As filed with the Securities and Exchange Commission on June 30, 1998
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. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 11 [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)
[ ] On _____________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] On September 1, 1998 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On March 9, 1998 pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
<PAGE>
[front cover]
[Begin sidebar]
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
Although these securities have been registered with the Securities and Exchange
Commission, the SEC has not judged them for investment merit and does not
guarantee the accuracy or adequacy of the information in this prospectus. Anyone
who informs you otherwise is committing a federal crime.
[End sidebar]
[logo: State Street Research]
[photo: Custom House tower clock face, Boston]
Strategic Income Fund
- --------------------------------------------------------------------------------
A bond fund investing
in a dynamic mix of
fixed-income securities.
Prospectus
September 1, 1998
<PAGE>
Contents
- --------------------------------------------------------------------------------
2 The Fund
- --------------------------------------------------------------------------------
2 Goal and Strategies
3 Principal Risks
6 Volatility and Performance
8 Investor Expenses
10 Investment Management
11 Your Investment
- --------------------------------------------------------------------------------
11 Opening an Account
11 Choosing a Share Class
13 Sales Charges
15 Dealer Compensation
16 Buying and Selling Shares
20 Account Policies
22 Distributions and Taxes
23 Investor Services
24 Other Information
- --------------------------------------------------------------------------------
24 Other Securities and Risks
26 Financial Highlights
Back Cover For Additional Information
<PAGE>
1
-----
[Begin sidebar]
The fund's shares will rise and fall in value. There is a risk that you could
lose money by investing in the fund.
The fund cannot be certain that it will achieve its goal.
Shares in the fund are not bank deposits and are not guaranteed, endorsed or
insured by any financial institution, government entity or the FDIC.
[End sidebar]
[Graphic: Magnifying glass examining document]
Who May Want To Invest
State Street Research Strategic Income Fund is designed for investors who seek
one or more of the following:
[bullet] a fund to complement a portfolio of equity investments
[bullet] a fund with the potential to generate high current income and some
capital appreciation
[bullet] a highly diversified fixed-income fund
The fund is not appropriate for investors who:
[bullet] want to avoid even moderate volatility or possible losses
[bullet] are seeking to maximize either growth or income
[bullet] are making short-term investments
[bullet] are investing emergency reserve money
<PAGE>
2 The Fund
- --------------------------------------------------------------------------------
[Graphic: Chess piece]
Goal and Strategies
Fundamental Goal The fund seeks high current income consistent with overall
total return.
Principal Strategies Under normal market conditions, the fund uses an
allocation strategy, investing primarily in three major categories of
fixed-income securities: investment grade, lower quality and foreign securities.
In pursuing performance and diversifying risk, the investment manager allocates
varying percentages of the fund's portfolio among these three categories. While
the fund has wide flexibility in the relative weightings given to each category,
it intends to remain diversified across all three categories. The fund may
invest up to 60% of total assets in U.S. and foreign lower quality securities.
The fund's investment grade securities may include debt securities of the U.S.
Treasury as well as those of various U.S. government agencies. This category
also includes investment grade corporate securities, such as corporate bonds
(bonds that, at the time of purchase, are rated within or above the Standard &
Poor's BBB or the Moody's Baa major rating categories, or unrated but are
considered equivalent by the investment manager). The fund's lower quality
securities may include junk bonds, as well as lower quality convertible bonds
and preferred stocks. Lower quality securities are securities that, at the time
of purchase, are below investment grade. The fund's foreign securities tend to
be bonds issued by governments of developed countries. However, the fund also
may invest in government debt of less developed countries as well as foreign
corporate debt of any quality. Under certain conditions, the fund may use
foreign currencies and related instruments to hedge its foreign investments.
In managing the fund's portfolio, the investment manager monitors and adjusts
the category allocations from time to time, emphasizing those categories that
the investment manager anticipates will outperform the others.
<PAGE>
3
-----
[Begin sidebar]
By investing across different categories of fixed-income securities rather than
in just one, the fund diversifies the risks associated with investing in only
one category.
The fund reserves the right to invest up to 15% of total assets in other
investments, including common stocks.
For more information about the fund's investments and practices, see page 24.
[End sidebar]
[Graphic: Traffic Sign]
Principal Risks
Because the fund invests primarily in bonds and other debt securities, its major
risks are those of bond investing, including the tendency of prices to fall when
interest rates rise. There is also the risk that bond issuers may default on
principal or interest payments.
In pursuing its asset allocation strategy, there is the risk that the fund will
not correctly anticipate the relative performance of different bond categories
over specific periods. Failure to anticipate actual relative performance or
correctly allocate assets could cause periods of lackluster or negative fund
performance.
To the extent that the fund focuses its assets in any given category or type of
security within a category, it assumes the risks associated with that category
or security.
Lower quality fixed-income securities generally are considered to be speculative
investments and involve greater risks than higher quality securities. The prices
of most lower quality securities are vulnerable to economic recessions, when it
becomes difficult for issuers to generate sufficient cash flow to pay principal
and interest. Many also are affected by weak equity markets, when issuers find
it hard to improve their financial condition by replacing debt with equity and
when investors, such as the fund, find it hard
<PAGE>
4 The Fund continued
- --------------------------------------------------------------------------------
to sell their lower quality securities at fair prices. In addition, the value of
a lower quality security will usually fall substantially if an issuer defaults
or goes bankrupt. Even anticipation of defaults by certain issuers, or the
perception of economic or financial weakness, may cause the market for lower
quality securities to fall.
Foreign securities present risks beyond those of U.S. securities. They are
generally more volatile and less liquid than their U.S. counterparts. Moreover,
changes in currency exchange rates have the potential to reduce or eliminate
certain gains achieved in securities markets or create net losses. These risks
are usually higher for investments in less developed markets.
One type of fixed-income security -- mortgage-related securities, which
represent interests in pools of mortgages -- may offer attractive yields but
generally carries additional risks. The prices and yields of mortgage-related
securities typically assume that the securities will be redeemed at a given time
before maturity. When interest rates fall substantially, these securities
usually are redeemed early because the underlying mortgages are often prepaid.
The fund would then have to reinvest the money at a lower rate. In addition, the
price or yield of mortgage-related securities may fall if they are redeemed
later than expected.
In general, the risks associated with fixed-income investing are greater for
bonds with longer maturities. Because of the fund's management approach, which
may include short-term trading, the fund's portfolio turnover rate may be
above-average for a bond fund. High turnover can increase the fund's transaction
costs and may increase your tax liability.
Information on other securities and
risks appears on page 24.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
<PAGE>
5
-----
[Graphic: Magnifying glass examining document]
Investing in Categories of Fixed-Income Securities
Not all fixed-income securities behave similarly under the same economic
conditions. In recent years, for example, three fixed-income categories --
investment grade, lower quality and foreign -- have tended to complement each
other rather than moving in lock-step with the others.
For example, when U.S. interest rates have risen or fallen, the prices of U.S.
government securities and investment grade corporate bonds have tended to be
more volatile than those of junk bonds. Junk bonds, however, have tended to be
more sensitive to changes in the U.S. economy than investment grade securities.
With foreign securities, additional factors have come into play. For example,
foreign interest rates generally have not moved in tandem with U.S. interest
rates. In addition, the U.S. dollar value of many foreign securities has been
affected by fluctuations in exchange rates. These interest and exchange rates
generally have been sensitive to foreign economic cycles, which often have been
different than those of the U.S. economy.
Knowing precisely when one category of fixed-income securities will outperform
the others is difficult. As a result, many fixed-income investors find it
prudent to diversify their assets across categories. One advantage of a fund
such as this one is that, in addition to having an investment professional
select individual securities for the portfolio, the professional also determines
the allocation percentages for each category.
<PAGE>
6 Volatility and Performance
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<TABLE>
<CAPTION>
Year ended December 31
- --------------------------------------------------------------------------------
Year-by-Year Total Return (Class A) 1997
- --------------------------------------------------------------------------------
<S> <C>
20%
15%
10.65
[up triangle]
[down triangle]
10%
5%
0%-----------------------------------------------------------------------------
(5%)
(10%)
</TABLE>
[up triangle] Best quarter: second quarter 1997, up 4.85%
[down triangle] Worst quarter: first quarter 1997, down 1.11%
Return from 1/1/98 - 6/30/98 (not annualized): ___%
<TABLE>
<CAPTION>
As of December 31, 1997
------------------------------
Average Annual Total Return 1 Year Since Inception*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (%) 5.67 8.35
Class B (%) 4.85 7.61
Class C (%) 8.85 11.23
Class S (%) 11.08 12.53
Lehman Brothers Aggregate Bond Index (%) 9.65 10.99
Lipper Multi-Sector Income Funds Index (%) 8.35 10.86
</TABLE>
*Since inception (8/30/96)
<PAGE>
7
-----
[Graphic: Magnifying glass examining document]
Understanding Volatility and Performance
The chart and table on the opposite page are designed to show two aspects of the
fund's track record:
[bullet] Year-by-Year Total Return shows how volatile the fund has been: how
much the difference has been, historically, between its best years and
worst years (of course, the chart is less meaningful for a new fund
such as this one). In general, funds with higher average annual total
returns will also have higher volatility. The graph includes the
effects of fund expenses, but not sales charges. If sales charges had
been included, returns would have been less than shown.
