Supplement No. 3 dated July 17, 1995
(Supplanting Supplement No. 2 dated December 15, 1994)
to
Prospectus dated May 16, 1994
for
STATE STREET RESEARCH INTERMEDIATE BOND FUND
a series of State Street Research Securities Trust
Shares Available
Shares of the Fund are available as set forth below:
Class A: Prior approval must be obtained from the Distributor before Class A
shares are offered to anyone. Subject to such advance approval, Class A shares
are only currently available in certain designated states for investments of
$1,000,000 or more. Contact the Distributor for details.
Class A shares are not currently available for acquisition through exchanges
from another fund.
Class B: Class B shares are not currently offered.
Class C: Class C shares are currently offered and available for investment by
certain employee benefit plans and large institutions.
Class D: Class D shares are not currently offered.
Financial Highlights (Unaudited)
This information should be read in conjunction with the unaudited financial
statements and notes thereto included in the Statement of Additional
Information. Financial information is not presented for Class B and Class D
shares because no shares of those classes were outstanding during the period
presented.
For a share outstanding from May 16, 1994 (commencement of operations) to
October 31, 1994:
<TABLE>
<CAPTION>
Class A Class C
------- -------
<S> <C> <C>
Net asset value,
beginning of period $9.55 $9.55
Net investment income* .23 .24
Net realized and unrealized loss on investments (.19) (.19)
Dividends from net investment income (.10) (.11)
----- -----
Net asset value, end of period $9.49 $9.49
===== =====
Total Return++ 0.42% 0.51%
Net assets at end of period (000s) $10,039 $3,666
Ratio of operating expenses to average net assets* 1.00%+ 0.75%+
Ratio of net investment income to average net assets* 5.33%+ 5.70%+
Portfolio turnover rate 79.22% 79.22%
*Reflects voluntary assumption of fees or
expenses per share $.06 $.05
</TABLE>
+ Annualized
++ Represents aggregate return for the period without annualization and does not
reflect any front-end or contingent deferred sales charges.
Minimum Investment
The section under the caption "Purchase of Shares--Minimum Investment" is
revised in its entirety as follows:
"Class of Shares
A B C D
"Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $50 $50 (a) $50
By Investamatic $50 $50 (a) $50
All other $50 $50 (a) $50
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments under various retirement and employee benefit plans, sponsored
arrangements involving group solicitations of the members of an organization, or
other investment plans such as for reinvestment of dividends and distributions
or for periodic investments (e.g., Investamatic Check Program)."
Sales Charges
The last sentence of the third paragraph under the caption "Purchase of
Shares--Class A Shares--Initial Sales Charges--Sales Charges" is
revised in its entirety as follows:
"In addition, the contingent deferred sales charge will be waived for certain
other redemptions as described under "Contingent Deferred Sales Charge Waivers"
below (as otherwise applicable to Class B shares)."
Other Programs
Immediately after the first sentence of the first paragraph under the caption
"Purchase of Shares--Class A Shares--Initial Sales Charges--Other
Programs," the following is added:
"Sales without a sales charge, or with a reduced sales charge, may also be made
through brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor, in the event the
Distributor determines to implement such arrangements."
Contingent Deferred Sales Charge Waivers
The paragraph captioned "Purchase of Shares--Class B Shares--Contingent
Deferred Sales Charges--Contingent Deferred Sales Charge Waivers" is revised
in its entirety as follows:
"The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain conditions.
In addition, the contingent deferred sales charge will be waived for: (i)
redemptions made within one year of the death or total disability, as defined by
the Social Security Administration, of all shareholders of an account; (ii)
redemptions made after attainment of a specific age in an amount which
represents the minimum distribution required at such age under Section 401(a)(9)
of the Internal Revenue Code for retirement accounts or plans (e.g., age 70-1/2
for IRAs and Section 403(b) plans), calculated solely on the basis of assets
invested in the Fund or other Eligible Funds; and (iii) a redemption resulting
from a tax-free return of an excess contribution to an IRA. (The foregoing
waivers do not apply to a tax-free rollover or transfer of assets out of the
Fund.) The Fund may modify or terminate the waivers described above at any time;
for example, the Fund may limit the application of multiple waivers."
Additional Information
Under the caption "Redemption of Shares--Additional Information," the first
paragraph is revised in its entirety as follows:
"Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable sales charges, if any. The Fund may increase such minimum
account value above such amount in the future after notice to affected
shareholders. Involuntarily redeemed shares will be priced at the net asset
value on the date fixed for redemption by the Fund, and the proceeds of the
redemption will be mailed to the affected shareholder at the address of record.
Currently, the maintenance fee is $18 annually, which is paid to the Transfer
Agent. The fee does not apply to certain retirement accounts or if the
shareholder has more than an aggregate $50,000 invested in the Fund and other
Eligible Funds combined. Imposition of a maintenance fee on a small account
could, over time, exhaust the assets of such account."
Investment Plans
The first paragraph under the caption "Investment Plans" is revised in its
entirety to read as follows:
"The Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Investamatic application form available from Shareholder Services."
Systematic Withdrawal Plan
The second paragraph under the caption "Shareholder Services--Systematic
Withdrawal Plan" is revised in its entirety as follows:
"In the case of shares otherwise subject to contingent deferred sales charges,
no such charges will be imposed on withdrawals of up to 8% annually of either
(a) the value, at the time the Plan is initiated, of the shares then in the
account or (b) the value, at the time of a withdrawal, of the same number of
shares as in the account when the plan was initiated, whichever is higher."
Dividend Allocation Plan
The first sentence under the caption "Shareholder Services--Dividend
Allocation Plan" is revised in its entirety as follows:
"The Dividend Allocation Plan allows shareholders to elect to have all of their
dividends and any other distributions from the Fund or any Eligible Fund
automatically invested at net asset value in one other such Eligible Fund
designated by the shareholder, provided the account into which the investment is
made is initially funded with the requisite minimum amount."
CONTROL NUMBER: 2456G-950717(0896)SSR-LD IB-255E-795IBS
<PAGE>
State Street Research
Intermediate Bond Fund
Prospectus
May 16, 1994
The investment objective of State Street Research Intermediate Bond Fund (the
"Fund") is to provide total return, consisting primarily of current income
and secondarily of capital appreciation, commensurate with reasonable
investment risk. In seeking to achieve this investment objective, the Fund
invests primarily in a diversified portfolio of debt securities considered
investment grade by one or more nationally recognized rating agencies or of
comparable quality by the Fund's investment manager.
State Street Research & Management Company serves as investment adviser for
the Fund (the "Investment Manager"). As of March 31, 1994, the Investment
Manager had approximately $22.7 billion of assets under management. State Street
Research Investment Services, Inc. serves as distributor (the "Distributor") for
the Fund.
Shareholders may have their shares redeemed directly by the Fund at net asset
value plus the applicable contingent deferred sales charge, if any; redemptions
processed through securities dealers may be subject to processing charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Fund will
achieve its investment objective. The net asset value of a share of the Fund
will fluctuate as market conditions change.
This Prospectus sets forth concisely the information a prospective investor
ought to know about the Fund before investing. It should be retained for future
reference. A Statement of Additional Information about the Fund dated May 16,
1994 has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus. It is available, at no charge,
upon request to the Fund at the address indicated on the back cover or by
calling 1-800-562-0032.
