As filed with the Securities and Exchange Commission on August 29, 1997
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. 7 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 8 [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
Executive 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:
Geoffrey R.T. Kenyon, Esq.
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, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On _____________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On __________ pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
--------------------
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, 1997 was filed by
the Registrant on or about June 30, 1997 with respect to such shares.
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<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 Financial Highlights; 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>
STATE STREET RESEARCH
INTERMEDIATE BOND FUND
Prospectus
September 1, 1997
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 July 31, 1997, the Investment
Manager had approximately $44.5 billion of assets under management. State
Street Research Investment Services, Inc. serves as distributor (the
"Distributor") for the Fund.
At the present time, only Class C shares are being offered and are
available for investment by certain employee benefit plans and large
institutions.
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, 1997 has been filed with the Securities and Exchange
Commission and is incorporated by reference in this Prospectus. It is
available, at no charge, upon request to the Fund at the address indicated on
the back cover or by calling 1-800-562-0032.
The Fund 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
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 .......................................... 26
Appendix--Description of Debt/Bond Ratings .............................. 28
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<PAGE>
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a deferred
basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5%
and (ii) an annual service fee of 0.25% of the average daily net asset value of
the Class A shares.
Class B shares are subject to (1) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees of
1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses) at
the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class
B shares.
Class C shares are offered only to certain employee benefit plans and
large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution and
service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C Class D
-------------- ------------ --------- --------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) ...... 4.5% None None None
Maximum Deferred Sales Charge (as a
percentage of net asset value at time of
purchase or redemption, whichever is lower) ......... None(2) 5% None 1%
Maximum Sales Charge Imposed on
Reinvested Dividends (as a percentage of
offering price) .................................... None None None None
Redemption Fees (as a percentage of
amount redeemed, if applicable) ..................... None None None None
Exchange Fee ....................................... None None None None
</TABLE>
- ------------
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
thereafter and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the sale.
Long-term investors in Class A, Class B or Class D shares may, over a period
of years, pay more than the economic equivalent of the maximum sales charge
permissible under applicable rules. See "Purchase of Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a sales
charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class D
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a percentage of average
net assets)
Management Fees ....................................... 0.55% 0.55% 0.55% 0.55%
12b-1 Fees ............................................. 0.25% 1.00% None 1.00%
Other Expenses .......................................... 1.39% 1.39% 1.39% 1.39%
Less Voluntary Reduction .............................. (1.19%) (1.19%) (1.19%) (1.19%)
--------- --------- --------- ---------
Total Fund Operating Expenses
(after voluntary reduction) ........................ 1.00% 1.75% 0.75% 1.75%
========= ========= ========= =========
</TABLE>
Example:
You would pay the following expenses on a $1,000
investment including, for Class A shares, the maxi-
mum 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, 1997; 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, 1997, Total Fund Operating Expenses as
a percentage of average net assets of Class A and Class C shares, would have
been 2.20% and 1.94%, 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 1.20% and 1.19% of
the Class A and Class C shares of the Fund, respectively. The amount of fees or
expenses assumed during the fiscal year ended April 30, 1997 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. After March 27, 1997, no Class A shares were outstanding.
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------
May 16, 1994
(Commencement of
May 1, 1996 to Year ended Operations) to
March 27, 1997** April 30, 1996** April 30, 1995
------------------------- ------------------ -------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 9.75 $ 9.66 $ 9.55
Net investment income* ............ .57 .59 .54
Net realized and unrealized
gain (loss) on investments,
foreign currency and forward
contracts ........................ (.15) .10 .01
----- ---- ------
Total from investment
operations ..................... .42 .69 .55
Dividends from net investment
income ........................... (.46) (.52) (.44)
Distributions from net realized
gains ........................... (.08) (.08) --
----- ----- ------
Total distributions ............... (.54) (.60) (.44)
Net asset value, end of year ...... $ 9.63 $ 9.75 $ 9.66
===== ===== ======
Total return ..................... 4.40%++ 7.13%+ 5.96%++
Net assets at end of year (000s) -- $ 593 $10,222
Ratio of operating expenses to
average net assets* ............... 1.00%[dbldag] 1.00% 1.00%[dbldag]
Ratio of net investment income
to average net assets* ............ 5.87%[dbldag] 5.91% 5.92%[dbldag]
Portfolio turnover rate ............ 68.61% 117.28% 157.75%
*Reflects voluntary assumption
of fees or expenses per share
in each year ..................... $ .12 $ .09 $ .11
<CAPTION>
Class C
--------------------------------------------------------
May 16, 1994
(Commencement of
Year ended April 30 Operations) to
1997** 1996** April 30, 1995
----------- -------------------- -----------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 9.68 $ 9.67 $ 9.55
Net investment income* ............ .60 .61 .56
Net realized and unrealized
gain (loss) on investments,
foreign currency and forward
contracts ........................ (.05) .09 .02
--------- --------- ----------
Total from investment
operations ..................... .55 .70 .58
Dividends from net investment
income ........................... (.62) (.61) (.46)
Distributions from net realized
gains ........................... (.08) (.08) --
--------- --------- ----------
Total distributions ............... (.70) (.69) (.46)
Net asset value, end of year ...... $ 9.53 $ 9.68 $ 9.67
========= ========= ==========
Total return ..................... 5.85%+ 7.25%+ 6.30%++
Net assets at end of year (000s) $16,469 $16,075 $ 3,738
Ratio of operating expenses to
average net assets* ............... 0.75% 0.75% 0.75%[dbldag]
Ratio of net investment income
to average net assets* ............ 6.14% 6.16% 6.17%[dbldag]
Portfolio turnover rate ............ 68.61% 117.28% 157.75%
*Reflects voluntary assumption
of fees or expenses per share
in each year ..................... $ .11 $ .11 $ .10
</TABLE>
- ------------
[dbldag]Annualized.
+Total return figures do not reflect any front-end or contingent deferred sales
charges. Total return would be lower if the Distributor and its affiliates had
not voluntarily assumed a portion of the Fund's expenses.
++Represents aggregate return for the period without annualization and does not
reflect any front-end or contingent deferred sales charges. Total return would
be lower if the Distributor and its affiliates had not voluntarily assumed a
portion of the Fund's expenses.
**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 within the BBB category or higher by S&P
or within the Baa category 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
within the BBB category by S&P or within the Baa category 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. Some mortgage-related securities provide the Fund with a flow-through of
interest and principal payments as such payments are received with respect to
the mortgages in the pool. Mortgage-related securities may be issued by 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
5
<PAGE>
private entities such as investment banking firms, insurance companies,
mortgage bankers and home builders. An issuer may offer senior or subordinated
securities backed by the same pool of mortgages. The senior securities have
priority to the interest and/or principal payments on the mortgages in the
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 securities restricted as to resale. Restricted
securities may be subject to the risks of illiquidity and subjective valuations
because generally, there is a limited resale market for them. Some restricted
securities in which the Fund may invest may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "1933 Act"), which allows the
Fund more flexibility to resell such securities, specifically to certain
qualified institutional buyers. The market for Rule 144A securities, however,
still is developing, and thus, even securities sold pursuant to the rule may be
illiquid or their current market value difficult to determine. 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 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
7
<PAGE>
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 331/3% 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 invested in unaffiliated
mutual funds with quality short-term portfolios, securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
irrevocable stand-by letters of credit issued by a bank or repurchase
agreements, or other similar investments. The investing of cash collateral
received from loaning portfolio securities involves leverage which magnifies
the potential for gain or loss on monies invested and, therefore, results in an
increase in the volatility of the Fund's outstanding securities. Such loans may
be terminated at any time.
The Fund 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 within the BBB category 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 within the Baa category by Moody's
lack outstanding investment characteristics and in fact have speculative
characteristics as well. Lower rated debt securities (i.e., bonds rated within
the BB category or lower by S&P or within the Ba category 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 transaction costs relative to other funds and may have tax
and other consequences as well. See the Statement of Additional Information.
8
<PAGE>
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 within the "A" category
by S&P or within the "Prime" category by Moody's (or, if not rated, issued by
companies having an outstanding long-term unsecured debt issue rated at least
within the "A" category by S&P or Moody's). See the Statement of Additional
Information.
[boxed text]
- -------------------------------------------------------------------------------
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 and Others
Shares of the Fund are continuously offered through securities dealers,
financial institutions and others (collectively referred to herein as
securities dealers or dealers) who have entered into sales agreements with the
Distributor. Purchases through dealers are confirmed at the offering price,
which is the net asset value plus the applicable sales charge, next determined
after the order is duly received by State Street Research Shareholder Services
("Shareholder Services"), a division of State Street Research Investment
Services, Inc., from the dealer. ("Duly received" for purposes herein means in
accordance with the conditions of the applicable method of purchase as
described below.) The dealer is responsible for transmitting the order promptly
to Shareholder Services in order to permit the investor to obtain the current
price. See "Purchase of Shares--Net Asset Value" herein.
9
<PAGE>
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's dealer a completed Application (accompanying this Prospectus),
together with a check for the total purchase price payable to the Fund. The
dealer must forward the Application and check in accordance with the
instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a
check payable to the Fund in the amount of the total purchase price together
with any one of the following: (i) an Application; (ii) the stub from a
shareholder's account statement; or (iii) a letter setting forth the name of
the Fund, the class of shares and the shareholder's account name and number.
Shareholder Services will deliver the purchase order to the transfer agent and
dividend paying agent, State Street Bank and Trust Company (the "Transfer
Agent").
If a check is not honored for its full amount, the purchaser could be
subject to additional charges to cover collection costs and any investment
loss, and the purchase may be cancelled.
By Wire
An investor may purchase shares by wiring Federal Funds of not less than $5,000
to State Street Bank and Trust Company, which also serves as the Trust's
custodian (the "Custodian"), as set forth below. Prior to making an investment
by wire, an investor must notify Shareholder Services at 1-800-562-0032 and
obtain a control number and instructions. Following such notification, Federal
Funds should be wired through the Federal Reserve System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research 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
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 Program).
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most
10
<PAGE>
advantageous for them, given the amount of their purchase, the length of time
they anticipate holding Fund shares or the flexibility they desire in this
regard, and other relevant circumstances. Investors will be able to determine
whether in their particular circumstances it is more advantageous to incur an
initial sales charge and not be subject to certain ongoing charges or to have
their entire initial purchase price invested in the Fund with the investment
being subject thereafter to ongoing service fees and distribution fees.
As described in greater detail below, dealers are paid differing amounts of
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 None Contingent
at time of deferred sales deferred sales
investment of up charge of 5% to charge of 1%
to 4.5% 2% applies to any applies to any
depending on shares redeemed shares redeemed
amount of within first five within one year
investment years following following their
their purchase; no purchase
contingent deferred
sales charge after
five years
On investments of
$1 million or more,
no initial sales
charge; but
contingent deferred
sales charge of 1%
applies to any
shares redeemed
within one year
following their
purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years; Class
B shares convert
automatically to
Class A shares
after eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Above described 4% None 1%
Commission initial sales charge
Received by less 0.25% to
Selling 0.50%
Dealer retained by
Distributor
On investments of
$1 million or
more, 0.25% to
1.00% 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 dealers that sell shares.
Such incentives may be extended only to those dealers that have sold or may
sell significant amounts of shares and/or meet other conditions established by
the Distributor; for example, the Distributor may sponsor special promotions to
develop particular distribution channels or to reach certain investor groups.
The Distributor may also compensate those dealers with clients who maintain
their investments in the Fund over a period of years. The incentives may
include merchandise and trips to and attendance at sales seminars at resorts.
The Distributor may also pay additional sales compensation to its affiliate,
MetLife Securities, Inc.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar amount
of the shares purchased as set forth in the table below. A major portion of
this sales charge is reallowed by the Distributor to the dealer responsible for
the sale.
- --------------------------------------------------------------
Sales Sales
Charge Charge
Paid 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%
- --------------------------------------------------------------
See
$1 million and following
above 0% 0% discussion
- --------------------------------------------------------------
13
<PAGE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distribu-tor may pay the authorized securities dealer a
commission based on the aggregate of such sales as follows:
Amount of Sale Commission
- ------------------------------------ -----------
(a) $1 million to $3 million ...... 1.00%
(b) Next $2 million ............... 0.50%
(c) Amount over $5 million ......... 0.25%
On such sales of $1,000,000 or more, unless the above commission is waived
by the dealer the investor is subject to a 1% contingent deferred sales charge
on any portion of the purchase redeemed within one year of the sale. However,
such redeemed shares will not be subject to the contingent deferred sales
charge to the extent that their value represents (1) capital appreciation or
(2) reinvestment of dividends or capital gains distributions. In addition, the
contingent deferred sales charge will be waived for certain other redemptions
as described under "Contingent Deferred Sales Charge Waivers" below (as
otherwise applicable to Class B shares).
Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of certain other Eligible Funds, as 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. 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)
14
<PAGE>
which meet certain requirements established from time to time by the
Distributor. Information on such arrangements and further conditions and
limitations is available from the Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, the Distributor, or any affiliated entities, including any
direct or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated Companies,
any relatives of any such individuals whose relationship is directly verified
by such individuals to the Distributor, or any beneficial account for such
relatives or individuals; and (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any spouse
or child of such person, or any beneficial account for any of them. The
purchase must be made for investment and the shares purchased may not be resold
except through redemption. This purchase program is subject to such
administrative policies, regarding the qualification of purchasers, minimum
investments by various groups of eligible persons and any other matters, as may
be adopted by the Distributor from time to time.
Class B Shares--Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of the
investor's purchase payment will be invested in the Fund. However, a contingent
deferred sales charge may be imposed upon redemptions of Class B shares as
described below.
The Distributor will pay dealers at the time of sale a 4% commission for
selling Class B shares. The proceeds of the contingent deferred sales charge
and the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class B shares without an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets or (2) reinvestment of dividends or capital gains distributions.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
Contingent Deferred Sales Charge
Redemption During As A Percentage Of Net Asset Value
- ------------------------- -----------------------------------
1st Year Since Purchase 5%
2nd Year Since Purchase 4
3rd Year Since Purchase 3
4th Year Since Purchase 3
5th Year Since Purchase 2
6th Year Since Purchase 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 701/2 for IRAs and Section 403(b) plans), calculated solely on the basis of
assets invested in the Fund or other Eligible Funds; and (iii) a redemption
resulting from a tax-free return of an excess contribution to an IRA. (The
foregoing waivers do not apply to a tax-free rollover or transfer of assets out
of the Fund.) The Fund may modify or terminate the waivers described above at
any time; for example, the Fund may limit the application of multiple waivers
and establish other conditions for employee benefit plans.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to Class
A shares of the Fund at the end of eight years following the issuance of 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 D Shares--Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays dealers a 1% commission for selling Class D shares at the time of
purchase. The proceeds of the contingent deferred sales charge and the
distribution fee are used to offset distribution expenses and thereby permit
the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not
be subject to the contingent deferred sales charge to the extent that the value
of 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 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.
16
<PAGE>
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of the New York Stock Exchange (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 dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of 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 dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by the
Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources of
the Distributor (including the advisory fees paid by the Fund), have also been
authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the Distribution
Plan to 1%, of which 0.75% may be used to pay distribution
17
<PAGE>
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
1-800-562-0032 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be
18
<PAGE>
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-
19
<PAGE>
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-
20
<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 1-800-562-0032. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes, each
exchange actually represents the sale of shares of one fund and the purchase of
shares of another. Accordingly, exchanges may produce a capital gain or loss
for tax purposes. The exchange privilege may be terminated or suspended or its
terms changed at any time, subject, if required under applicable regulations,
to 60 days' prior notice. New accounts established for investments upon
exchange from an existing account in another fund will have the same Telephone
Privileges as the existing account, unless Shareholder Services is instructed
otherwise. Related administrative policies and procedures may also be adopted
with regard to a series of exchanges, street name accounts, sponsored
arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer identification
number, may be aggregated for purposes of the six exchange limit.
Notwithstanding the six exchange limit, the Fund reserves the right to refuse
exchanges by any person or group if, in the Investment Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Exchanges may be restricted or refused if the Fund receives or anticipates
simultaneous orders affecting significant portions of the Fund's assets. In
particular, a pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to the Fund. The Fund may impose these restrictions
at any time. The exchange limit may be modified for accounts in certain
institutional retirement plans because of plan exchange limits, Department of
Labor regulations or administrative and other considerations. Subject to the
foregoing, if an exchange request in good order is received by Shareholder
Services and delivered by Shareholder Services to the Transfer Agent by 12 noon
Boston time on any business day, the exchange usually will occur that day. For
further information regarding the exchange privilege, shareholders should
contact Shareholder Services.
21
<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 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 dividends
and distributions are directed 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 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
1-800-562-0032. Although it is unlikely, during periods of extraordinary market
conditions, a shareholder may have difficulty in reaching Shareholder Services
at such telephone number. In that event, the shareholder should contact
Shareholder Services at 1-800-357-7800 or otherwise at its main office at One
Financial Center, Boston, Massachusetts 02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your account,
including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made in
writing to State Street Research Shareholder Services, P.O. Box 8408, Boston,
Massachusetts 02266-8408. A fee of up to $10 will be charged against an account
for providing additional account transcripts or photocopies of paid redemption
checks or for researching records in response to special requests.
Shareholder Telephone Transactions:
Please call 1-800-562-0032
Call this number for assistance in purchasing shares by wire and for telephone
redemptions or telephone exchange transactions. Shareholder Services will
require some form of personal identification prior to acting upon instructions
received by telephone. Written confirmation of 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
24
<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, 1997 Metropolitan was the record and/or beneficial owner of
approximately 79.3% of the Fund's outstanding Class C shares, 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 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.
Dividends and other distributions and proceeds of redemption of Fund
shares paid to individuals and other nonexempt payees will be subject to a 31%
federal backup withholding tax if the Transfer Agent is not provided with the
shareholder's correct taxpayer identification number or certification that the
shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisers regarding
tax matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, the Fund may compare the performance of its Class A,
26
<PAGE>
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 Brothers Government/Corporate Intermediate 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 accrued expenses and recurring charges, including management and
distribution fees, are recognized. The calculation also reflects the highest
applicable initial or contingent deferred sales charge, determined as of the
assumed date of initial investment or the assumed date of redemption, as the
case may be. Standard total return 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: An obligation rated within the AAA category has the highest rating
assigned by S&P. Capacity to meet the financial commitment on the obligation is
extremely strong.
AA: An obligation rated within the AA category differs from the highest
rated obligation only in small degree. Capacity to meet the financial
commitment on the obligation is very strong.
A: An obligation rated within the A category is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories. However, capacity to meet the financial
commitment on the obligation is still strong.
BBB: An obligation rated within the BBB category exhibits adequate
protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to meet the
financial commitment on the obligation.
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 interest only (IO) and principal only
(PO) mortgage securities; and obligations with unusually risky terms, such as
inverse floaters.
Moody's Investors Service, Inc.
Aaa: Bonds which are rated within the Aaa category are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa: Bonds which are rated within the Aa category are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A: Bonds which are rated within the A category possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds which are rated within the Baa category are considered as
medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
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 Logo]STATE STREET RESEARCH
State Street Research
Intermediate Bond Fund
STATE STREET RESEARCH
INTERMEDIATE BOND FUND
One Financial Center
Boston, MA 02111 September 1,1997
INVESTMENT ADVISER
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc. PROSPECTUS
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
IB-008E-997IBS CONTROL NUMBER: 4244-970828(0998)SSR-LD
<PAGE>
STATE STREET RESEARCH
STRATEGIC INCOME FUND
Prospectus
September 1, 1997
The investment objective of State Street Research Strategic Income Fund
(the "Fund") is to provide high current income consistent with overall total
return. In seeking to achieve its investment objective, the Fund invests
primarily in U.S. Government securities; high yield, high risk debt securities
(commonly known as "junk bonds"), as well as investment grade debt, of U.S.
issuers; and international debt securities of governmental and private issuers.
For further information, see "The Fund's Investments."
State Street Research & Management Company (the "Investment Manager")
serves as investment adviser to the Fund. As of July 31, 1997 the Investment
Manager had assets of approximately $44.5 billion under management. State
Street Research Investment Services, Inc. serves as distributor (the
"Distributor") for the Fund.
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 the Fund's shares
fluctuates as market conditions change.
Because of the Fund's investment policies, the Fund is subject to
above-average risks; it may invest substantial amounts in foreign securities
and high yield, high risk bonds. An investment in the Fund should be part of a
balanced investment program which includes more conservative investments. For
further information, see "The Fund's Investments."
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, 1997 has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. It is
available at no charge upon request to the Fund at the address indicated on the
cover or by calling 1-800-562-0032.
The Fund is a diversified (as defined under the Investment Company Act of
1940) series of State Street Research Securities Trust (the "Trust"), an open-
end management investment company.
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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE FUND CAN INVEST UP TO 60% OF ITS TOTAL ASSETS IN LOWER RATED BONDS,
COMMONLY KNOWN AS "JUNK BONDS," THAT ENTAIL GREATER RISKS, INCLUDING DEFAULT
RISKS, THAN THOSE FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD CAREFULLY
CONSIDER THESE RISKS BEFORE INVESTING. SEE "THE FUND'S INVESTMENTS," PAGES 4 TO
10 AND "APPENDIX--DESCRIPTION OF DEBT/BOND RATINGS," PAGES 30 TO 31.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
Table of Contents Page
- --------------------------------------------------------------------------------
Table of Expenses ......................................................... 2
Financial Highlights ...................................................... 4
The Fund's Investments ................................................... 4
Limiting Investment Risk ................................................ 10
Purchase of Shares ...................................................... 11
Redemption of Shares ...................................................... 19
Shareholder Services ...................................................... 21
The Fund and its Shares ................................................... 25
Management of the Fund ................................................... 26
Dividends and Distributions; Taxes ....................................... 27
Calculation of Performance Data .......................................... 28
Appendix--Description of Debt/Bond Ratings .............................. 30
- --------------------------------------------------------------------------------
<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 (i) to a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees of
1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses) at
the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and
large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution and
service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C Class D
----------- ---------- --------- --------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum Sales Charge Imposed on Purchases
(as percentage of offering price) ..................... 4.5% None None None
Maximum Deferred Sales Charge (as a percentage of net asset
value at time of purchase or redemption, whichever is
lower) ................................................ None(2) 5% None 1%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) .................. None None None None
Redemption Fees (as a percentage of amount redeemed,
if applicable) ....................................... None None None None
Exchange Fee ............................................. None None None None
</TABLE>
- ------------
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
thereafter and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the
sale. Long-term investors in Class A, Class B or Class D shares may, over
a period of years, pay more than the economic equivalent of the maximum
sales charge permissible under applicable rules. See "Purchase of Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class D
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees ................................................... 0.75% 0.75% 0.75% 0.75%
12b-1 Fees ......................................................... 0.25% 1.00% None 1.00%
Other Expenses ................................................... 0.52% 0.52% 0.52% 0.52%
Less Voluntary Reduction .......................................... (0.17%) (0.17%) (0.17%) (0.17%)
--------- --------- --------- ---------
Total Fund Operating Expenses
(after voluntary reduction) .................................... 1.35% 2.10% 1.10% 2.10%
========= ========= ========= =========
</TABLE>
Example:
<TABLE>
<CAPTION>
1 Year 3 Years
--------- ---------
<S> <C> <C>
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:
Class A shares ..................................................................... $58 $86
Class B shares ..................................................................... $71 $96
Class C shares ..................................................................... $11 $35
Class D shares ..................................................................... $31 $66
</TABLE>
<TABLE>
<CAPTION>
You would pay the following expenses on the same investment, assuming no redemption: 1 Year 3 Years
--------- ---------
<S> <C> <C>
Class B shares ..................................................................... $21 $66
Class D shares ..................................................................... $21 $66
</TABLE>
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. Because the Fund is newly organized, the percentage expense levels
shown in the table as "Other Expenses" are based on estimated amounts for the
current year. 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 period August 30, 1996 (commencement of operations) through April
30, 1997, Total Fund Operating Expenses as a percentage of average net assets of
Class A, Class B, Class C and Class D shares of the Fund would have been 1.51%,
2.29%, 1.27% and 2.29%, respectively, in the absence of the voluntary assumption
of fees or expenses by the Distributor and its affiliates, which amounted to
0.16%, 0.19%, 0.17% and 0.19% of average net assets of each of the Class A,
Class B, Class C and Class D shares of the Fund, respectively. The amount of
fees or expenses assumed during the period August 30, 1996 (commencement of
operations) through April 30, 1997 differed among classes because of
fluctuations during the year in the relative levels of assets in each class and
in expenses before reimbursements.
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.
<TABLE>
<CAPTION>
August 30, 1996
(Commencement of
Operations) to
April 30, 1997
-------------------------
Class A
-------------------------
<S> <C>
Net asset value, beginning of period .............................. $ 7.00
Net investment income* ............................................. .38
Net realized and unrealized gain (loss) on investments, foreign
currency and forward contracts .................................... .01
-------
Total from investment operations ................................. .39
Dividend from net investment income .............................. (.31)
Distribution from net realized gains .............................. (.02)
-------
Total distributions ............................................. (.33)
Net asset value, end of period .................................... $ 7.06
=======
Total return ...................................................... 5.60%+
Net assets at end of period (000s) ................................. $36,110
Ratio of operating expenses to average net assets* ............... 1.35%[dbldag]
Ratio of net investment income to average net assets* ............ 7.30%[dbldag]
Portfolio turnover rate .......................................... 110.37%
*Reflects voluntary assumption of fees or expenses per share ...... $ .01
<CAPTION>
August 30, 1996
(Commencement of Operations) to
April 30, 1997
Class B Class C
------------------------- -------------------------
<S> <C> <C>
Net asset value, beginning of period .............................. $ 7.00 $ 7.00
Net investment income* ............................................. .31 .39
Net realized and unrealized gain (loss) on investments, foreign
currency and forward contracts .................................... .04 .02
------- -------
Total from investment operations ................................. .35 .41
Dividend from net investment income .............................. (.28) (.33)
Distribution from net realized gains .............................. (.02) (.02)
------- -------
Total distributions ............................................. (.30) (.35)
Net asset value, end of period .................................... $ 7.05 $ 7.06
======= =======
Total return ...................................................... 4.96%+ 5.76%+
Net assets at end of period (000s) ................................. $19,678 $10,908
Ratio of operating expenses to average net assets* ............... 2.10%[dbldag] 1.10%[dbldag]
Ratio of net investment income to average net assets* ............ 6.73%[dbldag] 7.51%[dbldag]
Portfolio turnover rate .......................................... 110.37% 110.37%
*Reflects voluntary assumption of fees or expenses per share ...... $ .01 $ .01
<CAPTION>
Class D
-------------------------
<S> <C>
Net asset value, beginning of period .............................. $ 7.00
Net investment income* ............................................. .32
Net realized and unrealized gain (loss) on investments, foreign
currency and forward contracts .................................... .03
-------
Total from investment operations ................................. .35
Dividend from net investment income .............................. (.28)
Distribution from net realized gains .............................. (.02)
-------
Total distributions ............................................. (.30)
Net asset value, end of period .................................... $ 7.05
=======
Total return ...................................................... 4.96%+
Net assets at end of period (000s) ................................. $ 8,590
Ratio of operating expenses to average net assets* ............... 2.10%[dbldag]
Ratio of net investment income to average net assets* ............ 6.67%[dbldag]
Portfolio turnover rate .......................................... 110.37%
*Reflects voluntary assumption of fees or expenses per share ...... $ .01
</TABLE>
- ------------
+ Represents aggregate return for the period without annualization and does not
reflect any front-end or contingent deferred sales charge. Total return would
be lower if the Distributor and its affiliates had not voluntarily assumed a
portion of the Fund's expenses.
[dbldag] Annualized.
** Per share figures have been calculated using the average shares method.
The Fund's Investments
The Fund's investment objective is to provide high current income consistent
with overall total return. The investment objective is a fundamental policy
that may not be changed without approval of the Fund's shareholders.
In seeking to achieve its investment objective, the Fund invests, under
normal circumstances, primarily in U.S. Government securities; high yield, high
risk, as well as investment grade, debt securities of U.S. issuers; and
international debt securities of governmental and private issuers.
The Investment Manager believes that assets can be diversified and
allocated among the three sectors--U.S. Government securities, high yield, high
risk securities, and international debt securities--to take advantage of the
different ways that such sectors have performed in economic cycles. As interest
rates rise and fall in the United States, the volatility of the prices of U.S.
Government securities has historically been greater than the volatility of high
yield, high risk U.S. corporate debt. When the U.S. economy is at a particular
point in the economic growth and interest rate cycle, a given foreign economy
may be at a different point in the economic cycle; in general, the U.S. and
foreign economies do not coincide. Foreign monetary policies and movements in
the exchange rates among the world's currencies also affect investments. There
is no assurance that the asset allocation made by the Fund will be effective.
4
<PAGE>
The allocation to a given sector will vary as domestic and international market
conditions warrant. Up to 100% of the Fund's assets could be allocated to any
one sector depending on circumstances, except that not more than 60% may be
invested in high yield, high risk securities.
The three sectors encompass virtually all types of traditional debt
securities as well as other securities which are treated as debt securities
including, but not limited to, bonds, notes, bills, debentures, commercial
paper, bank instruments and depository accounts, collateralized mortgage
obligations and other mortgage related or backed obligations, asset-backed
securities, variable and floating rate instruments, payment-in-kind securities,
participation interests in trusts and other entities, interest only and
principal only stripped securities, convertible debt securities, and preferred
stocks. The stated or effective maturity of the instruments can range from very
short-term to very long-term.
The Fund will seek high current income consistent with overall total
return through interest earned on debt securities and through gains from the
purchase and sale of the underlying securities at different prices. There is no
assurance that the Fund will obtain such income or gains. All bonds are subject
to relative degrees of interest rate risk and related market volatility. As
interest rates rise, the value of debt securities held by the Fund and thus,
shares of the Fund, can be expected to decline. As interest rates decline, the
value of debt securities held by the Fund and thus, shares of the Fund, can be
expected to increase. The magnitude of these fluctuations will be greater when
the average maturity of the portfolio securities is longer. In addition, the
value of portfolio securities can be affected by changes in the
creditworthiness of the issuer, especially of high yield, high risk debt,
resulting from, for example, positive or negative changes in the issuer's
financial condition, its business operations, or outside economic factors
impacting the issuer. Thus, as interest rates move up or down and the
creditworthiness of issuers change, the amount of possible interest income and
the value of the underlying debt security can both be subject to change. Under
normal circumstances, the Fund expects to be fully invested in debt securities
in the three sectors as described. However the Fund may, consistent with its
investment objective, make other investments, including common stocks and
warrants up to 15% of the Fund's total assets.
Although the Fund's investments are discussed below in three broad
sectors, many instruments are available in more than one sector, such as
mortgage-related securities which can be a U.S. Government security when issued
by a U.S. agency, or a non-governmental debt security when issued by a private
trust.
Government 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 or
sponsored enterprises. 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 Home Loan Banks, Federal Farm
Credit Banks, including mortgage-backed obligations of the Government National
Mortgage Association, Federal National Mortgage Association and Federal Home
Loan Mortgage Corporation; and obligations of mixed-ownership Government
corporations such as Resolution Funding Corporation.
The Fund may invest in mortgage-related securities. Mortgage-related
securities represent interests in pools of commercial or residential mortgage
loans. Some mortgage-related securities provide the Fund with a flow-through of
interest and principal payments as such payments are received with respect to
the mortgages in the pool. Mortgage-related securities may be issued by U.S.
Government agencies, instrumentalities or mixed-ownership corporations or
sponsored enterprises, and the securities may or may not be supported by the
credit of such entities. Mortgage-related securities may also be issued by
private entities such as investment banking firms, insurance companies,
mortgage bankers and home builders. An issuer may offer senior or subordinated
securities backed by the same pool of mortgages. The senior securities have
priority to the interest and/or principal payments on the mortgages in the
pool; the subordi-
5
<PAGE>
nate 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. See "Risk Factors" below.
The Fund may invest in stripped securities. Stripped securities are issued
by governmental or private issuers. 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.
Stripped securities also include mortgage-related securities which have
been divided into separate interest and principal components. Holders of the
interest components of mortgage related securities will receive payments of the
interest only on the current face amount of the mortgages and holders of the
principal components will receive payments of the principal on the mortgages.
"Interest only" securities are known as IOs; "principal only" securities are
known as POs. See "Risk Factors" below.
Risk Factors
In the case of mortgage-related securities, the possibility of prepayment of
the underlying mortgages which might be motivated, for instance, by declining
interest rates, could lessen the potential for total return in mortgage-backed
securities. When pre-payments of mortgages occur during periods of declining
interest rates, the Fund will have to reinvest the proceeds in instruments with
lower effective interest rates.
In the case of stripped securities, in periods of low interest rates and
rapid mortgage prepayments, the value of IOs for mortgage-related securities
can decrease significantly. The market for IOs and POs is new and there is no
assurance it will operate efficiently or provide liquidity in the future.
Stripped securities are extremely volatile in certain interest rate
environments.
U.S. Corporate High Yield, High Risk, Investment Grade and Other Debt
Securities
High yield, high risk debt includes corporate bonds, convertible bonds and
preferred stocks, rated at the time of purchase within the BB through D
categories by Standard & Poor's Corporation ("S&P") or within the Ba through C
categories by Moody's Investors Service, Inc. ("Moody's"), commonly known as
"junk bonds," or which are unrated but believed by the Investment Manager to be
of comparable quality. Where an investment is split rated, the Fund may invest
on the basis of the higher rating. Where an investment is only rated by one
rating agency, the Fund may invest on the basis of a higher rating derived from
its own analysis.
For the period August 30, 1996 (commencement of operations) through April
30, 1997, the percentage of the Fund's total investments on an average annual
basis invested in debt securities of any particular rating category or its
equivalent, as determined by the Investment Manager, was as follows: 37% AAA,
13% AA, 2% A, 2% BB, 41% B and 2% CCC, on a dollar weighted basis, comprising
97% of total investments. Of these bonds, 95% were rated by a nationally
recognized statistical rating organization and 5% were unrated but considered to
be equivalent, as determined by the Investment Manager, to comparable rated
securities. The above percentages reflect ratings as of the time of purchase and
subsequent changes, if any, including downgrades, for the period the securities
were held.
The Fund may also invest in higher rated, lower yield debt securities of
domestic issuers. Higher rated securities include those rated within the AAA
through BBB categories by S&P or within the Aaa through Baa categories by
Moody's. Securities rated within the BBB category by S&P or within the Baa
category by Moody's can have speculative characteristics. Investment grade
securities are generally issued by larger or more established issuers, compared
to lower rated securities, and are less volatile. The Fund will invest in
6
<PAGE>
investment grade securities when appropriate given the spread between higher
and lower quality debt, market expectations, and overall portfolio composition.
Investment grade debt can lessen a potential decline in the Fund's net asset
value, but may also reduce the Fund's current income and total return.
In addition to the ratings from S&P and Moody's, ratings by other
nationally recognized statistical rating organizations may be used, such as
Fitch's Investors Services and Duff & Phelps Credit Rating Company.
Risk Factors
Lower rated high yield, high risk securities generally involve more credit risk
than higher rated securities and are considered by S&P and Moody's to be
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. Such 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.
