay
Advisors, L.P. holds a 40% limited partner interest.
N. AEW Capital Management, Inc. (MA)
(i) Copley Management and Advisors, L.P. (DE)
AEW Capital Management, Inc. holds a 75% limited
partner interest and AEW Investment Group, Inc.
holds a 25% general partner interest in Copley
Management and Advisors, L.P.
(a) BBC Investment Advisors, L.P. (DE)
Copley Management Advisors, L.P. holds a
59.4% limited partner interest, Back Bay
Advisors, L.P. holda 39.6% limited partner
interest and BBC Investment Advisors, Inc.
holds a 1% general partner interest in
BBC Investment Advisors, L.P.
2. Copley Public Partners Holding, L.P. (DE)
AEW Capital Management, L.P. holds a 75% limited partner interest and
AEW Investment Group, Inc. holds a 25% general partner interest.
3. AEW Hotel Investment Corporation.
C-10
<PAGE>
In addition to the entities listed above, Metropolitan (or where indicated an
affiliate) also owns an interest in the following entities, among others:
1) CP&S Communications, Inc., a New York corporation, holds federal radio
communications licenses for equipment used in Metropolitan owned facilities and
airplanes. It is not engaged in any business.
2) Quadreal Corp., a New York corporation, is the fee holder of a parcel of
real property subject to a 999 year prepaid lease. It is wholly owned by
Metropolitan, having been acquired by a wholly owned subsidiary of Metropolitan
in 1973 in connection with a real estate investment and transferred to
Metropolitan in 1988.
3) Met Life International Real Estate Equity Shares, Inc., a Delaware
corporation, is a real estate investment trust. Metropolitan owns approximately
18.4% of the outstanding common stock of this company and has the right to
designate 2 of the 5 members of its Board of Directors.
4) Metropolitan Structures is a general partnership in which Metropolitan owns
a 50% interest. Metropolitan Structures owns 100% of the common stock of
Cicero/Cermak Corporation, an Illinois corporation.
5) Seguros Genesis, S.A. (Mexico), is a Mexican insurer in which Metropolitan
and two of its subsidiaries collectively own a 24.5% interest and have the right
to designate 2 of the 9 members of the Board of Directors.
6) Interbroker, Correduria de Reaseguros, S.A., is a Spanish insurance
brokerage company in which Santander Met, S. A., a subsidiary of Metropolitan in
which Metropolitan owns a 50% mt ST, owns a 50% interest and has the right to
designate 2 of the 4 members of the Board of Directors.
C-11
<PAGE>
7) Metropolitan owns varying interests in certain mutual funds distributed by
its affiliates. These ownership interests are generally expected to decrease as
shares of the funds are purchased by unaffiliated investors.
8) Metropolitan Lloyds Insurance Company of Texas, an affiliated association,
provides homeowner and related insurance for the Texas market. It is an
association of individuals designated as underwriters. Metropolitan Lloyds,
Inc., a subsidiary of Metropolitan Property and Casualty Insurance Company ("MET
P&C"), serves as the attorney-in-fact and manages the association.
9) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited
partnerships, are investment vehicles through which investments in certain
entities are held. A wholly owned subsidiary of Metropolitan serves as the
general partner of the limited partnerships and Metropolitan directly owns a 99%
limited partnership interest in each MILP. The MILPs have various's ownership
interests in certain companies. The various MILPs own, directly or indirectly,
more than 50% of the voting stock of the following companies: Coating
Technologies International, Inc.; Dan River, Inc.; Igloo Holdings, Inc. and its
subsidiary, Igloo Products Corp.; Blodgett Holdings, Inc., and its subsidiaries,
GS Blodgett Corporation, GS Blodgett International Ltd., GS Blodgett Inc., Pitco
Frialator, Inc., Frialator International Limited, Magikitch'n, Inc., and
Cloverleaf Properties, Inc.; and Briggs Holdings, Inc., and its subsidiary,
Briggs Plumbing Products, Inc.
NOTE: THE METROPOLITAN LIFE ORGANIZATIONAL CHART DOES NOT INCLUDE REAL ESTATE
- ----
JOINT VENTURES AND PARTNERSHIPS OF WHICH METROPOLITAN LIFE AND/OR ITS
SUBSIDIARIES IS AN INVESTMENT PARTNER. IN ADDITION, CERTAIN INACTIVE
SUBSIDIARIES HAVE ALSO BEEN OMITTED.
C-12
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS
TITLE OF CLASS AS OF JANUARY 31, 1997
-------------- ----------------------
<S> <C>
International Equity Fund Common Stock, par value
$0.01 per share
Class A........................................... 4,039
Class B........................................... 3,340
Class C........................................... 2,083
Class D........................................... 237
International Fixed Income Fund Common Stock, par
value $0.01 per share
Class A........................................... 285
Class B........................................... 222
Class C........................................... 227
Class D........................................... 79
</TABLE>
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
proceeding 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 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 investment manager and
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
C-13
<PAGE>
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.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the section captioned "Directors and Officers" in the
Statement of Additional Information for additional information concerning
certain affiliations of Directors and Officers which information is
incorporated herein by reference.
The list of each director and certain officers of State Street Research
indicating any other business, profession, vocation or employment of a
substantial nature in which each such person is or has been, at any time during
the past two fiscal years, engaged for his or her own account or in the
capacity of director, officer, employee, partner or trustee is incorporated
herein by reference to the filing of Post-Effective Amendment No. 6 to the
Registration Statement of State Street Research Securities Trust on January 23,
1997.
C-14
<PAGE>
The business of GFM International Investors Limited is summarized under
"Management of the Funds", in the prospectus constituting Part A of this
Registration Statement, which summarization is incorporated herein by
reference.
Set forth below is a list of each director and certain officers of GFM
International Investors Limited indicating any other business, profession,
vocation or employment of a substantial nature in which each such person is or
has been, at any time during the past two fiscal years, engaged for his or her
own account or in the capacity of director, officer, employee, partner or
trustee.
<TABLE>
<CAPTION>
ORGANIZATION AND PRINCIPAL
NAME POSITION BUSINESS ADDRESS OF ORGANIZATION
---- -------- --------------------------------
<S> <C> <C>
Theodossios Athanassiades... Retired Vice-Chairman of Metropolitan Life Insurance
Chairman of the Board the Board and Director Company, New York, NY
and Director since 12/96; prior
thereto, Vice-Chairman
of the Board and
Director
Director/Officer (until Certain wholly-owned subsidiaries
12/96) of Metropolitan Life Insurance
Co.,
New York, NY
Director HABA Advisory Board,
New York, NY
Gerald Clark ............... Senior Executive Vice- Metropolitan Life Insurance
Director President, Chief Company, New York, NY
Investment Officer and
Director since 1997;
prior thereto, Senior
Executive Vice-President
and Chief Investment
Officer
Advisory Board AIG Asian Infrastructure Fund,
L.P. New York, NY
Director The New York Police and Fire
Widows' and Children's Benefit
Fund
New York, NY
Director Community Preservation
Corporation
New York, NY
Director 23rd Street Investments, Inc.
(until 12/93) New York, NY
Director Century 21 Real Estate
(until 1995) Corporation
Irvine, CA
Chairman GFM Investments Limited
London, England
Director, Chief Metropolitan Asset Management
Executive Officer, Corporation
President New York, NY
Director MetFirst Insurance Agency, Inc.
(until 8/95) Overland Park, KS
Chairman of the Board, MetLife Investment Management
Director Corporation
White Plains, NY
</TABLE>
C-15
<PAGE>
<TABLE>
<CAPTION>
ORGANIZATION AND PRINCIPAL
NAME POSITION BUSINESS ADDRESS OF ORGANIZATION
---- -------- --------------------------------
<S> <C> <C>
Chairman of the Board, MetLife Capital Holdings, Inc.
Director New York, NY
Director Metropolitan Life Financial
Services Limited
Ottawa, Ontario, Canada
Director Metropolitan Life Holdings
(until 1/95) Limited Ottawa, Ontario, Canada
Director MetLife International Holdings,
Inc.
New York, NY
Chairman of the Board, MetLife Realty Group, Inc.
Director White Plains, NY
Director MetLife Securities Inc.
(until 10/95) New York, NY
Chairman, Director Metmor Financial, Inc.
(until 8/95) Overland Park, KS
Director SSRM Holdings, Inc.
Boston, MA
C. Robert Henrikson......... Executive Vice President Metropolitan Life Insurance
Director Company, New York, NY
Director MetLife Investment Management
Corporation
White Plains, NY
Chairman of the Board, MetLife Security Insurance
Director, President, Company of Louisiana
Chief Executive Officer Baton Rouge, LA
Director Metropolitan Property & Casualty
Insurance Company
Warwick, RI
Director GFM Investments Limited
London, England
Director MetLife Realty Group
White Plains, NY
Vice-Chairman Life Insurance Companies Guaranty
Corporation of New York,
New York, NY
John C. Morrison, Jr........ Senior Vice President Metropolitan Life Insurance
Director (until 12/96) Company New York, NY
Director (until 12/96) MetLife Investment Management
Corporation
White Plains, NY
Director (until 12/96) MetLife Realty Group, Inc.
White Plains, NY
</TABLE>
C-16
<PAGE>
<TABLE>
<CAPTION>
ORGANIZATION AND PRINCIPAL
NAME POSITION BUSINESS ADDRESS OF ORGANIZATION
---- -------- --------------------------------
<S> <C> <C>
Director GFM Investments Limited
London, England
Vice President and MetLife Securities, Inc.
Treasurer (until 4/95) New York, NY
President, Director MetLife Capital Holdings, Inc.
(until 12/96) New York, NY
Chairman of the Board, MetLife Capital Corporation
Director (until 12/96) Bellevue, WA
Director Metmor Financial, Inc.
(until 1995) Overland Park, KS
Director MetFirst Insurance Agency, Inc.
(until 1995) Overland Park, KS
Chairman of the Board, MetLife Capital Financial
Director (until 12/96) Corporation
Bellevue, WA
Director (until 12/96) CLJ Finco, Inc.
Bellevue, WA
Director (until 12/96) MLYC Cogen, Inc.
Wilmington, DE
Director Searles Cogeneration, Inc.
Bellevue, WA
Director MCC Yerkes, Inc.
Bellevue, WA
Director (until 12/96) Cross & Brown Company
New York, NY
Director (until 12/96) Cross & Brown Associates
of New Jersey, Inc.
New York, NY
Director (until 12/96) Cross & Brown Associates
of New York, Inc.
New York, NY
Director (until 12/96) Cross & Brown Construction Corp.
New York, NY
Director (until 12/96) Subrown Corp.
New York, NY
Director (until 12/96) CBNJ, Inc.
Springfield, NJ
Vice President (until Metropolitan Asset Management
12/96) Corporation
New York, NY
Chairman of the Board, MetPark Funding, Inc.
Director, President New York, NY
(until 12/96)
</TABLE>
C-17
<PAGE>
<TABLE>
<CAPTION>
ORGANIZATION AND PRINCIPAL
NAME POSITION BUSINESS ADDRESS OF ORGANIZATION
---- -------- --------------------------------
<S> <C> <C>
John H. Tweedie............. Executive Vice President Metropolitan Life Insurance
Director Company New York, NY
Director State Street
Research Portfolios, Inc.
New York, NY
Director Metropolitan Series Fund, Inc.
New York, NY
Director MetLife International Holdings,
Inc.
New York, NY
Chairman of the Board, Texas Life Insurance Company
Director Waco, TX
Director Metropolitan Property and
Casualty
Insurance Company
Warwick, RI
Director Metropolitan Group Property and
Casualty Insurance Company
Warwick, RI
Arthur Typermass............ Senior Vice President, Metropolitan Life Insurance
Director Treasurer Company New York, NY
Director Furr's Supermarkets, Inc.
Albuquerque, NM
Director MetLife Realty Group
White Plains, NY
Director, Treasurer Metropolitan Life Foundation
New York, NY
Treasurer Century 21 Real Estate
(until 1995) Corporation
Irvine, CA
Treasurer Metropolitan Insurance and
Annuity Company
New York, NY
Treasurer, 23rd Street Investments, Inc.
Vice President New York, NY
Treasurer Metropolitan Tower Corp.
New York, NY
Treasurer MetLife Texas Holdings, Inc
New York, NY
Chairman of the Board, MetLife Credit Corp.
President, Chief Houston, TX
Executive Officer,
Treasurer
Chairman of the Board, MetLife Funding, Inc.
President, Chief New York, NY
Executive Officer,
Treasurer
</TABLE>
C-18
<PAGE>
<TABLE>
<CAPTION>
ORGANIZATION AND PRINCIPAL
NAME POSITION BUSINESS ADDRESS OF ORGANIZATION
---- -------- --------------------------------
<S> <C> <C>
Chairman, President, MetLife Holdings, Inc.
Chief Executive Officer, Houston, TX
Treasurer
Treasurer Metropolitan Asset Management
Corporation
New York, NY
Treasurer Metropolitan Tower Life
Insurance Company
New York, NY
Treasurer, Metropolitan Tower Realty
Controller Company, Inc.
New York, NY
Treasurer, 2154 Trading Corporation
Controller New York, NY
Treasurer Centennial Equities Corporation
New York, NY
Treasurer MetLife Capital Holdings, Inc.
Newark, DE
Director MetFirst Insurance
Agency, Inc.
Overland Park, KS
Treasurer MetLife International Real Estate
Equity Shares, Inc.