The Fund is a diversified series of State Street Research Securities Trust
(the "Trust"), an open-end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Table of Contents Page
Table of Expenses ....................................................... 2
The Fund's Investments .................................................. 4
Risk Factors and Investment Practices ................................... 5
Limiting Investment Risk ................................................ 7
Purchase of Shares ...................................................... 8
Redemption of Shares .................................................... 15
Shareholder Services .................................................... 17
The Fund and its Shares ................................................. 21
Management of the Fund .................................................. 22
Dividends and Distributions; Taxes ...................................... 23
Calculation of Performance Data ......................................... 23
Appendix--Description of Debt/Bond Ratings .............................. 25
1
<PAGE>
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a deferred
basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5% and
(ii) an annual service fee of 0.25% of the average daily net asset value of the
Class A shares.
Class B shares are subject to (1) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made within
five years of purchase and (ii) annual distribution and service fees of 1% of
the average daily net asset value of such shares. Class B shares automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years after purchase. No contingent deferred sales charge applies after
the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or redemption
of Class C shares. Class C shares do not pay any distribution or service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1% if
redeemed within one year following purchase and (ii) annual distribution and
service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) 4.5% None None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a percentage of
offering price) ............................. None None None None
Maximum Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable) ......... None(2) 5% None 1%
Redemption Fees (as a percentage of
amount redeemed, if applicable) ............. None None None None
Exchange Fees ................................ None None None None
</TABLE>
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
annually through the fifth year, and no contingent deferred sales charge is
imposed after the fifth year. Class D shares are subject to a 1% contingent
deferred sales charge on any portion of the purchase redeemed within one
year of the sale. Long-term investors in a class of shares with a
distribution fee may, over a period of years, pay more than the economic
equivalent of the maximum sales charge permissible under applicable rules.
See "Purchase of Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management Fees ................. 0.55% 0.55% 0.55% 0.55%
12b-1 Fees ...................... 0.25% 1.00% None 1.00%
Other Expenses .................. 0.90% 0.90% 0.90% 0.90%
Less Voluntary Reduction ...... (0.70%) (0.70%) (0.70%) (0.70%)
---- ---- ---- ----
Total Fund Operating Expenses 1.00% 1.75% 0.75% 1.75%
==== ==== ==== ====
</TABLE>
Example:
You would pay the following expenses on a $1,000 investment including, for Class
A shares, the maximum applicable initial sales charge, and assuming (1) 5%
annual return and (2) redemption of the entire investment at the end of each
time period:
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Class A shares ............................. $55 $75
Class B shares ............................. $68 $85
Class C shares ............................. $ 8 $24
Class D shares ............................. $28 $55
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Class B shares ............................. $18 $55
Class D shares ............................. $18 $55
</TABLE>
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.
Because the Fund is newly organized, the percentage expense levels shown in the
table as "Other Expenses" are based on estimated amounts for the current fiscal
year. Actual expense levels for the current fiscal year or future years may vary
from the amounts shown. The table does not reflect charges for optional services
elected by certain shareholders, such as the $7.50 fee for remittance of
redemption proceeds by wire. For further information on sales charges, see
"Purchase of Shares--Alternative Purchase Program"; for further information on
management fees, see "Management of the Fund"; and for further information on
12b-1 fees, see "Purchase of Shares--Distribution Plan."
The Fund has been advised that the Distributor and its affiliates may from
time to time and in varying amounts voluntarily assume some portion of fees or
expenses relating to the Fund. The Fund presently expects such assistance to be
provided for the next 12 months or until the Fund's net assets reach $100
million, whichever first occurs. However, the Fund has not received any firm
commitment that such assistance will in fact be provided. For the current fiscal
year, Total Fund Operating Expenses for the Fund are estimated to be 1.70%,
2.45%, 1.45% and 2.45% for Class A, Class B, Class C and Class D shares,
respectively, in the absence of the voluntary assumption of expenses by the
Distributor and its affiliates.
3
<PAGE>
The Fund's Investments
The Fund's investment objective is to provide total return, consisting
primarily of current income and secondarily of capital appreciation,
commensurate with reasonable investment risk. The investment objective may
not be changed without shareholder approval.
In seeking to achieve this investment objective, the Fund follows certain
investment policies, as described below, which may be changed without
shareholder approval.
Under normal conditions, at least 65% of the Fund's total assets will consist
of a broad range of U.S. Government securities, corporate bonds and notes,
mortgage-related securities, asset-backed securities, zero coupon securities,
stripped securities, pay in kind ("PIK") securities, indexed securities,
commercial paper, and foreign government securities which are considered
investment grade by one or more nationally recognized rating agencies such as
Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"), i.e. rated BBB or higher by S&P or Baa or higher by Moody's, or
considered by the Investment Manager to be equivalent to investment grade. The
Fund may invest in debt instruments which are split rated; that is, rated
investment grade by one rating agency, but lower than investment grade by the
other. A maximum of 25% of the Fund's total assets may be invested in securities
which are rated BBB by S&P or Baa by Moody's, or considered by the Investment
Manager to be equivalent. For information concerning the ratings of debt
securities, see "Appendix--Description of Debt/Bond Ratings" herein.
Under normal conditions, at least 65% of the Fund's total assets will be
invested in bonds, i.e., debt securities with an original stated maturity of one
year or more. Overall, the Fund is expected to have a dollar weighted effective
maturity of three to ten years. The securities can have stated or remaining
maturities at the time of purchase which vary widely, from a few months to
thirty years. In the case of mortgage-related securities, the remaining maturity
is based on the long-term prepayment outlook for the securities as determined by
independent, widely accepted bond market sources. For example, mortgage loans in
a pool could have stated maturities of up to 30 years, yet the actual average
life or effective maturity of the interest in the pool can be substantially less
because the underlying mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity.
U.S. Government securities are securities which are issued or guaranteed as
to principal or interest by the U.S. Government, a U.S. Government agency or
instrumentality, or certain mixed-ownership Government corporations. The U.S.
Government securities in which the Fund invests include, among others, direct
obligations of the U.S. Treasury, i.e., U.S. Treasury bills, notes, certificates
and bonds; obligations of U.S. Government agencies or instrumentalities such as
the Federal National Mortgage Association, the Government National Mortgage
Association and the Federal Home Loan Mortgage Corporation; obligations of
mixed-ownership Government corporations such as Resolution Funding Corporation
and separate principal and interest components issued by the U.S. Treasury for
selected securities. See the Statement of Additional Information.
Corporate bonds and notes are debt securities issued by domestic and foreign
issuers and include long- and short-term fixed income securities, notes,
debentures, convertible debt and similar instruments. The issuers can range
across the full spectrum of industries and can vary in size and be in different
stages of development.
Mortgage-related securities represent interests in pools of mortgage loans
and provide the Fund with a flow-through of interest and principal payments as
such payments are received with respect to the mortgages in the pool.
Mortgage-related securities may be issued by U.S. Government agencies,
instrumentalities or mixed-ownership corporations, and the securities may or may
not be supported by the credit of such entities. Mortgage-related securities may
also be issued by private entities such as investment banking firms, insurance
companies, mortgage bankers and home builders. An issuer may offer senior or
subordinated securities backed by the same pool of mortgages. The senior
securities have priority to the interest and/or principal payments on the
mortgages in the
4
<PAGE>
pool; the subordinate securities have a lower priority with respect to such
payments on the mortgages in the pool. The Fund does not presently expect to
invest in mortgage pool residuals. The possibility of prepayment of the
underlying mortgages which might be motivated, for instance, by declining
interest rates could lessen the potential for total return in mortgage-backed
securities. When prepayments of mortgages occur during periods of declining
interest rates, the Fund will have to reinvest the proceeds in instruments
with lower effective interest rates.