In addition, these ratings may not reflect the effect of recent developments on
an issuer's ability to make interest and principal payments. Bonds rated in the
lowest category and in default may never resume interest payments or repay
principal and their market value may be difficult to determine. In the event
the rating of a security is downgraded, the Investment Manager will determine
whether the security should be retained or sold depending on an assessment of
all facts and circumstances at that time. For further information concerning
the ratings of debt securities, see the Appendix to this Prospectus.
Additional risks of such securities include (i) limited liquidity and
secondary market support, particularly in the case of securities that are not
rated or are subject to restrictions on resale, which may limit the ability of
the Fund to sell portfolio securities either to meet redemption requests or in
response to changes in the economy or the financial markets, and make selection
and valuation of portfolio securities more subjective and dependent upon the
Investment Manager's credit analysis; (ii) the potential for the insolvency of
issuers during periods of changing interest rates and economic difficulty;
(iii) subordination to the prior claims of senior lenders; and (iv) the
possibility that earnings of the issuer may be insufficient to meet its debt
service. Growth in the market for this type of security has paralleled a
general expansion in certain sectors in the U.S. economy, and the effects of
adverse economic changes (including a recession) are unclear.
Other Debt Securities
The Fund may also invest in other debt-related obligations issued by
corporations, trusts and similar entities such as beneficial interests in
asset-backed pools, zero coupon securities, pay-in-kind ("PIK") securities,
Yankee bonds and Government trust certificates. The credit quality of the
issuer of such securities can range across the entire spectrum from high
quality to highly speculative.
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.
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. PIK debt securities permit
the issuer to pay the interest thereon either in cash or as additional debt
obligations. The reporting of interest for zero coupon and PIK securities is
similar. The Fund will be required to distribute all or substantially all of
such amounts annually to its shareholders. These distributions may cause the
Fund to liquidate portfolio assets in order to make such distributions at a
time when the Fund may have otherwise chosen not to sell such securities. The
market for zero coupon and payment-in-kind securities is more volatile than
that of securities which pay interest at regular intervals.
7
<PAGE>
Yankee bonds are bonds denominated in U.S. dollars and issued by foreign
entities for sale in the United States. Yankee bonds are affected by interest
rates in the U.S. and by the economic, political and other forces which impact
the issuer locally.
The Fund may invest from time to time in collective investment vehicles,
such as Government trusts whose assets consist principally of U.S. Government
securities, or other assets, such as U.S. Government loans to foreign
countries, substantially collateralized or supported by such securities.
International Debt Securities
The Fund may invest in debt obligations denominated in foreign currencies
issued or guaranteed by governments, governmental agencies and similar bodies,
and supranational organizations, corporations, financial institutions, trusts,
and other entities. The Fund expects to invest predominantly in investment
grade debt of issuers in Developed Nations, although no limits apply as to
quality or geography.
The Fund invests in foreign debt based on the attractiveness of the
issuer, the general economic climate, the interest rate environment, and the
relative strength of the U.S. dollar and relevant currency. The obligations of
foreign governmental entities have various kinds of government support and
include obligations issued or guaranteed by foreign governmental entities with
taxing powers. These obligations may or may not be supported by the full faith
and credit of a foreign government. The obligations of foreign corporations are
subject to many of the same business, industry and other fundamental variables
that affect the creditworthiness of domestic corporations. All foreign debt
obligation, both governmental and nongovernmental, are also affected by the
interrelationships of interest rates in the U.S. and abroad and exchange rates
among currencies.
Supranational debt may be denominated in U.S. dollars, a foreign currency
or a multi-national currency unit. Examples of supranational entities include
the World Bank, the European Investment Bank, the Asian Development Bank and
the Inter-American Development Bank. The governmental members, or
"stockholders", usually make initial capital contributions to the supranational
entity and in many cases are committed to make additional capital contributions
if the supranational entity is unable to repay its borrowings.
The Fund may invest in securities denominated in a multi-national currency
unit. An illustration of a multi-national currency unit is the European
Currency Unit (the "ECU"), which is a "basket" consisting of specified amounts
of the currencies of the member states of the European Community, a Western
European economic cooperative organization that includes Germany, France, the
United Kingdom, the Netherlands, Belgium and Italy, among others. European
supranational entities, in particular, issue ECU-denominated obligations.
The Fund may invest in American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"). ADRs are dollar denominated receipts, typically
issued by a U.S. bank or trust company, which evidence ownership of underlying
securities issued by a foreign corporation or other entity. EDRs are foreign
currency denominated receipts issued in Europe which evidence a similar
ownership arrangement. The Fund may also invest in bonds denominated in U.S.
dollars issued outside the United States by corporations and others, for
example, "Eurodollar" bonds.
Risk Factors
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or expropriation, the possible imposition of currency exchange
blockages, higher operating expenses, foreign withholding and other taxes which
may reduce investment return, reduced availability of public information
concerning issuers and the fact that foreign issuers are not generally subject
to uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of securities of comparable
domestic issuers.
The Fund may also invest in the securities of issuers in countries with
less developed economies as deemed appropriate by the Investment Manager,
8
<PAGE>
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 securities 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.
For further information regarding foreign investments, 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. The Fund may simultaneously engage in
such transactions in the denomination currency of the underlying investment in
another currency in respect to the denomination currency; sometimes called
"cross hedging". 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. For further information, see
the Statement of Additional Information.
Other Investment Policies
The Fund may lend portfolio securities with a value of up to 331/3% 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 invested in unaffiliated
mutual funds with quality short-term portfolios, securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
irrevocable stand-by letters of credit issued by a bank or repurchase
agreements, or other similar investments. The investing of cash collateral
received from loaning portfolio securities involves leverage which magnifies
the potential for gain or loss on monies invested and, therefore, results in an
increase in the volatility of the Fund's outstanding securities. Such loans may
be terminated at any time.
The Fund 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.
The Fund may buy and sell options, futures contracts and options on
futures contracts on securities, securities indices and currencies, and enter
into closing transactions with respect thereto; such instruments are commonly
known as derivatives because they derive their value from underlying assets,
such as the assets on which they are based. The Fund may not establish a
position in a commodity futures contract or purchase or sell a commodity option
contract for other than bona fide hedging purposes if immediately thereafter
the sum of the amount of initial margin deposits and premiums required to
establish such derivative positions for nonhedging purposes would exceed 5% of
the market value of the Fund's net assets; similar policies apply to options
which are not commodities. The Fund may also invest in derivatives through
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
derivatives. These swap arrangements include interest rate swaps, currency
swaps and index swaps. For a more detailed discussion of derivatives, see the
Statement of Additional Information. The Fund may also enter into repurchase
agreements and reverse repurchase agreements.
9
<PAGE>
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 may invest in securities restricted as to resale. Restricted
securities may be subject to the risks of illiquidity and subjective valuations
because generally, there is a limited resale market for them. Some restricted
securities in which the Fund may invest may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "1933 Act"), which allows the
Fund more flexibility to resell such securities, specifically to certain
qualified institutional buyers. The market for Rule 144A securities, however,
still is developing, and thus, even securities sold pursuant to the rule may be
illiquid or their current market value difficult to determine. See the
Statement of Additional Information.
The Fund anticipates that its portfolio turnover rate will generally not
exceed 200% 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. An actual portfolio turnover rate of 100% or more
may result in greater transaction costs, relative to other funds of all types
in general, 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
fundamental and nonfundamental investment restrictions.
Under the fundamental investment restrictions, the Fund may not (a)
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 or sponsored
enterprises) 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; or (b) invest more than 25% of the Fund's
total assets in securities of issuers principally engaged in any one industry.
The foregoing fundamental investment restrictions do not apply in the
event the Fund invests in other mutual funds, subject to future changes in law
and regulatory requirements (see "The Fund and its Shares"); otherwise, the
foregoing restrictions may not be changed except by vote of the holders of a
majority of the outstanding voting securities of the Fund, as defined under the
Investment Company Act of 1940 (the "1940 Act").
Under the nonfundamental investment 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. The
foregoing nonfundamental investment restriction may be changed without a
shareholder vote.
For further information on the above and other fundamental and
nonfundamental investment restrictions, see the Statement of Additional
Information.
The Fund may hold up to 100% of its assets in cash or certain short-term
securities for temporary defensive purposes when, in the opinion of the
Investment Man-
10
<PAGE>
ager, such a position is more likely to provide protection against adverse
market conditions. To the extent that the Fund's assets are held in a temporary
defensive position, the Fund will not be achieving its investment objective.
The types of short-term instruments in which the Fund may invest for such
purposes are, as more fully described in the Statement of Additional
Information: U.S. Government securities, time deposits and corporate commercial
paper rated at least within the "A" category by S&P or within the "Prime"
category by Moody's (or, if not rated, issued by companies having an
outstanding unsecured debt issue rated at least within the "A" category by S&P
or Moody's).
[boxed text]
- --------------------------------------------------------------------------------
Information on the Purchase of Shares, Redemption of Shares and
Shareholder Services is set forth on pages 11 to 25 below.
- --------------------------------------------------------------------------------
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers,
Individual Retirement Accounts ("IRAs"), trusts, corporations,
individuals, etc. The applicability of the general information and
administrative procedures set forth below accordingly will vary depending
on the investor and the recordkeeping system established for a
shareholder's investment in the Fund. Participants in 401(k) and other
plans should first consult with the appropriate person at their employer
or refer to the plan materials before following any of the procedures
below. For more information or assistance, anyone may call 1-800-562-0032.
- --------------------------------------------------------------------------------
Purchase of Shares
Methods of Purchase
Through Dealers and Others
Shares of the Fund are continuously offered through securities dealers,
financial institutions and others (collectively referred to herein as
securities dealers or dealers) who have entered into sales agreements with the
Distributor. Purchases through dealers are confirmed at the offering price,
which is the net asset value plus the applicable sales charge, next determined
after the order is duly received by State Street Research Shareholder Services
("Shareholder Services"), a division of State Street Research Investment
Services, Inc., from the dealer. ("Duly received" for purposes herein means in
accordance with the conditions of the applicable method of purchase as
described below.) The dealer is responsible for transmitting the order promptly
to Shareholder Services in order to permit the investor to obtain the current
price. See "Purchase of Shares--Net Asset Value" herein.
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's 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 the shareholder's account statement; or (iii) a letter setting
forth the name of the Fund, the class of shares and the 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 the 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:
11
<PAGE>
ABA #011000028 State Street Bank and Trust Company
Boston, MA
BNF = State Street Research Strategic Income Fund and class of shares
(A, B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street
Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make such
investment by 12 noon Boston time on the day of his or her investment; and (ii)
the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete
the Application accompanying this Prospectus and deliver it to his or her
dealer, who should forward it as required. No redemptions will be effected
until the Application has been duly processed.
The Fund may in its discretion discontinue, suspend or change the practice
of accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by the Fund. The Fund reserves the
right to suspend the sale of shares, or to reject any purchase order, including
orders in connection with exchanges, for any reason.
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 Program).
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount of
their purchase, the length of time they anticipate holding Fund shares, or the
flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject to
certain ongoing charges or to have their entire initial purchase price invested
in the Fund with the investment being subject thereafter to ongoing service
fees and distribution fees. As described in greater detail below, dealers are
paid differing amounts of commissions and other compensation depending on which
class of shares they sell.
12
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------------------- ------------------------- --------- ----------------------
<S> <C> <C> <C> <C>
Sales Charges Initial sales Contingent deferred None Contingent deferred
charge at time of sales charge of 5% sales charge of 1%
investment of up to 2% applies to applies to any shares
to 4.5% depending any shares redeemed redeemed within one
on amount of within first five years year following
investment following their their purchase
purchase; no
contingent deferred
sales charge
after five years
On investments of
$1 million or more, no
initial sales charge;
but contingent
deferred sales charge
of 1% applies to any
shares redeemed within
one year following
their purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years;
Class B shares
convert auto-
matically 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
Dealers Distributor
On investments of
$1 million or more,
0.25% to 1%
paid to dealer by
Distributor
</TABLE>
13
<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 Fund
shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its expense,
provide additional cash and noncash incentives to dealers that sell shares.
Such incentives may be extended only to those dealers who have sold or may sell
significant amounts of shares and/or meet other conditions established by the
Distributor; for example, the Distributor may sponsor special promotions to
develop particular distribution channels or to reach certain investor groups.
The Distributor may also compensate those dealers with clients who maintain
their investments in the Fund over a period of years. The incentives may
include merchandise and trips to and attendance at sales seminars at resorts.
The Distributor may also pay additional sales compensation to its affiliate,
MetLife Securities, Inc.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar amount
of the shares purchased as set forth in the table below. A major portion of
this sales charge is reallowed by the Distributor to the dealer responsible for
the sale.
- --------------------------------------------------------------
Sales Sales
Charge Charge
Paid by Paid by Dealer
Investor Investor Concession
Dollar Amount As % of As % of As % of
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 following
above 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 may pay the authorized dealer a commission
based on the aggregate of such sales as follows:
14
<PAGE>
Amount of Sale Commission
- --------------------------------- ------------
(a) $1 million to $3 million ... 1.00%
(b) Next $2 million ............ 0.50%
(c) Amount over $5 million ...... 0.25%
On such sales of $1,000,000 or more, unless the above commission is waived
by the dealer, the investor is subject to a 1% contingent deferred sales charge
on any portion of the purchase redeemed within one year of the sale. However,
such redeemed shares will not be subject to the contingent deferred sales
charge to the extent that their value represents (1) capital appreciation or
(2) reinvestment of dividends or capital gains distributions. In addition, the
contingent deferred sales charge will be waived for certain other redemptions
as described under "Contingent Deferred Sales Charge Waivers" below (as
otherwise applicable to Class B shares).
Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of certain other Eligible Funds, as 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. 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 at a reduced sales charge or without a
sales charge pursuant to certain sponsored arrangements, which include programs
under which a company, employee benefit plan or other organization makes
recommendations to, or permits group solicitation of, its employees, members or
participants, except any organization created primarily for the purpose of
obtaining shares of the Fund at a reduced sales charge or without a sales
charge. Sales without a sales charge, or with a reduced sales charge, may also
be made through brokers, financial planners, institutions, and others, under
managed fee-based programs (e.g., "wrap fee" or similar programs) which meet
certain requirements established from time to time by the Distributor.
Information on such 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
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<PAGE>
Manager, Distributor, or any affiliated entities, including any direct or
indirect parent companies and other subsidiaries of such parents (collectively
"Affiliated Companies"); (B) employees, officers, sales representatives or
current or retired directors or trustees of the Affiliated Companies or any
investment company managed by any of the Affiliated Companies, any relatives of
any such individuals whose relationship is directly verified by such
individuals to the Distributor, or any beneficial account for such relatives or
individuals; and (C) employees, officers, sales representatives or directors of
dealers and other entities with a selling agreement with the Distributor to
sell shares of any aforementioned investment company, any spouse or child of
such person, or any beneficial account for any of them. The purchase must be
made for investment and the shares purchased may not be resold except through
redemption. This purchase program is subject to such administrative policies,
regarding the qualification of purchasers, minimum investments by various
groups of eligible persons and any other matters, as may be adopted by the
Distributor from time to time.
The initial sales charge will also be waived on Class A shares purchased
and paid for with the proceeds of shares redeemed in the past 90 days from a
mutual fund (other than a fund managed by the Investment Manager or any of its
subsidiaries) on which an initial sales charge or contingent deferred sales
charge was paid; this waiver must be requested when the purchase order is
placed for the Class A shares and the Distributor may require evidence of
qualification for this waiver and establish other conditions. Availability of
the waiver is subject to completion of steps necessary to implement the
purchase program.
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 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
Redemption During Net Asset Value
- ------------------------- ---------------------------
1st Year Since Purchase 5%
2nd Year Since Purchase 4%
3rd Year Since Purchase 3%
4th Year Since Purchase 3%
5th Year Since Purchase 2%
6th Year Since Purchase
and Thereafter None
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first of
those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of the Fund acquired through an exchange from another
Eligible Fund will be measured from the date that such shares were initially
acquired in the other Eligible Funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gains distribution reinvestments in such other Eligible Fund. These
determinations will result in any contingent deferred sales charge being
imposed at the low-
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<PAGE>
est possible rate. For federal income tax purposes, the amount of the
contingent deferred sales charge will reduce the gain or increase the loss, as
the case may be, on the amount realized on redemption. The amount of any
contingent deferred sales charge will be paid to the Distributor.
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain conditions.
In addition, the contingent deferred sales charge will be waived for: (i)
redemptions made within one year of the death or total disability, as defined
by the Social Security Administration, of all shareholders of an account; (ii)
redemptions made after attainment of a specific age in an amount which
represents the minimum distribution required at such age under Section
401(a)(9) of the Internal Revenue Code for retirement accounts or plans (e.g.,
age 701/2 for IRAs and Section 403(b) plans), calculated solely on the basis of
assets invested in the Fund or other Eligible Funds; and (iii) a redemption
resulting from a tax-free return of an excess contribution to an IRA. (The
foregoing waivers do not apply to a tax-free rollover or transfer of assets out
of the Fund.) The Fund may modify or terminate the waivers described above at
any time; for example, the Fund may limit the application of multiple waivers
and establish other conditions for employee benefit plans.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to Class
A shares of the Fund at the end of eight years following the issuance of such
Class B shares; consequently, they will no longer be subject to the higher
expenses borne by Class B shares. The conversion rate will be determined on the
basis of the relative per share net asset values of the two classes and may
result in a shareholder receiving either a greater or fewer number of Class A
shares than the Class B shares so converted. As noted above, holding periods
for Class B shares received in exchange for Class B shares of other Eligible
Funds will be counted toward the eight-year period.
Class C Shares--Institutional; No Sales Charge
The purchase price of a Class C share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
In general, Class C shares are only available for new investments by
certain large institutions, and employee benefit plans which acquire shares
through programs or products sponsored by Metropolitan 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 issued directly or through exchanges to those
shareholders of the Fund or other Eligible Funds who previously held shares not
subject to any future sales charge or service fees or distribution fees.
Class D Shares--Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays dealers a 1% commission for selling Class D shares at the time of
purchase. The proceeds of the contingent deferred sales charge and the
distribution fee are used to offset distribution expenses and thereby permit
the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not
be subject to the contingent deferred sales charge to the extent that the value
of such shares represents (1) capital appreciation of Fund assets or (2)
reinvestment of dividends or capi-
17
<PAGE>
tal 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 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. Assets held by the Fund are valued at the last reported sale price as of
the close of business on the valuation date, except that securities and assets
for which market quotations are not readily available are valued as determined
in good faith by or under the authority of the Trustees of the Trust. In
determining the value of certain assets for which market quotations are not
readily available, the Fund may use one or more pricing services. The pricing
services utilize information with respect to market transactions, quotations
from dealers and various relationships among securities in determining value
and may provide prices determined as of times prior to the close of the NYSE.
The 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 that
have a remaining maturity of 60 days or less when the value obtained is fair
value. Further information with respect to the valuation of the Fund's assets
is included in the Statement of Additional Information.
Distribution Plan
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, the Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class of
shares as follows:
Class Service Fee Distribution Fee
- ------- ------------- -----------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance or servicing of shareholder accounts.
A portion of any initial commission paid to dealers for the sale of shares of
the Fund represents payment for personal services and/or the maintenance of
shareholder accounts by such dealers. Dealers who have sold Class A shares are
eligible for further reimbursement commencing as of the time of such sale.
Dealers who have sold Class B and Class D shares are eligible for further
reimbursement after the first year during which such shares have been held of
record by such dealer as nominee for its clients (or by such clients directly).
Any service fees received by the Distributor and not allocated to dealers may
be applied by the Distributor in reduction of expenses incurred by it directly
for personal services and the maintenance or servicing of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by the
Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources
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<PAGE>
of the Distributor (including the advisory fees paid by the Fund), have also
been authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the Distribution
Plan to 1%, of which 0.75% may be used to pay distribution expenses and 0.25%
may be used to pay shareholder service fees. The NASD rule also limits the
aggregate amount which the Fund may pay for such distribution costs to 6.25% of
gross share sales of a class since the inception of any asset-based sales
charge plus interest at the prime rate plus 1% on unpaid amounts thereof (less
any contingent deferred sales charges). Such limitation does not apply to
shareholder service fees. 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 applicable 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 from the Fund are normally remitted within seven days after
receipt of the redemption request by the Fund and any necessary documents in
good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed for
transfer or accompanied by an endorsed stock power; (3) any required signature
guarantees (see "Redemption of Shares--Signature Guarantees" below); and (4)
any additional documents which may be required for redemption in the case of
corporations, trustees, etc., such as certified copies of corporate
resolutions, governing instruments, powers of attorney, and the like. The
Transfer Agent will not process requests for redemption until it has received
all necessary documents in good order. A shareholder will be notified promptly
if a redemption request cannot be accepted. Shareholders having any questions
about the requirements for redemption should call Shareholder Services
toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Fund may
revoke or suspend the telephone redemption privilege at any time and without
notice. See "Shareholder Services--Telephone Services" for a discussion of the
conditions and risks associated with Telephone Privileges.
Request by Check (Class A Shares Only)
Shareholders of Class A shares of the Fund may redeem shares by checks drawn on
State Street Bank and Trust Company. Checks may be made payable to the order of
any person or organization designated by the shareholder and must be for
amounts of at least $500 but not more than $100,000. Shareholders will
19
<PAGE>
continue to earn dividends on the shares to be redeemed until the check clears.
There is no charge associated with redemption of shares by check. Checkbooks
are supplied for a $2 fee. Checks will be sent only to the registered owner at
the address of record. A $10 fee will be charged against an account in the
event a redemption check is presented for payment and not honored pursuant to
the terms and conditions established by State Street Bank and Trust Company.
Shareholders can request the checkwriting privilege by completing the
signature card which is part of the Application. In order to arrange for
redemption-by-check after an account has been opened, a revised Application
with signature card and signatures guaranteed must be sent to Shareholder
Services. Cancelled checks will be returned to shareholders at the end of each
month.
The redemption-by-check service is subject to State Street Bank and Trust
Company's rules and regulations applicable to checking accounts (as amended
from time to time), and is governed by the Massachusetts Uniform Commercial
Code. All notices with respect to checks drawn on State Street Bank and Trust
Company must be given to State Street Bank and Trust Company. Stop payment
instructions with respect to checks must be given to State Street Bank and
Trust Company by calling 1-617-985-8543. Shareholders may not close out an
account by check.
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
1-800-562-0032 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge is
subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor as
its agent to accept orders from dealers by wire or telephone for the repurchase
of shares by the Distributor from the dealer. The Fund may revoke or suspend
this authorization at any time. The repurchase price is the net asset value for
the applicable shares next determined following the time at which the shares
are offered for repurchase by the dealer to the Distributor. The dealer is
responsible for promptly transmitting a shareholder's order to the Distributor.
Payment of the repurchase proceeds is made to the dealer who placed the order
promptly upon delivery of certificates for shares in proper form for transfer
or, for Open Accounts, upon the receipt of a stock power with signatures
guaranteed as described below, and, if required, any supporting documents.
Neither the Fund nor the Distributor imposes any charge upon such a repurchase.
However, a dealer may impose a charge as agent for a shareholder in the
repurchase of his or her shares. The Fund has reserved the right to change,
modify or terminate the services described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable 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 promptly 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
20
<PAGE>
Eligible Funds combined. Imposition of a maintenance fee on a small account
could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it may
elect to suspend the redemption of shares or postpone the date of payment of
redemption proceeds: (1) during any period that the NYSE is closed (other than
customary weekend and holiday closings) or trading on the NYSE is restricted;
(2) during any period in which an emergency exists as a result of which
disposal of portfolio securities is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets; 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 intermediaries; (4) requests to transfer the
registration of shares to another owner; and (5) authorizations to establish
the checkwriting privilege. 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 Appli-
21
<PAGE>
cation, the 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 holding period of any acquired shares. No exchange transaction
fee is currently imposed on any exchange.
Shares of the Fund may also be acquired or redeemed in exchange for shares
of the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers of
Merrill Lynch, Pierce, Fenner & Smith Incorporated (subject to completion of
steps necessary to implement the program). The Fund and Summit Cash Reserves
are related mutual funds for purposes of investment and investor services. Upon
the acquisition of shares of Summit Cash Reserves by exchange for redeemed
shares of the Fund, (a) no sales charge is imposed by Summit Cash Reserves, (b)
no contingent deferred sales charge is imposed by the Fund on the Fund shares
redeemed, and (c) any applicable holding period of the Fund shares redeemed is
"tolled," that is, the holding period clock stops running pending further
transactions. Upon the acquisition of shares of the Fund by exchange for
redeemed shares of Summit Cash Reserves, (a) the acquisition of Class A shares
shall be subject to the initial sales charges or contingent deferred sales
charges applicable to an initial investment in such Class A shares, unless a
prior Class A sales charge has been paid indirectly, and (b) the acquisition of
Class B 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 its shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or the
shareholder's dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-562-0032. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes, each
exchange actually represents the sale of shares of one fund and the purchase of
shares of another. Accordingly, exchanges may produce a capital gain or loss
for tax purposes. The exchange privilege may be terminated or suspended or its
terms changed at any time, subject, if required under applicable regulations,
to 60 days' prior notice. New accounts established for investments upon
exchange from an existing account in another fund will have the same Telephone
Privileges as the existing account, unless Shareholder Services is instructed
other-
22
<PAGE>
wise. 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.
Consult Shareholder Services before requesting an exchange or for further
information.
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 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 also 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.
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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 Program and the Systematic Withdrawal Plan at the same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all of their
dividends and any other distributions from the Fund or any Eligible Fund
automatically invested at net asset value in one other such Eligible Fund
designated by the shareholder, provided the account into which the dividends
and distributions are directed is initially funded with the requisite minimum
amount. The number of shares purchased will be determined as of the dividend
payment date. The Dividend Allocation Plan is subject to 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
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<PAGE>
(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 must be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not be
liable for any losses due to unauthorized or fraudulent instructions if such
procedures are not followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-562-0032. Although it is unlikely, during periods of extraordinary market
conditions, a shareholder may have difficulty in reaching Shareholder Services
at such telephone number. In that event, the shareholder should contact
Shareholder Services at 1-800-357-7800 or otherwise at its main office at One
Financial Center, Boston, Massachusetts 02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your account,
including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made in
writing to State Street Research Shareholder Services, P.O. Box 8408, Boston,
Massachusetts 02266-8408. A fee of up to $10 will be charged against an account
for providing additional account transcripts or photocopies of paid redemption
checks or for researching records in response to special requests.
Shareholder Telephone Transactions:
Please call 1-800-562-0032
Call this number for assistance in purchasing shares by wire and for telephone
redemptions or telephone exchange transactions. For more information and/or
requisite authorization forms for telephone redemption and exchange privileges
call 1-800-562-0032. 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 August, 1996 as an additional 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. The Trust is registered with the Securities and Exchange
Commission under the 1940 Act, as an open-end management investment company.
The fiscal year end of the Fund is April 30.
Subject to a number of conditions, including the granting of an exemptive
order from the Securities and Exchange Commission and/or possible changes in
applicable laws and regulatory policy, the Fund may choose to become a fund of
funds, that is, a mutual fund which invests in other mutual funds. For example,
the Fund could invest in an affiliated fund that invests primarily in U.S.
Government securities,
25
<PAGE>
a second affiliated fund that invests primarily in high yield, high risk
securities, and a third fund that invests in international debt. Such an
arrangement could offer advantages to the Fund through more efficient
operations and portfolio diversification.
Except for those differences between the classes of shares described below
and elsewhere in the Prospectus, each share of the Fund has equal dividend,
redemption and liquidation rights with other shares of the Fund and when issued
is fully paid and nonassessable. In the future, certain classes may be
redesignated, for administrative purposes only, to conform to standard class
designations and common usage of terms which may develop in the mutual fund
industry. For example, Class C shares may be redesignated as Class Y shares and
Class D shares may be redesignated as Class C shares. Any redesignation would
not affect any substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, 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. The Trustees may reorganize, merge or liquidate
the Fund without prior shareholder approval and subject to compliance with
applicable law. On any matter submitted to the shareholders, the holder of each
Fund share is entitled to one vote per share (with proportionate voting for
fractional shares) regardless of the relative net asset value thereof. Under
the Master Trust Agreement of the Trust, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder
meetings unless required by the 1940 Act or other reasons.
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, 1997, the Investment Manager, the Distributor and/or
Metropolitan, their indirect parent, were the beneficial owners in the
aggregate of 66.3% and 82.7% of the outstanding Class A and Class C shares of
the Fund, respectively, and may be deemed to be in control of such classes as
"control" is defined in the 1940 Act. So long as 25% of a class of shares is so
owned, such owners will be presumed to be in control of such class of shares
for purposes of voting on certain matters submitted to a vote of shareholders,
such as any Distribution Plan for a given class.
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
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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 managing equity and debt securities. 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 both are located at One Financial Center,
Boston, Massachusetts 02111-2690.
Under its Advisory Agreement with the Trust, the Investment Manager
receives a monthly investment advisory fee equal to 0.75% (on an annual basis)
of the average daily value of the net assets of the Fund. The Fund bears all
costs of its operation other than those incurred by the Investment Manager
under the Advisory Agreement. In particular, the Fund pays, among other
expenses, investment advisory fees, certain distribution expenses under the
Fund's Distribution Plan and the compensation and expenses of the Trustees who
are not otherwise currently affiliated with the Investment Manager or any of
its affiliates. The Fund also incurs expenses payable to various states in
connection with the offer and sale of the Fund's shares, and expenses for
legal, custodian and transfer agent services, among other costs. Under the
Advisory Agreement, the Investment Manager provides the Fund with office space,
facilities and personnel. The Investment Manager compensates Trustees of the
Trust if such persons are employees or affiliates of the Investment Manager or
its affiliates.
John H. Kallis is primarily responsible for the day-to-day management of
the Fund's portfolio. He has managed the Fund since inception. Mr. Kallis has
investment discretion over the entire portfolio of the Fund, makes investment
decisions as to specific securities holdings, allocates and from time to time
adjusts such allocations of investments among different sectors, and delegates
responsibility for defined portions of the portfolio to others. Mr. Kallis
manages the U.S. government securities sector of the Fund. His principal
occupation currently is Senior Vice President of State Street Research &
Management Company. During the past five years he has also served as portfolio
manager for State Street Research & Management Company. Mr. Bartlett R. Geer
has managed the high yield, high risk securities sector of the Fund since
inception. Mr. Geer's 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. Ms.
Elizabeth M. Westvold has managed the international debt sector of the Fund
since inception. Ms. Westvold's 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 a securities analyst 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 taxes on its 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 will be declared daily during each
calendar month and paid monthly; distributions of long-term and short-term
27
<PAGE>
capital gain net income will generally be made on an annual basis (or as
otherwise required for compliance with applicable tax regulations), except to
the extent that net short-term gains, if any, are included in the monthly
income dividends for the purpose of stabilizing, to the extent possible, the
amount of net monthly distribution as described below. Both dividends from net
investment income and distributions of capital gain net income will be 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 of record with annual information
on a timely basis concerning the federal tax status of dividends and
distributions during the preceding calendar year.
The Fund has adopted distribution procedures which differ from those which
have been customary for investment companies in general. The Fund will declare
a dividend each day in an amount based on monthly projections of its future net
investment income and will pay such dividends monthly as described above.
Consequently, the amount of each daily dividend may differ from actual net
investment income as determined under generally accepted accounting principles.
The purpose of these distribution procedures is to attempt to eliminate, to the
extent possible, fluctuations in the level of monthly dividend payments that
might result if the Fund declared dividends in the exact amount of its daily
net investment income.
Each daily dividend is payable to shareholders of record at the time of
its declaration (for this purpose, including only holders of shares purchased
for which payment has been received by the Transfer Agent and excluding holders
of shares redeemed on that day).
Although not contemplated, it is possible that total distributions in a
year could exceed the total of the Fund's current and accumulated earnings and
profits as calculated for federal income tax purposes, because of technical tax
and accounting considerations and the distribution procedures described above,
among other reasons. This excess would first be treated as a "return of
capital" for federal income tax purposes and would reduce by its amount the
shareholder's cost or other basis in his or her shares. After the shareholder's
cost or other basis is reduced to zero, which is highly unlikely, the
distribution will be treated as gain from the sale of Fund shares.
Dividends paid by the Fund from taxable net investment income and
distributions of net short-term capital gains, whether they are 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.
Dividends and other distributions and proceeds of redemptions 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 and certification that the
shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisers regarding
tax matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, the Fund may compare the performance of its Class A,
Class B, Class C and Class D shares to that of other mutual funds with similar
investment objectives, to certificates of deposit and/or to other financial
alternatives. In addition, the Fund may state its weighted average portfolio
quality. The Fund may also compare its performance to appropriate indices such
as Lehman Brothers Aggregate Bond Index, First Boston High Yield Bond Index,
Salomon Brothers Non-U.S. Dollar World Government Bond Index, Merrill Lynch
Domestic Master Bond Index, Merrill Lynch Global Bond Index, Merrill Lynch High
Yield Master Index,
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<PAGE>
Standard & Poor's 500 Stock Index (the "S&P 500"), Consumer Price Index and Dow
Jones Industrial Average and/or to appropriate rankings and averages, such as
the Lipper Multi-Sector Income Funds average, 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
accrued expenses and recurring charges, including management and distribution
fees, are recognized. The calculation also reflects the highest applicable
initial or contingent deferred sales charge, determined as of the assumed date
of initial investment or the assumed date of redemption, as the case may be.
Standard total return may be accompanied with nonstandard total return
information computed in the same manner, but for differing periods 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 30-day period
by the applicable maximum offering price per share on the last day of such
period and annualizing the result. For purposes of the yield calculation,
interest income is computed based on the yield to maturity of each debt
obligation in the Fund's portfolio, and all recurring charges are recognized.
The standard total returns 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 taken into account in the
calculation of nonstandard total return, the results will be increased. Any
voluntary waiver of management 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 the Fund's 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. Performance data or rankings for a given class of shares should be
interpreted carefully by investors who hold or may invest in a different class
of shares.
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APPENDIX
Description of Debt/Bond Ratings
Standard & Poor's Corporation
AAA: An obligation rated within the AAA category has the highest rating
assigned by S&P. Capacity to meet the financial commitment on the obligation is
extremely strong.
AA: An obligation rated within the AA category differs from the highest
rated obligation only in small degree. Capacity to meet the financial commitment
on the obligation is very strong.
A: An obligation rated within the A category is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories. However, capacity to meet the financial
commitment on the obligation is still strong.
BBB: An obligation rated within the BBB category exhibits adequate
protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to meet the
financial commitment on the obligation.
Obligations rated within the BB, B, CCC, CC and C categories are regarded
as having significant speculative characteristics. BB indicates the least
degree of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.
BB: An obligation rated within the BB category is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet the financial commitment on the
obligation. The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB- rating.
B: An obligation rated within the B category is more vulnerable to
nonpayment than obligations rated within the BB category, but currently has the
capacity to meet the financial commitment on the obligation. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
meet the financial commitment on the obligation. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: An obligation rated within the CCC category is currently vulnerable
to nonpayment, and is dependent upon favorable business, financial and economic
conditions to meet the financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to meet the financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy
petition has been filed, but payments on this obligation are being continued.
D: An obligation rated within the D category is in payment default. The D
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations
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exposed to severe prepayment risks--such as interest only (IO) and principal
only (PO) mortgage securities; and obligations with unusually risky terms, such
as inverse floaters.
Moody's Investors Service, Inc.