Newark, DE
Director, Vice Park Avenue Funding Corporation
President, Treasurer New York, NY
Ian Vose.................... None
Director, Chief Executive
Officer, and Chief
Investment Officer
</TABLE>
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)
NAME AND
PRINCIPAL (2) (3)
BUSINESS POSITIONS AND OFFICES POSITIONS AND OFFICES
ADDRESS WITH UNDERWRITER WITH REGISTRANT
--------- -------------------------- ----------------------
<S> <C> <C>
Ralph F. Verni............... Chairman of the Board Chairman of the Board,
One Financial Center and Director President and Chief
Boston, MA 02111 Executive Officer
</TABLE>
C-19
<PAGE>
<TABLE>
<CAPTION>
(1)
NAME AND
PRINCIPAL (2) (3)
BUSINESS POSITIONS AND OFFICES POSITIONS AND OFFICES
ADDRESS WITH UNDERWRITER WITH REGISTRANT
--------- -------------------------- ---------------------
<S> <C> <C>
Peter C. Bennett.............. Director None
One Financial Center
Boston, MA 02111
Gerald P. Maus................ Executive Vice President, None
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
Executive
One Financial Center 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
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, None
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
Richard P. Samartin........... Senior Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-20
<PAGE>
<TABLE>
<CAPTION>
(1)
NAME AND
PRINCIPAL (2) (3)
BUSINESS POSITIONS AND OFFICES POSITIONS AND OFFICES
ADDRESS WITH UNDERWRITER WITH REGISTRANT
--------- -------------------------- ---------------------
<S> <C> <C>
Darman A. Wing................ Senior Vice President, None
One Financial Center Assistant General Counsel
and
Boston, MA 02111 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
Frederick H. Jamieson......... Vice President and None
One Financial Center Assistant Treasurer
Boston, MA 02111
Amy L. Simmons................ Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
State Street Research Portfolios, Inc. c/o Metropolitan Life Insurance
Company One Madison Avenue New York, NY 10010
State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110
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-21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO RULE
485(B) UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THERETO DULY
AUTHORIZED, IN THE CITY OF NEW YORK, AND STATE OF NEW YORK, ON THE 27TH DAY OF
FEBRUARY, 1997.
State Street Research Portfolios,
Inc.
(Registrant)
/s/ Jeffrey J. Hodgman
By: _________________________________
(JEFFREY J. HODGMAN, CHAIRMAN OF
THE BOARD, PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ------------------------------------
JEFFREY J. HODGMAN Chairman of the Board,
President (Principal
Executive Officer and
Director)
* Treasurer (Principal
- ------------------------------------ Financial Officer)
ELLIOT REITER
* Director
- ------------------------------------
STEVE A. GARBAN
* Director
- ------------------------------------
MALCOLM T. HOPKINS
* Director
- ------------------------------------
ROBERT A. LAWRENCE
* Director
- ------------------------------------
DEAN O. MORTON
* Director
- ------------------------------------
MICHAEL S. SCOTT MORTON
</TABLE>
/s/ Christopher P. Nicholas
*By__________________________________
Christopher P. Nicholas, Esq. February 27, 1997
Attorney-in-fact
C-22
<PAGE>
EXHIBIT 5(c)
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 the Investment Manager to provide services and facilities to
Portfolios as set forth in the Management Agreements and all of the rights of
the Investment Manager, 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:
--------------------------
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: --------------------------
Date: March ,1997
<PAGE>
EXHIBIT (6)(d)
SUPPLEMENT NO. 1 TO
SELECTED DEALER AGREEMENT
Boston, Massachusetts
Effective Date: _________________
Dealer Name: _____________________________________
Address: _____________________________________
_____________________________________
Attn: _____________________________________
Ladies and Gentlemen:
This Agreement amends and supplements the Selected Dealer Agreement between
you and us, as in effect from time to time (the "Selected Dealer Agreement").
All of the terms and provisions of the Selected Dealer Agreement remain in full
force and effect, and this Agreement and the Selected Dealer Agreement shall be
construed and interpreted as one Agreement, provided that in the event of any
inconsistency between this Agreement and the Selected Dealer Agreement, the
terms and provisions of this Agreement shall control. Capitalized terms used in
this Agreement and not defined herein are used as defined in the Selected Dealer
Agreement.
We understand that you wish to use Shares of the Funds in managed fee-based
programs in which you participate (the "Fee-Based Program"), and that you wish
to afford investors participating in such programs the opportunity to qualify
for the ability to purchase shares of the Funds at net asset value. We are
willing to allow you to purchase Shares of the Funds for sale to investors
participating in the Fee-Based Program on such basis, subject to the terms and
conditions of this Agreement and the Selected Dealer Agreement.
<PAGE>
1. Sale of Shares through Fee-Based Program
----------------------------------------
You may, in connection with the Fee-Based Program, sell shares of any Funds
made available by us, from time to time, at net asset value to investors
participating in a bona fide Fee-Based Program. You will receive no discount,
commission or other concession with respect to any such sale, but will be
entitled to receive any service fees otherwise payable with respect thereto to
the extent provided from time to time in the applicable Funds' Prospectuses and
in the Dealer Agreement. We will, after consulting with you, determine, from
time to time, which Funds we will make available to you for use in the Fee-Based
Program. You agree that Shares will not be made available through the Fee-Based
Program for the sole purpose of enabling evasion of sales charges.
2. Eligibility of Fee-Based Program
--------------------------------
We reserve the right to establish basic eligibility requirements from time
to time for the sale of Fund shares under your programs, relating to the minimum
aggregate amount of your clients' assets invested in the Funds, management fees
you charge on such assets, regulatory requirements, and/or similar matters. You
shall send to us upon request from time to time the then-current standard fee
schedule for the applicable Fee-Based Program and a copy of the applicable
Schedule H to the Form ADV containing the required disclosures relating to the
Fee-Based Program, or any successor required disclosures. Any brochures,
written materials or advertising relating to the Fee-Based Program may refer to
the Funds as available at net asset value if the fees and expenses of the Fee-
Based Program are given at least equal prominence. In connection with
explaining the fees and expenses of the Fee-Based Program, your representatives
may describe to customers the option of purchasing Fund shares through such
Program at net asset value.
3. Undertakings
------------
You will (i) provide us with continuous reasonable access to your offices,
representatives and mutual fund and Fee-Based Program sales support personnel,
(ii) include descriptions of all Funds offered through the Fee-Based Program in
internal sales materials and electronic information displays used in conjunction
with the Fee-Based Program, (iii) use reasonable efforts to motivate your
representatives to recommend suitable Funds for clients of the Fee-Based
Program, and (iv) include the Funds on any approved, preferred or other similar
list of mutual fund products offered through the Fee-Based Program.
4. Customer Accounts
-----------------
You may maintain with the Funds' shareholder servicing agent either (i) one
or more omnibus accounts solely for the participants in the applicable Fee-Based
Program or (ii) separate accounts for each participant in the applicable Fee-
Based Program. If one or more omnibus accounts are maintained, you shall, among
other things, be responsible for forwarding proxies, annual and semi-annual
reports and other materials to each beneficial owner in a timely manner.
<PAGE>
5. Applicable Law
--------------
This Agreement shall be governed by and construed and interpreted in
accordance with the internal laws of The Commonwealth of Massachusetts.
6. Disclaimer and Indemnity
------------------------
We are not endorsing, recommending and are not otherwise involved in
providing any investment product of yours, including but not limited to any Fee-
Based Program. We are merely affording you the opportunity to use shares of the
Funds as an investment medium for the applicable Fee-Based Program. You
acknowledge and agree that you are solely responsible for any such Fee-Based
Program and you agree to indemnify, defend and hold harmless us, the Funds and
our and their affiliates, directors, trustees, officers, employees and agents
from and against any claims, losses, damages or costs (including attorneys'
fees) arising from or related to such Fee-Based Program, including without
limitation any brochures, written materials or advertising in any form that
refers to the Funds or the Fee-Based Program.
7. Miscellaneous
-------------
This Agreement is not exclusive and shall terminate automatically upon
termination of the Selected Dealer Agreement. We reserve the right, in our
discretion upon notice to you, to amend, modify or terminate this Agreement at
any time. You agree that any order to purchase Shares placed by you after
notice of any amendment to this Agreement has been sent to you shall constitute
your agreement to such amendment.
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By: ______________________________
Name:
Title:
Accepted:
__________________________________
Name of Dealer
By: __________________________________
Name:
Title:
<PAGE>
ELIGIBILITY REQUIREMENTS
FOR
FEE-BASED PROGRAMS
Dealers with Fee-Based Programs for the purchase of shares of the State
Street Research Funds, are subject to satisfaction of any one of the following
eligibility conditions:
1. The effective annual management fee charged on the assets invested under
the Fee-Based Program may not exceed 2.50%, or be less than 0.50%, of
average net assets.
or
2. After the first year, the assets invested under the Dealer's Fee Based
Programs in the aggregate must be not less than $250,000.
These conditions are subject to change by State Street Research Investment
Services, Inc. at any time upon notice to the Dealer.
<PAGE>
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
State Street Research Portfolios, Inc.
We consent to the use in Post-Effective Amendment No. 7 to Registration
Statement No. 33-42129 of State Street Research Portfolios, Inc. ("Portfolios")
of our reports dated December 16, 1996 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 a part of
such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
February 27, 1997
<PAGE>
Exhibit (14)(c)
[FRONT COVER]
[State Street Research logo]
Your Window of Opportunity
State Street Research 403(b)
[Graphic: 3 windows, one slightly open]
Inside
---------------------------------------------
State Street Research Makes It Easy page 1
Use a 403(b) Before An IRA page 3
403(b) Tax Savings page 4
The State Street Research Advantage page 5
How to Open An Account page 9
<PAGE>
RETIREMENT PLANNING TAKES TIME
A comfortable retirement is the number one reason most people invest. And,
today, successful retirement planning is more important than ever. Not only are
we retiring earlier, but we're living longer. That means your retirement nest
egg needs to last for 20 or 30 years.
Fortunately, the key to success in retirement planning isn't necessarily how
much you invest. It's giving your money time to grow and making the right
choices with your investments. This is why it pays to have a dedicated
investment representative who understands your investment goals and can help you
take advantage of investment opportunities.
STATE STREET RESEARCH 403(B) MAKES IT EASY
A 403(b) plan is your window of opportunity. It allows you to take personal
control of your retirement, deciding what to invest in, how much and when. The
State Street Research 403(b) account offers you distinct advantages:
[bullet] Tax benefits. You enjoy pre-tax contributions
and tax-deferred investing.
[bullet] A convenient loan privilege that lets you borrow against your
403(b) account.
[bullet] Convenience. Your contributions are made by
payroll deduction. [Graphic:
Window]
[bullet] The cost advantages of State Street Research
mutual funds.
[bullet] A wide range of investment options--stock funds, bond funds,
international and money market funds.
[bullet] The investment expertise of State Street Research--the result of
managing mutual funds for more than 70 years.
1
<PAGE>
IT PAYS TO START EARLY
It stands to reason that the more you invest, the more money you may have when
you retire. But one of the wonders of investing is how time, and the power of
compounding, can make your money grow faster. Consider the examples below.
[LINE CHARTS]
Chart 1 Chart 2
Year $(in thousands) Year $(in thousands)
1 5,406 1 5,406
2 10,812 2 10,812
3 16,650 3 16,650
4 22,956 4 22,956
5 29,766 5 29,766
6 37,120 6 37,120
7 45,064 7 45,064
8 53,642 8 53,642
9 62,907 9 62,907
10 72,913 10 72,913
11 83,720 11 83,720
12 95,391 12 95,391
13 107,996 13 107,996
14 121,610 14 121,610
15 136,312 15 136,312
16 152,191 16 152,191
17 169,340 17 169,340
18 187,861 18 187,861
19 207,863 ` 19 207,863
20 229,068 20 229,068
21 247,393
22 267,185
23 288,560
24 311,644
25 336,576
26 363,502
27 392,582
28 423,989
29 457,908
30 494,541
31 534,104
32 576,832
33 622,979
34 672,817
35 726,642
Linda Late began putting money away for retirement when she was 45. After 20
years of investing $400 each month--a total of $96,000--she accumulated $229,068
at age 65.
Ellen Early got a head start on her retirement planning, beginning at age 30.
She also invested $400 per month for 20 years, and then let her investment grow
for fifteen more years. After 35 years, her account grew to $726,643.
Ellen Early invested the same amount as Linda Late, yet had more than $497,000
extra to make her retirement a success. The real difference was the added time
her investment had to grow, and that's why it pays to start early.
These charts illustrate the growth of $400 monthly investments at an 8% annual
rate of return. Results are hypothetical and are for illustrative purposes only;
they are not intended to imply or guarantee a rate of return on any mutual fund
or other investment. All distributions are reinvested; sales charges are not
reflected.
How Investments Grow Over Time
Use this table as a guide in determining how your investments might grow. Choose
a number of years and an average annual rate of return. The table assumes a $100
monthly investment; but you can use it as a guide for nearly any amount. For
example, if you invest $200 (twice as much), just multiply the result in the
table by 2.
average annual rate of return
years 8% 10% 12%
5 $ 7,341 $ 7,717 $ 8,110
10 18,128 20,146 22,404
15 33,978 40,162 47,593
20 57,267 72,398 91,986
25 91,485 124,315 170,220
30 141,763 207,928 308,098
35 215,639 342,588 551,083
40 324,086 559,358 979,211
2
<PAGE>
THE BENEFITS OF 403(B)
A 403(b) retirement plan gives you the opportunity to save on taxes while you
invest. It is designed specifically for employees of public educational
institutions and certain tax-exempt organizations, such as hospitals and
colleges. The name "403(b)" refers to the part of the tax code that created the
plan.