[bullet] Average Annual Total Return is a measure of the fund's performance over
time. It is determined by taking the fund's performance over a given
period and expressing it as an average annual rate.
Average annual total return includes the effects of fund expenses and maximum
sales charges for each class, and assumes that you sold your shares at the end
of the period.
Also included with the fund's average annual returns are two independent
measures of performance. The Lehman Brothers Aggregate Bond Index includes
fixed-rate debt issues rated investment grade or higher. The Lipper Multi-Sector
Income Funds Index shows the performance of a category of mutual funds with
similar goals. This index, which is also unmanaged, shows you how well the fund
has done compared to competing funds.
When making comparisons, keep in mind that neither the Lehman index nor the
Lipper index includes the effects of sales charges.
Also, even if your portfolio were identical to the Lehman index, your returns
would always be lower, because the index does not include transaction and
administrative expenses.
Keep in mind that past performance is no guarantee of future results.
<PAGE>
8 Investor Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class descriptions begin on page 11
---------------------------------------------------
Shareholder Fees (% of offering price) Class A Class B Class C(1) Class S(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum front-end sales charge (load) 4.50 0.00 0.00 0.00
Maximum deferred sales charge (load) 0.00(2) 5.00 1.00 0.00
Annual Fund Expenses (% of average net assets) Class A Class B Class C Class S
- ----------------------------------------------------------------------------------------------------------------------------------
Management fee 0.75 0.75 0.75 0.75
Distribution/service (12b-1) fees 0.25 1.00 1.00 0.00
Other expenses 0.46 0.46 0.46 0.46
---- ---- ---- ----
Total annual fund operating expenses* 1.46 2.21 2.21 1.21
==== ==== ==== ====
*Because some of the fund's expenses have been
subsidized, actual total operating expenses for
the prior year were: 1.35 2.10 2.10 1.10
The fund expects the expense subsidy to continue
through the current fiscal year, although there
is no guarantee that it will.
Example Year Class A Class B Class C Class S
- ----------------------------------------------------------------------------------------------------------------------------------
1 $592 $724/$224 $324/$224 $123
3 $891 $991/$691 $691 $384
5 $1,212 $1,385/$1,185 $1,185 $665
10 $2,118 $2,355 $2,544 $1,466
</TABLE>
(1) Before November 1, 1997, Class C shares were designated Class D and Class S
shares were designated Class C.
(2) Except for investments of $1 million or more; see page 13.
<PAGE>
9
-----
[Graphic: Magnifying glass examining document]
Understanding Investor Expenses
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund:
[bullet] Shareholder Fees are costs that are charged to you directly. These fees
are not charged on reinvestments or exchanges.
[bullet] Annual Fund Expenses are deducted from the fund's assets every year,
and are thus paid indirectly by all fund investors.
[bullet] The Example is designed to allow you to compare the costs of this fund
with those of other funds. It assumes that you invested $10,000 over
the years indicated, reinvested all distributions, earned a
hypothetical 5% annual return and paid the maximum applicable sales
charges. For Class B shares, it also assumes the automatic conversion
to Class A after eight years.
Where two numbers are shown separated by a slash, the first one assumes you sold
all your shares at the end of the period, while the second assumes you stayed in
the fund. Where there is only one number, the costs would be the same either
way.
Investors should keep in mind that the example is for comparison purposes only.
The fund's actual performance and expenses may be higher or lower.
<PAGE>
10 The Fund continued
- --------------------------------------------------------------------------------
[Graphic: Rodin's statue "The Thinker"]
Investment Management
The fund's investment manager is State Street Research & Management Company. The
firm traces its heritage back to 1924 and the founding of one of America's first
mutual funds. Today the firm has more than $__ billion in assets under
management (as of [DATE]), including more than $__ billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.75% of fund assets, annually) as
compensation. The investment manager is a subsidiary of Metropolitan Life
Insurance Company.
John H. Kallis has been responsible for the fund's day-to-day portfolio
management since its inception in August 1996. A senior vice president, he
joined the firm in 1987 and has worked as an investment professional since 1963.
Since the fund's inception, Mr. Kallis has been supported by Bartlett R. Geer,
who manages the lower quality portion of the fund, and Elizabeth M. Westvold,
who manages the fund's foreign securities. Mr. Geer and Ms. Westvold are senior
vice presidents and have worked as investment professionals since each joined
the firm in 1987.
<PAGE>
Your Investment 11
- --------------------------------------------------------------------------------
[Graphic: Key]
Opening an Account
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To open an account without the help of a financial professional, please use the
instructions on these pages.
[Graphic: Checklist]
Choosing a Share Class
The fund offers four share classes, each with its own sales charge and expense
structure.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you may want to consider Class B shares (if investing
for at least five years) or Class C shares (if investing for less than five
years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
brokers, you may be eligible to purchase Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
<PAGE>
12 Your Investment continued
- --------------------------------------------------------------------------------
[Begin sidebar]
[Graphic: Magnifying glass examining document]
Understanding Distribution/Service Fees
As noted in the descriptions at right, all share classes except Class S have an
annual distribution/service fee. This is also called a 12b-1 fee, after the SEC
rule that permits this type of fee.
Under its current 12b-1 plan, the fund may pay certain distribution and service
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class (the example on page 8 in this prospectus can
be helpful in this regard).
Some of the 12b-1 fee is used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on page
15 shows how these professionals' compensation is calculated.
[End sidebar]
Class A -- Front Load
[bullet] Initial sales charge of 4.5% or less
[bullet] Lower sales charges for larger investments; see sales charge schedule
on facing page
[bullet] Lower annual expenses than Class B or Class C shares because of lower
distribution/service (12b-1) fee of 0.25%
Class B -- Back Load
[bullet] No initial sales charge
[bullet] Deferred sales charge of 5% or less on shares you sell within five
years
[bullet] Annual distribution/service (12b-1) fee of 1.00%
[bullet] Automatic conversion to Class A shares after eight years, reducing
future annual expenses
Class C(1) -- Level Load
[bullet] No initial sales charge
[bullet] Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
[bullet] Lower deferred sales charge than Class B shares
[bullet] Annual distribution/service (12b-1) fee of 1.00%
[bullet] No conversion to Class A shares after eight years, so annual expenses
do not decrease
(1) Before November 1, 1997, these were designated Class D.
Class S(2) -- Special Programs
[bullet] Available only through certain retirement accounts, advisory accounts
of the investment manager and other special programs, including broker
programs with recordkeeping and other services; these programs usually
involve special conditions and separate fees (consult your financial
professional or your program materials)
[bullet] No sales charges of any kind
[bullet] No distribution/service (12b-1) fees; annual expenses are lower than
other share classes
(2) Before November 1, 1997, these were designated Class C.
<PAGE>
13
-----
Sales Charges
Class A -- Front Load
<TABLE>
<CAPTION>
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
- --------------------------------------------------
<S> <C> <C>
Up to $99,999 4.50 4.71
$100,000 - $249,999 3.50 3.63
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00 2.04
$1 million or more see next column
</TABLE>
With Class A shares, you pay a sales charge only when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) of 1% of the purchase price of any shares you sell within
the first year. Other policies regarding the calculation of the CDSC are the
same as for Class B.
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
Class B -- Back Load
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- ---------------------------------------------------------
<S> <C>
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year or later None
</TABLE>
With Class B shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for five years or less, as described in the table above. Any shares
acquired through reinvestment are not subject to the CDSC. There is no CDSC on
exchanges into other State Street Research funds, and the
<PAGE>
14 Your Investment continued
- --------------------------------------------------------------------------------
date of your initial investment will continue to be used as the basis for CDSC
calculations when you exchange. To ensure that you pay the lowest CDSC possible,
the fund will always use the shares with the lowest CDSC to fill your sell
requests.
The CDSC is waived on shares sold for mandatory retirement distributions or
because of disability or death. Consult your financial professional or the State
Street Research Service Center.
Class B shares automatically convert to Class A shares after eight years; Class
A shares have lower annual expenses.
Class C (Formerly Class D) -- Level Load
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- ---------------------------------------------------------
<S> <C>
First year 1.00
Second year or later None
</TABLE>
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. Policies
regarding the calculation of the CDSC are the same as for Class B.
Class C shares currently have the same annual expenses as Class B shares, but
never convert to Class A shares (with their lower annual expenses).
Class S (Formerly Class C) --
Special Programs
Class S shares have no sales charges.
<PAGE>
15
-----
[Graphic: Check (money)]
Dealer Compensation
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions and annual
fees. These are paid by the fund's distributor, using money from sales charges,
distribution/service (12b-1) fees and its other resources.
Financial professionals may impose a transaction fee on the purchase or sale of
shares by shareholders. The distributor may pay its affiliate MetLife
Securities, Inc. additional compensation of up to 0.25% of certain sales or
assets.