Aaa: Bonds which are rated within the Aaa category are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated within the Aa category are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A: Bonds which are rated within the A category possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds which are rated within the Baa category are considered as
medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds which are rated within the Ba category are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated within the B category generally lack
characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa: Bonds which are rated within the Caa category are of poor standing.
Such issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca: Bonds which are rated within the Ca category represent obligations
which are speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C: Bonds which are rated within the C category are the lowest rated class
of bonds, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the addition
of a numeral indicating a bond's rank within its rating category.
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STATE STREET RESEARCH
STRATEGIC INCOME 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
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
[STATE STREET RESEARCH LOGO]
State Street Research
Strategic Income Fund
September 1, 1997
P R O S P E C T U S
SI/470E-997IBS CONTROL NUMBER: 4246-970828 (0998) SSR-LD
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
a series of
STATE STREET RESEARCH SECURITIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1997
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS...........................2
ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT TECHNIQUES...........4
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS..........................11
TRUSTEES AND OFFICERS....................................................15
INVESTMENT ADVISORY SERVICES.............................................18
PURCHASE AND REDEMPTION OF SHARES........................................19
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, 1997, 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 non-fundamental 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;*
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(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.
The following non-fundamental 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 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 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;
(3) 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;
(4) 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,
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the Fund will not make short sales or maintain a short
position unless not more than 5% of the Fund's net assets (ta
ken 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);
(5) not to purchase a security issued by another investment
company, except to the extent permitted under the 1940 Act or
except by purchases in the open market involving only
customary brokers' commissions, or securities acquired as
dividends or distributions or in connection with a merger,
consolidation or similar transaction or other exchange;
(6) 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);
(7) 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
(8) not to purchase any security while borrowings, including
reverse repurchase agreements, representing more than 5% of
the Fund's total assets are outstanding.
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 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
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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, permissible
assets equal to the face value of the futures contract will be identified by the
Fund to the Trust's custodian for maintenance in a separate account to insure
that the use of such futures contracts is unleveraged. Similarly, 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.
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
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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.
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.
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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 may
not establish a position in a commodity futures contract or purchase or sell a
commodity option contract for other than bona fide hedging purposes if
immediately thereafter the sum of the amount of initial margin deposits and
premiums required to establish such positions for such nonhedging purposes would
exceed 5% of the market value of the Fund's net assets.
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.
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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 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.
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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
Currently, the Fund's policy is to not make an investment in restricted
securities, including Rule 144A and other restricted securities, if as a result
more than 35% of its total assets are invested in such securities, provided not
more than 10% of its assets are invested in non-Rule 144A Securities.
The Fund's policy is to not make an investment in securities sold
pursuant to Rule 144A under the Securities Act of 1933, as amended, if as a
result more than 35% of its total assets are invested in such securities and not
more than 10% of its assets are invested in other than Rule 144A securities.
Securities may be resold pursuant to Rule 144A under certain circumstances only
to qualified institutional buyers as defined in the rule, and the markets and
trading practices for such securities are still developing; depending on the
development of such markets, such Rule 144A securities may be deemed to be
liquid as determined by or in accordance with methods adopted by the Trustees.
Under such methods the following factors are considered, among others: the
frequency of trades and quotes for the security, the number of dealers and
potential purchasers in the market, marketmaking activity, and the nature of the
security and marketplace trades. Investments in Rule 144A securities could have
the effect of increasing the level of the Fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. Also, the Fund may be adversely impacted by the possible
illiquidity and subjective valuation of such securities in the absence of a
market for them.
Restricted securities which are not resalable under Rule 144A can be
subject to risks of illiquidity and subjective valuations to a greater degree
than Rule 144A securities.
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
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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.
Industry Classifications
In determining how much of the portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing may be classified according to
the industries of their parent or sponsor companies, or industries that
otherwise most affect such financing companies. Issuers of asset-backed pools
will be classified as separate industries based on the nature of the underlying
assets, such as mortgages and credit card receivables, etc.
"Asset-backed--Mortgages" include private pools of nongovernment backed
mortgages.
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Aerospace Grocery
Airline Healthcare & Hospital Management
Asset-backed--Mortgages Hospital Supply
Asset-backed--Credit Card Hotel & Restaurant
Receivables Insurance
Automotive Machinery
Automotive Parts Media
Bank Metal & Mining
Building Office Equipment
Business Service Oil Production
Cable Capital Goods & Equipment Oil Refining & Marketing
Chemical Oil Service
Computer Software & Service Paper Products
Conglomerate Personal Care
Consumer Goods & Services Photography
Container Plastics
Cosmetics Printing & Publishing
Diversified Railroad
Drug Real Estate & Building
Electric Recreation
Electric Equipment Retail Trade
Electronic Components Savings & Loan
Electronic Equipment Shipping & Transportation
Entertainment Technology & Communications
Financial Service Telephone
Food & Beverage Textile & Apparel
Forest Products Tobacco
Gaming & Lodging Truckers
Gas Trust Certificates--Government Related Lending
Gas Transmission
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, 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.
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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
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
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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
within the "A" major rating category by Standard & Poor's Corporation ('s&P") or
within the "Prime" category 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 within the "A" major rating category by S&P or by within
the "Prime" category by Moody's. The money market investments in corporate bonds
and debentures (which must have maturities at the date of settlement of one year
or less) must be rated at the time of purchase at least within the "A" major
rating category by S&P or within the "Prime" category by Moody's.
Commercial paper rated within the "A" major rating category (highest
quality) by S&P is issued by entities which have liquidity ratios which are
adequate to meet cash requirements. Long-term senior debt is rated A or better,
although in some cases credits within the "BBB" category may be allowed. The
issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong position within the industry. The reliability and quality of
management are unquestioned. The relative strength or weakness of the above
factors determines whether the issuer's commercial paper is rated A-1, A-2 or
A-3. (Those A-1 issues determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating category
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: evaluation of the management of the issuer; economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks
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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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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.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 59. He is
retired and was formerly Senior Vice President for Finance and Operations and
Treasurer of The Pennsylvania State University.
*+Bartlett R. Geer, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 42. 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.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville, NC
28803, serves as Trustee of the Trust. He is 69. He is engaged principally in
private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 56. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as portfolio manager for State Street Research &
Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 70. He is engaged principally in private
investments and civic affairs, and is an author of business history. Previously,
he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Trustee of the Trust. He is 71. 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. He is 46. His principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer and Director of State Street
Research & Management Company. During the past five years he has also served as
Executive Vice President and Chief Financial Officer of New England Investment
Companies and as Senior Vice President and Vice President of New England Mutual
Life Insurance Company. Mr. Maus's other principal business affiliations include
Executive Vice President, Treasurer, Chief Financial Officer and Director of
State Street Research Investment Services, Inc.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111
serves as Secretary and General Counsel of the Trust. He is 42. 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 65. 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.
- -----------------------------------------
* or + See footnotes on page 17.
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*+Kim M. Peters, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 44. 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.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173, serves as
Trustee of the Trust. He is 73. 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 59. His principal occupations during the past
five years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
60. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+Thomas A. Shively, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 43. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President of State
Street Research & Management Company. Mr. 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 54. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he 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., and until February, 1996,
prior positions as President and Chief Executive Officer of that company.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 72. 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 37. 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, 1997, the Trustees and principal officers of the Trust
as a group owned none of the Fund's outstanding shares.
As of July 31, 1997, 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
79.3% of the outstanding Class C shares of the Fund. As of the same date, Chase
Manhattan Bank, N.A., 770 Broadway, New York, NY 10003, was the record owner of
approximately 20.1% of the Fund's outstanding Class C shares. Chase Manhattan
Bank, N.A. holds such shares as a trustee under certain employee benefit
- -----------------------------------------
* or + See footnotes on page 17.
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<PAGE>
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 or Director and/or officer of one or more of the
following investment companies, each of which has an advisory relationship
with the Investment Manager or its affiliates: State Street Research 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 were compensated as follows:
- ----------------------------------------------------------------------------
Aggregate Total Compensation
Name of Compensation From Trust and Complex
Trustee From Trust(a) Paid to Trustees (b)
- ----------------------------------------------------------------------------
Steve A. Garban $ 496 $ 34,750
Malcolm T. Hopkins $ 496 $ 34,750
Edward M. Lamont $2,750 $ 59,375
Robert A. Lawrence $2,950 $ 92,125
Dean. O. Morton $3,150 $ 96,125
Thomas L. Phillips $2,950 $ 59,375
Toby Rosenblatt $2,750 $ 59,375
Michael S. Scott Morton $3,750 $100,325
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $3,350 $ 63,375
- ---------------------
(a) For the Fund's fiscal year ended April 30, 1997. Includes compensation
from multiple series of the Trust for the fiscal year ended April 30,
1997. See "Distribution of Shares" for a listing of series.
(b) Includes compensation on behalf of all series of 12 investment
companies, for which the Investment Manager served directly or
indirectly as investment adviser or for which the Investment Manager
served as sub-investment adviser, and the series of State Street
Research Portfolios, Inc., for which State Street Research Investment
Services, Inc. serves as distributor. "Total Compensation from Trust
and Complex" is for the 12 months ended December 31, 1996. The Trust
does not provide any pension or retirement benefits for the Trustees.
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 years ended April 30, 1997, 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
$92,595, $89,783 and $72,084, respectively. For the same periods, the voluntary
reduction of fees or assumption of expenses amounted to $200,948, $165,638 and
$151,957, respectively.
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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.
Under the Code of Ethics of the Investment Manager, its employees in
Boston and selected other persons elsewhere involved in investment management
operations, are only permitted to engage in personal securities transactions in
accordance with certain conditions relating to such persons position, the
identity of the security, the timing of the transactions, and similar factors.
Such persons must report their personal securities transactions quarterly and
supply broker confirmations of such transactions to the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by the Distributor. The Fund offers
four classes of shares which may be purchased at the next determined net asset
value per share plus, in the case of all 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
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<PAGE>
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 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.
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<PAGE>
Class B Shares
In certain cases, a dealer may elect to waive the 4% commission on
Class B shares and receive in lieu thereof a 1% annual fee with respect to such
shares until the shares convert to Class A shares.
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 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
21
<PAGE>
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 with the use of such pricing services as may be
deemed appropriate or methodologies approved by the Trustees.
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 years ended April 30,
1996 and 1997 the portfolio turnover rate was 117.28% and 68.61%, respectively.
The Investment Manager believes the portfolio turnover rate for the fiscal year
ended April 30, 1997 was significantly lower than that for the previous fiscal
year because of the decline in volatility in the bond market and the relevant
decrease in trading necessary in light of the Fund's overall trading strategy.
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
22
<PAGE>
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 modeling and including software providing investment
personnel with efficient access to current and historical data from a variety of
internal and external sources); and portfolio evaluation services and relative
performance of accounts.
In the case of the Fund and other registered investment companies
advised by the Investment Manager, the above services may include data relating
to performance, expenses and fees of those investment companies and other
investment companies; this information is used by the Trustees or directors of
the investment companies to fulfill their responsibility to oversee the quality
of the Investment Manager's advisory services and to review the fees and other
provisions contained in the advisory contracts between the investment companies
and the Investment Manager. The Investment Manager considers these investment
company services only in connection with the execution of transactions on behalf
of its investment company clients and not its other clients.
Certain of the nonexecution services provided by broker-dealers may in
turn be obtained by the broker-dealer from third parties who are paid for such
services by the broker-dealers. The Investment Manager has an investment in less
than ten percent of the outstanding equity of one such third party which is
engaged in the development and licensing of trading systems which include
portfolio analysis and modeling and other research and investment
decision-making capabilities. The Investment Manager may allocate brokerage to
broker-dealers who in turn pay this third party for the portion of the third
party's trading system provided to the Investment Manager which is estimated by
the Investment Manager to provide appropriate assistance in the investment
decision-making process. Because of its minority interest in the third party,
the Investment Manager could be said to benefit indirectly from such brokerage
allocation.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Among other measures, the Investment Manager's
investment management personnel seek to evaluate the quality of research and
other services received, and the results of this effort are made available to
the equity trading department which sometimes uses this information as a
consideration in the selection of brokers to execute portfolio transactions.
23
<PAGE>
Some services furnished by broker-dealers may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and the
Investment Manager pays for that portion directly from its own funds. 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, the Investment Manager relies on the provisions of
Section 28(e) of the Securities Exchange Act of 1934, to the extent applicable.
For the fiscal years ended April 30, 1997 and 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
24
<PAGE>
aggregation might result in a large number of small transactions with consequent
increased custodial and other transactional costs which may disproportionately
impact smaller accounts. Such disaggregation, depending on the circumstances,
may or may not result in such accounts receiving more or less favorable
execution relative to other 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. Accordingly, for each of the Fund's tax-years that
has begun on or prior to August 5, 1997, the Fund must, among other things, (a)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities, (ii) options, futures, or forward contracts (other than options,
futures or forward contracts on foreign currencies), or (iii) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies (or options, futures, or forward contracts) are not directly
related to the Fund's principal business of investing in stocks or securities
(or options and futures with respect to stocks or securities); (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). For any Fund tax year beginning after August 5, 1997, the Fund will have
to comply with each of those requirements except the 30% test in order to
qualify to be treated as a regulated investment company under Subchapter M.
Beginning May 1, 1998 (the start of the Funds first tax year that
begins after August 5, 1997), when the fund no longer has to comply with the 30%
test in order to qualify under Subchapter M, the Fund will have greater
flexibility in buying and selling securities and in the use of futures and
options in managing risks. The 30% test has effect of limiting the extent to
which the Fund may sell securities held for less than three months, write
options which expire in less than three months, and effect closing transactions
with respect to call or put options that 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.) The
30% test also may 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.
25
<PAGE>
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.
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
(until May 1, 1998), 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
26
<PAGE>
be careful to consider the tax implications of buying shares just prior to a
taxable distribution. The price of shares purchased at that time includes the
amount of any forthcoming distribution. Those investors purchasing shares just
prior to a taxable distribution will then receive a return of investment upon
distribution which will nevertheless be taxable to them.
DISTRIBUTION OF SHARES OF THE FUND
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
years ended April 30, 1997 and 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 Distributor may also pay
its affiliate, Metlife Securities, Inc. additional sales compensation of up to
0.25% of certain sales.
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.
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<PAGE>
Shares sold with such commissions payable are subject to a one-year contingent
deferred sales charge of 1.00% on any portion of such shares redeemed within one
year following their sale. After a particular purchase of Class A shares is made
under the Letter of Intent, the commission will be paid only in respect of that
particular purchase of shares. If the Letter of Intent is not completed, the
commission paid will be deducted from any discounts or commissions otherwise
payable to such dealer in respect of shares actually sold. If an investor is
eligible to purchase shares at net asset value on account of the Right of
Accumulation, the commission will be paid only in respect of the incremental
purchase at net asset value.
For the fiscal years ended April 30, 1997 and 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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<PAGE>
For the period May 1, 1996 to March 27, 1997 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 $ 208
Printing and mailing of
prospectuses to other
than current shareholders $ 75
Compensation to dealers 0
Compensation to sales personnel $ 729
Interest 0
Carrying or other
financial charges 0
Other Expenses:
Marketing, general $ 349
-------
Total $1,361
======
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, if any, by the Fund's affiliates to reduce expenses relating
to the Fund; see "Accrued Expenses" later in this section.
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<PAGE>
Total Return
The standard total return of each class of shares of the Fund was as
follows:
May 16, 1994
One Year (commencement of
Ended operations)
April 30, 1997 to April 30, 1997
-------------- -----------------
With Subsidy With Subsidy
Class C 5.85% 6.56%
Standard total return is computed separately for each class of shares
by determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
designated period assuming a hypothetical
$1,000 payment made at the beginning of the
designated period
The calculation is based on the further assumptions that the highest
applicable 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 C share of the Fund, based on the
month of April, 1997 was as follows:
With Subsidy
Class C 6.45%
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<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
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<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, 1997, without taking sales charges into account, were as follows:
With Subsidy
Class C 1.47%
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 1997 were as follows:
Class C 5.88%
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 through electronic or other media. Shareholders with
substantial holdings in one or more State Street Research Funds may also receive
reports and other information which reflect or analyze their positions in a
consolidated manner. For more information , call State Street Research
Shareholder Services.
The following financial statements are for the Fund's fiscal year ended
April 30, 1997:
33
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 93.4%
U.S. Treasury 54.0%
U.S. Treasury Bond, 9.875% ...... $ 175,000 11/15/2015 $ 226,460
U.S. Treasury Note, 6.75% ......... 675,000 5/31/1999 680,798
U.S. Treasury Note, 7.125% ...... 1,475,000 9/30/1999 1,500,119
U.S. Treasury Note, 6.875% ...... 1,175,000 3/31/2000 1,188,583
U.S. Treasury Note, 6.625% ...... 525,000 7/31/2001 526,475
U.S. Treasury Note, 7.50% ......... 200,000 11/15/2001 207,218
U.S. Treasury Note, 6.25% ......... 475,000 2/28/2002 468,616
U.S. Treasury Note, 7.25% ......... 1,325,000 5/15/2004 1,367,851
U.S. Treasury Note, 7.875% ...... 1,725,000 11/15/2004 1,843,059
U.S. Treasury Note, 6.50% ......... 750,000 8/15/2005 738,870
U.S. Treasury Note, 3.375% ...... 151,086 1/15/2007 148,678
---------
8,896,727
---------
U.S. Agency 2.6%
Federal Home Loan Mortgage
Corp. Note, 7.24% ............... 150,000 5/15/2002 149,250
Guaranteed Export Trust
Notes, Series 95-B, 6.13% 264,706 6/15/2004 259,896
Guaranteed Export Trust
Notes, Series 96-A, 6.55% 22,059 6/15/2004 21,916
-------
431,062
-------
U.S. Agency Mortgage 4.1%
Federal National Mortgage
Association, 8.00% ............ 198,867 4/01/2008 204,708
Government National Mortgage
Association, 6.50%............... 64,787 2/15/2009 63,380
Government National Mortgage
Association, 6.50%............... 86,810 5/15/2009 84,924
Government National Mortgage
Association, 9.00%............... 72,682 11/15/2016 77,393
Government National Mortgage
Association REMIC Series
96-6-B, 6.50% .................. 250,000 10/16/2017 244,962
-------
675,367
-------
Canadian-Yankee 6.3%
Hydro Quebec Deb., 13.25% ......... 250,000 12/15/2013 285,777
Province of Manitoba Global
Note, 6.75% ..................... 75,000 3/01/2003 74,202
Province of Ontario Deb.,
11.50 % ........................ 175,000 3/10/2013 189,453
Province of Quebec Deb.,
8.80 % ........................ 250,000 4/15/2003 270,060
Southern Investments Sr.
Note, 6.375% .................. 75,000 11/15/2001 73,077
Principal Maturity Value
Amount Date (Note 1)
------------ ------------ ------------
Talisman Energy Inc. Deb.,
7.125% ........................ $ 150,000 6/01/2007 $ 146,489
-----------
1,039,058
-----------
Foreign Government 1.4%
Australian Dollar
Government of Australia, 10.00% 150,000 2/15/2006 133,152
Canadian Dollar
Government of Canada, 0.00% ...... 50,000 10/16/1997 35,309
European Currency Unit
Government of France, 8.00% . 50,000 4/25/2003 63,176
-----------
231,637
-----------
Finance/Mortgage 18.5%
Associates Corp. of North
America Note, 6.375% ............ $ 150,000 10/15/2002 145,499
Capital One Bank Sr. Note,
7.08 % ........................ 150,000 10/30/2001 149,220
Chase Mortgage Finance
Corp. Series 93L-5, 6.25% ...... 75,000 10/25/2024 72,375
CIT Group Holdings Inc. Note,
6.75 % ........................ 100,000 5/15/2001 99,501
CNA Financial Corp. Note,
6.75 % ........................ 175,000 11/15/2006 166,302
Columbia / HCA Healthcare
Corp. Master Trust Note,
6.87 % ........................ 125,000 9/15/2003 123,751
Countrywide Funding Corp.
Master Trust Note, 6.28% ...... 175,000 1/15/2003 168,131
Countrywide Mortgage Inc.
Series 1994-2 Class A-7,
6.50 % ........................ 150,000 4/25/2008 149,484
Discover Credit Card Trust
Series 1993 A, 6.25% ............ 150,000 8/16/2000 149,859
Finova Capital Corp. Note,
6.375% ........................ 100,000 10/15/2000 98,260
General Motors Acceptance
Corp. Master Trust Note,
7.85 % ........................ 275,000 11/17/1997 277,365
Household Affinity Credit Card
Master Trust Series
1994-1A, 5.57% .................. 150,000 5/15/2001 150,187
Household Finance Corp.
Note, 6.875% .................. 75,000 3/01/2003 74,152
Los Angeles County, California
Pension Series 94-D,
6.65 % ........................ 100,000 6/30/2003 98,702
NationsBank Master Trust
Series 1995-1, 6.45% ............ 575,000 4/15/2003 571,763
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance/Mortgage (cont'd)
Prudential Home Mortgage
Securities Co. Series 93-29
A-6 PAC, 6.75% .................................... $ 86,762 8/25/2008 $ 86,355
Prudential Home Mortgage
Series 19 A-5, 7.00% .............................. 110,062 6/25/2023 109,855
Sears Credit Account Master
Trust Series 1995-2, 8.10% 125,000 6/15/2004 128,633
Structured Assets Security
Corp. Series 1996-CFL
A-1C, 5.94% ....................................... 225,000 2/25/2028 221,695
-----------
3,041,089
-----------
Corporate 5.7%
Case Credit Corp. Note, 6.125%. 100,000 2/15/2003 94,921
Chevron Corp. Profit Sharing
Note, 8.11% ....................................... 125,000 12/01/2004 130,130
Darden Restaurants Inc.
Note, 6.375% ....................................... 175,000 2/01/2006 159,630
DeBartolo Capital Partnership
A-2, 7.48%+ ....................................... 150,000 5/01/2004 153,000
Electronic Data Systems Corp.
Note, 6.85%+ ....................................... 250,000 5/15/2000 250,530
Southern California Edison Co.
Deb., 5.875% .................................... 150,000 1/15/2001 144,999
-----------
933,210
-----------
Principal Maturity Value
Amount Date (Note 1)
------------ ------------ ---------------
Trust Certificates 0.8%
Rural Electric Cooperative
Grantor Trust Certificates,
10.11% .......................................... $125,000 12/15/2017 $ 133,774
-----------
Total Fixed Income Securities (Cost $15,591,716)...... 15,381,924
-----------
SHORT-TERM OBLIGATIONS 4.9%
American Express Credit
Corp., 5.50% ....................................... 254,000 5/01/1997 254,000
American Express Credit
Corp., 5.48% ....................................... 176,000 5/01/1997 176,000
American Express Credit
Corp., 5.38% ....................................... 373,000 5/01/1997 373,000
-----------
Total Short-Term Obligations (Cost $803,000) ......... 803,000
-----------
Total Investments (Cost $16,394,716)--98.3% ......... 16,184,924
Cash and Other Assets, Less Liabilities--1.7% ...... 284,048
-----------
Net Assets--100.0% ................................. $16,468,972
===========
Federal Income Tax Information:
At April 30, 1997, the net unrealized depreciation of
investments based on cost for Federal income tax
purposes of $16,404,299 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost .................................... $ 44,094
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ....................................... (263,469)
-----------
$ (219,375)
===========
</TABLE>
- --------------------------------------------------------------------------------
+ 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 total cost and market value of Rule 144A securities owned at April
30, 1997 were $406,108 and $403,530 (2.45% of net assets), respectively.
Forward currency exchange contracts outstanding at April 30, 1997 are as
follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Value
- -------------------------------------------------------------------------------
<S> <C>
Sell Australian dollars, Buy U.S. dollars 32,000 AUD
Sell Australian dollars, Buy U.S. dollars 150,000 AUD
Buy Australian dollars, Sell U.S. dollars 22,000 AUD
Sell Canadian dollars, Buy U.S. dollars 90,000 CAD
Buy Canadian dollars, Sell U.S. dollars 90,000 CAD
Sell Danish krone, Buy U.S. dollars 710,300 DKK
Buy Danish krone, Sell U.S. dollars 352,300 DKK
Buy Danish krone, Sell U.S. dollars 358,000 DKK
Sell European currency units, Buy U.S. dollars 56,000 XEU
<CAPTION>
Unrealized Delivery
Contract Price Appreciation (Depreciation) Date
- ---------------------------------------------------------------------- ---------------------------- ----------
<S> <C> <C> <C>
Sell Australian dollars, Buy U.S. dollars .75560 AUD $ (773) 5/14/97
Sell Australian dollars, Buy U.S. dollars .77920 AUD (41) 7/24/97
Buy Australian dollars, Sell U.S. dollars .77567 AUD 90 5/14/97
Sell Canadian dollars, Buy U.S. dollars .74223 CAD 2,310 5/14/97
Buy Canadian dollars, Sell U.S. dollars .74267 CAD (2,350) 5/14/97
Sell Danish krone, Buy U.S. dollars .15684 DKK 3,541 5/14/97
Buy Danish krone, Sell U.S. dollars .15533 DKK (1,223) 5/14/97
Buy Danish krone, Sell U.S. dollars .15316 DKK (467) 5/14/97
Sell European currency units, Buy U.S. dollars 1.16180 XEU 1,880 5/14/97
-------
$ 2,967
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1997
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $16,394,716) (Note 1) ...... $16,184,924
Cash ................................................... 9,216
Interest receivable .................................... 277,389
Receivable for securities sold ........................ 226,430
Receivable from Distributor (Note 3) .................. 30,818
Receivable for open forward contracts .................. 7,821
Deferred organization costs and other assets (Note 1).... 48,270
-----------
16,784,868
Liabilities
Payable for securities purchased ..................... 228,715
Accrued transfer agent and shareholder services
(Note 2) ............................................. 14,344
Accrued management fee (Note 2) ........................ 7,373
Payable for open forward contracts ..................... 4,854
Accrued trustees' fees (Note 2) ........................ 4,002
Payable for fund shares redeemed ..................... 149
Other accrued expenses ................................. 56,459
-----------
315,896
-----------
Net Assets $16,468,972
===========
Net Assets consist of:
Undistributed net investment income .................. $ 105,503
Unrealized depreciation of investments ............... (209,792)
Unrealized appreciation of forward contracts and
foreign currency .................................... 2,589
Accumulated net realized loss ........................ (74,047)
Shares of beneficial interest ........................ 16,644,719
-----------
$16,468,972
===========
Net Asset Value, offering price and redemption price
per share of Class C shares ($16,468,972 [divided by]
1,727,276 shares of beneficial interest) ............ $9.53
===========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended April 30, 1997
<TABLE>
<S> <C>
Investment Income
Interest, net of foreign taxes of $750 .................. $1,159,165
Expenses
Management fee (Note 2) .............................. 92,595
Custodian fee .......................................... 76,842
Transfer agent and shareholder services (Note 2) ...... 33,291
Reports to shareholders .............................. 29,167
Audit fee ............................................. 20,354
Registration fees .................................... 18,194
Amortization of organization costs (Note 1) ............ 17,626
Trustees' fees (Note 2) .............................. 15,352
Legal fees ............................................. 10,643
Service fee--Class A (Note 5) ........................ 1,361
Miscellaneous .......................................... 13,150
----------
328,575
Expenses borne by the Distributor (Note 3) ............ (200,948)
----------
127,627
----------
Net investment income ................................. 1,031,538
----------
Realized and Unrealized Gain (Loss)
on Investments, Forward Contracts
and Foreign Currency
Net realized loss on investments (Notes 1 and 4) ...... (91,465)
Net realized gain on forward contracts and foreign
currency (Note 1) .................................... 24,568
----------
Total net realized loss .............................. (66,897)
----------
Net unrealized depreciation of investments ............ (5,765)
Net unrealized depreciation of forward contracts and
foreign currency .................................... (5,041)
----------
Total net unrealized depreciation ..................... (10,806)
----------
Net loss on investments, foreign currency and
forward contracts .................................... (77,703)
----------
Net increase in net assets resulting from operations . $ 953,835
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended April 30
-------------------------------
1997 1996
--------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income ............ $ 1,031,538 $ 983,058
Net realized gain (loss) on
investments, forward
contracts and foreign
currency* ..................... (66,897) 426,304
Net unrealized depreciation of
investments, forward
contracts and foreign
currency ..................... (10,806) (341,461)
----------- -----------
Net increase resulting from
operations ..................... 953,835 1,067,901
----------- -----------
Dividends from net
investment income:
Class A ........................ (28,352) (499,811)
Class C ........................ (1,049,495) (491,281)
----------- -----------
(1,077,847) (991,092)
----------- -----------
Distributions from net
realized gains:
Class A ........................ (4,744) (85,667)
Class C ........................ (129,421) (52,497)
----------- -----------
(134,165) (138,164)
----------- -----------
Net increase from fund share
transactions (Note 6) ......... 59,232 2,769,590
----------- -----------
Total increase (decrease) in
net assets .................. (198,945) 2,708,235
Net Assets
Beginning of year ............... 16,667,917 13,959,682
----------- -----------
End of year (including
undistributed net
investment income of
$105,503 and $156,154,
respectively) ............... $16,468,972 $16,667,917
=========== ===========
*Net realized gain (loss) for
Federal income tax
purposes (Note 1) ............ $ (13,811) $ 310,547
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1997
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 Trust
presently consists of two separate funds: State Street Research Intermediate
Bond Fund and State Street Research Strategic Income Fund.
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 C shares are
presently available for purchase. Class A, Class B and Class D shares are not
being offered at this time. Effective March 27, 1997, the Fund discontinued
offering Class A shares. Class A shares were subject to an initial sales charge
of up to 4.50% and an annual service fee of 0.25% of average daily net assets.
Class B shares are subject to a contingent deferred sales charge on certain
redemptions made within five years of purchase and pay annual distribution and
service fees of 1.00%. Class B shares automatically convert into Class A shares
(which pay lower ongoing expenses) at the end of eight years after the issuance
of the Class B shares. Class C shares are only offered to certain employee
benefit plans and large institutions. No sales charge is imposed at the time of
purchase or redemption of Class C shares. Class C shares do not pay any
distribution or service fees. Class D shares are subject to a contingent
deferred sales charge of 1.00% on any shares redeemed within one year of their
purchase. Class D shares also pay annual distribution and service fees of
1.00%. The Fund's expenses are borne pro-rata by each class, except that each
class bears expenses, and has exclusive voting rights with respect to
provisions of the Plan of Distribution, related specifically to that class. The
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.
6
<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. The Fund is charged for expenses directly attributable
to it, while indirect expenses are allocated between both funds in the Trust.
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. For the year ended April 30, 1997, the Fund has designated as
long-term $89,443 of the distributions from net realized gains.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for foreign currency transactions.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods. At April 30, 1997, the Fund had a capital
loss carryforward of $13,811 available, to the extent provided in regulations,
to offset future capital gains, if any, which expires on April 30, 2005.
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, 1996
through April 30, 1997, the Fund incurred net capital losses of approximately
$51,000 and intends to defer and treat such losses as arising in the fiscal
year ended April 30, 1998.
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, 1997, the fees pursuant to such agreement
amounted to $92,595.
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. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Trust may be purchased. During the year ended April
30, 1997, the amount of such expenses was $9,712.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$15,352 during the year ended April 30, 1997.
7
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1997, the amount of such expenses assumed by
the Distributor and its affiliates was $200,948.
Note 4
For the year ended April 30, 1997, purchases and sales of securities, exclusive
of short-term obligations, aggregated $11,484,016 and $10,323,425 (including
$9,318,683 and $7,614,420 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 pays
annual service fees to the Distributor at a rate of 0.25% of average daily net
assets for Class A, Class B and Class D shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B and
Class D shares. The Distributor uses such payments for personal 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 period May 1, 1996 to March 27, 1997, fees pursuant to such
plan amounted to $1,361 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, 1997, Metropolitan
owned 1,406,327 Class C shares of the Fund and the Adviser owned 10,548 Class C
shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended April 30
-----------------------------
1997
-----------------------------
<S> <C> <C>
Class A Shares Amount
- ------------------------------------------------------------------- -------------- --------------
Shares sold ...................................................... -- $ --
Issued upon reinvestment of distribution from net realized gains -- --
Shares repurchased ................................................ (60,764) (585,159)
-------- ----------
Net decrease ................................................... (60,764) $ (585,159)
======== ==========
Class C Shares Amount
- ------------------------------------------------------------------- -------------- --------------
Shares sold ...................................................... 74,900 $ 718,964
Issued upon reinvestment of:
Dividends from net investment income ........................... 18,873 180,151
Distributions from net realized gains ........................... 13,453 129,421
Shares repurchased ............................................. (39,884) (384,145)
-------- ----------
Net increase ................................................... 67,342 $ 644,391
======== ==========
<CAPTION>
1996
--------------------------------
<S> <C> <C>
Class A Shares Amount
- ----------------------------------------------------------------------------------- ----------------
Shares sold ...................................................... 270 $ 2,653
Issued upon reinvestment of distribution from net realized gains 8,595 84,835
Shares repurchased ................................................ (1,005,714) (10,003,474)
----------- ------------
Net decrease ................................................... (996,849) $ (9,915,986)
=========== ============
Class C Shares Amount
- ----------------------------------------------------------------------------------- -------------
Shares sold ...................................................... 1,290,402 $ 12,860,137
Issued upon reinvestment of:
Dividends from net investment income ........................... 12,035 118,427
Distributions from net realized gains ........................... 5,319 52,496
Shares repurchased ............................................. (34,534) (345,484)
----------- ------------
Net increase ................................................... 1,273,222 $ 12,685,576
=========== ============
</TABLE>
8
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------
Year ended April 30
May 1, 1996 to ---------------------------------------
March 27, 1997 1996** 1995***
-------------------------- ------------ --------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 9.75 $ 9.66 $ 9.55
------ ------ ------
Net investment income* 0.57 0.59 0.54
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts (0.15) 0.10 0.01
------ ------ ------
Total from investment operations 0.42 0.69 0.55
------ ------ ------
Dividends from net investment income (0.46) (0.52) (0.44)
Distributions from net realized gains (0.08) (0.08) --
------ ------ -------
Total distributions (0.54) (0.60) (0.44)
------ ------ -------
Net asset value, end of year $ 9.63 $ 9.75 $ 9.66
====== ====== ======
Total return 4.40%++ 7.13%+ 5.96%++
Net assets at end of year (000s) -- $593 $10,222
Ratio of operating expenses to average net assets* 1.00%[dbldag] 1.00% 1.00%[dbldag]
Ratio of net investment income to average net assets* 5.87%[dbldag] 5.91% 5.92%[dbldag]
Portfolio turnover rate 68.61% 117.28% 157.75%
*Reflects voluntary assumption of fees or expenses per share
in each year (Note 3) $0.12 $0.09 $0.11
<CAPTION>
Class C
------------------------------------------------------------------
Year ended April 30
------------------------------------------------------------------
1997** 1996** 1995***
---------------------- ----------------------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 9.68 $ 9.67 $ 9.55
------ ------ ------
Net investment income* 0.60 0.61 0.56
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts (0.05) 0.09 0.02
------ ------ -----
Total from investment operations 0.55 0.70 0.58
------ ------ -----
Dividends from net investment income (0.62) (0.61) (0.46)
Distributions from net realized gains (0.08) (0.08) --
------ ------ -----
Total distributions (0.70) (0.69) (0.46)
------ ------ -----
Net asset value, end of year $ 9.53 $ 9.68 $ 9.67
====== ====== ======
Total return 5.85%+ 7.25%+ 6.30%++
Net assets at end of year (000s) $16,469 $16,075 3,738
Ratio of operating expenses to average net assets* 0.75% 0.75% 0.75%[dbldag]
Ratio of net investment income to average net assets* 6.14% 6.16% 6.17%[dbldag]
Portfolio turnover rate 68.61% 117.28% 157.75%
*Reflects voluntary assumption of fees or expenses per share
in each year (Note 3). $0.11 $0.11 $0.10
</TABLE>
- --------------------------------------------------------------------------------
[dbldag] Annualized
+ Total return figures do not reflect any front-end or contingent
deferred sales charges. Total return would be lower if the
Distributor and its affiliates had not voluntarily assumed a portion
of the Fund's expenses.