A 403(b) is similar to the popular 401(k) plans available at many corporate
workplaces. Both allow you to invest by payroll deduction (before taxes), which
reduces the income taxes you pay. And both let your account grow free from taxes
until you withdraw money after age 59-1/2.
Why Use a State Street Research 403(b) BEFORE an IRA
For most investors, it's better to maximize contributions to a 403(b) plan
before contributing to an individual retirement account (IRA). Here's why:
- --------------------------------------------------------------------------------
State Street Research 403(b) IRA
- --------------------------------------------------------------------------------
Pre-tax contributions reduce
income taxes paid [checkmark] [checkmark](1)
- --------------------------------------------------------------------------------
Account is tax deferred until
money is withdrawn [checkmark] [checkmark]
- --------------------------------------------------------------------------------
You can invest by payroll deduction
[checkmark] [checkmark]
- --------------------------------------------------------------------------------
You can potentially invest up to
$9,500 maximum per year [checkmark]
- --------------------------------------------------------------------------------
You can take a loan against
your account [checkmark]
- --------------------------------------------------------------------------------
(1)In some cases, IRA contributions may be tax deductible.
3
<PAGE>
403(B) TAX SAVINGS
A 403(b) retirement plan helps you save on taxes in two ways. First, it reduces
your current taxable income because your contributions are made before taxes.
Pay Less Taxes Up Front
Saving with a 403(b) Plan Saving without a 403(b) Plan
- ---------------------------------- --------------------------------
Salary $50,000 Salary $50,000
403(b) savings $ 5,000 Non-403(b) savings $ 5,000
(pre-tax) (after tax)
Gross taxable income $45,000 Gross taxable income $50,000
Federal income taxes $ 7,815 Federal income taxes $ 9,215
(28% federal tax bracket) (28% federal tax bracket)
- ------------------------------------------------------------------------
Income after savings Income after savings
and taxes $37,185 and taxes $35,785
Pre-tax contributions mean you're currently taxed on less income, so your taxes
are lower!
Avoid Taxes While You Invest
Second, your 403(b) account is not taxed until you withdraw money, usually after
you reach age 59-1/2. Your account can grow tax deferred, which helps it to grow
faster! Taxes are paid when money is withdrawn from the 403(b) account.
The Advantages of Tax Deferral
(for monthly investments of $400)
[LINE CHART]
Taxable Line Tax-defered Line
Year Year
1 5,348 1 5,406
2 10,582 2 10,812
3 16,117 3 16,650
4 21,971 4 22,956
5 28,162 5 29,766
6 34,709 6 37,120
7 41,634 7 45,064
8 48,957 8 53,642
9 56,703 9 62,907
10 64,894 10 72,913
11 73,558 11 83,720
12 82,720 12 95,391
13 92,410 13 107,996
14 102,659 14 121,610
15 113,497 15 136,312
16 124,960 16 152,191
17 137,083 17 169,340
18 149,905 18 187,861
19 163,465 19 207,863
20 177,406 20 229,068
This chart illustrates general advantages of tax deferral. The chart shows
investments of $400 per month over a 20-year period. The taxable line reflects
annual taxes in the 28% tax bracket. Returns reflect hypothetical 8% annual
rates of return and are for illustrative purposes only; they are not intended to
imply or guarantee a rate of return on any mutual fund or other investment. All
distributions are reinvested; sales charges and deferred income taxes are not
reflected.
4
<PAGE>
THE MUTUAL FUND ADVANTAGE
State Street Research's mutual funds offer several advantages over other types
of investments or plans for 403(b) accounts.
Convenient loan privilege. If you have a short-term need for money, you can take
a loan against your account balance and pay the interest on the loan to your own
account.(2)
Wide range of investment options--stock, bond, international, and money market
funds. If your investment strategy changes, you can exchange your money from one
fund to another.(3)
Higher potential returns than fixed accounts. Investing in stock and bond mutual
funds can provide higher potential returns than fixed-rate investments. Of
course, the investment value and returns of mutual funds will fluctuate with
changes in market conditions.
Daily fund prices. Fund prices are reported daily in most newspapers, so it is
easy for you to keep track of your investment.
Flexible withdrawal options. When you are ready to retire, you have several
options for accessing your money.
[bullet] A lump-sum payment.
[bullet] A lump-sum payment made into another mutual fund account or
other investment.
[bullet] Regular monthly or quarterly payments from your account.
See page 7 for details on withdrawals.
(2)Subject to IRS penalty for non-repayment.
(3)The exchange privilege may be changed or discontinued at any time.
WHY STATE STREET RESEARCH
Since 1924, State Street Research has been respected by institutions and
knowledgeable individual investors. The firm has delivered exceptional results
to its clients:
[bullet] A history of selecting good stocks in both rising and falling markets.
State Street Research has successfully managed investor portfolios
throughout this century's best and worst market cycles since 1924.
[bullet] The choice of today's most demanding investors. Eight of the 10 largest
corporate pension plans and one of every four Fortune 100 companies is
a State Street Research client.
[bullet] Proprietary research. We built our reputation on the strength of our
in-house proprietary research.
[bullet] Institutional investment quality to individual investors. State Street
Research mutual fund investors receive the same distinctive portfolio
direction as our institutional clients.
[bullet] The important role of client service. State Street Research has been
recognized for providing quality shareholder service.
5
<PAGE>
RETIREMENT INVESTMENT STRATEGIES
To make it easier to develop a long-term plan,
State Street Research offers two special automatic investment strategies.
Direct Your Investment
Use our DIRECT strategy to invest gradually, moving money in pre-set amounts
from a conservative fund into a more aggressive fund.
HERE'S HOW IT WORKS:
[bullet] You transfer a lump-sum investment from an existing 403(b) plan into a
State Street Research mutual fund.(4)
[bullet] On a monthly or quarterly basis, money is "directed" from that fund
into another State Street Research fund that you select.
[bullet] You benefit from dollar cost averaging, which helps you invest in a
disciplined way whether the markets go up or down.(5)
DAP Your Dividends
Use DAP--Dividend Allocation Plan--to diversify dividends from a conservative
fund into a more aggressive fund.
HERE'S HOW IT WORKS:
[bullet] You make a lump-sum investment (plus any additional investments) in a
State Street Research mutual fund that pays regular dividend income.
[bullet] Your initial investment remains untouched, but the Fund's dividends are
transferred (or allocated) to another State Street Research fund that
you select.
[bullet] You benefit from diversification and dollar cost averaging.(5)
If you are interested in either of these automatic investing strategies, please
call 1-800-562-0032.
(4) Specific IRS rules apply to transfers. See the Transfer of 403(b) Assets
Form for more information.
(5) Dollar cost averaging will not assure that you will make a profit; neither
can it protect against losses in declining markets. Dollar cost averaging
involves continuous investment regardless of fluctuating prices, and
investors should consider their ability to purchase shares through high and
low markets.
What Has Performed Best Over the Long Term?
When investing for a long-term goal such as retirement, you may want to consider
stock funds for at least a portion of your investment. A longer time frame could
give you the time to ride out fluctuations in the market. Plus, you want your
investments to outpace inflation, and stocks have done that in the past 30
years.
[BAR CHART]
30 Years of Performance(6)
10.7% Large-company stocks
8.2% Long-term government bonds
6.9% U.S. Treasury bills
5.4% Inflation
(6) Source: Lipper Analytical Services, Johnson Charts
Average annual total returns for the years 1966-1995. All indices listed are
unmanaged and do not take sales charges into consideration. Direct investment in
the indices is not possible; results are for illustrative purposes only. Past
performance should not be considered indicative of the future performance of any
index or any available funds managed by State Street Research or its affiliates.
The Large-Company Stock data reflects the performance of the Standard & Poor's
500 Composite Index (S&P 500), which includes 500 widely traded common stocks
and is a commonly used measure of U.S. stock market performance. The Long-Term
Government Bond data are based on the performance of a one bond portfolio, which
includes a debt obligation issued by the U.S. Treasury with a 20-year maturity.
The U.S. Treasury Bill data are based on the performance of a one bill
portfolio, which includes a U.S. Treasury bill with a 30-day maturity. The
Consumer Price Index (CPI) is a measure of change in the prices of goods and
services as determined by the U.S. Bureau of Labor Statistics.
More information about stocks: Stocks are neither guaranteed nor tax advantaged.
The value of stocks will fluctuate, based on a variety of variables, including
market conditions.
More information about U.S. debt obligations: U.S. Treasury bonds and bills
offer a government guarantee as to the repayment of principal and/or interest if
held to maturity; income from these securities is tax exempt at the state and
local level. U.S. government agency securities are not direct obligations of the
U.S. government and, with some exceptions, are not guaranteed by the U.S.
government; many are exempt from state and local taxes.
6
<PAGE>
QUESTIONS AND ANSWERS
About Your 403(b) Account
Eligibility Who can have a 403(b) account?
Generally, employees of non-profit charitable, educational, scientific or
religious organizations, such as hospitals or colleges, may have a 403(b)
account. Also eligible are employees of state or local governments who are
employed by schools. Check with your employer to determine whether you qualify
for a 403(b) account.
Contributions
How do I make contributions to my 403(b) account?
Usually, you enter into a salary reduction agreement with your employer that
specifies the amount you want to contribute. Your compensation will be reduced
by this amount. Your employer may have a salary reduction agreement for you to
use. If not, a salary reduction agreement is attached.
What about fees? Is it expensive to open a 403(b) with State Street Research?
State Street Research offers some of the most competitive pricing for 403(b)s
that you'll find. You'll pay a $10 annual account administration (trustee) fee.
This $10 fee (per 403(b) plan) allows you to choose any number of our available
mutual funds. You pay per plan, not per fund. Remember though, sales charges may
also apply to the mutual funds that you invest in for your 403(b).
Maximum Contribution
How much can be contributed each year to my 403(b) account?
Determining your maximum 403(b) contribution is complex because several
different tax law limits apply depending on your individual situation. For most
employees, the maximum salary reduction contribution for a calendar year will be
the smaller of 20% of your compensation or $9,500. In the future, the $9,500
limit will be indexed for inflation. Employees of certain kinds of qualified
employers (for example, public schools, colleges, and hospitals) and
long-service employees (15 or more years of service) of such employers may have
different limits.
Your employer may be able to calculate your maximum contribution. If not, use
the attached worksheet. You may wish to consult an accountant or tax adviser to
confirm your maximum contribution, as penalties may apply if you exceed your
maximum.
Transfers
May I transfer all or part of my existing 403(b) to State Street Research? Yes.
Complete the attached Transfer of 403(b) Assets Form. Be sure to note the
requirements for a tax-free transfer described in the Form.
Withdrawals From Your Account
When will I begin to receive retirement benefits from my account?
You choose when to make withdrawals from your 403(b) account. However,
withdrawals may not begin until you have retired or terminated employment with
your employer or reached age 59-1/2. Earlier withdrawals are permitted only if
you become disabled or suffer a financial hardship (as defined by IRS
regulations).
You must begin making withdrawals by April 1 of the year following the year when
you reach age 70-1/2 or retire from your employer (if later).
7
<PAGE>
What happens to my account if I die?
Your account balance goes to the beneficiary(ies) you designate on the 403(b)
application or on another written document you send to State Street Research
Shareholder Services. Naming a beneficiary(ies) can have estate and tax-planning
implications, so consult a qualified professional. Any contingent deferred sales
charges (Class B shares) are waived if withdrawals are made within one year of
your death or disability.
Taxes
How will I be taxed on withdrawals from my 403(b)?
Generally, amounts withdrawn from your account are taxed as ordinary income in
the year when received. In addition, with limited exceptions, such as
disability, amounts withdrawn before age 59-1/2 are subject to an additional 10%
penalty tax.
If you withdraw an amount from your State Street Research 403(b) Account that is
eligible for rollover (see next question), mandatory 20% federal income tax
withholding will apply unless the withdrawn amount is rolled over directly to
another 403(b) arrangement or to an IRA. If the amount you withdraw is not
eligible for rollover to another 403(b) arrangement or IRA, 10% withholding of
federal income tax will apply unless you elect no withholding on your Withdrawal
Form.
Can I postpone federal income tax on a withdrawal from my 403(b) account?
You can defer income taxes on withdrawals from your 403(b) account if all or
part of the withdrawal is rolled over to another 403(b) account or into an IRA
either directly by State Street Research (direct rollover) or by you (regular
rollover) within 60 days. All withdrawals are eligible for rollover except
minimum required withdrawals after age 70-1/2 or retirement from your employer
and withdrawals over a period of at least 10 years or over your life expectancy
(or that of you and your designated beneficiary(ies)).
Caution: Rollovers must meet technical IRS requirements that cannot be described
in detail here.
Important: The preceding questions and answers are general and are provided for
informative purposes only. Some rules are not covered. Always consult your tax
adviser for advice on how the tax laws apply to you and how a State Street
Research 403(b) account will affect your tax situation or for advice on specific
matters such as contribution limits or rollover requirements. More information
is available in IRS Publication 571, Tax-Sheltered Annuity Plans for Employees
of Public Schools and Certain Tax-Exempt Organizations; this publication is
available from the IRS.
[Graphic: 3 diamond-shaped windows]
8
<PAGE>
How To Open Your
STATE STREET RESEARCH 403(B) ACCOUNT
1. Carefully read the material describing the State Street Research 403(b)
Account and the prospectus(es) for the fund(s) in which you plan to invest.
