As filed with the Securities and Exchange Commission on August 29, 1996
1933 Act Registration No. 33-74628
1940 Act File No. 811-8322
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 5 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 6 [X]
--------------------
STATE STREET RESEARCH SECURITIES TRUST
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 357-1200
Francis J. McNamara, III
Senior Vice President, Secretary & General Counsel
State Street Research & Management Company
One Financial Center
Boston, Massachusetts 02111
(Name and Address of Agent for Service)
Copies of Communications to:
Donald J. Evans, P.C.
Edward T. O'Dell, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On September 1, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On _____________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On __________ pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
--------------------
The Registrant hereby declares that, pursuant to Rule 24f-2(a)(1) under the
Investment Company Act of 1940, as amended (the "1940 Act"), it has registered
an indefinite number of shares of beneficial interest, par value $.001 per
share, in the State Street Research Intermediate Bond Fund series and the State
Street Research Strategic Income Fund series of the Registrant, which shares are
designated as Class A shares, Class B shares, Class C shares and Class D shares
of such series.
A Rule 24f-2 Notice for the fiscal period ended April 30, 1996 was filed by
the Registrant on or about June 30, 1996 with respect to the State Street
Research Intermediate Bond Fund series of the Registrant. To date, no Rule 24f-2
Notice has been required to be filed by the Registrant with respect to its State
Street Research Strategic Income Fund Series.
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<PAGE>
The Prospectus and Statement of Additional Information of State Street
Research Strategic Income Fund are included in Post-Effective Amendment No. 4
to this Registration Statement.
The Prospectus and Statement of Additional Information of State Street
Research Intermediate Bond Fund are included herein.
<PAGE>
STATE STREET RESEARCH SECURITIES TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
<TABLE>
<CAPTION>
Caption or Location in Prospectus Caption or Location in Prospectus
Form N-1A Item No. for State Street Research for State Street Research
Intermediate Bond Fund Strategic Income Fund
PART A
<S> <C> <C>
1. Cover Page...................... Same Same
2. Synopsis........................ Table of Expenses Table of Expenses
3. Condensed Financial
Information .................... Financial Highlights; Calculation of Calculation of
Performance Data Performance Data
4. General Description
of Registrant .................. The Fund's Investments; Investment The Fund's Investments; Limiting
Practices; The Fund and its Shares; Investment Risk; The Fund and its Shares;
Appendix Debt/Bond Ratings Appendix Debt/Bond Ratings
5. Management of the Fund.......... Management of the Fund; Purchase of Management of the Fund; Purchase of
Shares; Shareholder Services Shares; Shareholder Services
5A. Management's Discussion of
Fund Performance ............... [To be included in Annual Report to [To be included in Annual Report to
Shareholders] Shareholders]
6. Capital Stock and
Other Securities ............... The Fund and its Shares; Management of The Fund and its Shares; Management of
the Fund; Dividends and Distributions; the Fund; Dividends and Distributions;
Taxes; Shareholder Services Taxes; Shareholder Services
7. Purchase of Securities
Being Offered ................. Purchase of Shares; Shareholder Purchase of Shares; Shareholder
Services; Management of the Fund Services; Management of the Fund
8. Redemption or Repurchase ....... Redemption of Shares; Shareholder Redemption of Shares; Shareholder
Services Services
9. Legal Proceedings............... Not Applicable Not Applicable
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Caption or Location in Statement Caption or Location in Statement
of Additional Information for of Additional Information for
State Street Research Intermediate State Street Research Strategic
Form N-1A Item No. Bond Fund Income Fund
PART B
<S> <C> <C>
10. Cover Page...................... Same Same
11. Table of Contents............... Same Same
12. General Information and
History ........................ Not Applicable Not Applicable
13. Investment Objectives
and Policies ................... Additional Investment Policies and Investment Policies and
Restrictions; Additional Information Restrictions; Additional Information
Concerning Certain Investment Concerning Certain Investment
Techniques; Debt Instruments and Techniques; Debt Instruments and
Permitted Cash Investments; Permitted Cash Investments;
Portfolio Transactions Portfolio Transactions
14. Management of the Registrant ... Trustees and Officers Trustees and Officers
15. Control Persons and Principal
Holders of Securities .......... Trustees and Officers Trustees and Officers
16. Investment Advisory and Other
Services ....................... Investment Advisory Services; Investment Advisory Services;
Custodian; Independent Accountants; Custodian; Independent Accountants;
Distribution of Shares of the Fund Distribution of Shares of the Fund
17. Brokerage Allocation............ Portfolio Transactions Portfolio Transactions
18. Capital Stock and
Other Securities ............... Not Applicable (Description in Not Applicable (Description in
Prospectus) Prospectus)
19. Purchase, Redemption and Pricing
of Securities Being Offered .... Purchase of Shares; Net Asset Value Purchase of Shares; Redemption of Shares;
Net Asset Value
20. Tax Status ..................... Certain Tax Matters Certain Tax Matters
21. Underwriters ................... Distribution of Shares of the Fund Distribution of Shares of the Fund
22. Calculation of Performance
Data ........................... Calculation of Performance Data Calculation of Performance Data
23. Financial Statements ........... Financial Statements Financial Statements
</TABLE>
ii
<PAGE>
Supplement No. 1 dated
September 1, 1996
to
Prospectus dated September 1, 1996
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.
<PAGE>
State Street Research
Intermediate Bond Fund
Prospectus
September 1, 1996
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 June 30, 1996, the Investment
Manager had approximately $34.9 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 September
1, 1996 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
Financial Highlights 4
The Fund's Investments 5
Risk Factors and Investment Practices 7
Limiting Investment Risk 9
Purchase of Shares 9
Redemption of Shares 18
Shareholder Services 20
The Fund and its Shares 24
Management of the Fund 25
Dividends and Distributions; Taxes 26
Calculation of Performance Data 27
Appendix--Description of Debt/Bond Ratings 28
<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
Class A Class B Class C Class D
---------- -------- -------- ----------
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 Fee None None None None
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
thereafter and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the sale.
Long-term investors in 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>
Class A Class B Class C Class D
------- ------- ------- --------
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 1.30% 1.30% 1.30% 1.30%
Less Voluntary Reduction (1.10%) (1.10%) (1.10%) (1.10%)
----- ----- ----- -------
Total Fund Operating
Expenses (after voluntary
reduction) 1.00% 1.75% 0.75% 1.75%
===== ===== ===== =======
Example:
You would pay the following expenses on a $1,000 investment including, for
Class A shares, the maximum applicable initial sales charge, and assuming (1)
5% annual return and (2) redemption of the entire investment at the
end of each time period:
1 Year 3 Years 5 Years 10 Years
-------- -------- -------- ----------
Class A shares $55 $75 $ 98 $162
Class B shares $68 $85 $115 $186
Class C shares $ 8 $24 $ 42 $ 93
Class D shares $28 $55 $ 95 $206
You would pay the following expenses on the same investment, assuming no
redemption:
1 Year 3 Years 5 Years 10 Years
-------- -------- -------- ----------
Class B shares $18 $55 $95 $186
Class D shares $18 $55 $95 $206
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than shown.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses that an investor will bear directly or indirectly.
The percentage expense levels shown in the table above are based on experience
with expenses during the fiscal year ended April 30, 1996; actual expense levels
for the current fiscal year and future years may vary from the amounts shown.
The table does not reflect charges for optional services elected by certain
shareholders, such as the $7.50 fee for remittance of redemption proceeds by
wire. For further information on sales charges, see "Purchase of
Shares--Alternative Purchase Program"; for further information on management
fees, see "Management of the 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 fiscal year ended April 30, 1996, Total Fund Operating Expenses as a
percentage of average net assets of Class A and Class C shares, would have been
1.95% and 1.85%, respectively, in the absence of the voluntary assumption of
expenses by the Distributor and its affiliates. Such assumption of fees or
expenses, as a percentage of average net assets amounted to 0.95% and 1.10% of
the Class A and Class C shares of the Fund, respectively. The amount of fees or
expenses assumed during the fiscal period ended April 30, 1996 differed between
classes because of fluctuations during the year in relative levels of assets in
both classes and in expenses before reimbursement.
3
<PAGE>
Financial Highlights
The data set forth below has been audited by Coopers & Lybrand L.L.P.,
independent accountants, and their report thereon is included in the Statement
of Additional Information. For further information about the performance of the
Fund, see "Financial Statements" in the Statement of Additional Information.
Financial information is not presented for Class B and Class D shares of the
Fund because no shares of those classes were outstanding during the periods
presented.
<TABLE>
<CAPTION>
Class A Class C
------------------------------ --------------------------------
May 16, 1994
(Commencement May 16, 1994
of (Commencement
Operations) of
Year ended to Year ended Operations) to
April 30, April 30, April 30, April 30,
1996** 1995 1996** 1995
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $9.66 $9.55 $9.67 $9.55
Net investment income* .59 .54 .61 .56
Net realized and unrealized gain on
investments, foreign currency and
forward contracts .10 .01 .09 .02
Dividends from net investment income (.52) (.44) (.61) (.46)
Distributions from net realized gains (.08) -- (.08) --
Net asset value, end of year $9.75 $9.66 $9.68 $9.67
=========== =========== =========== =============
Total return 7.13%+ 5.96%+++ 7.25%+ 6.30%+++
Net assets at end of year (000s) $593 $10,222 $16,075 $ 3,738
Ratio of operating expenses to average
net assets* 1.00% 1.00%++ 0.75% 0.75%++
Ratio of net investment income to
average net assets* 5.91% 5.92%++ 6.16% 6.17%++
Portfolio turnover rate 117.28% 157.75% 117.28% 157.75%
*Reflects voluntary assumption of fees
or expenses per share $0.09 $0.11 $0.11 $0.10
</TABLE>
- --------------
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred sales
charges. Total return would be lower if the Distributor and its affiliates had
not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
**Per share figures have been calculated using the average shares method.
4
<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. Where an investment is split rated, the Fund may invest on the basis of
the higher rating. Where an investment is rated by only one rating agency, the
Fund may invest on the basis of a higher rating derived from its own analysis. 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, and the Fund does not currently expect to invest in securities
below such ratings. 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
5
<PAGE>
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 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.
When interest rates increase, the value of debt securities and shares of the
Fund can be expected to decline. When interest rates decline, the Fund may not
be able to invest new inflows of cash in portfolio securities which produce
yields as attractive as previously acquired securities.
6
<PAGE>
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 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, the difficulties in obtaining and enforcing a judgment
against a foreign issuer and the fact that foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of securities of comparable
domestic issuers. Investments in foreign securities also involve the additional
costs of converting foreign currency into U.S.
dollars. 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 either on a spot (i.e., cash) basis at the rate prevailing
in the currency exchange market or by entering into forward contracts to
purchase or sell currencies. 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 Investment Policies
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 and
securities indices. The Fund may not establish a position in a commodity futures
contract or purchase or sell a commodity option contract for other than bona
fide hedging purposes if immediately
7
<PAGE>
thereafter the sum of the amount of initial margin deposits and premiums
required to establish such positions for such nonhedging purposes would exceed
5% of the market value of the Fund's net assets; similar policies apply to
options which are not commodities. The Fund may 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. The Fund may also enter
into repurchase agreements and reverse repurchase agreements. See the Statement
of Additional Information.
The Fund may lend portfolio securities with a value of up to 33-1/3% of its
total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of the loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, irrevocable stand-by letters of credit issued by
a bank, or any combination thereof. The investing of cash collateral received
from loaning portfolio securities involves leverage which magnifies the
potential for gain or loss on monies invested and, therefore, results in an
increase in the volatility of the Fund's outstanding securities. Such loans may
be terminated at any time.
The Fund will retain most rights of ownership including rights to dividends,
interest or other distributions on the loaned securities. Voting rights pass
with the lending, although the Fund may call loans to vote proxies if desired.
Should the borrower of the securities fail financially, there is a risk of delay
in recovery of the securities or loss of rights in the collateral. Loans are
made only to borrowers which are deemed by the Investment Manager to be of good
financial standing.
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 may purchase "when-issued" securities, which are traded on a price
basis prior to actual issuance. Such purchases will be made only to achieve the
Fund's investment objective and not for leverage. The when-issued trading period
generally lasts from a few days to months or over a year or more. No income
accrues to the Fund prior to the time it takes delivery. When-issued trading
frequently occurs with governmental or private mortgage pools which are traded
prior to the actual finalization of pool arrangements. Such transactions may
involve a risk of loss if the value of the securities fall below the price
committed to prior to the actual issuance. The Trust's custodian will establish
a segregated account for the Fund when it purchases securities on a when-issued
basis consisting of cash or liquid securities equal to the amount of the
when-issued commitments. Securities transactions involving delayed deliveries or
forward commitments are frequently characterized as when-issued transactions and
are similarly treated by the Fund.
The Fund anticipates that its annual 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
8
<PAGE>
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.
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 9 to 24 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
9
<PAGE>
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
investment by 12 noon Boston time on the day of his or her investment; and (ii)
the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete the
Application accompanying this Prospectus and deliver it to his or her 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. The Fund reserves the right to
suspend the sale of shares, or to reject any purchase order, including orders in
connection with exchanges, for any reason.
Minimum Investment
Class of Shares
--------------------------------
A B C D
------ ------ --- -------
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $ 50 $ 50 (a) $ 50
By Investamatic $ 50 $ 50 (a) $ 50
All other $ 50 $ 50 (a) $ 50
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments as in the case of, for example, exchanges and investments under
various retirement and employee benefit plans, sponsored arrangements involving
group solicitations of the members of an organization, or other investment plans
for reinvestment of dividends and distributions or for periodic investments
(e.g., Investamatic Check Program).
10
<PAGE>
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.
11
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------------------- -------------------- -------- ------------------
<S> <C> <C> <C> <C>
Sales Charges Initial sales charge Contingent deferred None Contingent
at time of investment sales charge of 5% deferred sales
of up to 4.5% to 2% applies to any charge of 1%
depending on amount shares redeemed applies to any
of investment within first five shares redeemed
years following within one year
their purchase; no following their
contingent deferred purchase
sales charge after
five years
On investments of
$1 million or more,
no initial sales
charge; but
contingent deferred
sales charge of 1%
applies to any
shares redeemed
within one year
following their
purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years; Class B
shares convert
automatically to
Class A shares after
eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Above described 4% None 1%
Commission initial sales charge
Received by less 0.25% to 0.50%
Selling retained by
Securities Distributor
Dealer
On investments of $1
million or more,
0.25% to 0.70% paid
to dealer by
Distributor
</TABLE>
12
<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 that have sold or
may sell significant amounts of shares and/or meet other conditions established
by the Distributor; for example, the Distributor may sponsor special promotions
to develop particular distribution channels or to reach certain investor groups.
The Distributor may also compensate those dealers with clients who maintain
their investments in the Fund over a period of years. The incentives may include
merchandise and trips to and attendance at sales seminars at resorts.
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.
- --------------------------------------------------------------------------
Sales Sales
Charge Charge
Paid By Paid By Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
- --------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------
$1 million and See
above following
0 % 0 % discussion
- --------------------------------------------------------------------------
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
13
<PAGE>
commission based on the aggregate of such sales as follows:
Amount of Sale Commission
--------------------------------- -----------
(a) $1 million to $3 million 0.70%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
On such sales of $1,000,000 or more, unless the above commission is waived by
the dealer the investor is subject to a 1% contingent deferred sales charge on
any portion of the purchase redeemed within one year of the sale. However, such
redeemed shares will not be subject to the contingent deferred sales charge to
the extent that their value represents (1) capital appreciation or (2)
reinvestment of dividends or capital gains distributions. In addition, the
contingent deferred sales charge will be waived for certain other redemptions as
described under "Contingent Deferred Sales Charge Waivers" below (as otherwise
applicable to Class B shares).
Class A shares of the Fund that are purchased without a sales charge may be
exchanged for Class A shares of certain other Eligible Funds, as described
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption within
one year of the Class A shares which are acquired through such exchange. For
federal income tax purposes, the amount of the contingent deferred sales charge
will reduce the gain or increase the loss, as the case may be, on the amount
realized on redemption. The amount of any contingent deferred sales charge will
be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement of
Additional Information, of $100,000 or more of Class A shares of the Fund or a
combination of "Eligible Funds." "Eligible Funds" include the Fund and other
funds so designated by the Distributor from time to time. Class B, Class C and
Class D shares may also be included in the combination under certain
circumstances. Securities dealers should call Shareholder Services for details
concerning the other Eligible Funds and any persons who may qualify for reduced
sales charges and related information. See the Statement of Additional
Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A shares
of the Fund and any other Eligible Funds within a 13-month period. Class B,
Class C and Class D shares may also be included in the combination under certain
circumstances. Additional information on a Letter of Intent is available from
dealers, or from the Distributor, and also appears in the Statement of
Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of shares of
the Fund and other Eligible Funds at reduced sales charges pursuant to a Right
of Accumulation. Under the Right of Accumulation, the sales charge is determined
by combining the current purchase with the value of the Class A shares of other
Eligible Funds held at the time of purchase. Class B, Class C and Class D shares
may also be included in the combination under certain circumstances. See the
Statement of Additional Information and call Shareholder Services for details
concerning the Right of Accumulation.
Other Programs
Class A shares of the Fund may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored
arrangements, which include programs under which a company, employee benefit
plan or other organization makes recommendations to, or permits group
solicitation of, its employees, members or participants, except any organization
created primarily for the purpose of obtaining shares of the Fund at a reduced
sales charge or without a sales charge. Sales without a sales charge, or with a
reduced sales charge, may also be made through brokers, financial planners,
institutions, and others, under managed fee-based programs (e.g., "wrap fee" or
similar programs) which meet certain requirements established from
14
<PAGE>
time to time by the Distributor. Information on such arrangements and further
conditions and limitations is available from the Distributor.
In addition, no sales charge is imposed in connection with the sale of Class
A shares of the Fund to the following entities and persons: (A) the Investment
Manager, the Distributor, or any affiliated entities, including any direct or
indirect parent companies and other subsidiaries of such parents (collectively
"Affiliated Companies"); (B) employees, officers, sales representatives or
current or retired directors or trustees of the Affiliated Companies or any
investment company managed by any of the Affiliated Companies, any relatives of
any such individuals whose relationship is directly verified by such individuals
to the Distributor, or any beneficial account for such relatives or individuals;
and (C) employees, officers, sales representatives or directors of dealers and
other entities with a selling agreement with the Distributor to sell shares of
any aforementioned investment company, any spouse or child of such person, or
any beneficial account for any of them. The purchase must be made for investment
and the shares purchased may not be resold except through redemption. This
purchase program is subject to such administrative policies, regarding the
qualification of purchasers 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:
Contingent Deferred Sales Charge As
A Percentage Of Net Asset Value At
Redemption During Redemption
- -------------------------- -----------------------------------
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
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.
15
<PAGE>
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain conditions.