++ Represents aggregate return for the period without annualization and
does not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the Distributor and its affiliates had
not voluntarily assumed a portion of the Fund's expenses.
** Per share figures have been calculated using the average shares method.
*** May 16, 1994 (commencement of operations) to April 30, 1995.
9
<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, 1997, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods indicated therein. 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, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, 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, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 3, 1997
10
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
For the twelve months ended April 30, 1997, Intermediate Bond Fund
underperformed Lipper Analytical Services' Intermediate Investment Grade
category. Fund management invested in bonds with longer maturities as interest
rates were rising, aiming for higher yields. This strategy may have had a
negative effect on Fund performance in the short term.
Investor expectations of economic strength and its effect on future inflation
had a sizable impact on high-quality bonds. The economy showed both bursts of
growth and slowdowns. As that occurred, investors adjusted their outlooks, which
caused interest rates-- and bond prices--to fluctuate. Foreign investors were
attracted to the U.S. bond market because of the U.S.'s favorable economic
outlook and a strengthening dollar. Strong foreign demand also helped drive bond
prices up.
Fund management reduced the portfolio's holdings in mortgage-backed securities
and increased the Fund's position in U.S. Treasury securities. Yields in
mortgage-backed securities declined relative to U.S. Treasuries and management
believed that U.S. Treasuries represented better long-term value. Fund
management also increased the Fund's duration, which improved its yield.
April 30, 1997
Change In Value Of $10,000 Based On
The Lehman Brothers Government/Corporate
Intermediate Bond Index
Compared To Change In Value Of $10,000
Invested In Intermediate Bond Fund
[tabular representation of line chart]
Average Annual Total Return
1 Year Life of Fund
+5.85%/+4.54% +6.56%/+5.34%
Class C Shares
Intermediate LB Gov't/Corporate
Bond Fund Bond Index
5/16/94 $ 1,000 $ 1,000
4/30/95 10,630 10,644
4/30/96 11,402 11,479
4/30/97 12,069 12,214
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. "C" shares, offered without a sales charge,
are available only to certain employee benefit plans and large institutions.
Performance results for the Fund are increased by the voluntary reduction of
fund fees and expenses. The first figure reflects expense reduction; the second
shows what results would have been without subsidization. The Lehman Brothers
Government/Corporate Intermediate Bond index is a commonly used measure of bond
market performance. The index is unmanaged. Direct investment in the index is
not possible; results are for illustrative purposes only.
11
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
a series of
STATE STREET RESEARCH SECURITIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1997
TABLE OF CONTENTS
Page
INVESTMENT POLICIES AND RESTRICTIONS ................................ 2
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES ..................................... 4
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS ..................... 12
TRUSTEES AND OFFICERS ............................................... 15
INVESTMENT ADVISORY SERVICES ........................................ 20
PURCHASE AND REDEMPTION OF SHARES ................................... 21
NET ASSET VALUE ..................................................... 23
PORTFOLIO TRANSACTIONS .............................................. 24
CERTAIN TAX MATTERS ................................................. 26
DISTRIBUTION OF SHARES OF THE FUND .................................. 29
CALCULATION OF PERFORMANCE DATA ..................................... 32
CUSTODIAN ........................................................... 35
INDEPENDENT ACCOUNTANTS ............................................. 35
FINANCIAL STATEMENTS ................................................ 36
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
Strategic Income Fund, dated September 1, 1997, 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.
CONTROL NUMBER: 1285TI-970829(0998)SSR-LD SI-470E-997
<PAGE>
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 or use of structures (e.g., fund of funds, master-feeder
structure) allowing the Fund to invest substantially all its assets in
collective investment vehicles or allowing the Fund to serve as such a
collective investment vehicle for other 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 or sponsored
enterprises) 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 the Securities and Exchange Commission (the
creation of general liens or security interests under industry
practices for transactions in portfolio assets are not deemed
to involve the issuance of senior securities);
(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 a selling shareholder
in an offering or 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 make
real estate loans or own, or invest or deal in, real estate;
2
<PAGE>
(5) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Fund's total
assets, except that investments in essentially financial items
or arrangements such as, but not limited to, swap
arrangements, hybrids, currencies, currency and other forward
contracts, delayed delivery and when-issued contracts, futures
contracts and options on futures contracts on securities,
securities indices, interest rates and currencies shall not be
deemed investments in commodities or commodities contracts;
(6) not to lend money; however, the Fund may lend portfolio
securities and purchase bonds, debentures, notes, bills and
any other debt related instruments or interests (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 nongovernment-related issuers principally
engaged in any one industry, as described in the Fund's
Prospectus or Statement of Additional Information as amended
from time to time; 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.
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 5% of its total assets in securities
of private companies 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 so long as such investments plus
investments in restricted securities (other than those which
are eligible for resale under Rule 144A, Regulation S or other
exemptive provisions as noted above) do not exceed 15% of the
Fund's total assets;
3
<PAGE>
(3) not to engage in transactions in options except in connection
with options on securities, securities indices, currencies and
interest rates, and options on futures on securities,
securities indices, currencies and interest rates;
(4) 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);
(5) not to purchase a security issued by another investment
company, except to the extent permitted under the 1940 Act or
except by purchases in the open market involving only
customary brokers' commissions, or securities acquired as
dividends or distributions or in connection with a merger,
consolidation or similar transaction or other exchange;
(6) 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);
(7) not to make an investment in warrants, valued at the lower of
cost or market, which causes the Fund to own, at the time of
such investment, warrants in excess of 5% 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
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, currencies and
interest rates, and may enter into closing transactions with respect to each of
the foregoing under circumstances in which the use of such instruments and
techniques are expected by State Street Research & Management Company (the
"Investment Manager") to aid in achieving the investment objective of the Fund.
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.
4
<PAGE>
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, permissible
assets equal to the face value of the futures contract will be identified by the
Fund to the Trust's custodian for maintenance in a separate account to insure
that the use of such futures contracts is unleveraged. Similarly, 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.
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.
5
<PAGE>
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.
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.
6
<PAGE>
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 may not
establish a position in a commodity futures contract or purchase or sell a
commodity option contract for other than bona fide hedging purposes if
immediately thereafter the sum of the amount of initial margin deposits and
premiums required to establish such positions for such nonhedging purposes would
exceed 5% of the market value of the Fund's net assets.
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.
7
<PAGE>
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
Generally, ADRs in registered form are designed for use in U.S.
securities markets and EDRs are designed for use in European securities markets.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the issuer
than are unsponsored ADRs. More and higher fees are generally charged in an
unsponsored program. Only sponsored ADRs may be listed on the New York or
American Stock Exchanges. Unsponsored ADRs may prove to be more risky due to (a)
the additional costs to the Fund; (b) the relative illiquidity of the issue in
U.S. markets; and (c) the possibility of higher trading costs in the
over-the-counter market as opposed to exchange-based trading. The Fund will take
these and other risk considerations into account before making an investment in
an unsponsored ADR.
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.
8
<PAGE>
Currency Transactions
The Fund's dealings in forward currency exchange contracts will be
limited primarily to hedging involving either specific transactions or aggregate
portfolio positions, although the Fund reserves the right to seek return through
currency investments. 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. Although spot and
forward contracts will be used primarily to protect the Fund from adverse
currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted, which may result in losses to the
Fund. This method of protecting the value of the Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some future point in time. Although such
contracts tend to minimize the risk of loss due to a decline in the value of
hedged currency, they tend to limit any potential gain that might result should
the value of such currency increase.
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.
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<PAGE>
Restricted Securities
The Fund's policy is to not make an investment in restricted
securities, including Rule 144A and other restricted securities, if as a result
more than 50% of its total assets are invested in such securities, provided not
more than 10% of its total assets are invested in non-Rule 144A restricted
securities. Securities may be resold pursuant to Rule 144A under certain
circumstances only to qualified institutional buyers as defined in the rule, and
the markets and trading practices for such securities are still developing;
depending on the development of such markets, such Rule 144A securities may be
deemed to be liquid as determined by or in accordance with methods adopted by
the Trustees. Under such methods the following factors are considered, among
others: the frequency of trades and quotes for the security, the number of
dealers and potential purchasers in the market, marketmaking activity, and the
nature of the security and marketplace trades. Investments in Rule 144A
securities could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the Fund may be
adversely impacted by the possible illiquidity and subjective valuation of such
securities in the absence of a market for them.
Restricted securities which are not resalable under Rule 144A can be
subject to risks of illiquidity and subjective valuations to a greater degree
than Rule 144A securities.
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
10
<PAGE>
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 CFTC 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.
Industry Classifications
In determining how much of the Fund's portfolio is invested in a given
private industry, the following industry classifications are currently used.
Securities issued or guaranteed as to principal or interest by the U.S.
Government or its agencies or instrumentalities or mixed-ownership Government
corporations or sponsored enterprises (including repurchase agreements involving
U.S. Government securities to the extent excludable under relevant regulatory
interpretations) are excluded. Securities issued by foreign governments are also
excluded. Companies engaged in the business of financing may be classified
according to the industries of their parent or sponsor companies, or industries
that otherwise most affect such financing companies. Issuers of asset-backed
pools will be classified as separate industries based on the nature of the
underlying assets, such as mortgages, credit card receivables, etc.
"Asset-backed -- Mortgages" includes private pools of nongovernment backed
mortgages.
11
<PAGE>
Aerospace Electronic Components Oil Service
Airline Electronic Equipment Paper Products
Asset-backed -- Mortgages Entertainment Personal Care
Asset-backed -- Credit Financial Service Photography
Card Receivables Food & Beverage Plastics
Automotive Forest Products Printing & Publishing
Automotive Parts Gaming & Lodging Railroad
Bank Gas Real Estate & Building
Building Gas Transmission Recreation
Business Service Grocery Retail Trade
Cable Healthcare & Hospital Savings & Loan
Capital Goods & Equipment Management Shipping & Transportation
Chemical Hospital Supply Technology & Communications
Computer Software & Service Hotel & Restaurant Telephone
Conglomerate Insurance Textile & Apparel
Consumer Goods & Services Machinery Tobacco
Container Media Truckers
Cosmetics Metal & Mining Trust Certificates--
Diversified Office Equipment Government Related Lending
Drug Oil Production
Electric Oil Refining & Marketing
Electric Equipment
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:
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<PAGE>
[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 Farmers Home
Administration, the Federal Farm Credit Banks, the Federal
National Mortgage Association, 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.
13
<PAGE>
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
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
within the "A" category by S&P or within the "Prime" category by Moody's, or, if
not rated, issued by companies having an outstanding long-term unsecured debt
issue rated at least within the "A" category by S&P or by Moody's. The money
market investments in corporate bonds and debentures (which must have
14
<PAGE>
maturities at the date of settlement of one year or less) must be rated at the
time of purchase at least within the "A" category by S&P or within the "Prime"
category by Moody's.
Commercial paper rated within the "A" category (highest quality) by S&P
is issued by entities which have liquidity ratios which are adequate to meet
cash requirements. Long-term senior debt is rated A or better, although in some
cases credits within the "BBB" category may be allowed. The issuer has access to
at least two additional channels of borrowing. Basic earnings and cash flow have
an upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
The relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. (Those A-1 issues determined
to possess overwhelming safety characteristics are denoted with a plus (+) sign:
A-1+.)
The rating Prime is the highest commercial paper rating category
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: evaluation of the management of the issuer; economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial management of obligations which may be present or may arise as
a result of public interest questions and preparations to meet such obligations.
These factors are all considered in determining whether the commercial paper is
rated Prime-1, Prime-2 or Prime-3.
In the event the lowering of ratings of debt instruments held by the
Fund by applicable rating agencies results in a material decline in the overall
quality of the Fund's portfolio, the Trustees of the Trust will review the
situation and take such action as they deem in the best interests of the Fund's
shareholders, including, if necessary, changing the composition of the
portfolio.
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.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 59. He is
retired and was formerly Senior Vice President for Finance and Operations and
Treasurer of The Pennsylvania State University.
*+Bartlett R. Geer, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 42. 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.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville, NC
28803, serves as Trustee of the Trust. He is 69. He is engaged principally in
private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
- --------------------------------
* or + See footnotes on page 17.
15
<PAGE>
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 56. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Portfolio Manager for State Street Research &
Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 70. He is engaged principally in private
investments and civic affairs, and is an author of business history. Previously,
he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Trustee of the Trust. He is 71. 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. He is 46. His principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer and Director of State Street
Research & Management Company. During the past five years he has also served as
Executive Vice President and Chief Financial Officer of New England Investment
Companies and as Senior Vice President and Vice President of New England Mutual
Life Insurance Company. Mr. Maus's other principal business affiliations include
Executive Vice President, Treasurer, Chief Financial Officer and Director of
State Street Research Investment Services, Inc.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111,
serves as Secretary and General Counsel of the Trust. He is 42. His principal
occupation is Executive Vice President, General Counsel and Secretary of State
Street Research & Management Company. During the past five years he has also
served as Senior Vice President of State Street Research & Management Company
and as Senior Vice President, General Counsel and Assistant Secretary of The
Boston Company, Inc., Boston Safe Deposit and Trust Company and The Boston
Company Advisors, Inc. Mr. McNamara's other principal business affiliations
include Senior Vice President, 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 65. 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.
*+Kim M. Peters, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 44. 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.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173, serves as
Trustee of the Trust. He is 73. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
- --------------------------------
* or + See footnotes on page 17.
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<PAGE>
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 59. His principal occupations during the past
five years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
60. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+Thomas A. Shively, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 43. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years, he 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 54. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he 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., and, until February 1996,
prior positions as President and Chief Executive Officer of that company.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 72. 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 37. 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.
- --------------------------------
* 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 or Director and/or officer of one or more of the
following investment companies, each of which has an advisory relationship
with the Investment Manager or its affiliates: State Street Research 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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<PAGE>
As of July 31, 1997, the Trustees and principal officers of the Trust
owned less than 1% of the Fund's Class A shares, and none of the Fund's Class B,
Class C or Class D shares.
As of July 31, 1997 the following persons or entities were the record
and/or beneficial owners of the approximate amounts of each class of shares of
the Fund as set forth beside their names:
Shareholder %
----------- -
Class A Metropolitan 66.3
Class B Merrill Lynch 32.4
Class C Metropolitan 82.7
Andover Newton
Theological School 9.1
State Street Bank, Trustee 6.5
Class D Merrill Lynch 62.6
The full name and address of each of the above persons or entities are
as follows:
Metropolitan Life Insurance Company (a)
One Madison Avenue
New York, NY 10010
Merrill Lynch, Pierce, Fenner & Smith, Inc. (b)
One Liberty Plaza
165 Broadway
New York, NY 10080
Andover Newton Theological School
c/o State Street Research
Shareholder Services
One Financial Center
Boston, MA 02111
State Street Bank & Trust Company
225 Franklin Street
Boston, MA 02110
(a) Metropolitan Life Insurance Company ("Metropolitan"), a New York
corporation, was the record and/or beneficial owner, directly or
indirectly through its subsidiaries or affiliates, of such shares.
(b) The Fund believes that such entity does not have beneficial ownership
of such shares.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owner will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
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<PAGE>
The Trustees were compensated as follows:
Total
Compensation
Aggregate From Trust and
Compensation Complex Paid
Name of Trustee From Trust (a) to Trustees (b)
--------------- -------------- ---------------
Steve A. Garban $ 496 $ 34,750
Malcolm T. Hopkins $ 496 $ 34,750
Edward M. Lamont $ 2,750 $ 59,375
Robert A. Lawrence $ 2,950 $ 92,125
Dean O. Morton $ 3,150 $ 96,125
Thomas L. Phillips $ 2,950 $ 59,375
Toby Rosenblatt $ 2,750 $ 59,375
Michael S. Scott Morton $ 3,750 $100,325
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $ 3,350 $ 63,375
- ---------------------------
(a) For the Fund's fiscal year ended April 30, 1997. Includes compensation from
multiple series of the Trust See "Distribution of Shares" for a listing of
series.
(b) Includes compensation of behalf of all series of 12 investment companies
for which the Investment Manager served directly or indirectly as
investment adviser or for which the Investment Manager served as
sub-investment adviser, and the series of State Street Research Portfolios,
Inc., for which State Street Research Investment Services, Inc. serves as
distributor. "Total Compensation from Trust and Complex Paid to Trustees"
is for the 12 months ended December 31, 1996. The Trust does not provide
any pension or retirement benefits for the Trustees.
Except as otherwise provided under said Act, the Board of Trustees will
be a self-perpetuating body until fewer than two thirds of the Trustees serving
as such are Trustees who were elected by shareholders of the Trust. In the event
less than a majority of the Trustees serving as such were elected by
shareholders of the Trust, a meeting of shareholders will be called to elect
Trustees. Under the Master Trust Agreement, any Trustee may be removed by vote
of two thirds of the outstanding Trust shares; holders of 10% or more of the
outstanding Trust shares 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 to the extent required by applicable law.
19
<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 0.75% of the net
assets of the Fund. For the period August 30, 1996 (commencement of operations)
through April 30, 1997 the Fund's investment advisory fee was $277,871. 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 period August 30, 1996 (commencement of operations) through April 30, 1997,
the voluntary reduction of fees or assumption of expenses amounted to $63,516.
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 administration services for the Trust, such
as assistance in determining the daily net asset value of shares of series of
the Trust 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, such as employee benefit
plans, through or under which the Fund's shares may be purchased.
Under the Code of Ethics of the Investment Manager, its employees in
Boston and selected other persons elsewhere involved in investment management
operations, are only permitted to engage in personal securities transactions in
accordance with certain conditions relating to such person's position, the
identity of the security, the timing of the transactions, and similar factors.
Such persons
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must report their personal securities transactions quarterly and supply broker
confirmations 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
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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.
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 B Shares
In certain cases, a dealer may elect to waive the 4% commission on
Class B shares and receive in lieu thereof a 1% annual fee with respect to such
shares until the shares convert to Class A shares.
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,
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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 are 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 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 as provided below, the
Trustees utilize one or more pricing services to value debt 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 with the use of such pricing services as may be deemed appropriate or
methodologies approved by the Trustees.
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.
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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). For the period August 30, 1996 (commencement of operations)
through April 30, 1997 the portfolio turnover rate was 110.37%. The Fund
reserves full freedom with respect to portfolio turnover, as described in the
Prospectus.
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Fund occur. Against this background, the Investment Manager
evaluates the reasonableness of a commission or a net price with respect to a
particular transaction by considering such factors as difficulty of execution or
security positioning by the executing firm. The Investment Manager may or may
not solicit competitive bids based on its judgment of the expected benefit or
harm to the execution process for that transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given to services other than execution services which certain of such firms have
provided in the past or may provide in the future. Negotiated commission rates
and prices, however, are based upon the Investment Manager's judgment of the
rate which reflects the execution requirements of the transaction without regard
to whether the broker provides services in addition to execution. Among such
other services are the supplying of supplemental investment research; general
economic, political and business information; analytical and statistical data;
relevant market information, quotation equipment and services; reports and
information about specific companies, industries and securities; purchase and
sale recommendations for stocks and bonds; portfolio strategy services;
historical statistical information; market data services providing information
on specific issues and prices; financial publications; proxy voting data and
analysis services; technical analysis of various aspects of the securities
markets, including technical charts; computer hardware used for brokerage and
research purposes; computer software and databases, (including those used for
portfolio analysis and modelling and including software providing investment
personnel with efficient access to current and historical data from a variety of
internal and external sources); and portfolio evaluation services and relative
performance of accounts.
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In the case of the Fund and other registered investment companies
advised by the Investment Manager, the above services may include data relating
to performance, expenses and fees of those investment companies and other
investment companies; this information is used by the Trustees or Directors of
the investment companies to fulfill their responsibility to oversee the quality
of the Investment Manager's advisory services and to review the fees and other
provisions contained in the advisory contracts between the investment companies
and the Investment Manager. The Investment Manager consides these investment
company services only in connection with the execution of transactions on behalf
of its investment company clients and not its other clients.
Certain of the nonexecution services provided by broker-dealers may in
turn be obtained by the broker-dealers from third parties who are paid for such
services by the broker-dealers. The Investment Manager has an investment in less
than ten percent of the outstanding equity of one such third party which is
engaged in the development and licensing of trading systems which include
portfolio analysis and modelling and other research and investment
decision-making capabilities. The Investment Manager may allocate brokerage to
broker-dealers who in turn pay this third party for the portion of the third
party's trading system provided to the Investment Manager which is estimated by
the Investment Manager to provide appropriate assistance in the investment
decision-making process. Because of its minority interest in the third party,
the Investment Manager could be said to benefit indirectly from such brokerage
allocation.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Among other measures, the Investment Manager's
investment management personnel seek to evaluate the quality of research and
other services received, and the results of this effort are made available to
the equity trading department which sometimes uses this information as a
consideration in the selection of brokers to execute portfolio transactions.
Some services furnished by broker-dealers may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and the
Investment Manager pays for that portion directly from its own funds. Some
research and execution services may benefit the Investment Manger'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 circumstances may exist, and in
such circumstances, if any, the Investment Manager relies on the provisions of
Section 28(e) of the Securities Exchange Act of 1934, to the extent applicable.
For the period August 30, 1996
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(commencement of operations) through April 30, 1997 the Fund paid no brokerage
commissions in secondary trading.
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, depending on
the circumstances, may or may not result in such accounts receiving more or less
favorable execution relative to other clients.
CERTAIN TAX MATTERS
Federal Income Taxation of 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. Accordingly, for each of the Fund's tax years that has begun
on or prior to August 5, 1997, the Fund must, among other things, (a) derive at
least 90% of its gross income in each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities, (ii) options, futures, or forward contracts (other than options,
futures or forward contracts on foreign currencies), or (iii) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies (or options, futures, or forward contracts) are not directly
related to the Fund's principal business of investing in stocks or securities
(or options and futures with respect to stocks or
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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). For any Fund tax year beginning after August
5, 1997, the Fund will have to comply with each of those requirements except the
30% test in order to qualify to be treated as a regulated investment company
under Subchapter M.
Beginning May 1, 1998 (the start of the Fund's first tax year that
begins after August 5, 1997), when the Fund no longer has to comply with the 30%
test in order to qualify under Subchapter M, the Fund will have greater
flexibility in buying and selling securities and in the use of futures and
options in managing risks. The 30% test has the effect of limiting the extent to
which the Fund may sell securities held for less than three months, write
options which expire in less than three months, and effect closing transactions
with respect to call or put options that 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.) The
30% test also may 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 to the extent thereof. Any distribution in excess of a shareholder's basis
in the shareholder's shares would be taxable as gain realized from the sale of
such shares.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any undistributed portion of the respective balances from the
prior year. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
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.
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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
(until May 1, 1998), 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 Shareholders
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.
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
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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 period August 30, 1996 (commencement of operations) through
April 30, 1997 total sales charges on Class A shares paid to the Distributor
amounted to $261,358. For the same period, the Distributor retained $33,102
after reallowance of concessions to dealers. The Distributor may also pay its
affiliate, MetLife Securities, Inc. additional sales compensation of up to 0.25%
of certain sales.
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 on account of the Right of
Accumulation, the commission will be paid only in respect of the increment such
dealer in respect of shares actually sold. If an investor is eligible to
purchase shares at net asset value al purchase at net asset value.
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For the period August 30, 1996 (commencement of operations) through
April 30, 1997, the Distributor received contingent deferred sales charges upon
redemption of Class A, Class B and Class D shares of the Fund and paid initial
commissions to dealers for sales of such shares as follows:
Contingent Commissions
Deferred Paid to
Sales Charges Dealers
------------- -------
Class A 0 $228,256
Class B $10,985 $660,590
Class D $ 6,571 $ 80,335
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
30
<PAGE>
the servicing of investor accounts. The distribution and servicing expenses of a
particular class will be borne solely by that class.
For the period August 30, 1996 (commencement of operations) through
April 30, 1997 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 Class B Class D
Advertising $ 5,421 $ 4,114 $ 0
Printing and mailing of
prospectuses to other
than current shareholders 2,238 1,719 0
Compensation to dealers 16,127 41,211 36,591
Compensation to sales personnel 18,031 13,473 0
Interest 0 0 0
Carrying or other
financial charges 0 0 0
Other Expenses:
Marketing, general 9,101 6,900 0
------- ------- -------
Total Fees $50,918 $67,417 $36,591
======= ======== =======
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") of the Class A,
Class B, Class C and Class D shares of the Fund will be calculated as set forth
below. Total return is computed separately for each class of shares of the Fund.
31
<PAGE>
All calculations of performance data in this section reflect the
voluntary measures, if any, by the Fund's affiliates to reduce fees or expenses
relating to the Fund; see "Accrued Expenses" later in this section.
Total Return
August 30, 1996
(commencement of operations)
to April 30, 1997
-----------------
SEC Aggregate
Total Return Total Return
(Annualized)* (Not Annualized)*
------------- -----------------
Class A 3.61% 0.85%
Class B 2.51% (0.04%)
Class C 8.75% 5.76%
Class D 6.51% 3.96%
*Reflects maximum sales charges, if any.
The number shown above in the column entitled "SEC Total Return
(Annualized)* result from the "annualization" of actual return for the
approximately 244-day period involved and should be interpreted carefully since
annualization in this instance presumes that the performance for the 244 days
continues for a full year.
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.
32
<PAGE>
Yield
The annualized yield of each class of the Fund's shares, based on the month
of April 1997, was as follows:
Class A 6.89%
Class B 6.47%
Class C 7.47%
Class D 6.47%
Yield for each of the Fund's Class A, Class B, Class C and Class D shares
is computed by dividing the net investment income per share earned during a
recent month or other specified 30-day period by the maximum offering price per
share on the last day of the period and annualizing the 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
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 purposes 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 a 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
33
<PAGE>
reasonably expected to be declared as a dividend shortly thereafter. The maximum
offering price includes a maximum sales charge of 4.5% with respect to Class A
shares.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing 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 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 results take sales charges, if applicable, into account,
although the results do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses relating to the Fund, during the subject period.
In the absence of such subsidization, the performance of the Fund will be lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class D shares for periods which end no
earlier than the most recent calendar quarter end and which begin twelve months
before and at the time of commencement of 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 nonstandardized total returns for the six months ended April
30, 1997, without taking sales charges into account, were as follows:
Class A 2.34%
Class B 1.96%
Class C 2.46%
Class D 1.96%
34
<PAGE>
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-shares
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 each class of the Fund's shares, based on the
month of April 1997, was as follows:
Class A 7.14%
Class B 6.76%
Class C 7.73%
Class D 6.76%
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.
35
<PAGE>
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 through electronic or other media. Shareholders with
substantial holdings in one or more State Street Research Funds may also receive
reports and other information which reflect or analyze their positions in a
consolidated manner. For more information, call State Street Research
Shareholder Services.
The following financial statements are for the period August 30, 1996
(commencement of operations) to April 30, 1997:
36
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1997
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------
FIXED INCOME SECURITIES 92.9%
U.S. Treasury 35.4%
U.S. Treasury Bond, 12.00% ...... $1,975,000 8/15/2013 $ 2,752,044
U.S. Treasury Bond, 9.875% ...... 1,000,000 11/15/2015 1,294,060
U.S. Treasury Bond, 8.125% ...... 4,100,000 8/15/2021 4,603,521
U.S. Treasury Bond, 6.25% ......... 400,000 8/15/2023 362,312
U.S. Treasury Note, 6.125% ...... 1,725,000 5/15/1998 1,726,880
U.S. Treasury Note, 6.75% ......... 2,500,000 5/31/1999 2,521,475
U.S. Treasury Note, 6.25% ......... 3,000,000 8/31/2000 2,981,250
U.S. Treasury Note, 6.625% ...... 2,750,000 7/31/2001 2,757,728
U.S. Treasury Note, 7.50% ......... 2,575,000 11/15/2001 2,667,932
U.S. Treasury Note, 6.25% ......... 625,000 2/28/2002 616,600
U.S. Treasury Note, 7.875% ...... 1,875,000 11/15/2004 2,003,325
U.S. Treasury Note, 6.50% ......... 2,050,000 8/15/2005 2,019,578
U.S. Treasury Note, 3.375% ...... 327,353 1/15/2007 322,135
------------
26,628,840
------------
U.S. Agency Mortgage 8.2%
Federal National Mortgage
Association, 9.00% ............ 908,315 5/01/2009 957,037
Federal National Mortgage
Association, 8.00% ............ 470,296 5/01/2016 482,928
Federal National Mortgage
Association TBA, 7.50% ......... 1,000,000 7/17/2012 1,007,734
Government National Mortgage
Association, 8.00% ............ 1,968,281 11/15/2017 2,021,286
Government National Mortgage
Association, 6.50% ............ 534,946 1/15/2024 502,678
Government National Mortgage
Association, 7.50% ............ 563,745 9/15/2025 559,517
Government National Mortgage
Association, 7.00% ............ 660,121 4/15/2026 638,455
------------
6,169,635
------------
Foreign Government 11.1% Australian Dollar
Government of Australia, 7.50%..... 500,000 7/15/2005 384,481
Government of Australia, 10.00%.... 4,025,000 2/15/2006 3,572,906
Canadian Dollar
Government of Canada, 0.00%........ 1,425,000 10/16/1997 1,006,293
European Currency Unit
Government of France, 8.00% ...... 475,000 4/25/2003 600,177
Italian Lira
Republic of Italy, 9.50% ......... 2,075,000,000 2/01/2001 1,307,528
Spanish Peseta
Government of Spain, 10.90% ...... 96,000,000 8/30/2003 808,618
Pound Sterling
U.K. Treasury, 9.75% ............ 400,000 8/27/2002 717,382
------------
8,397,385
------------
Finance/Mortgage 3.1%
BankAmerica Institutional
Capital Series B, 7.70%+ ...... $ 500,000 12/31/2026 $ 472,560
Citicorp Capital Sec. Note,
7.93% ........................ 550,000 2/15/2027 539,979
Prudential Home Mortgage
Securities Co. Series 93-45
A-2 PAC, 6.75% ............... 362,864 11/25/2007 352,203
Prudential Home Mortgage
Securities Co. Series 93-47
A-11 PAC, 6.10% ............... 375,000 12/25/2023 339,844
Prudential Home Mortgage
Securities Co. Series 94
PAC, 6.50% ..................... 175,000 2/25/2024 164,225
Wells Fargo Capital Sec. Note,
7.73%+ ........................ 500,000 12/01/2026 469,025
------------
2,337,836
------------
Corporate 35.1%
Advanced Radio Telecom Corp.
Unit, 14.00% .................. 250,000 2/15/2007 265,000
Alvey Systems Inc. Sr. Sub.
Note, 11.375% .................. 500,000 1/31/2003 515,000
American Telecasting Inc.
Sr. Disc. Note, 0.00% to
6/14/99, 14.50% from
6/15/99 to maturity ............ 450,000 6/15/2004 153,000
Benedek Communications Corp.
Sr. Sub. Note, 0.00% to
5/14/2001, 13.25% from
5/15/2001 to maturity ......... 1,500,000 5/15/2006 862,500
Busse Broadcasting Corp. Sr.
Sec. Note, 11.625% ............ 500,000 10/15/2000 526,250
Cafeteria Operators L.P. Sr. Sec.
Note, 12.00% .................. 500,000 12/31/2000 480,000
Capstar Broadcasting Partners
Sr. Note, 0.00% to
1/31/2002, 12.75% from
2/1/2002 to maturity+ ......... 500,000 2/01/2009 278,750
CHC Helicopter Corp. Sr. Sub.
Note, 11.50% .................. 1,000,000 7/15/2002 1,030,000
Clearnet Communications Inc.
Sr. Note, 0.00% to
12/14/2000, 14.75% from
12/15/2000 to maturity ......... 500,000 12/15/2005 305,000
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
--------------------------------------------
Corporate (cont'd)
Coleman Worldwide Corp. Sr.
Sec. Liquid Yield Option
Note, 0.00% .................... $4,000,000 5/27/2013 $ 1,230,000
Empire Gas Corp. Sr. Sec.
Note, 7.00% to 7/14/99,
12.875% from 7/15/99 to
maturity ....................... 750,000 7/15/2004 652,500
Envirosource Inc. Note, 9.75% .. 1,500,000 6/15/2003 1,462,500
Geotek Communications Inc.
Sr. Note Series B, 0.00% to
7/14/2000, 15.00% from
7/15/2000 to maturity ........ 250,000 7/15/2005 137,500
Grand Union Co. Sr. Note,
12.00% ....................... 250,000 9/01/2004 238,750
Intertek Financial Corp. Sr. Sub.
Note, 10.25%+ ................. 500,000 11/01/2006 517,500
Ionica PLC Sr. Note, 13.50% ..... 1,000,000 8/15/2006 1,010,000
L3 Communications Corp. Sr.
Sub. Note, 10.375%+ ........... 250,000 5/01/2007 257,500
La Petite Holdings Corp. Sr.
Sec. Note, 9.625% .............. 1,500,000 8/01/2001 1,455,000
Marcus Cable Co. L.P. Sr. Deb.,
11.875% ....................... 500,000 10/01/2005 522,500
Mobile Telecommunication
Technology, Inc. Sr. Sub.
Disc. Note, 13.50% ........... 750,000 12/15/2002 742,500
Muzak L.P. Sr. Note, 10.00% ..... 250,000 10/01/2003 252,500
NS Group Inc. Sr. Sec. Note,
13.50% ....................... 250,000 7/15/2003 275,000
Orion Network Systems Inc. Sr.
Unit, 11.25% ................. 1,000,000 1/15/2007 1,000,000
Outdoor Systems Inc. Sr. Sub.
Note, 9.375% ................. 500,000 10/15/2006 491,375
Packaging Resources Inc. Sr.
Sec. Note, 11.625% ........... 750,000 5/01/2003 772,500
Pagemart Inc. Sr. Disc. Exch.
Note, 0.00% to 10/31/98,
12.25% from 11/1/98 to
maturity ....................... 750,000 11/01/2003 596,250
Premier Parks Inc. Sr. Note,
12.00% ....................... 500,000 8/15/2003 550,000
Pricellular Wireless Corp. Sr.
Note, 10.75% ................. 125,000 11/01/2004 128,750
Quest Diagnostics Inc. Sr. Sub.
Note, 10.75% ................. 750,000 12/15/2006 789,375
RSL Communications Ltd. Unit,
12.25%+ ....................... $ 500,000 11/15/2006 $ 500,000
Sheffield Steel Corp. First
Mortgage Note, 12.00% ........ 750,000 11/01/2001 705,000
Spanish Broadcasting Systems
Inc. Sr. Note, 7.50% ........... 1,000,000 6/15/2002 1,070,000
Spinnaker Industries Inc. Sr.