You may want to review the material with your accountant, lawyer or other tax
adviser because the rules under Section 403(b) are complex and subject to
change.
2. If you are transferring your current 403(b) assets to State Street Research,
complete and sign the Transfer of 403(b) Assets Form.
3. Complete and sign the State Street Research 403(b) Account Application. Be
sure to complete the beneficiary and employer (even if you are retired)
sections of the Application.
4. If contributions to your 403(b) Account will be made by salary reduction, you
should fill out a salary reduction agreement and you and your employer should
sign it. A sample Salary Reduction Agreement is attached.
5. Mail the completed and signed Application (and the Transfer of 403(b) Assets
Form, if used) to State Street Research Shareholder Services.
9
<PAGE>
[The following 2 pages make up the Transfer of Assets form that is inserted in
the booklet]
[Tab on right edge of page: TRANSFER OF 403(b) ASSETS FORM]
State Street Research 403(b)
TRANSFER OF 403(B) ASSETS FORM
How to transfer your existing 403(b) Account to State Street Research
[bullet] If you don't have a State Street Research 403(b) Account yet, complete
this transfer form and a State Street Research 403(b) Account
Application.
[bullet] If you already have a State Street Research 403(b) Account, just
complete this transfer form.
[bullet] When completed, send this transfer form (and if necessary, your 403(b)
Account Application) to: State Street Research Shareholder Services,
P.O. Box 8408, Boston, MA 02266-8408.
Information about you
_______________________________________________________________________________
Name Social Security #
_______________________________________________________________________________
Telephone (day) Telephone (night)
_______________________________________________________________________________
Account number (if you already have a State Street Research 403(b) Account)
Where is your 403(b) Account now?
_______________________________________________________________________________
Name of current Custodian/Insurer
_______________________________________________________________________________
Address
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
Account number Name of mutual fund or fund family (if applicable)
_______________________________________________________________________________
Maturity date (if applicable)
[ ] This is a new State Street Research 403(b) Account. My investment choices
are on my 403(b) Account Application.
[ ] I already have a State Street Research 403(b) Account. Please invest the
amount transferred as follows:
Please tell us which Fund(s) you have selected for your 403(b) investment
_______________________________________________________________________________
Fund name Account number %
_______________________________________________________________________________
Fund name Account number %
_______________________________________________________________________________
Fund name Account number %
By signing below, I acknowledge that I have received a current prospectus(es) of
the Fund(s) selected.
[State Street Research logo] OVER >
<PAGE>
Please authorize transfer of your current 403(b) account to State Street
Research
To my current Custodian/Insurer: Please redeem [ ] ALL or [ ] PART ($ )
of my current 403(b) and transfer the proceeds in cash to my State Street
Research 403(b) Account. (For partial transfers, indicate which investments are
to be liquidated.)
_______________________________________________________________________________
Your signature Date
Note: Under current IRS rulings, a transfer from another 403(b) account to a
State Street Research 403(b) Account will be a tax-free transaction as long as
the withdrawal restrictions under your existing 403(b) are not more severe than
those under the State Street Research 403(b) Account (see Section 5.2 of the
State Street Research 403(b) Agreement). Also, amounts required to be
distributed to you under the minimum distribution rules of Code Section
403(b)(10) may not be transferred or rolled over. By signing this form, you are
certifying that this transfer will be a tax-free transaction under the preceding
two sentences.
Signature Guarantee
A signature guarantee may be required. Call your current Custodian/Insurer for
requirements.
_______________________________________________________________________________
Signature guaranteed by (name of bank or dealer firm)
_______________________________________________________________________________
Signature and title of officer
Directions to Current
Custodian/Insurer
PLEASE DO NOT FILL OUT THE FOLLOWING PORTION OF THIS FORM
Please liquidate and transfer on a fiduciary-to-fiduciary basis all or part of
the designated account as instructed above. Make check payable to State Street
Bank and Trust Company, Custodian.
Include the following account number and FBO on the check.
_______________________________________________________________________________
Account number Name
Mail to: State Street Research Shareholder Services,
P.O. Box 8408, Boston, MA 02266-8408
Include a copy of this Transfer of 403(b) Assets Form with the check for proper
credit to the customer's account. State Street Research Shareholder Services
will deliver the items to Boston Financial Data Services, Inc., which serves as
Agent for the Custodian.
Successor Custodian
State Street Bank and Trust Company will accept the transfer described above
once this form has been completed by you and the transfer has been completed by
your current 403(b) Custodian/Insurer.
_______________________________________________________________________________
Authorized signature of acceptance by Date
State Street Research Shareholder
Services on behalf of State Street Bank
and Trust Company, Custodian
<PAGE>
[The following 4 pages make up the Account Applicaiton form that is inserted
in the booklet]
[Tab on right edge of page: ACCOUNT APPLICATION]
-----------------------------------
Accompanying this form is a:
[ ] Transfer of 403(b) Assets Form
[ ] A check for a regular rollover
-----------------------------------
State Street Research 403(b)
ACCOUNT APPLICATION
How to open your State Street Research 403(b) Account
1. To open a State Street Research 403(b) Account, please complete this side
of the Application.
2. Your investment dealer must complete the dealer information section of
the Application.
What type of State Street Research 403(b) are you opening?
[ ] Regular 403(b) [ ] Transfer of Assets [ ] Regular Rollover
with Salary Reduction or Direct Rollover
Amount of investment accompanying this Application $___________________________
(Enclose a check for your contribution only if this is a regular rollover
403(b).)
Employee information
Complete the following information about yourself. Your account will be
registered in your name.
_______________________________________________________________________________
Name Birth date
_______________________________________________________________________________
Street
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
Social Security #
_______________________________________________________________________________
Daytime telephone #
Employer information
Complete the following information about your employer.
_______________________________________________________________________________
Name
_______________________________________________________________________________
Street
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
Name of contact person Daytime telephone #
Which Fund(s) have you selected for your 403(b)?
See relevant prospectus(es) for Fund details.
Name of Fund Class of Shares Percentage
A B D
[ ] [ ] [ ] %
____________________________________________________ ____________________
[ ] [ ] [ ] %
____________________________________________________ ____________________
[ ] [ ] [ ] %
____________________________________________________ ____________________
[ ] [ ] [ ] %
____________________________________________________ ____________________
[ ] [ ] [ ] %
____________________________________________________ ____________________
Total 100%
For information on the Direct or DAP(Dividend Allocation Plan) automatic
investing strategies, please call 1-800-562-0032.
[State Street Research logo]
<PAGE>
Who is the beneficiary of your State Street Research 403(b) Account?
1. Primary Beneficiary
_______________________________________________________________________________
Name Birth date
_______________________________________________________________________________
Relationship to you
_______________________________________________________________________________
Street
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
Social Security #
2. Secondary Beneficiary
_______________________________________________________________________________
Name Birth date
_______________________________________________________________________________
Relationship to you
_______________________________________________________________________________
Street
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
Social Security #
Important
Naming a beneficiary(ies) can have estate and tax-planning implications. Also,
if you are married and live in a community property state (AZ, CA, ID, LA, NM,
NV, TX or WA), you may need your spouse's consent to designate someone else as
beneficiary for more than half of your Account. Consult your attorney, or other
qualified professional, for additional advice.
Keep a copy of this account application with your other important papers (such
as your will).
Telephone exchange
The Telephone Exchange Privilege is available only for shares held on deposit
with the Transfer Agent. None of the Transfer Agent, any of the Funds, State
Street Research Shareholder Services, the Investment Manager or the Distributor
will be liable for any loss, injury, damage or expense as a result of acting
upon, and will not be responsible for the authenticity of, any telephone
instructions. I understand that all telephone calls are tape recorded. I am
liable for unauthorized telephone instructions unless reasonable procedures are
not used to confirm that instructions communicated by telephone are genuine.
<PAGE>
Telephone Exchange
by Shareholder or Dealer
The Transfer Agent may effect exchanges for my account according to telephone
instructions from me or my Dealer as set forth in the prospectus, and may
register the shares of the Fund to be acquired exactly the same as my existing
account. Authorizing an exchange constitutes an acknowledgment that Ihave
received the current prospectus of the Fund to be acquired. The account will
automatically have this privilege unless I expressly decline by providing my
initials in the space below.
I DO NOT WANT THE TELEPHONE EXCHANGE PRIVILEGE.
___ (Initial here.)
Sign here to establish the 403(b) Account
I hereby establish a State Street Research 403(b) Account, the terms of which
are contained in this Application and the State Street Research 403(b) Agreement
(which I have received and which is incorporated herein by reference) and
appoint State Street Bank and Trust Company as Custodian. I direct that
contributions to my 403(b) Account be invested as specified above in this
Application (until changed by me in accordance with the Agreement), designate
the individual(s) named above as my beneficiary(ies) (unless I have filed a
separate written designation with the Custodian or its agent), acknowledge that
I have received a current prospectus(es) of the Fund(s) indicated above, and
acknowledge that there is a $10 annual maintenance fee per plan (in addition to
any fees and charges described in the prospectus(es)).
Under penalties of perjury, I certify that (1) the number shown on this
Application is my correct taxpayer identification number (or I am waiting for a
number to be issued to me), and (2) I am not subject to backup withholding
because (a) I am exempt from backup withholding, or (b) I have not been notified
by the Internal Revenue Service that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
Certification Instructions--You must cross out item (2) above if you have been
notified by the IRSthat 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 certification required to avoid backup withholding.
_______________________________________________________________________________
Employee signature Date
<PAGE>
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 (b)
below)
__________________________________________________ _________________________
Name of Bank or Eligible Guarantor Street Address
__________________________________________________ _________________________
Authorized Signature of Bank or Eligible Guarantor City State ZIP
b. Dealer Information and Signature Guarantee (for Dealer use only)
______________________________ ______________________________________________
Dealer Name Branch Office Number
______________________________ ______________________________________________
Street Address of Home Office Address of Branch Office Serving 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(es), and represents that it has provided a current Prospectus for
each fund selected 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(s), 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(s) and
the other 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.
State Street Bank and Trust Company, Custodian
You are hereby authorized and appointed on behalf of the above-signed dealer to
execute purchase transactions in accordance with the terms and conditions of
this Application, and to confirm each purchase.
Acceptance by the Custodian
This Account will be deemed to have been accepted by the Custodian, State Street
Bank and Trust Company, after all necessary forms, properly completed, are
received by State Street Research Shareholder Services and delivered by
Shareholder Services to the Transfer Agent.
Send completed application to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
<PAGE>
[The following 2 pages make up the Salary Reduction Agreement form that is
inserted in the booklet]
[Tab on right edge of page: SALARY REDUCTION AGREEMENT]
State Street Research 403(b)
SALARY REDUCTION AGREEMENT
Parties
Complete the information about the Employee and the Employer.
_______________________________________________________________________________
Employee name Social Security #
_______________________________________________________________________________
Employer name
Check one box.
[ ] Original Agreement [ ] Modification
AGREEMENTS The Employee and the Employer agree as follows:
1. The Employee has signed the State Street Research 403(b) Account Application
establishing the Account for the benefit of the Employee. The Employee and the
Employer are entering into this salary reduction agreement ("this Agreement") to
provide for contributions to the Account.
Fill in the dollar amount or percentage that you want to contribute in
section 2.
2. The Employee requests, and the Employer agrees, to reduce the compensation of
the Employee by $__________ or by ________% per pay period, starting with the
first pay period that begins after the Employee and the Employer have signed
this Agreement.
3. As soon as possible after each pay day, the Employer will transmit the amount
by which the Employee's compensation is reduced for that pay period to the agent
for the Custodian of the Employee's Account, to be credited to the Employee's
Account in accordance with the State Street Research 403(b) Account Agreement.
For federal income tax purposes, such amounts are considered Employer
contributions to the Employee's Account.
Where to send contributions.
Checks should be made payable to "State Street Bank and Trust Company,
Custodian, FBO [insert name of Employee] 403(b) Account." Mail checks to State
Street Research, P.O. Box 8408, Boston, MA 02266-8408.
[State Street Research logo] OVER >
<PAGE>
4. This Agreement will be effective only with respect to compensation not yet
earned by the Employee, and not with respect to compensation already earned by
the Employee on the date this Agreement is signed.
This Agreement is binding and irrevocable with respect to compensation earned by
the Employee while this Agreement is in effect. The Employer or the Employee may
terminate this Agreement at any time with respect to compensation not yet earned
by the Employee at the date of termination, by giving written notice to the
other party. After termination, the Employee may reinstate this Agreement (with
the same or a different salary reduction amount).
The Employee may modify the amount of salary reduction elected in Paragraph 2
above at any time by giving the Employer signed instructions specifying the new
salary reduction amount.
Notwithstanding the preceding two paragraphs, the Employer may impose reasonable
restrictions on the frequency with which the Employee may terminate, reinstate
or modify this Agreement and the number of days of advance notice required. Any
termination, reinstatement or modification will relate only to compensation not
yet earned, and not to compensation already earned, by the Employee as of the
effective date of such termination, reinstatement or modification.
5. Unless the Employer agrees to calculate the Employee's maximum 403(b)
contribution, the Employer has no responsibility for determining that the amount
by which the Employee's compensation is reduced, as set forth in Paragraph 2
above, does not exceed the limitations applicable to the Employee under the
Internal Revenue Code. The Employee agrees to indemnify the Employer, State
Street Research Investment Services, Inc., the State Street Research Funds, and
their affiliates and agents for any and all charges, expenses, taxes, interest
or penalties imposed on the Employer as a result of any reduction in
compensation in excess of such limitations.