<TABLE>
<CAPTION>
Maximum Dealer Compensation Class A Class B Class C Class S
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial commission (%) -- 4.00 1.00 0.00
Investments up to $100,000 (%) 4.00 -- -- --
$100,000 - $249,999 (%) 3.00 -- -- --
$250,000 - $499,999 (%) 2.00 -- -- --
$500,000 - $999,999 (%) 1.75 -- -- --
First $1-3 million (%) 1.00(1) -- -- --
Next $2 million (%) 0.50(1) -- -- --
Next $1 and above (%) 0.25(1) -- -- --
Annual fee (%) 0.25 0.25 0.90 0.00
</TABLE>
(1) If your broker declines this commission, the one-year CDSC on your
investment is waived.
Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider a broker's sales of fund shares.
<PAGE>
16 Buying and Selling Shares
- --------------------------------------------------------------------------------
[Graphic: Old-fashioned hand-crank cash register]
Policies for Buying Shares
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
Minimum Initial Investments:
[bullet] $1,000 for accounts that use the Investamatic program
[bullet] $2,000 for Individual Retirement Accounts
[bullet] $2,500 for all other accounts
Minimum Additional Investments:
[bullet] $50 for any account
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
Timing of Requests All requests received by State Street Research before 4:00
p.m. eastern time will be executed the same day, at that day's closing share
price. Orders received after 4:00 p.m. will be executed the following day, at
that day's closing share price.
Wire Transactions Funds may be wired between 8:00 a.m. and 4:00 p.m. eastern
time. To make a same-day wire investment, please notify State Street Research by
12:00 noon of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. Your bank may charge a fee for wiring money.
<PAGE>
<TABLE>
<CAPTION>
Instructions for Buying Shares 17
- ---------------------------------------------------------------------------------------------------------------------------------
[Graphic: brief case] To Open an Account To Add to an Account
<S> <C> <C>
Through a
Professional Consult your financial professional or Consult your financial professional or
or Program your program materials. your program materials.
- ---------------------------------------------------------------------------------------------------------------------------------
[Graphic: Mail box] Make your check payable to "State Street Fill out an investment slip or indicate
By Mail Research Funds." Forward the check and the fund name and account number on your
your application to State Street check. Make your check payable to "State
Research. Street Research Funds." Forward the
check and stub to State Street Research.
- ---------------------------------------------------------------------------------------------------------------------------------
[Graphic: Capitol Building Call to obtain an account number and Call State Street Research to obtain a
with lightning bolt] forward your application to State Street control number. Instruct your bank to
By Federal Research. Wire funds using the wire funds to:
Funds Wire instructions at right.
[bullet] State Street Bank and Trust
Company, Boston, MA
[bullet] ABA: 011000028
[bullet] BNF: fund name and share class
you want to buy
[bullet] AC: 99029761
[bullet] OBI: your name and your account
number
[bullet] Control: the number given to
you by State Street Research
- ---------------------------------------------------------------------------------------------------------------------------------
[Graphic: electric plug] Verify that your bank is a member of the Call State Street Research to verify
By Electronic ACH (Automated Clearing House) system. that the necessary bank information is
Funds Transfer Forward your application to State Street on file for your account. If it is, you
(ACH) Research. Please be sure to include the may request a transfer with the same
appropriate bank information. Call State phone call. If not, please ask State
Street Research to request a purchase. Street Research to provide you with an
EZ Trader application.
- ---------------------------------------------------------------------------------------------------------------------------------
[Graphic: Calendar with date circled] Forward your application, with all Call State Street Research to verify
By Investamatic appropriate sections completed, to State that Investamatic is in place on your
Street Research, along with a check for account, or to request a form to add it.
your initial investment payable to Investments are automatic once
"State Street Research Funds." Investamatic is in place.
- ---------------------------------------------------------------------------------------------------------------------------------
[Graphic: arrows pointing in Call State Street Research or visit our Call State Street Research or visit our
2 different directions] Web site. Web site.
By Exchange
- ---------------------------------------------------------------------------------------------------------------------------------
State Street Research Service Center Internet www.ssrfunds.com
PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032
(business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
18 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Old-fashioned hand-crank adding machine]
Policies for Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
[bullet] you are selling more than $100,000 worth of shares
[bullet] the name or address on the account has changed within the last 30 days
[bullet] you want the proceeds to go to a name or address not on the account
registration
[bullet] you are transferring shares to an account with a different registration
or share class
[bullet] you are selling shares held in a corporate or fiduciary account; for
these accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing
document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street
Research before 4:00 p.m. eastern time will be executed the same day, at that
day's closing share price. Requests received after 4:00 p.m. will be executed
the following day, at that day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) for those shares has been collected, you will
not receive the proceeds until your initial payment has cleared. This may take
up to 15 days after your purchase was recorded (in rare cases, longer). If you
open an account with shares purchased by wire, you cannot sell those shares
until your application has been processed.
<PAGE>
<TABLE>
<S> <C>
Instructions for Selling Shares 19
- --------------------------------------------------------------------------------------------------------------------
[Graphic: Brief case] Consult your financial professional or your program materials.
Through a
Professional
or Program
- --------------------------------------------------------------------------------------------------------------------
[Graphic: Mail Box] Send a letter of instruction, an endorsed stock power or share certificates (if
By Mail you hold certificate shares) to State Street Research. Specify the fund, the
account number and the dollar value or number of shares. Be sure to include all
necessary signatures and any additional documents, as well as signature
guarantees if required (see facing page).
- --------------------------------------------------------------------------------------------------------------------
[Graphic: Capitol Building Check with State Street Research to make sure that a wire redemption privilege,
with lightning bolt] including a bank designation, is in place on your account. Once this is
By Federal established, you may place your request to sell shares with State Street
Funds Wire Research. Proceeds will be wired to your pre-designated bank account. (See
"Wire Transactions" on facing page.)
- --------------------------------------------------------------------------------------------------------------------
[Graphic: electric plug] Check with State Street Research to make sure that the EZ Trader feature,
By Electronic including a bank designation, is in place on your account. Once this is
Funds Transfer established, you may place your request to sell shares with State Street
(ACH) Research. Proceeds will be sent to your pre-designated bank account.
- --------------------------------------------------------------------------------------------------------------------
[Graphic: Telephone] As long as the transaction does not require a written request (see facing
By Telephone page), you or your financial professional can sell shares by calling State
Street Research. A check will be mailed to you on the following business day.
- --------------------------------------------------------------------------------------------------------------------
[Graphic: arrows pointing in Read the prospectus for the fund into which you are exchanging. Call State Street
2 different directions] Research or visit our Web site.
By Exchange
- --------------------------------------------------------------------------------------------------------------------
[Graphic: Calendar See plan information on page 23.
with dates circled]
By Systematic
Withdrawal Plan
- --------------------------------------------------------------------------------------------------------------------
[Graphic: Check (money)] The checkwriting privilege is available for Class A shares only. If you have
By Check requested this privilege on your application, you may write checks for amounts
from $500 to $100,000.
- --------------------------------------------------------------------------------------------------------------------
State Street Research Service Center Internet www.ssrfunds.com
PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032
(business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
20 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Sheets of Paper]
Account Policies
Telephone Requests When you open an account you automatically receive
telephone privileges, allowing you to place requests on your account by
telephone. Your financial professional can also use these privileges to request
exchanges on your account and, with your written permission, redemptions. For
your protection, all telephone calls are recorded.
As long as State Street Research takes certain measures to authenticate
telephone requests on your account, you may be held responsible for unauthorized
requests. Unauthorized telephone requests are rare, but if you want to protect
yourself completely, you can decline the telephone privilege on your
application. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class of your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's exchange privilege and may refuse to accept
any exchange request, particularly those associated with "market timing"
strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or, depending on the circumstances, may deduct an annual
maintenance fee (currently $18).
<PAGE>
21
-----
The Fund's Business Hours The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are available
from 8:00 a.m. to 6:00 p.m. eastern time on these days.
Calculating Share Price The fund calculates its share price every business day
at the close of regular trading on the New York Stock Exchange (usually at 4:00
p.m. eastern time). The share price is the fund's total assets minus its
liabilities (net asset value, or NAV) divided by the number of existing shares.
In calculating its NAV, the fund uses the last reported sale price or quotation
for portfolio securities. However, in cases where these are unavailable, or when
the investment manager believes that subsequent events have rendered them
unreliable, the fund may use fair-value estimates instead.
Because foreign securities markets are sometimes open on different days from
U.S. markets, there may be instances when the value of the fund's portfolio
changes on days when you cannot buy or sell fund shares.
Reinstating Recently Sold Shares For 120 days after you sell shares, you have
the right to "reinstate" your investment by putting some or all of the proceeds
into any currently available State Street Research fund at net asset value. Any
CDSC you paid on the amount you are reinstating will be credited to your
account. You may only use this privilege once in any twelve-month period with
respect to your shares of a given fund.