Stripped securities are issued by governmental or private issuers. Stripped
securities include mortgage- related securities which have been divided into
separate interest and principal components. Holders of the interest components
will receive payments of the interest on the mortgages, and holders of the
principal components will receive payments of the principal on the mortgages.
Issuers may issue combinations of interest components and principal components.
"Interest only" securities are known as IOs; "principal only" securities are
known as POs. The risks inherent in IOs and POs, or variations thereof, stem
from the effects of declining interest rates and the resultant prepayments of
the mortgages. For example, if the underlying mortgage securities experience
greater than anticipated prepayments of principal, the Fund will fail to fully
recoup its initial investment in an IO, even though the IO is rated in the
highest rating category by a nationally recognized statistical rating
organization. In the case of a PO, the Fund may have difficulty reinvesting
receipts of prepayments of principal for an attractive return. The market for
IOs and POs is new and there is no assurance it will operate efficiently or
provide liquidity in the future. Stripped securities are extremely volatile and
only government-issued IOs and POs may be deemed to be liquid.
Asset-backed (other than mortgage-related) securities represent interests in
pools of consumer loans such as credit card receivables, automobile loans and
leases, leases on equipment such as computers and other financial instruments.
These securities provide a flow-through of interest and principal payments as
payments are received on the loans or leases and may be supported by letters of
credit or similar guarantees of payment by a financial institution. These
securities are subject to the risks of nonpayment of the underlying loans as
well as the risks of prepayment.
Zero coupon securities pay no interest for all or a portion of their life but
are purchased at a discount to face value at maturity. Their return consists of
the amortization of the discount between their purchase price and their maturity
value, plus any fixed rate interest income. Zero coupon securities pay no
interest to holders prior to maturity even though interest on these securities
is reported as income to the Fund. The reporting of interest for PIK securities
is similar to the reporting of interest for zero coupon securities. The Fund
will be required to distribute all or substantially all of such amounts annually
to its shareholders. These distributions may cause the Fund to liquidate
portfolio assets in order to make such distributions at a time when the Fund may
have otherwise chosen not to sell such securities. Liquidating portfolio assets
to make distributions is likely to reduce the Fund's assets and may thereby
increase its expense ratio, may decrease its rate of return, and may result in
additional taxes for the shareholder. The amount of the discount fluctuates with
such securities market value which may be more volatile than that of securities
which pay interest at regular intervals. PIK debt securities permit the issuer
to pay the interest thereon either in cash or as additional debt obligations and
generally provide a higher rate of overall return than obligations which pay
interest on a regular basis, although they may experience greater market
volatility than the latter.
Risk Factors and Investment Practices
Foreign Investments
The Fund reserves the right to invest without limitation in debt securities
of non-U.S. governmental and corporate issuers. Under current policy,
however, the Fund limits such investments to 25% or less of its total assets.
It is anticipated that most of the foreign investments of the Fund will
consist of securities of issuers in countries with developed economies. However,
the Fund may also invest in the securities of issuers in
5
<PAGE>
countries with new or developing capital markets as deemed appropriate by the
Investment Manager, although the Fund does not presently expect to invest
more than 5% of its total assets in issuers in such less developed countries.
Such countries include countries that have an emerging stock market that
trades a small number of securities; countries with low- to middle-income
economies; and/or countries with economies that are based on only a few
industries. Eastern European countries are considered to have less developed
capital markets.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments including the risks of
nationalization or expropriation, the possible imposition of currency exchange
blockages, higher operating expenses, foreign withholding and other taxes which
may reduce investment return, reduced availability of public information
concerning issuers and the fact that foreign issuers are not generally subject
to uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to domestic
issuers. Moreover, securities of many foreign issuers may be less liquid and
their prices more volatile than those of securities of comparable domestic
issuers. See the Statement of Additional Information.
Currency Transactions
In order to protect against the effect of uncertain future exchange rates on
securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions such as spot (i.e., cash) transactions at the rate
prevailing in the currency exchange market or by entering into forward
contracts to purchase or sell currencies. Although such contracts tend to
minimize the risk of loss resulting from a correctly predicted decline in
value of hedged currency, they tend to limit any potential gain that might
result should the value of such currency increase. In entering a forward
currency transaction, the Fund is dependent upon the creditworthiness and
good faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by the counterparty by dealing only with established, large
institutions with which the Investment Manager has done substantial business
in the past. See the Statement of Additional Information.
Other Considerations
The Fund may invest in restricted securities in accordance with Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities"), which allows for
the resale of such securities among certain qualified institutional buyers.
Rule 144A Securities may be determined to be liquid by or in accordance with
guidelines established by the Board of Trustees for purposes of complying
with the Fund's investment restrictions applicable to investments in illiquid
securities. The Fund may invest up to 15% of its net assets in Rule 144A
Securities determined to be liquid. Because the market for such securities is
still developing, such securities could possibly become illiquid in
particular circumstances. See the Statement of Additional Information.
The Fund may invest in certain derivative securities. To aid in achieving its
investment objective, the Fund may, subject to certain limitations, buy and sell
options, futures contracts and options on futures contracts on securities,
securities indices and currencies. The Fund may not establish a position in a
futures contract or purchase or sell an option for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums on open positions with respect to futures and options used
for such nonhedging purposes would exceed 5% of the market value of the Fund's
net assets. The Fund may also enter various forms of swap arrangements, which
have simultaneously the characteristics of a security and a futures contract,
although the Fund does not presently expect to invest more than 5% of its total
assets in such items. These swap arrangements include interest rate swaps,
currency swaps and index swaps. See the Statement of Additional Information.
The Fund may also lend securities, enter repurchase agreements, reverse
repurchase agreements, and purchase when-issued securities as more fully
described in the Statement of Additional Information.
6
<PAGE>
For debt rated BBB by S&P, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal. Bonds rated Baa by Moody's lack outstanding investment
characteristics and in fact have speculative characteristics as well. Lower
rated debt securities (i.e., bonds rated BB or lower by S&P or Ba or lower by
Moody's or equivalent as determined by the Investment Manager) generally involve
more credit risk than higher rated securities and are considered by S&P and
Moody's to be predominantly speculative. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of the issuers of
lower rated securities to make principal and interest payments than in the case
of higher grade bonds. Lower rated securities may also be subject to greater
market price fluctuations than lower yielding, higher rated debt securities;
credit ratings do not reflect this market risk. When interest rates increase,
the value of debt securities and shares of the Fund can be expected to decline.
The Fund anticipates that its portfolio turnover rate will generally not
exceed 125% under normal conditions. The Fund does, however, reserve full
freedom with respect to portfolio turnover. In periods when there are rapid
changes in economic conditions or security price levels or when investment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy remains
relatively constant. A higher portfolio turnover rate may result in greater
transaction costs relative to other funds and may have tax and other
consequences as well. See the Statement of Additional Information.
Limiting Investment Risk
In seeking to lessen investment risk, the Fund operates under certain
investment restrictions which may not be changed with respect to the Fund
except by a vote of the shareholders of the Fund. Under these restrictions
the Fund may not invest in a security if the transaction would result in: (a)
with respect to 75% of its total assets, more than 5% of the Fund's total
assets being invested in any one issuer or the Fund's owning more than 10% of
the outstanding voting securities of an issuer; or (b) more than 25% of the
Fund's total assets being invested in any one industry. These restrictions do
not apply to investments in U.S. Government securities.
The Fund operates under other investment restrictions which may be changed
without shareholder approval. Under these restrictions the Fund may not invest
more than 15% of its net assets in illiquid securities including repurchase
agreements extending for more than seven days. An illiquid portfolio may affect
the ability of the Fund to sell securities either to meet redemption requests or
in response to changes in the economy or the financial markets.