In addition, the contingent deferred sales charge will be waived for: (i)
redemptions made within one year of the death or total disability, as defined by
the Social Security Administration, of all shareholders of an account; (ii)
redemptions made after attainment of a specific age in an amount which
represents the minimum distribution required at such age under Section 401(a)(9)
of the Internal Revenue Code for retirement accounts or plans (e.g., age 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 and
establish other conditions for employee benefit plans.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to Class A
shares of the Fund at the end of eight years following the issuance of 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; No Sales Charge
The purchase price of a Class C share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
In general, Class C shares are only available for new investments by certain
large institutions, and employee benefit plans which acquire shares through
programs or products sponsored by Metropolitan Life Insurance Company
("Metropolitan") and/or its affiliates, for which Class C shares have been
designated. Information on the availability of Class C shares and further
conditions and limitations is available from the Distributor.
Class C shares may 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 other redemptions as
described under "Contingent Deferred Sales Charge Waivers" above (as otherwise
applicable to Class B shares). For federal income tax purposes, the amount of
16
<PAGE>
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 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:
Class Service Fee Distribution Fee
--------------- -------------- ----------------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to pay or reimburse securities
dealers (including securities dealers that are affiliates of the Distributor) or
others for personal services and/or the maintenance of shareholder accounts. A
portion of any initial commission paid to dealers for the sale of shares of a
Fund represents payment for personal services and/or the maintenance or
servicing of shareholder accounts by such dealers. Dealers who have sold Class A
shares are eligible for further reimbursement commencing as of the time of such
sale. Dealers who have sold Class B and Class D shares are eligible for further
reimbursement after the first year during which such shares have been held of
record by such dealer as nominee for its clients (or by such clients directly).
Any service fees received by the Distributor and not allocated to dealers may be
applied by the Distributor in reduction of expenses incurred by it directly for
personal services and the maintenance or servicing of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to 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
17
<PAGE>
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. Payments to the Distributor or to dealers funded under
the Distribution Plan may be discontinued at any time by the Trustees of the
Trust.
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the NYSE
is open for business. Redemptions will be effective at the net asset value per
share next determined (see "Purchase of Shares-- Net Asset Value" herein) after
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
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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 the order
promptly upon delivery of certificates for shares in proper form for transfer
or, for Open Accounts, upon the receipt of a stock power with signatures
guaranteed as described below, and, if required, any supporting documents.
Neither the Fund nor the Distributor imposes any charge upon such a repurchase.
However, a dealer may impose a charge as agent for a shareholder in the
repurchase of his or her shares.
The Fund has reserved the right to change, modify or terminate the services
described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable sales charges, if any. The Fund may increase such minimum
account value above such amount in the future after notice to affected
shareholders. Involuntarily redeemed shares will be priced at the net asset
value on the date fixed for redemption by the Fund, and the proceeds of the
redemption will be mailed to the affected shareholder at the address of record.
Currently, the maintenance fee is $18 annually, which is paid to the Transfer
Agent. The fee does not apply to certain retirement accounts or if the
shareholder has more than an aggregate $50,000 invested in the Fund and other
Eligible Funds combined. Imposition of a maintenance fee on a small account
could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee will be
charged against any shareholder account that has been determined to be subject
to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it may
elect to suspend the redemption of shares or postpone the date of payment of
redemption proceeds: (1) during any period that the NYSE is closed (other than
customary weekend and holiday 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 otherwise provided under "Redemption of Shares" herein.
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees help the Transfer Agent
determine that the person who has authorized a redemption from the account is,
in fact, the shareholder. Signature guarantees are required for, among other
things: (1) written requests for redemptions for more than $50,000; (2) written
requests for redemptions for any amount if the proceeds are transmitted to other
than the current address of record (unchanged in the past 30 days); (3) written
requests for redemptions for any amount submitted by corporations and certain
fiduciaries and other intermediar-
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ies; and (4) requests to transfer the registration of shares to another owner.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange, or other eligible guarantor institution. The Transfer Agent will not
accept guarantees (or notarizations) from notaries public. The above
requirements may be waived in certain instances. Please contact Shareholder
Services at 1-800-562-0032 for specific requirements relating to your account.
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.
(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 available shares with
corresponding characteristics of any of the other Eligible Funds at any time on
the basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws. Shareholders
of any other Eligible Fund may similarly exchange their shares for Fund shares
with corresponding characteristics. Prior to making an exchange, shareholders
should obtain the Prospectus of the Eligible Fund into which they are
exchanging. Under the Direct Program, subject to certain conditions,
shareholders may make arrangements for regular exchanges from the Fund into
other Eligible Funds. To effect an exchange, Class A, Class B and Class D shares
may be redeemed without the payment of any contingent deferred sales charge that
might otherwise be due upon an ordinary redemption of such shares. The State
Street Research Money Market Fund issues Class E shares which are sold without
any sales charge. Exchanges of State Street Research Money Market Fund Class E
shares into Class A shares of the Fund or any other Eligible Fund are subject to
the initial sales charge or contingent deferred sales charge applicable to an
initial investment in such Class A shares, unless a prior Class A sales charge
has been paid directly or indirectly with respect to the shares redeemed. For
purposes of computing the contingent deferred sales charge that may be payable
upon disposition of the acquired Class A, Class B and Class D shares, the
holding period of the redeemed shares is "tacked" to the holding period of the
acquired shares. The period any Class E shares are held is not tacked to the
hold-
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<PAGE>
ing period of any acquired shares. No exchange transaction fee is currently
imposed on any exchange.
Shares of the Fund may also be acquired or redeemed in exchange for shares of
the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers of Merrill
Lynch, Pierce, Fenner & Smith Incorporated (subject to completion of steps
necessary to implement the program). The Fund and Summit Cash Reserves are
related mutual funds for purposes of investment and investor services. Upon the
acquisition of shares of Summit Cash Reserves by exchange for redeemed shares of
the Fund, (a) no sales charge is imposed by Summit Cash Reserves, (b) no
contingent deferred sales charge is imposed by the Fund on the Fund shares
redeemed, and (c) any applicable holding period of the Fund shares redeemed is
"tolled," that is, the holding period clock stops running pending further
transactions. Upon the acquisition of shares of the Fund by exchange for
redeemed shares of Summit Class Reserves, (a) the acquisition of Class A shares
shall be subject to the initial sales charges or contingent deferred sales
charges applicable to an initial investment in such Class A shares, unless a
prior Class A sales charge has been paid indirectly, and (b) the acquisition of
Class B or Class D shares of the Fund shall restart any holding period
previously tolled, or shall be subject to the contingent deferred sales charge
applicable to an initial investment in such shares.
For the convenience of the shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or his
or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for exchanges
is 1-800-521-6548. 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.
The exchange privilege is not designed for use in connection with short-term
trading or market timing strategies. To protect the interests of shareholders,
the Fund reserves the right to temporarily or permanently terminate the exchange
privilege for any person who makes more than six exchanges out of or into the
Fund per calendar year. Accounts under common ownership or control, including
accounts with the same taxpayer identification number, may be aggregated for
purposes of the six exchange limit. Notwithstanding the six exchange limit, the
Fund reserves the right to refuse exchanges by any person or group if, in the
Investment Manager's judgment, the Fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. Exchanges may be restricted or refused if the
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincides with
a "market timing" strategy may be disruptive to the Fund. The Fund may impose
these restrictions at any time. The exchange limit may be modified for accounts
in certain institutional retirement plans because of plan exchange limits,
Department of Labor regulations or administrative and other considerations.
Subject to the foregoing, if an exchange request in good order is received by
Shareholder Services and delivered by Shareholder Services to the Transfer Agent
by 12 noon Boston time on any business day, the exchange usually will occur that
day. For further information regarding the exchange privilege, shareholders
should contact Shareholder Services.
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<PAGE>
Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares repurchased at
his or her request may reinvest all or any portion of the proceeds (plus that
amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and without
subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 120 calendar days after a redemption or repurchase.
Upon such reinvestment, the shareholder will be credited with any contingent
deferred sales charge previously charged with respect to the amount reinvested.
The redemption of shares is, for federal income tax purposes, a sale on which
the shareholder may realize a gain or loss. If a redemption at a loss is
followed by a reinvestment within 30 days, the transaction may be a "wash sale"
resulting in a denial of the loss for federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once per 12-month period with respect
to his or her shares of the Fund. No charge is imposed by the Fund for such
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 Investamatic Check Program is available to Class A, Class B and Class D
shareholders. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Application available from Shareholder Services.
The Distributor offers IRAs and retirement plans, including prototype and
other employee benefit plans for employees, sole proprietors, partnerships and
corporations. Details of these investment plans and their availability may be
obtained from securities dealers or from Shareholder Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value of
$5,000 or more, or Class B or Class D shares with a value of $10,000 or more,
may elect, by participating in the Fund's Systematic Withdrawal Plan, to have
periodic checks issued for specified amounts. These amounts may not be less than
certain minimums, depending on the class of shares held. The Plan provides that
all income dividends and capital gains distributions of the Fund shall be
credited to participating shareholders in additional shares of the Fund. Thus,
the withdrawal amounts paid can only be realized by redeeming shares of the Fund
under the Plan. To the extent such amounts paid exceed dividends and
distributions from the Fund, a shareholder's investment will decrease and may
eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales charges,
no such charges will be imposed on withdrawals of up to 8% annually of either
(a) the value, at the time the Plan is initiated, of the shares then in the
account, or (b) the value, at the time of a withdrawal, of the same number of
shares as in the account when the plan was initiated, whichever is higher.
Expenses of the Plan are borne by the Fund. A participating shareholder may
withdraw from the Plan, and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is receiving
payments under 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 Eligible Fund
designated by the shareholder, provided the account into which the investment is
made is initially funded with the requisite minimum account. 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;
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not
previously request such telephone wire privilege on his or her original
Application may request the privilege by completing a Telephone
Redemption-by-Wire Form which may be obtained by calling 1-800-562-0032.
The Telephone Redemption-by-Wire Form requires a signature guarantee; and
(4) the privilege allowing the shareholder to make telephone purchases or
redemptions, transmitted via the Automated Clearing House system, into or
from the shareholder's predesignated bank account, is available upon
completion of the requisite initial documentation. For details and forms,
call 1-800-562-0032. The documentation 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; 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
23
<PAGE>
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 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 each transaction 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.
Except for those differences between the classes of shares described below
and elsewhere in the Prospectus, each share of the Fund has equal dividend,
redemption and liquidation rights with other shares of the Fund and when issued
is fully paid and nonassessable. In the future, certain classes may be
redesignated, for administrative purposes only, to conform to standard class
designations and common usage of terms which may develop in the mutual fund
industry. For example, Class C shares may be redesignated as Class Y shares and
Class D shares may be redesignated as Class C shares. Any redesignations would
not affect any substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest in
the same portfolio of investments of the Fund, 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 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
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<PAGE>
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 outstanding shares of the Trust can
require that the Trustees call a meeting of shareholders for purposes of voting
on the removal of one or more Trustees. In connection with such meetings called
by shareholders, shareholders will be assisted in shareholder communications to
the extent required by applicable law.
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 July 31, 1996 Metropolitan was the record and/or beneficial owner of
approximately 99% and 83% of Class A and Class C, respectively, and may be
deemed to be in control of such classes of shares of the Fund. Ownership of 25%
or more of a voting security is deemed "control" as defined in the 1940 Act. So
long as 25% of a class of shares 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 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 Research 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.
The Investment Manager's portfolio management group has extensive investment
industry experience. In managing debt securities for a portfolio, the Investment
Manager may consider yield curve positioning, sector rotation and duration,
among other factors.
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.
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<PAGE>
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 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 in May 1994. 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.
The Investment Manager has a Code of Ethics governing personal securities
transactions of certain of its employees; see the Statement of Additional
Information.
Dividends and Distributions; Taxes
The Fund has qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code for its most recent
fiscal year end and it intends to qualify as such in future fiscal years
although it cannot give complete assurance that it will do so. As long as it so
qualifies and satisfies certain distribution requirements, it will not be
subject to federal income tax on its taxable income (including capital gains, if
any) distributed to its shareholders. Consequently, the Fund intends to
distribute annually to its shareholders substantially all of its net investment
income and any capital 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.
26
<PAGE>
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, 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 historical period as applied to a hypothetical $1,000 initial
investment, which is redeemed in total at the end of such period. In making the
calculation, all dividends and distributions are assumed to be reinvested, and
all recurring expenses, including management and distribution fees, are
recognized. The calculation also reflects the maximum initial or contingent
deferred sales charge, determined as of the assumed date of initial investment
or the assumed date of redemption, as the case may be. Standard total return 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.
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.
27
<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.
S&P may attach the "r" symbol to derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to noncredit risks created by the terms of the
obligation, such as securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only (IO) and principal only (PO) mortgage securities.
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.
28
<PAGE>
State Street Research
Intermediate Bond Fund
September 1, 1996
P R O S P E C T U S
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
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
a series of
STATE STREET RESEARCH SECURITIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1996
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS..............................2
ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT TECHNIQUES..............4
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS.............................12
TRUSTEES AND OFFICERS.......................................................16
INVESTMENT ADVISORY SERVICES................................................19
PURCHASE AND REDEMPTION OF SHARES...........................................20
NET ASSET VALUE.............................................................21
PORTFOLIO TRANSACTIONS......................................................22
CERTAIN TAX MATTERS.........................................................25
DISTRIBUTION OF SHARES OF THE FUND..........................................27
CALCULATION OF PERFORMANCE DATA.............................................29
CUSTODIAN...................................................................33
INDEPENDENT ACCOUNTANTS.....................................................33
FINANCIAL STATEMENTS........................................................33
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
Intermediate Bond Fund dated September 1, 1996, which may be obtained without
charge from the offices of State Street Research Securities Trust (the "Trust")
or State Street Research Investment Services, Inc. (the "Distributor"), One
Financial Center, Boston, Massachusetts 02111-2690.
<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth in part under "The Fund's Investments" and "Limiting
Investment Risk" in the Fund's Prospectus, the Fund has adopted certain
investment restrictions.
The fundamental and nonfundamental policies of the Fund do not apply to
any matters involving the issuance of multiple classes of shares of the Fund or
the creation of a structure allowing the Fund to invest substantially all its
assets in a related collective investment vehicle for similar funds or allowing
the Fund to serve as such a collective investment vehicle for other similar
funds, to the extent permitted by law and regulatory authorities.
All of the Fund's fundamental investment restrictions are set forth
below. These fundamental investment restrictions may not be changed except by
the affirmative vote of a majority of the Fund's outstanding voting securities
as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(Under the 1940 Act, a "vote of the majority of the outstanding voting
securities" means the vote, at a meeting of security holders duly called, (i) of
67% or more of the voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy or (ii) of more than 50% of the outstanding voting securities, whichever
is less.) Under these restrictions, it is the Fund's policy:
(1) not to purchase a security of any one issuer (other than
securities issued or guaranteed as to principal or interest by
the U.S. Government or its agencies or instrumentalities or
mixed-ownership Government corporations) if such purchase
would, with respect to 75% of the Fund's total assets, cause
more than 5% of the Fund's total assets to be invested in the
securities of such issuer or cause more than 10% of the voting
securities of such issuer to be held by the Fund;
(2) not to issue senior securities as defined in the 1940 Act,
except as permitted by that Act and the rules thereunder or as
permitted by an order of the Securities and Exchange
Commission;
(3) not to underwrite or participate in the marketing of
securities of other issuers, except (a) the Fund may, acting
alone or in syndicates or groups, purchase or otherwise
acquire securities of other issuers for investment, either
from the issuers or from persons in a control relationship
with the issuers or from underwriters of such securities; and
(b) to the extent that, in connection with the disposition of
the Fund's securities, the Fund may be deemed to be an
underwriter under certain federal securities laws;
(4) not to purchase fee simple interests in real estate unless
acquired as a result of ownership of securities or other
instruments, although the Fund may purchase and sell other
interests in real estate including securities which are
secured by real estate, or securities of companies which own
or invest or deal in real estate;
(5) not to invest in commodities or commodity contracts in excess
of 10% of the Fund's total assets, except that investments in
essentially financial items such as swap arrangements,
hybrids, currencies, futures contracts and options on futures
contracts on securities, securities indices and currencies
shall not be deemed investments in commodities or commodities
contracts;*
2
<PAGE>
(6) not to make loans, except that the Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (and enter into repurchase agreements with respect
thereto);
(7) not to make any investment which would cause more than 25% of
the value of the Fund's total assets to be invested in
securities of issuers principally engaged in any one industry
[for purposes of this restriction, (a) utilities may be
divided according to their services so that, for example, gas,
gas transmission, electric and telephone companies may each be
deemed in a separate industry, (b) oil and oil related
companies may be divided by type so that, for example, oil
production companies, oil service companies and refining and
marketing companies may each be deemed in a separate industry,
(c) finance companies may be classified according to the
industries of their parent companies, and (d) securities
issued or guaranteed as to principal or interest by the U.S.
Government or its agencies or instrumentalities (including
repurchase agreements involving such U.S. Government
securities to the extent excludable under relevant regulatory
interpretations) may be excluded]; and
(8) not to borrow money, including reverse repurchase agreements
in so far as such agreements may be regarded as borrowings,
except for borrowings not in an amount in excess of 33 1/3% of
the value of its total assets.
* In connection with clause (5), the Fund has undertaken with a
state securities authority that, for so long as the Fund's
shares are required to be registered for sale in that state,
the Fund will restrict its investment in those commodities
which are subject to the 10% limit of the Fund's total assets,
to precious metals.
The following nonfundamental investment restrictions may be
changed without shareholder approval. Under these restrictions, it is
the Fund's policy:
(1) not to purchase any security or enter into a repurchase
agreement if as a result more than 15% of its net assets would
be invested in securities that are illiquid (including
repurchase agreements not entitling the holder to payment of
principal and interest within seven days);
(2) not to invest more than 15% of its net assets in restricted
securities of all types (including not more than 5% of its net
assets in restricted securities which are not eligible for
resale pursuant to Rule 144A, Regulation S or other exemptive
provisions under the Securities Act of 1933);
(3) not to invest more than 5% of its total assets in securities
of private issuers including predecessors with less than three
years' continuous operations (except (a) securities guaranteed
or backed by an affiliate of the issuer with three years of
continuous operations, (b) securities issued or guaranteed as
to principal or interest by the U.S. Government, or its
agencies or instrumentalities, or a mixed-ownership Government
corporation, (c) securities of issuers with debt securities
rated at least "BBB" by Standard & Poor's Corporation or "Baa"
by Moody's Investor's Service, Inc., or their equivalent by
any other nationally recognized statistical rating
organization, or securities of issuers considered by the
Investment Manager to be equivalent, (d) securities issued by
a holding company with at least 50% of its assets invested in
companies with three years of continuous operations including
predecessors, and (e) securities which generate income which
is exempt from local, state or federal taxes); provided that
the Fund may invest up to 15% in such issuers
3
<PAGE>
so long as such investments plus investments in restricted
securities (other than those which are eligible for resale
under Rule 144A, Regulations S or other exemptive provisions)
do not exceed 15% of the Fund's total assets;
(4) not to engage in transactions in options except in connection
with options on securities, securities indices and currencies,
and options on futures on securities, securities indices and
currencies;
(5) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (as a matter of current operating policy,
the Fund will not make short sales or maintain a short
position unless not more than 5% of the Fund's net assets
(taken at current value) are held as collateral for such sales
at any time; and for the purpose of this restriction, escrow
or custodian receipts or letters, margin or safekeeping
accounts, or similar arrangements used in the industry in
connection with the trading of futures, options and forward
commitments are not deemed to involve the use of margin);
(6) not to purchase a security issued by another investment
company, except to the extent permitted under the 1940 Act or
except by purchases in the open market involving only
customary brokers' commissions, or securities acquired as
dividends or distributions or in connection with a merger,
consolidation or similar transaction or other exchange;
(7) not to purchase or retain any security of an issuer if, to the
knowledge of the Fund, those of its officers and Trustees and
officers and directors of its investment adviser who
individually own more than 1/2 of 1% of the securities of such
issuer, when combined, own more than 5% of the securities of
such issuer taken at market;
(8) not to invest directly as a joint venturer or general partner
in oil, gas or other mineral exploration or development joint
ventures or general partnerships (provided that the Fund may
invest in securities issued by companies which invest in or
sponsor such programs and in securities indexed to the price
of oil, gas or other minerals);
(9) not to invest in warrants in excess of 5% of the value, at the
lower of cost or market, of its net assets, provided that
warrants not listed on the New York or American Stock Exchange
shall be further limited to 2% of the Fund's net assets
(warrants initially attached to securities and acquired by the
Fund upon original issuance thereof shall be deemed to be
without value); and
(10) not to purchase any security while borrowings, including
reverse repurchase agreements, representing more than 5% of
the Fund's total assets are outstanding.