Additional Policies Please note that the fund maintains additional policies and
reserves certain rights, including:
[bullet] The fund may vary its requirements for initial or additional
investments, exchanges, reinvestments, periodic investment plans,
retirement and employee benefit plans, sponsored arrangements and other
similar programs
[bullet] All orders to purchase shares are subject to acceptance by the fund
[bullet] At any time, the fund may change or discontinue its sales charge
waivers and any of its order acceptance practices, and may suspend the
sale of its shares
[bullet] The fund may delay sending you redemption proceeds for up to seven
days, or longer if permitted by the SEC
[bullet] To permit investors to obtain the current price, dealers are
responsible for transmitting all orders to the State Street Research
Service Center promptly
<PAGE>
22 Your Investment continued
- --------------------------------------------------------------------------------
[Begin sidebar]
[Graphic: Magnifying glass examining document]
Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
[bullet] investing a large amount in the fund close to the end of the fiscal
year or a calendar year (if the fund makes a capital gains
distribution, you will receive some of your investment back as a
taxable distribution)
[bullet] selling shares at a loss for tax purposes and investing in a
substantially identical investment within 30 days before or after such
sale (such a transaction is usually considered a "wash sale," and you
will not be allowed to claim a tax loss)
[End sidebar]
[Graphic: "Uncle Sam"]
Distributions and Taxes
Income and Capital Gains Distributions The fund distributes its net income and
net capital gains to shareholders. Using projections of its future income, the
fund declares dividends daily and pays them monthly. Net capital gains, if any,
are distributed around the end of the fund's fiscal year, which is April 30. To
comply with tax regulations, the fund may also pay an additional capital gains
distribution in December.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gains distributions you receive from the fund are taxable as
ordinary income. Distributions of other capital gains are generally taxable as
capital gains -- in most cases, at different rates from those that apply to
ordinary income.
The tax you pay on a given capital gains distribution depends generally on how
long the fund has held the portfolio securities it sold. It does not depend on
how long you have owned your fund shares or whether you reinvest your
distributions.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
<PAGE>
23
-----
The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
Backup Withholding By law, the fund must withhold 31% of your distributions
and proceeds if you have not provided complete, correct taxpayer information.
[Graphic: Handshake greeting]
Investor Services
Investamatic Program Use Investamatic to set up regular automatic investments
in the fund from your bank account. You determine the frequency and amount of
your investments.
Systematic Withdrawal Plan This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 8% of your fund assets a year without incurring any
contingent deferred sales charges. Certain terms and minimums apply.
EZ Trader This service allows you to purchase or sell fund shares over the
telephone through the ACH (Automated Clearing House) system.
Dividend Allocation Plan This plan automatically invests your distributions
from the fund into another fund of your choice, without any fees or sales
charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.
Retirement Plans State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
Call 1-800-562-0032 for information on any of the services described above.
<PAGE>
24 Other Information
- --------------------------------------------------------------------------------
[Graphic: Stock certificates]
Other Securities and Risks
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 2. Below are brief
descriptions of other securities and practices, along with their associated
risks.
Restricted and Illiquid Securities Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and price.
Some of these securities are new and complex, and trade only among institutions;
the markets for these securities are still developing, and may not function as
efficiently as established markets. Owning a large percentage of restricted and
illiquid securities could hamper the fund's ability to raise cash to meet
redemptions. Also, because there may not be an established market price for
these securities, the fund may have to estimate their value, which means that
their valuation -- and the valuation of the fund -- may have a subjective
element.
Securities Ratings When securities are rated by one or more independent rating
agencies, the fund uses these ratings to determine credit quality. In cases
where a security is rated in conflicting categories by different rating
agencies, the fund may choose to follow the higher rating. Where a security is
only rated by one agency, the fund may invest based on a higher rating derived
from its own analysis. If a rating agency downgrades a security, the fund will
determine whether to hold or sell the security.
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from another security, an index or a
currency. The fund may use derivatives for hedging (attempting to offset a
potential loss in one position by establishing an interest in an opposite
position). This includes the use of currency-based derivatives for hedging its
positions in foreign securities. The fund may also use derivatives for
speculation (investing for potential income or capital gain).
While hedging can guard against potential risks, it adds to the fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected.
The main risk with derivatives is that some types can amplify a gain or loss,
<PAGE>
25
-----
potentially earning or losing substantially more money than the actual cost of
the derivative.
With some derivatives, whether used for hedging or speculation, there is also
the risk that the counterparty may fail to honor its contract terms, causing a
loss for the fund.
Securities Lending The fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the fund could lose money.
When-issued Securities The fund may invest in securities prior to their date
of issue. These securities could fall in value by the time they are actually
issued, which may be any time from a few days to over a year.
Zero (or Step) Coupons A zero coupon security is a debt security that is
purchased and traded at discount to its face value because it pays no interest
for some or all of its life. Interest, however, is reported as income to the
fund and the fund is required to distribute to shareholders an amount equal to
the amount reported. Those distributions may force the fund to liquidate
portfolio securities at a disadvantageous time.
Asset-backed Securities Asset-backed securities represent interests in pools
of debt (other than mortgage notes), such as credit card accounts. The principal
risks of asset-backed securities are that on the underlying obligations,
payments may be made more slowly, and rates of default may be higher, than
expected. In addition, because some of these securities are new or complex,
unanticipated problems may affect their value or liquidity.
Defensive Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the fund does this, it is not pursuing its goal.
Year 2000 The investment manager does not currently anticipate that computer
problems related to the year 2000 will have a material effect on the fund.
However, there can be no assurances in this area, including the possibility that
year 2000 computer problems could negatively affect communications systems,
investment markets or the economy in general.
<PAGE>
26 Financial Highlights
- --------------------------------------------------------------------------------
These highlights are intended to help you understand the fund's performance
since its inception. The information in these tables has been audited by Coopers
& Lybrand L.L.P., the fund's independent accountants. Total return figures
assume reinvestment of all distributions.
<TABLE>
<CAPTION>
Class A Class B
- -----------------------------------------------------------------------------------------------------------------------
Years ended April 30 Years ended April 30
Per Share Data 1997(1)(2) 1998(2) 1997(1)(2)1998(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 7.00 7.06 7.00 7.05
----- ----- ----- -----
Net investment income ($)* 0.38 0.55 0.31 0.49
Net realized and unrealized gain on investments,
foreign currency and forward contracts ($) 0.01 0.38 0.04 0.38
----- ----- ----- -----
Total from investment operations ($) 0.39 0.93 0.35 0.87
----- ----- ----- -----
Dividends from net investment income ($) (0.31) (0.55) (0.28) (0.50)
Distributions from capital gains ($) (0.02) (0.11) (0.02) (0.11)
----- ----- ----- -----
Total distributions ($) (0.33) (0.66) (0.30) (0.61)
----- ----- ----- -----
Net asset value, end of year ($) 7.06 7.33 7.05 7.31
===== ===== ===== =====
Total return (%)(3) 5.60(4) 13.70 4.96(4) 12.74
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 36,110 41,348 19,678 37,432
Expense Ratio (%)* 1.35(5) 1.35 2.10(5) 2.10
Ratio of net investment income
to average net assets (%)* 7.30(5) 7.51 6.73(5) 6.77
Portfolio turnover rate (%) 110.37 179.82 110.37 179.82
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.01 0.01 0.01 0.01
</TABLE>
<PAGE>
27
-----
<TABLE>
<CAPTION>
Class C (formerly Class D) Class S (formerly Class C)
- -----------------------------------------------------------------------------------------------------------------------
Years ended April 30 Years ended April 30
Per Share Data 1997(1)(2) 1998(2) 1997(1)(2)1998(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 7.00 7.05 7.00 7.06
----- ----- ----- -----
Net investment income ($)* 0.32 0.49 0.39 0.57
Net realized and unrealized gain on investments,
foreign currency and forward contracts ($) 0.03 0.38 0.02 0.38
----- ----- ----- -----
Total from investment operations ($) 0.35 0.87 0.41 0.95
----- ----- ----- -----
Dividends from net investment income ($) (0.28) (0.50) (0.33) (0.57)
Distributions from capital gains ($) (0.02) (0.11) (0.02) (0.11)
----- ----- ----- -----
Total distributions ($) (0.30) (0.61) (0.35) (0.68)
----- ----- ----- -----
Net asset value, end of year ($) 7.05 7.31 7.06 7.33
===== ===== ===== =====
Total return (%)(3) 4.96(4) 12.74 5.76(4) 13.99
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 8,590 13,243 10,908 11,675
Expense Ratio (%)* 2.10(5) 2.10 1.10(5) 1.10
Ratio of net investment income
to average net assets (%)* 6.67(5) 6.77 7.51(5) 7.74
Portfolio turnover rate (%) 110.37 179.82 110.37 179.82
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.01 0.01 0.01 0.01
</TABLE>
(1) August 30, 1996 (commencement of operations) to April 30, 1997.
(2) Per-share figures have been calculated using the average shares method.
(3) 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.
(4) Not annualized.
(5) Annualized.
<PAGE>
28 Notes
- --------------------------------------------------------------------------------
<PAGE>
Notes 29
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
[back cover]
For Additional Information
- --------------------------------------------------------------------------------
If you have questions about the fund or would like to request a free copy of the
current annual/semiannual report or SAI, contact State Street Research or your
financial professional.