For further information on the above and other investment restrictions,
including additional investment restrictions which may be changed without a
shareholder vote, see the Statement of Additional Information.
The Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against unfavorable market
conditions than adherence to the Fund's other investment policies. The types of
short-term instruments in which the Fund may invest for such purposes include
short- term money market securities such as repurchase agreements, U.S.
Government securities, certificates of deposit, time deposits and bankers'
acceptances of certain qualified financial institutions and corporate commercial
paper rated at the time of purchase at least "A" by S&P or "Prime" by Moody's
(or, if not rated, issued by companies having an outstanding long-term unsecured
debt issue rated at least "A" by S&P or Moody's). See the Statement of
Additional Information.
7
<PAGE>
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 8 to 21 below.
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers, Individual
Retirement Accounts ("IRAs"), trusts, corporations, individuals, etc. The
applicability of the general information and administrative procedures set forth
below under Purchase of Shares, Redemption of Shares and Shareholder Services
accordingly will vary depending on the investor and the recordkeeping system
established for a shareholder's investment in the Fund. Participants in 401(k)
and other plans should first consult with the appropriate person at their
employer or refer to the plan materials before following any of the procedures
below. For more information or assistance, anyone may call 1-800-562-0032.
Purchase of Shares
Methods of Purchase
Through Dealers
Shares of the Fund are continuously offered through securities dealers who
have entered into sales agreements with the Distributor. Purchases through
dealers are confirmed at the offering price, which is the net asset value
plus the applicable sales charge, next determined after the order is duly
received by State Street Research Shareholder Services ("Shareholder
Services"), a division of State Street Research Investment Services, Inc.,
from the dealer. ("Duly received" for purposes herein means in accordance
with the conditions of the applicable method of purchase as described below.)
The dealer is responsible for transmitting the order promptly to Shareholder
Services in order to permit the investor to obtain the current price. See
"Purchase of Shares--Net Asset Value" herein.
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's securities dealer a completed Application (accompanying this
Prospectus), together with a check for the total purchase price payable to
the Fund. The dealer must forward the Application and check in accordance
with the instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a check
payable to the Fund in the amount of the total purchase price together with any
one of the following: (i) an Application; (ii) the stub from a shareholder's
account statement; or (iii) a letter setting forth the name of the Fund, the
class of shares and the shareholder's account name and number. Shareholder
Services will deliver the purchase order to the transfer agent and dividend
paying agent, State Street Bank and Trust Company (the "Transfer Agent").
If a check is not honored for its full amount, the purchaser could be subject
to additional charges to cover collection costs and any investment loss, and the
purchase may be cancelled.
By Wire
An investor may purchase shares by wiring Federal Funds of not less than
$5,000 to State Street Bank and Trust Company, which also serves as the
Trust's custodian (the "Custodian"), as set forth below. Prior to making an
investment by wire, an investor must notify Shareholder Services at
1-800-521-6548 and obtain a control number and instructions. Following such
notification, Federal Funds should be wired through the Federal Reserve
System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research Intermediate Bond
Fund and class of shares
(A, B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street
Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make such
invest-
8
<PAGE>
ment by 12 noon Boston time on the day of his or her investment; and (ii) the
wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete the
Application accompanying this Prospectus and deliver it to his or her securities
dealer, who should forward it as required. No redemptions will be effected until
the Application has been duly processed.
The Fund may in its discretion discontinue, suspend or change the practice of
accepting orders by any of the methods described above. Orders for the purchase
of shares are subject to acceptance by the Fund.
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 $5,000 $5,000
Investamatic Check Program ........ $ 25 $ 25 $ 25 $ 25
IRAs .............................. $ 500 $2,000 $ 500 $2,000
All other ......................... $ 500 $2,500 $ 500 $2,500
Minimum Subsequent Investment ..... $ 50 $ 50 $ 50 $ 50
</TABLE>
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments pursuant to various retirement, dividend and other investment plans,
or sponsored arrangements involving group solicitations of the members of an
organization. The Fund also reserves the right at any time to suspend the
offering of shares or to reject any specific purchase order for shares.
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding Fund shares or
the flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in the Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, securities dealers are paid differing
amounts of commission and other compensation depending on which class of shares
they sell.
9
<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 deferred None Contingent deferred
charge at time of sales charge of 5% sales charge of 1%
investment of up to to 2% applies to applies to any
4.5% any shares redeemed shares redeemed
depending on amount within first five within one year
of investment years following following their
their purchase; no purchase
contingent deferred
sales charge after
five years
On investments of
$1 million or more,
no initial sales
charge; but
contingent deferred
sales charge of 1%
applies to any
shares redeemed
within one year
following their
purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years; Class
B shares convert
automatically to
Class A shares
after eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Above described 4% None 1%
Commission initial sales
Received by charge
Selling less 0.25% to 0.50%
Securities retained by
Dealer Distributor
On investments of
$1 million or more,
0.25% to 0.70% paid
to dealer by
Distributor
</TABLE>
10
<PAGE>
In deciding which class of shares to purchase, the investor should consider
the amount of the investment, the length of time the investment is expected to
be held, and the ongoing service fee and distribution fee, among other factors.
Class A shares are sold at net asset value plus an initial sales charge of up
to 4.5% of the public offering price. Because of the sales charge, not all of an
investor's purchase amount is invested unless the purchase equals $1,000,000 or
more. Class B shareholders pay no initial sales charge, but a contingent
deferred sales charge of up to 5% generally applies to shares redeemed within
five years of purchase. Class D shareholders also pay no initial sales charge,
but a contingent deferred sales charge of 1% generally applies to redemptions
made within one year of purchase. For Class B and Class D shareholders,
therefore, the entire purchase amount is immediately invested in the Fund.
An investor who qualifies for a significantly reduced initial sales charge,
or a complete waiver of the sales charge on investments of $1,000,000 or more,
on the purchase of Class A shares might elect that option to take advantage of
the lower ongoing service and distribution fees that characterize Class A shares
compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual
distribution fee of 0.75% of daily net assets for an eight-year period following
the date of purchase and are then automatically converted to Class A shares.
Class D shares are assessed an annual distribution fee of 0.75% of daily net
assets for as long as the shares are held. The prospective investor should
consider these fees plus the initial or contingent deferred sales charges in
estimating the costs of investing in the various classes of the Fund's shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its expense,
provide additional cash and noncash incentives to securities dealers that sell
shares. Such incentives may be extended only to those dealers who have sold or
may sell significant amounts of shares and/or meet other conditions established
by the Distributor; for example, the Distributor may sponsor special promotions
to develop particular distribution channels or to reach certain investor groups.
The incentives include luxury merchandise, trips to luxury resorts in exotic
locations and attendance at sales seminars at luxury resorts.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar
amount of the shares purchased as set forth in the table below. A major
portion of this sales charge is reallowed by the Distributor to the
securities dealer responsible for the sale.