Sec. Note, 10.75%+ ........... 250,000 10/15/2006 252,500
Star Market Inc. Sr. Sub. Note,
13.00% ....................... 500,000 11/01/2004 560,000
Sun Media Corp. Sr. Sub. Note,
9.50%+ ....................... 500,000 2/15/2007 482,500
Tekni Plex Inc. Sr. Sub. Note,
11.25%+ ....................... 500,000 4/01/2007 518,750
Tokheim Corp. Sr. Sub. Note,
11.50% ....................... 1,000,000 8/01/2006 1,065,000
Tracor Inc. Sr. Sub. Note,
8.50%+ ....................... 250,000 3/01/2007 245,000
TransAmerican Refining Corp.
Sr. Note, 0.00% to 2/14/98,
18.50% from 2/15/98 to
8/14/98, 18.00% from
8/15/98 to maturity ........... 500,000 2/15/2002 533,750
TransTexas Gas Corp. Sr. Sec.
Note, 11.50% ................. 1,000,000 6/15/2002 1,112,500
U.S.A. Mobile Communications
Inc. Sr. Note, 14.00% ........ 1,000,000 11/01/2004 1,015,000
Wireless One Inc. Sr. Disc.
Note, 13.00% ................. 1,000,000 10/15/2003 650,000
Wireless One Inc. Sr. Note,
0.00% to 7/31/2001, 13.50%
from 8/1/2001 to maturity ..... 750,000 8/01/2006 213,750
------------
26,421,250
------------
Total Fixed Income Securities (Cost $70,591,949) .......... 69,954,946
------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------------
COMMON STOCKS & OTHER 2.6%
Ameriking Inc. Com.+ ................................. 300 15,000
Ameriking Inc. Sr. Exch. Pfd.* ........................ 12,000 318,000
Hollinger International, Inc. Cv. Pfd. ............... 140,000 1,452,500
Ionica PLC Wts.+ .................................... 1,000 145,000
Wireless One Inc. Wts.* .............................. 750 375
-----------
Total Common Stocks & Other (Cost $1,934,511) ......... 1,930,875
-----------
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS 5.9%
American Express Credit Corp., 5.48% .. $ 774,000 5/01/1997 $ 774,000
American Express Credit Corp., 5.50% .. 2,008,000 5/02/1997 2,008,000
J.P. Morgan & Co. Inc., 5.60% ......... 1,668,000 5/01/1997 1,668,000
------------
Total Short-Term Obligations (Cost $4,450,000)................... 4,450,000
------------
Total Investments (Cost $76,976,460)--101.4% ................... 76,335,821
Cash and Other Assets, Less Liabilities--(1.4%) ................. (1,049,244)
------------
Net Assets--100.0% .............................................. $75,286,577
============
Federal Income Tax Information:
At April 30, 1997, the net unrealized
depreciation of investments based on cost
for Federal income tax purposes of
$77,006,663 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost ........................................ $ 746,100
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value ........................................ (1,416,942)
-----------
$ (670,842)
===========
- --------------------------------------------------------------------------------
* Nonincome-producing securities
+ 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 total cost and market value of Rule 144A securities owned at
April 30, 1997 were $4,076,068 and $4,154,085 (5.52% of net assets),
respectively.
TBA 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 1%.
Forward currency exchange contracts outstanding at April 30, 1997 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation Delivery
Total Value Contract Price (Depreciation) Date
- -------------------------------------------------- ---------------------- ---------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sell Australian dollars, Buy U.S. dollars 2,120,000 AUD .75570 AUD $(50,974) 5/14/97
Buy Australian dollars, Sell U.S. dollars 341,300 AUD .77567 AUD 1,391 5/14/97
Sell Australian dollars, Buy U.S. dollars 948,300 AUD .75560 AUD (22,896) 5/14/97
Sell Australian dollars, Buy U.S. dollars 2,075,000 AUD .77920 AUD (569) 7/24/97
Sell Danish krone, Buy U.S. dollars 11,212,000 DKK .15684 DKK 55,899 5/14/97
Buy Danish krone, Sell U.S. dollars 3,182,000 DKK .15622 DKK (13,884) 5/14/97
Buy Danish krone, Sell U.S. dollars 8,030,000 DKK .15316 DKK (10,482) 5/14/97
Buy Danish krone, Sell U.S. dollars 1,650,000 DKK .15305 DKK (1,972) 5/14/97
Sell Danish krone, Buy U.S. dollars 1,650,000 DKK .15680 DKK 8,149 5/14/97
Sell Spanish peseta, Buy U.S. dollars 68,500,000 ESP .00702 ESP 12,125 5/14/97
Buy Spanish peseta, Sell U.S. dollars 53,300,000 ESP .00701 ESP (9,120) 5/14/97
Sell Spanish peseta, Buy U.S. dollars 91,000,000 ESP .00693 ESP 7,723 7/24/97
Sell Pound sterling, Buy U.S. dollars 425,000 GBP 1.63700 GBP 7,966 7/24/97
Sell Italian lira, Buy U.S. dollars 1,725,000,000 ITL .00060 ITL 33,866 5/14/97
Sell Italian lira, Buy U.S. dollars 325,000,000 ITL .00060 ITL 4,294 5/14/97
Sell European currency units, Buy U.S. dollars 530,000 XEU 1.16180 XEU 17,791 5/14/97
--------
$ 39,307
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------
April 30, 1997
Assets
Investments, at value (Cost $76,976,460) (Note 1)......... $76,335,821
Cash ................................................... 1,820
Receivable for securities sold ........................... 1,389,549
Interest and dividends receivable ........................ 1,604,646
Receivable for fund shares sold ........................ 331,523
Receivable for open forward contracts .................. 149,204
Receivable from Distributor (Note 3) ..................... 20,740
Deferred organization costs and other assets (Note 1) ... 80,645
------------
79,913,948
Liabilities
Payable for securities purchased ........................ 4,030,501
Dividends payable ....................................... 321,993
Payable for open forward contracts ..................... 109,897
Accrued management fee (Note 2) ........................ 44,588
Accrued distribution and service fees (Note 5) ......... 29,347
Accrued trustees' fees (Note 2) ........................ 7,675
Payable for fund shares redeemed ........................ 5,463
Accrued transfer agent and shareholder services
(Note 2) ............................................. 2,101
Other accrued expenses ................................. 75,806
------------
4,627,371
------------
Net Assets $75,286,577
============
Net Assets consist of:
Undistributed net investment income ..................... $ 150,952
Unrealized depreciation of investments .................. (640,639)
Unrealized appreciation of forward contracts and
foreign currency .................................... 34,411
Accumulated net realized gain ........................... 149,838
Shares of beneficial interest ........................... 75,592,015
------------
$75,286,577
============
Net Asset Value and redemption price per share of
Class A shares ($36,110,259 [divided by] 5,115,405
shares of beneficial interest) ......................... $7.06
=======
Maximum Offering Price per share of Class A shares
($7.06 [divided by] .955) .............................. $7.39
=======
Net Asset Value, offering price and redemption price
per share of Class B shares ($19,678,491 [divided by]
2,792,908 shares of beneficial interest)* ............ $7.05
=======
Net Asset Value, offering price and redemption price
per share of Class C shares ($10,908,001 [divided by]
1,545,163 shares of beneficial interest) ............... $7.06
=======
Net Asset Value and offering price and redemption
price per share of Class D shares ($8,589,826 [divided
by] 1,219,128 shares of beneficial interest)* ............ $7.05
=======
- -------------------------------------
*Redemption price per share for Class B and Class D is equal to net asset value
less any applicable contingent deferred sales charge.
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------
For the period August 30, 1996 (commencement of operations) to April 30, 1997
Investment Income
Interest, net of foreign taxes of $23,786 ............... $ 3,153,766
Dividends ............................................. 66,571
-----------
3,220,337
Expenses
Management fee (Note 2) ................................. 277,871
Custodian fee .......................................... 83,073
Service fee--Class A (Note 5) ........................... 50,918
Distribution and service fees--Class B (Note 5) ......... 67,417
Distribution and service fees--Class D (Note 5) ......... 36,591
Registration fees ....................................... 29,023
Reports to shareholders ................................. 22,138
Audit fee ................................................ 17,313
Trustees' fees (Note 2) ................................. 11,600
Amortization of organization costs (Note 1) ............ 10,810
Legal fees ............................................. 9,895
Transfer agent and shareholder services (Note 2) ......... 6,321
Miscellaneous .......................................... 3,016
-----------
625,986
Expenses borne by the Distributor (Note 3) ............ (63,516)
-----------
562,470
-----------
Net investment income ................................. 2,657,867
-----------
Realized and Unrealized Gain (Loss) on
Investments, Foreign Currency and
Forward Contracts
Net realized loss on investments (Notes 1 and 4) ...... (350,254)
Net realized gain on forward contracts and foreign
currency (Note 1) .................................... 628,169
-----------
Total net realized gain .............................. 277,915
-----------
Net unrealized depreciation of investments ............ (640,639)
Net unrealized appreciation of forward contracts and
foreign currency .................................... 34,411
-----------
Total net unrealized depreciation ..................... (606,228)
-----------
Net loss on investments, foreign currency and
forward contracts .................................... (328,313)
-----------
Net increase in net assets resulting from operations ..... $ 2,329,554
===========
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------
For the period August 30, 1996 (commencement of April 30, 1997
operations) to April 30, 1997
Increase (Decrease) in Net Assets
Operations:
Net investment income .............................. $ 2,657,867
Net realized gain on investments, foreign currency
and forward contracts ........................... 277,915
Net unrealized depreciation of investments, foreign
currency and forward contracts .................. (606,228)
------------
Net increase resulting from operations ............ 2,329,554
------------
Dividend from net investment income:
Class A .......................................... (1,394,457)
Class B .......................................... (441,102)
Class C .......................................... (442,284)
Class D .......................................... (234,066)
------------
(2,511,909)
------------
Distribution from net realized gains:
Class A .......................................... (69,832)
Class B .......................................... (23,447)
Class C .......................................... (21,004)
Class D .......................................... (12,082)
------------
(126,365)
------------
Net increase from fund share transactions (Note 6) 75,595,297
------------
Total increase in net assets ..................... 75,286,577
Net Assets
Beginning of period .............................. --
------------
End of period (including undistributed net investment
income of $150,952) .............................. $ 75,286,577
============
*Net realized gain for Federal income tax purposes
(Note 1) ....................................... $ 306,405
============
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------
April 30, 1997
Note 1
State Street Research Strategic Income 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 August, 1996. The Trust
consists presently of two separate funds: State Street Research Strategic
Income Fund and State Street Research Intermediate Bond Fund.
The investment objective of the Fund is to provide high current income
consistent with overall total return. In seeking to achieve its investment
objective, the Fund invests primarily in U.S. Government securities; high
yield, high risk debt securities (commonly known as "junk bonds"), as well as
investment grade debt, of U.S. issuers; and international debt securities of
governmental and private issuers.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual serv-ice fee of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and pay
annual distribution and service fees of 1.00%. Class B shares automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years after the issuance of the Class B shares. Class C shares are only
offered to certain employee benefit plans and large institutions. No sales
charge is imposed at the time of purchase or redemption of Class C shares.
Class C shares do not pay any distribution or service fees. Class D shares are
subject to a contingent deferred sales charge of 1.00% on any shares redeemed
within one year of their purchase. Class D shares also pay annual distribution
and service fees of 1.00%. The Fund's expenses are borne pro-rata by each
class, except that each class bears expenses, and has exclusive voting rights
with respect to provisions of the Plan of Distribution, related specifically to
that class. The 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.
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.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of the
Fund. Interest income is accrued daily as earned. Dividend income is accrued on
the ex-dividend date. Discount on debt obligations is amortized under the
effective yield method. The Fund is charged for expenses directly attributable
to it, while indirect expenses are allocated between both funds in the Trust.
D. Dividends
Dividends from net investment income are declared daily and paid or reinvested
monthly. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for foreign currency transactions.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund 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.
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 0.75% 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 period August 30, 1996 (commencement of operations) to April 30,
1997, the fees pursuant to such agreement amounted to $277,871.
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 period August 30, 1996 (commencement of
operations) to April 30, 1997, the amount of such expenses was $6,254.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$11,600 during the period August 30, 1996 (commencement of operations) to April
30, 1997.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund.
During the period August 30, 1996 (commencement of operations) to April 30,
1997, the amount of such expenses assumed by the Distributor and its affiliates
was $63,516.
Note 4
For the period August 30, 1996 (commencement of operations) to
April 30, 1997, purchases and sales of securities, exclusive of short-term
obligations, aggregated $127,762,990 and $55,108,235 (including $52,903,199 and
$20,097,941 of U.S. Government securities), respectively.
7
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 period August 30, 1996 (commencement of operations)
to April 30, 1997, fees pursuant to such plan amounted to $50,918, $67,417 and
$36,591 for Class A, Class B and Class D, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly-owned subsidiary of Metropolitan, earned initial sales charges
aggregating $33,102 and $137,979, respectively, on sales of Class A shares of
the Fund during the period August 30, 1996 (commencement of operations) to
April 30, 1997, and that MetLife Securities, Inc. earned commissons aggregating
$213,262 on sales of Class B shares, and that the Distributor collected
contingent deferred sales charges aggregating $10,985 and $6,571 on redemptions
of Class B and Class D shares, respectively, during the same period.
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, 1997, Metropolitan
owned 3,579,343 Class A shares and 1,288,560 Class C shares of the Fund and the
Adviser owned one share of each of Class A, Class B, Class C and Class D shares
of the Fund.
Share transactions were as follows:
August 30, 1996
(Commencement of
Operations) to
April 30, 1997
---------------------------------
Class A Shares Amount
- -------------------------------------- ---------- -------------
Shares sold ........................ 5,223,108 $ 36,828,959
Issued upon reinvestment of:
Dividend from net investment income 28,848 206,117
Distribution from net realized gains 9,432 68,100
Shares repurchased .................. (145,983) (1,045,400)
---------- -------------
Net increase ........................ 5,115,405 $ 36,057,776
========== =============
Class B Shares Amount
- -------------------------------------- ---------- -------------
Shares sold ........................ 2,999,935 $ 21,442,086
Issued upon reinvestment of:
Dividend from net investment income 25,978 185,010
Distribution from net realized gains 2,030 14,616
Shares repurchased .................. (235,035) (1,686,127)
---------- -------------
Net increase ........................ 2,792,908 $ 19,955,585
========== =============
Class C Shares Amount
- -------------------------------------- ---------- -------------
Shares sold ........................ 1,545,061 $ 10,861,897
Issued upon reinvestment of:
Dividend from net investment income 2,993 21,210
Distribution from net realized gains 2,899 20,952
Shares repurchased .................. (5,790) (41,454)
--------- -------------
Net increase ........................ 1,545,163 $ 10,862,605
========= =============
Class D Shares Amount
- -------------------------------------- ---------- -------------
Shares sold ........................ 1,451,840 $ 10,376,070
Issued upon reinvestment of:
Dividend from net investment income 6,358 45,216
Distribution from net realized gains 1,044 7,497
Shares repurchased .................. (240,114) (1,709,452)
--------- -------------
Net increase ........................ 1,219,128 $ 8,719,331
========= =============
8
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding from August 30, 1996 (commencement of operations) to
April 30, 1997**
<TABLE>
<CAPTION>
Class A
-------------------------
<S> <C>
Net asset value, beginning of period $ 7.00
-------
Net investment income* 0.38
Net realized and unrealized gain on investments, foreign
currency and forward contracts 0.01
-------
Total from investment operations 0.39
-------
Dividend from net investment income (0.31)
Distribution from net realized gains (0.02)
-------
Total distributions (0.33)
-------
Net asset value, end of period $ 7.06
=======
Total return 5.60%+
Net assets at end of period (000s) $36,110
Ratio of operating expenses to average net assets* 1.35%[dbldag]
Ratio of net investment income to average net assets* 7.30%[dbldag]
Portfolio turnover rate 110.37%
*Reflects voluntary assumption of fees or expenses per
share (Note 3) $ 0.01
<CAPTION>
Class B Class C
------------------------- -------------------------
<S> <C> <C>
Net asset value, beginning of period $ 7.00 $ 7.00
------- -------
Net investment income* 0.31 0.39
Net realized and unrealized gain on investments, foreign
currency and forward contracts 0.04 0.02
------- -------
Total from investment operations 0.35 0.41
------- -------
Dividend from net investment income (0.28) (0.33)
Distribution from net realized gains (0.02) (0.02)
------- -------
Total distributions (0.30) (0.35)
------- -------
Net asset value, end of period $ 7.05 $ 7.06
======= =======
Total return 4.96%+ 5.76%+
Net assets at end of period (000s) $19,678 $10,908
Ratio of operating expenses to average net assets* 2.10%[dbldag] 1.10%[dbldag]
Ratio of net investment income to average net assets* 6.73%[dbldag] 7.51%[dbldag]
Portfolio turnover rate 110.37% 110.37%
*Reflects voluntary assumption of fees or expenses per
share (Note 3) $ 0.01 $ 0.01
<CAPTION>
Class D
--------------
<S> <C>
Net asset value, beginning of period $ 7.00
-------
Net investment income* 0.32
Net realized and unrealized gain on investments, foreign
currency and forward contracts 0.03
-------
Total from investment operations 0.35
-------
Dividend from net investment income (0.28)
Distribution from net realized gains (0.02)
-------
Total distributions (0.30)
-------
Net asset value, end of period $ 7.05
=======
Total return 4.96%+
Net assets at end of period (000s) $ 8,590
Ratio of operating expenses to average net assets* 2.10%[dbldag]
Ratio of net investment income to average net assets* 6.67%[dbldag]
Portfolio turnover rate 110.37%
*Reflects voluntary assumption of fees or expenses per
share (Note 3) $ 0.01
</TABLE>
- --------------------------------------------------------------------------------
+ Represents aggregate return for the period without annualization and does not
reflect any front-end or contingent deferred sales charge. Total return would
be lower if the Distributor and its affiliates had not voluntarily assumed a
portion of the Fund's expenses.
[dbldag] Annualized.
** Per share figures have been calculated using the average shares method.
9
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research
Securities Trust and Shareholders of
State Street Research Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities of State
Street Research Strategic Income Fund, including the schedule of portfolio
investments, as of April 30, 1997, and the related statements of operations and
changes in net assets and the financial highlights for the period August 30,
1996 (commencement of operations) to April 30, 1997. 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 audit.
We conducted our audit 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, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides 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 Strategic Income Fund as of April 30, 1997, the results of its
operations and changes in its net assets and the financial highlights for the
period August 30, 1996 (commencement of operations) to April 30, 1997, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 3, 1997
10
<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
Strategic Income Fund for the period August 30, 1996
(commencement of operations) through April 30, 1997.
Financial Highlights for the State Street Research
Intermediate Bond Fund for the period May 16, 1994
(commencement of operations) through April 30, 1997.
(2) Financial Statements included in PART B (Statement of
Additional Information) of this Registration Statement:
Financial Statements for the State Street Research
Strategic Income Fund for the period August 30, 1996
(commencement of operations) through April 30, 1997.
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
(including financial highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
Financial Statements for the State Street Research
Intermediate Bond Fund for the fiscal year ended April
30, 1997.
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
(for the fiscal years ended April 30, 1997 and
April 30, 1996
Notes to Unaudited Financial Statements
(including financial highlights)
(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 (7)
(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) Letter Agreement with respect to the Advisory Agreement
relating to State Street Research Strategic Income Fund
C-1
<PAGE>
(6)(a) Distribution Agreement with State Street Research Investment
Services, Inc. (5)
(6)(b) Form of Selected Dealer Agreement, as Supplemented
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement (3)*
(6)(e) Letter Agreement with respect to the Distribution Agreement
relating to State Street Research Strategic Income Fund (8)
(7) Not applicable
(8)(a) Custodian Contract with State Street Bank and Trust
Company (5)
(8)(b) Letter Agreement with respect to the Custodian Contract
relating to State Street Research Strategic Income Fund (8)
(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 (8)
(13)(b) Purchase Agreement and Investment Letter with respect to
State Street Research Strategic Income Fund (8)
(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 (8)
(14)(c) State Street Research SIMPLE IRA: Application, Terms &
Conditions & Disclosure Statement
(15)(a) Plan of Distribution Pursuant to Rule 12b-1 (4)
(15)(b) Letter Agreement with respect to the Plan of Distribution
Pursuant to Rule 12b-1 relating to State Street Research
Strategic Income Fund (8)
(16) Calculation of Performance Data with respect to State Street
Research Intermediate Bond Fund (4)
(17) Powers of Attorney
(18) Certificate of Board Resolution Respecting Powers of
Attorney
(19) Application Forms (8)
(20) First Amended and Restated Multiple Class Expense Allocation
Plan (5)
(27) Financial Data Schedules
* Restated in electronic format in Post-Effective Amendment No. 7, filed on
August 29, 1997
- -------------------------------
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
7 Post-Effective Amendment No. 5 August 29, 1996
8 Post-Effective Amendment No. 6 January 23, 1997
C-2
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1996
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1996. Those entities which are listed at the
left margin (labelled with capital letters) are direct subsidiaries of
Metropolitan. Unless otherwise indicated, each entity which is indented under
another entity is a subsidiary of such indented entity and, therefore, an
indirect subsidiary of Metropolitan. Certain inactive subsidiaries have been
omitted from the Metropolitan Organizational listing. The voting securities
(excluding directors' qualifying shares, if any) of the subsidiaries listed are
100% owned by their respective parent corporations, unless otherwise indicated.
The jurisdiction of domicile of each subsidiary listed is set forth in the
parenthetical following such subsidiary.
A. Metropolitan Tower Corp. (Delaware)
1. Metropolitan Property and Casualty Insurance Company (Rhode Island)
a. Metropolitan Group Property and Casualty Insurance Company
(Rhode Island)
i. Metropolitan Reinsurance Company (U.K.) Limited (Great
Britain)
b. Metropolitan Casualty Insurance Company (Rhode Island)
c. Metropolitan General Insurance Company (Rhode Island)
d. First General Insurance Company (Georgia)
e. Metropolitan P&C Insurance Services, Inc. (California)
f. Metropolitan Lloyds, Inc. (Texas)
g. Met P&C Managing General Agency, Inc. (Texas)
2. Metropolitan Insurance and Annuity Company (Delaware)
a. MetLife Europe I, Inc. (Delaware)
b. MetLife Europe II, Inc. (Delaware)
c. MetLife Europe III, Inc. (Delaware)
d. MetLife Europe IV, Inc. (Delaware)
e. MetLife Europe V, Inc. (Delaware)
3. MetLife General Insurance Agency, Inc. (Delaware)
a. MetLife General Insurance Agency of Alabama, Inc. (Alabama)
b. MetLife General Insurance Agency of Kentucky, Inc. (Kentucky)
c. MetLife General Insurance Agency of Mississippi, Inc.
(Mississippi)
d. MetLife General Insurance Agency of Texas, Inc. (Texas)
e. MetLife General Insurance Agency of North Carolina, Inc. (North
Carolina)
f. MetLife General Insurance Agency of Massachusetts, Inc.
(Massachusetts)
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) CLJFinco, Inc. (Delaware)
(a) MetLife Capital Credit L.P. (Delaware).
Partnership interests in MetLife Capital Credit
L.P. are held by Metropolitan (90%) and CLJ
Finco, Inc. (10%).
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
(7) MetLife Capital Funding Corp. II (Delaware)
ii. MetLife Capital Financial Corporation (Delaware)
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.
iv. MetLife Capital International Ltd. (Delaware).
b. MetLife Investment Management Corporation (Delaware)
i. MetLife Investments Limited (United Kingdom). 23rd Street
Investments, Inc. holds one share of MetLife Investments
Limited.
c. MetLife Investments Asia Limited (Hong Kong). One share of
MetLife Investments Asia Limited is held by W&C Services, Inc., a
nominee of Metropolitan Asset Management Corporation.
d. GFM International Investors Limited (United Kingdom). The common
stock of GFM International Investors Limited ("GFM") is held by
Metropolitan (99.5%) and by the former CEO of GFM (.5%). GFM is a
sub-investment manager for the International Stock Portfolio of
Metropolitan Series Fund, Inc.
i. GFM Investments Limited (United Kingdom)
5. SSRM Holdings, Inc. (Delaware)
a. State Street Research & Management Company (Delaware). Is a sub-
investment manager for the Growth, Income, Diversified and
Aggressive Growth Portfolios of Metropolitan Series Fund, Inc.
i. State Street Research Energy, Inc. (Massachusetts)
ii. State Street Research Investment Services, Inc.
(Massachusetts)
iii. SSRM Management Company (Luxembourg).
b. Metric Holdings, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Realty Corp. (Delaware)
(1) Metric Realty Services, Inc. (Delaware). Metric
Holdings, Inc. and Metric Realty Corp. each hold 50% of
the common stock of Metric Realty Services, Inc.
(a) Metric Colorado, Inc. (Colorado). Metric Realty
Services, Inc. holds 80% of the common stock of
Metric Colorado, Inc.
(2) Metric AV, Inc.
iii. Metric Realty (Illinois). Metric Realty Corp. and Metric
Holdings, Inc. each hold 50% of the common stock of Metric
Realty.
(1) Metric Capital Corporation (California)
(2) Metric Assignor, Inc. (California)
(3) Metric Institutional Realty Advisors, Inc. (California)
(4) Metric Institutional Realty Advisors, L.P.
(California).
Metric Realty holds a 99% limited partnership interest
and Metric Institutional Realty Advisors, Inc. holds a
1%
C-5
<PAGE>
interest as general partner in Metric Institutional
Realty Advisors, L.P.
(5) Metric Institutional Apartment Fund II, L.P.
(California). Metric Realty holds a 1% interest as
general partner and Metropolitan holds an approximately
14.6% limited partnership interest in Metric
Institutional Apartment Fund II, L.P.
iv. MetLife Realty Group, Inc. (Delaware)
6. MetLife Holdings, Inc. (Delaware)
a. MetLife Funding, Inc. (Delaware)
b. MetLife Credit Corp. (Delaware)
7. Metropolitan Tower Realty Company, Inc. (Delaware)
8. Met Life Real Estate Advisors, Inc. (California)
9. MetLife HealthCare Holdings, Inc. (Delaware)
B. Metropolitan Tower Life Insurance Company (Delaware)
C. MetLife Security Insurance Company of Louisiana (Louisiana)
D. MetLife Texas Holdings, Inc. (Delaware)
1. Texas Life Insurance Company (Texas)
a. Texas Life Agency Services, Inc. (Texas)
b. Texas Life Agency Services of Kansas, Inc. (Kansas)
E. MetLife Securities, Inc. (Delaware)
F. 23rd Street Investments, Inc. (Delaware)
G. Metropolitan Life Holdings Limited (Ontario, Canada)
1. Metropolitan Life Financial Services Limited (Ontario, Canada)
2. Metropolitan Life Financial Management Limited (Ontario, Canada)
a. Metropolitan Life Insurance Company of Canada (Canada)
C-6
<PAGE>
3. Morguard Investments Limited (Ontario, Canada)
Shares of Morguard Investments Limited ("Morguard") are held by
Metropolitan Life Holdings Limited (80%) and by employees of Morguard
(20%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
5. 3309347 Canada, Inc. (Canada)
H. MetLife (UK) Limited (Great Britain). One share held by Metropolitan Tower
Corp.
1. Albany Life Assurance Company Limited (Great Britain)
a. Albany Pension Managers and Trustees Limited (Great Britain)
2. Albany Home Loans Limited (Great Britain)
3. ACFC Corporate Finance Limited (Great Britain)
4. Metropolitan Unit Trust Managers Limited (Great Britain)
5. Albany International Assurance Limited (Isle of Man)
6. MetLife Group Services Limited (Great Britain)
I. Santander Met, S.A. (Spain). Shares of Santander Met, S.A. are held by
Metropolitan (50%) and by an entity (50%) unaffiliated with Metropolitan.
1. Seguros Genesis, S.A. (Spain)
2. Genesis Seguros Generales, Sociedad Anomina de Seguros y Reaseguros
(Spain)
J. Kolon-Met Life Insurance Company (Korea). Shares of Kolon-MetLife Insurance
Company are held by Metropolitan (51%) and by an entity (49%) unaffiliated
with Metropolitan.
C-7
<PAGE>
K. Metropolitan Life Seguros de Vida S.A. (Argentina)
L. Metropolitan Life Seguros de Retiro S.A. (Argentina).
M. Met Life Holdings Luxembourg (Luxembourg)
N. Metropolitan Life Holdings, Netherlands BV (Netherlands)
O. MetLife International Holdings, Inc. (Delaware)
P. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
C-8
<PAGE>
Q. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. Cross & Brown Associates of New York, Inc. (New York)
b. Cross & Brown Construction Corp. (New York)
c. CBNJ, Inc. (New Jersey)
d. SubBrown Corp. (New York)
R. MetPark Funding, Inc. (Delaware)
S. 2154 Trading Corporation (New York)
T. Transmountain Land & Livestock Company (Montana)
U. Met West Agribusiness, Inc. (Delaware)
V. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
C-9
<PAGE>
W. MetLife Trust Company, National Association. (United States)
X. PESCO Plus, L.C. (Florida). Metropolitan holds a 50% interest in
PESCO Plus, L.C. and an unaffiliated party holds a 50% interest.
1. Public Employees Equities Services Company (Florida)
Y. Benefit Services Corporation (Georgia)
Z. G.A. Holding Corporation (MA)
A.A. TNE-Y, Inc. (DE)
A.B. CRH Companies, Inc. (MA)
A.C. NELRECO Troy, Inc. (MA)
A.D. TNE Funding Corporation (DE)
A.E. L/C Development Corporation (CA)
A.F. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.G. CRB Co., Inc. (MA) AEW Real Estate Advisors, Inc. holds 49,000 preferred
non-voting shares of CRB Co., Inc. AEW Advisors, Inc. holds 1,000
preferred non-voting shares of CRB Co., Inc.
A.H. DPA Holding Corp. (MA)
A.I. Lyon/Copley Development Corporation (CA)
A.J. NEL Partnership Investments I, Inc. (MA)
A.K. New England Life Mortgage Funding Corporation (MA)
A.L. Mercadian Capital L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian Capital
L.P.
A.M. Mercadian Funding L.P. ( DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian
Funding L.P.
A.N. MetLife New England Holdings, Inc. (DE)
1. New England Life Insurance Company (MA)
a. New England Securities Corporation (MA)
b. Hereford Insurance Agency, Inc. (MA)
c. Hereford Insurance Agency of Alabama, Inc. (AL)
d. Hereford Insurance Agency of Minnesota, Inc. (MN)
e. Newbury Insurance Company, Limited (Bermuda)
f. TNE Information Services, Inc. (MA)
g. Exeter Reassurance Company, Ltd. (MA)
h. Omega Reinsurance Corporation (AZ)
i. New England Pension and Annuity Company (DE)
j. TNE Advisers, Inc. (MA)
k. New England Investment Companies, Inc. (MA)
1. New England Investment Companies, L.P. (DE) New England
Investment Companies, Inc. hold a 0.29% general partnership
interest in New England Investment Companies, L.P. MetLife New
England Holdings, Inc. holds a 54.90% limited partnership
interest in New England Investment Companies, L.P.
a. NEIC Holdings, Inc. (MA)
i. (1) Back Bay Advisors, Inc. (MA)
(2) Back Bay Advisors, L.P. (DE)
Back Bay Advisors, Inc.
holds a 1% general partner
interest and NEIC
Holdings, Inc. holds a 99%
limited partner interest
in Back Bay Advisors, L.P.
ii. Reich & Tang Asset Management, Inc. (MA)
(1) Reich & Tang Distributors, L.P. (DE)
Reich & Tang Asset Management Inc.
holds a 1% general interest and
Reich & Tang Asset Management, L.P.
holds a 99.5% limited partner
interest in Reich Tang Distributors, L.P.
(2) Reich & Tang Asset Management L.P.
Reich & Tang Asset Management, Inc.
holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited
partner interest in Reich & Tang
Asset Management, L.P.
(3) Reich & Tang Services, L.P. (DE)
Reich & Tang Asset Management, Inc.
holds a 1% general partner interest and
Reich & Tang Asset Management, L.P.
holds a 99% limited partner interest
in Reich & Tang Services, L.P.
iii. Loomis, Sayles & Company, Inc. (MA)
(1) Loomis Sayles & Company, L.P. (DE)
Loomis Sayles & Company, Inc.
holds a 1% general partner interest and
Reich & Tang Asset Management, Inc. holds a 99%
limited partner interest in Loomis Sayles &
Company, L.P.
iv. Westpeak Investment Advisors, Inc. (MA)
(1) Westpeak Investment Advisors, L.P. (DE)
Westpeak Investment Advisors, Inc.
holds a 1% general partner interest and
Reich & Tang holds a 99% limited partner interest in
Westpeak Investment Advisors, L.P.
v. VNSM, Inc. (DE)
(1) Vaughan, Nelson Scarborough & McConnell, L.P. (DE)
VNSM, Inc. holds a 1% general partner interest and
Reich & Tang Asset Management, Inc. holds a 99%
limited partner interest in Vaughan, Nelson
Scarborough & McConnell, L.P.
vi. MC Management, Inc. (MA)
(1) MC Management, L.P. (DE)
MC Management, Inc. holds a 1% general partner
interest and Reich & Tang Asset Management,
Inc. holds a 99% limited partner interest in MC
Management, L.P.
vii. Harris Associates, Inc. (DE)
(1) Harris Associates Securities L.P. (DE)
Harris Associates, Inc. holds a 1% general partner
interest and Harris Associates L.P. holds a
99% limited partner interest in Harris Associates
Securities, L.P.
(2) Harris Associates L.P. (DE)
Harris Associates, Inc. holds a 0.33% general
partner interest and New England Investment Company,
L.P. Inc. holds a 99.67% limited partner interest in
Harris Associates L.P.
(a) Harris Partners, Inc. (DE)
(b) Harris Partners L.L.C. (DE)
Harris Partners, Inc. holds a 1%
membership interest and
Harris Associates L.P. holds a 99%
membership interest in Harris Partners L.L.C.
(i) Aurora Limited Partnership (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(ii)Perseus Partners L.P. (DE) Harris
Partners L.L.C. holds a 1% general
partner interest
(iii)Pleiades Partners L.P. (DE) Harris
Partners L.L.C. holds a 1% general partner
interest
(iv) Stellar Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(v) SPA Partners L.P. (DE) Harris Partners
L.L.C. holds a 1% general partner interest
viii. Graystone Partners, Inc. (MA)
(1) Graystone Partners, L.P. (DE)
Graystone Partners, Inc. holds a 1%
general partner interest and New England
Investment Company, L.P.
holds a 99% limited partner interest in
Graystone Partners, L.P.
ix. NEF Corporation (MA)
(1) New England Funds, L.P. (DE) NEF Corporation holds a
1% general partner interest and New England
Investment Company, L.P. holds a 99% limited partner
interest in New England Funds, L.P.
(2) New England Funds Management, L.P. (DE) NEF
Corporation holds a 1% general partner interest and
New England Investment Company, L.P. holds a 99%
limited partner interest in New England Funds
Management, L.P.
l. Capital Growth Management, L.P. (DE)
New England Investment Companies, L.P. holds a 50% limited partner
interest in Capital Growth Management, L.P.
m. AEW Capital Management L.P. (DE)
New England Investment Companies, L.P. holds a 99% limited partner
interest and AEW Capital Management, Inc. holds a 1% general partner
interest in AEW Capital Management, L.P.