[logo: State Street Research] State Street Research
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
You can also obtain information about the fund, including the SAI and certain
other fund documents, on the Internet at www.sec.gov, in person at the SEC's
Public Reference Room in Washington, DC (telephone 1-800-SEC-0330) or by mail by
sending your request, along with a duplicating fee, to the SEC's Public
Reference Section, Washington, DC 20549-6009.
prospectus
- --------------------------------------
SEC File Number: 811-8322
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
Statement of Additional Information (SAI) A supplement to the prospectus,
the SAI contains further information about the fund and its investment
limitations and policies. It also includes the most recent annual report and the
independent accountants' report. A current SAI for this fund is on file with the
Securities and Exchange Commission and is incorporated by reference (is legally
part of this prospectus).
<TABLE>
<CAPTION>
Ticker Symbols
======================================================
<S> <C> <C>
Class A SIFAX
Class B SBSIX
Class C (proposed) SSFCX
Class S (proposed) SIFSX
</TABLE>
XX-000X-000 XXX
Control Number: 0000-000000(0000)SSR-LD
<PAGE>
[front cover]
[Begin sidebar]
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
Although these securities have been registered with the Securities and Exchange
Commission, the SEC has not judged them for investment merit and does not
guarantee the accuracy or adequacy of the information in this prospectus. Anyone
who informs you otherwise is committing a federal crime.
[End sidebar]
[logo: State Street Research]
[photo: Custom House tower, Boston]
Legacy Fund
- --------------------------------------------------------------------------------
A tax-managed approach
to investing in stocks for
long-term growth.
Prospectus
September 1, 1998
<PAGE>
[Page intentionally left blank]
<PAGE>
Contents 1
- --------------------------------------------------------------------------------
3 The Fund
- --------------------------------------------------------------------------------
3 Goal and Strategies
4 Principal Risks
6 Investor Expenses
8 Investment Management
9 Your Investment
- --------------------------------------------------------------------------------
9 Opening an Account
9 Choosing a Share Class
11 Sales Charges
13 Dealer Compensation
14 Buying and Selling Shares
18 Account Policies
20 Distributions and Taxes
21 Investor Services
22 Other Information
- --------------------------------------------------------------------------------
22 Other Securities and Risks
24 Financial Highlights
Back Cover For Additional Information
<PAGE>
2
- -----
[Begin sidebar]
The fund's shares will rise and fall in value. There is a risk that you could
lose money by investing in the fund.
The fund cannot be certain that it will achieve its goal.
Shares in the fund are not bank deposits and are not guaranteed, endorsed or
insured by any financial institution, government entity or the FDIC.
[End sidebar]
[Graphic: Magnifying glass examining document]
Who May Want To Invest
State Street Research Legacy Fund is designed for tax-conscious investors who
seek one or both of the following:
[bullet] a stock investment for long-term growth
[bullet] reduced impact of taxes on their investment returns
The fund is not appropriate for investors who:
[bullet] want to avoid even moderate to high volatility or possible losses
[bullet] are seeking either income or aggressive growth
[bullet] are making short-term investments
[bullet] are investing emergency reserve money
<PAGE>
The Fund 3
- --------------------------------------------------------------------------------
[Graphic: Chess piece]
Goal and Strategies
Fundamental Goal The fund seeks to provide long-term growth of capital.
Principal Strategies Under normal market conditions, the fund invests at least
65% of total assets in stocks and convertible securities of mid- and large-size
companies.
In managing its portfolio, the fund employs a tax-managed strategy, generally
seeking to identify stocks with long-term growth potential and holding them for
extended periods. This buy-and-hold approach is designed to allow the fund to
focus on long-term capital appreciation while reducing (though not eliminating)
capital gains distributions and their resulting tax liability for shareholders.
While the fund generally expects to invest across a broad range of industries,
it may favor companies in those industries that appear to offer higher potential
for long-term growth.
Although the fund does not expect to do so as a matter of course, it is
permitted to invest up to 35% of total assets in other securities (for example,
bonds and small-size company stocks). The fund may also use derivatives,
particularly as a way of hedging against market downturns.
For more information about the fund's investments and practices, see page 22.
<PAGE>
4 The Fund continued
- --------------------------------------------------------------------------------
[Graphic: Traffic Sign]
Principal Risks
Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden, unpredictable drops in value and the potential for
periods of lackluster performance.
The fund's investment approach, with its emphasis on keeping portfolio turnover
low, means that the fund could continue to hold various stocks through adverse
markets rather than selling them. This could cause the fund to have deeper
losses during down markets than a fund that has invested in similar stocks but
does not seek reduced turnover. To the extent that the fund does sell securities
during times of volatility, either for investment management reasons or to meet
shareholder redemption requests, portfolio turnover and capital gains
distributions are likely to increase as a result. For this reason, shareholders
who actively trade or exchange fund shares could adversely affect the management
of the fund and are discouraged from investing in it.
While the fund's buy-and-hold approach is designed to allow it to capture
long-term gains, prices of some stocks may not return to previous highs. To the
extent that the fund continues to hold these stocks, it may miss opportunities
to realize gains and its long-term performance may be reduced.
Information on other securities and risks appears on page 22.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
<PAGE>
5
-----
[Graphic: Magnifying glass examining document]
Tax-Managed Funds
Many stock funds make their buy and sell decisions with an eye toward maximizing
pre-tax performance. Tax-managed funds consider an additional factor: whether
their transactions and the resulting taxable distributions could affect their
shareholders' income tax burden.
Federal tax laws dictate that mutual funds must distribute their net gains from
transactions each year. These distributions are taxable to you during the year
in which they are made -- even if you reinvest them.
As long as a fund continues to hold a stock, any capital appreciation the fund
has in that stock is reflected in the fund's share price, rather than in taxable
distributions. Also, by holding a stock for a longer period, the fund can
distribute any gains from its sale as long-term capital gains. These
distributions are taxed as capital gains rather than ordinary income -- an
advantage for shareholders in higher tax brackets.
In addition to attempting to keep portfolio turnover low, tax-managed funds may
use other techniques to reduce shareholder tax liabilities, such as being
selective in realizing gains and losses.
<PAGE>
6 Investor Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class descriptions begin on page 9
- --------------------------------------------------------------------------------------------------------------------------------
Shareholder Fees (% of offering price) Class A Class B Class C Class S
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum front-end sales charge (load) 4.50 0.00 0.00 0.00
Maximum deferred sales charge (load) 0.00(1) 5.00 1.00 0.00
Annual Fund Expenses (% of average net assets) Class A Class B Class C Class S
- --------------------------------------------------------------------------------------------------------------------------------
Management fee 0.65 0.65 0.65 0.65
Distribution/service (12b-1) fees 0.25 1.00 1.00 0.00
Other expenses(2) 1.00 1.00 1.00 1.00
---- ---- ---- ----
Total annual fund operating expenses* 1.90 2.65 2.65 1.65
==== ==== ==== ====
*Because some of the fund's expenses have been
subsidized, actual total operating expenses for
the prior period were: 1.25 2.00 2.00 1.00
The fund expects the expense subsidy to continue
through the current fiscal year, although there
is no guarantee that it will.
Example Year Class A Class B Class C Class S
- --------------------------------------------------------------------------------------------------------------------------------
1 $634 $768/$268 $368/$268 $168
3 $1,020 $1,123/$823 $823 $520
</TABLE>
(1) Except for investments of $1 million or more; see page 11.
(2) Because the fund has been newly organized, the percentage expense levels
shown in the table as "Other expenses" are based on estimates.
<PAGE>
7
-----
[Graphic: Magnifying glass examining document]
Understanding Investor Expenses
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund:
[bullet] Shareholder Fees are costs that are charged to you directly. These fees
are not charged on reinvestments or exchanges.
[bullet] Annual Fund Expenses are deducted from the fund's assets every year,
and are thus paid indirectly by all fund investors.
[bullet] The Example is designed to allow you to compare the costs of this fund
with those of other funds. It assumes that you invested $10,000 over
the years indicated, reinvested all distributions, earned a
hypothetical 5% annual return and paid the maximum applicable sales
charges. For Class B shares, it also assumes the automatic conversion
to Class A after eight years.
Where two numbers are shown separated by a slash, the first one assumes you sold
all your shares at the end of the period, while the second assumes you stayed in
the fund. Where there is only one number, the costs would be the same either
way.
Investors should keep in mind that the example is for comparison purposes only.
The fund's actual performance and expenses may be higher or lower.
<PAGE>
8 The Fund continued
- --------------------------------------------------------------------------------
[Graphic: Rodin's statue "The Thinker"]
Investment Management
The fund's investment manager is State Street Research & Management Company. The
firm traces its heritage back to 1924 and the founding of one of America's first
mutual funds. Today the firm has more than $__ billion in assets under
management (as of [DATE]), including more than $__ billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.65% of fund assets, annually) as
compensation. The investment manager is a subsidiary of Metropolitan Life
Insurance Company.
Kennard Woodworth, Jr. has been responsible for the fund's day-to-day portfolio
management since its inception in December 1997. A senior vice president, he
joined the firm in 1986 and has worked as an investment professional since 1961.