<TABLE>
<CAPTION>
Sales
Sales Charge
Charge Paid
Paid By By Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
<S> <C> <C> <C>
Less than
$100,000 4.50% 4.71% 4.00%
$100,000 or
above but less
than $250,000 3.50% 3.63% 3.00%
$250,000 or
above but less
than $500,000 2.50% 2.56% 2.00%
$500,000 or
above but less
than $1 million 2.00% 2.04% 1.75%
See
$1 million and following
above 0% 0% discussion
</TABLE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
a commission as follows:
11
<PAGE>
<TABLE>
<CAPTION>
Amount of Sale Commission
<S> <C>
(a) $1 million to $3 million ............................... 0.70%
(b) Next $2 million ........................................ 0.50%
(c) Amount over $5 million ................................. 0.25%
</TABLE>
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed within
one year of the sale. However, such redeemed shares will not be subject to the
contingent deferred sales charge to the extent that their value represents (1)
capital appreciation or (2) reinvestment of dividends or capital gains
distributions. In addition, the contingent deferred sales charge will be waived
for certain redemptions in connection with death, disability or distributions
from a tax plan, as described under "Contingent Deferred Sales Charge Waivers"
below (as otherwise applicable to Class B shares).
Class A shares of the Fund that are purchased without a sales charge may be
exchanged for Class A shares of certain other Eligible Funds, as defined below,
without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption within
one year of the Class A shares which are acquired through such exchange. For
federal income tax purposes, the amount of the contingent deferred sales charge
will reduce the gain or increase the loss, as the case may be, on the amount
realized on redemption. The amount of any contingent deferred sales charge will
be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement
of Additional Information, of $100,000 or more of Class A shares of the Fund
or a combination of "Eligible Funds." "Eligible Funds" include the Fund and
other funds so designated by the Distributor from time to time. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Securities dealers should call Shareholder Services
for details concerning the other Eligible Funds and any persons who may
qualify for reduced sales charges and related information. See the Statement
of Additional Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Fund and any other Eligible Funds within a 13-month period.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of shares
of the Fund and other Eligible Funds at reduced sales charges pursuant to a
Right of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call
Shareholder Services for details concerning the Right of Accumulation.
Other Programs
Class A shares of the Fund may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored
arrangements, which include programs under which a company, employee benefit
plan or other organization makes recommendations to, or permits group
solicitation of, its employees, members or participants, except any
organization created primarily for the purpose of obtaining shares of the
Fund at a reduced sales charge or without a sales charge. Information on such
arrangements and further conditions and limitations is available from the
Distributor.
In addition, no sales charge is imposed in connection with the sale of Class
A shares of the Fund to the following entities and persons: (A) the Investment
Manager, the Distributor, or any affiliated entities, including any direct or
indirect parent companies and other subsidiaries of such parents (collectively
"Affiliated Companies"); (B) employees, officers,
12
<PAGE>
sales representatives or current or retired directors or trustees of the
Affiliated Companies or any investment company managed by any of the
Affiliated Companies, any relatives of any such individuals whose
relationship is directly verified by such individuals to the Distributor, or
any beneficial account for such relatives or individuals; and (C) employees,
officers, sales representatives or directors of dealers and other entities
with a selling agreement with the Distributor to sell shares of any
aforementioned investment company, any spouse or child of such person, or any
beneficial account for any of them. The purchase must be made for investment
and the shares purchased may not be resold except through redemption. This
purchase program is subject to such administrative policies, regarding the
qualification of purchasers and any other matters, as may be adopted by the
Distributor from time to time.
Class B Shares--Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Fund. However, a
contingent deferred sales charge may be imposed upon redemptions of Class B
shares as described below.
The Distributor will pay securities dealers at the time of sale a 4%
commission for selling Class B shares. The proceeds of the contingent deferred
sales charge and the distribution fee are used to offset distribution expenses
and thereby permit the sale of Class B shares without an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the extent
that the value of such shares represents (1) capital appreciation of Fund assets
or (2) reinvestment of dividends or capital gains distributions. The amount of
any applicable contingent deferred sales charge will be calculated by
multiplying the net asset value of such shares at the time of redemption or at
the time of purchase, whichever is lower, by the applicable percentage shown in
the table below:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
As A Percentage Of Net Asset
Redemption During Value 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 None
and Thereafter
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first of
those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of a Fund acquired through an exchange from another
Eligible Fund will be measured from the date that such shares were initially
acquired in the other Eligible Fund, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gains distribution reinvestments in such other Eligible Fund. These
determinations will result in any contingent deferred sales charge being imposed
at the lowest possible rate. For federal income tax purposes, the amount of the
contingent deferred sales charge will reduce the gain or increase the loss, as
the case may be, on the amount realized on redemption. The amount of any
contingent deferred sales charge will be paid to the Distributor.
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain
conditions. In addition, the contingent deferred sales charge will be waived
for: (i) a total or partial redemption made within one year of the death or
total disability of the shareholder or in connection with a lump-sum or other
distribution in the case of an IRA, Keogh Plan
13
<PAGE>
or custodial account under Section 403(b) of the Internal Revenue Code
following attainment of age 59-1/2; (ii) any total or partial redemption
resulting from a distribution following retirement in the case of a
tax-qualified retirement plan; 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 rollover or transfer of assets.)
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to
Class A shares of the Fund at the end of eight years following the issuance
of the Class B shares; consequently, they will no longer be subject to the
higher expenses borne by Class B shares. The conversion rate will be
determined on the basis of the relative per share net asset values of the two
classes and may result in a shareholder receiving either a greater or fewer
number of Class A shares than the Class B shares so converted. As noted
above, holding periods for Class B shares received in exchange for Class B
shares of other Eligible Funds will be counted toward the eight-year period.
Class C Shares--Institutional and Special Categories
The purchase price of a Class C share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
Class C shares are only available for new investments by certain employee
benefit plans and large institutions. Information on the availability of Class C
shares and further conditions and limitations with respect thereto is available
from the Distributor.
Class C shares may be also issued in connection with mergers and acquisitions
involving the Fund, and under certain other circumstances as described in this
Prospectus (e.g., see "Shareholder Services-- Exchange Privilege").
Class D Shares--Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays securities dealers a 1% commission for selling Class D shares at the
time of purchase. The proceeds of the contingent deferred sales charge and
the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not be
subject to the contingent deferred sales charge to the extent that the value of
such shares represents (1) capital appreciation of Fund assets or (2)
reinvestment of dividends or capital gains distributions. In addition, the
contingent deferred sales charge will be waived for certain redemptions in
connection with death, disability or distributions from a tax plan, as described
under "Contingent Deferred Sales Charge Waivers" above (as otherwise applicable
to Class B shares). For federal income tax purposes, the amount of the
contingent deferred sales charge will reduce the gain or increase the loss, as
the case may be, on the amount realized on redemption. The amount of any
contingent deferred sales charge will be paid to the Distributor.
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of the New York Stock Exchange (the "NYSE") exclusive of days on
which the NYSE is closed. The NYSE ordinarily closes at 4 P.M. New York City
time. The Fund uses one or more pricing services to value its portfolio
securities. The pricing services utilize information with respect to market
transactions, quotations
14
<PAGE>
from dealers and various relationships among securities in determining value
and may provide prices determined as of times prior to the close of the NYSE.
Assets for which quotations are readily available are valued as of the close
of business on the valuation date. Securities for which there is no pricing
service valuation or last reported sale price are valued as determined in
good faith by or under the authority of the Trustees of the Trust. The
Trustees have authorized the use of the amortized cost method to value
short-term debt instruments issued with a maturity of one year or less and
having a remaining maturity of 60 days or less when the value obtained is
fair value. Further information with respect to the valuation of the Fund's
assets is included in the Statement of Additional Information.