Signatures
In witness whereof, the parties hereto have signed this Agreement
on___________________________ ,19_____.
Employee Employer
_________________________________________ ________________________________
(Signature) (Name of employer)
By:________________________________
(Signature and title of
authorized official)
<PAGE>
[Tab on right edge of page: SALARY REDUCTION WORKSHEET]
State Street Research 403(b)
MAXIMUM SALARY REDUCTION WORKSHEET
If your Employer's benefits or personnel department or business office does not
calculate your 403(b) maximum, use this worksheet to compute the maximum amount
by which you can reduce your salary to make 403(b) contributions. This worksheet
covers the main 403(b) rules and limits, but does not cover certain exceptions
and special rules that might permit larger contributions than the main rules. If
your employer will make contributions on your behalf as an addition to your
salary, or if you will contribute by foregoing an increase in compensation,
there are different rules to determine your maximum. Be sure to consult a tax
adviser to help you apply the rules to your personal situation. This worksheet
and the questions and answers following it are not intended to be tax advice.
You are responsible for meeting the tax law limits on contributions to your
403(b) account.
In the example, a college teacher will earn $40,000 in 1996. She will have
worked for the college 15 years at the end of 1996. The college has previously
contributed $20,000 on her behalf to its 403(b) retirement plan. The college
will contribute 10% of her salary ($4,000) to its retirement plan for 1996. In
addition, the employee reduced her salary in prior years by a total of $10,000
for contribution to her 403(b) account. The example shows how much this employee
can reduce her salary for 1996. Use the spaces for your own calculations.
Step 1--Determine Your Exclusion Allowance
(example)(your calculations)
(a) Expected salary for the current year
before reduction for 403(b)
contributions. $40,000 ________
(b) Number of whole and fractional years of
service as of the end of the current
year. 15 ________
(c) Multiply (a) by (b) by .20. $120,000 ________
(d) Your salary reduction contributions and
employer contributions for you to a
403(b) plan or to a tax-qualified plan
in prior years. $30,000 ________
(e) Your employer's contributions for you to
a 403(b) retirement plan for the current
year. $ 4,000 ________
(f) Subtract (d) and (e) from (c). $ 86,000 ________
(g) Multiply your years of service in (b) by
.20 and add 1. 4 ________
(h) Divide (f) by (g) to determine your
exclusion allowance for the year. $ 21,500 ________
Step 2--Determine Your Section 415 Limitation*
(a) Multiply your expected current year
salary (before reduction for 403(b)
contributions) by .20. $8,000 ________
(b) Multiply your employer's expected
current year contributions for you to a
403(b) plan by .80. $3,200 ________
(c) Subtract (b) from (a) to determine your
Section 415 general limitation (but not
in excess of $30,000). $4,800 ________
Step 3--Apply the $9,500 Limit*
Enter $9,500 (reduced by any salary
reduction contributions you make during the
same calendar year to other salary reduction
arrangements, such as a 401(k) plan). $9,500 ________
Step 4--Salary Reduction Agreement
Your maximum salary reduction amount is the smallest of the amounts determined
in Steps 1, 2 and 3. In the example, that amount was $4,800. Enter a salary
reduction agreement with your Employer, which reduces your compensation each pay
period so that the correct amount is contributed to your 403(b) account.
*See questions and answers for alternative ways to calculate the Section 415
limits and possible increases in the $9,500 limit.
[State Street Research logo]
<PAGE>
QUESTIONS AND ANSWERS
on calculating your maximum
1. What is the maximum annual contribution to my 403(b) account?
The maximum contribution you can exclude from your taxable income is the smaller
of your "403(b) exclusion allowance" (Questions 2 and 3) or your "415 limit"
(Question 4). Finally, your salary reduction contributions for a year cannot
exceed $9,500 (Question 5).
2. How do I compute my 403(b) "exclusion allowance"?
Follow these steps (see Step 1 of the worksheet) to compute your 403(b)
exclusion allowance.
(a) Take your expected salary for the current year (before reduction for your
403(b) contributions, but after reduction for salary reduction contributions
under a cafeteria or flexible benefits plan or 401(k) plan if your employer
maintains such a plan).
(b) Multiply (a) by your number of years of service with your current employer
as of the end of the current year, and then multiply the results by .20.
(c) Subtract the following total from (b):
[bullet] your total 403(b) salary reduction contributions in previous years
(which you excluded from your income).
[bullet] your employer's contributions in previous years on your behalf to a
403(b) retirement plan or to a qualified retirement plan, plus your
employer's expected contributions to a 403(b) retirement plan for
you for the current year.
(d) Divide (c) by the sum of one plus 20 percent of your years of service as of
the end of the current year.
The resulting figure is the amount of your exclusion allowance for the
current year.
For Step 1(d) of the worksheet, you need to know how much your employer has
contributed to a tax-qualified plan in prior years for you. If you cannot learn
this from your employer's benefits or personnel office, IRS regulations provide
a way to determine your employer's prior contributions. Consult your employer or
tax adviser for further information.
3. How do I determine my years of service?
Count one year of service for each full year you were a full-time employee.
Count a fraction of a year of service for years in which you were a part-time
employee or did not work a full year. (For additional information, see your
employer or your tax adviser). Add your full and fractional years of service
together to determine your total years of service. Only service with your
current employer can be counted. You may compute your exclusion allowance based
on one year of service even if you have worked for your employer for less than a
year or if your fractional years total less than a year.
4. What is my 415 limit?
Certain limits from Internal Revenue Code section 415 apply even though your
403(b) exclusion allowance for the year is greater. Section 415 has a general
limit and certain alternatives that may permit a larger 415 maximum.
Your 415 general limit is the smaller of (a) or (b) (see Step 2 of the
worksheet).
(a) 20 percent of your compensation for the year (before reduction for
contributions to your 403(b) account, but after reduction for salary
reduction contributions under any cafeteria or flexible benefits plan or
401(k) plan your employer maintains); this amount must be reduced by 80% of
your employer's contribution for the year to the 403(b) retirement plan; or
(b) $30,000. (This $30,000 figure will eventually be indexed for cost-of-living
changes. However, the indexing will not begin for some years depending on
future inflation.)
There are three section 415 alternative limits, which are available only to
employees of an educational organization, a hospital, a home health service
agency, a health and welfare service agency, or a church or association of
churches. If you do not work for such an employer, the alternatives do not apply
to you.
<PAGE>
Only one alternative may be used; in other words, if you elect to use one of the
alternatives in a year, you may not use either other alternative in any other
year. This means that choosing an alternative is an important decision.
The specific limits available under the different alternatives and the rules for
electing an alternative are complex. Consult your employer or your tax adviser
for additional information.
5. How does the $9,500 limit work?
Your salary reduction contributions for any calendar year are limited to $9,50 0
(indexed for future cost-of-living increases). This $9,500 cap applies as a
maximum salary reduction contribution even though your 403(b) exclusion
allowance or 415 limit is higher. This cap applies only to salary reduction
contributions, including your contributions to another 403(b) or 401(k) plan,
not to employer contributions to a 403(b) retirement plan for you.
An increased cap is available to certain employees who meet two requirements.
First, your employer must be one of the types listed in Answer 4 (eligibility
for 415 alternatives). Second, you must have 15 or more years of service with
your employer. If you qualify, consult your employer or tax adviser for more
information.
6. If for the current year my employer or any other employer contributes to
another 403(b) account or annuity for me, must such contributions be added to
my salary reduction contributions when determining my maximum contribution?
Yes. To determine your 403(b) exclusion allowance, your 415 limit or one of the
alternatives, your employer's current contributions to a 403(b) plan or
arrangement for you must be included. (See the worksheet for an example of this
situation). If your employer has a retirement plan, you should find out whether
it is a 403(b) plan.
7. If for the current year my employer makes contributions for me to a
retirement plan that is "qualified" under section 401(a) of the Code must
such contributions be counted when determining my maximum contributions?
The rules governing the limits for combinations of plans are very difficult and
can easily be violated unless you have expert professional guidance. This is
especially important if you "control" another employer (by owning a 50% or
greater interest), for example your own consulting business, which maintains a
plan covering you in addition to your employer's 403(b) plan.
<PAGE>
State Street Research 403(b)
ACCOUNT AGREEMENT [State Street Research logo]
Article 1: Introduction
1.1 Establishment of Account. This Agreement is intended to establish a 403(b)
Custodial Account meeting the requirements of Code Section 403(b)(7) and any
other applicable requirements of the Code or ERISA. This Agreement and the
Application will be interpreted and administered so as to carry out such intent.
The Application signed by the Employee and accepted by the Custodian (or its
agent) and this Agreement (which is incorporated by reference into the
Application), as either may be amended from time to time, are the legal
documents governing the Account.
1.2 Effective Date. This Agreement will become effective on the date on which
the Custodian accepts the Application signed by the Employee. Such acceptance
may be indicated in writing by the Custodian (or its agent) or by the
Custodian's opening the Account for the benefit of the Employee. The Account
will be opened on the date, coinciding with or after the date when this
Agreement is effective, when the Custodian receives and accepts a contribution
to the Account.
Article 2: Definition
2.1 Account or Employee's Account means the account established and maintained
by the Custodian under this Agreement for the benefit of the Employee.
2.2 Agreement means this State Street Research 403(b) Account Agreement, as it
may be amended from time to time.
2.3 Application means the State Street Research 403(b) Account Application
signed by the Employee as it may be amended from time to time.
2.4 Code means the Internal Revenue Code of 1986, as it may be amended from time
to time or any successor statute enacted in lieu thereof. Reference to any
provision of the Code includes reference to a similar provision in a successor
Statute.
2.5 Custodian means the Custodian named in the Application as Custodian, and any
party serving as successor Custodian in accordance with this Agreement.
2.6 Employee means the individual who is employed by the Employer and who signed
the Application.
The Employee must be an employee of an employer described in subsection 2.7(a),
or an employee of an employer described in subsection 2.7(b) who performs
services for an educational organization (as defined in Code Section
170(b)(1)(A)(ii)).
2.7 Employer means the Employer of the Employee. The Employer must be:
(a) an organization described in Code Section 501(c)(3) exempt from taxation
under Code Section 501(a), or
(b) a state, political subdivision of a state, or an agency or
instrumentality of a state or political subdivision of a state.
2.8 ERISA means the Employee Retirement Income Security Act of 1974, as it may
be amended from time to time.
2.9 Fund or Funds means one or more mutual funds designated from time to time by
the Sponsor as available for investment by the Account under this Agreement,
provided however that shares of the Fund may legally be offered for sale in the
state where the Employee resides.
2.10 Sponsor means State Street Research Investment Services, Inc., or its
successor.
Article 3: Contributions To Account
3.1 Establishment of Account. The Custodian will open and maintain the Account
in the name of the Employee. The Employee's interest in the Account will be
nonforfeitable at all times.
3.2 Contributions to Account.
(a) Salary Reduction Contributions. The Employee and the Employer may enter
into a salary reduction agreement, and the Employer will contribute to
the Employee's Account all amounts by which the Employee's salary is
reduced under such salary reduction agreement. Any salary reduction
agreement between the Employer and the Employee will be effective only
as to amounts earned by the Employee after such agreement becomes
effective. A salary reduction agreement may not be retroactively revoked
or modified with respect to amounts already earned by the Employee.
Either the Employee or the Employer may terminate a salary reduction
agreement at the end of any payroll period, and such agreement will not
apply to compensation subsequently earned by the Employee. The Employee
may modify his salary reduction agreement at any time, but such
modification will be effective only with respect to amounts earned by
the Employee after the effective date of the modification.
Contributions on behalf of the Employee pursuant to a salary reduction
agreement for any calendar year may not exceed the amount specified in
Code Section 402(g).
(b) Employer Contributions. The Employer may make contributions to the
Account other than under a salary reduction agreement with the Employee.
(c) Transfers or Rollovers. The Employee may by appropriate instructions
direct a transfer or direct rollover to the Account from an existing
custodial account described in Code Section 403(b)(7) or any annuity
contract described in Code Section 403(b)(1). Transfers must be in cash.
The Custodian will accept cash rollover contributions from the Employee
provided such amounts constitute rollover amounts under Code Section
403(b)(8) or rollover contributions under Code Section
408(d)(3)(A)(iii).
Transfers or rollovers will be accepted only if the Employee verifies
that the 403(b) account or annuity from which the transfer or rollover
is being made does not contain withdrawal or distribution restrictions
that are more restrictive than those contained herein. The Employee will
be responsible for insuring such a transfer or rollover satisfies the
applicable provisions of the Code in order to be a tax-free transaction.
Article 4:Investment Of Contributions
4.1 Purchase of Shares. As soon as is practicable after the Custodian receives a
contribution under Section 3.2, it will invest such contribution in shares or
fractional shares of one or more Funds in accordance with the Employee's
investment instructions. The Account may be invested in the shares of more than
one Fund provided that any applicable minimum investment requirements are met.
The Employee's initial investment instructions for the investment of
contributions to his Account will be specified in the Application for the
Account, and such instructions will remain in effect until the Custodian
receives new instructions, in writing or (if permitted)by telephone or other
electronic means, acceptable to the Custodian. If any instructions received by
the Custodian are incomplete or ambiguous in the judgment of the Custodian, the
Custodian may continue to invest contributions to the Account in accordance with
the Employee's most recent investment instructions (if any) until such
incompleteness or ambiguity has been resolved to the Custodian's satisfaction;
alternatively, the Custodian may return any contributions received for the
Employee's Account or may hold such contributions in a money market fund or
uninvested until such incompleteness or ambiguity has been resolved. In either
event, the Custodian will have no liability for interest or for loss or changes
in investment values of Fund shares which occur.