1. AEW Investment Group, Inc. (MA)
a. BBC Investment Advisors, Inc. (MA)
b. Copley/Ochard Investors, Inc. (MA)
i. Copley/Ochard Investors, L.P. (DE)
Copley/Ochard Investors, Inc.
holds a 1% general partner interest in
Copley/Ochard Investors, L.P.
c. AEW Real Estate Advisors, Inc. (MA)
i. AEW Advisors, Inc. (MA)
(1) Copley Management Partnership (MA)
Copley Advisors, Inc. holds a 1% general partner
interest in Copley Management Partnership.
(2) Coptel Associates L.P. (DE)
Copley Advisors, Inc. holds a 1% general partner
interest in Coptel Associates L.P.
(3) CIIF Associates (MA)
Copley Advisors, Inc. holds a .15% general partner
interest in CIIF Associates.
(4) CIIF Associates II Limited Partnership (DE)
Copley Advisors, Inc. holds a .15% general partner
interest in CIIF Associates II Limited Partnership.
(5) CIIF McInnes Associates (MA)
AEW Advisors, Inc. holds a .15% general partnership
interest in CIIF McInnes Associates.
(6) CIIF Oxnard Associates (MA)
AEW Advisors, Inc. holds a .15% general partnership
in CIIF Oxnard Associates.
(7) CIIF II Crossroads Limited Partnership (DE)
AEW Advisors, Inc. holds a 1% general partnership
in CIIF II Crossroads Limited Partnership.
(8) CIIF II Tech Center Associates L.P. (DE)
AEW Advisors, Inc. holds a 1% general partnership
in CIIF II Tech Center Associates L.P.
(9) CIIF II Tech Center, Inc. (MA)
AEW Advisors, Inc. holds a 5% interest in CIIF
II Tech Center Associates, Inc.
ii. Copley Properties Company, Inc. (MA)
(1) New England Life Pension Properties (MA).
Copley Properties Company, Inc. holds a 1% general
partner interest in New England Life Pension
Properties.
iii. Copley Properties Company II, Inc. (MA)
(1) New England Life Pension Properties II (MA).
Copley Properties Company II, Inc. holds a 1%
general partner interest in New England Life
Pension Properties II.
iv. Copley Properties Company III, Inc. (MA)
(1) New England Life Pension Properties III (MA).
Copley Properties Company III, Inc. holds a 1%
general partner interest in New England Life
Pension Properties III.
v. Copley Securities Corporation (MA)
vi. Copley Margarita Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 0.001% general
partner interest in Copley Margarita Associates L.P.
vii. Fourth Copley Corp. (MA)
(1) New England Life Pension Properties IV (MA).
Fourth Copley Corp. holds a 1% general partner
interest in New England Life Pension Properties IV.
viii. Fifth Copley Corp. (MA)
(1) New England Life Pension Properties V (MA).
Fifth Copley Corp. holds a 1% general partner
interest in New England Life Pension Properties V.
ix. Sixth Copley Corp. (MA)
(1) Copley Pension Properties VI (MA).
Sixth Copley Corp. holds a 1% general partner
interest in Copley Pension Properties VI.
x. Seventh Copley Corp. (MA).
(1) Copley Pension Properties VII (MA).
Seventh Copley Corp. holds a 1% general partner
interest in Copley Pension Properties VII.
xi. Eighth Copley Corp. (MA).
xii. First Income Corp. (MA).
(1) Copley Realty Income Partners 1 (MA).
First Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 1.
xiii. Second Income Corp. (MA).
(1) Copley Realty Income Partners 2 (MA).
Second Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 2.
xiv. Third Income Corp. (MA).
(1) Copley Realty Income Partners 3 (MA).
Third Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 3.
xv. Fourth Income Corp. (MA).
(1) Copley Realty Income Partners 4 (MA).
Fourth Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 4.
xvi. Third Singleton Corp. (MA).
(1) Copley Business Parks Associates L.P. (MA).
Third Singleton Corp. holds a 1% general partner
interest in Copley Business Parks Associates L.P.
xvii. Fourth Singleton Corp. (MA)
xviii. Fifth Singleton Corp. (MA)
(1) Copley Regional Centers Associates L.P. (MA).
Fifth Singleton Corp. holds a 1% general partner
interest in Copley Regional Centers Associates L.P.
xix. Sixth Singleton Corp. (MA).
(1) Copley Commerce Centers Associates L.P. (MA).
Sixth Singleton Corp. holds a 1% general partner
interest in Copley Commerce Centers Associates L.P.
xx. CTR Corp. (MA ).
xxi. New England Investment Associates, Inc. (DE)
xxii. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general
partner interest in BCOP Associates L.P.
xxiii AEW Real Estate Advisors Limited Partnership.
AEW Real Estate Advisors, Inc. holds a 25% general
partner interest in AEW Real Estate Advisors, Limited
Partnership.
d. BBC Investment Advisors, Inc. (MA)
AEW Investment Group, Inc. holds a 60% general partner
interest in BBC Investment Advisors, Inc. and Back Bay
Advisors, L.P. holds a 40% limited partner interest.
N. AEW Capital Management, Inc. (MA)
(i) Copley Management and Advisors, L.P. (DE)
AEW Capital Management, Inc. holds a 75% limited
partner interest and AEW Investment Group, Inc.
holds a 25% general partner interest in Copley
Management and Advisors, L.P.
(a) BBC Investment Advisors, L.P. (DE)
Copley Management Advisors, L.P. holds a
59.4% limited partner interest, Back Bay
Advisors, L.P. holda 39.6% limited partner
interest and BBC Investment Advisors, Inc.
holds a 1% general partner interest in
BBC Investment Advisors, L.P.
2. Copley Public Partners Holding, L.P. (DE)
AEW Capital Management, L.P. holds a 75% limited partner interest and
AEW Investment Group, Inc. holds a 25% general partner interest.
3. AEW Hotel Investment Corporation.
C-10
<PAGE>
In addition to the entities listed above, Metropolitan (or where indicated an
affiliate) also owns an interest in the following entities, among others:
1) CP&S Communications, Inc., a New York corporation, holds federal radio
communications licenses for equipment used in Metropolitan owned facilities and
airplanes. It is not engaged in any business.
2) Quadreal Corp., a New York corporation, is the fee holder of a parcel of real
property subject to a 999 year prepaid lease. It is wholly owned by
Metropolitan, having been acquired by a wholly owned subsidiary of Metropolitan
in 1973 in connection with a real estate investment and transferred to
Metropolitan in 1988.
3) Met Life International Real Estate Equity Shares, Inc., a Delaware
corporation, is a real estate investment trust. Metropolitan owns approximately
18.4% of the outstanding common stock of this company and has the right to
designate 2 of the 5 members of its Board of Directors.
4) Metropolitan Structures is a general partnership in which Metropolitan owns a
50% interest. Metropolitan Structures owns 100% of the common stock of
Cicero/Cermak Corporation, an Illinois corporation.
5) Seguros Genesis, S.A. (Mexico), is a Mexican insurer in which Metropolitan
and two of its subsidiaries collectively own a 24.5% interest and have the right
to designate 2 of the 9 members of the Board of Directors.
6) Interbroker, Correduria de Reaseguros, S.A., is a Spanish insurance brokerage
company in which Santander Met, S. A., a subsidiary of Metropolitan in which
Metropolitan owns a 50% mt ST, owns a 50% interest and has the right to
designate 2 of the 4 members of the Board of Directors.
C-11
<PAGE>
Item 26: Number of Holders of Securities
- -----------------------------------------
As of July 31, 1997, the number of record holders of the Registrant's
Fund were as follows:
(1) (2)
Number of
Title of Class Record Holders
Shares of Beneficial Interest
State Street Research Intermediate Bond Fund
Class A 0
Class B 0
Class C 7
Class D 0
State Street Research Strategic Income Fund
Class A 689
Class B 791
Class C 23
Class D 157
- ----------
C-12
<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-13
<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-14
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
State Street Investment Adviser Various investment Boston, MA
Research & advisory clients
Management
Company
Arpiarian, Tanya None
Vice President
Bangs, Linda L. None
Vice President
Bennett, Peter C. Executive Vice GFM International Investors
Director and President Limited London, England
Executive Vice Vice President State Street Research Capital Trust Boston, MA
President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Financial Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Director State Street Research Investment Services, Inc Boston, MA
Director Boston Private Bank & Trust Co. Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Bochman, Kathleen None
Vice President
Bray, Michael J. Employee Merrill Lynch & Co. Boston, MA
Vice President
Brown, Susan H. None
Vice President
Buffum, Andrea Project Manager BankBoston Boston, MA
Vice President (until 12/96)
Managing Director State Street Global Advisors Boston, MA
(until 12/95)
Burbank, John F. None
Senior Vice President
(Vice President until
7/96)
Cabrera, Jesus A. Vice President First Chicago Investment Management Co. Chicago, IL
Vice President (until 5/96)
Vice President State Street Research Capital Trust Boston, MA
Canavan, Joseph W. Vice President GFM International Investors Limited London, England
Vice President Assistant Treasurer State Street Research Equity Trust Boston, MA
Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust Boston, MA
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
C-15
<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
D'Vari, Ronald None
Vice President
DeVeuve, Donald None
Vice President
DiFazio, Susan M.W. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Dillman, Thomas J Director of Research Bank of New York New York, NY
Senior Vice President (until 6/95)
Drake, Susan W. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President (until 2/96)
Duggan, Peter J. None
Senior Vice
President
Evans, Gordon Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President (Vice President until 3/96)
Federoff, Alex G. None
Vice President
Feliciano, Rosalina None
Vice President
Gardner, Michael D. Partner Prism Group Seattle, WA
Senior Vice President
Geer, Bartlett R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Govoni, Electra None
Vice President
C-16
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Granger, Allison None
Vice President
Hamilton, Jr., William A. Treasurer and Director Ellis Memorial and Eldredge House Boston, MA
Senior Vice President Treasurer and Director Nautical and Aviation Publishing Company, Inc. Baltimore, MD
Treasurer and Director North Conway Institute Boston, MA
Hanson, Phyllis None
Vice President
Haverty, Jr., Lawrence J. None
Senior Vice President
Heineke, George R. None
Vice President
Jackson, Jr., Trustee Certain trusts of related and
F. Gardner non-related individuals
Senior Vice President Trustee and Chairman Vincent Memorial Hospital Boston, MA
of the Board
Jamieson, Frederick H. Vice President and Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Senior Vice President Vice President and Asst. Treasurer SSRM Holdings, Inc. Boston, MA
Vice President and Controller MetLife Securities, Inc. New York, NY
Senior Vice President GFM International Investors Limited London, England
Kallis, John H. Vice President State Street Research Financial Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Money Market Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Director and President K&G Enterprises Washington, D.C.
Kasper, M. Katherine None
Vice President
C-17
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Vice President
Koski, Karen None
Vice President
Langholm, Knut None
Vice President
Leary, Eileen M. None
Vice President
McNamara, III, Francis J. Director and Executive GFM International Investors
Executive Vice Vice President Limited London, England
President, Senior Vice President, Clerk State Street Research Investment Services, Inc. Boston, MA
Secretary and and General Counsel
General Counsel Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
(Senior Vice President, Secretary and General Counsel State Street Research Capital Trust Boston, MA
Secretary and General Secretary and General Counsel State Street Research Exchange Trust Boston, MA
Counsel until 7/96) Secretary and General Counsel State Street Research Growth Trust Boston, MA
Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel State Street Research Equity Trust Boston, MA
Secretary and General Counsel State Street Research Financial Trust Boston, MA
Secretary and General Counsel State Street Research Income Trust Boston, MA
Secretary and General Counsel State Street Research Money Market Trust Boston, MA
Secretary and General Counsel State Street Research Portfolios, Inc. Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
C-18
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Maus, Gerard P. Executive Vice President GFM International Investors
Director, Executive and Director Limited London, England
Vice President, Treasurer State Street Research Equity Trust Boston, MA
Treasurer, Chief Treasurer State Street Research Financial Trust Boston, MA
Financial Officer and Treasurer State Street Research Income Trust Boston, MA
Chief Administrative Treasurer State Street Research Money Market Trust Boston, MA
Officer Treasurer State Street Research Tax-Exempt Trust Boston, MA
Treasurer State Street Research Capital Trust Boston, MA
Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Portfolios, Inc. Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Treasurer and Chief
Financial Officer
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Treasurer and Chief Financial SSRM Holdings, Inc. Boston, MA
Officer
Treasurer (until 1/97) MetLife Securities, Inc. New York, NY
Milder, Judith J. None
Senior Vice President
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
(Vice President
until 7/96)
Moore, Jr., Thomas P. Vice President State Street Research Capital Trust Boston, MA
Senior Vice (until 11/96)
President Vice President State Street Research Exchange Trust Boston, MA
(until 2/97)
Vice President State Street Research Growth Trust Boston, MA
(until 2/97)
Vice President State Street Research Master Investment Trust Boston, MA
(until 2/97)
Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Energy, Inc. Boston, MA
Director Hibernia Savings Bank Quincy, MA
Governor on the Association for Investment Management
Board of Governors and Research Charlottesville, VA
Mulligan, JoAnne C. Vice President State Street Research Money Market Trust Boston, MA
Senior Vice President
(Vice President
until 7/96)
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
C-19
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Paddon, Steven W. Employee Metropolitan Life Insurance Company New York, NY
Vice President (until 10/96)
Pannell, James C. None
Vice President
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Ragsdale, E.K. Easton Senior Vice President GFM International Investors, Limited London, England
Senior Vice President
(Vice President
until 7/96)
Rawlins, Jeffrey A. None
Senior Vice President
(Vice President
until 7/96)
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Richards, Scott None
Vice President
Romich, Douglas A. Vice President GFM International Investors Limited London, England
Vice President Assistant Treasurer State Street Research Equity Trust Boston, MA
Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
Saperstone, Paul None
Vice President
C-20
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Schrage, Michael None
Vice President
Schultz, David C. Director and Treasurer Mafraq Hospital Association Mafraq, Jordan
Executive Vice Member Association of Investment
President Management Sales Executives Atlanta, GA
Member, Investment Committee Lexington Christian Academy Lexington, MA
Shaver, Jr. C. Troy President and Chief Executive State Street Research Investment Services, Inc. Boston, MA
Executive Vice Officer
President President and Chief Executive John Hancock Funds, Inc. Boston, MA
Officer (until 1/96)
Shean, William G. None
Vice President
Shively, Thomas A. Vice President State Street Research Financial Trust Boston, MA
Director and Vice President State Street Research Money Market Trust Boston, MA
Executive Vice Vice President State Street Research Tax-Exempt Trust
President Director State Street Research Investment Services, Inc Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Shoemaker, Richard D. Senior Vice President GFM International Investors Limited London, England
Senior Vice President
Strelow, Dan R. None
Senior Vice President
C-21
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Swanson, Amy McDermott None
Senior Vice President
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
(Vice President
until 6/95)
Verni, Ralph F. Chairman, President, GFM International Investors
Chairman, President, CEO and Director Limited London, England
Chief Executive Chairman, President, Chief State Street Research Capital Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Growth Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Master Investment Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Securities Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Equity Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Financial Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Income Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Money Market Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Portfolios, Inc. Boston, MA
Executive Officer and Director
Chairman, President, Chief State Street Research Tax-Exempt Trust Boston, MA
Executive Officer and Trustee
Chairman and Director State Street Research Investment Services, Inc. Boston, MA
(President and Chief Executive
Officer until 2/96)
Chairman and Director Metric Holdings, Inc. San Francisco, CA
Director and Officer Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Chairman of the Board and Director MetLife Securities, Inc. New York, NY
(until 1/97)
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director CML Group, Inc. Boston, MA
Director Colgate University Hamilton, NY
C-22
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wade, Dudley Vice President State Street Research Growth Trust Boston, MA
Freeman Vice President State Street Research Master Investment Trust Boston, MA
Senior Vice
President
Wallace, Julie K. None
Vice President
Ward, Geoffrey None
Senior Vice President
Weiss, James M. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Capital Trust Boston, MA
President and Chief Investment IDS Equity Advisors Minneapolis, MN
Officer (until 12/95)
Westvold, Vice President State Street Research Securities Trust Boston, MA
Elizabeth McCombs
Senior Vice President
(Vice President
until 7/96)
Wilson, John T. Vice President State Street Research Equity Trust Boston, MA
Vice President Vice President State Street Research Master Investment Trust Boston, MA
Vice President Phoenix Investment Counsel, Inc. Hartford, CT
(until 6/96)
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Vice President, Asst. Clerk
Assistant Secretary Assistant Secretary State Street Research Capital Trust Boston, MA
and Assistant Assistant Secretary State Street Research Exchange Trust Boston, MA
General Counsel 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-23
<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
</TABLE>
C-24
<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-25
<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
Darman A. Wing Senior Vice President, Assistant Secretary
One Financial Center Assistant General Counsel
Boston, MA 02111 and Assistant Clerk
Donald Doherty Vice President None
One Financial Center
Boston, MA 02111
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
Susan Volpe Martin Vice President None
One Financial Center
Boston, MA 02111
Amy L. Simmons Vice President Assistant Secretary
One Financial Center
Boston, MA 02111
Kevin Wilkins Vice President None
One Financial Center
Boston, MA 02111
C-26
<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) Deleted.
C-27
<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-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 7 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 29th day of August, 1997.
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
---------------------
Steve A. Garban
* Trustee
---------------------
Malcolm T. Hopkins
* Trustee
---------------------
Edward M. Lamont
* Trustee
---------------------
Robert A. Lawrence
* Trustee
---------------------
Dean O. Morton
* Trustee
---------------------
Thomas L. Phillips
C-29
<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 29, 1997.
C-30
<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. 7 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 8 [X]
--------------------
STATE STREET RESEARCH SECURITIES TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
--------------------
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(2) By-Laws of the Registrant*
(6)(b) Form of Selected Dealer Agreement, as Supplemented
(6)(c) Form of Bank and Bank Affiliated Broker-Dealer Agreement*
(10)(a) Opinion and Consent of Goodwin, Procter & Hoar with respect to
State Street Research Intermediate Bond Fund*
(11) Consent of Independent Accountants
(14)(c) State Street Research SIMPLE IRA: Application, Terms &
Conditions & Disclosure Statement
(17) Powers of Attorney
(18) Certificate of Board Resolution Respecting Powers of Attorney
(27) Financial Data Schedules
* Restated in electronic format
2
Exhibit 2
BY-LAWS
OF
STATE STREET RESEARCH SECURITIES TRUST
ARTICLE 1
Agreement and Declaration
of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject
to the Declaration of Trust, as from time to time in effect (the "Declaration of
Trust), of State Street Research Securities Trust, the Massachusetts business
trust established by the Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust
shall be located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the Chairman of the Trustees, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Secretary
or an Assistant Secretary or by the officer of the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the Trustee at his or
her usual or last known business or residence address or to give notice to him
or her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him or
her. Neither notice of a meeting nor a waiver of a notice need specify the
purposes of the meeting.
<PAGE>
2.4 Ouorum. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
2.5 Participation by Telephone. One or more of the Trustees or of any
committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1 Enumeration: Qualification. The officers of the Trust shall be a
Chairman of the Trustees, a President, a Treasurer, a Secretary, Vice
Presidents, and Assistant Treasurers, Assistant Secretaries and Assistant Vice
Presidents, if any, as the Trustees from time to time may in their discretion
elect or as appointed from time to time pursuant to authority delegated by the
Trustees. The Trust may also have such agents as the Trustees from time to time
may in their discretion appoint. The Chairman of the Trustees shall be a Trustee
and may but need not be a shareholder; and any other officer may be but none
need be a Trustee or shareholder. Any two or more offices may be held by the
same person.
3.2 Election. The Chairman of the Trustees, the President, the
Treasurer, and the Secretary shall be elected annually by the Trustees at a
meeting held within the first six months of the Trust's fiscal year. The meeting
at which the officers are elected shall be known as the annual meeting of
Trustees. Other officers, if any, may be elected or appointed by the Trustees at
said meeting or at any other time. Vacancies in any office may be filled at any
time.
3.3 Tenure. The Chairman of the Trustees, the President, the Treasurer,
and the Secretary shall hold office until the next annual meeting of the
Trustees and until their respective successors are chosen and qualified, or in
each case until he or she sooner dies, resigns, is removed or becomes
disqualified. Each other officer shall hold office and each agent shall retain
authority at the pleasure of the Trustees.
3.4 powers. Subject to the other provisions of these By-Laws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him or her as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as the
Trustees may from time to time designate.
2
<PAGE>
3.5 Chairman: President. Unless the Trustees otherwise provide, the
Chairman of the Trustees, or, if there is none, or in the absence of the
Chairman, the President shall preside at all meetings of the shareholders and of
the Trustees. The President shall be the chief executive officer.
3.6 Vice President. The Vice President, or if there be more than one
Vice President, the Vice Presidents in the order determined by the Trustees (or
if there be no such determination, then in the order of their election) shall in
the absence of the President or in the event of his inability or refusal to act,
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall perform such other duties and have such other powers as the
Board of Trustees may from time to time prescribe.
3.7 Treasurer. The Treasurer shall be the chief financial and
accounting officer of the Trust, and shall, subject to the provisions of the
Declaration of Trust and to any arrangement made by the Trustees with a
custodian, investment adviser or manager, or transfer, shareholder servicing or
similar agent, be in charge of the valuable papers, books of account and
accounting records of the Trust, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President.
3.8 Assistant Treasurer. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Trustees
(or if there be no such determination, then in the order of their election ),
shall, in the absence of the Treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Trustees may from time to time prescribe.
3.9 Secretary. The Secretary shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of the shareholders or Trustees, an assistant
secretary, or if there be none or if he or she is absent, a temporary secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.10 Assistant Secretary The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Trustees (or
if there be no determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Trustees may from
time to time prescribe.
3.11 Assistant Vice Presidents. With respect to each Assistant Vice
President and the Vice President to whom such Assistant Vice President reports,
such Assistant Vice President, or if there be more than one, the Assistant Vice
President reporting to a given Vice President in the order determined by the
Trustees (or if there be no determination, then
3
<PAGE>
in the order of their election), shall, in the absence of such Vice President or
in the event of his inability or refusal to act, perform the duties and exercise
the powers of such Vice President and shall perform such other duties and have
such other powers as the Board of Trustees may from time to time prescribe.
3.12 Resignations and Removals. Any Trustee or officer may resign at
any time by written instrument signed by him or her and delivered to the
Chairman, the President or the Secretary or to a meeting of the Trustees. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time. The Trustees may remove any officer elected by them with or
without cause. Except to the extent expressly provided in a written agreement
with the Trust, no Trustee or officer resigning and no officer removed shall
have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal.
ARTICLE 4
Committees
4.1 General. The Trustees, by vote of a majority of the Trustees then
in office, may elect from their number an Executive Committee or other
committees and may delegate thereto some or all of their powers except those
which by law, by the Declaration of Trust, or by these By-Laws may not be
delegated. Except as the Trustees may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the Trustees or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these By-Laws for the Trustees
themselves. All members of such committees shall hold such offices at the
pleasure of the Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their powers or dudes
shall keep records of its meetings and shall report its action to the Trustees.
The Trustees shall have power to rescind any action of any committee, but no
such rescission shall have retroactive effect.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and Committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
4
<PAGE>
ARTICLE 6
Fiscal Year
6.1 General. The fiscal year of the Trust shall be fixed by resolution
of the Trustees.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die
with the word "Massachusetts", together with the name of the Trust and the year
of its organization cut or engraved thereon, but, unless otherwise required by
the Trustees, the seal shall not be necessary to be placed on, and its absence
shall not impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees may be signed by the
President, any Vice President, the Treasurer, any Assistant Treasurer, Secretary
or any Assistant Secretary, and need not bear the seal of the Trust. The
Chairman of the Board, President, Treasurer or Secretary may determine which
persons have authority to sign any documents on behalf of the Trust and
establish related policies.
ARTICLE 9
Issuance of Share Certificates
9.1 Share Certificates. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates either in limited cases or to all shareholders. In that event, a
shareholder may receive a certificate stating the number of shares owned by him,
in such form as shall be prescribed from time to
5
<PAGE>
time by the Trustees. Such certificate shall be signed by the president or a
vice president and by the treasurer or assistant treasurer. Such signatures may
be facsimiles if the certificate is signed by a transfer agent, or by a
registrar, other than a Trustee, officer or employee of the Trust. In case any
officer who has signed or whose facsimile signature has been placed on such
certificate shall cease to be such officer before such certificate is issued, it
may be issued by the Trust with the same effect as if he were such officer at
the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction
or the mutilation of a share certificate, a duplicate certificate may be issued
in place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificate to Pledgee. The Trustees may in their
discretion, or the Treasurer may pursuant to authority delegated by the
Trustees, institute a policy of enabling a pledgee of shares transferred as
collateral security to obtain a new certificate if the instrument of transfer
substantially describes the debt or duty that is intended to be secured thereby.
Such new certificate shall express on its face that it is held as collateral
security, and the name of the pledgor shall be stated thereon, who alone shall
be liable as a shareholder, and entitled to vote thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at
any time discontinue the issuance of share certificates and may, by written
notice to each shareholder, require the surrender of share certificates to the
Trust for cancellation. Such surrender and cancellation shall not affect the
ownership of shares in the Trust.
ARTICLE 10
Dealings with Trustees and Officers
10.1 General. Any Trustee, officer or other agent of the Trust may
acquire, own and dispose of shares of the Trust to the same extent as if he were
not a Trustee, officer or agent; and the Trustees may accept subscriptions to
shares or repurchase shares from any firm or company in which any Trustee,
officer or other agent of the Trust may have an interest.
ARTICLE 11
Amendments to the By-Laws
11.1 General. These By-Laws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
6
Exhibit (6)(b)
SELECTED DEALER AGREEMENT
Boston, Massachusetts
Effective Date: __________
Dealer Name: _______________________________________
Address: _______________________________________
_______________________________________
Attn: _______________________________________
Ladies and Gentlemen:
We have been appointed to serve as an agent and principal underwriter
as defined in the Investment Company Act of 1940 (the "1940 Act") for the
purpose of selling and distributing shares (the "Shares") of each of the
portfolio series as specified from time to time, of certain investment
companies, including, but not limited to, the MetLife-State Street trusts, the
State Street trusts and MetLife Portfolios, Inc. Hereinafter the specified
portfolio series shall be denoted individually as a "Fund" and collectively as
the "Funds", and the investment companies shall be denoted individually as an
"Investment Company" and collectively as the "Investment Companies" for purposes
of this Agreement.
We are hereby inviting you, as a selected dealer and subject to the
terms and conditions set forth below, to make available to your customers Shares
of the Funds. By your acceptance hereof, you agree that you shall exercise your
best efforts to find purchasers for the Shares, shall purchase Shares only from
us or from your customers, and shall act only as agent for your customers or
dealer for your own account, with no authority to act as agent for the Funds,
for us or for any other dealer in any respect.
1. Acceptance of Orders. Orders received from you will be accepted only
at the public offering price (as defined below in Section 2) applicable to each
order. You agree to place orders for Shares immediately upon the receipt of, and
in the same amount as, orders from your customers. We will not accept a
conditional order from you on any basis. All orders are subject to our receipt
of Shares from the Investment Company and to acceptance and confirmation of such
<PAGE>
orders by us and by the Investment Company. The procedures relating to the
handling of orders shall be subject to instructions which we shall provide from
time to time to you. We and the Investment Companies reserve the right in our
sole discretion to reject any order.
2. Public Offering Price and Sales Charge. The public offering price
shall be the net asset value per Share plus any sales charge payable upon the
purchase of Shares of such Fund or class thereof as described in the then
current prospectus applicable to such Shares, as amended and in effect from time
to time (the "Prospectus"). The public offering price may reflect scheduled
variations in, or the elimination of, the sales charge on sales of the Shares
either generally to the public or in connection with special purchase plans, as
described in the Prospectus and related Statement of Additional Information. You
agree that you will apply any scheduled variation in, or elimination of, the
sales charge uniformly to all offerees in the class specified in the Prospectus.
The sales charge applicable to any sale of Shares by you and the dealer
concession or commission applicable to any order from you for the purchase of
Shares accepted by us shall be as set forth in the applicable Prospectus and
related Statement of Additional Information. You agree that you will not combine
customer orders to reach breakpoints in commissions for any purpose unless
authorized by the Prospectus or by us in writing. All commissions and
concessions are subject to change without notice by us.
3. 12b-1 Plans.
(a) As consideration for your providing distribution and
marketing services in the promotion of the sale of Shares of certain Funds or
classes thereof which have adopted Distribution Plans pursuant to Rule 12b-1
under the 1940 Act, and for providing personal services to and/or the
maintenance of the accounts of, your customers who invest in and own such
Shares, we shall pay you such fee, if any, as is described in the applicable
Prospectus and otherwise established by us from time to time on Shares which are
owned of record by your firm as nominee for your customers or which are owned by
those customers of your firm whose records, as maintained by such Fund or its
agent, designate your firm as the customer's dealer of record. Any fee payable
hereunder shall be computed and accrued daily and for each month shall be based
on average daily net asset value of the relevant Shares which remain outstanding
during such month. No such fee will be paid to you with respect to Shares
redeemed or repurchased by such Fund within seven business days after the date
of our confirmation of such purchase. No such fee will be paid to you with
respect to any of your customers if the
2
<PAGE>
amount of such fee based upon the value of such customer's Shares will be less
than $1.00.
(b) The provisions of this Paragraph 3 may be terminated with
respect to any Fund or class thereof in accordance with the provisions of Rule
12b-1 under the 1940 Act or the rules of the National Association of Securities
Dealers, Inc. (the "NASD") and thereafter no such fee will be paid to you.
(c) Consistent with NASD policies as amended or interpreted
from time to time (i) you waive payment of amounts due from us which are funded
by fees we receive under such Distribution Plans until we are in receipt of the
fees on the relevant shares of a Fund, and (ii) our liability for amounts
payable to you is limited solely to the proceeds of the fees receivable to us on
the relevant shares.
4. Payment for Shares. Payment for Shares sold through you shall be
made on or before the settlement date specified in the applicable confirmation,
at the office of our clearing agent, and by your check payable to the order of
such Fund or, if applicable, by Federal Funds wire for credit to such Fund, in
any case in accordance with the procedures and conditions described in the
applicable Prospectus. Each Fund reserves the right to delay issuance or
transfer of Shares until such check has cleared. If such payment is not received
by us, we reserve the right, without notice, forthwith to cancel the sale.
Unless other instructions are received by us on or before the settlement date,
orders accepted by us may be placed in an Open Account in your name. If such
payment or instruments are not timely received by us, we may hold you
responsible for any expense or loss, including loss of profit, suffered by us or
by such Fund resulting from your failure to make payment as aforesaid.
5. Redemption and Repurchase of Shares. If any of the Shares sold
through you hereunder are redeemed by such Fund or repurchased by us as agent
for such Fund within seven business days after confirmation of the original
purchase, it is agreed that you shall forfeit your right to the entire dealer
concession and related commission, if any, received by you on such Shares. We
will notify you of any such repurchase or redemption within ten business days
from the date thereof and you shall forthwith refund to us the entire concession
and commission, if any, received by you on such sale. We agree, in the event of
any such repurchase or redemption, to refund to such Fund our share of the sales
charge retained by us, if any, and upon receipt from you of the refund of the
concession allowed to you, to pay such refund forthwith to such Fund.
3
<PAGE>
If you purchase Shares from any customer in connection with repurchase
arrangements offered by an Investment Company, you agree to pay such customer
not less than the applicable repurchase price as established by the Prospectus.
If you act as agent for your customer in selling Shares to us or a Fund, you
agree not to charge your customer more than a fair commission for handling the
transaction. Any order placed by you for the repurchase of Shares of a Fund is
subject to the timely receipt by the Fund's transfer agent of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation, in which
case you agree to be responsible for any loss resulting to the Fund or to us
from such cancellation.
6. Manner of Offering.
(a) No person is authorized to make any representations
concerning Shares except those contained in the applicable Prospectus, in the
related Statement of Additional Information and in any then current sales
literature or other material issued by us supplemental to such Prospectus, which
sales literature or other material is used in conformity with applicable rules
or conditions. All offerings of Shares by you shall be subject to the conditions
set forth in the applicable Prospectus (including the condition relating to
minimum purchases) and to the terms and conditions herein set forth. We will
furnish additional copies of the Prospectuses and such sales literature and
other material issued by us in reasonable quantities upon request. You will
provide all customers with the applicable Prospectus prior to or at the time
such customer purchases Shares and will forward promptly to us any customer
request for a copy of the applicable Statement of Additional Information. Sales
and exchanges of Shares may only be made in those states and jurisdictions where
the Shares are registered or qualified for sale to the public. We agree to
advise you currently of the identity of those states and jurisdictions in which
the Shares are registered or qualified for sale, and you agree to indemnify us
and/or the Funds for any claim, liability, expense or loss in any way arising
out of a sale of Shares in any state or jurisdiction in which such Shares are
not so registered or qualified.
(b) You agree to conform to any compliance or offering
standards that we may establish from time to time, including without limitation
standards as to when classes of Shares may appropriately be sold to particular
investors.
4
<PAGE>
7. NASD Matters. This Agreement is conditioned upon your representation
and warranty that you are a member of the NASD or, in the alternative, that you
are a foreign dealer not eligible for membership in the NASD. You and we agree
to abide by the Rules and Regulations of the NASD, including Rule 26 of its
Rules of Fair Practice, and all applicable federal, state, and foreign laws,
rules and regulations.
8. Rejection of Orders. We shall have the right to accept or reject
orders for the purchase of Shares of any Fund. It is understood that for the
purposes hereof no Share shall be considered to have been sold by you and no
compensation will be payable to you with respect to any subscription for Shares
which is rejected by us or an Investment Company. Any consideration which you
may receive in connection with a rejected purchase order will be returned
promptly. Confirmations of all accepted purchase orders will be transmitted by
the Transfer Agent for the applicable Fund or class thereof to the investor or
to you, if authorized.
9. Status of Soliciting Dealer. Nothing herein shall make you a partner
with us or render our relationship an association. You are responsible for your
own conduct, for the employment, control and conduct of your employees and
agents and for injury to such employees or agents or to others through such
employees or agents. You assume full responsibility for your employees and
agents under applicable laws and agree to pay all employer taxes relating
thereto.
10. No Liability. As distributor of the Shares, we shall have full
authority to take such action as we may deem advisable in respect of all matters
pertaining to the distribution of such Shares. We shall not be under any
liability to you, except for lack of good faith and for obligations expressly
assumed by us in this Agreement; provided, however, that nothing in this
sentence shall be deemed to relieve any of us from any liability imposed by the
Securities Act of 1933, as amended.
11. Term of Contract; Amendment; Termination. This Agreement shall
become effective on the date hereof. We and each Fund reserve the right, in our
discretion upon notice to you, to amend, modify or terminate this Agreement at
any time, to change any sales charges, commissions, concessions and other fees
described in the applicable Prospectus or to suspend sales or withdraw the
offering of Shares of any Fund or class of Shares thereof entirely. You agree
that any order to purchase Shares placed by you after notice of any amendment to
this Agreement has been sent to you shall constitute your agreement to such
amendment.
5
<PAGE>
12. Miscellaneous. This Agreement supersedes any and all prior
agreements between us. All communications to us should be sent to the above
address. Any notice to you shall be duly given if mailed or telefacsimiled to
you at the address specified by you above. This Agreement shall be effective
when accepted by you below and shall be construed under the laws of the
Commonwealth of Massachusetts.