Distribution Plan
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, the Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class
of shares as follows:
<TABLE>
<CAPTION>
Class Service Fee Distribution Fee
<S> <C> <C>
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
</TABLE>
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of a Fund
represents payment for personal services and/or the maintenance of shareholder
accounts by such dealers. Dealers who have sold Class A shares are eligible for
further reimbursement commencing as of the time of such sale. Dealers who have
sold Class B and Class D shares are eligible for further reimbursement after the
first year during which such shares have been held of record by such dealer as
nominee for its clients (or by such clients directly). Any service fees received
by the Distributor and not allocated to dealers may be applied by the
Distributor in reduction of expenses incurred by it directly for personal
services and the maintenance of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling such shares. Any distribution
fees received by the Distributor and not allocated to dealers may be applied by
the Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by securities
dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs similar
expenses on behalf of, such other funds. When expenses of the Distributor cannot
be identified as relating to a specific fund, the Distributor allocates expenses
among the funds in a manner deemed fair and equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers, to
the extent payable out of the general profits, revenues or other sources of the
Distributor (including the advisory fees paid by the Fund), have also been
authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the Distribution
Plan to 1%, of which 0.75% may be used to pay distribution expenses and 0.25%
may be used to pay shareholder service fees. The NASD rule also limits the
aggregate amount which the Fund may pay for such distribution costs to 6.25% of
gross share sales of a class since the inception of any asset-based sales charge
plus interest at the prime rate plus 1% on unpaid amounts thereof (less any
contingent deferred sales charges). Such limitation does not apply to
shareholder service fees.
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
15
<PAGE>
per share next determined (see "Purchase of Shares--Net Asset Value" herein)
after receipt of the redemption request, in accordance with the requirements
described below, by Shareholder Services and delivery of the request by
Shareholder Services to the Transfer Agent. To allow time for the clearance
of checks used for the purchase of any shares which are tendered for
redemption shortly after purchase, the remittance of the redemption proceeds
for such shares could be delayed for 15 days or more after the purchase.
Shareholders who anticipate a potential need for immediate access to their
investments should, therefore, purchase shares by wire. Except as noted,
redemption proceeds are normally remitted within seven days after receipt of
the redemption request and any necessary documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed
for transfer or accompanied by an endorsed stock power; (3) any required
signature guarantees (see "Redemption of Shares--Signature Guarantees"
below); and (4) any additional documents which may be required for redemption
in the case of corporations, trustees, etc., such as certified copies of
corporate resolutions, governing instruments, powers of attorney, and the
like. The Transfer Agent will not process requests for redemption until it
has received all necessary documents in good order. A shareholder will be
notified promptly if a redemption request cannot be accepted. Shareholders
having any questions about the requirements for redemption should call
Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Fund
may revoke or suspend the telephone redemption privilege at any time and
without notice. See "Shareholder Services--Telephone Services" for a
discussion of the conditions and risks associated with Telephone Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800-521-6548 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge
is subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor
as its agent to accept orders from dealers by wire or telephone for the
repurchase of shares by the Distributor from the dealer. The Fund may revoke
or suspend this authorization at any time. The repurchase price is the net
asset value for the applicable shares next determined following the time at
which the shares are offered by the dealer for repurchase by the Distributor.
The dealer is responsible for promptly transmitting a shareholder's order to
the Distributor. Payment of the repurchase proceeds is made to the dealer who
placed
16
<PAGE>
the order promptly upon delivery of certificates for shares in proper form
for transfer or, for Open Accounts, upon the receipt of a stock power with
signatures guaranteed as described below, and, if required, any supporting
documents. Neither the Fund nor the Distributor imposes any charge upon such
a repurchase. However, a dealer may impose a charge as agent for a
shareholder in the repurchase of his or her shares.
The Fund has reserved the right to change, modify or terminate the services
described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder
accounts, the Fund reserves the right to involuntarily redeem at its option
any shareholder account which, as the result of redemptions, falls and
remains below $250 for a period of 60 days after notice is mailed to the
applicable shareholder. The Fund may increase such minimum account value
above $250 in the future after notice to affected shareholders. Involuntarily
redeemed shares will be priced at the net asset value on the date fixed for
redemption by the Fund, and the proceeds of the redemption will be mailed
promptly to the affected shareholder at the address of record.
To cover the cost of additional compliance administration, a $20 fee will be
charged against any shareholder account that has been determined to be subject
to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it may
elect to suspend the redemption of shares or postpone the date of payment of
redemption proceeds: (1) during any period that the NYSE is closed (other than
customary weekend and holiday closing) or trading on the NYSE is restricted; (2)
during any period in which an emergency exists as a result of which disposal of
portfolio securities is not reasonably practicable or it is not reasonably
practicable to fairly determine the Fund's net asset values; or (3) during such
other periods as the Securities and Exchange Commission may by order permit for
the protection of investors; and (b) the payment of redemption proceeds may be
postponed as provided under "Redemption of Shares."
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Transfer
Agent to be certain that the person who has authorized a redemption from the
account is, in fact, the shareholder. Signature guarantees are required for:
(1) all redemptions requested by mail; and (2) requests to transfer the
registration of shares to another owner. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived by the Fund in
certain instances.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of the Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing shares will not be issued. Shareholders will
receive periodic statements of transactions in their accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through dealers, by
wire or by mailing a check, payable to the Fund, to Shareholder Services
under the terms set forth above under "Purchase of Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
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(b) All income dividends in cash; all capital gains distributions reinvested
in additional shares of the Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in any one
available Eligible Fund designated by the shareholder as described below.
See "Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will automatically be coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for shares of a
corresponding class of shares, when available, of any of the other Eligible
Funds at any time on the basis of the relative net asset values of the
respective shares to be exchanged, subject to compliance with applicable
securities laws. Shareholders of any other Eligible Fund may similarly
exchange their shares for shares of an available corresponding class of the
Fund. Prior to making an exchange, shareholders should obtain the Prospectus
of the Eligible Fund into which they are exchanging. Under the Direct
Program, subject to certain conditions, shareholders may make arrangements
for regular exchanges from the Fund into other Eligible Funds. To effect an
exchange, Class A, Class B and Class D shares may be redeemed without the
payment of any contingent deferred sales charge that might otherwise be due
upon an ordinary redemption of such shares. For purposes of computing the
contingent deferred sales charge that may be payable upon disposition of the
acquired Class A, Class B and Class D shares, the holding period of the
redeemed shares is "tacked" to the holding period of the acquired shares.
Exchanges of Class E shares from a money market fund into Class A shares of
the Fund or any other Eligible Fund are subject to the initial sales charge
or contingent deferred sales charge applicable to an initial investment in
such Class A shares, unless a prior Class A sales charge has been paid
directly or indirectly with respect to the shares redeemed. The period such
Class E shares are held is not tacked to the holding period of the shares so
acquired. No exchange transaction fee is currently imposed on any exchange.
For the convenience of the shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or his
or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for exchanges
is 1-800-521-6548. See "Telephone Services" herein for a discussion of
conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares of
the relevant other Eligible Fund may legally be sold. For tax purposes, each
exchange actually represents the sale of shares of one fund and the purchase of
shares of another. Accordingly, exchanges may produce a capital gain or loss for
tax purposes. The exchange privilege may be terminated or suspended or its terms
changed at any time, subject, if required under applicable regulations, to 60
days' prior notice. New accounts established for investments upon exchange from
an existing account in another fund will have the same Telephone Privileges as
the existing account, unless Shareholder Services is instructed otherwise.
Related administrative policies and procedures may also be adopted with regard
to a series of exchanges, street name accounts, sponsored arrangements and other
matters.
If an exchange request in good order is received by Shareholder Services and
delivered by Shareholder Services to the Transfer Agent by 12 noon Boston time
on any business day, the exchange usually will occur that day. For further
information regarding the exchange privilege, shareholders should contact
Shareholder Services.