<PAGE>
Any shares of a Fund held hereunder for the Employee's Account may be registered
in the name of the Custodian or its nominee and will be held in uncertificated
form.
4.2 Reports and Voting of Securities. The Custodian will deliver to the
Employee or, if applicable, his or her Beneficiary, all notices or reports to
shareholders, prospectuses, financial statements, proxies and proxy solicitation
materials received by it with respect to shares of a Fund held in the Employee's
Account. The Custodian will vote shares in accordance with the timely
instructions of the Employee (or, if applicable, Beneficiary) as expressed in a
proxy, if received. If no timely instructions are received from the Employee (or
Beneficiary), the Custodian may vote such shares in such manner as it deems
appropriate, including "present" or in accordance with the instructions of the
Sponsor (provided that the Custodian will not take any action with respect to
voting which would render it an "affiliated person" as defined in the Investment
Company Act of 1940, as amended).
4.3 Dividends. The Custodian will invest all dividends and capital gains or
other distributions received on the shares of a Fund held in the Account in
additional shares and fractional shares of that Fund.
4.4 Change of Investments. Subject to any minimum investment requirement
applicable to a Fund, an Employee (or his or her Beneficiary, if the Employee is
deceased) may at any time direct the Custodian to exchange all or a specified
portion of the shares of a Fund in the Employee's Account for shares and
fractional shares of one or more other Funds.
The Employee (or Beneficiary) shall give such directions, by written or (if
permitted) telephonic notice or other electronic means, acceptable to the
Custodian, and the Custodian will process such directions as soon as practicable
after receipt thereof. If any such exchange instructions are incomplete or
ambiguous in the judgment of the Custodian, the Custodian may refrain from
carrying out any exchange until such incompleteness or ambiguity has been
resolved to its satisfaction, without liability for any loss or change in
investment values which occur.
Any sales or redemption fee or other charge payable in connection with such
exchange will be paid from the Employee's Account.
Article 5: Withdrawals
5.1 Instructions to Custodian. The Custodian will process written directions
from the Employee to make withdrawals. However, the Employee must insure that
withdrawals directed by the Employee comply with the requirements of this
article. No withdrawals will be processed upon the death of the Employee unless
the Custodian has been notified in writing of the Employee's death, and the
Custodian has been provided with verification of such death and of the due
authority of the person requesting the withdrawal which is adequate in the
Custodian's opinion.
5.2 Withdrawals by Employee. The Employee may make withdrawals from his Account
at the time(s) directed by the Employee on a form filed with the Custodian,
subject to the provisions of this section.
(a) Events Permitting Withdrawal. No withdrawal may be made before the
earliest of:
(i) the date the Employee reaches age 59-1/2;
(ii) the date the Employee terminates service with the Employer for any
reason, including retirement;
(iii) the date the Employee becomes disabled; as used in this subsection
(iii), "disabled" means unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of
long-continued and indefinite duration; the Custodian may require the
Employee to furnish a certificate of a licensed physician stating that
the Employee is so disabled or may require the Employee to provide
satisfactory evidence that the Employee has been awarded Social
Security disability benefits before processing any withdrawals on
account of the Employee's disability; or
(iv) the date the Employee encounters financial hardship within the meaning
of Code Section 403(b)(7)(A)(ii); before processing a hardship
withdrawal, the Custodian may require the Employer to provide a
certificate of an independent person appointed by the Employer,
stating that the Employee has a financial hardship and the amount
needed to meet the financial hardship, or the Custodian may rely upon
the representations and statements of the Employee. Hardship
withdrawals are limited to the Employee's salary reduction
contributions (no earnings).
(b) Withdrawal of Excess Contributions or Deferrals. If for any taxable
year, contributions to the Employee's Account include an amount that
is an excess contribution under Code Section 4973, the Employee may
notify the Custodian to pay such amount (plus earnings) to the Em
ployee and the Custodian will process such withdrawal. Alternatively
the Employee may designate such amount as a contribution for a
subsequent taxable year.
If, on or before March 1 following the close of a calendar year, the Employee
notifies the Custodian in writing that an amount in the Account constitutes a
deferral (including salary reduction contributions) in excess of the limit set
forth in Code Section 402(g) (generally, $9,500, indexed as provided in such
Code section) and requests to withdraw such amount (plus earnings), the
Custodian will process such withdrawal and pay such amount (and any earnings
allocable to such amount) on or before the next following April 15.
(c) Required Start of Withdrawals. An Employee must begin taking
withdrawals from his Account no later than the April 1 of the year
following the year in which the Employee reaches age 70-1/2 or
(effective January 1, 1997), if later, the Employee's date of
retirement from the Employer, in accordance with the minimum
withdrawal rules applicable to 403(b) custodial accounts (compliance
with such rules is the responsibility of the Employee or Beneficiary).
5.3 Form of Distribution. The Employee may elect to receive the assets of his
Account in cash or in shares, in either or any combination of the following
forms (as directed by the Employee):
(a) a single sum;
(b) in monthly, quarterly or annual installment payments over a period
certain specified by the Employee, but not exceeding the life
expectancy of the Employee or the joint life and last survivor
expectancy of the Employee and his designated beneficiary or such
shorter period as is necessary to meet any applicable minimum
distribution requirement under Code Section 403(b)(10) and regulations
thereunder. The life expectancy of the Employee or the joint life and
last survivor expectancy of the Employee and his designated
beneficiary will be determined at the time of the first mandatory
distribution from the Account; life expectancies of the Employee and
his spouse will not be recalculated annually thereafter (unless the
Employee or spouse elects to recalculate--which election may be made
by calculating the amount of the required withdrawal using
recalculated life expectancies). Only life expectancies of the
Employee or spouse (not any other Beneficiary) may be recalculated.
Life expectancies will be determined in accordance with applicable
regulations. If the Employee elects to receive installments in
accordance with this subsection (b), the amount of any installment
will be calculated by dividing the value of the assets in the Account
by the number of installments remaining in the specified period
certain.
The Custodian will not be required to make any distributions, in the absence of
written instructions from the Employee. However, if the Employee does not make
an election specifying the form of payment within the prescribed time, the
Custodian may either assume that the Employee is satisfying all applicable
requirements through withdrawals from another 403(b) account or annuity, or may
distribute the assets of the Employee's Account to the Employee beginning as
soon as practicable thereafter in annual installments for ten years or, if
shorter, for the number of years in the Employee's life expectancy.
5.4 Distributions at the Employee's Death. At the Employee's death,
distributions will be made in the form elected by the Beneficiary unless the
Employee has specified the form of distribution. The Beneficiary must notify the
Custodian in writing of the Employee's death and provide such evidence of the
Employee's death as the Custodian requests. To the extent the Beneficiary may
elect the form of distribution, the Beneficiary must provide written notice to
the Custodian listing the date on which distribution will commence, and the
manner in which and the period over which distribution will be made. Any form of
distribution must comply with the following requirements, and it is the
responsibility of the Beneficiary (or other person directing distributions) to
insure that all distributions do so comply:
(a) Death While Receiving Withdrawals Under An Installment Program. If the
Employee had already begun taking withdrawals in a program of periodic
installments from the Account after the required beginning date, the
balance remaining in the Account at the time of the Employee's
<PAGE>
death must continue to be withdrawn at least as rapidly as under the
installment schedule in effect at the time of the Employee's death.
(b) Death Before Starting Required Installment Withdrawals.
(i) If the Employee dies before starting to take installment
withdrawals from the Account or before the required beginning
date, and the Employee's spouse is not the Beneficiary, the
Employee's Account must be withdrawn by the Beneficiary either (A)
within five years after the Employee's death, or (B) if the
Beneficiary was designated by the Employee and withdrawals by the
Beneficiary begin within one year after the Employee's death, in
substantially equal annual or more frequent installments over a
period not exceeding the life expectancy of the Beneficiary (as
determined as of the date of the Employee's death using applicable
regulations).
(ii) If the Employee dies before starting to take installment
withdrawals from the Account or before the required beginning
date, and the Em ployee's spouse is the Beneficiary, the
Employee's entire Account must be distributed to the Employee's
spouse either (A) within five years after the Employee's death, or
(B) in substantially equal annual or more frequent installments
over a period not longer than the spouse's life expectancy as
determined as of the time distribution is commenced (without
annual recalculation thereafter unless the spouse elects to
recalculate), using applicable regulations, provided that
withdrawals under this clause (B) must begin on or before the
later of the date on which the Employee would have attained age
70-1/2 or one year after the Employee's death.
5.5 Incompetent Recipient. If an amount is payable to a person known by the Cus
todian to be a minor or under a legal disability, the Custodian may, in its ab
solute discretion, pay all or any part of such amount to (a) a parent of such
person, (b) the guardian, committee or other legal representative, wherever
appointed, of such person, including a custodian for such person under a Uniform
Gifts to Minors Act or similar act, (c) any person having the control and
custody of such person, or (d) to such person directly.
5.6 Distributions Pursuant to Domestic Relations or Other Court Orders. Where
required by law, the Custodian will make payments pursuant to any "qualified
domestic relations order" (as defined in ERISA) or any other domestic relation s
or other order issued by a court having authority over the Account, where
applicable. The Employer will determine whether any domestic relations order m
eets the requirements of a qualified domestic order and will notify the
Custodian.
The Employee will direct the Custodian whether or not to contest or defend
against any such order and the Custodian will do so, provided that the Custodian
will have no responsibility to so contest or defend unless it has first been
indemnified to its satisfaction by the Employee against its costs, expenses
(including attorney's fees) and other liabilities arising therefrom.
5.7 Withdrawals Payable in Cash or in Shares. All withdrawals will be paid in
cash or in shares of one or more Funds, as designated in writing by the Employ
ee or Beneficiary. When required to pay a withdrawal in cash, the Custodian will
redeem sufficient shares of one or more Funds in the Employee's Account t o
provide the amount necessary; any such redemptions will be in accordance with
the Employee's instructions (or, in the absence of such instruction, in
proportion to the value of the shares of each Fund held in the Account). Payment
in shares will be carried out by reregistering the appropriate number of shares
in the name of the Employee.
5.8 Transfer of Account. At the written direction of the Employee, the Custod
ian will redeem a portion or all of the shares of one or more Funds in the
Employee's Account and will transfer the cash received, less any charges, to the
custodian or insurer of another custodial account or annuity contract esta
blished for the benefit of the Employee under Code Section 403(b) or to the
trustee or custodian of a rollover individual retirement account specified by
the Employee. Neither the Custodian nor the Sponsor will have any responsibili
ty to determine whether such other custodial account or annuity contract or
individual retirement account or annuity meets the requirements of Code Section
403(b) or 408 or whether the transfer or rollover will constitute a tax-free
transaction.
5.9 Loans. Loans may be made to Employees on the following basis:
(a) Upon receipt of a properly completed and signed written application and
promissory note payable to the Custodian from the Employee, the
Custodian may make a loan to the Employee from his or her Account. The
minimum loan will be $1,000, or such smaller amount as the Custodian may
specify in its rules and procedures for loans. In no event will the
total of any outstanding loan or loans to the Employee exceed the lesser
of $50,000 or 50% of the balance of his or her Account. The $50,000
limitation is reduced by the excess, if any, of the highest outstanding
balance of loans from the Account during the one-year period ending on
the day before the date of the current loan over the outstanding balance
of loans from the Account on the date of the current loan. All loans
will be secured by one-half of the Employee's Account balance. Interest
and principal repayments on the loan will be credited to the Employee's
Account and will be invested in shares and fractional shares of one or
more Funds in accordance with the Employee's investment instructions
under Section 4.1 in effect at the time each loan repayment is received
by the Custodian.
(b) All loans from the Employee's 403(b) Account will bear a reasonable rate
of interest; and the manner of determining such reasonable interest rate
may be specified in the Custodian's rules and procedures.
(c) If Section 12.2 is applicable, loans will be made available to all
Employees on a reasonably equivalent basis.
(d) Any loan or loans to an Employee from his or her 403(b) Account will be
repaid by the Employee over a specified period of time, in the form and
manner specified in the Note signed by the Employee, but in no event
over a longer period than five years from the date of borrowing. Any
loan must be amortized on a substantially level basis with payments not
less frequently than monthly. In the event the Employee does not repay
all or a portion of the principal amount on such loan within the time
prescribed, he or she will continue to be liable for any balance on the
loan not paid in addition to interest owed on principal payments not
made. Any default in the payment of principal or interest on a loan from
the Employee's account will reduce the amount available in such Account
for distribution to the Employee (or the Employee's beneficiary in the
event of the Employee's death). In addition, any default which is not
cured within the period of time provided in the Custodian's rules and
procedures will be treated as a taxable distribution to the Employee (or
beneficiary, if applicable).
(e) The Custodian may prescribe such rules and procedures as are deemed
proper in order to administer the provisions of this Section 5.9, and
reserves the right to charge an administration fee for processing and
maintaining such loans.
5.10 Direct Rollovers. Notwithstanding any provision of this Agreement to the
contrary that would otherwise limit a distributee's election under this section,
effective for distributions or withdrawals from the Employee's Account on or
after January 1, 1993, a distributee may elect (at the time and in the manner
specified by the Custodian) to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
For purposes of this section, the following terms have the meaning given.