Compliance with the above nonfundamental investment restrictions (1)
and (2) will be determined independently.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Among other investments described below, the Fund may buy and sell
domestic and foreign options, futures contracts, and options on futures
contracts, with respect to securities, securities indices, and
4
<PAGE>
currencies, and may enter into closing transactions with respect to each of the
foregoing under circumstances in which the use of such techniques is expected by
State Street Research & Management Company (the "Investment Manager") to aid in
achieving the investment objective of the Fund. In most cases, only futures and
options listed and traded on national securities exchanges or registered
commodities exchanges or which are readily marketable will be used. The Fund on
occasion may also purchase instruments with characteristics of both futures and
securities (e.g., debt instruments with interest and principal payments
determined by reference to the value of a commodity or a currency at a future
time) and which, therefore, possess the risks of both futures and securities
investments.
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell
underlying assets, such as certain securities, currencies, or an index of
securities, at a future time at a specified price. A contract to buy establishes
a "long" position while a contract to sell establishes a "short" position.
The purchase of a futures contract on securities or an index of
securities normally enables a buyer to participate in the market movement of the
underlying asset or index after paying a transaction charge and posting margin
in an amount equal to a small percentage of the value of the underlying asset or
index. The Fund will initially be required to deposit with the Trust's custodian
or the broker effecting the futures transaction an amount of "initial margin" in
cash or U.S. Treasury obligations.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when the Fund has taken a long
position in a futures contract and the value of the underlying asset has risen,
that position will have increased in value and the Fund will receive from the
broker a maintenance margin payment equal to the increase in value of the
underlying asset. Conversely, when the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position would be less valuable, and the Fund would be required to make a
maintenance margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will terminate
the Fund's position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain. While futures
contracts with respect to securities do provide for the delivery and acceptance
of such securities, such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus protect the Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and thus to participate
in an expected rise in market value of securities or currencies which the Fund
intends to purchase. Subject to the limitations described below, the Fund may
also enter into futures contracts for purposes of enhancing return. In
transactions establishing a long position in a futures contract, money market
instruments equal to the face value of the futures contract will be identified
by the Fund to the Trust's custodian for maintenance in a separate account to
insure that the use of such futures contracts is unleveraged. Similarly, a
representative portfolio of securities having a value equal to the aggregate
face value of the futures contract will be identified with respect to each short
position. The Fund will employ any other appropriate method of cover which is
consistent with applicable regulatory and exchange requirements.
5
<PAGE>
Options on Securities
The Fund may use options on securities to implement its investment
strategy. A call option on a security, for example, gives the purchaser of the
option the right to buy, and the writer the obligation to sell, the underlying
asset at the exercise price during the option period. Conversely, a put option
on a security gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying asset at the exercise price during the option
period.
Purchased options have defined risk, i.e., the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset.
Written options have varying degrees of risk. An uncovered written call
option theoretically carries unlimited risk, as the market price of the
underlying asset could rise far above the exercise price before its expiration.
This risk is tempered when the call option is covered, i.e., when the option
writer owns the underlying asset. In this case, the writer runs the risk of the
lost opportunity to participate in the appreciation in value of the asset rather
than the risk of an out-of-pocket loss. A written put option has defined risk,
i.e., the difference between the agreed-upon price that the Fund must pay to the
buyer upon exercise of the put and the value, which could be zero, of the asset
at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
his obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Options on Securities Indices
The Fund may engage in transactions in call and put options on
securities indices. For example, the Fund may purchase put options on indices of
securities in anticipation of or during a market decline to attempt to offset
the decrease in market value of its securities that might otherwise result.
Put options on indices of securities are similar to put options on the
securities themselves except that the delivery requirements are different.
Instead of giving the right to make delivery of a security at a specified price,
a put option on an index of securities gives the holder the right to receive an
amount of cash upon exercise of the option if the value of the underlying index
has fallen below the exercise price. The amount of cash received will be equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple. As with options
on securities or futures contracts, the Fund may offset its position in index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A securities index assigns relative values to the securities included
in the index and the index options are based on a broad market index. Although
there are at present few available options on indices of fixed income
securities, other than tax-exempt securities, or futures and related options
based on such indices, such instruments may become available in the future. In
connection with the use of such options, the Fund may cover its position by
identifying a representative portfolio of securities having a value equal to the
aggregate face value of the option position taken. However, the Fund may employ
any appropriate method to cover its positions that is consistent with applicable
regulatory and exchange requirements.
6
<PAGE>
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Options Strategy
A basic option strategy for protecting the Fund against a decline in
securities prices could involve (a) the purchase of a put -- thus "locking in"
the selling price of the underlying securities or securities indices -- or (b)
the writing of a call on securities or securities indices held by the Fund --
thereby generating income (the premium paid by the buyer) by giving the holder
of such call the option to buy the underlying asset at a fixed price. The
premium will offset, in whole or in part, a decline in portfolio value; however,
if prices of the relevant securities or securities indices rose instead of
falling, the call might be exercised, thereby resulting in a potential loss of
appreciation in the underlying securities or securities indices.
A basic option strategy when a rise in securities prices is anticipated
is the purchase of a call -- thus "locking in" the purchase price of the
underlying security or other asset. In transactions involving the purchase of
call options by the Fund, money market instruments equal to the aggregate
exercise price of the options will be identified by the Fund to the Trust's
custodian to insure that the use of such investments is unleveraged.
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security and concurrently write a
call option against that security. If the call option is exercised in such a
transaction, the Fund's maximum gain will be the premium received by it for
writing the option, adjusted upward or downward by the difference between the
Fund's purchase price of the security and the exercise price of the option. If
the option is not exercised and the price of the underlying security declines,
the amount of such decline will be offset in part, or entirely, by the premium
received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund's return will be the premium received from
writing the put option minus the amount by which the market price of the
security is below the exercise price.
Limitations and Risks of Options and Futures Activity
The Fund will engage in transactions in futures contracts or options as
a hedge against changes resulting from market conditions which produce changes
in the values of their securities or the securities which it intends to purchase
(e.g., to replace portfolio securities which will mature in the near future)
and, subject to the limitations described below, to enhance return. The Fund
will not purchase any futures contract or purchase any call option if,
immediately thereafter, more than one third of the Fund's net assets would be
represented by long futures contracts or call options. The Fund will not write a
covered call or put option if, immediately thereafter, the aggregate value of
the assets (securities in the case of written calls and cash or cash equivalents
in the case of written puts) underlying all such options, determined as of the
dates such options were written, would exceed 25% of that Fund's net assets. The
Fund may not establish a position in a commodity futures contract or purchase or
sell a commodity option contract for other than bona fide hedging purposes if
immediately thereafter the sum of the amount of initial margin deposits and
7
<PAGE>
premiums required to establish such positions for such nonhedging purposes would
exceed 5% of the market value of the Fund's net assets.
Although effective hedging can generally capture the bulk of a desired
risk adjustment, no hedge is completely effective. The Fund's ability to hedge
effectively through transactions in futures and options depends on the degree to
which price movements in its holdings correlate with price movements of the
futures and options.
Some positions in futures and options may be closed out only on an
exchange which provides a secondary market therefor. There can be no assurance
that a liquid secondary market will exist for any particular futures contract or
option at any specific time. Thus, it may not be possible to close such an
option or futures position prior to maturity. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
effectively hedge its securities and might in some cases require the Fund to
deposit cash to meet applicable margin requirements. The Fund will enter into an
option or futures position only if it appears to be a liquid investment.
Foreign Investments
To the extent the Fund invests in securities of issuers in less
developed countries or emerging foreign markets, it will be subject to a variety
of additional risks, including risks associated with political instability,
economies based on relatively few industries, lesser market liquidity, high
rates of inflation, significant price volatility of portfolio holdings and high
levels of external debt in the relevant country.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in the local markets.
Currency Transactions
The Fund may engage in currency exchange transactions. The Fund will
conduct its currency exchange transactions either on a spot (i.e., cash) basis
at the rate prevailing in the currency exchange market, or by entering into
forward contracts to purchase or sell currencies. The Fund's dealings in forward
currency exchange contracts will be limited to hedging involving either specific
transactions or aggregate portfolio positions. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
not commodities and are entered into in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
In transactions involving forward currency exchange contracts, cash or
marketable securities equal to the price of the contract will be identified for
segregation by the Fund to the Trust's custodian to ensure that the use of such
instruments is unleveraged. Although spot and forward contracts will be used
primarily to protect the Fund from adverse currency movements, they also involve
the risk that anticipated currency movements will not be accurately predicted,
which may result in losses to the Fund. This method of protecting the value of
the Fund's portfolio securities against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange that can be achieved at some future point
in time. Although such contracts
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<PAGE>
tend to minimize the risk of loss due to a decline in the value of hedged
currency, they tend to limit any potential gain that might result should the
value of such currency increase.
Repurchase Agreements
The Fund may enter into repurchase agreements. Repurchase agreements
occur when the Fund acquires a security and the seller, which may be either (i)
a primary dealer in U.S. Government securities or (ii) an FDIC-insured bank
having gross assets in excess of $500 million, simultaneously commits to
repurchase it at an agreed-upon price on an agreed-upon date within a specified
number of days (usually not more than seven) from the date of purchase. The
repurchase price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the acquired
security. The Fund will only enter into repurchase agreements involving U.S.
Government securities. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
Repurchase agreements will be limited to 30% of the Fund's total assets, except
that repurchase agreements extending for more than seven days when combined with
other illiquid securities will be limited to 15% of the Fund's net assets.
Currently, the Fund does not expect to invest more than 5% of its net assets in
repurchase agreements.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. However, the
Fund has no present intention of engaging in reverse repurchase agreements in
excess of 5% of the Fund's total assets. In a reverse repurchase agreement the
Fund transfers a portfolio instrument to another person, such as a financial
institution, broker or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed-upon rate. The ability to use reverse
repurchase agreements may enable, but does not ensure the ability of, the Fund
to avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous.
When effecting reverse repurchase agreements, assets of the Fund in a
dollar amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
Rule 144A Securities
The Fund may buy or sell restricted securities in accordance with Rule
144A under the Securities Act of 1933 ("Rule 144A Securities"). Securities may
be resold pursuant to Rule 144A under certain circumstances only to qualified
institutional buyers as defined in the rule, and the markets and trading
practices for such securities are relatively new and still developing; depending
on the development of such markets, Rule 144A Securities may be deemed to be
liquid as determined by or in accordance with methods adopted by the Trustees.
Under such methods the following factors are considered, among others: the
frequency of trades and quotes for the security, the number of dealers and
potential purchasers in the market, market making activity, and the nature of
the security and marketplace trades. Investments in Rule 144A Securities could
have the effect of increasing the level of the Fund's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing such securities. Also, the Fund may be adversely impacted by the
possible illiquidity and subjective valuation of such securities in the absence
of a market for them.
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Indexed Securities
The Fund may purchase securities the value of which is indexed to
interest rates, foreign currencies and various indices and financial indicators.
These securities are generally short- to intermediate-term debt securities. The
interest rates or values at maturity fluctuate with the index to which they are
connected and may be more volatile than such index.
Swap Arrangements
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap the Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap, the Fund would agree with the other party to exchange cash flows based on
the relative differences in values of a notional amount of two (or more)
currencies; in an index swap, the Fund would agree to exchange cash flows on a
notional amount based on changes in the values of the selected indices. Purchase
of a cap entitles the purchaser to receive payments from the seller on a
notional amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an
agreed-upon interest rate or amount. A collar combines a cap and a floor.
Most swaps entered into by the Fund will be on a net basis; for
example, in an interest rate swap, amounts generated by application of the fixed
rate and the floating rate to the notional principal amount would first offset
one another, with the Fund either receiving or paying the difference between
such amounts. In order to be in a position to meet any obligations resulting
from swaps, the Fund will set up a segregated custodial account to hold
appropriate liquid assets, including cash; for swaps entered into on a net
basis, assets will be segregated having a daily net asset value equal to any
excess of the Fund's accrued obligations over the accrued obligations of the
other party, while for swaps on other than a net basis assets will be segregated
having a value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to
preserve the return on an investment or on a part of the Fund's portfolio.
However, the Fund may enter into such arrangements for income purposes to the
extent permitted by the Commodities Futures Trading Commission for entities
which are not commodity pool operators, such as the Fund. In entering a swap
arrangement, the Fund is dependent upon the creditworthiness and good faith of
the counterparty. The Fund attempts to reduce the risks of nonperformance by the
counterparty by dealing only with established, reputable institutions. The swap
market is still relatively new and emerging; positions in swap arrangements may
become illiquid to the extent that nonstandard arrangements with one
counterparty are not readily transferable to another counterparty or if a market
for the transfer of swap positions does not develop. The use of interest rate
swaps is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Investment Manager is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment performance
of the Fund would diminish compared with what it would have been if these
investment techniques were not used. Moreover, even if the Investment Manager is
correct in its forecasts, there is a risk that the swap position may correlate
imperfectly with the price of the asset or liability being hedged.
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Industry Classifications
In determining how much of the portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing will be classified according to
the industries of their parent companies or industries that otherwise most
affect such financing companies. Issuers of asset-backed pools will be
classified as separate industries based on the nature of the underlying assets,
such as mortgages and credit card receivables. "Asset-backed--Mortgages"
includes private pools of nongovernment backed mortgages.
11
<PAGE>
Aerospace Electric Equipment Oil Refining & Marketing
Airline Electronic Components Oil Service
Asset-backed--Mortgages Electronic Equipment Paper Products
Asset-backed--Credit Card Entertainment Personal Care
Receivables Financial Service Photography
Automotive Food & Beverage Plastics
Automotive Parts Forest Products Printing & Publishing
Bank Gaming & Lodging Railroad
Building Gas Real Estate & Building
Business Service Gas Transmission Recreation
Cable Grocery Healthcare & Retail Trade
Capital Goods & Equipment Hospital Management Savings & Loan
Chemical Hospital Supply Shipping & Transportation
Computer Software & Service Hotel & Restaurant Technology & Communications
Conglomerate Insurance Telephone
Consumer Goods & Services Machinery Textile & Apparel
Container Media Tobacco
Cosmetics Metal & Mining Truckers
Diversified Office Equipment Trust Certificates--
Drug Oil Production Government Related Lending
Electric
Other Investment Limitations
Pursuant to the policies of certain state securities authorities, the
Fund will not invest in real estate limited partnerships, oil, gas or mineral
development limited partnerships, or in oil, gas or mineral leases for so long
as Fund shares are required to be registered for sale in the relevant state.
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
As indicated in the Fund's Prospectus, the Fund may invest in long-term
and short-term debt securities. The Fund may invest in cash and short-term
securities for temporary defensive purposes when, in the opinion of the
Investment Manager, such a position is more likely to provide protection against
unfavorable market conditions than adherence to other investment policies.
Certain debt securities and money market instruments in which the Fund may
invest are described below.
U.S. Government and Related Securities
U.S. Government securities are securities which are issued or
guaranteed as to principal or interest by the U.S. Government, a U.S. Government
agency or instrumentality, or certain mixed-ownership Government corporations
as described herein. The U.S. Government securities in which the Fund invests
include, among others:
(bullet) direct obligations of the U.S. Treasury, i.e., U.S. Treasury
bills, notes, certificates and bonds;
(bullet) obligations of U.S. Government agencies or instrumentalities
such as the Federal Home Loan Banks, the Federal Farm Credit
Banks, the Federal National Mortgage Association,
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<PAGE>
the Government National Mortgage Association and the Federal
Home Loan Mortgage Corporation; and
(bullet) obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a
variety of ways by the U.S. Government, its agencies or instrumentalities. Some
of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full faith and credit of the U.S.
Treasury. Other obligations, such as those of the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase certain obligations of agencies or instrumentalities, although the U.S.
Government has no legal obligation to do so. Obligations such as those of the
Federal Home Loan Banks, the Federal Farm Credit Banks, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation are backed
by the credit of the agency or instrumentality issuing the obligations. Certain
obligations of Resolution Funding Corporation, a mixed-ownership Government
corporation, are backed with respect to interest payments by the U.S. Treasury,
and with respect to principal payments by U.S. Treasury obligations held in a
segregated account with a Federal Reserve Bank. Except for certain
mortgage-related securities, the Fund will only invest in obligations issued by
mixed-ownership Government corporations where such securities are guaranteed as
to payment of principal or interest by the U.S. Government or a U.S. Government
agency or instrumentality, and any unguaranteed principal or interest is
otherwise supported by U.S. Government obligations held in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and may
not be deemed U.S. Government securities.
The Fund may also invest from time to time in collective investment
vehicles, the assets of which consist principally of U.S. Government securities
or other assets substantially collateralized or supported by such securities,
such as Government trust certificates.
Bank Money Investments
Bank money investments include but are not limited to certificates of
deposit, bankers' acceptances and time deposits. Certificates of deposit are
generally short-term (i.e., less than one year), interest-bearing negotiable
certificates issued by commercial banks or savings and loan associations against
funds deposited in the issuing institution. A banker's acceptance is a time
draft drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction (to finance the import, export, transfer or
13
<PAGE>
storage of goods). A banker's acceptance may be obtained from a domestic or
foreign bank, including a U.S. branch or agency of a foreign bank. The borrower
is liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are nonnegotiable deposits for a fixed period of time at
a stated interest rate. The Fund will not invest in any such bank money
investment unless the investment is issued by a U.S. bank that is a member of
the Federal Deposit Insurance Corporation ("FDIC"), including any foreign branch
thereof, a U.S. branch or agency of a foreign bank, a foreign branch of a
foreign bank, or a savings bank or savings and loan association that is a member
of the FDIC and which at the date of investment has capital, surplus and
undivided profits (as of the date of its most recently published financial
statements) in excess of $50 million. The Fund will not invest in time deposits
maturing in more than seven days and will not invest more than 10% of its total
assets in time deposits maturing in two to seven days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
Short-Term Corporate Debt Instruments
Short-term corporate debt instruments include commercial paper to
finance short-term credit needs (i.e., short-term, unsecured promissory notes)
issued by corporations including but not limited to (a) domestic or foreign bank
holding companies or (b) their subsidiaries or affiliates where the debt
instrument is guaranteed by the bank holding company or an affiliated bank or
where the bank holding company or the affiliated bank is unconditionally liable
for the debt instrument. Commercial paper is usually sold on a discounted basis
and has a maturity at the time of issuance not exceeding nine months.