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Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares repurchased
at his or her request may reinvest all or any portion of the proceeds (plus
that amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and
without subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 30 calendar days after a redemption or
repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal income tax
purposes, a sale on which the shareholder may realize a gain or loss. If a
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once with respect to his or her shares
of the Fund. No charge is imposed by the Fund for such reinvestments; however,
dealers may charge fees in connection with the reinvestment privilege. The
reinvestment privilege may be exercised with respect to an Eligible Fund only in
those states where shares of the relevant other Eligible Fund may legally be
sold.
Investment Plans
The Fund offers shareholders the Investamatic Check Program. Under this
Program, shareholders may make regular investments by authorizing withdrawals
from their bank accounts each month or quarter on the Investamatic
application form available from Shareholder Services.
The Fund also offers tax-sheltered retirement plans, including prototype and
other employee benefit plans for employees, sole proprietors, partnerships and
corporations and IRAs. Details of these investment plans and their availability
may be obtained from securities dealers or from Shareholder Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Fund's Systematic Withdrawal Plan,
to have periodic checks issued for specified amounts. These amounts may not
be less than certain minimums, depending on the class of shares held. The
Plan provides that all income dividends and capital gains distributions of
the Fund shall be credited to participating shareholders in additional shares
of the Fund. Thus, the withdrawal amounts paid can only be realized by
redeeming shares of the Fund under the Plan. To the extent such amounts paid
exceed dividends and distributions from the Fund, a shareholder's investment
will decrease and may eventually be exhausted.
A Class B or Class D shareholder of the Fund may withdraw up to 8% annually
of either (a) the value, at the time the plan is initiated, of the shares then
in the account, or (b) the value, at the time of a withdrawal, of the same
number of shares as in the account when the plan was initiated, whichever is
higher. No contingent deferred sales charge will be imposed on such withdrawals
for Class B or Class D shares, although any applicable Class A contingent
deferred sales charge will apply.
Expenses of the Plan are borne by the Fund. A participating shareholder may
withdraw from the Plan, and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is receiving
payments under a Plan is ordinarily disadvantageous because of duplicative sales
charges. For this reason, a shareholder may not participate in the Investamatic
Check Program and the Systematic Withdrawal Plan at the same time.
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<PAGE>
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all their
dividends and any other distributions from the Fund or any Eligible Fund
automatically invested at net asset value in one other such available fund
designated by the shareholder. The number of shares purchased will be
determined as of the dividend payment date. The Dividend Allocation Plan is
subject to state securities law requirements, to suspension at any time, and
to such policies, limitations and restrictions, as, for instance, may be
applicable to street name or master accounts, that may be adopted from time
to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by
the Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions for
amounts up to $50,000 to be mailed to the shareholder's address of record is
available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically; and
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not previously
request such telephone wire privilege on his or her original Application may
request the privilege by completing a Telephone Redemption-by-Wire Form
which may be obtained by calling 1-800-562-0032. The Telephone
Redemption-by-Wire Form requires a signature guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in (1)
and (2) above by so indicating on the Application accompanying this Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by advising
Shareholder Services that the shareholder wishes to discontinue the use of such
privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to redeem,
or purporting to be the shareholder or the shareholder's dealer to exchange,
shares from any account for which such actions have been authorized; and (2)
honor any written instructions for a change of address regardless of whether
such request is accompanied by a signature guarantee. All telephone calls will
be recorded. None of the Fund, the other Eligible Funds, the Transfer Agent, the
Investment Manager or the Distributor will be liable for any loss, expense or
cost arising out of any request, including any fraudulent or unauthorized
requests. Shareholders assume the risk to the full extent of their accounts that
telephone requests may be unauthorized. Reasonable procedures will be followed
to confirm that instructions communicated by telephone are genuine. The
shareholder will not be liable for any losses arising from unauthorized or
fraudulent instructions if such procedures are not followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is
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<PAGE>
unlikely, during periods of extraordinary market conditions, a shareholder
may have difficulty in reaching Shareholder Services at such telephone
number. In that event, the shareholder should contact Shareholder Services at
1-800-562-0032, 1-617-357-7805 or otherwise at its main office at One
Financial Center, Boston, Massachusetts 02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your
account, including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made
in writing to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408. A fee of up to $10 will be charged against
an account for providing additional account transcripts or photocopies of
paid redemption checks or for researching records in response to special
requests.
Shareholder Telephone Transactions:
Please call 1-800-521-6548
Call this number for assistance in purchasing shares by wire and for
telephone redemptions or telephone exchange transactions. Shareholder
Services will require some form of personal identification prior to acting
upon instructions received by telephone. Written confirmation of the
transactions will be provided.
The Fund and its Shares
The Fund was organized in 1994 as a series of State Street Research
Securities Trust, a Massachusetts business trust. The Trustees have
authorized shares of the Fund to be issued in four classes: Class A, Class B,
Class C and Class D shares. The Trust is registered with the Securities and
Exchange Commission as an open-end management investment company. The fiscal
year end of the Fund is April 30.
The Fund has received an order from the Securities and Exchange Commission
permitting the issuance and sale of multiple classes of shares representing
interests in the existing portfolio of any series of the Trust. Except for those
differences between the classes of shares described below and elsewhere in the
Prospectus, each share of the Fund has equal dividend, redemption and
liquidation rights with other shares of the Fund and when issued is fully paid
and nonassessable. The Trustees have authorized the Fund to offer four classes
of shares as described above.
Each share of each class of shares represents an identical legal interest in
the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class D shares bear
the expenses of the deferred sales arrangement and any expenses (including the
higher service and distribution fees) resulting from such sales arrangement, and
certain other incremental expenses related to a class. Each class will have
exclusive voting rights with respect to provisions of the Rule 12b-1
distribution plan pursuant to which the service and distribution fees, if any,
are paid. Although the legal rights of holders of each class of shares are
identical, it is likely that the different expenses borne by each class will
result in different net asset values and dividends. The different classes of
shares of the Fund also have different exchange privileges.
The rights of holders of shares may be modified by the Trustees at any time,
so long as such modifications do not have a material, adverse effect on the
rights of any shareholder. On any matter submitted to the shareholders, the
holder of a Fund share is entitled to one vote per share (with proportionate
voting for fractional shares) regardless of the relative net asset value
thereof.
Under the Trust's Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder meetings
unless required by the 1940 Act. Except as otherwise provided under said Act,
the Board of Trustees will be a self-perpetuating body until fewer than two
thirds of the Trustees serving as such are Trustees who were elected by
shareholders of the Trust. In the event less than a majority of the Trustees
serving as such were elected by shareholders of the Trust, a meeting of
shareholders will be called to elect Trustees. Under the Master Trust Agreement,
any Trustee may be removed by vote of two thirds of the outstanding Trust
shares; holders of 10% or more of the
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<PAGE>
outstanding shares of the Trust can require that the Trustees call a meeting
of shareholders for purposes of voting on the removal of one or more
Trustees. In connection with such meetings called by shareholders, the Fund
will assist shareholders in shareholder communications as required.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement of the Trust disclaims shareholder liability
for acts or obligations of the Trust and provides for indemnification for all
losses and expenses of any shareholder of the Fund held personally liable for
the obligations of the Trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund would be unable to meet its obligations. The Investment
Manager believes that, in view of the above, the risk of personal liability to
shareholders is remote.
As of the approximate time of this Prospectus, the Investment Manager, the
Distributor and/or Metropolitan Life Insurance Company ("Metropolitan"), their
indirect parent, were the beneficial owners of all or a substantial amount of
the outstanding Class A, Class B, Class C and/or Class D shares of the Fund, and
may be deemed in control of the Fund as "control" is defined in the 1940 Act.