The following provision, as marked, applies to this agreement.
[ ] This document constitutes an amendment to and restatement of the Selected
Dealer Agreement currently in effect between you and us.
[ ] Please confirm your agreement hereto by signing and returning the
enclosed counterpart of this Agreement at once to: State Street Research
Investment Services, Inc., One Financial Center, Boston, Massachusetts
02111, Attention: President. Upon receipt thereof, this Agreement and
such signed duplicate copy will evidence the agreement between us as of
the date indicated.
State Street Research
Investment Services, Inc.
(Distributor)
By: _______________________________________
ACCEPTED:
[ ]
(Selected Dealer)
By: _______________________________________
6
<PAGE>
SUPPLEMENT NO. 1 TO
SELECTED DEALER AGREEMENT
Boston, Massachusetts
Effective Date: _________________
Dealer Name: _____________________________________
Address: _____________________________________
_____________________________________
Attn: _____________________________________
Ladies and Gentlemen:
This Agreement amends and supplements the Selected Dealer Agreement
between you and us, as in effect from time to time (the "Selected Dealer
Agreement"). All of the terms and provisions of the Selected Dealer Agreement
remain in full force and effect, and this Agreement and the Selected Dealer
Agreement shall be construed and interpreted as one Agreement, provided that in
the event of any inconsistency between this Agreement and the Selected Dealer
Agreement, the terms and provisions of this Agreement shall control. Capitalized
terms used in this Agreement and not defined herein are used as defined in the
Selected Dealer Agreement.
We understand that you wish to use Shares of the Funds in managed
fee-based programs in which you participate (the "Fee-Based Program"), and that
you wish to afford investors participating in such programs the opportunity to
qualify for the ability to purchase shares of the Funds at net asset value. We
are willing to allow you to purchase Shares of the Funds for sale to investors
participating in the Fee-Based Program on such basis, subject to the terms and
conditions of this Agreement and the Selected Dealer Agreement.
<PAGE>
1. Sale of Shares through Fee-Based Program
You may, in connection with the Fee-Based Program, sell shares of any
Funds made available by us, from time to time, at net asset value to investors
participating in a bona fide Fee-Based Program. You will receive no discount,
commission or other concession with respect to any such sale, but will be
entitled to receive any service fees otherwise payable with respect thereto to
the extent provided from time to time in the applicable Funds' Prospectuses and
in the Dealer Agreement. We will, after consulting with you, determine, from
time to time, which Funds we will make available to you for use in the Fee-Based
Program. You agree that Shares will not be made available through the Fee-Based
Program for the sole purpose of enabling evasion of sales charges.
2. Eligibility of Fee-Based Program
We reserve the right to establish basic eligibility requirements from
time to time for the sale of Fund shares under your programs, relating to the
minimum aggregate amount of your clients' assets invested in the Funds,
management fees you charge on such assets, regulatory requirements, and/or
similar matters. You shall send to us upon request from time to time the
then-current standard fee schedule for the applicable Fee-Based Program and a
copy of the applicable Schedule H to the Form ADV containing the required
disclosures relating to the Fee-Based Program, or any successor required
disclosures. Any brochures, written materials or advertising relating to the
Fee-Based Program may refer to the Funds as available at net asset value if the
fees and expenses of the Fee-Based Program are given at least equal prominence.
In connection with explaining the fees and expenses of the Fee-Based Program,
your representatives may describe to customers the option of purchasing Fund
shares through such Program at net asset value.
3. Undertakings
You will (i) provide us with continuous reasonable access to your
offices, representatives and mutual fund and Fee-Based Program sales support
personnel, (ii) include descriptions of all Funds offered through the Fee-Based
Program in internal sales materials and electronic information displays used in
conjunction with the Fee-Based Program, (iii) use reasonable efforts to motivate
your representatives to recommend suitable Funds for clients of the Fee-Based
Program, and (iv) include the Funds on any approved, preferred or other similar
list of mutual fund products offered through the Fee-Based Program.
4. Customer Accounts
You may maintain with the Funds' shareholder servicing agent either (i)
one or more omnibus accounts solely for the participants in the applicable
Fee-Based Program or (ii) separate accounts for each participant in the
applicable Fee-Based Program. If one or more omnibus accounts are maintained,
you shall, among other things, be responsible for forwarding proxies, annual and
semi-annual reports and other materials to each beneficial owner in a timely
manner.
<PAGE>
5. Applicable Law
This Agreement shall be governed by and construed and interpreted in
accordance with the internal laws of The Commonwealth of Massachusetts.
6. Disclaimer and Indemnity
We are not endorsing, recommending and are not otherwise involved in
providing any investment product of yours, including but not limited to any
Fee-Based Program. We are merely affording you the opportunity to use shares of
the Funds as an investment medium for the applicable Fee-Based Program. You
acknowledge and agree that you are solely responsible for any such Fee-Based
Program and you agree to indemnify, defend and hold harmless us, the Funds and
our and their affiliates, directors, trustees, officers, employees and agents
from and against any claims, losses, damages or costs (including attorneys'
fees) arising from or related to such Fee-Based Program, including without
limitation any brochures, written materials or advertising in any form that
refers to the Funds or the Fee-Based Program.
7. Miscellaneous
This Agreement is not exclusive and shall terminate automatically upon
termination of the Selected Dealer Agreement. We reserve the right, in our
discretion upon notice to you, to amend, modify or terminate this Agreement at
any time. You agree that any order to purchase Shares placed by you after notice
of any amendment to this Agreement has been sent to you shall constitute your
agreement to such amendment.
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By: _______________________________
Name:
Title:
Accepted:
__________________________________
Name of Dealer
By: __________________________________
Name:
Title:
Exhibit (6)(c)
BANK AND BANK AFFILIATED BROKER-DEALER AGREEMENT
(FULLY DISCLOSED BASIS)
Dated as of: _____________
To: _________________________________________________________
(Exact legal name of bank or bank affiliate)
_________________________________________________________
(Address)
_________________________________________________________
_________________________________________________________
(Attn)
We have been appointed to serve as an agent and a principal underwriter
as defined in the Investment Company Act of 1940 (the "1940 Act") for the
purpose of selling and distributing shares (the "Shares") of each of the
portfolio series, as specified from time to time, of certain investment
companies, including, but not limited to, the MetLife-State Street trusts, the
State Street trusts and MetLife Portfolios, Inc. Hereinafter the specified
portfolio series shall be denoted individually as "Fund" and collectively as
"Funds," and the investment companies shall be denoted individually as
"Investment Company" and collectively as "Investment Companies" solely for
purposes of this agreement. We are hereby inviting you, subject to the terms and
conditions set forth below, to make available to your customers Shares of the
Funds.
1. Acceptance of Orders.
(a) The customers in question are for all purposes your
customers and not our customers. We shall execute transactions for each of your
customers only upon your
<PAGE>
authorization, it being understood in all cases that (i) you are acting as the
agent for the customer; (ii) the transactions are subject to the federal and
state securities laws without recourse against you by the customer; (iii) as
between you and the customer, the customer will have beneficial ownership of the
securities; (iv) each transaction is initiated solely upon the order of the
customer; (v) each transaction is for the account of the customer and not for
your account; and (vi) you shall not have any authority in any transactions to
act as our agent or agent of the Funds.
(b) Orders received from you will be accepted by us and the
Investment Companies only at the public offering price applicable to each order.
The public offering price shall be the net asset value per Share plus any sales
charge payable upon the purchase of Shares of such Fund or class thereof as
specified in the then current prospectus applicable to such Shares, as amended
and in effect from time to time (the "Prospectus"). The public offering price
may reflect scheduled variations in, or the elimination of the sales charge on
sales of the Shares either generally to the public or in connection with special
purchase plans, as described in the Prospectus and related Statement of
Additional Information. You agree that you will apply any scheduled variation
in, or elimination of, the sales charge uniformly to all offerees in the class
specified in the Prospectus. Upon acceptance of an order we shall confirm the
order directly to the customer on a fully disclosed basis in writing and a copy
of each confirmation shall be sent simultaneously to you. The procedures
relating to the handling of orders shall be subject to instructions which we
shall provide from time to time to you. We and the Investment Companies reserve
the right to reject any purchase request in our sole discretion.
2. Agency Commission. Any compensation received by you with respect to
the sale of shares of a Fund shall be deemed to be charged by you to your
customer as an agency commission. The schedule of sales charges, commissions and
dealer concessions described in the applicable Prospectus and related Statement
of Additional Information shall apply and the amount of the agency commission
shall equal the applicable amount payable as compensation to a dealer in
connection with the sale of shares of a Fund. You agree that you will not
combine customer orders to reach breakpoints in commissions for any purpose
unless authorized by the Prospectus or in writing. You agree that you will apply
any scheduled variation, or elimination of, the sales charge uniformly to all
offerees in the class specified in the
2
<PAGE>
Prospectus. All compensation amounts are subject to change without notice by us.
3. Rule 12b-1 Plans.
(a) As consideration for your providing services in our
promotion of the sale of Shares of certain Funds or classes thereof which have a
sales charge and which have adopted Distribution Plans pursuant to Rule 12b-1
under the 1940 Act, and for providing personal services to, and/or the
maintenance of the accounts of, your customers who invest in and own such Shares
of such Funds or classes thereof, we shall pay you such fee as is described in
the applicable Prospectus and otherwise established by us from time to time, on
Shares which are owned of record by your firm as nominee for your customers or
which are owned by those customers of your firm whose records, as maintained by
such Fund or its agent, designate your firm as the customer's dealer of record.
The fees payable hereunder shall be computed and accrued daily and for each
month shall be based on the average daily net asset value of the relevant Shares
which remain outstanding during such month. No such fee will be paid to you with
respect to Shares redeemed or repurchased by such Fund within seven business
days after the date of our confirmation of such purchase. No such fee will be
paid to you with respect to any of your customers if the amount of such fee
based upon the value of such customer's Shares will be less than $1.00.
(b) The provisions of this Paragraph 3 may be terminated with
respect to any Fund or class thereof in accordance with the provisions of Rule
12b-1 under the 1940 Act or the rules of the National Association of Securities
Dealers, Inc. (the "NASD") and thereafter no such fee will be paid to you.
(c) Consistent with NASD policies as amended or interpreted
from time to time (i) you waive payment of amounts due from us which are funded
by fees we receive under such Distribution Plans until we are in receipt of the
fees on the relevant shares of a Fund, and (ii) our liability for amounts
payable to you is limited solely to the proceeds of the fees receivable to us on
the relevant shares.
4. Redemption and Repurchase of Shares. If any Shares with a sales
charge are sold through you hereunder and are redeemed by such Fund or
repurchased by us as agent for such Fund within seven business days after
confirmation of the original purchase, it is agreed that you shall forfeit your
right to the entire agency commission and any other related
3
<PAGE>
commission received by you on such Shares. We will notify you of any such
repurchase or redemption within ten business days from the date thereof and you
shall forthwith refund to us the entire agency commission and other commission,
if any, received by you on such sale. We agree, in the event of any such
repurchase or redemption, to refund to such Fund our share of the sales charge
retained by us, if any, and upon receipt from you of the refund of the agency
commission allowed to you, to pay such refund forthwith to such Fund.
If you purchase Shares from any customer in connection with repurchase
arrangements offered by an Investment Company, you agree to pay such customer
not less than the applicable repurchase price as established by the Prospectus.
If you act as agent for your customer in selling Shares to a Fund, you agree not
to charge your customer more than a fair commission for handling the
transaction. Any order placed by you for the repurchase of Shares of a Fund is
subject to the timely receipt by the Fund's transfer agent of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation, in which
case you agree to be responsible for any loss resulting to the Fund or to us
from such cancellation.
5. Payment for Shares.
(a) Payment for Shares sold through you shall be made on or
before the settlement date specified in the applicable confirmation, at the
office of our clearing agent, and by check payable to the order of such Fund or,
if applicable, by Federal Funds wire for credit to such Fund in accordance with
the procedures and conditions described in the Prospectus. Each Fund reserves
the right to delay issuance or transfer of Shares until such check has cleared.
If such payment is not received by us, we reserve the right, without notice,
forthwith to cancel the sale. Unless other instructions are received by us on or
before the settlement date, orders accepted by us may be placed in an Open
Account in your name. If such payment or instructions are not timely received by
us, we may hold you responsible for any expense or loss, including loss of
profit, suffered by us or by such Fund resulting from your failure to make
payment as aforesaid.
(b) You will also act as agent in all purchases by a
shareholder for whom, on the records of the Fund or its Shareholders' Servicing
and Transfer Agent as defined in the Prospectus, you are the designated dealer
of record of Shares where payments are sent directly by such shareholders to the
4
<PAGE>
Agent, and you authorize and appoint the Agent to execute and confirm such
purchases to such shareholder on your behalf.
6. Manner of Offering.
(a) No person is authorized to make any representations
concerning Shares except those contained in the then current applicable
Prospectuses and in sales literature and other materials issued by us
supplemental to such Prospectuses. Shares of Funds shall only be offered by
means of the then current applicable Prospectus and you shall be obligated to
deliver such Prospectus to your customers in accordance with all applicable
federal and state securities laws. All offerings of Shares by you shall be
subject to the conditions set forth in the applicable Prospectus (including the
condition relating to minimum purchases) and to the terms and conditions herein
set forth. We will furnish additional copies of the Prospectuses and such sales
literature and other material issued by us in reasonable quantities upon
request. You will provide all customers with the applicable Prospectus prior to
or at the time such customer purchases Shares and will forward promptly to us
any customer request for a copy of the applicable Statement of Additional
Information. Sales and exchanges of Shares may only be made in those states and
jurisdictions where the Shares are registered or qualified for sale to the
public. We agree to advise you currently of the identity of those states and
jurisdictions in which the Shares are registered or qualified for sale, and you
agree to indemnify us and/or the Funds for any claim, liability, expense or loss
in any way arising out of a sale of Shares in any state or jurisdiction in which
such Shares are not so registered or qualified.
(b) You agree to conform to any compliance or offering
standards that we may establish from time to time, including without limitation
standards as to when classes of Shares may appropriately be sold to particular
investors.
(c) We recognize that you may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the conduct
of activities by federal or state chartered or supervised banks and affiliated
organizations. BECAUSE ONLY YOU WILL HAVE A DIRECT RELATIONSHIP WITH YOUR
CUSTOMER, YOU COVENANT AND AGREE TO COMPLY WITH ALL LAWS AND REGULATIONS
INCLUDING THOSE OF THE REGULATORY AUTHORITIES DIRECTLY APPLICABLE TO YOU AND ANY
OTHER FEDERAL OR STATE REGULATORY BODY HAVING JURISDICTION OVER YOU OR YOUR
CUSTOMERS TO THE EXTENT APPLICABLE TO SECURITIES PURCHASES HEREUNDER FOR THE
ACCOUNT OF YOUR CUSTOMER.
5
<PAGE>
(d) We and the Investment Companies shall have the right to
accept or reject orders for the purchase of Shares of any Fund or class thereof.
It is understood that for the purposes hereof no Share shall be considered to
have been sold by you and no compensation will be payable to you with respect to
any order for Shares which is rejected by us or an Investment Company. Any
consideration which you may receive in connection with a rejected purchase order
is to be returned promptly by you. Confirmations of all accepted purchase orders
will be transmitted by the applicable Investment Company or us to investors, or,
if so directed, to any duly appointed transfer or shareholder servicing agent of
the Fund or class of Shares thereof.
7. Your Status.
Nothing herein shall make you a partner with us or render our
relationship an association. You are responsible for your own conduct, for the
employment, control and conduct of your employees and agents and for injury to
such employees or agents or to others through such employees or agents. You
assume full responsibility for your employees and agents under applicable laws
and agree to pay all employer taxes relating thereto.
8. No Liability.
As distributor of the Shares, we shall have full authority to take such
action as we may deem advisable in respect of all matters pertaining to the
distribution of such Shares. We shall not be under any liability to you, except
for lack of good faith and for obligations expressly assumed by us in this
Agreement; provided, however, that nothing in this sentence shall be deemed to
relieve any of us from any liability imposed by the Securities Act of 1933, as
amended.
9. Term of Contract; Amendments; Termination.
This Agreement shall become effective on the date hereof. We and each
Fund reserve the right, in our discretion upon notice to you, to amend, modify
or terminate this Agreement at any time, to change the sales charges,
commissions, concessions and other fees described in the applicable Prospectus
or to suspend sales or withdraw the offering of Shares of a Fund or class of
Shares thereof entirely. You agree that any order to purchase Shares placed by
you after notice of any amendment to this Agreement has
6
<PAGE>
been sent to you shall constitute your agreement to such amendment.
10. Miscellaneous.
This Agreement supersedes any and all prior agreements between us.
References to a Selected Dealer Agreement, dealer agreement or sales agreement
contained in a Prospectus, new account Application, Statement of Additional
Information or related documents with respect to Shares shall be deemed to
include this Agreement and references to dealer(s) or securities dealer(s) shall
be deemed to include you. All communications to us should be sent to the above
address. Any notice to you shall be duly given if mailed or telefacsmiled to you
at the address specified by you above. This Agreement shall be effective when
accepted by you below and shall be construed under the laws of the Commonwealth
of Massachusetts.
11. Bank or Bank Affiliate.
Check applicable box:
[ ] (a) You represent and warrant that you are a member of the NASD or
in the alternative, that you are a foreign dealer not eligible for membership in
the NASD. You and we agree to abide by the Rules and Regulations of the NASD
including Rule 26 of its Rules of Fair Practice, and all applicable federal,
state, and foreign laws, rules and regulations.
[ ] (b) [Note: This box relates to "banks." Before checking this box,
please be aware that certain financial institutions such as savings and loan
associations and credit unions are not deemed to be a "bank" under the Exchange
Act of 1934, as amended (the "Exchange Act") and may need to register as a
broker/dealer with the Securities and Exchange Commission.] You represent and
warrant to us that (i) you are a "bank" as such term is defined in Section
3(a)(6) of the Exchange Act; (ii) you are a duly organized and validly existing
"bank" in good standing under the laws of the jurisdiction in which you are
organized; (iii) all authorization (if any) required for your lawful execution
of this Agreement and your performance hereunder have been obtained; and (iv)
this Agreement will constitute a valid and binding agreement, enforceable
against you in accordance with its terms. You agree to give written notice to us
promptly in the event that you cease to be a "bank" as such term is defined in
Section 3(a)(6) of the Exchange Act. Upon such
7
<PAGE>
written notice, this Agreement shall automatically terminate. You also agree to
abide by all of the Rules of Fair Practice of the NASD applicable to the sale of
investment company shares to your customers.
The following provision, as marked, applies to this Agreement.
[ ] This document constitutes an amendment to and restatement of the
Agreement currently in effect between you and us.
[ ] Please confirm your agreement hereto by signing and returning the
enclosed counterpart of this Agreement at once to: State Street Research
Investment Services, Inc., One Financial Center, Boston, Massachusetts 02111,
Attention: President. Upon receipt thereof, this Agreement and such signed
duplicate copy will evidence the agreement between us.
State Street Research
Investment Services, Inc.
(Distributor)
By: _____________________________
We have checked box 11(a) or 11(b) above and accept this Agreement:
*________________________________________________________________________*
(Exact legal name of bank or bank affiliate)
By: ___________________________________________________
8
Exhibit (10)(a)
[letterhead of
GOODWIN, PROCTER & HOAR
A PARTNERSIHIP INCLUDING PROFESSIONAL CORPORATIONS
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881]
March 10, 1994
State Street Research Securities Trust
One Financial Center
Boston, MA 02111-2690
Gentlemen:
As counsel to State Street Research Securities Trust, a voluntary
association of the type commonly known as a business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust"), we have been asked to
render our opinion in connection with the proposed issuance by the Trust of
shares of beneficial interest of MetLife - State Street Research Intermediate
Bond Fund (the "Fund"), which is a series of the Trust which has been
established and designated pursuant to Section 4.2 of Article IV of the Trust's
Master Trust Agreement dated January 25, 1994, all as more fully described in
the Prospectus and Statement of Additional Information contained in
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (file
no. 33-74628) filed by the Trust (the "Registration Statement").
We wish to advise you that we have examined such documents and
questions of law we have deemed necessary for purposes of this opinion. Based
upon the foregoing, we are of the opinion that:
1. The Trust has been duly organized and is validly existing pursuant
to the laws of the Commonwealth of Massachusetts; and
2. The shares of beneficial interest of the Fund which are described
in the foregoing Registration Statement will, when sold in accordance with the
terms of the Prospectus and Statement of Additional Information in effect at the
time of the sale, be legally issued, fully paid and non-assessable by the Trust.
We consent to being named in the Prospectus and Statement of
Additional Information and to a copy of this opinion being filed as an exhibit
to the foregoing Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar
GOODWIN, PROCTER & HOAR
Exhibit (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statements of Additional Information
constituting part of this Post-Effective Amendment No. 7 to the registration
statement (No. 33-74628) on Form N-1A (the "Registration Statement") of our
reports dated June 3, 1997 relating to the financial statements and financial
highlights of State Street Research Intermediate Bond Fund and State Street
Research Strategic Income Fund (the series of State Street Research Securities
Trust), which appear in such Statements of Additional Information and to the
incorporation by reference of our report into the Prospectus which constitutes
part of this Registration Statement. We also consent to the reference to us
under the heading "Independent Accountants" in such Statements of Additional
Information and to the reference to us under the heading "Financial Highlights"
in such Prospectus.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
August 29, 1997
EXHIBIT (14)(c)
[logo] STATE STREET RESEARCH IRA
SIMPLE IRA Application
Upon completion, send this application to the address listed on the back.
(1) What type of SIMPLE IRA are you opening?
[ ] Check if this IRA will receive contributions under your employer's SIMPLE
IRA plan, and complete the following employer information:
- -------------------------------------------------(---)-------------------------
Name of employer Telephone
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
[ ] Check if this IRA will receive a transfer or a rollover from another
SIMPLE IRA to which contributions were made by your current or former
employer under a SIMPLE IRA plan, and complete the following:
- Amount to be transferred: $___________________________
- Date of first contribution to your other SIMPLE IRA under
the employer's SIMPLE IRA plan:__________________________________.
Your employer must complete the following to verify the date.
Verification: On behalf of the employer maintaining the SIMPLE IRA plan, I
verify that the date stated above (the date of the first contribution to the
Depositor's prior SIMPLE IRA under the employer's SIMPLE IRA plan) is correct.
I acknowledge that verifying an incorrect date may result in additional
income taxes or penalties.
- -------------------------------------------------------------------------------
Name of Employer: _____________________________________________________________
By: ___________________________________________________________________________
Authorized Officer
Note: For a transfer directly from the current SIMPLE IRA custodian or
trustee, complete the Transfer of Assets/Rollover Form. For a rollover (which
is a distribution from the current SIMPLE IRA custodian or trustee to you,
followed by a contribution on that amount by you to this SIMPLE IRA),
complete the Transfer of Assets/Rollover Form and attach the check for the
amount rolled over, payable to "State Street Bank and Trust Company,
Trustee." Consult your tax advisor on IRS requirements for a valid rollover.
(2) What is your name and address?
(Please print.)
/ /
- -------------------------------------------------------------------------------
Your name Date of birth
- -------------------------------------------------------------------------------
Street address
- -------------------------------------------------------------------------------
City State ZIP
- -------------------------------------------------------------------------------
Daytime telephone number Evening telephone number
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number
(3) What fund(s) have you selected?
- -------------------------------------------------------------------------------
Fund name
[ ] A [ ] B [ ] D
- -------------------------------------------------------------------------------
Percentage Share class**
- -------------------------------------------------------------------------------
Fund name
[ ] A [ ] B [ ] D
- -------------------------------------------------------------------------------
Percentage Share class**
- -------------------------------------------------------------------------------
Fund name
[ ] A [ ] B [ ] D
- -------------------------------------------------------------------------------
Percentage Share class**
[ ] $ _______________________
Total proceeds enclosed
**Investments in Money Market Fund will purchase class E shares.
If a check is enclosed, make it payable to "State Street Bank and Trust Company,
Trustee." Please add $10 for the first year's fiduciary fee; otherwise, the fee
will be deducted from your account at year end.
<PAGE>
(4) Who is your beneficiary?
Primary beneficiary
(Only one required per account. If you have more than
two, include them on a separate sheet. If two or more
are named, they will receive equal amounts unless you
specify otherwise; also if one of the named primary
beneficiaries predeceases you, that person's share will
be distributed pro-rata to the other primary beneficiaries
who survive you, unless you specify otherwise.)
- -------------------------------------------------------------------------------
Name
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City State ZIP
/ /
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
- -------------------------------------------------------------------------------
Name
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City State ZIP
/ /
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
Second beneficiary
(If the person(s) named as primary beneficiary fails to
survive you.)
- -------------------------------------------------------------------------------
Name
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City State ZIP
/ /
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
(5) We need your signature.
I hereby establish a State Street Research SIMPLE IRA, appoint
State Street Bank and Trust Company as Trustee, direct that contributions to
my SIMPLE IRA be invested as specified by this application, and designate the
individual(s) named above, or in any signed attachment, as my
beneficiary(ies). I have received a current prospectus for the Fund(s)
indicated above and the Terms and Conditions of the State Street Research
SIMPLE IRA (which are incorporated herein by reference) and have read its
Disclosure Statement.
Under penalties of perjury, I certify that: (1) the number shown on this form
is my correct taxpayer identification number (or I am waiting for a number to
be issued to me), and (2) I am not subject to backup withholding because (a)
I am exempt from backup withholding, or (b) I have not been notified by the
Internal Revenue Service that I am subject to backup withholding as a result
of a failure to report all interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withholding. (You must cross out
item (2) above if you have been notified by the IRS that you are currently
subject to backup withholding because of under-reporting interest or
dividends on your tax return.)
I confirm that all the information, instructions and agreements set forth
hereon shall apply to the account, and if applicable, shall also apply to any
other fund account with shares acquired upon exchange of share of the Fund.
[graphic of pencil] -----------------------------------------------------------
Signature Date
Signature Guarantee
(fill out if your Dealer does not complete section)
- -------------------------------------------------------------------------------
Name of bank or eligible guarantor
- -------------------------------------------------------------------------------
Authorized signature of bank or eligible guarantor
- -------------------------------------------------------------------------------
Street address
- -------------------------------------------------------------------------------
City State ZIP
<PAGE>
(6) Dealer information
- -------------------------------------------------------------------------------
Dealer name
- -------------------------------------------------------------------------------
Street address of home office
- -------------------------------------------------------------------------------
City State ZIP
- -------------------------------------------------------------------------------
Authorized signature of dealer
- -------------------------------------------------------------------------------
Agency/branch office number
- -------------------------------------------------------------------------------
Street address of agency/branch office servicing account
- -------------------------------------------------------------------------------
City State ZIP
- -------------------------------------------------------------------------------
Registered representative's name and number
If this application is for an account introduced through the above-named
Dealer, the Dealer further agrees to all applicable provisions in this
application and in the Prospectus. The Dealer warrants that this application
is completed in accordance with the shareholder's instructions and agrees to
indemnify the Transfer Agent, the Fund, any other eligible Funds, State
Street Research Shareholder Services, the Investment Manager or the
Distributor for any loss or liability from acting or relying upon such
instructions and information. The terms and conditions of the currently
effective Selected Dealer Agreement or sales agreement are included by
reference in this section. The dealer represents that it may lawfully sell
shares of the designated Fund(s) in the state designated as the Applicant's
address of record, and that it has a currently effective selected dealer
agreement with a Distributor authorizing the Dealer to sell shares of the
Fund and the Eligible Funds.
Telephone Exchange Privilege
Telephone Exchange By Shareholder OR DEALER
State Street Research Shareholder Services may effect exchanges for my account
according to telephone instructions FROM ME OR MY DEALER as set forth in the
Prospectus, and may register the shares of the fund to be acquired exactly the
same as my existing account. Authorizing an exchange constitutes an
acknowledgement that I have received the current prospectus of the Fund to be
acquired.
I will not hold the Transfer Agent, the Fund, any other Eligible Funds, State
Street Research Shareholder Services, the Investment Manager or the Distributor
liable for any loss, injury, damage or expense as a result of acting upon any
telephone instructions or responsible for the authenticity of any telephone
instructions. I understand that all telephone calls are tape recorded. My
liability shall be subject to the use of reasonable procedures to confirm that
instructions communicated by telephone are genuine.
The account will automatically have this privilege unless you expressly decline
it by providing your initials below.
I do not want the Telephone Exchange Privilege.
[graphic of pencil] (initial here.)__________________
State Street Bank and Trust Company, Trustee:
You are hereby authorized and appointed on behalf of the above-signed dealer to
execute the purchase transactions in accordance with the terms and conditions of
this Application, and to confirm each purchase.
Acceptance by the Trustee:
This plan shall be deemed to have been accepted by the Trustee, State Street
Bank and Trust Company, after all necessary forms, properly completed, are
received by State Street Research Shareholder Services, and delivered by
Shareholder Services to the agent for the Trustee.
Once completed, send application and check (if you are making a contribution at
this time) made payable to "State Street Bank and Trust Company, Trustee" to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
<PAGE>
Control Number: 3720-970130(0298)SSR-LD IR-567E-0197
<PAGE>
[logo] STATE STREET RESEARCH IRA
SIMPLE IRA Terms & Conditions
These Terms and Conditions are in the form promulgated by the Internal Revenue
Service in Form 5305-S for use in establishing a simple individual retirement
trust account.
ARTICLE I.
The Trustee will accept cash contributions made on behalf of the Participant by
the Participant's employer under the terms of a SIMPLE plan described in section
408(p). In addition, the Trustee will accept transfers or rollovers from other
SIMPLE IRAs of the Participant. No other contributions will be accepted by the
Trustee.
ARTICLE II.
The Participant's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III.
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state.
ARTICLE IV.
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Participant's interest in the custodial account shall be
made in accordance with the following requirements and shall otherwise comply
with section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are herein incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Participant under paragraph 3, or to the surviving spouse under paragraph 4,
other than in the case of life annuity, life expectancies shall be recalculated
annually. Such election shall be irrevocable as to the Participant and the
surviving spouse and shall apply to all subsequent years. The life expectancy of
a nonspouse beneficiary may not be recalculated.
3. The Participant's entire interest in the custodial account must be, or begin
to be, distributed by the Participant's required beginning date (April 1
following the calendar year end in which the Participant reaches age 70-1/2).
By that date, the Participant may elect, in a manner acceptable to the Trustee,
to have the balance in the custodial account distributed in:
(a) A single sum payment
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Participant.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Participant and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Participant's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor expectancy of
the Participant and his or her designated beneficiary.
4. If the Participant dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Participant dies on or after distribution of his or her interest
has begun, distribution must continue to be made in accordance with
paragraph 3.
(b) If the Participant dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Participant or, if the Participant has not so elected, at the election of
the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Participant's death, or
(ii) Be distributed in equal or substantially equal payments over the
life or life expectancy of the designated beneficiary or beneficiaries
starting by December 31 of the year following the year of the
Participant's death. If, however, the beneficiary is the Participant's
surviving spouse, then this distribution is not required to begin
before December 31 of the year in which the Participant would have
turned age 70-1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Participant's required beginning date, even though payments may actually
have been made before that date.
(d) If the Participant dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in
the account.
5. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Participant's entire interest in the custodial account as of the
close of business on December 31 of the preceding year by the life expectancy of
the Participant (or the joint life and last survivor expectancy of the
Participant and the Participant's designed beneficiary, or the life expectancy
of the designated beneficiary, whichever applies). In the case of distributions
under paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Participant and designated
beneficiary as of their birthdays in the year the Participant reaches age
70-1/2. In the case of a distribution in accordance with paragraph 4(b)(ii),
determine life expectancy using the attained age of the designated beneficiary
as of the beneficiary's birthday in the year distributions are required to
commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C. B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
ARTICLE V.
1. The Participant agrees to provide the Trustee with information necessary for
the Trustee to prepare any reports required under section 408(i) and Regulations
sections 1.408-5 and 1.408-6.
2. The Trustee agrees to submit reports to the Internal Revenue Service and the
Participant as prescribed by the Internal Revenue Service.
3. The Trustee also agrees to provide the Participant's employer the summary
description described in section 408(1)(2) unless this SIMPLE IRA is a transfer
SIMPLE IRA.
-1-
<PAGE>
ARTICLE VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and 408(p) and
related regulations will be invalid.
ARTICLE VII.
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear below. article VIII.
1. The amount of each contribution credited to the Participant's individual
retirement trust account shall (except to the extent applied to pay fees or
other charges under section 7 below) be applied to purchase full and fractional
shares of beneficial interest of one or more classes in one or more mutual funds
(hereinafter collectively the "Funds" or individually a "Fund"), as designated
from time to time by State Street Research Investment Services, Inc. ("SSRIS")
as available for investment under this agreement (provided always that such
shares may legally be offered for sale in the state of the Participant's
residence), in accordance with instructions of the Participant given under
Section 3 below. The Trustee (or any party appointed to act as agent for the
Trustee under section 16 of this Article VIII-the "Agent"; whenever an Agent is
acting for the Trustee, references to the Trustee will be deemed to include the
Agent) may retain the Participant's initial deposit for a period of up to ten
days after receipt thereof without liability for any loss of interest, earnings
or appreciation, and may invest such initial deposit at the end of such period
if the Participant has not revoked his account. If and to the extent permitted
by IRS regulations or rulings pertaining to SIMPLE IRA accounts under Code
Section 408(p), the Participant may revoke the account by following such
procedures as may be specified in applicable regulations or rulings (if any),
with such time limits as are provided in such regulations or rulings. Upon
revocation, the amount of the Participant's initial deposit will be returned to
him as provided in such regulations or rulings.
2. All dividends and capital gain distributions received on the shares of a
particular class of any Fund held in the Participant's account shall be retained
in the account and (unless received in additional shares of such class) shall be
reinvested in full and fractional shares of such class of such Fund.
3. For each contribution, the Participant shall designate the portion that will
be invested in each Fund. A contribution may be invested entirely in one Fund,
or may be invested in two or more Funds. However, investment designations will
be subject to any minimum initial or additional investment rules applicable to a
Fund. In addition, the Participant shall designate which class of shares of each
such Fund the Participant's contribution shall be invested in.
The Participant shall make such designation on the State Street Research
Simple Individual Retirement Account Application or other written notice
acceptable to the Trustee.
4. Subject to the minimum initial or additional investment, minimum balance
and other exchange rules applicable to a Fund, the Participant may at any time
direct the Trustee to exchange all or a specified portion of the shares of a
Fund in the Participant's account for shares and fractional shares of one or
more other Funds.
The Participant shall give such directions by written, telephonic,
electronic or other notice acceptable to the Trustee and the Trustee will
process such directions as soon as practicable after receipt thereof.
If any investment designation or direction relating to investments under
these Terms and Conditions is, in the opinion of the Trustee (or SSRIS or the
Agent), ambiguous or incomplete, the Trustee may refrain from carrying out such
designation or other investment direction until the designation or other
investment direction has been clarified or completed to the Trustee's
satisfaction, and neither the Trustee, SSRIS, the Agent nor any Fund (nor any of
their affiliates) will have any liability for loss of interest, earnings or
investment gains or appreciation during such period.