Commercial Paper Ratings
Commercial paper investments at the time of purchase will be rated A by
Standard & Poor's Corporation ("S&P") or Prime by Moody's Investor's Service,
Inc. ("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 by Moody's. The money
market investments in corporate bonds and debentures (which must have maturities
at the date of settlement of one year or less) must be rated at the time of
purchase at least A by S&P or by Moody's.
Commercial paper rated A (highest quality) by S&P is issued by entities
which have liquidity ratios which are adequate to meet cash requirements.
Long-term senior debt is rated A or better, although in some cases BBB credits
may be allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1, A-2
or A-3. (Those A-1 issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign: A-1+.)
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<PAGE>
The rating Prime is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
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<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their addresses, and
their principal occupations and positions with certain affiliates of the
Investment Manager are set forth below.
*+Bartlett R. Geer, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 41. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. His principal occupation is Senior Vice President
of State Street Research & Management Company. He is 55. During the past five
years he has also served as portfolio manager for State Street Research &
Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is engaged principally in private investments
and civic affairs, and is an author of business history. He is 69. Previously,
he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Trustee of the Trust. He is 70. His principal occupation during
the past five years has been Partner, Saltonstall & Co., a private investment
firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. His principal occupation is Executive Vice President,
Treasurer, Chief Financial Officer and Director of State Street Research &
Management Company. He is 45. During the past five years he has also served as
Executive Vice President and Chief Financial Officer of New England Investment
Companies and as Senior Vice President and Vice President of New England Mutual
Life Insurance Company. Mr. Maus's other principal business affiliations include
Executive Vice President, Treasurer, Chief Financial Officer and Director of
State Street Research Investment Services, Inc.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111
serves as Secretary and General Counsel of the Trust. He is 41. His principal
occupation is Executive Vice President, Secretary and General Counsel of State
Street Research & Management Company. During the past five years he has also
served as Senior Vice President of State Street Research & Management Company
and as Senior Vice President, General Counsel and Assistant Secretary of The
Boston Company, Inc., Boston Safe Deposit and Trust Company and The Boston
Company Advisors, Inc. Mr. McNamara's other principal business affiliations
include Senior Vice President, General Counsel and Clerk of State Street
Research Investment Services, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 64. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173, serves as
Trustee of the Trust. He is 72. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 58. His principal occupations during the past
five years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
- ---------------------
* or + See footnotes on page 17.
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<PAGE>
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
59. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+Thomas A. Shively, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. His principal occupation is Executive Vice
President and Director of State Street Research & Management Company. He is 42.
During the past five years he has also served as Senior Vice President of State
Street Research & Management Company. Mr. Shively's other business affiliations
include Director of State Street Research Investment Services, Inc.
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. He is 53. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he has also served as President and Chief
Executive Officer of New England Investment Companies and as Chief Investment
Officer and Director of New England Mutual Life Insurance Company. Mr. Verni's
other principal business affiliations include Chairman of the Board and Director
of State Street Research Investment Services, Inc.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 71. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
*Elizabeth M. Westvold, One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. She is 36. Her principal occupation is Senior
Vice President of State Street Research & Management Company. During the past
five years she has also served as Vice President and as an analyst for State
Street Research & Management Company.
As of July 31, 1996, the Trustees and principal officers of the Trust
as a group owned none of the Fund's outstanding shares.
As of July 31, 1996, Metropolitan Life Insurance Company
("Metropolitan"), a New York corporation having its principal offices at One
Madison Avenue, New York, NY 10010, was the record and/or beneficial owner,
directly or indirectly through its subsidiaries or affiliates, of approximately
99% and 83% of the outstanding Class A and Class C shares of the Fund,
respectively. As of the same date, Chase Manhattan Bank, N.A., 770 Broadway, New
York, NY 10003, was the record owner of approximately 17% of the Fund's
outstanding Class C shares. Chase Manhattan Bank, N.A. holds such shares as a
trustee under certain employee benefit plans serviced by Metropolitan. Ownership
of 25% or more of a voting security is deemed "control" as defined in the 1940
Act. So long as 25% of a class of shares are so owned, such owner 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.
- ---------------------
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations with
the Fund's investment adviser.
+ Serves as a Trustee and/or officer of one or more of the following
investment companies, each of which has an advisory relationship with the
Investment Manager or its affiliates: State Street Research Equity Trust,
State Street Research Financial Trust, State Street Research Income Trust,
State Street Research Money Market Trust, State Street Research Tax-Exempt
Trust, State Street Research Capital Trust, State Street Research Exchange
Trust, State Street Research Growth Trust, State Street Research Master
Investment Trust, State Street Research Securities Trust, State Street
Research Portfolios, Inc. and Metropolitan Series Fund, Inc.
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The Trustees have been compensated as follows:
- --------------------------------------------------------------------------
Aggregate Total Compensation
Name of Compensation From Trust and Complex
Trustee From Trust(a)(c) Paid to Trustees (b)
- --------------------------------------------------------------------------
Edward M. Lamont $3,800 $ 63,510
Robert A. Lawrence $3,800 $ 91,685
Dean. O. Morton $4,300 $103,085
Thomas L. Phillips $3,800 $ 67,185
Toby Rosenblatt $3,800 $ 63,510
Michael S. Scott Morton $4,900 $109,035
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $4,200 $ 76,285
- ---------------------
(a) Includes compensation from the Trust for the fiscal year ended April
30, 1996. See "Distribution of Shares" for a listing of series.
(b) Includes compensation from 30 series, including series of Metropolitan
Series Fund, Inc., for which the Investment Manager serves as
sub-investment adviser, State Street Research Portfolios, Inc., for
which State Street Research Investment Services, Inc. serves as
distributor, and all investment companies for which the Investment
Manager serves as primary investment adviser. "Total Compensation from
Trust and Complex" is for the 12 months ended December 31, 1995. The
Trust does not provide any pension or retirement benefits for the
Trustees.
(c) This information includes compensation from the Fund through its fiscal
year ended April 30, 1996 and includes estimates of compensation from
another series of the Trust, which was organized in August 1996, for
the current fiscal year ending April 30, 1997.
18
<PAGE>
INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Advisory
Agreement provides that the Investment Manager shall furnish the Fund with an
investment program, suitable office space and facilities and such investment
advisory, research and administrative services as may be required from time to
time. The Investment Manager compensates all executive and clerical personnel
and Trustees of the Trust if such persons are employees of the Investment
Manager or its affiliates. The Investment Manager is an indirect wholly-owned
subsidiary of Metropolitan.
The advisory fee payable monthly by the Fund to the Investment Manager
is computed as a percentage of the average of the value of the net assets of the
Fund, as determined at the close of the New York Stock Exchange (the "NYSE") on
each day the NYSE is open for trading, at the annual rate of 0.55% of the net
assets of the Fund. The Distributor and its affiliates have from time to time
and in varying amounts voluntarily assumed some portion of fees or expenses
relating to the Fund. For the fiscal year ended April 30, 1996 and for the
period May 16, 1994 (commencement of operations) through April 30, 1995 the
Fund's investment advisory fee prior to the assumption of fees or expenses was
$89,783 and $72,084, respectively. For the same periods, the voluntary reduction
of fees or assumption of expenses amounted to $165,638 and $151,957,
respectively.
Further, to the extent required under applicable state regulatory
requirements, the Investment Manager will reduce its management fee 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 by the Fund in any fiscal year which exceed specified percentages of
the average daily net assets of the Fund for such fiscal year. The most
restrictive of such percentage limitations is currently 2.5% of the first $30
million of average net assets, 2.0% of the next $70 million of average net
assets and 1.5% of the remaining average net assets. These commitments may be
amended or rescinded in response to changes in the requirements of the various
states by the Trustees without shareholder approval.
The Advisory Agreement provides that it shall continue in effect with
respect to the Fund for a period of two years after its initial effectiveness
and will continue from year to year thereafter as long as it is approved at
least annually both (i) by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by the Trustees of the
Trust, and (ii) in either event by a vote of a majority of the Trustees who are
not parties to the Advisory Agreement or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated on 60 days written notice by
either party and will terminate automatically in the event of its assignment, as
defined under the 1940 Act and regulations thereunder. Such regulations provide
that a transaction which does not result in a change of actual control or
management of an adviser is not deemed an assignment.
Under a Funds Administration Agreement between the Investment Manager
and the Distributor, the Distributor provides assistance to the Investment
Manager in performing certain fund administrative services for the Trust, such
as assistance in determining the daily net asset value of shares of the Fund and
in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the
Trust and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Fund, and is entitled to
reimbursements of its costs for providing such services. Under certain
arrangements for Metropolitan to provide subadministration services,
Metropolitan may receive a fee for the maintenance of certain share ownership
records for participants in sponsored arrangements, employee benefit plans, and
similar programs or plans, through or under which the Fund's shares may be
purchased.
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<PAGE>
Under the Code of Ethics of the Investment Manager, its employees in
Boston, where investment management operations are conducted, are only permitted
to engage in personal securities transactions in accordance with certain
conditions relating to an employee's position, the identity of the security, the
timing of the transactions, and similar factors. Such employees must report
their personal securities transactions quarterly and supply broker confirmations
of such transactions to the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by the Distributor. The Fund offers
four classes of shares which may be purchased at the next determined net asset
value per share plus, in the case of all classes except Class C shares, a sales
charge which, at the election of the investor, may be imposed (i) at the time of
purchase (the Class A shares) or (ii) on a deferred basis (the Class B and Class
D shares). General information on how to buy shares of the Fund, as well as
sales charges involved, are set forth under "Purchase of Shares" in the
Prospectus. The following supplements that information.
Public Offering Price
The public offering price for each class of shares of the Fund is based
on their net asset value determined as of the close of the NYSE on the day the
purchase order is received by State Street Research Shareholder Services
provided that the order is received prior to the close of the NYSE on that day;
otherwise the net asset value used is that determined as of the close of the
NYSE on the next day it is open for unrestricted trading. When a purchase order
is placed through a dealer, that dealer is responsible for transmitting the
order promptly to State Street Research Shareholder Services in order to permit
the investor to obtain the current price. Any loss suffered by an investor which
results from a dealer's failure to transmit an order promptly is a matter for
settlement between the investor and the dealer.
Reduced Sales Charges
For purposes of determining whether a purchase of Class A shares
qualifies for reduced sales charges, the term "person" includes: (i) an
individual, or an individual combining with his or her spouse and their children
and purchasing for his, her or their own account; (ii) a "company" as defined in
Section 2(a)(8) of the 1940 Act; (iii) a trustee or other fiduciary purchasing
for a single trust estate or single fiduciary account (including a pension,
profit sharing or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Internal Revenue Code); (iv) a tax-exempt
organization under Section 501(c)(3) or (13) of the Internal Revenue Code; and
(v) an employee benefit plan of a single employer or of affiliated employers.
Investors may purchase Class A shares of the Fund at reduced sales
charges by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds" as
designated by the Distributor within a 13-month period. The sales charge
applicable to each purchase made pursuant to a Letter of Intent will be that
which would apply if the total dollar amount set forth in the Letter of Intent
were being bought in a single transaction. Purchases made within a 90-day period
prior to the execution of a Letter of Intent may be included therein; in such
case the date of the earliest of such purchases marks the commencement of the
13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Funds and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join
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with the investor in a single purchase. Class B, Class C and Class D shares may
also be included in the combination under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
Class C Shares
Class C shares are currently available to certain employee benefit
plans such as qualified retirement plans which meet criteria relating to number
of participants (currently a minimum of 100 eligible employees), service
arrangements, or similar factors; insurance companies; investment companies;
endowment funds of nonprofit organizations with substantial minimum assets
(currently a minimum of $10,000,000); and other similar institutional investors.
Reorganizations
In the event of mergers or reorganizations with other public or private
collective investment entities, including investment companies as defined in the
1940 Act, as amended, the Fund may issue its shares at net asset value (or more)
to such entities or to their security holders.
Redemptions
The Fund reserves the right to pay redemptions in kind with portfolio
securities in lieu of cash. In accordance with its election pursuant to Rule
18f-1 under the 1940 Act, the Fund may limit the amount of redemption proceeds
paid in cash. Although it has no present intention to do so, the Fund may, under
unusual circumstances, limit redemptions in cash with respect to each
shareholder during any ninety-day period to the lesser of (i) $250,000 or (ii)
1% of the net asset value of the Fund at the beginning of such period. In
connection with any redemptions paid in kind with portfolio securities,
brokerage and other costs may be incurred by the redeeming shareholder in the
sale of the securities received.
NET ASSET VALUE
The net asset values of the shares of the Fund is determined once daily
as of the close of the NYSE, ordinarily 4 P.M. New York City time, Monday
through Friday, on each day during which the NYSE is
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open for unrestricted trading. The NYSE is currently closed on New Year's Day,
Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The net asset value per share of the Fund is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets minus all liabilities by the total number of outstanding shares of the
Fund at such time. Any expenses, except for extraordinary or nonrecurring
expenses, borne by the Fund, including the investment management fee payable to
the Investment Manager, are accrued daily.
In determining the values of portfolio assets, the Trustees utilize one
or more pricing services to value certain securities for which market quotations
are not readily available on a daily basis. Most debt securities are valued on
the basis of data provided by such pricing services. Since the Fund is comprised
substantially of debt securities under normal circumstances, most of the Fund's
assets are therefore valued on the basis of such data from the pricing services.
The pricing services may provide prices determined as of times prior to the
close of the NYSE.
In general, securities are valued as follows. Securities which are
listed or traded on the New York or American Stock Exchange are valued at the
price of the last quoted sale on the respective exchange for that day.
Securities which are listed or traded on a national securities exchange or
exchanges, but not on the New York or American Stock Exchange, are valued at the
price of the last quoted sale on the exchange for that day prior to the close of
the NYSE. Securities not listed on any national securities exchange which are
traded "over the counter" and for which quotations are available on the National
Association of Securities Dealers' NASDAQ System, or other system, are valued at
the closing price supplied through such system for that day at the close of the
NYSE. Other securities are, in general, valued at the mean of the bid and asked
quotations last quoted prior to the close of the NYSE if there are market
quotations readily available, or in the absence of such market quotations, then
at the fair value thereof as determined by or under authority of the Trustees of
the Trust utilizing such pricing services as may be deemed appropriate as
described above. Securities deemed restricted as to resale are valued at the
fair value thereof as determined by or in accordance with methods adopted by the
Trustees of the Trust.
Short-term debt instruments issued with a maturity of one year or less
which have a remaining maturity of 60 days or less are valued using the
amortized cost method, provided that during any period in which more than 25% of
the Fund's total assets is invested in short-term debt securities the current
market value of such securities will be used in calculating net asset value per
share in lieu of the amortized cost method. The amortized cost method is used
when the value obtained is fair value. Under the amortized cost method of
valuation, the security is initially valued at cost on the date of purchase (or
in the case of short-term debt instruments purchased with more than 60 days
remaining to maturity, the market value on the 61st day prior to maturity), and
thereafter a constant amortization to maturity of any discount or premium is
assumed regardless of the impact of fluctuating interest rates on the market
value of the security.
PORTFOLIO TRANSACTIONS
Portfolio Turnover
The Fund's portfolio turnover rate is determined by dividing the lesser
of securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The Fund reserves full freedom with respect to portfolio
turnover, as described in the Prospectus. For the fiscal year ended April 30,
1996 and for the period May 16, 1994 (commencement of operations) through
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April 30, 1995 the portfolio turnover rate was 117.28% and 157.75%,
respectively. The Investment Manager believes the portfolio turnover rate for
the fiscal year ended April 30, 1996 was significantly lower than that for the
previous fiscal period because of interim changes in investment strategy related
to movements in interest rates during the two periods.
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Fund occur. Against this background, the Investment Manager
evaluates the reasonableness of a commission or a net price with respect to a
particular transaction by considering such factors as difficulty of execution or
security positioning by the executing firm. The Investment Manager may or may
not solicit competitive bids based on its judgment of the expected benefit or
harm to the execution process for the transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given to services other than execution services which certain of the firms have
provided in the past or may provide in the future. Negotiated commission rates
and prices, however, are based upon the Investment Manager's judgment of the
rate which reflects the execution requirements of the transactions without
regard to whether the broker provides services in addition to execution. Among
such other services are the supplying of supplemental investment research;
general economic, political and business information; analytical and statistical
data; relevant market information, quotation equipment and services; reports and
information about specific companies, industries and securities; purchase and
sale recommendations for stocks and bonds; portfolio strategy services;
historical statistical information; market data services providing information
on specific issues and prices; financial publications; proxy voting data and
analysis services; technical analysis of various aspects of the securities
markets, including technical charts; computer hardware used for brokerage and
research purposes; computer software and databases, including those used for
portfolio analysis and modelling; and portfolio evaluation services and relative
performance of accounts.
Certain nonexecution services provided by broker-dealers may in turn be
obtained by the broker-dealer from third parties who are paid for such services
by the broker-dealers. The Investment Manager has an investment of less than ten
percent of the outstanding equity of one such third party which provides
portfolio analysis and modelling and other research and investment
decision-making services integrated into a trading system developed and licensed
by the third party to others. The Investment Manager could be said to benefit
indirectly if in the future it allocates brokerage to a broker-dealer who in
turn pays this third party for services to be provided to the Investment
Manager.
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The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Some services may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and is
therefore paid directly by the Investment Manager. Some research and execution
services may benefit the Investment Manager's clients as a whole, while others
may benefit a specific segment of clients. Not all such services will
necessarily be used exclusively in connection with the accounts which pay the
commissions to the broker-dealer producing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which that firm may
expect to receive for services supplied to the Investment Manager or otherwise.
There may be, however, understandings with certain firms that in order for such
firms to be able to continuously supply certain services, they need to receive
allocation of a specified amount of brokerage business. These understandings are
honored to the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstance may exist, and in
such circumstances, if any, relies on the provisions of Section 28(e) of the
Securities Exchange Act of 1934, to the extent applicable. For the fiscal year
ended April 30, 1996 and for the period May 16, 1994 (commencement of
operations) through April 30, 1995, the Fund paid no brokerage commissions in
secondary trading. During and at the end of its most recent fiscal year, the
Fund held in its portfolio no securities of any entity that might be deemed to
be a regular broker-dealer of the Fund as defined under the 1940 Act.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling concessions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Investment Manager may make such allocations
to broker-dealers which have provided the Investment Manager with research and
brokerage services.
When more than one client of the Investment Manager is seeking to buy
or sell the same security, the sale or purchase is carried out in a manner which
is considered fair and equitable to all accounts. In allocating investments
among various clients (including in what sequence orders for trades are placed),
the Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the amount already committed for each client
to a specific investment and the relative risks of the investments, all in order
to provide on balance a fair and equitable result to each client over time.