(a) Eligible rollover distribution means any withdrawal or distribution of
all or any portion of the amount in the Employee's Account, except that
an eligible rollover distribution does not include: any withdrawal or
distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any
withdrawal or distribution to the extent such distribution is required
under Code Section 403(b)(10); and the portion (if any) of any
withdrawal or distribution that is not includable in gross income.
(b) Eligible retirement plan means an individual retirement account
described in Code Section 408(a), an individual retirement annuity
described in Code Section 408(b), or an arrangement described in Code
Section 403(b), that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(c) Distributee means the Employee. In addition, the Employee's surviving
spouse and the Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code
Section 4l4(p) (if applicable), are distributees with regard to the
interest of the spouse or former spouse.
(d) Direct rollover means a payment from the Employee's account to the
eligible retirement plan specified by the distributee.
Article 6: Custodian
6.1 Duties. The Custodian will perform the following duties related to the
administration of the Employee's Account:
(a) Receive contributions under Section 3.2 (or, if applicable, loan
repayments), invest such contributions (or repayments) in shares of one
or more Funds in accordance with the Employee's investment instructions,
and credit such shares to the Employee's Account;
(b) Maintain custody of the assets in the Account;
(c) Collect income and reinvest such income as provided in this Agreement;
(d) Execute orders for purchase, sale or exchange of shares of Funds in
accordance with the Employee's instructions and make settlements in
accordance with general practice;
(e) Maintain records of all transactions in the Account;
(f) Not less frequently than annually, provide the Employee appropriate
statements of the Account showing all transactions of the Account;
(g) File with the Internal Revenue Service and/or any other government
agency such returns, reports, forms, and other information as may be
required of it as Custodian;
(h) Perform such other duties and services as may be necessary under this
Agreement.
The Custodian may appoint one or more agents, attorneys or contractors,
including the Sponsor (or a contractor or affiliate of the Sponsor), to carry
out any of its duties hereunder.
6.2 Share Redemptions. If cash is needed to pay taxes, fees, or other expenses
properly chargeable to the Account or to make payments to the Employee or his
Beneficiary under Article 5, the Employee (or Beneficiary, if applicable) will
instruct the Custodian in writing (or, if applicable, by telephone or other
electronic means) which Fund should be redeemed or sold if the Account is
invested in more than one Fund. In the absence of such written instructions, the
Custodian will redeem shares of all Funds in the Account in proportion to the
value of the shares of each such Fund held in the Account.
6.3 Limitations on Liabilities and Duties.
(a) The Custodian will be fully protected in acting in accordance with and
in reliance upon any document, order or other direction believed by the
Custodian to be genuine and properly given. Conversely, the Custodian
will be fully protected in not acting in the absence of proper
instructions or when it believes that any document, order or other
direction either is not genuine or was not properly given.
(b) To the extent permitted by law, 30 days after providing to the Employee
any statement (whether required under Section 6.1(f), or otherwise), the
Custodian will be released and discharged from all liability to the
Employee and any other person as to the matters contained in such
statement unless the Employee files written objections with the
Custodian within such 30-day period.
(c) The Employee (or Beneficiary) will be solely responsible for his
investment directions and the selection of Fund(s). The Custodian and
the Sponsor will not be under any fiduciary duty to the Employee (or
Beneficiary) with respect to the selection of investments (or otherwise)
or be liable for any loss or diminution in value incurred on account of
a selected investment.
(d) Neither the Custodian nor the Sponsor will have any responsibility for
determining the proper amount of any contribution or for collecting any
contribution (or, if applicable, loan repayment) from the Employer or
the Employee. Neither will have any responsibility for determining
whether the amount of any contribution is within any applicable
limitation under the Code. The Employee will have sole responsibility
for the computation of the Employee's exclusion allowance under Code
Section 403(b)(2), the limitation(s) on contributions under Code Section
415(c), any election available to the Employee under Code Section 415,
any limit on elective deferrals (including salary reduction
contributions) under Code Section 402(g), and all matters relating to
any tax consequences with respect to contributions, earnings,
withdrawals, loans or loan repayments, transfers or rollovers to or from
the Account (whether on account of the amount or time thereof or
otherwise).
(e) Neither the Custodian nor the Sponsor will be responsible for
determining the propriety, amount or timing of any withdrawal by the
Employee (or Beneficiary); in particular, neither the Custodian nor the
Sponsor will be responsible for compliance with the minimum withdrawal
rules of Code Section 403(b)(10) and will be entitled to assume that the
Employee (or Beneficiary) is satisfying such requirements from another
403(b) arrangement if the Employee (or Beneficiary) does not comply with
such requirements by withdrawals from the Account.
(f) The Custodian will not be required to carry out any instructions not
given in accordance with this Agreement. Neither the Custodian nor the
Sponsor will be liable for loss of income, or for appreciation or
depreciation in share value resulting from the Custodian's failure to
follow instructions not given in accordance with this Agreement.
(g) The Custodian will have no responsibility to pay any withdrawal unless
directed by the Employee or Beneficiary and unless the Employee's or
Beneficiary's written withdrawal instructions state the reason for the
withdrawal and contain all signature guarantees and other documents
(including proof of any legal representative's authority) requested by
the Custodian.
(h) Neither the Custodian nor the Sponsor will have any liability to the
Employee or Beneficiary for any tax penalty or other damages resulting
from any inadvertent failure by the Custodian to pay a withdrawal when
requested.
(i) To the extent permitted by law, the Employee agrees to indemnify the
Custodian, Sponsor and Funds ("Indemnitees") and hold them harmless from
any and all liability whatsoever which may arise either (i) in
connection with this Agreement and the Employee's Account (except
liability arising from the gross negligence or willful misconduct of any
Indemnitee) or (ii) with respect to making or failing to pay any
withdrawal, other than for failure to make any distribution in
accordance with instructions therefor which are in full compliance with
this Agreement.
(j) The Custodian will not be obligated to commence or to defend a legal
action or proceeding in connection with this Agreement unless the
Custodian agrees to do so and is indemnified to its satisfaction.
(k) Neither the Employer nor the Sponsor will have any responsibility or
liability for any acts or omissions of the Custodian hereunder.
6.4 Compensation. The Custodian will receive the fees specified in its then c
urrent fee schedule. The Custodian may substitute a revised fee schedule from
time to time upon 30 days written notice to the Employee. The Custodian will be
entitled to such reasonable additional fees as it may from time to time
determine for services required of it in addition to those reflected in the fee
schedule.
6.5 Resignation and Removal. The Custodian may resign by giving at least 30 d
ays written notice to the Employee at his last known address as shown on the
Custodian's records. The Sponsor may remove the Custodian hereunder by giving at
least 30 days written notice to the Custodian and the Employee at his last known
address as shown on the records of the Custodian or Sponsor. In each case, the
Sponsor will designate a successor custodian which successor custodian accepts
such appointment. Any Custodian appointed hereunder must be a bank or other
person who meets the requirements of Code Section 401(f)(2). If the Sponsor
fails to appoint a successor custodian in accordance with the preceding two
sentences, the Custodian may do so, or will have the right to apply to a court
of competent jurisdiction for the appointment of a successor.
On the effective date of its resignation or removal, the incumbent Custodian
will transfer to the successor custodian the assets and records (or copies
thereof) of the Account; provided, however, that the Custodian may retain
whatever assets it deems necessary for payment of its fees, costs, expenses,
compensation, and any other liabilities which constitute a charge on or against
the assets of the Account or on or against the Custodian.
<PAGE>
Article 7: Fees, Taxes, And Other Expenses
Any income or other taxes that may be levied or assessed upon the Account
(including any transfer taxes incurred in connection with the investment and
reinvestment of Account assets), expenses, fees and administrative costs
incurred by the Custodian in the performance of its duties (including fees for
legal services rendered to the Custodian), and the Custodian's compensation
under Section 6.4, will constitute a charge upon the assets of the Account. If
not paid by the Employee within 30 days after being billed therefor by the
Custodian, the Custodian will withdraw such fee, tax or expense from the Account
and may redeem sufficient shares of any Fund held in the Account to effect such
payment without liability for any loss incurred thereby.
Article 8: Protection Of Account
Except as specifically
permitted hereunder, no part of the Account will be used for purposes other than
for the exclusive benefit of the Employee. No right or benefit under this
Agreement will be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any attempt at such
will be void. No right or benefit hereunder will be subject to the debts,
contracts, liabilities, engagements or torts of the person who is entitled to
such right or benefit, and no such right or benefit shall be subject to
attachment or legal process for or against such person. However, the Custodian
will carry out the requirements of any qualified domestic relations or other
court order relating to the Account.
Article 9: Beneficiary Designation
Each Employee may submit to the Custodian a signed written designation of bene
ficiary acceptable to the Custodian. Any such designation of beneficiary will be
effective when filed with the Custodian during the Employee's lifetime. Whether
or not fully dispositive of the Account, the most recently filed designation of
beneficiary accepted by the Custodian will revoke all previously filed
designations. Any amount payable as a result of the Employee's death that is not
disposed of by a designation of beneficiary, for any reason whatsoever, will be
paid to the Employee's estate. If a Beneficiary dies while receiving
distributions, the portion of the Account to which the Beneficiary would have
been entitled (had he or she survived) shall be paid to the Beneficiary's
beneficiary or beneficiaries (or to the Beneficiary's estate) in a lump sum
within 90 days after the Custodian receives notification and evidence acceptable
to it of the Beneficiary's death.
Article 10: Amendment
10.1 Amendment. The Sponsor may amend this Agreement in its entirety or any por
tion thereof. The Sponsor will provide copies of such amendment to the Employer
and/or Employee. Nothing in this Agreement will impose on the Sponsor an
affirmative obligation to amend the Agreement.
10.2 Limitations. No amendment will be made:
(a) Which would cause or permit any part of the Account to be diverted to
purposes other than for the exclusive benefit of the Employee (or
Beneficiary), or cause or permit any portion of such assets to revert to
or become the property of the Employer,
(b) Which would increase the duties or responsibilities of the Custodian
without its written consent, or
(c) Which would retroactively deprive any Employee of any benefit to which
he or she was entitled under the Agreement, unless such amendment is
necessary, in the opinion of counsel to the Sponsor, to conform the
Agreement to, or satisfy the conditions of, Code Section 403(b) or any
other applicable law.
Article 11: Termination
11.1 Automatic Termination on
Distribution. This Agreement will terminate when all the assets held in the
Account have been distributed or otherwise transferred out of the Account.
11.2 Termination on Disqualification. This Agreement will terminate if, after
notification by the Internal Revenue Service that the Employee's Account does
not qualify under Code Section 403(b)(7), the Sponsor does not make such
amendments as are necessary to so qualify the Account. On such termination of
this Agreement, the Custodian will distribute all assets in an Account to the
Employee or, in the event of the Employee's death, to the Beneficiary, subject
to the Custodian's right to reserve funds as provided in Section 6.5.
11.3 Survival of Indemnification. Notwithstanding Sections 11.1 and 11.2,
Section 6.3(i) will survive the termination of this Agreement.
Article 12: Miscellaneous
12.1 Applicable Law. This Agreement will be construed, administered and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
Any action concerning the Account or this Agreement must be brought in a state
or federal court located in such Commonwealth.
12.2 Employer Plan. In any instance where the Account is part of an employee
pension benefit plan within the meaning of Section 3(2) of ERISA (and
regulations thereunder) maintained by the Employer, the following provisions
will apply:
(d) The limitation provided in the third paragraph of Section 3.2(a) will be
applied taking into account salary reduction contributions on behalf of
the employee under all plans or arrangements maintained by the Employer.
(e) Contributions to an Employee's Account must be in accordance with the
plan document adopted by the Employer (which may be a separate plan
document, or may be this Agreement with such additional provisions
relating to eligibility, participation, contributions and other matters
as the Employer may adopt); the Employer will be responsible for the
plan's compliance with all applicable provisions (including those
relating to nondiscrimination) of the Code and ERISA.
12.3 Change of Address. The Employer or the Employee will notify the Custodian
in writing of any change of address within 30 days of such change.
12.4 Notice. Any notice from the Custodian or Sponsor to the Employee under this
Agreement will be effective when sent by U.S. mail to the address of the
Employer or Employee as then shown on the Custodian's or Sponsor's records. Any
notice to the Custodian under this Agreement will be by first class mail
addressed to its home office.
12.5 Successors. This Agreement will be binding upon and inure to the benefit of
the successors in interest of the parties hereto.
12.6 Separability. If any provision of this Agreement is held invalid or illegal
for any reason, such determination will not affect any remaining provisions of
this Agreement, but this Agreement will be construed and enforced as if such
invalid or illegal provision has never been included in this Agreement.
<PAGE>
[Graphic: Window slightly open]
<PAGE>
[State Street Research logo]
A MetLife Company
This brochure must be preceded or accompanied by the relevant fund
prospectus(es), which include(s) investment policies, sales charges and
expenses. Please read the prospectus(es) carefully before investing.
Control Number: 3494-961107(1297) SSR-LD 403B-447E-1096
#
<PAGE>
Exhibit (19)
[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
as custodian for under the
c _____________________________________________________________________________
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>
Class Wire Order
Fund Name 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 Account Number
(Fund must meet (if existing
minimum investment account)
requirements)
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 Street Address
Eligible Guarantor
- --------------------------------- -------------------------------------------
Authorized Signature of Bank City State ZIP
or 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.
<TABLE>
<S> <C> <C> <C>
$
- ----------------------------------------------------------------------------------------------------
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)
</TABLE>
<TABLE>
<S> <C> <C>
[ ] Monthly Investment Date: [ ] 5th or [ ] 20th If you do not choose a date, the 5th will be chosen automatically.