5. The Participant by written notice to the Trustee, may designate one or more
beneficiaries to receive the balance (if any) remaining in the Participant's
account after his death and the time and manner of payment of such balance
(subject to the applicable requirements of the preceding Articles of these Terms
and Conditions). A designation may be on a form provided by the Trustee or on a
written instrument acceptable to the Trustee executed by the Participant and
filed with the Trustee. The Participant may revoke or change such designation in
like manner, at any time and from time to time. No designation will be effective
until received by the Trustee. Any designation filed with the Trustee (whether
or not such designation fully disposes of the Participant's account) will revoke
all other designations previously filed with the Trustee. If no such designation
is in effect upon the Participant's death, or if such designation is in effect
but does not fully dispose of the Participant's account, the balance in the
account shall be paid in a single sum, as soon as is practicable, to the
Participant's estate.
Subject to the applicable requirements of the preceding Articles of these
Terms and Conditions, the Participant may designate a form of payment to the
beneficiary by filing an instrument so specifying with the Trustee. In the
absence of such written instructions from the Participant, the Trustee will pay
the beneficiary in such form as the beneficiary selects.
Except as provided in the first sentence of the preceding paragraph,
following the Participant's death, each beneficiary (or the representative of
the Participant's estate) will exercise the powers and responsibilities of the
Participant hereunder with respect to the portion of the Participant's account
passing to such beneficiary (or estate).
6. The Trustee shall forward to the Participant any notices, prospectuses,
reports to shareholders, financial statements, proxies and proxy soliciting
materials, relating to the Fund shares in the Participant's account. The Trustee
shall vote any such shares held in the account in accordance with the timely
written instructions of the Participant if received. If no timely written
instructions are received from the Participant, the Trustee may vote such shares
in such manner as it deems appropriate (including "present" or in accordance
with the recommendations of SSRIS).
7. The Trustee's fee for performing its duties hereunder shall be such
reasonable amounts as shall be agreed to from time to time by the Trustee and
SSRIS. Such fee, any taxes of any kind and any liabilities with respect to the
account, and any and all expenses reasonably incurred by the Trustee shall, if
not paid by the Participant, be paid from the Participant's account.
8. The Trustee shall make distributions from the account at such times and in
such manner as the Participant directs in writing, subject (except where
otherwise specifically provided in this Article VIII) to the applicable
requirements of the preceding Articles of these Terms and Conditions.
The recalculation of life expectancy of the Participant and/or the
Participant's spouse in connection with distributions from the account before
the Participant's death will be made only at the written election of the
Participant. The recalculation of life expectancy of the surviving spouse in
connection with distributions from the account after the Participant's death
will be made only at the written election of the surviving spouse. By
establishing the account, the Participant (for himself and his surviving spouse,
if any) determines not to recalculate life expectancies unless the Participant
(or surviving spouse) specifically elects the recalculation of life expectancies
approach in accordance with the following sentence. Any such election may be
made in such form as the Participant (or surviving spouse) provides for
(including instructions to such effect to the Trustee or the calculation of
minimum distribution amounts in accordance with a method that provides for
recalculation of life expectancy and instructions to the Trustee to make
distributions in accordance with such method).
9. It shall be the sole responsibility of the Participant (or the Participant's
employer) to determine the time and amount of salary
-2-
<PAGE>
reduction or other contributions to the account and the time, amount and manner
of payment of distributions from the account (and to instruct the Trustee or the
Agent accordingly), and the federal and state tax treatment of any contributions
to or distributions from the account. SSRIS, the Agent, the Trustee and the
Funds shall be fully protected in following the direction of the Participant
with respect to the time, amount and manner of payment of such distributions, or
in not acting in the absence of such direction. If the Participant (or
beneficiary) does not direct the Trustee to make distributions from the account
by the time that such distributions are required to commence in accordance with
the preceding Articles of these Terms and Conditions, the Trustee (and SSRIS and
the Agent) will assume that the Participant (or beneficiary) is meeting the
minimum distribution requirements from another individual retirement arrangement
maintained by the Participant (or beneficiary) and will be fully protected in so
doing. SSRIS, the Agent, the Trustee and the Funds shall not be liable for any
taxes, penalties, liabilities or other costs to the Participant or any other
person resulting from contributions to or distributions from the Participant's
account.
10. SSRIS, the Agent, the Trustee and the Funds shall not be responsible for any
loss or diminution in the value of the Participant's account arising out of the
Participant's establishment of a State Street Research SIMPLE Individual
Retirement Account or arising out of any investment instructions of the
Participant, whether relating to the portion of contributions invested in one or
more of the Funds, the selection of a particular class of shares of a particular
Fund, or the exchange of shares of one Fund for shares of one or more other
Funds. SSRIS, the Agent, the Trustee and the Funds shall not render any
investment advice to the Participant (or beneficiary) and will have no duty of
inquiry concerning the Participant's (or beneficiary's) investment directions
(subject to the right of the Trustee, SSRIS or the Agent to obtain clarification
or completion of any investment directions under section 4 above). The
Participant (or beneficiary) will have exclusive investment control over the
account.
11. Whenever the Participant (or beneficiary) is responsible for any direction,
notice, representation or instruction under these Terms and Conditions, SSRIS,
the Agent, the Trustee and the Funds shall be entitled to assume the propriety
and truth of any statement made by the Participant (or beneficiary), and shall
be under no duty of further inquiry with respect thereto, and shall have no
liability with respect to any action taken in reliance upon such statement.
However, the Trustee (or Agent or SSRIS) shall be entitled to receive such
information or documentation (including signature guarantees, waivers or
indemnifications) as it may reasonably request before carrying out any
direction, notice or instruction from the Participant (or beneficiary).
Participant agrees to provide information to the Trustee at such times as
may be necessary to enable the Trustee to administer the account hereunder.
Except to the extent provided by applicable law, the account will not be
subject to assignment, transfer, pledge or hypothecation, nor shall it be
liable for the debts of the Participant (or beneficiary) or subject to
seizure, attachment, execution or other legal process. However, the Trustee
(or Agent or SSRIS) may carry out the requirements of any apparently valid
order of a governmental authority (including a court) relating to the
Participant's account and will have no liability for so doing.
12. These Term and Conditions shall terminate upon the complete distribution of
the account to the Participant or his beneficiaries or to a successor individual
retirement account. The Trustee shall have the right to terminate this account
upon 60 days notice to the Participant, or to his beneficiaries if he is then
dead. In such event, upon expiration of such 60 day period, the Trustee shall
transfer the amount in the account into such successor individual retirement
accounts as the Participant (or his beneficiaries) shall designate, or, in the
absence of such designation, to the Participant, or if he is then dead, to the
beneficiaries or the Participant's estate as their interests shall appear.
13. The Trustee may resign at any time upon 60 days' notice in writing to SSRIS
and may be removed by SSRIS at any time upon 60 days' notice in writing to the
Trustee. Upon such resignation or removal, SSRIS shall appoint a successor
trustee which satisfies the requirements of Section 408 of the Internal Revenue
code.
14. Upon receipt by the Trustee of written notice of appointment of a successor
trustee or custodian and of written acceptance of such appointment by the
successor, the Trustee shall transfer to such successor the assets of the
account and copies of all records pertaining thereto. The Trustee may reserve
such sum of money as it deems advisable for payment of its fees, taxes, costs,
expenses or liabilities with respect to the account, with the balance (if any)
of such reserve remaining after the payment of such items to be paid over to the
successor. The successor shall hold the assets paid over to it under terms that
satisfy the requirements of Section 408 of the Internal Revenue Code.
15. If, within 60 days after the Trustee's resignation or removal, SSRIS has not
appointed a successor trustee which has accepted such appointment, the Trustee
shall appoint such a successor unless it elects to terminate the Agreement under
section 12 of this Article VIII.
16. The Trustee may employ or designate one or more parties to serve as agents
or contractors to perform any or all of its duties hereunder.
17. Any notice sent to the Participant or to his beneficiaries or estate, if he
is then dead, shall be effective if sent by first class mail to him or them at
his or their last addresses of record as provided to the Trustee.
18. Any distributions from the account may be mailed, first-class postage
prepaid to the last known address of the person who is to receive such
distribution, as shown on the Trustee's records, and such distribution shall, to
the extent of the amount thereof, completely discharge the Trustee's liability
of such payment.
19. Any purchase or redemption of shares of any class of a Fund for or from the
Participant's account will be affected at the public offering price or net asset
value of such Fund (as described in the then effective prospectus for such Fund)
next established after the Fund's transfer agent receives the contribution or
other directions.
Any purchase, exchange, transfer or redemption of shares of any class of
a Fund for or from the Participant's account will be subject to any sales
charge, distribution fee or redemption charge, or other fee or charge
applicable to shares of such class, as described in the then effective
prospectus for such Fund. In addition, shares of any class of a Fund will be
subject to any service fee, charge or other annual maintenance or servicing
fees or charges applicable to shares of such class as described in the then
effective prospectus for such Fund (unless the imposition of such fee or
charge is prohibited under applicable regulations or rulings).
20. SSRIS may amend these Terms and Conditions from time to time, and shall give
written notice of any material amendment to the Participant within a reasonable
time after the amendment is adopted or becomes effective, whichever is later.
The Participant hereby expressly delegates authority to SSRIS to amend these
Terms and Conditions and consents to any such amendments.
21. The Terms and Conditions shall be construed, administered and enforced
according to the laws of Massachusetts. The Participant agrees that any legal
proceedings relating to the Participant's account must be brought in a court
(including a federal district court) located in Massachusetts.
22. The term "Trustee" refers to the person serving as the Trustee of the SIMPLE
Individual Retirement Account established hereby, and the term "Participant"
refers to the person for whose benefit such Account was established.
23. Articles I through VII of these Terms and Conditions are in the form
promulgated by the Internal Revenue Service. It is anticipated that if and when
the Internal Revenue Service promulgates changes to Form 5305-S, SSRIS will
adopt such changes as an amendment to these Terms and Conditions. Pending the
adoption of any amendment necessary or desirable to conform these Terms and
Conditions to the requirements of any amendments to the Internal
-3-
<PAGE>
Revenue Code or regulations or rulings thereunder, the Trustee (and SSRIS and
the Agent) may operate the Participant's account in accordance with such
requirements to the extent deemed necessary to preserve the tax benefits of the
account.
24. The Participant acknowledges that he or she has received and read the
current prospectus for each Fund in which his or her account is invested and the
State Street Research SIMPLE Individual Retirement Account Disclosure Statement.
(References are to the Internal Revenue Code.)
(a) SSRIS, the Agent, the Trustee and the Funds will have no responsibility
for compliance with the requirements of Code Section 408(p) and any other
applicable requirements (including, if applicable, whether any transferee
individual retirement account or annuity which the participant designates
to receive a transfer from his account hereunder meets the requirements to
be a SIMPLE IRA or whether any penalty taxes may be payable in connection
therewith), which matters shall be the sole responsibility of the
Depositor.
(b) This Agreement is intended to establish a valid SIMPLE Individual
Retirement Account operating in conjunction with a SIMPLE IRA plan operated
by the Participant's employer, and to meet all applicable requirements of
Code Section 408(p) (and other applicable legal requirements for SIMPLE
IRAs). This Agreement will be interpreted and the custodial account
hereunder administered in a manner that carries out such intent. In
addition, if future regulations or rulings provide guidance concerning the
requirements for a valid SIMPLE IRA, this Agreement will be interpreted and
the custodial account hereunder will be administered in a manner that
complies with such regulations or rulings pending the adoption of any
required amendment to this Agreement.
Control Number: 3735-970215(0398)SSR-LD IR-593E-0297
-4-
<PAGE>
[logo] STATE STREET RESEARCH IRA
SIMPLE IRA Disclosure Statement
The following information is provided to you in accordance with the requirements
of the Internal Revenue Code (the "Code") and Treasury regulations and should be
reviewed in conjunction with the State Street Research SIMPLE IRA Terms and
Conditions (the "Terms and Conditions"), SIMPLE IRA Application (the
"Application") and the current prospectus for each fund in which your account is
invested. The provisions of the Terms and Conditions, Application and prospectus
govern in any instance where the Disclosure Statement is incomplete or appears
to conflict. This Disclosure Statement reflects the provisions of the Internal
Revenue Code in effect on January 1, 1997. This Disclosure Statement provides a
nontechnical summary of the law. Please consult with your tax advisor for more
complete information and refer to IRS Publication 590.
The information in this Disclosure Statement relates to SIMPLE Individual
Retirement Accounts. SIMPLE IRAs operate as part of an employer SIMPLE IRA plan
maintained by your employer. Other IRAs, which are not part of an employer
SIMPLE IRA plan, are available and may be established using a different
Application. This Disclosure Statement does not describe such regular IRAs. For
more information on regular IRAs, contact State Street Research at the address
below to request forms and descriptive information.
Right to Revoke
To the extent provided by IRS rules for SIMPLE IRAs, you have the right to
revoke your IRA after signing the Application if you act within the time limits
provided under the IRS rules. You may revoke your IRA by mail or by delivery of
written notice to:
State Street Research
P.O. Box 8408
Boston, MA02266
Your notice will be considered mailed on the date of postmark, or the date
of certification or registration if it is sent by certified or registered mail.
If you revoke your IRA, you are entitled to a return of the amount
contributed. If you have any questions concerning your right of revocation,
please call 800-562-0032 during regular business hours.
Statutory Requirements of an IRA
An IRA is a trust or custodial account established for the exclusive benefit of
you and your beneficiaries. Current law requires that your SIMPLE IRA agreement
be in writing and meet the following requirements:
1. Contributions to your SIMPLE IRA must be in cash, and, for any taxable year,
cannot exceed the limits described below, unless the contribution is a rollover
or transfer to the account.
2. The custodian or trustee must be a bank, savings and loan association, credit
union or other institution or person approved by the Internal Revenue Service to
administer your IRA in accordance with current tax laws.
3. None of your IRA assets may be commingled with the assets of other people
except in a common trust fund or common investment fund.
4. No portion of your IRA may be invested in life insurance contracts or in
collectibles (within the meaning of Internal Revenue Code Section 408[m]). A
collectible is defined as a work of art, rug or antique, metal or gem, stamp or
coin, alcoholic beverage, or any other tangible personal property specified by
the Internal Revenue Service. Specially minted U.S. gold and silver bullions and
certain state issued coins are permissible IRA investments.
5. You are required to take minimum distributions from your IRA at certain times
in accordance with Proposed Regulations Section 1.408-8.
A. During Your Life
You are required to begin making withdrawals from your SIMPLE IRA for the
year in which you reach age 70-1/2 and each year thereafter. Generally, you must
withdraw an amount at least equal to the minimum distribution by December 31 of
each year. However, you may delay your first required withdrawal until the April
1 following the year in which you reached age 70-1/2. (This means that if you
wait to make your withdrawal for the 70-1/2 year until April 1 of the following
year, your total withdrawal in that year must equal the minimum distributions
for two years - one representing the minimum distribution for your 70-1/2 year
and a second withdrawal by December 31 representing the minimum distribution for
that year.)
The minimum distribution for any taxable year is equal to the amount
obtained by dividing the account balance at the end of the prior year (less any
required distributions taken between January 1 and April 1 of the year following
the year you attain age 70-1/2) by the joint life expectancy of you and your
designated beneficiary. If you have not designated a beneficiary for your IRA by
your required beginning date, your single life expectancy will be used. Your
single or joint life expectancy is determined by using the IRS unisex life
expectancy tables. You can find these tables in
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Treasury Regulations Section 1.72-9. See Article IV in your Terms and Conditions
for a more detailed explanation of how to calculate the minimum distribution.
If you name someone other than your spouse as your beneficiary, and your
beneficiary is more than ten years younger than you, your required minimum
distribution must satisfy the minimum incidental benefit rule (MDIB) described
in IRS regulations. The MDIB rule generally requires that your required minimum
distributions be calculated as if your beneficiary were exactly ten years
younger than you.
The minimum distribution required must be calculated separately for each
IRA you own, but the amounts so determined may be totalled and taken from any
one of your IRAs (SIMPLE IRAs and regular IRAs).
B. After Your Death
If you die on or after your required beginning date, distributions must be made
to your beneficiary or beneficiaries as least as rapidly as under the method
being used to determine minimum distributions as of the date of your death. If
your beneficiary is your spouse, your beneficiary can elect to treat your
SIMPLE IRA as his or her own IRA.
If you die before your required beginning date, the entire amount remaining
in your account must, in general, be distributed by December 31 of the year
containing the fifth anniversary of your death. If your beneficiary is a natural
person, he or she may instead choose to receive the remaining balance in your
account over his or her lifetime or over a period not exceeding his or her life
expectancy. Such payments must begin no later than the end of the year following
the year of your death. If your designated beneficiary is your spouse,
distribution need not commence until December 31 of the year you would have
attained 70-1/2, if later than the December 31st of the year following the year
of your death. See Article IV in the Terms and Conditions for a more detailed
explanation of how to calculate the minimum distributions.
Employer Information Requirements
The rules for SIMPLE IRA plans require your employer to give you a "Summary
Description" of the features of the employer's SIMPLE IRA plan. This requirement
to provide a Summary Description may be satisfied by your employer's giving you
a copy of IRS Form 5304-SIMPLE or Form 5305-SIMPLE, as filled out by the
employer to establish its SIMPLE IRA plan. As completed by the employer, this
form will include information such as eligibility requirements applicable to the
employer's SIMPLE IRA plan. Alternatively, your employer may satisfy the Summary
Description requirement by giving the same information in a different format.
In addition, your employer must give you a notice stating how much the
employer will contribute for a year to the SIMPLE IRA plan accounts of
participating employees.
Eligibility
A. Employer Eligibility
Only small employers (those with 100 or fewer employees in the previous
calendar year who received $5,000 or more in compensation from the
employer) may maintain SIMPLE IRA plans. There are other rules as well.
Your employer will determine if it is eligible to have a SIMPLE IRA plan.
B. Employee Eligibility
All employees must participate in the employer's SIMPLE IRA plan unless
specifically excluded. The employer may decide to exclude any of the
following:
-employees who did not receive $5,000 or more in compensation from the
employer in at least two prior calendar years (not necessarily
consecutive);
-employees who are not reasonably expected to receive $5,000 or more in
compensation from the employer for the current calendar year;
-employees in a collective bargaining unit, provided that there was good
faith bargaining over the issue of retirement benefits;
-employees who are non-resident aliens and receive no U.S. source income
from the employer.
The summary description of the employer's SIMPLE IRA plan should indicate
whether any of these groups of employees will be excluded from the
employer's SIMPLE IRA plan.
Contributions
Only two kinds of contributions are permitted: (i) employee contributions
elected by the employee in a salary reduction agreement with the employer and
(ii) employer contributions, which may be either matching or nonmatching
contributions.
Employee Contribution Limits
An eligible employee may elect to have a percentage of compensation contributed
by the employer to the employee's SIMPLE IRA. The maximum contribution amount is
$6,000 for a calendar year. The $6,000 limit is indexed for future
cost-of-living increases.
You elect the desired percentage of compensation to contribute by entering
into a salary reduction agreement with your employer. Your employer will have a
form for you to use. Salary reductions may be made only from compensation you
earn after signing the salary reduction agreement.
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Your employer must transfer your salary reduction contributions to your SIMPLE
IRA as soon as the employer can reasonably do so. However, this may not be later
than the 30th day of the month following the month when you would have received
the compensation except for the salary reduction.
Employer Contribution Requirements
For each calendar year that it maintains a SIMPLE IRA plan, your employer must
make contributions on behalf of participants. The employer may elect either
matching or nonmatching contributions for a particular calendar year.
If the employer elects matching contributions, you must elect salary
reduction contributions from your own compensation in order to receive a
matching contribution to your account by your employer. Your employer will match
your contributions, dollar for dollar, up to a cap of from 1% to 3% of your
compensation for the calendar year. Your employer decides the cap (subject to
certain IRS requirements--these requirements restrict how frequently an employer
may choose a matching contributions cap of less than 3%).
If your employer decides to make nonmatching contributions, it must
contribute 2% of your compensation for the calendar year (provided that you
receive $5,000 or more in compensation from the employer for the calendar year).
For this purpose only, compensation is subject to an IRS limit. The limit for
1997 is $160,000 (this amount is indexed for future cost-of-living changes).
Each calendar year, your employer must give you a notice specifying whether
it will make nonmatching or matching contributions (and specifying the matching
cap) for that calendar year. Employer nonmatching or matching contributions must
be transferred to the SIMPLE IRA accounts of eligible employees no later than
the due date (including any extension) for the employer to file its federal
income tax return for the year.
Rollovers and Transfers
Amounts in your SIMPLE IRA may be rolled over or transferred to another IRA of
yours, or your SIMPLE IRA may receive rollover or transfer contributions from
another SIMPLE IRA, provided all the applicable rollover rules are followed. A
"transfer" is a payment from one IRA trustee or custodian directly to another
IRA trustee or custodian, without passing through the hands of the participant.
A "rollover" is a distribution to the participant from one IRA trustee or
custodian, followed by the participant's depositing the amount received (all or
part of it) with another trustee or custodian within the time allowed by law.
The rollover rules are generally summarized below. If you have any questions
regarding these rules, please contact your tax advisor.
1. Rollovers from or to other IRA
You may make a transfer or rollover contribution to your State Street
Research SIMPLE IRA of amounts held in another SIMPLE IRA. Transfers or
rollovers to this SIMPLE IRA may come only from another SIMPLE IRA, not from a
regular IRA. There are no limits on the amount of the transfer or rollover
contributions made from one SIMPLE IRA to another SIMPLE IRA. A proper IRA to
IRA rollover is completed if all or part of the distribution is rolled over
within 60 days after the distribution is received. No more than one distribution
per year from an IRA may be rolled over into another IRA. The
one-rollover-per-year rule does not apply to transfers from one IRA trustee or
custodian directly to another; these may be made more often than once per year.
You may also transfer amounts held in this State Street Research SIMPLE IRA
account to another IRA with a different trustee or custodian, or you may make a
withdrawal from this IRA and within 60 days make a rollover of the amount
withdrawn to another IRA. However, during the first two years after your
participation in your employer's SIMPLE IRA plan begins, you may transfer or
roll over only to another SIMPLE IRA (not a regular IRA).
2. Transfers to Change Investments
The rules governing transfers to change investments depend on whether your
employer has established its SIMPLE IRA plan with a "designated financial
institution" or not. Normally, SIMPLE IRA plans established by employers through
State Street Research will not have a designated financial institution. However,
if your employer has established its SIMPLE IRA plan with another sponsor, the
designated financial institution rules may apply. The summary description (or
other information) about your employer's SIMPLE IRA plan should indicate whether
the plan uses a designated financial institution or not.
Under the designated financial institution rules, all employee and employer
contributions are initially paid to that institution. However, you may elect to
have contributions to your SIMPLE IRA account with the designated financial
institution transferred to another SIMPLE IRA you have established, for example
with State Street Research, where the contributions will be invested in
accordance with your directions. If you make this election during the 60-day
period when you elect your salary reduction contributions to the plan for a
calendar year, then contributions for that calendar year are required to be
transferred without a transfer fee or other cost or penalty. While held by the
designated financial institution pending transfer to your other SIMPLE IRA,
contributions, the contributions for you may be invested in a specified
investment, such as a money market fund or a deposit account, and you will have
no choice of investments. Other transfer may be made to another SIMPLE IRA or
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<PAGE>
regular IRA, but they will be subject to normal custodian or trustee fees and
any redemption or other charges imposed by the investment fund in which
contributions are invested. More information on this subject should appear in
the summary description of your employer's SIMPLE IRA plan.
Your employer may decide to operate its SIMPLE IRA plan without a
designated financial institution. Normally, SIMPLE IRA plans established through
State Street Research will not have a designated financial institution. Each
eligible employee is required to establish a SIMPLE IRA with a financial
institution of his or her choice. Contributions on your behalf will be sent to
your SIMPLE IRA account, wherever you have set it up, and invested according to
your instructions.
Taxation of Withdrawals
Withdrawals by you (or your beneficiary) from your SIMPLE IRA will be includable
as income in the taxable year in which received.
Federal Tax Penalties
A. Early Withdrawal Penalty
If you make a withdrawal from your SIMPLE IRA prior to attaining age 59 1\2, an
additional penalty tax will be imposed on the amount of the distribution, unless
an exception to the penalty is available. The penalty tax will be 25% of the
amount withdrawn for withdrawals you make during the first two years after the
date of the first contribution to your SIMPLE IRA account. For withdrawals after
the first two years, the penalty is 10% of the amount withdrawn. Certain
exceptions to the imposition of this penalty are available. The penalty will not
be imposed if the distribution was made on account of death, disability, or was
a qualifying rollover or a direct transfer. The additional penalty tax may not
apply if the distribution is made in a series of substantially equal periodic
payments, at least annually, based on your life expectancy or the joint life
expectancy of you and your beneficiary. Finally, an exception to the penalty tax
is available if the withdrawal does not exceed either (i) the amount of your
deductible medical expenses for the year of the withdrawal (consult your tax
advisor on the deductibility or medical expenses; generally, medical expenses
paid during a year are deductible to the extent they exceed 7 1\2% of your
adjusted gross income for the year), or (ii) the amount you paid for health
insurance covering yourself, your spouse or dependents (this health insurance
exception applies only if you are unemployed and receive federal or state
unemployment benefit payments for at least 12 weeks, and is available for
withdrawals during the year in which you receive such unemployment compensation
benefits or in the following year, but not to withdrawals made after you have
been reemployed for 60 days).
B. Excess Accumulation Penalty
If you do not receive your required minimum distribution for the year you attain
age 70-1\2 and by the end of each subsequent year, you will be subject to a 50%
excise tax on the amount of the required minimum distribution which should have
been taken but was not. If the distribution you actually receive falls short of
the required minimum distribution, the 50% excise tax will be imposed on the
amount by which the distribution falls short. The IRS has authority to waive or
reduce the 50% penalty tax upon proof that the failure to receive the required
minimum distribution was due to reasonable cause and that reasonable steps are
being taken to remedy the failure.
C. Excess Distribution Penalty
There is a 15% excise tax assessed against annual distributions from tax-favored
retirement plans, including IRAs (regular and SIMPLE IRAs), which exceed
$160,000 (for 1997; this amount is indexed for future cost-of-living increases).
To determine whether you have distributions in excess of the limit, you must
aggregate the amounts of all distributions received by you during the calendar
year, including IRAs. If you had account balances or accrued benefits equal to
at least $562,500 as of August 1, 1986, you may have a portion of the excess
distributions exempted from the 15% additional tax if you made a timely
grandfather election on your tax return. If the penalty tax on both excess
distributions and premature distributions apply to the same distribution, the
penalty tax on excess distributions is reduced by the penalty tax on the
premature distributions. Under a recent amendment to the tax law, the 15% excise
tax for annual distributions above $160,000 will not apply to withdrawals during
calendar years 1997, 1998 and 1999. A related 15% excise tax on your estate for
certain excess accumulations remaining in all of your tax-favored retirement
plans at your death continues to apply during these three years. Please consult
your tax advisor for more complete information on penalty taxes, including
advice on whether you should consider making withdrawals from your SIMPLE IRA
during the three-year period when the 15% excess distribution penalty does not
apply.
D. Excess Retirement Accumulation Penalty
Your estate will have to pay additional federal estate tax if you die with an
excess retirement accumulation. The increased estate tax will be equal to 15% of
the excess retirement accumulation. An excess retirement accumulation exists if,
at the time of your death, the value of all your interests in tax-favored
retirement plans, including IRAs, exceeds the present value of an annuity with
annual payments of $160,000 (for 1997; this amount is indexed for future
cost-of-living increases) payable over your life expectancy immediately before
your death.
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Other Tax Considerations
A. Federal Tax Withholding
Federal income tax will be withheld on amounts withdrawn by you from your IRA
unless you elect not to have withholding. Generally, tax will be withheld at a
10% rate. The mandatory 20% federal income tax withholding rule that applies to
most distributions from qualified profit sharing or pension plans that are not
directly rolled over to another plan or IRA do not apply to withdrawals from
your simple IRA account. Depending on your state of residence, state income tax
withholding may also apply.
B. Special Tax Treatment
Capital gains treatment and the favorable 5- or 10-year forward averaging tax
treatment, available for certain lump sum distributions from qualified profit
sharing or pension plans, do not apply to IRA distributions.
C. Prohibited Transactions
If you or your beneficiary engage in a prohibited transaction with your IRA, as
described in IRC Section 4975, your IRA will lose its tax-exempt status and you
must include the value of your account in your gross income for that taxable
year. If you pledge any portion of your IRA as collateral for a loan, the amount
so pledged will be treated as a distribution to you and will be included in your
gross income for that year. If you are under age 59-1/2 at the time such a
transaction occurs, you may be subject to the 25% or 10% penalty tax on
premature distributions.
D. Reporting for Tax Purposes
Additional reporting is required in the event that special taxes or penalties
described herein are due. You must file Form 5329 with the IRS for each taxable
year in which a premature distribution takes place, less than the required
minimum distribution amount is distributed from your IRA, or excess
distributions are made.
IRS Approval and Information
The agreement used to establish this IRA (IRS Form 5305-S) has been approved by
the Internal Revenue Service. The Internal Revenue Service approval is a
determination only to its form. It is not an endorsement of the plan in
operation or of the investments offered. This Disclosure Statement provides only
a summary of the laws governing SIMPLE IRAs. Please note that SIMPLE IRA plans
are governed by new provisions of the tax laws and the IRS has not yet issued
regulations or other definitive rulings on SIMPLE IRA plan requirements. While
the information in this Disclosure Statement is accurate as of the date of its
publication, you should consult with your tax advisor or the IRS for latest
developments. You should consult your personal tax advisor or IRS Publication
590, Individual Retirement Arrangements, for more detailed information. This
publication is available from your local IRS office or by calling
1-800-TAX-FORMS.
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[logo] STATE STREET RESEARCH
(c) 1997 State Street Research Investment Services, Inc. Boston, MA 02111
Control Number: 3759-970220(0398)SSR-LD IR-600E-0297
Exhibit 17
POWER OF ATTORNEY
We, the undersigned State Street Research Securities Trust ("Trust"), a
Massachusetts business trust, its trustees, its principal executive officer and
its principal financial and accounting officer, hereby severally constitute and
appoint Francis J. McNamara, III and Darman A. Wing, as our true and lawful
attorneys, with full power to each of them alone to sign for us, in our names
and in the capacities indicated below, any Registration Statements and any and
all amendments thereto of the Trust filed with the Securities and Exchange
Commission and generally to do all such things in our names and in the indicated
capacities as are required to enable the Trust to comply with provisions of the
Securities Act of 1933, as amended, and/or the Investment Company Act of 1940,
as amended, and all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they have been and
may be signed by our said attorneys to said Registration Statements, and any and
all amendments thereto.
IN WITNESS WHEREOF, we have hereunto set our hands, on this 29th day of
August, 1997.
SIGNATURES
STATE STREET RESEARCH SECURITIES TRUST
By: /s/ Ralph F. Verni
------------------
Ralph F. Verni, Chief Executive
Officer and President
/s/ Ralph F. Verni /s/ Dean O. Morton
- ------------------------------ ---------------------------------
Ralph F. Verni, Trustee and Dean O. Morton, Trustee
principal executive officer
/s/ Gerard P. Maus /s/Thomas L. Phillips
- ------------------------------ ---------------------------------
Gerard P. Maus, Principal financial Thomas L. Phillips, Trustee
and accounting officer
/s/ Steve A. Garban /s/ Toby Rosenblatt
- ------------------------------ ---------------------------------
Steve A. Garban, Trustee Toby Rosenblatt, Trustee
/s/ Malcolm T. Hopkins /s/ Michael S. Scott Morton
- ------------------------------ ---------------------------------
Malcolm T. Hopkins, Trustee Michael S. Scott Morton, Trustee
/s/ Edward M. Lamont /s/ Jeptha H. Wade
- ------------------------------ ---------------------------------
Edward M. Lamont, Trustee Jeptha H. Wade, Trustee
/s/ Robert A. Lawrence
- ------------------------------
Robert A. Lawrence, Trustee
Exhibit (18)
STATE STREET RESEARCH SECURITIES TRUST
Certificate of Resolution
I, the undersigned Darman A. Wing, hereby certify that I am Assistant
Secretary of State Street Research Securities Trust (the "Trust"), a
Massachusetts business trust duly authorized and validly existing under
Massachusetts law, and that the following is a true, correct and complete
statement of a vote duly adopted by the Trustees of said Trust on May 5, 1995:
"VOTED: That Francis J. McNamara III and Darman A. Wing be, and each
hereby is, authorized and empowered, for and on behalf of the
Trust, its principal financial and accounting officer, and in
their name, to execute, and file a Power of Attorney relating
to, the Trust's Registration Statements under the Investment
Company Act of 1940 and/or the Securities Act of 1933, and
amendments thereto, the execution and delivery of such Power
of Attorney, Registration Statements and amendments thereto,
to constitute conclusive proof of such authorization."
I further certify that said vote has not been amended or revoked and
the same is now in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of
August, 1997.
/s/ Darman A. Wing
-------------------------
Assistant Secretary
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<CIK> 0000918572
<NAME> STATE STREET RESEARCH SECURITIES TRUST
<SERIES>
<NUMBER> 011
<NAME> STATE STREET RESEARCH INTERMEDIATE BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
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<INVESTMENTS-AT-VALUE> 16,184,924
<RECEIVABLES> 542,458
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<TOTAL-ASSETS> 16,784,868
<PAYABLE-FOR-SECURITIES> 228,715
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87,181
<TOTAL-LIABILITIES> 315,896
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<SHARES-COMMON-PRIOR> 60,764
<ACCUMULATED-NII-CURRENT> 105,503
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (74,047)
<ACCUM-APPREC-OR-DEPREC> (207,203)
<NET-ASSETS> 16,468,972
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,159,165
<OTHER-INCOME> 0
<EXPENSES-NET> 127,627
<NET-INVESTMENT-INCOME> 1,031,538
<REALIZED-GAINS-CURRENT> (66,897)
<APPREC-INCREASE-CURRENT> (10,806)
<NET-CHANGE-FROM-OPS> 953,835
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28,352)
<DISTRIBUTIONS-OF-GAINS> (4,744)
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<NUMBER-OF-SHARES-SOLD> 0
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<ACCUMULATED-NII-PRIOR> 156,154
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<CIK> 0000918572
<NAME> STATE STREET RESEARCH SECURITIES TRUST
<SERIES>
<NUMBER> 013
<NAME> STATE STREET RESEARCH INTERMEDIATE BOND FUND CLASS C
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<PERIOD-TYPE> YEAR
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<REALIZED-GAINS-CURRENT> (66,897)
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<DISTRIBUTIONS-OF-INCOME> (1,049,495)
<DISTRIBUTIONS-OF-GAINS> (129,421)
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<NUMBER-OF-SHARES-SOLD> 74,900
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<NUMBER> 021
<NAME> STATE STREET RESEARCH STRATEGIC INCOME FUND CLASS A
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<REALIZED-GAINS-CURRENT> 277,915
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<NAME> STATE STREET RESEARCH SECURITIES TRUST
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<NUMBER> 022
<NAME> STATE STREET RESEARCH STRATEGIC INCOME FUND CLASS B
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<NAME> STATE STREET RESEARCH STRATEGIC INCOME FUND CLASS C
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<NAME> STATE STREET RESEARCH SECURITIES TRUST
<SERIES>
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<NAME> STATE STREET RESEARCH STRATEGIC INCOME FUND CLASS D
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