Although sharing in large transactions may sometimes affect price or volume of
shares acquired or sold, overall it is believed there may be an advantage in
execution. The Investment Manager may follow the practice of grouping orders of
various clients for execution to get the benefit of lower prices or commission
rates. In certain cases where the aggregate order may be executed in a series of
transactions at various prices, the transactions are allocated as to amount and
price in a manner considered equitable to each so that each receives, to the
extent practicable, the average price of such transactions. Exceptions may be
made based on such factors as the size of the account and the size of the trade.
For example, the Investment Manager may not aggregate trades where it believes
that it is in the best interests of clients not to do so, including situations
where aggregation might result in a large number of small transactions with
consequent increased custodial and other transactional costs which may
disproportionately impact smaller accounts. Such disaggregation,
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<PAGE>
depending on the circumstances, may or may not result in such accounts receiving
more or less favorable execution relative to other claims.
CERTAIN TAX MATTERS
Federal Income Taxation of the Fund -- In General
The Fund intends to qualify and elect to be treated each taxable year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), although it cannot give complete
assurance that it will do so. "ccordingly, the Fund must, among other things,
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities, (ii) options, futures, or forward contracts (other than options,
futures or forward contracts on foreign currencies), or (iii) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies (or options, futures, or forward contracts) are not directly
related to the Fund's principal business of investing in stocks or securities
(or options and futures with respect to stocks or securities); (c) satisfy
certain diversification requirements; and (d) in order to be entitled to utilize
the dividends paid deduction, distribute annually at least 90% of its investment
company taxable income (determined without regard to the deduction for dividends
paid).
The 30% test will limit the extent to which the Fund may sell
securities held for less than three months, write options which expire in less
than three months, and effect closing transactions with respect to call or put
options that have been written or purchased within the preceding three months.
(If the Fund purchases a put option for the purpose of hedging an underlying
portfolio security, the acquisition of the option is treated as a short sale of
the underlying security unless, for purposes only of the 30% test, the option
and the security are acquired on the same date.) Finally, as discussed below,
this requirement may also limit investments by the Fund in options on stock
indices, listed options on nonconvertible debt securities, futures contracts,
options on interest rate futures contracts and certain foreign currency
contracts.
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of such Fund's current or
accumulated earnings and profits. Also, the shareholders, if they received a
distribution in excess of current or accumulated earnings and profits, would
receive a return of capital that would reduce the basis of their shares of the
Fund.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any undistributed portion of the respective balances from the
prior year. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
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Federal Income Taxation of the Fund's Investments
Original Issue Discount. For federal income tax purposes, debt
securities purchased by the Fund may be treated as having original issue
discount. Original issue discount represents interest for federal income tax
purposes and can generally be defined as the excess of the stated redemption
price at maturity of a debt obligation over the issue price. Original issue
discount is treated for federal income tax purposes as income earned by the
Fund, whether or not any income is actually received, and therefore is subject
to the distribution requirements of the Code. Generally, the amount of original
issue discount is determined on the basis of a constant yield to maturity which
takes into account the compounding of accrued interest. Under section 1286 of
the Code, an investment in a stripped bond or stripped coupon may result in
original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for income tax
purposes. In the case of any debt security issued after July 18, 1984, having a
fixed maturity date of more than one year from the date of issue and having
market discount, the gain realized on disposition will be treated as interest to
the extent it does not exceed the accrued market discount on the security
(unless the Fund elects to include such accrued market discount in income in the
tax year to which it is attributable). Generally, market discount is accrued on
a daily basis. The Fund may be required to capitalize, rather than deduct
currently, part or all of any direct interest expense incurred to purchase or
carry any debt security having market discount, unless the Fund makes the
election to include market discount currently. Because the Fund must include
original issue discount in income, it will be more difficult for the Fund to
make the distributions required for the Fund to maintain its status as a
regulated investment company under Subchapter M of the Code or to avoid the 4%
excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments may
be subject to provisions of the Code that (i) require inclusion of unrealized
gains or losses in the Fund's income for purposes of the 90% test, the 30% test,
the excise tax and the distribution requirements applicable to regulated
investment companies; (ii) defer recognition of realized losses; and (iii)
characterize both realized and unrealized gain or loss as short-term or
long-term gain or loss. Such provisions generally apply to, among other
investments, options on debt securities, indices on securities and futures
contracts.
Federal Income Taxation of the Shareholders
Any dividend declared in October, November or December and made payable
to shareholders of record in any such month is treated as received by such
shareholder on December 31, provided that the Fund pays the dividend during
January of the following calendar year.
Distributions by the Fund can result in a reduction in the fair market
value of such Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless may be taxable
to the shareholder as ordinary income or long-term capital gain, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a taxable distribution will then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
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DISTRIBUTION OF SHARES OF THE FUND
State Street Research Securities Trust is currently comprised of the
following series: State Street Research Intermediate Bond Fund and State Street
Research Strategic Income Fund. 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
Trustees of the Trust have authority to issue an unlimited number of shares of
beneficial interest of separate series, $.001 par value per share. A "series" is
a separate pool of assets of the Trust which is separately managed and has a
different investment objective and different investment policies from those of
another series. The Trustees have authority, without the necessity of a
shareholder vote, to create any number of new series or classes or to commence
the public offering of shares of any previously established series or class.
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B and Class D shares). The Distributor may reallow all
or portions of such sales charges as concessions to dealers. For the fiscal year
ended April 30, 1996, and for the period May 16, 1994 (commencement of
operations) through April 30, 1995, the Distributor received no sales charges
upon sales of Class A shares. For the same periods, the Distributor reallowed no
concessions to dealers.
The differences in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements, the amount of the sales charge
reduction will similarly reflect the anticipated reduction in sales expenses
associated with such sponsored arrangements. The reductions in sales expenses,
and therefore the reduction in sales charge, will vary depending on factors such
as the size and stability of the organization, the term of the organization's
existence and certain characteristics of its members. The Fund reserves the
right to make variations in, or eliminate, sales charges at any time or to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
arrangements at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
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For the fiscal year ended April 30, 1996 and for the period May 16,
1994 (commencement of operations) through April 30, 1995, the Distributor
received no contingent deferred sales charges upon redemption of Class A, Class
B and Class D shares of the Fund.
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1"
(the "Distribution Plan") under which the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of Class A, Class B and Class D shares, including, but not limited to, (1) the
payment of commissions and/or reimbursement to underwriters, securities dealers
and others engaged in the sale of shares, including payments to the Distributor
to be used to pay commissions and/or reimbursement to securities dealers (which
securities dealers may be affiliates of the Distributor) engaged in the
distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the servicing of investor accounts including expenses relating to the
formulation and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, the preparation, printing and
distribution of Prospectuses of the Fund and reports for recipients other than
existing shareholders of the Fund, and obtaining such information, analyses and
reports with respect to marketing and promotional activities and investor
accounts as the Fund may, from time to time, deem advisable, and (3)
reimbursement of expenses incurred by the Distributor in connection with the
servicing of shareholder accounts including payments to securities dealers and
others in consideration of the provision of personal services to investors
and/or the maintenance or servicing of shareholder accounts and expenses
associated with the provision of personal services by the Distributor directly
to investors. In addition, the Distribution Plan is deemed to authorize the
Distributor to make payments out of general profits, revenues or other sources
to underwriters, securities dealers and others in connection with sales of
shares, to the extent, if any, that such payments may be deemed to be within the
scope of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class D shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class D
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class D shares (as the case may be) to make payments for personal
services and/or the maintenance or servicing of shareholder accounts. Proceeds
from the service fee will be used by the Distributor to compensate securities
dealers and others selling shares of the Fund for rendering service to
shareholders on an ongoing basis. Such amounts are based on the net asset value
of shares of the Fund held by such dealers as nominee for their customers or
which are owned directly by such customers for so long as such shares are
outstanding and the Distribution Plan remains in effect with respect to the
Fund. Any amounts received by the Distributor and not so allocated may be
applied by the Distributor as reimbursement for expenses incurred in connection
with the servicing of investor accounts. The distribution and servicing expenses
of a particular class will be borne solely by that class.
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For the fiscal year ended April 30, 1996 the Fund paid the Distributor
fees under the Distribution Plan and the Distributor used all of such payments
for expenses incurred on behalf of the Fund as follows:
Class A
Advertising $ 4,445
Printing and mailing of
prospectuses to other
than current shareholders 1,664
Compensation to dealers 0
Compensation to sales personnel 7,148
Interest 0
Carrying or other
financial charges 0
Other Expenses:
Marketing, general 9,404
-------
Total $22,661
=======
The Distributor may also use additional resources of its own for further
expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Fund will make alternative
arrangements for such services for shareholders who acquired shares through such
institutions.
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") and yield of
the Class A and Class C shares of the Fund will be calculated as set forth
below; currently only Class A and Class C shares have been issued. Total return
and yield are computed separately for each class of shares of the Fund.
All calculations of performance data in this section reflect the
voluntary measures by the Fund's affiliates to reduce expenses relating to the
Fund; see "Accrued Expenses" later in this section.
29
<PAGE>
Total Return
The average annual total return of each class of shares of the Fund was
as follows:
May 16, 1994
One Year (commencement of
Ended operations)
April 30, 1996 to April 30, 1996
-------------------------------- -------------------------------
With Subsidy Without Subsidy With Subsidy Without Subsidy
------------ --------------- ------------ ---------------
Class A 2.31% 1.49% 4.20% 3.27%
Class C 7.25% 6.40% 6.92% 5.98%
Standard total return is computed separately for each class of shares
by determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated
period assuming a hypothetical $1,000 payment made at
the beginning of the designated period
The calculation is based on the further assumptions that the maximum
initial or contingent deferred sales charge applicable to the investment is
deducted, and that all dividends and distributions by the Fund are reinvested at
net asset value on the reinvestment dates during the periods. All accrued
expenses are also taken into account as described later herein.
Yield
The annualized yield of the Class A shares and Class C shares of the
Fund, based on the month of April, 1996 was as follows:
With Subsidy Without Subsidy
------------ ---------------
Class A 5.47% 4.13%
Class C 6.03% 4.62%
30
<PAGE>
Yield is computed separately for each class of shares by dividing the
net investment income per share earned during a recent month or other specified
30-day period by the maximum offering price per share on the last day of the
period and annualizing the result in accordance with the following formula:
YIELD = 2[(a - b + 1)6 -1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of voluntary
expense reductions by the Investment Manager)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day
of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, the Fund computes the yield to maturity of each obligation held by
the Fund based on the market value of the obligation (including actual accrued
interest) at the close of the last business day of the preceding period, or,
with respect to obligations purchased during the period, the purchase price
(plus actual accrued interest). The yield to maturity is then divided by 360 and
the quotient is multiplied by the market value of the obligation (including
actual accrued interest) to determine the interest income on the obligation for
each day of the period that the obligation is in the portfolio. Dividend income
is recognized daily based on published rates.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("paydowns"), the Fund accounts for gain or
loss attributable to actual monthly paydowns as realized capital gain or loss
during the period. The Fund has elected not to amortize discount or premium on
such securities.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be declared as a dividend shortly thereafter. The maximum offering
price includes, as applicable, a maximum sales charge of 4.5%.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing the Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often are insured and/or provide an agreed
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that yield is a function of the kind and quality of the instruments in
the Fund's portfolio, portfolio maturity and operating expenses and market
conditions.
Accrued Expenses
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return and yield results take sales charges, if applicable, into
account, although the results do not take into account recurring and
nonrecurring charges
31
<PAGE>
for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses relating to the Fund, during the subject period.
In the absence of such subsidization, the performance of the Fund may be lower.
Nonstandardized Total Return
A Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class D shares for periods which end no
earlier than the most recent calendar quarter end and which begin twelve months
before and at the time of commencement of such Fund's operations. In addition,
the Fund may provide nonstandardized total return results for differing periods,
such as for the most recent six months, and/or without taking sales charges into
account. Such nonstandardized total return is computed as otherwise described
under "Total Return" except the result may or may not be annualized, and as
noted any applicable sales charge may not be taken into account and therefore
not deducted from the hypothetical initial payment of $1,000 or ending value.
For example, the Fund's nonstandardized total returns for the six months ended
April 30, 1996, without taking sales charges into account, were as follows:
With Subsidy Without Subsidy
------------ ---------------
Class A 0.83% 0.42%
Class C 0.95% 0.54%
Distribution Rates
The Fund may also quote its distribution rate for each class of shares.
The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the maximum
offering price per share as of the end of the period to which the distribution
relates. A distribution can include gross investment income from debt
obligations purchased at a premium and in effect include a portion of the
premium paid. A distribution can also include nonrecurring, gross short-term
capital gains without recognition of any unrealized capital losses. Further, a
distribution can include income from the sale of options by the Fund even though
such option income is not considered investment income under generally accepted
accounting principles.
Because a distribution can include such premiums, capital gains and
option income, the amount of the distribution may be susceptible to control by
the Investment Manager through transactions designed to increase the amount of
such items. Also, because the distribution rate is calculated in part by
dividing the latest distribution by the offering price, which is based on net
asset value plus any applicable sales charge, the distribution rate will
increase as the net asset value declines. A distribution rate can be greater
than the yield rate calculated as described above.
The distribution rate of the Class A shares and Class C shares of the
Fund, based on the month of April 1996 were as follows:
Class A 1.76%
Class C 4.96%
32
<PAGE>
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109, serves as the Trust's independent accountants, providing professional
services including (1) audits of the Fund's annual financial statements, (2)
assistance and consultation in connection with Securities and Exchange
Commission filings and (3) review of the annual income tax returns filed on
behalf of the Fund.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a
semiannual basis, other supplementary financial reports may be made available
from time to time and holders of record may request a copy of a current
supplementary report, if any, by calling State Street Research Shareholder
Services.
The following financial statements are for the Fund's fiscal year ended
April 30, 1996:
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
INVESTMENT PORTFOLIO
April 30, 1996
- ----------------------------- --------- --------- -------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------- --------- --------- ------------
FIXED INCOME SECURITIES 85.9%
U.S. Treasury 37.4%
U.S. Treasury Note, 8.50% $1,250,000 5/15/1997 $ 1,284,575
U.S. Treasury Note, 6.75% 300,000 5/31/1999 304,077
U.S. Treasury Note, 5.875% 450,000 5/31/1999 450,212
U.S. Treasury Note, 7.125% 1,550,000 9/30/1999 1,588,502
U.S. Treasury Note, 6.875% 1,175,000 3/31/2000 1,195,751
U.S. Treasury Note, 7.50% 350,000 11/15/2001 366,352
U.S. Treasury Note, 5.75% 625,000 8/15/2003 594,531
U.S. Treasury Note, 7.875% 425,000 11/15/2004 457,474
----------
6,241,474
----------
U.S. Agency 2.8%
Federal Home Loan Mortgage
Corp. Note, 7.24% 150,000 5/15/2002 149,905
Guaranteed Export Trust
Notes, Series 95-B, 6.13% 300,000 6/15/2004 286,332
Guaranteed Export Trust
Notes, Series 96-A, 6.55% 25,000 6/15/2004 25,000
----------
461,237
----------
U.S. Agency Mortgage 12.4%
Federal Home Loan Mortgage
Corp. Gold, 7.50% 328,250 4/01/2026 324,761
Federal Home Loan Mortgage
Corp. Gold, 7.50%+ 325,000 5/20/2026 321,344
Federal National Mortgage
Association REMIC Series
93-52-C, 5.00% 170,949 2/25/2001 169,666
Federal National Mortgage
Association FHA-VA, 8.00% 238,418 4/01/2008 245,642
Federal National Mortgage
Association FHA-VA, 8.00% 239,298 6/01/2008 246,549
Government National Mortgage
Association, 8.00% 279,677 5/15/2008 289,026
Government National Mortgage
Association, 6.50% 73,036 2/15/2009 71,142
Government National Mortgage
Association, 6.50% 99,697 5/15/2009 97,081
Government National Mortgage
Association, 9.00% 94,311 11/15/2016 100,584
Government National Mortgage
Association, 8.00%+ 200,000 6/19/2026 201,938
----------
2,067,733
----------
Bank 1.8%
First Chicago Credit Master
Trust Series 1991-D, 8.40% 150,000 6/15/1998 150,984
NationsBank Master Trust
Series 1995-1, 6.45% 150,000 4/15/2003 149,014
----------
299,998
----------
Canadian--Yankee 5.7%
British Columbia
Hydroelectric Authority
Deb. Series FH, 15.50% $ 125,000 7/15/2011 $ 135,595
Hydro-Quebec Deb. Series FL,
13.25% 250,000 12/15/2013 296,790
Province of Manitoba Global
Note, 6.75% 75,000 3/01/2003 74,135
Province of Ontario Deb.,
11.50% 175,000 3/10/2013 196,987
Province of Quebec, 8.80% 100,000 4/15/2003 108,575
Talisman Energy, Inc. Deb.,
7.125% 150,000 6/01/2007 144,506
----------
956,588
----------
Electric Utility 0.9%
Southern California Edison
Co. Deb., 5.875% 150,000 1/15/2001 143,680
----------
Finance 12.3%
Associates Corp. of North
America Note, 6.375% 150,000 10/15/2002 145,420
Beneficial Corp. Master Trust
Note, 8.17% 200,000 11/09/1999 208,648
Community Program Loan Trust
Series 1987 A-3, 4.50% 48,074 4/01/2002 47,624
Countrywide Funding Corp.
Master Trust Note, 6.28% 175,000 1/15/2003 165,296
Discover Credit Card Trust
Series 1993 A, 6.25% 150,000 8/16/2000 149,718
Ford Credit Auto Loan Master
Trust Series 95-1, 6.50% 425,000 8/15/2000 420,614
General Electric Capital
Corp. Master Trust Note,
7.625% 175,000 7/24/1996 175,805
General Motors Acceptance
Corp. Master Trust Note,
7.85% 275,000 11/17/1997 281,647
Household Affinity Credit
Card Master Trust Series
1994-1A, 5.65% 150,000 5/15/2001 150,000
Household Finance Corp. Note,
6.875% 75,000 3/01/2003 73,499
Los Angeles County,
California Pension Series
94-D, 6.65% 100,000 6/30/2003 97,714
Sears Credit Account Master
Trust Series 1995-2, 8.10% 125,000 6/15/2004 130,976
----------
2,046,961
----------
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
- ----------------------------------------------- ------- --------- -----------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------- ------- --------- -----------
<S> <C> <C> <C>
Foreign Government 2.9%
Australian Dollar
Australian Government, 9.50% 150,000 8/15/2003 $ 123,463
Canadian Dollar
Canadian Government, 7.50% 100,000 12/01/2003 73,022
Danish Krone
Kingdom of Denmark, 8.00% 250,000 11/15/2001 45,747
Kingdom of Denmark, 8.00% 425,000 3/15/2006 75,956
Deutsche Mark
German Unity Fund, 8.00% 175,000 1/21/2002 127,629
French Franc
Government of France, 8.00% 25,000 4/25/2003 33,334
---------
479,151
---------
Industrial 5.2%
Case Credit Corp. Note, 6.125% $100,000 2/15/2003 94,028
Chevron Corp. Profit Sharing Note, 8.11% 125,000 12/01/2004 131,534
Columbia/HCA Healthcare Corp. Master Trust
Note, 6.87% 125,000 9/15/2003 122,745
Darden Restaurants, Inc. Note, 6.375% 175,000 2/01/2006 161,995
Electronic Data Systems Corp. 6.85%++ 250,000 5/15/2000 251,070
ITT Corp. Note, 6.25% 100,000 11/15/2000 97,272
---------
858,644
---------
Mortgage 3.7%
American Southwest Financial Services Corp.