<PAGE>
Your Investment 9
- --------------------------------------------------------------------------------
[Graphic: Key]
Opening an Account
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To open an account without the help of a financial professional, please use the
instructions on these pages.
[Graphic: Checklist of funds]
Choosing a Share Class
The fund offers four share classes, each with its own sales charge and expense
structure.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you may want to consider Class B shares (if investing
for at least five years) or Class C shares (if investing for less than five
years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
brokers, you may be eligible to purchase Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
<PAGE>
10 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Magnifying glass examining document]
Understanding Distribution/Service Fees
As noted in the descriptions at right, all share classes except Class S have an
annual distribution/service fee. This is also called a 12b-1 fee, after the SEC
rule that permits this type of fee.
Under its current 12b-1 plan, the fund may pay certain distribution and service
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class (the example on page 6 in this prospectus can
be helpful in this regard).
Some of the 12b-1 fee is used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on page
13 shows how these professionals' compensation is calculated.
Class A -- Front Load
[bullet] Initial sales charge of 4.5% or less
[bullet] Lower sales charges for larger investments; see sales charge schedule
on facing page
[bullet] Lower annual expenses than Class B or Class C shares because of lower
distribution/service (12b-1) fee of 0.25%
Class B -- Back Load
[bullet] No initial sales charge
[bullet] Deferred sales charge of 5% or less on shares you sell within five
years
[bullet] Annual distribution/service (12b-1) fee of 1.00%
[bullet] Automatic conversion to Class A shares after eight years, reducing
future annual expenses
Class C -- Level Load
[bullet] No initial sales charge
[bullet] Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
[bullet] Lower deferred sales charge than Class B shares
[bullet] Annual distribution/service (12b-1) fee of 1.00%
[bullet] No conversion to Class A shares after eight years, so annual expenses
do not decrease
Class S -- Special Programs
[bullet] Available only through certain retirement accounts, advisory accounts
of the investment manager and other special programs, including broker
programs with recordkeeping and other services; these programs usually
involve special conditions and separate fees (consult your financial
professional or your program materials)
[bullet] No sales charges of any kind
[bullet] No distribution/service (12b-1) fees; annual expenses are lower than
other share classes
<PAGE>
11
-----
Sales Charges
Class A -- Front Load
<TABLE>
<CAPTION>
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
- --------------------------------------------------
<S> <C> <C>
Up to $99,999 4.50 4.71
$100,000 - $249,999 3.50 3.63
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00 2.04
$1 million or more see next column
</TABLE>
With Class A shares, you pay a sales charge only when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) of 1% of the purchase price of any shares you sell within
the first year. Other policies regarding the calculation of the CDSC are the
same as for Class B.
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
Class B -- Back Load
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- --------------------------------------------------------------------------------
<S> <C>
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year or later None
</TABLE>
With Class B shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for five years or less, as described in the table above. Any shares
acquired through reinvestment are not subject to the CDSC. There is no CDSC on
exchanges into other State Street Research funds, and the
<PAGE>
12 Your Investment continued
- --------------------------------------------------------------------------------
date of your initial investment will continue to be used as the basis for CDSC
calculations when you exchange. To ensure that you pay the lowest CDSC possible,
the fund will always use the shares with the lowest CDSC to fill your sell
requests.
The CDSC is waived on shares sold for mandatory retirement distributions or
because of disability or death. Consult your financial professional or the State
Street Research Service Center.
Class B shares automatically convert to Class A shares after eight years; Class
A shares have lower annual expenses.
Class C -- Level Load
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- ---------------------------------------------------------
<S> <C>
First year 1.00
Second year or later None
</TABLE>
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. Policies
regarding the calculation of the CDSC are the same as for Class B.
Class C shares currently have the same annual expenses as Class B shares, but
never convert to Class A shares (with their lower annual expenses).
Class S -- Special Programs
Class S shares have no sales charges.
<PAGE>
13
-----
[Graphic: Check (money)]
Dealer Compensation
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions and annual
fees. These are paid by the fund's distributor, using money from sales charges,
distribution/service (12b-1) fees and its other resources.
Financial professionals may impose a transaction fee on the purchase or sale of
shares by shareholders. The distributor may pay its affiliate MetLife
Securities, Inc. additional compensation of up to 0.25% of certain sales or
assets.
Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider a broker's sales of fund shares.
<TABLE>
<CAPTION>
Maximum Dealer Compensation Class A Class B Class C Class S
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial commission (%) -- 4.00 1.00 0.00
Investments up to $100,000 (%) 4.00 -- -- --
$100,000 - $249,999 (%) 3.00 -- -- --
$250,000 - $499,999 (%) 2.00 -- -- --
$500,000 - $999,999 (%) 1.75 -- -- --
First $1-3 million (%) 1.00(1) -- -- --
Next $2 million (%) 0.50(1) -- -- --
Next $1 and above (%) 0.25(1) -- -- --
Annual fee (%) 0.25 0.25 0.90 0.00
</TABLE>
(1) If your broker declines this commission, the one-year CDSC on your
investment is waived.
<PAGE>
14 Buying and Selling Shares
- --------------------------------------------------------------------------------
[Graphic: Old-fashioned hand-crank cash register]
Policies for Buying Shares
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
Minimum Initial Investments:
[bullet] $10,000 for accounts that use the Investamatic program
[bullet] $2,000 for Individual Retirement Accounts
[bullet] $25,000 for all other accounts
Minimum Additional Investments:
[bullet] $1,000 for Individual Retirement Accounts
[bullet] $50 for all other accounts
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
Timing of Requests All requests received by State Street Research before 4:00
p.m. eastern time will be executed the same day, at that day's closing share
price. Orders received after 4:00 p.m. will be executed the following day, at
that day's closing share price.
Wire Transactions Funds may be wired between 8:00 a.m. and 4:00 p.m. eastern
time. To make a same-day wire investment, please notify State Street Research by
12:00 noon of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. Your bank may charge a fee for wiring money.
<PAGE>
<TABLE>
<CAPTION>
Instructions for Buying Shares 15
- ------------------------------------------------------------------------------------------------------------------------------------
To Open an Account To Add to an Account
<S> <C> <C>
[Graphic: Brief case]
Through a Consult your financial professional or Consult your financial professional or
Professional your program materials. your program materials.
or Program
- ------------------------------------------------------------------------------------------------------------------------------------
[Graphic: Mail Box]
By Mail Make your check payable to "State Street Fill out an investment slip or indicate the
Research Funds." Forward the check and fund name and account number on your check.
your application to State Street Research. Make your check payable to "State Street
Research Funds." Forward the check and stub
to State Street Research.
- ------------------------------------------------------------------------------------------------------------------------------------
[Graphic: Capitol Building]
By Federal Call to obtain an account number and forward Call State Street Research to obtain a
Funds Wire your application to State Street Research. Wire control number. Instruct your bank to
funds using the instructions at right. wire funds to:
[bullet] State Street Bank and Trust Company,
Boston, MA
[bullet] ABA: 011000028
[bullet] BNF: fund name and share class you
want to buy
[bullet] AC: 99029761
[bullet] OBI: your name and your account
number
[bullet] Control: the number given to you by
State Street Research
- ------------------------------------------------------------------------------------------------------------------------------------
[Graphic: electric plug]
By Electronic Verify that your bank is a member of the Call State Street Research to verify that
Funds Transfer ACH (Automated Clearing House) system. the necessary bank information is on
(ACH) Forward your application to State Street file for your account. If it is, you may
Research. Please be sure to include request a transfer with the same phone call.
the appropriate bank information. Call If not, please ask State Street Research to
State Street Research to request a purchase. provide you with an EZ Trader application.
- ------------------------------------------------------------------------------------------------------------------------------------
[Graphic: Calendar Forward your application, with all appropriate Call State Street Research to verify that
with dates circled] sections completed, to State Street Research, Investamatic is in place on your account, or
By Investamatic along with a check for your initial investment to request a form to add it. Investments are
payable to "State Street Research Funds." automatic once Investamatic is in place.
- ------------------------------------------------------------------------------------------------------------------------------------
[Graphic: arrows pointing in Call State Street Research or visit our Call State Street Research or visit our
2 different directions] Web site. Web site.
By Exchange
- ------------------------------------------------------------------------------------------------------------------------------------
State Street Research Service Center Internet www.ssrfunds.com
PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032
(business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
16 Your Investment continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[Graphic: Old-fashioned hand-crank adding machine]
Policies for
Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
[bullet] you are selling more than $100,000 worth of shares
[bullet] the name or address on the account has changed within the last 30 days
[bullet] you want the proceeds to go to a name or address not on the account
registration
[bullet] you are transferring shares to an account with a different registration
or share class
[bullet] you are selling shares held in a corporate or fiduciary account; for
these accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing
document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street Research
before 4:00 p.m. eastern time will be executed the same day, at that day's
closing share price. Requests received after 4:00 p.m. will be executed the
following day, at that day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) for those shares has been collected, you will
not receive the proceeds until your initial payment has cleared. This may take
up to 15 days after your purchase was recorded (in rare cases, longer). If you
open an account with shares purchased by wire, you cannot sell those shares
until your application has been processed.