[ ] Quarterly Investment Date: [ ] 5th or [ ] 20th
</TABLE>
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.
<TABLE>
<CAPTION>
Check applicable Fund(s) TO: State Street Bank and Trust Company ("Bank")
<S> <C> <C> <C> <C>
[ ] Government Income ----------------------------------------------------------------------------
[ ] NY Tax-Free Name (please print)
[ ] Money Market, Class E
[ ] High Income ----------------------------------------------------------------------------
[ ] Tax-Exempt Name (please print)
[ ] 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
</TABLE>
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 #_____________________
1 _____________________________________________________________________________
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
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>
Class
Fund Name 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 Account Number
meet minimum investment (if existing
requirements) 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 of Account Account Number
- --------------------------------------------------------------------------------
Name of 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,
the 5th will be chosen
automatically.
[ ] Quarterly Investment Date: [ ] 5th or [ ] 20th
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.
<TABLE>
<CAPTION>
Check applicable Fund(s) TO: State Street Bank and Trust Company ("Bank")
<S> <C> <C> <C> <C>
[ ] Money Market, Class E ----------------------------------------------------------------------------
[ ] High Income Name (please print)
[ ] Tax-Exempt
[ ] Government Income ----------------------------------------------------------------------------
[ ] NY Tax-Free Name (please print)
[ ] 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
</TABLE>
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>
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 Registered Representative's Signature
your name appears in Section 1)
/s/Ralph F. Verni
- ------------------------------- ----------------------------------------
Customer Signature MetLife Securities, Inc.;
by: Ralph F. Verni,
Chairman of the Board
- -------------------------------
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 Registered Representative's
Dealer - 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: 3659-970115(0298)SSR-LD
ML-544E-197
<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
5 Main Investment Objective (select one)
[ ] Aggressive Growth [ ] Growth & Income [ ] Tax Advantages
[ ] Growth [ ] Current Income
Secondary Investment Objective (optional)
[ ] Aggressive Growth [ ] Growth & Income [ ] Tax Advantages
[ ] Growth [ ] Current Income
6 Source of Funds for This Investment
[ ] 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_________________
7 This account was: [ ] Solicited [ ] Unsolicited
8 Tax Status of These Funds: [ ] Qualified [ ] Non-Qualified
9 Prior Investment Experience: (complete all that apply) Stocks yrs.
Bonds yrs. 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 Registered Representative's Signature
your name appears in Section 1)
/s/ Ralph F. Verni
- ----------------------------------- ------------------------------------------
Customer Signature MetLife Securities, Inc.;
by: Ralph F. Verni, Chairman of the Board
- ----------------------------------- ------------------------------------------
Capacity
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> STATE STREET RESEARCH INTERNATIONAL EQUITY FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 79,332,386
<INVESTMENTS-AT-VALUE> 79,100,640
<RECEIVABLES> 2,921,939
<ASSETS-OTHER> 4,578,997
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 86,601,576
<PAYABLE-FOR-SECURITIES> 3,258,637
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,282,640
<TOTAL-LIABILITIES> 4,541,277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,385,250
<SHARES-COMMON-STOCK> 2,289,362
<SHARES-COMMON-PRIOR> 2,409,238
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,108,047)
<ACCUM-APPREC-OR-DEPREC> (216,904)
<NET-ASSETS> 82,060,299
<DIVIDEND-INCOME> 1,219,761
<INTEREST-INCOME> 252,990
<OTHER-INCOME> 0
<EXPENSES-NET> 2,064,989
<NET-INVESTMENT-INCOME> (592,238)
<REALIZED-GAINS-CURRENT> (2,377,922)
<APPREC-INCREASE-CURRENT> 1,601,264
<NET-CHANGE-FROM-OPS> (1,368,896)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,219,188
<NUMBER-OF-SHARES-REDEEMED> (1,339,064)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (7,608,405)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (221,450)
<OVERDIST-NET-GAINS-PRIOR> (637,687)
<GROSS-ADVISORY-FEES> 921,649
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,517,836
<AVERAGE-NET-ASSETS> 97,015,684
<PER-SHARE-NAV-BEGIN> 9.34
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> (0.08)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.22
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> STATE STREET RESEARCH INTERNATIONAL EQUITY FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 79,332,386
<INVESTMENTS-AT-VALUE> 79,100,640
<RECEIVABLES> 2,921,939
<ASSETS-OTHER> 4,578,997
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 86,601,576
<PAYABLE-FOR-SECURITIES> 3,258,637
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,282,640
<TOTAL-LIABILITIES> 4,541,277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,385,250
<SHARES-COMMON-STOCK> 3,205,065
<SHARES-COMMON-PRIOR> 2,994,636
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,108,047)
<ACCUM-APPREC-OR-DEPREC> (216,904)
<NET-ASSETS> 82,060,299
<DIVIDEND-INCOME> 1,219,761
<INTEREST-INCOME> 252,990
<OTHER-INCOME> 0
<EXPENSES-NET> 2,064,989
<NET-INVESTMENT-INCOME> (592,238)
<REALIZED-GAINS-CURRENT> (2,377,922)
<APPREC-INCREASE-CURRENT> 1,601,264
<NET-CHANGE-FROM-OPS> (1,368,896)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,649,800
<NUMBER-OF-SHARES-REDEEMED> (1,439,371)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (7,608,405)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (221,450)
<OVERDIST-NET-GAINS-PRIOR> (637,687)
<GROSS-ADVISORY-FEES> 921,649
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,517,836
<AVERAGE-NET-ASSETS> 97,015,684
<PER-SHARE-NAV-BEGIN> 9.22
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> (0.07)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.04
<EXPENSE-RATIO> 2.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> STATE STREET RESEARCH INTERNATIONAL EQUITY FUND CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 79,332,386
<INVESTMENTS-AT-VALUE> 79,100,640
<RECEIVABLES> 2,921,939
<ASSETS-OTHER> 4,578,997
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 86,601,576
<PAYABLE-FOR-SECURITIES> 3,258,637
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,282,640
<TOTAL-LIABILITIES> 4,541,277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,385,250
<SHARES-COMMON-STOCK> 2,867,029
<SHARES-COMMON-PRIOR> 3,609,214
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,108,047)
<ACCUM-APPREC-OR-DEPREC> (216,904)
<NET-ASSETS> 82,060,299
<DIVIDEND-INCOME> 1,219,761
<INTEREST-INCOME> 252,990
<OTHER-INCOME> 0
<EXPENSES-NET> 2,064,989
<NET-INVESTMENT-INCOME> (592,238)
<REALIZED-GAINS-CURRENT> (2,377,922)
<APPREC-INCREASE-CURRENT> 1,601,264
<NET-CHANGE-FROM-OPS> (1,368,896)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 945,704
<NUMBER-OF-SHARES-REDEEMED> (1,687,889)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (7,608,405)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (221,450)
<OVERDIST-NET-GAINS-PRIOR> (637,687)
<GROSS-ADVISORY-FEES> 921,649
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,517,836
<AVERAGE-NET-ASSETS> 97,015,684
<PER-SHARE-NAV-BEGIN> 9.39
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> (0.08)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.29
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 014
<NAME> STATE STREET RESEARCH INTERNATIONAL EQUITY FUND CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 79,332,386
<INVESTMENTS-AT-VALUE> 79,100,640
<RECEIVABLES> 2,921,939
<ASSETS-OTHER> 4,578,997
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 86,601,576
<PAYABLE-FOR-SECURITIES> 3,258,637
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,282,640
<TOTAL-LIABILITIES> 4,541,277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,385,250
<SHARES-COMMON-STOCK> 589,346
<SHARES-COMMON-PRIOR> 615,728
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,108,047)
<ACCUM-APPREC-OR-DEPREC> (216,904)
<NET-ASSETS> 82,060,299
<DIVIDEND-INCOME> 1,219,761
<INTEREST-INCOME> 252,990
<OTHER-INCOME> 0
<EXPENSES-NET> 2,064,989
<NET-INVESTMENT-INCOME> (592,238)
<REALIZED-GAINS-CURRENT> (2,377,922)
<APPREC-INCREASE-CURRENT> 1,601,264
<NET-CHANGE-FROM-OPS> (1,368,896)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 377,202
<NUMBER-OF-SHARES-REDEEMED> (403,584)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (7,608,405)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (221,450)
<OVERDIST-NET-GAINS-PRIOR> (637,687)
<GROSS-ADVISORY-FEES> 921,649
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,517,836
<AVERAGE-NET-ASSETS> 97,015,684
<PER-SHARE-NAV-BEGIN> 9.22
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> (0.08)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.03
<EXPENSE-RATIO> 2.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND CL A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 26,621,548
<INVESTMENTS-AT-VALUE> 29,117,857
<RECEIVABLES> 867,380
<ASSETS-OTHER> 6,169,620
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,154,857
<PAYABLE-FOR-SECURITIES> 2,484,901
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 189,311
<TOTAL-LIABILITIES> 2,674,212
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,508,227
<SHARES-COMMON-STOCK> 332,131
<SHARES-COMMON-PRIOR> 239,305
<ACCUMULATED-NII-CURRENT> 293,705
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 277,438
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,401,275
<NET-ASSETS> 33,480,645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,644,032
<OTHER-INCOME> 0
<EXPENSES-NET> 554,336
<NET-INVESTMENT-INCOME> 1,089,696
<REALIZED-GAINS-CURRENT> 321,172
<APPREC-INCREASE-CURRENT> (946,914)
<NET-CHANGE-FROM-OPS> 463,954
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (113,884)
<DISTRIBUTIONS-OF-GAINS> (14,778)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 239,978
<NUMBER-OF-SHARES-REDEEMED> (159,405)
<SHARES-REINVESTED> 12,253
<NET-CHANGE-IN-ASSETS> 2,834,188
<ACCUMULATED-NII-PRIOR> 696,597
<ACCUMULATED-GAINS-PRIOR> 197,020
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 246,122
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 733,760
<AVERAGE-NET-ASSETS> 32,816,267
<PER-SHARE-NAV-BEGIN> 8.80
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> (0.40)
<PER-SHARE-DISTRIBUTIONS> (0.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.45
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND CL. B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 26,621,548
<INVESTMENTS-AT-VALUE> 29,117,857
<RECEIVABLES> 867,380
<ASSETS-OTHER> 6,169,620
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,154,857
<PAYABLE-FOR-SECURITIES> 2,484,901
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 189,311
<TOTAL-LIABILITIES> 2,674,212
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,508,227
<SHARES-COMMON-STOCK> 478,504
<SHARES-COMMON-PRIOR> 324,973
<ACCUMULATED-NII-CURRENT> 293,705
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 277,438
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,401,275
<NET-ASSETS> 33,480,645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,644,032
<OTHER-INCOME> 0
<EXPENSES-NET> 554,336
<NET-INVESTMENT-INCOME> 1,089,696
<REALIZED-GAINS-CURRENT> 321,172
<APPREC-INCREASE-CURRENT> (946,914)
<NET-CHANGE-FROM-OPS> 463,954
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (143,579)
<DISTRIBUTIONS-OF-GAINS> (20,669)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 332,479
<NUMBER-OF-SHARES-REDEEMED> (192,808)
<SHARES-REINVESTED> 13,860
<NET-CHANGE-IN-ASSETS> 2,834,188
<ACCUMULATED-NII-PRIOR> 696,597
<ACCUMULATED-GAINS-PRIOR> 197,020
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 246,122
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 733,760
<AVERAGE-NET-ASSETS> 32,816,267
<PER-SHARE-NAV-BEGIN> 8.77
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> (0.34)
<PER-SHARE-DISTRIBUTIONS> (0.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.42
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND CL. C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 26,621,548
<INVESTMENTS-AT-VALUE> 29,117,857
<RECEIVABLES> 867,380
<ASSETS-OTHER> 6,169,620
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,154,857
<PAYABLE-FOR-SECURITIES> 2,484,901
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 189,311
<TOTAL-LIABILITIES> 2,674,212
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,508,227
<SHARES-COMMON-STOCK> 2,934,746
<SHARES-COMMON-PRIOR> 2,781,432
<ACCUMULATED-NII-CURRENT> 293,705
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 277,438
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,401,275
<NET-ASSETS> 33,480,645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,644,032
<OTHER-INCOME> 0
<EXPENSES-NET> 554,336
<NET-INVESTMENT-INCOME> 1,089,696
<REALIZED-GAINS-CURRENT> 321,172
<APPREC-INCREASE-CURRENT> (946,914)
<NET-CHANGE-FROM-OPS> 463,954
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,216,944)
<DISTRIBUTIONS-OF-GAINS> (155,630)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 356,166
<NUMBER-OF-SHARES-REDEEMED> (232,104)
<SHARES-REINVESTED> 29,252
<NET-CHANGE-IN-ASSETS> 2,834,188
<ACCUMULATED-NII-PRIOR> 696,597
<ACCUMULATED-GAINS-PRIOR> 197,020
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 246,122
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 733,760
<AVERAGE-NET-ASSETS> 32,816,267
<PER-SHARE-NAV-BEGIN> 8.81
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> (0.17)
<PER-SHARE-DIVIDEND> (0.42)
<PER-SHARE-DISTRIBUTIONS> (0.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.46
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 024
<NAME> STATE STREET RESEARCH INTERNATIONAL FIXED INCOME FUND CL D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 26,621,548
<INVESTMENTS-AT-VALUE> 29,117,857
<RECEIVABLES> 867,380
<ASSETS-OTHER> 6,169,620
<OTHER-ITEMS-ASSETS> 0
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</TABLE>