Series 94-C2, 8.00% 74,075 8/25/2010 75,256
Countrywide MBS Series 94-2 A-7 PAC, 6.50% 150,000 4/25/2008 150,093
Fund America Investors Corp. Series 96-A, 6.00% 75,000 4/25/2006 75,000
Prudential Home Mortgage Series 93-29 A-6 PAC,
6.75% $105,841 8/25/2008 $ 105,742
Structured Assets Security Corp. Series
1996-CFL A-1C, 5.944% 225,000 2/25/2028 216,070
---------
622,161
---------
Trust Certificates 0.8%
Rural Electric Cooperative Grantor Trust
Certificates, 10.11% 125,000 12/15/2017 137,643
---------
Total Fixed Income Securities (Cost
$14,519,297) 14,315,270
---------
SHORT-TERM OBLIGATIONS 15.6%
American Express Credit Corp., 5.26% 830,000 5/10/1996 830,000
General Electric Capital Corp., 5.31% 500,000 5/20/1996 500,000
Philip Morris Cos., Inc., 5.23% 480,000 5/07/1996 479,583
Wal-Mart Stores, Inc., 5.26% 800,000 5/02/1996 799,883
---------
Total Short-Term Obligations (Cost $2,609,466) 2,609,466
---------
Total Investments (Cost $17,128,763)--101.5% 16,924,736
Cash and Other Assets, Less Liabilities--(1.5%) (256,819)
---------
Net Assets--100.0% $16,667,917
=========
Federal Income Tax Information:
At April 30, 1996, the net unrealized depreciation of investments based
on cost for Federal income tax purposes of $17,141,230 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost $ 65,729
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value (282,223)
----------
$ (216,494)
==========
</TABLE>
+ Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the
principal value has not been finalized and may vary by no more than 2%.
++ Security restricted in accordance with Rule 144A under the Securities Act
of 1933, which allows for the resale of such securities among certain
qualified buyers. The cost and market value of the Rule 144A security
owned at April 30, 1996 was $249,803 and $251,070 (1.51% of net assets),
respectively.
Forward currency exchange contracts outstanding at April 30, 1996 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Total Contract Appreciation Delivery
Value Price (Depreciation) Date
- ------------------------------------------------- ---------- ----------- ---------------------- --------
<S> <C> <C> <C> <C>
Sell Australian dollars, buy U.S. dollars 8,400 AUD .75220 AUD $ (274) 5/15/96
Sell Australian dollars, buy U.S. dollars 137,000 AUD .78280 AUD 129 7/24/96
Sell Canadian dollars, buy U.S. dollars 99,000 CAD .73540 CAD (14) 7/24/96
Sell Danish krone, buy U.S. dollars 669,000 DKK .17623 DKK 4,462 5/15/96
Sell Danish krone, buy U.S. dollars 15,700 DKK .17167 DKK 25 7/24/96
Sell Deutsche mark, buy U.S. dollars 32,000 DEM .68169 DEM 893 5/15/96
Sell Deutsche mark, buy U.S. dollars 94,900 DEM .68381 DEM 2,849 5/15/96
Sell U.S. dollars, buy Deutsche mark 80,300 DEM .67820 DEM (1,960) 5/15/96
Sell Deutsche mark, buy U.S. dollars 135,000 DEM .66269 DEM 810 7/24/96
Sell European currency units, buy U.S. dollars 27,400 XEU 1.26095 XEU 883 5/15/96
--------------------
$ 7,803
====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996
Assets
Investments, at value (Cost $17,128,763) (Note 1) $16,924,736
Cash 924
Interest receivable 238,964
Receivable for securities sold 203,634
Receivable from Distributor (Note 3) 19,116
Receivable for open forward contracts 10,051
Deferred organization costs and other assets (Note 1) 67,511
----------
17,464,936
Liabilities
Payable for securities purchased 730,564
Accrued trustees' fees (Note 2) 13,625
Accrued transfer agent and shareholder services (Note 2) 8,810
Accrued management fee (Note 2) 7,520
Payable for open forward contracts 2,248
Accrued service fee (Note 5) 122
Other accrued expenses 34,130
----------
797,019
----------
$16,667,917
==========
Net Assets
Net Assets consist of:
Undistributed net investment income $ 156,154
Unrealized depreciation of investments (204,027)
Unrealized appreciation of forward contracts and
foreign currency 7,630
Accumulated net realized gain 122,677
Shares of beneficial interest 16,585,483
----------
$16,667,917
==========
Net Asset Value and redemption price per share of
Class A shares ($592,663 / 60,764 shares of
beneficial interest) $9.75
==========
Maximum Offering Price per share of Class A shares
($9.75 / .955) $10.21
==========
Net Asset Value, offering price and redemption price per
share of Class C shares ($16,075,254 / 1,659,934 shares
of beneficial interest) $9.68
==========
STATEMENT OF OPERATIONS
For the year ended April 30, 1996
Investment Income
Interest $1,127,602
Expenses
Management fee (Note 2) 89,783
Custodian fee 71,226
Transfer agent and shareholder services (Note 2) 33,454
Service fee--Class A (Note 5) 22,661
Reports to shareholders 18,705
Amortization of organization costs (Note 1) 17,674
Audit fee 16,176
Trustees' fees (Note 2) 13,878
Legal fees 10,735
Registration fees 9,076
Miscellaneous 6,814
---------
310,182
Expenses borne by the Distributor (Note 3) (165,638)
---------
144,544
---------
Net investment income 983,058
---------
Realized and Unrealized Gain (Loss) on Investments,
Forward Contracts and Foreign Currency
Net realized gain on investments (Notes 1 and 4) 420,441
Net realized gain on forward contracts and foreign
currency (Note 1) 5,863
---------
Total net realized gain 426,304
---------
Net unrealized depreciation of investments (350,014)
Net unrealized appreciation of forward contracts and
foreign currency 8,553
---------
Total net unrealized depreciation (341,461)
---------
Net gain on investments, foreign currency and
forward contracts 84,843
---------
Net increase in net assets resulting from operations $1,067,901
=========
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period
May 16, 1994
(Commencement of
Year ended Operations) to
April 30, 1996 April 30, 1995
- ----------------------------------- -------------- --------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 983,058 $ 786,765
Net realized gain (loss) on
investments, forward contracts
and foreign currency* 426,304 (144,687)
Net unrealized appreciation
(depreciation) of investments,
forward contracts and foreign
currency (341,461) 145,064
------------ ------------------
Net increase resulting from
operations 1,067,901 787,142
------------ ------------------
Dividends from net investment
income:
Class A (499,811) (465,343)
Class C (491,281) (178,010)
------------ ------------------
(991,092) (643,353)
------------ ------------------
Distribution from net
realized gains:
Class A (85,667) --
Class C (52,497) --
------------ ------------------
(138,164) --
------------ ------------------
Net increase from fund share
transactions (Note 6) 2,769,590 13,815,893
------------ ------------------
Total increase in net assets 2,708,235 13,959,682
Net Assets
Beginning of year 13,959,682 --
------------ ------------------
End of year (including
undistributed net investment
income of $156,154 and $151,627,
respectively) $16,667,917 $13,959,682
============ ==================
*Net realized gain (loss) for
Federal income tax purposes (Note 1) $ 310,547 $ (37,239)
============ ==================
Notes to Financial Statements
April 30, 1996
Note 1
State Street Research Intermediate Bond Fund (the "Fund") is a series of
State Street Research Securities Trust (the "Trust"), which was organized as
a Massachusetts business trust in January, 1994 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund commenced operations in May, 1994. The Fund is
presently the only active series of the Trust, although the Trustees have the
authority to create an unlimited number of series.
The investment objective of 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.
The Fund is authorized to issue four classes of shares. Only Class A and
Class C shares are presently available for purchase. Class B and Class D
shares are not being offered at this time. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual serv-
ice fee of 0.25% of average daily net assets. Class B shares will be subject
to a contingent deferred sales charge on certain redemptions made within five
years of purchase and pay annual distribution and service fees of 1.00%.
Class B shares automatically convert into Class A shares (which pay lower
ongoing expenses) at the end of eight years after the issuance of the Class B
shares. Class C shares are only offered to certain employee benefit plans and
large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. Short-term securities maturing within sixty
days are valued at amortized cost. Securities quoted in foreign currencies
are translated into U.S. dollars at the current exchange rate.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
NOTES (cont'd)
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments.
C. Net Investment Income
Net investment income is determined daily and consists of interest accrued
and discount earned, less the estimated daily expenses of the Fund. Interest
income is accrued daily as earned. Discount on debt obligations is amortized
under the effective yield method.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually,
unless additional distributions are required for compliance with applicable
tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing
treatments for foreign currency transactions and paydown gains and losses.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund intends
to qualify under Subchapter M of the Internal Revenue Code and its policy is
to distribute all of its taxable income, including net realized capital
gains, within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1994
through April 30, 1995, the Fund incurred net capital losses of $94,123 and
has deferred and treated such losses as arising in the fiscal year ending
April 30, 1996.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a
period of five years.
G. Forward Contracts and Foreign Currencies
The Fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange
contract is an obligation by the Fund to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the origination
date of the contract. Forward foreign currency exchange contracts establish
an exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar. The aggregate principal amount of forward currency exchange
contracts is recorded in the Fund's accounts. All commitments are
marked-to-market at the applicable transaction rates resulting in unrealized
gains or losses. The Fund records realized gains or losses at the time the
forward contracts are extinguished by entry into a closing contract or by
delivery of the currency. Neither spot transactions nor forward currency
exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the
price of these securities should decline.
H. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.55% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended April 30, 1996, the fees pursuant to
such agreement amounted to $89,783.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended April 30, 1996, the amount of such
expenses was $7,996.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $13,878 during the year ended April 30, 1996.
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended April 30, 1996, the amount of such expenses
assumed by the Distributor and its affiliates was $165,638.
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
Note 4
For the year ended April 30, 1996, purchases and sales of securities,
exclusive of short-term obligations, aggregated $19,305,814 and $17,961,009
(including $14,637,677 and $16,107,165 of U.S. Government securities),
respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
will pay annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund will pay annual distribution fees of 0.75% of average daily net assets
for Class B and Class D shares. The Distributor uses such payments for
personal service and/or the maintenance or servicing of shareholder accounts,
to reimburse securities dealers for distribution and marketing services, to
furnish ongoing assistance to investors and to defray a portion of its
distribution and marketing expenses. For the year ended April 30, 1996, fees
pursuant to such plan amounted to $22,661 for Class A.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At April 30, 1996,
Metropolitan owned 50,000 Class A shares and 1,395,016 Class C shares of the
Fund and the Adviser owned 10,471 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
May 16, 1994
(Commencement of
Year ended Operations) to
April 30, 1996 April 30, 1995
------------------------- ------------------------
<S> <C> <C> <C> <C>
Class A Shares Amount Shares Amount
- ------------------------------------------------ -------- --------- ------ ----------
Shares sold 270 $ 2,653 1,057,613 $10,100,193
Issued upon reinvestment of distribution from
net realized gains 8,595 84,835 -- --
Shares repurchased (1,005,714) (10,003,474) -- --
-------- --------- ------ ----------
Net increase (decrease) (996,849) $ (9,915,986) 1,057,613 $10,100,193
======== ========= ====== ==========
Class C Shares Amount Shares Amount
- ------------------------------------------------ -------- --------- ------ ----------
Shares sold 1,290,402 $ 12,860,137 654,776 $ 6,291,798
Issued upon reinvestment of:
Dividends from net investment income 12,035 118,427 -- --
Distribution from net realized gains 5,319 52,496 -- --
Shares repurchased (34,534) (345,484) (268,064) (2,576,098)
-------- --------- ------ ----------
Net increase 1,273,222 $ 12,685,576 386,712 $ 3,715,700
======== ========= ====== ==========
</TABLE>
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each year.
<TABLE>
<CAPTION>
Class A Class C
------------------------------------- ---------------------------------------
May 16, 1994 May 16, 1994
(Commencement of (Commencement of
Year ended Operations) to Year ended Operations) to
April 30, 1996** April 30, 1995 April 30, 1996** April 30, 1995
- ---------------------------------------- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $9.66 $9.55 $9.67 $9.55
Net investment income* .59 .54 .61 .56
Net realized and unrealized gain on
investments, foreign currency and
forward contracts .10 .01 .09 .02
Dividends from net investment income (.52) (.44) (.61) (.46)
Distribution from net realized gains (.08) -- (.08) --
--------------- --------------- --------------- -----------------
Net asset value, end of period $9.75 $9.66 $9.68 $9.67
=============== =============== =============== =================
Total return 7.13%+ 5.96%+++ 7.25%+ 6.30%+++
Net assets at end of year (000s) $593 $10,222 $16,075 $3,738
Ratio of operating expenses to average
net assets* 1.00% 1.00%++ 0.75% 0.75%++
Ratio of net investment income to
average net assets* 5.91% 5.92%++ 6.16% 6.17%++
Portfolio turnover rate 117.28% 157.75% 117.28% 157.75%
*Reflects voluntary assumption of fees
or expenses per share (Note 3). $.09 $.11 $.11 $.10
</TABLE>
++ Annualized
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
** Per share figures have been calculated using the average shares method.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of State Street Research
Securities Trust and Shareholders of
State Street Research Intermediate Bond Fund:
We have audited the accompanying statement of assets and liabilities of State
Street Research Intermediate Bond Fund, including the schedule of portfolio
investments, as of April 30, 1996, and the related statement of operations
for the year then ended, the statement of changes in net assets and the
financial highlights for the year then ended and for the period May 16, 1994
(commencement of operations) to April 30, 1995. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of April 30, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
State Street Research Intermediate Bond Fund as of April 30, 1996, the
results of its operations for the year then ended, the changes in its net
assets and the financial highlights for the year then ended and for the
period May 16, 1994 (commencement of operations) to April 30, 1995, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 3, 1996
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Intermediate Bond Fund underperformed for the 12 months ended April 30, 1996.
Its conservative positioning caused it to miss some of the bond rally last
year. However, for the last six months of the period, the Fund's performance
improved relative to its peer group. This same conservative approach helped
the Fund outperform when the bond market wasn't doing well because of rising
interest rates. Fund management diversified among higher-quality bond sectors
and maintained an average maturity of three to ten years--the intermediate
range.
Intermediate Bond Fund's management was active in managing the structure of
the portfolio. Last year at this time, the Fund was heavily weighted in
Treasuries, at 50% of the portfolio, which hindered Fund performance when
interest rates began to creep back up in the early part of 1996. Fund
management responded by shortening the average maturity of the portfolio,
reducing the Fund's position in Treasuries and increasing its holdings in
mortgage securities, which helped Fund performance. As of April 30, 1996, the
Fund had 15% of the portfolio invested in mortgages. Almost one-third of the
Fund's holdings were devoted to corporate bonds and asset-backed and foreign
government securities.
April 30, 1996
Comparison Of Change In Value Of A $10,000
Investment In Intermediate Bond Fund and The Lehman
Brothers Government/Corporate Bond Index
[typeset representation of line charts]
Class A Shares
Average Annual Total Return
1 Year Life of Fund
+2.31%/+1.49% +4.20%/+3.27%
Intermediate LB Gov't/Corporate
Bond Fund Bond Index
9550 10000
10119 10648
10841 11483
Class C Shares
Average Annual Total Return
1 Year Life of Fund
+7.25%/+6.40% +6.92%/+5.98%
Intermediate LB Gov't/Corporate
Bond Fund Bond Index
10000 10000
10630 10648
11402 11483
[end line charts]
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. "A" share performance reflects maximum
4.5% front-end sales charge. "C" shares, offered without a sales charge, are
available only to certain employee benefit plans and institutions.
Performance results for the Fund are increased by the Distributor's voluntary
reduction of fund fees and expenses related to the Fund. The first figure
reflects expense reduction; the second shows what results would have been
without subsidization. The Lehman Brothers Government/Corporate Bond Index is
a commonly used measure of bond market performance. The index is unmanaged
and does not take sales charges into consideration. Direct investment in the
index is not possible; results are for illustrative purposes only.
<PAGE>
STATE STREET RESEARCH SECURITIES TRUST
PART C
OTHER INFORMATION
Item 24: Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements included in PART A (Prospectus) of this
Registration Statement:
Financial Highlights for the State Street Research
Intermediate Bond Fund for the period May 16, 1994
(commencement of operations) through April 30, 1996.
(2) Financial Statements included in PART B (Statement of
Additional Information) of this Registration Statement:
Financial Statements for the State Street Research
Intermediate Bond Fund for the fiscal year ended April
30, 1996.
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
(for the fiscal year ended April 30, 1996 and
for the period May 16, 1994 (commencement of
operations) through April 30, 1995)
Notes to Financial Statements
(including financial highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
(b) Exhibits
(1)(a) Master Trust Agreement and Amendment No. 1 to Master Trust
Agreement (5)
(1)(b) Amendment No. 2 to the Master Trust Agreement
(2) By-Laws of the Registrant (1)
(3) Not applicable
(4) Not applicable
(5)(a) Advisory Agreement with State Street Research & Management
Company (5)
(5)(b) Form of Letter Agreement with respect to the Advisory
Agreement relating to State Street Research Strategic
Income Fund (5)
C-1
<PAGE>
(6)(a) Distribution Agreement with State Street Research Investment
Services, Inc. (5)
(6)(b) Form of Selected Dealer Agreement (4)
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement (3)
(6)(d) Form of revised Supplement No. 1 to Selected Dealer
Agreement (5)
(6)(e) Form of Letter Agreement with respect to the Distribution
Agreement relating to State Street Research Strategic Income
Fund (5)
(7) Not applicable
(8)(a) Custodian Contract with State Street Bank and Trust
Company (5)
(8)(b) Form of Letter Agreement with respect to the Custodian
Agreement relating to State Street Research Strategic Income
Fund (5)
(9) Not applicable
(10)(a) Opinion and Consent of Goodwin, Procter & Hoar LLP with
respect to State Street Research Intermediate Bond Fund (2)
(10)(b) Opinion and Consent of Goodwin, Proctor and Hoar LLP with
respect to State Street Research Strategic Income Fund (6)
(11) Consent of Independent Accountants
(12) Not applicable
(13)(a) Purchase Agreement and Investment Letter with respect to State
Street Research Intermediate Bond Fund
(13)(b) Form of Purchase Agreement and Investment Letter with respect
to State Street Research Strategic Income Fund (5)
(14)(a) State Street Research IRA: Disclosure Statement; Forms
Booklet; Transfer of Assets/Direct Rollover Form (4)
(14)(b) State Street Research 403(b): Brochure, Maximum Salary
Reduction Worksheet, Account Application, Salary Reduction
Agreement and Transfer of 403(b) Assets Form (5)
(15)(a) Plan of Distribution Pursuant to Rule 12b-1 (4)
(15)(b) Form of Letter Agreement with respect to the Plan of
Distribution Pursuant to Rule 12b-1 relating to State Street
Research Strategic Income Fund (5)
(16) Calculation of Performance Data (4)
(17)(a) Powers of Attorney (4)
(18) Certificate of Board Resolution Respecting Powers of
Attorney (4)
(19) Application Forms (3)
(20) First Amended and Restated Multiple Class Expense Allocation
Plan (5)
(27) Financial Data Schedules
- -------------------------------
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote Securities Act of 1933
Reference Registration/Amendment Dated Filed
- --------- ---------------------- -----------
1 Initial Registration January 31, 1994
2 Pre-Effective Amendment No. 1 March 14, 1994
3 Post-Effective Amendment No. 1 November 19, 1994
4 Post-Effective Amendment No. 2 August 25, 1995
5 Post-Effective Amendment No. 3 June 4, 1996
6 Post-Effective Amendment No. 4 August 16, 1996
C-2
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1995
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1995. Those entities which are listed at the
left margin (labelled with capital letters) are direct subsidiaries of
Metropolitan. Unless otherwise indicated, each entity which is indented under
another entity is a subsidiary of such indented entity and, therefore, an
indirect subsidiary of Metropolitan. Certain inactive subsidiaries have been
omitted from the Metropolitan organizational listing. The voting securities
(excluding directors' qualifying shares, if any) of the subsidiaries listed are
100% owned by their respective parent corporations, unless otherwise indicated.