<PAGE>
Instructions for Selling Shares 17
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[Graphic: Brief case] Consult your financial professional or your program materials.
Through a
Professional
or Program
- --------------------------------------------------------------------------------------------------------------
[Graphic: Mail Box] Send a letter of instruction, an endorsed stock power or share certificates (if
By Mail you hold certificate shares) to State Street Research. Specify the fund, the
account number and the dollar value or number of shares. Be sure to include all
necessary signatures and any additional documents, as well as signature
guarantees if required (see facing page).
- --------------------------------------------------------------------------------------------------------------
[Graphic: Capitol Building Check with State Street Research to make sure that a wire redemption privilege,
with lightning bolt] including a bank designation, is in place on your account. Once this is
By Federal established, you may place your request to sell shares with State Street
Funds Wire Research. Proceeds will be wired to your pre-designated bank account. (See
"Wire Transactions" on facing page.)
- --------------------------------------------------------------------------------------------------------------
[Graphic: electric plug] Check with State Street Research to make sure that the EZ Trader feature,
By Electronic including a bank designation, is in place on your account. Once this is
Funds Transfer established, you may place your request to sell shares with State Street
(ACH) Research. Proceeds will be sent to your pre-designated bank account.
- --------------------------------------------------------------------------------------------------------------
[Graphic: Telephone] As long as the transaction does not require a written request (see facing
By Telephone page), you or your financial professional can sell shares by calling State
Street Research. A check will be mailed to you on the following business day.
- --------------------------------------------------------------------------------------------------------------
[Graphic: arrows pointing Read the prospectus for the fund into which you are exchanging. Call State Street
in 2 different directions] Research or visit our Web site.
By Exchange
- --------------------------------------------------------------------------------------------------------------
[Graphic: Calendar See plan information on page 21.
with dates circled]
By Systematic
Withdrawal Plan
- --------------------------------------------------------------------------------------------------------------
State Street Research Service Center Internet www.ssrfunds.com
PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032
(business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
18 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Sheets of Paper]
Account Policies
Telephone Requests When you open an account you automatically receive
telephone privileges, allowing you to place requests on your account by
telephone. Your financial professional can also use these privileges to request
exchanges on your account and, with your written permission, redemptions. For
your protection, all telephone calls are recorded.
As long as State Street Research takes certain measures to authenticate
telephone requests on your account, you may be held responsible for unauthorized
requests. Unauthorized telephone requests are rare, but if you want to protect
yourself completely, you can decline the telephone privilege on your
application. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class of your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's exchange privilege and may refuse to accept
any exchange request, particularly those associated with "market timing"
strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or, depending on the circumstances, may deduct an annual
maintenance fee (currently $18).
<PAGE>
19
----
The Fund's Business Hours The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are available
from 8:00 a.m. to 6:00 p.m. eastern time on these days.
Calculating Share Price The fund calculates its share price every business day
at the close of regular trading on the New York Stock Exchange (usually at 4:00
p.m. eastern time). The share price is the fund's total assets minus its
liabilities (net asset value, or NAV) divided by the number of existing shares.
In calculating its NAV, the fund uses the last reported sale price or quotation
for portfolio securities. However, in cases where these are unavailable, or when
the investment manager believes that subsequent events have rendered them
unreliable, the fund may use fair-value estimates instead.
Because foreign securities markets are sometimes open on different days from
U.S. markets, there may be instances when the value of the fund's portfolio
changes on days when you cannot buy or sell fund shares.
Reinstating Recently Sold Shares For 120 days after you sell shares, you have
the right to "reinstate" your investment by putting some or all of the proceeds
into any currently available State Street Research fund at net asset value. Any
CDSC you paid on the amount you are reinstating will be credited to your
account. You may only use this privilege once in any twelve-month period with
respect to your shares of a given fund.
Additional Policies Please note that the fund maintains additional policies
and reserves certain rights, including:
[bullet] The fund may vary its requirements for initial or additional
investments, exchanges, reinvestments, periodic investment plans,
retirement and employee benefit plans, sponsored arrangements and other
similar programs
[bullet] All orders to purchase shares are subject to acceptance by the fund
[bullet] At any time, the fund may change or discontinue its sales charge
waivers and any of its order acceptance practices, and may suspend the
sale of its shares
[bullet] The fund may delay sending you redemption proceeds for up to seven
days, or longer if permitted by the SEC
[bullet] To permit investors to obtain the current price, dealers are
responsible for transmitting all orders to the State Street Research
Service Center promptly
<PAGE>
20 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Magnifying glass examining document]
Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
[bullet] investing a large amount in the fund close to the end of the fiscal
year or a calendar year (if the fund makes a capital gains
distribution, you will receive some of your investment back as a
taxable distribution)
[bullet] selling shares at a loss for tax purposes and investing in a
substantially identical investment within 30 days before or after such
sale (such a transaction is usually considered a "wash sale," and you
will not be allowed to claim a tax loss)
[Graphic: "Uncle Sam"]
Distributions and Taxes
Income and Capital Gains Distributions The fund typically distributes its net
income and net capital gains, if any, around the end of the fund's fiscal year,
which is April 30. To comply with tax regulations, the fund may also pay an
additional capital gains distribution in December.
You may have your distributions reinvested in the fund, invested in a
different State Street Research fund, deposited in a bank account or mailed out
by check. If you do not give State Street Research other instructions, your
distributions will automatically be reinvested in the fund.
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gains distributions you receive from the fund are taxable as
ordinary income. Distributions of other capital gains are generally taxable as
capital gains -- in most cases, at different rates from those that apply to
ordinary income.
The tax you pay on a given capital gains distribution depends generally on how
long the fund has held the portfolio securities it sold. It does not depend on
how long you have owned your fund shares or whether you reinvest your
distributions.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
<PAGE>
21
----
The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
Backup Withholding By law, the fund must withhold 31% of your distributions
and proceeds if you have not provided complete, correct taxpayer information.
[Graphic: Handshake greeting] Investor Services
Investamatic Program Use Investamatic to set up regular automatic investments
in the fund from your bank account. You determine the frequency and amount of
your investments.
Systematic Withdrawal Plan This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 8% of your fund assets a year without incurring any
contingent deferred sales charges. Certain terms and minimums apply.
EZ Trader This service allows you to purchase or sell fund shares over the
telephone through the ACH (Automated Clearing House) system.
Dividend Allocation Plan This plan automatically invests your distributions
from the fund into another fund of your choice, without any fees or sales
charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.
Retirement Plans State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
Call 1-800-562-0032 for information on any of the services described above.
<PAGE>
22 Other Information
- --------------------------------------------------------------------------------
[Graphic: Stock certificates]
Other Securities
and Risks
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 3. Below are brief
descriptions of other securities and practices, along with their associated
risks.
Restricted and Illiquid Securities Any securities that are thinly traded
or whose resale is restricted can be difficult to sell at a desired time and
price. Some of these securities are new and complex, and trade only among
institutions; the markets for these securities are still developing, and may not
function as efficiently as established markets. Owning a large percentage of
restricted and illiquid securities could hamper the fund's ability to raise cash
to meet redemptions. Also, because there may not be an established market price
for these securities, the fund may have to estimate their value, which means
that their valuation (and, to a much smaller extent, the valuation of the fund)
may have a subjective element.
Foreign Investments Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable information and fluctuations in currency exchange rates. These
risks are usually higher in less developed countries. The fund may use foreign
currencies and related instruments to hedge its foreign investments.
In addition, foreign securities may be more difficult to resell and the markets
for them less efficient than for comparable U.S. securities. Even where a
foreign security increases in price in its local currency, the appreciation may
be diluted by the negative effect of exchange rates when the security's value is
converted to U.S. dollars. Foreign withholding taxes also may apply and errors
and delays may occur in the settlement process for foreign securities.
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from another security, an index or a
currency. The fund may use derivatives for hedging (attempting to offset a
potential loss in one position by establishing an interest in an opposite
position). This includes the use of currency-based derivatives for hedging its
positions in foreign
<PAGE>
23
----
securities. The fund may also use derivatives for speculation (investing for
potential income or capital gain).
While hedging can guard against potential risks, it adds to the fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected.
The main risk with derivatives is that some types can amplify a gain or loss,
potentially earning or losing substantially more money than the actual cost of
the derivative.
With some derivatives, whether used for hedging or speculation, there is also
the risk that the counterparty may fail to honor its contract terms, causing a
loss for the fund.
Securities Lending The fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the fund could lose money.
Bonds The value of any bonds held by the fund is likely to decline when
interest rates rise; this risk is greater for bonds with longer maturities. A
less significant risk is that a bond issuer could default on principal or
interest payments, causing a loss for the fund. However, junk bonds (those in
rating categories below BBB/Baa) have a higher risk of default than investment
grade bonds, and their market prices can be more volatile.
When-issued Securities The fund may invest in securities prior to their date
of issue. These securities could fall in value by the time they are actually
issued, which may be any time from a few days to over a year.
Defensive Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the fund does this, it is not pursuing its goal.
Year 2000 The investment manager does not currently anticipate that computer
problems related to the year 2000 will have a material effect on the fund.