Such owners may acquire additional shares of the Fund. Although sales of the
Fund's shares will reduce their percentage ownership, so long as 25% of a class
of shares are so owned, such owners will be presumed to be in control of such
class of shares for purposes of voting on certain matters, such as any
Distribution Plan for a given class.
Management of the Fund
Under the provisions of the Trust's Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
The Fund's investment manager is State Street Research & Management Company.
The Investment Manager is charged with the overall responsibility for managing
the investments and business affairs of the Fund, subject to the authority of
the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first mutual
funds, presently known as State Street Investment Trust, which they had formed
in 1924. Their investment management philosophy, which continues to this day,
emphasized comprehensive fundamental research and analysis, including meetings
with the management of companies under consideration for investment. State
Street Research & Management Company's portfolio management group has extensive
investment industry experience. The Investment Manager and the Distributor are
indirect wholly-owned subsidiaries of Metropolitan and are located at One
Financial Center, Boston, Massachusetts 02111-2690.
The Investment Manager has entered into an Advisory Agreement with the Trust
pursuant to which investment research and management, administrative services,
office facilities and personnel are provided for the Fund in consideration of a
fee from the Fund.
Under its Advisory Agreement with the Trust, the Investment Manager receives
a monthly investment advisory fee equal to 0.55% (on an annual basis) of the
average daily value of the net assets of the Fund. The Fund bears all costs of
its operation other than those incurred by the Investment Manager under the
Advisory Agreement. In particular, the Fund pays, among other expenses,
investment advisory fees, certain distribution expenses under the Fund's
Distribution Plan and the compensation and expenses of the Trustees who are not
otherwise currently affiliated with the Investment Manager or any of its
affiliates. The Investment Manager will reduce its management fee payable by the
Fund up to the amount of any expenses (excluding permissible items, such as
brokerage commissions, Rule 12b-1 payments, interest, taxes and litigation
expenses) paid or incurred in any year in excess of the most restrictive expense
limitation imposed by any state in which the Fund sells shares, if any. The
Investment Manager compensates
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<PAGE>
Trustees of the Trust if such persons are employees or affiliates of the
Investment Manager or its affiliates.
The Fund is managed by John H. Kallis. Mr. Kallis has managed the Fund since
its inception. Mr. Kallis's principal occupation currently is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as a portfolio manager for State Street Research &
Management Company.
Subject to the policy of seeking best overall price and execution, sales of
shares of the Fund may be considered by the Investment Manager in the selection
of broker or dealer firms for the Fund's portfolio transactions.
Dividends and Distributions; Taxes
The Fund intends to qualify and elect to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code, although it cannot
give complete assurance that it will do so. As long as it so qualifies and
satisfies certain distribution requirements, it will not be subject to
federal income tax on its taxable income (including capital gains, if any)
distributed to its shareholders. Consequently, the Fund intends to distribute
annually to its shareholders substantially all of its net investment income
and any capital gain net income (capital gains net of capital losses).
Dividends from net investment income of the Fund normally will be paid four
times each year. Distributions of capital gain net income, if any, will
generally be made after the end of the fiscal year or as otherwise required for
compliance with applicable tax regulations. Both dividends from net investment
income and distributions of capital gain net income will be declared and paid to
shareholders in additional shares of the Fund at net asset value (except in the
case of shareholders who elect a different available distribution method).
The Fund will provide its shareholders with annual information on a timely
basis concerning the federal tax status of dividends and distributions during
the preceding calendar year.
Dividends paid by the Fund from taxable net investment income and
distributions of net short-term capital gains, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax purposes
to shareholders as ordinary income. Distributions of net capital gains (the
excess of net long- term capital gains over net short-term capital losses) which
are designated as capital gains distributions, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax purposes
to shareholders as long-term capital gains, regardless of how long shareholders
have held their shares. If shares of the Fund which are sold at a loss have been
held six months or less, the loss will be considered as a long-term capital loss
to the extent of any capital gains distributions received.
Dividends and other distributions and proceeds of redemption of Fund shares
paid to individuals and other nonexempt payees will be subject to a 31% federal
backup withholding tax if the Transfer Agent is not provided with the
shareholder's correct taxpayer identification number or certification that the
shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal income
tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisers regarding
tax matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, the Fund may compare the performance of its Class A,
Class B, Class C or Class D shares to that of other mutual funds with similar
investment objectives, to certificates of deposit and/or to other financial
alternatives. The Fund may also compare its performance to appropriate
indices such as the Lehman Intermediate Government/Corporate Bond Index
and/or to appropriate rankings or averages such as the Intermediate
Investment Grade Debt Funds category compiled by Lipper Analytical Services,
Inc. or to those compiled by Morningstar, Inc., Money Magazine,
23
<PAGE>
Business Week, Forbes Magazine, The Wall Street Journal and Investor's Daily.
Total return is computed separately for each class of shares of the Fund. The
average annual total return ("standard total return") for shares of the Fund is
computed by determining the average annual compounded rate of return for a
designated period that, if applied to a hypothetical $1,000 initial investment
(less the maximum initial or contingent deferred sales charge, if applicable),
would produce the redeemable value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions and with recognition of
all recurring charges. Standard total return may be accompanied with nonstandard
total return information computed in the same manner, but for differing periods
and with or without annualizing the total return or taking sales charges into
account. During the first year of operations, the Fund may also advertise its
aggregate total return without annualization.
The Fund's yield is computed separately for each class of shares by dividing
the net investment income, after recognition of all recurring charges, per share
earned during the most recent month or other specified thirty-day period by the
applicable maximum offering price per share on the last day of such period and
annualizing the result.
The standard total 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 shareholders elect and which involve
nominal fees, such as the $7.50 fee for remittance of redemption proceeds by
wire. Where sales charges are not applicable and therefore not taken into
account in the calculation of standard total return and yield, the results will
be increased. Any voluntary waiver of fees or assumption of expenses by the
Fund's affiliates will also increase performance results.
The Fund's distribution rate is calculated separately for each class of
shares by annualizing the latest distribution and dividing the result by the
maximum offering price per share as of the end of the period to which the
distribution relates. The distribution rate is not computed in the same manner
as the above described yield, and, therefore, can be significantly different
from it. In its supplemental sales literature, the Fund may quote its
distribution rate together with the above described standard total return and
yield information. The use of such distribution rates would be subject to an
appropriate explanation of how the components of the distribution rate differ
from the above described yield.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of the Fund varies in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
performance quotation should be considered a representation as to the Fund's
performance for any future period. In addition, the net asset value of shares of
the Fund will fluctuate, with the result that shares of the Fund, when redeemed,
may be worth more or less than their original cost. Neither an investment in the
Fund nor its performance is insured or guaranteed; such lack of insurance or
guarantees should accordingly be given appropriate consideration when comparing
the Fund to financial alternatives which have such features.
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<PAGE>
APPENDIX
Description of Debt/Bond Ratings
Standard & Poor's Corporation
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Plus (+) or Minus (-): The ratings may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
1, 2 or 3: The ratings may be modified by the addition of a numeral
indicating a bond's rank within its rating category.
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(LOGO) State Street Research
State Street Research
Intermediate Bond Fund
May 16, 1994
PROSPECTUS
STATE STREET RESEARCH
INTERMEDIATE BOND FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
INDEPENDENTS ACCOUNTANTS
Coopers & Lybrand
One Post Office Square
Boston, MA 02109
SSR596PRO
IBF-008E-594I