The jurisdiction of domicile of each subsidiary listed is set forth in the
parenthetical following such subsidiary.
A. Metropolitan Tower Corp. (Delaware)
1. Metropolitan Property and Casualty Insurance Company (Delaware)
a. Metropolitan Group Property and Casualty Insurance Company
(Delaware)
i. Metropolitan Reinsurance Company (U.K.) Limited (Great
Britain)
b. Metropolitan Casualty Insurance Company (Delaware)
c. Metropolitan General Insurance Company (Delaware)
d. First General Insurance Company (Georgia)
e. Metropolitan P&C Insurance Services, Inc. (California)
f. Metropolitan Lloyds, Inc. (Texas)
2. Metropolitan Insurance and Annuity Company (Delaware)
a. MetLife Europe I, Inc. (Delaware)
b. MetLife Europe II, Inc. (Delaware)
c. MetLife Europe III, Inc. (Delaware)
d. MetLife Europe IV, Inc. (Delaware)
e. MetLife Europe V, Inc. (Delaware)
3. MetLife General Insurance Agency, Inc. (Delaware)
a. MetLife General Insurance Agency of Alabama, Inc. (Alabama)
b. MetLife General Insurance Agency of Kentucky, Inc. (Kentucky)
c. MetLife General Insurance Agency of Mississippi, Inc.
(Mississippi)
d. MetLife General Insurance Agency of Texas, Inc. (Texas)
e. MetLife General Insurance Agency of North Carolina, Inc. (North
Carolina)
C-3
<PAGE>
4. Metropolitan Asset Management Corporation (Delaware)
a. MetLife Capital Holdings, Inc. (Delaware)
i. MetLife Capital Corporation (Delaware)
(1) Searles Cogeneration, Inc. (Delaware)
(2) MLYC Cogen, Inc. (Delaware)
(3) MCC Yerkes Inc. (Washington)
(4) MetLife Capital, Limited Partnership (Delaware).
Partnership interests in MetLife Capital, Limited
Partnership are held by Metropolitan (90%) and MetLife
Capital Corporation (10%).
(5) CLJ Finco, Inc. (Delaware)
(a) MetLife Capital Credit L.P. (Delaware).
Partnership interests in MetLife Capital Credit
L.P. are held by Metropolitan (90%) and
CLJ Finco, Inc. (10%).
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
ii. MetLife Capital Financial Corporation (Delaware)
C-4
<PAGE>
iii. MetLife Financial Acceptance Corporation (Delaware).
MetLife Capital Holdings, Inc. holds 100% of the voting
preferred stock of MetLife Financial Acceptance Corporation.
Metropolitan Property and Casualty Insurance Company holds
100% of the common stock of MetLife Financial Acceptance
Corporation.
b. MetLife Investment Management Corporation (Delaware)
i. MetLife Investments Limited (United Kingdom). 23rd Street
Investments, Inc. holds one share of MetLife Investments
Limited.
c. MetLife Realty Group, Inc. (Delaware)
d. GFM International Investors Limited (United Kingdom). The common
stock of GFM International Investors Limited ("GFM") is held by
Metropolitan (99.5%) and by an employee of GFM (.5%). GFM is a
sub-investment manager for the International Stock Portfolio of
Metropolitan Series Fund, Inc.
i. GFM Investments Limited (United Kingdom)
5. SSRM Holdings, Inc. (Delaware)
a. State Street Research & Management Company (Delaware). Is a sub-
investment manager for the Growth, Income, Diversified and
Aggressive Growth Portfolios of Metropolitan Series Fund, Inc.
i. State Street Research Energy, Inc. (Massachusetts)
ii. State Street Research Investment Services, Inc.
(Massachusetts)
b. Metric Holdings, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Realty Corp. (Delaware)
iii. Metric Realty (Illinois). Metric Realty Corp. and Metric
Holdings, Inc. each holds 50% of the common stock of Metric
Realty.
(1) Metric Capital Corporation (California)
(2) Metric Assignor, Inc. (California)
(3) Metric Institutional Realty Advisors, Inc. (California)
(4) Metric Institutional Realty Advisors, L.P.
(California).
Metric Realty holds a 99% limited partnership interest
and Metric Institutional Realty Advisors, Inc. holds a
1%
C-5
<PAGE>
interest as general partner in Metric Institutional
Realty Advisors, L.P.
(5) Metric Realty Services, Inc. (Delaware) Metric Holdings
Inc. and Metric Realty Corp. each holds 50% of the
common stock of Metric Realty Services, Inc.
(6) Metric Institutional Apartment Fund II, L.P.
(California). Metric Realty holds a 1% interest as
general partner and Metropolitan holds an approximately
14.6% limited partnership interest in Metric
Institutional Apartment Fund II, L.P.
6. MetLife Holdings, Inc. (Delaware)
a. MetLife Funding, Inc. (Delaware)
b. MetLife Credit Corp. (Delaware)
7. Metropolitan Tower Realty Company, Inc. (Delaware)
8. MetLife Real Estate Advisors, Inc. (California)
9. MetLife HealthCare Holdings, Inc.
B. Metropolitan Tower Life Insurance Company (Delaware)
C. MetLife Security Insurance Company of Louisiana (Louisiana)
D. MetLife Texas Holdings, Inc. (Delaware)
1. Texas Life Insurance Company (Texas)
a. Texas Life Agency Services, Inc. (Texas)
b. Texas Life Agency Services of Kansas, Inc. (Kansas)
E. MetLife Securities, Inc. (Delaware)
F. 23rd Street Investments, Inc. (Delaware)
G. Metropolitan Life Holdings Limited (Ontario, Canada)
1. Metropolitan Life Financial Services Limited (Ontario, Canada)
2. Metropolitan Life Financial Management Limited (Ontario, Canada)
a. Metropolitan Life Insurance Company of Canada (Canada)
b. Metropolitan Life Operations Limited (Canada)
C-6
<PAGE>
3. Morguard Investments Limited (Ontario, Canada)
Shares of Morguard Investments Limited ("Morguard") are held by
Metropolitan Life Holdings Limited (82%) and by employees of Morguard
(18%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
5. 167080 Canada, Inc. (Canada)
a. 446068 B.C. Ltd. (British Columbia, Canada)
H. MetLife (UK) Limited (Great Britain)
1. Albany Life Assurance Company Limited (Great Britain)
a. Albany Pension Managers and Trustees Limited (Great Britain)
2. Albany Home Loans Limited (Great Britain)
3. ACFC Corporate Finance Limited (Great Britain)
4. Metropolitan Unit Trust Managers Limited (Great Britain)
5. Albany International Assurance Limited (Isle of Man)
6. MetLife Group Services Limited (Great Britain)
I. Santander Met, S.A. (Spain). Shares of Santander Met, S.A. are held by
Metropolitan (50%) and by an entity (50%) unaffiliated with Metropolitan.
1. Seguros Genesis, S.A. (Spain)
2. Genesis Seguros Generales, Sociedad Anomina de Seguros y Reaseguros
(Spain)
J. Kolon-Met Life Insurance Company (Korea). Shares of Kolon-MetLife Insurance
Company are held by Metropolitan (51%) and by an entity (49%) unaffiliated
with Metropolitan.
C-7
<PAGE>
K. Genesis Seguros de Vida S.A. (Argentina)
L. Genesis Seguros de Retiro S.A. (Argentina). Shares of Genesis Seguros de
Retiro S.A. are held by Metropolitan (39%) and by an entity (61%)
unaffiliated with Metropolitan.
M. 2945835 Canada Inc. (Canada)
N. Metropolitan Marine Way Investments Limited (British Columbia, Canada)
O. Met Life Holdings Luxembourg (Luxembourg)
P. Metropolitan Life Holdings, Netherlands BV (Netherlands)
Q. MetLife International Holdings, Inc. (Delaware)
R. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
C-8
<PAGE>
S. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. Cross & Brown Residentials, Inc. (New York)
b. Cross & Brown Company of Florida, Inc. (Florida)
c. Cross & Brown Associates of New York, Inc. (New York)
d. Cross & Brown Associates of New Jersey, Inc. (New Jersey)
e. Subrown Corp. (New York)
f. Cross & Brown Construction Corp. (New York)
g. CBNJ, Inc. (New Jersey)
h. Cross & Brown of Connecticut, Inc. (Connecticut)
T. MetPark Funding, Inc. (Delaware)
U. 2154 Trading Corporation (New York)
V. Transmountain Land & Livestock Company (Montana)
W. Met West Agribusiness, Inc. (Delaware)
Y. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
C-9
<PAGE>
Z. Nebraska Farms, Inc. (Nebraska)
AA. MetFarm and Ranch Properties, Inc. (Delaware)
AB. City Trust Services, National Association (United States)
In addition to the entities listed above, Metropolitan (or where indicated an
affiliate) also owns an interest in the following entities, among others:
1) CP&S Communications, Inc., a New York corporation, holds federal radio
communications licenses for equipment used in Metropolitan owned facilities and
airplanes. It is not engaged in any business.
2) Quadreal Corp., a New York corporation, is the fee holder of a parcel of real
property subject to a 999 year prepaid lease. It is wholly-owned by
Metropolitan, having been acquired by a wholly-owned subsidiary of Metropolitan
in 1973 for $10 in connection with a real estate investment and transferred to
Metropolitan in 1988.
3) Met Life International Real Estate Equity Shares, Inc., a Delaware
corporation, is a real estate investment trust. Metropolitan owns approximately
18.4% of the outstanding common stock of this company and has the right to
designate 2 of the 5 members of its Board of Directors.
4) Metropolitan Structures is a general partnership in which Metropolitan owns
a 50% interest. Metropolitan Structures owns 100% of the common stock of
Cicero/Cermak Corporation, an Illinois corporation, which owns and manages a
shopping center in Illinois. Metropolitan Structures, Inc., an Illinois
corporation, is a property manager. Metropolitan Structures, Inc. is wholly
owned by Metropolitan Structures. Metropolitan Structures, Inc. is the sole
general partner of MS Management Services, L.P., an Illinois limited partnership
in which Metropolitan has a 49.5% interest as a limited partner.
5) Metropolitan Structures West, Inc. (doing business as MS Management
Services), a California corporation, is a property manager in California.
Metropolitan owns 50% of the capital stock of Metropolitan Structures West, Inc.
6) Seguros Genesis, S.A. (Mexico), is a Mexican insurer in which Metropolitan
and two of its subsidiaries collectively own a 24.5% interest and have the right
to designate 2 of the 9 members of the Board of Directors.
7) Interbroker, Correduria de Reaseguros, S.A., is a Spanish insurance brokerage
company in which Santander Met, S.A., a subsidiary of Metropolitan in which
Metropolitan owns a 50% interest, owns a 50% interest and has the right to
designate 2 of the 4 members of the Board of Directors.
8) Metropolitan owns varying interests in certain mutual funds distributed by
its affiliates. These ownership interests are generally expected to decrease as
shares of the funds are purchased by unaffiliated investors.
9) Metropolitan Lloyds Insurance Company of Texas, an affiliated association,
provides homeowner and related insurance for the Texas market. It is an
association of individuals designated as underwriters. Metropolitan Lloyds,
Inc., a subsidiary of Metropolitan Property and Casualty Insurance Company,
serves as the attorney-in-fact and manages the association.
10) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited
partnerships, are investment vehicles through which investments in certain
entities are held. A wholly-owned subsidiary of Metropolitan serves as the
general partner of the limited partnerships and Metropolitan directly owns a 99%
limited partnership interest therein. The MILPs have various ownership interests
in certain companies. The various MILPs own, directly or indirectly, more than
50% of the common stock of the following companies: Coating Technologies
International, Inc., Dan River, Inc.; Igloo Holdings, Inc. and its subsidiary,
Igloo Products Corporation; Blodgett Holdings, Inc., and its subsidiaries, GS
Blodgett Corporation, GS Blodgett International Ltd., GS Blodgett Inc., Pitco
Frialator, Inc., Frialator International Limited, Magikitch'n, Inc., and
Cloverleaf Properties, Inc.; and Briggs Holdings, Inc., and its subsidiary,
Briggs Plumbing Products, Inc.
C-10
<PAGE>
Item 26: Number of Holders of Securities
- -----------------------------------------
As of July 31, 1996, the number of record holders of the Registrant's
Fund were as follows:
(1) (2)
Number of
Title of Class Record Holders
Shares of Beneficial Interest
State Street Research Intermediate Bond Fund
Class A 7
Class B None
Class C 6
Class D None
State Street Research Strategic Income Fund
Class A *
Class B *
Class C *
Class D *
- ----------
*The Registrant anticipates that State Street Research & Management Company will
be the sole initial record holder on or about the effective date.
C-11
<PAGE>
Item 27: Indemnification
Under Article VI of the Registrant's Master Trust Agreement each of its
Trustees and officers or persons serving in such capacity with another entity at
the request of the Registrant ("Covered Person") shall be indemnified against
all liabilities, including, but not limited to, amounts paid in satisfaction of
judgments, in compromises or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person, except with respect to any matter as to which it has
been determined that such Covered Person had acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office (such conduct being referred to
hereafter as "Disabling Conduct"). A determination that the Covered Person is
entitled to indemnification may be made by (i) a final decision on the merits by
a court or other body before which the proceeding was brought that the person to
be indemnified was not liable by reason of Disabling Conduct, (ii) dismissal of
a court action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Registrant as defined in
section 2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion.
Under the Distribution Agreement between the Registrant and State Street
Research Investment Services, Inc., the Registrant's distributor, the Registrant
has agreed to indemnify and hold harmless State Street Research Investment
Services, Inc. and each person who has been, is, or may hereafter be an officer,
director, employee or agent of State Street Research Investment Services, Inc.
against any loss, damage or expense reasonably incurred by any of them in
connection with any claim or in connection with any action, suit or proceeding
to which any of them may be a party, which arises out of or is alleged to arise
out of or is based upon a violation of any of its covenants herein contained or
any untrue or alleged untrue statement of material fact, or the omission or
alleged omission to state a material fact necessary to make the statements made
not misleading, in a Registration Statement or Prospectus of the Registrant, or
any amendment or supplement thereto, unless such statement or omission was made
in reliance upon written
C-12
<PAGE>
information furnished by State Street Research Investment Services, Inc.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to trustees, officers, underwriters
and controlling persons of the Registrant, pursuant to Article VI of the
Registrant's Master Trust Agreement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
C-13
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
State Street Research & Investment Adviser Various investment advisory Boston, MA
Management Company clients
Arpiarian, Tanya None
Vice President
Bangs, Linda L. None
Vice President
Barton, Michael E. None
Vice President
Bennett, Peter C. Vice President State Street Research Capital Trust Boston, MA
Director and Vice President State Street Research Exchange Trust Boston, MA
Executive Vice Vice President State Street Research Growth Trust Boston, MA
President Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Director State Street Research Investment Services, Inc Boston, MA
Director Boston Private Bank & Trust Co. Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Bochman, Kathleen None
Vice President
Brown, Susan H. None
Vice President
Burbank, John F. None
Senior Vice President
(Vice President
until 7/96)
Cabrera, Jesus A. Vice President First Chicago Investment Management Co. Chicago, IL
Vice President (until 5/96)
Canavan, Joseph W. Assistant Treasurer State Street Research Equity Trust Boston, MA
Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust Boston, MA
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Controller State Street Research Portfolios, Inc. New York, NY
C-14
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Carstens, Linda C. None
Vice President
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President Director Avalon, Inc. Boston, MA
D'Vari, Ronald None
Vice President
DeVeuve, Donald None
Vice President
DiFazio, Susan M.W. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Dillman, Thomas J. Director of Research Bank of New York New York, NY
Senior Vice President (until 6/95)
Drake, Susan W. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President (until 2/96)
Duggan, Peter J. Vice President New England Mutual Life Insurance Company Boston, MA
Senior Vice President (until 8/94)
Evans, Gordon Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President (Vice President until (3/96)
Federoff, Alex G. None
Vice President
Feliciano, Rosalina None
Vice President
Gardner, Michael D. Partner Prism Group Seattle, WA
Senior Vice President
(Vice President until
6/95)
Geer, Bartlett R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Govoni, Electra None
Vice President
C-15
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Granger, Allison None
Vice President
Hamilton, Jr., William A. Treasurer and Director Ellis Memorial and Eldredge House Boston, MA
Senior Vice President Treasurer and Director Nautical and Aviation Publishing Company, Inc. Baltimore, MD
Treasurer and Director North Conway Institute Boston, MA
Hanson, Phyllis None
Vice President
Haverty, Jr., Lawrence J. None
Senior Vice President
Heineke, George R. None
Vice President
Jackson, Jr., Trustee Certain trusts of related and
F. Gardner non-related individuals
Senior Vice President Trustee Vincent Memorial Hospital Boston, MA
Jamieson, Frederick H. Vice President and Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Senior Vice President Vice President and Asst. Treasurer SSRM Holdings, Inc. Boston, MA
(Vice President Vice President and Controller MetLife Securities, Inc. New York, NY
until 6/95) Assistant Treasurer State Street Research Energy, Inc. Boston, MA
Kallis, John H. Vice President State Street Research Financial Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Director and President K&G Enterprises Washington, D.C.
Kasper, M. Katherine None
Vice President
C-16
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Vice President
Kobrick, Frederick R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice Vice President State Street Research Capital Trust Boston, MA
President Vice President State Street Research Growth Trust Boston, MA
Member Harvard Business School Association Cambridge, MA
Member National Alumni Council, Boston University Boston, MA
Koski, Karen None
Vice President
Langholm, Knut None
Vice President
Leary, Eileen M. None
Vice President
McNamara, III, Francis J. Senior Vice President, Clerk State Street Research Investment Services, Inc. Boston, MA
Executive Vice and General Counsel
President, Secretary Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
and General Counsel Secretary and General Counsel State Street Research Capital Trust Boston, MA
(Senior Vice President Secretary and General Counsel State Street Research Exchange Trust Boston, MA
until 7/96) Secretary and General Counsel State Street Research Growth Trust Boston, MA
Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel State Street Research Equity Trust Boston, MA
Secretary and General Counsel State Street Research Financial Trust Boston, MA
Secretary and General Counsel State Street Research Income Trust Boston, MA
Secretary and General Counsel State Street Research Money Market Trust Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
Clerk and Director State Street Research Energy, Inc. Boston, MA
Senior Vice President, General The Boston Company, Inc. Boston, MA
Counsel and Assistant Secretary
(until 5/95)
Senior Vice President, General Boston Safe Deposit and Trust Company Boston, MA
Counsel and Asistant Secretary
(until 5/95)
Senior Vice President, General The Boston Company Advisors, Inc. Boston, MA
Counsel and Assistant Secretary
(until 5/95)
C-17
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Maus, Gerard P. Treasurer State Street Research Equity Trust Boston, MA
Director, Executive Treasurer State Street Research Financial Trust Boston, MA
Vice President Treasurer State Street Research Income Trust Boston, MA
and Treasurer Treasurer State Street Research Money Market Trust Boston, MA
Treasurer State Street Research Tax-Exempt Trust Boston, MA
Treasurer State Street Research Capital Trust Boston, MA
Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Treasurer and Chief Financial Officer
Director and Treasurer State Street Research Energy, Inc. Boston, MA
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Director (until 11/94) GFM International Investors, Ltd. London, England
Treasurer and Chief Financial SSRM Holdings, Inc. Boston, MA
Officer
Treasurer MetLife Securities, Inc. New York, NY
Milder, Judith J. None
Senior Vice President
(Vice President until 6/95)
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
(Vice President until 7/96)
Moore, Jr., Thomas P. Director Hibernia Savings Bank Quincy, MA
Senior Vice Vice President State Street Research Capital Trust Boston, MA
President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Mulligan, JoAnne C. Vice President State Street Research Money Market Trust Boston, MA
Senior Vice President
(Vice President until 7/96)
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
C-18
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Pannell, James C. None
Vice President
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
(Vice President
until 7/94)
Ragsdale, Easton Senior Vice President Kidder, Peabody, & Co. Incorporated New York, NY
Senior Vice President (until 12/94)
(Vice President
until 7/96)
Rawlins, Jeffrey A. None
Senior Vice President
(Vice President
until 7/96)
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Richards, Scott None
Vice President
Romich, Douglas A. Assistant Treasurer State Street Research Equity Trust Boston, MA
Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Controller State Street Research Portfolios, Inc. New York, NY
Saperstone, Paul None
Vice President
C-19
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Schrage, Michael None
Vice President
Schultz, David C. Director (non-voting) Capital Trust, S.A. Luxembourg
Executive Vice President Director Alex Brown Capital, Ltd. Hamilton, Bermuda
Director and Treasurer Mafraq Hospital Association Mafraq, Jordan
Member Association of Investment
Management Sales Executives Atlanta, GA
Member, Investment Committee Lexington Christian Academy Lexington, MA
Shaver, Jr. C. Troy President and Chief State Street Research Investment Services, Inc. Boston, MA
Executive Vice Executive Officer
President President and Chief John Hancock Funds, Inc. Boston, MA
Executive Officer
(until 1/96)
Shean, William G. None
Vice President
Shively, Thomas A. Vice President State Street Research Financial Trust Boston, MA
Director and Vice President State Street Research Money Market Trust Boston, MA
Executive Vice Vice President State Street Research Tax-Exempt Trust Boston, MA
President Director State Street Research Investment Services, Inc Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Shoemaker, Richard D. None
Senior Vice President
Strelow, Dan R. None
Senior Vice President
Stuka, Paul U.S. Portfolio Consultant Teton Partners Boston, MA
Senior Vice President (until 4/95)
C-20
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Swanson, Amy McDermott None
Senior Vice President
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
(Vice President until 6/95)
Verni, Ralph F. Chairman, President, Chief State Street Research Capital Trust Boston, MA
Chairman, President, Executive Officer and Trustee
Chief Executive Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Growth Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Master Investment Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Securities Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Equity Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Financial Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Income Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Money Market Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Tax-Exempt Trust Boston, MA
Executive Officer and Trustee
Chairman and Director State Street Research Investment Services, Inc. Boston, MA
(President and Chief Executive
Officer until 2/96)
President and Director State Street Research Energy, Inc. Boston, MA
Chairman and Director Metric Holdings, Inc. San Francisco, CA
Director and Officer Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Director MetLife Securities, Inc. New York, NY
Chairman and Director (until 11/94) GFM International Investors, Ltd. London, England
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director CML Group, Inc. Boston, MA
C-21
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wade, Dudley Vice President State Street Research Growth Trust Boston, MA
Freeman Vice President State Street Research Master Investment Trust Boston, MA
Senior Vice
President
Wallace, Julie K. None
Vice President
Ward, Geoffrey None
Senior Vice President
Weiss, James M. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Master Investment Trust Boston, MA
Chief Investment Officer IDS Equity Advisors Minneapolis, MN
(until 12/95)
Westvold, Vice President State Street Research Securities Trust Boston, MA
Elizabeth McCombs
Senior Vice President
(Vice President
until 7/96)
Wilson, John T. Vice President State Street Research Equity Trust Boston, MA
Vice President Vice President State Street Research Master Investment Trust Boston, MA
Vice President Phoenix Investment Counsel, Inc. Hartford, CT
(until 6/96)
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Vice President, Asst. Clerk (Vice President
Assistant Secretary until 6/95)
and Assistant Assistant Secretary State Street Research Capital Trust Boston, MA
General Counsel Assistant Secretary State Street Research Exchange Trust Boston, MA
Assistant Secretary State Street Research Growth Trust Boston, MA
Assistant Secretary State Street Research Master Investment Trust Boston, MA
Assistant Secretary State Street Research Securities Trust Boston, MA
Assistant Secretary State Street Research Equity Trust Boston, MA
Assistant Secretary State Street Research Financial Trust Boston, MA
Assistant Secretary State Street Research Income Trust Boston, MA
Assistant Secretary State Street Research Money Market Trust Boston, MA
Assistant Secretary State Street Research Tax-Exempt Trust Boston, MA
Assistant Secretary SSRM Holdings, Inc. Boston, MA
Woodbury, Robert S. Employee Metropolitan Life Insurance Company New York, NY
Vice President
Woodworth, Jr., Kennard Vice President State Street Research Exchange Trust Boston, MA
Senior Vice Vice President State Street Research Growth Trust Boston, MA
President (until 2/96)
C-22
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
Yogg, Michael Richard Vice President State Street Research Financial Trust Boston, MA
Senior Vice Vice President State Street Research Income Trust Boston, MA
President
</TABLE>
C-23
<PAGE>
Item 29: Principal Underwriters
(a) State Street Research Investment Services, Inc., serves as principal
underwriter for State Street Research Equity Trust, State Street Research
Financial Trust, State Street Research Income Trust, State Street Research
Money Market Trust, State Street Research Tax-Exempt Trust, State Street
Research Capital Trust, State Street Research Growth Trust, State Street
Research Master Investment Trust, State Street Research Securities Trust, and
State Street Research Portfolios, Inc.
(b) Directors and Officers of State Street Research Investment Services,
Inc. are as follows:
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
Ralph F. Verni Chairman of Chairman of the
One Financial Center the Board and Board, President,
Boston, MA 02111 Director Chief Executive Officer
and Trustee
Peter C. Bennett Director None
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice President Treasurer
One Financial Center Treasurer, Chief
Boston, MA 02111 Financial Officer and
Director
Thomas A. Shively Director Vice President
One Financial Center
Boston, MA 02111
C. Troy Shaver, Jr. President and Chief None
One Financial Center Executive Officer
Boston, MA 02111
George B. Trotta Executive Vice President None
One Madison Avenue
New York, NY 10010
Dennis C. Barghaan Senior Vice President None
One Madison Avenue
New York, NY 10010
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
Paul V. Daly Senior Vice President None
One Financial Center
Boston, MA 02111
C-24
<PAGE>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
Susan M.W. DiFazio Senior Vice President None
One Financial Center
Boston, MA 02111
Gordon Evans Senior Vice President None
One Financial Center
Boston, MA 02111
Robert Haeusler Senior Vice President None
One Madison Avenue
New York, NY 10010
Gregory R. McMahan Senior Vice President None
One Financial Center
Boston, MA 02111
Francis J. McNamara, III Senior Vice President, Secretary
One Financial Center General Counsel
Boston, MA 02111 and Clerk
Joan D. Miller Senior Vice President None
One Financial Center
Boston, MA 02111
Richard P. Samartin Senior Vice President None
One Financial Center
Boston, MA 02111
Darman A. Wing Senior Vice President, Assistant Secretary
One Financial Center Assistant General Counsel
Boston, MA 02111 and Assistant Clerk
Linda Grasso Vice President None
One Financial Center
Boston, MA 02111
Robert M. Gunville Vice President None
One Financial Center
Boston, MA 02111
Frederick H. Jamieson Vice President None
One Financial Center and Assistant
Boston, MA 02111 Treasurer
Amy L. Simmons Vice President Assistant Secretary
One Financial Center
Boston, MA 02111
C-25
<PAGE>
Item 30: Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 31: Management Services
Inapplicable.
Item 32: Undertakings
(a) Inapplicable.
(b) Deleted
(c) The Registrant has elected to include the information required
by Item 5A of Form N-1A in its annual report to shareholders. The
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the applicable fund's latest annual report to
shareholders, upon request and without charge.
(d) The Registrant undertakes to hold a special meeting of
shareholders of the Trust for the purpose of voting upon the question of
removal of any trustee or trustees when requested in writing to do so by
the record holders of not less than 10 per centum of the outstanding
shares of the Trust and, in connection with such meeting, to comply with
the provisions of Section 16(c) of the Investment Company Act of 1940
relating to shareholder communications.
(e) The Registrant hereby undertakes to file a post-effective
amendment to this Registration Statement, using financial statements with
respect to State Street Research Strategic Income Fund which need not be
certified, within four to six months after such Fund commences an offering
to the general public, subject to applicable provisions of the Division of
Investment Management generic comment letter dated February 25, 1994.
C-26
<PAGE>
Notice
A copy of the Master Trust Agreement of the Registrant is on file with the
Secretary of State of the Commonwealth of Massachusetts and notice is hereby
given that the obligations of the Registrant hereunder, and the authorization,
execution and delivery of this amendment to the Registrant's Registration
Statement, shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Registrant as individuals or
personally, but shall bind only the property of the Funds of the Registrant, as
provided in the Master Trust Agreement. Each Fund of the Registrant shall be
solely and exclusively responsible for all of its direct or indirect debts,
liabilities and obligations, and no other Fund shall be responsible for the
same.
C-27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 5 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Boston and the Commonwealth of Massachusetts, on the 28th day of August, 1996.
STATE STREET RESEARCH SECURITIES TRUST
By: *
------------------------
Ralph F. Verni
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed on the
above date by the following persons in the capacities indicated.
Signature Title
--------- -----
* Trustee, Chairman of the Board and
--------------------- Chief Executive Officer
Ralph F. Verni (Principal Executive Officer)
* Treasurer (Principal Financial and
--------------------- Accounting Officer)
Gerard P. Maus
* Trustee
---------------------
Edward M. Lamont
* Trustee
---------------------
Robert A. Lawrence
* Trustee
---------------------
Dean O. Morton
* Trustee
---------------------
Thomas L. Phillips
C-28
<PAGE>
* Trustee
---------------------
Toby Rosenblatt
* Trustee
---------------------
Michael S. Scott Morton
* Trustee
---------------------
Jeptha H. Wade
*By: /s/ Francis J. McNamara, III
-------------------------------
Francis J. McNamara, III
Attorney-in-Fact
under Powers of Attorney
dated August 24, 1995
incorporated by reference
from Post-Effective
Amendment No. 2.
C-29
<PAGE>
1933 Act Registration No. 33-74628
1940 Act File No. 811-8322
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 5 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 6 [X]
--------------------
STATE STREET RESEARCH SECURITIES TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
--------------------
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(1)(b) Amendment No. 2 to the Master Trust Agreement
(11) Consent of Independent Accountants
(13)(a) Purchase Agreement and Investment Letter with respect to State
Street Research Intermediate Bond Fund
(27) Financial Data Schedules
2
Exhibit (1)(b)
STATE STREET RESEARCH SECURITIES TRUST
Amendment No. 2 to Master Trust Agreement
Amendment No. 2 dated this 19th day of August, 1996, to the Master Trust
Agreement dated January 25, 1994 (as heretofore amended, the "Agreement") of
State Street Research Securities Trust (the "Trust").
1. The first sentence of the first paragraph of Article IV, Section 4.2
of the Agreement is amended to read in pertinent part as follows:
Section 4.2 Establishment and Designation of Sub-Trusts. Without
limiting the authority of the Trustees set forth in Section 4.1 to establish and
designate any further Sub-Trust, the Trustees hereby establish and designate the
following Sub-Trusts: the State Street Research Intermediate Bond Fund and
State Street Research Strategic Income Fund.
2. Article VII, Section 7.2 of the Agreement is deleted and replaced in
its entirety with the following:
Section 7.2 Reorganization.
(a) Reorganization of State Street Research Intermediate Bond Fund.
The Trustees may sell, convey, merge and transfer the assets belonging to the
State Street Research Intermediate Term Bond Fund series of the Trust (the "Bond
Fund") to another trust, partnership, association or corporation organized under
the laws of any state of the United States, or to the Trust to be held as assets
belonging to another Sub-Trust of the Trust, in exchange for cash, shares or
other securities (including, in the case of a transfer to another Sub-Trust of
the Trust, Shares of such other Sub-Trust or class thereof) with such transfer
either (1) being made subject to, or with the assumption by the transferee of,
the liabilities belonging to the Bond Fund, or (2) not being made subject to, or
not with the assumption of, such liabilities; provided, however, that no assets
belonging to the Bond Fund shall be so transferred unless the terms of such
transfer shall have first been approved at a meeting called for the purpose by
the affirmative vote of the holders of a majority of the outstanding voting
Shares, as defined in the 1940 Act, of the Bond Fund. Following such transfer,
the Trustees shall distribute such cash, shares or other securities (taking into
account the differences among the classes of Shares of the Bond Fund, if any)
among the Shareholders of the Bond Fund.
The Bond Fund, may, either as the successor, survivor, or nonsurvivor,
(1) consolidate with one or more other trusts, partnerships, associations or
corporations organized under the laws of the Commonwealth of Massachusetts or
any other state of the United States, to form a new consolidated trust,
partnership, association or corporation under the laws of which any one of the
constituent entities is organized, or (2) merge into one or more other trusts,
partnerships, associations or corporations organized under the laws of the
Commonwealth of Massachusetts or any other state of the United States, or have
one or more such trusts, partnerships, associations or corporations merged into
it, any such consolidation or merger to be upon such terms and
<PAGE>
conditions as are specified in an agreement and plan of reorganization entered
into by the Trust on behalf of the Bond Fund, in connection therewith. The terms
"merge" or "merger" as used in this paragraph shall also include the purchase or
acquisition of any assets of any other trust, partnership, association or
corporation which is an investment company organized under the laws of the
Commonwealth of Massachusetts or any other state of the United States. Any such
consolidation or merger, other than the purchase or acquisition of assets of an
investment company or other collective investment entity which is not registered
under the 1940 Act, shall require the affirmative vote of the holders of a
majority of the outstanding voting Shares, as defined in the 1940 Act, of the
Bond Fund, if affected thereby.
(b) Reorganization of each Sub-Trust other than State Street Research
Intermediate Bond Fund. The Trust, or any one or more Sub-Trusts other than
the Bond Fund, may, either as the successor, survivor, or non-survivor, (1)
consolidate or merge with one or more other trusts, sub-trusts, partnerships,
limited liability companies, associations or corporations organized under the
laws of the Commonwealth of Massachusetts or any other state of the United
States, to form a consolidated or merged trust, sub-trust, partnership, limited
liability company, association or corporation under the laws of which any one of
the constituent entities is organized, with the Trust to be the survivor or
non-survivor of such consolidation or merger or (2) transfer a substantial
portion of its assets to one or more other trusts, sub-trusts, partnerships,
limited liability companies, associations or corporations organized under the
laws of the Commonwealth of Massachusetts or any other state of the United
States, or have one or more such trusts, sub-trusts, partnerships, limited
liability companies, associations or corporation transfer a substantial portion
of its assets to it, any such consolidation, merger or transfer to be upon such
terms and conditions as are specified in an agreement and plan or reorganization
authorized and approved by the Trustees and entered into by the Trust, or one or
more Sub-Trusts other than the Bond Fund, as the case may be, in connection
therewith. Any such consolidation, merger or transfer may be authorized by vote
of a majority of the Trustees then in office without the approval of
shareholders of any Sub-Trust other than the Bond Fund.
This Amendment shall be effective as of August 19, 1996.
IN WITNESS WHEREOF, the undersigned officer of the Trust hereby adopts
the foregoing on behalf of the Trust pursuant to authorization by the Trustees
of the Trust.
/s/Darman A. Wing
-----------------------------
Darman A. Wing
Assistant Secretary
283435.c1
2
Exhibit (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
State Street Research Securities Trust
We consent to the inclusion in Post-Effective Amendment No. 5 to the
Registration Statement of the State Street Research Securities Trust on Form
N-1A (Securities Act of 1933 File No. 33-74628) of our report dated June 3, 1996
on our audit of the financial statements and the financial highlights of State
Street Research Intermediate Bond Fund for the period ended April 30, 1996. We
also consent to the reference to our Firm under the captions "Financial
Highlights" and "Independent Accountants" in the Registration Statement.
/s/Coopers & Lybrand L.L.P.
--------------------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
August 28, 1996
Exhibit 13(a)
SUBSCRIPTION
March 3, 1994
To: The Trustees of the State Street
Research Securities Trust
One Financial Center
Boston, Massachusetts 02111-2690
The undersigned hereby subscribes to 10,471.204 Class A shares of
beneficial interest of State Street Research Intermediate Bond Fund, having a
par value of $.001, at a price of $9.55 per share and agrees to pay therefor
upon demand in cash the amount of $100,000.
Very truly yours,
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/Ralph F. Verni
----------------------------------
<PAGE>
March 3, 1994
State Street Research Securities Trust
One Financial Center
Boston, Massachusetts 02111-2690
In connection with your sale to us of 10,471.204 Class A shares of
beneficial interest of State Street Research Intermediate Bond Fund (the
"Shares"), we understand that: (i) the Shares have not been registered under
the Securities Act of 1933, as amended (the "1933 Act"); (ii) your sale of the
Shares to us is made in reliance on such sale being exempt under Section 4(2) of
the 1933 Act as not involving any public offering; and (iii) in part, your
reliance on such exemption is predicated on our representation, which we hereby
confirm, that we are acquiring the Shares for investment for our own account as
the sole beneficial owner thereof, and not with a view to or in connection with
any resale or distribution of the Shares or of any interest therein. We hereby
agree that we will not sell, assign or transfer the Shares or any interest
therein, except upon repurchase or redemption by the Fund, unless and until the
Shares have been registered under the 1933 Act or you have received an opinion
of your counsel indicating to your satisfaction that said sale, assignment or
transfer will not violate the provisions of the 1933 Act or any rules or
regulations promulgated thereunder.
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/Ralph F. Verni
----------------------------------
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