However, there can be no assurances is this area, including the possibility that
year 2000 computer problems could negatively affect communications systems,
investment markets or the economy in general.
<PAGE>
24 Financial Highlights
- -------------------------------------------------------------------------------
These highlights are intended to help you understand the fund's performance
since its inception. The information in these tables has been audited by Coopers
& Lybrand L.L.P., the fund's independent accountants. Total return figures
assume reinvestment of all distributions.
<TABLE>
<CAPTION>
Class A Class B
-------------------------- -------------------------
12/31/97 - 12/31/97 -
Per Share Data 4/30/98(1)(2) 4/30/98(1)(2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ($) 10.00 10.00
--------- --------
Net investment income (loss) ($)* 0.00 (0.03)
Net realized and unrealized gain
on investments ($) 1.66 1.67
Total from investment operations ($) 1.66 1.64
--------- ---------
Net asset value, end of period ($) 11.66 11.64
========== =========
Total return (%)(3) 16.60(4) 16.40(4)
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 11,984 19,688
Expense ratio (%)* 1.25(5) 2.00(5)
Ratio of net investment income (loss)
to average net assets (%)* 0.01(5) (0.76)(5)
Portfolio turnover rate (%) 6.44 6.44
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.04 0.04
<PAGE>
Class C Class S
-------------------------- -------------------------
12/31/97 - 12/31/97 -
Per Share Data 4/30/98(1)(2) 4/30/98(1)(2)
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 10.00 10.00
--------- ---------
Net investment income (loss) ($)* (0.03) 0.03
Net realized and unrealized gain
on investments ($) 1.66 1.65
--------- ---------
Total from investment operations ($) 1.63 1.68
Net asset value, end of period ($) 11.63 11.68
========== =========
Total return (%)(3) 16.30(4) 16.80(4)
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 4,977 4,127
Expense ratio (%)* 2.00(5) 1.00(5)
Ratio of net investment income (loss)
to average net assets (%)* (0.69)(5) 0.60(5)
Portfolio turnover rate (%) 6.44 6.44
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.04 0.09
</TABLE>
(1) December 31, 1997 (commencement of operations) to April 30, 1998.
(2) Per-share figures have been calculated using the average shares method.
(3) 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 reduced the fund's expenses.
(4) Not annualized.
(5) Annualized.
<PAGE>
================================================================================
[back cover]
For Additional Information
- --------------------------------------------------------------------------------
If you have questions about the fund or would like to request a free copy of the
current annual/semiannual report or SAI, contact State Street Research or your
financial professional.
[logo: State Street Research] State Street Research
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
You can also obtain information about the fund, including the SAI and certain
other fund documents, on the Internet at www.sec.gov, in person at the SEC's
Public Reference Room in Washington, DC (telephone 1-800-SEC-0330) or by mail by
sending your request, along with a duplicating fee, to the SEC's Public
Reference Section, Washington, DC 20549-6009.
prospectus
- --------------------------------------
SEC File Number: 811-8322
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
Statement of Additional Information (SAI) A supplement to the prospectus,
the SAI contains further information about the fund and its investment
limitations and policies. It also includes the most recent annual report and the
independent accountants' report. A current SAI for this fund is on file with the
Securities and Exchange Commission and is incorporated by reference (is legally
part of this prospectus).
<TABLE>
<CAPTION>
Ticker Symbols
======================================================
<S> <C> <C>
Class A (proposed) SRLAX
Class B SRLBX
Class C (proposed) SRLCX
Class S (proposed) SRLSX
</TABLE>
XX-000X-000 XXX
Control Number: 0000-000000(0000)SSR-LD
<PAGE>
[front cover]
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
Although these securities have been registered with the Securities and Exchange
Commission, the SEC has not judged them for investment merit and does not
guarantee the accuracy or adequacy of the information in this prospectus. Anyone
who informs you otherwise is committing a federal crime.
[logo: State Street Research]
[photo: Custom House tower, Boston]
Galileo Fund
- --------------------------------------------------------------------------------
A growth fund
emphasizing stock
selection within a
defined sector mix.
Prospectus
September 1, 1998
<PAGE>
[Page intentionally left blank]
<PAGE>
Contents 1
- --------------------------------------------------------------------------------
3 The Fund
- --------------------------------------------------------------------------------
3 Goal and Strategies
4 Principal Risks
6 Investor Expenses
8 Investment Management
9 Your Investment
- --------------------------------------------------------------------------------
9 Opening an Account
9 Choosing a Share Class
11 Sales Charges
13 Dealer Compensation
14 Buying and Selling Shares
18 Account Policies
20 Distributions and Taxes
21 Investor Services
22 Other Information
- --------------------------------------------------------------------------------
22 Other Securities and Risks
24 Financial Highlights
Back Cover For Additional Information
<PAGE>
2
- ------
The fund's shares will rise and fall in
value. There is a risk that you could
lose money by investing in the fund.
The fund cannot be certain that it will
achieve its goal.
Shares in the fund are not bank
deposits and are not guaranteed,
endorsed or insured by any financial
institution, government entity or the
FDIC.
[Graphic: Magnifying glass examining document]
Who May Want To Invest
State Street Research Galileo Fund is designed for investors who seek one or
more of the following:
[bullet] a stock fund for long-term growth
[bullet] a stock fund that emphasizes large-size companies
[bullet] a stock fund with broad exposure across industry sectors
The fund is not appropriate for investors who:
[bullet] want to avoid high volatility or possible losses
[bullet] are making short-term investments
[bullet] are investing emergency reserve money
[bullet] are seeking regular income
<PAGE>
The Fund 3
- --------------------------------------------------------------------------------
[Graphic: Chess piece]
Goal and Strategies
Fundamental Goal The fund seeks to provide long-term growth of capital.
Principal Strategies Under normal market conditions, the fund invests at least
65% of total assets in stocks and convertible securities of companies in the
Russell 1000 Index (an index of the 1,000 largest publicly traded U.S.
companies) and of other U.S. and foreign companies of comparable size.
The fund invests in companies that appear to offer potential for long-term
growth. Rather than trying to anticipate which sectors of the market will have
the best performance, the fund intends to add value by identifying the most
promising securities within each sector. A sector is a group of industries with
shared characteristics, such as consumer staples (which includes makers of foods
and household products and drug and grocery store chains), financial services
and health care. While the fund's sector weightings are expected to approximate
those of the Russell 1000, the particular stocks owned by the fund will not
mirror the index.
In selecting stocks, the investment manager follows an approach that emphasizes
the role of its in-house research analysts. While the portfolio manager has
primary responsibility for day-to-day management of the fund, he delegates
responsibility for stock selection to research analysts. Each analyst is
responsible for buying and selling stocks in specific industries, subject to the
portfolio manager's supervision.
The fund reserves the right to invest up to 35% of total assets in other
securities (for example, small company stocks). The fund may also use
derivatives, particularly as a way of hedging.
For more information about the fund's investments and practices, see page 22.
<PAGE>
4 The Fund continued
- --------------------------------------------------------------------------------
[Graphic: Traffic Sign]
Principal Risks
Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden, unpredictable drops in value and the potential for
periods of lackluster performance.
The fund's policy of remaining invested in all sectors of the Russell 1000 means
that its performance will be affected by sector-wide downturns. In some
circumstances, when the stocks within a given sector move up or down in tandem,
the fund may not be able to add substantial value through its stock selection
strategy. The fund may underperform certain other stock funds (those emphasizing
small company stocks, for example) during periods when large company stocks in
general are out of favor.
The success of the fund's investment strategy depends largely on the skill of
the portfolio manager and the research analysts in assessing the potential of
the stocks the fund buys.
The fund's management approach, which may include short-term trading, could
cause the fund's portfolio turnover rate to be above-average for a stock fund.
High turnover will increase the fund's brokerage costs and may increase your tax
liability.
Information on other securities and risks appears on page 22.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
<PAGE>
The Fund continued 5
- --------------------------------------------------------------------------------
[Graphic: Magnifying glass examining document]
The Role of
Research Analysts
Research analysts can play a critical role in the success of a fund's investment
strategy. An enormous quantity of information is available about publicly traded
companies. For a fund with a broad-based investment program (such as one focused
on large company stocks), it would be very difficult for a single portfolio
manager to analyze all the available information.
Typically, an analyst is assigned to several industries within one or more
market sectors and has responsibility for developing a high level of knowledge
of the companies in those industries. In most mutual funds, the analyst's
expertise is then made available to the portfolio manager, who is responsible
for making investment decisions for the fund.
The relative role of research analysts can vary. In some circumstances an
analyst is responsible primarily for providing information a portfolio manager
requests, such as earnings estimates or industry outlooks. In other situations,
analysts play a more prominent role, as in the case of this fund, where they are
given authority for the selection of portfolio investments. By emphasizing the
role of analysts, the fund has the potential to benefit most directly from the
insights of those who are closest to the relevant investment information.
<PAGE>
6 Investor Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class descriptions begin on page 9
-------------------------------------------------
Shareholder Fees (% of offering price) Class A Class B Class C Class S
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum front-end sales charge (load) 4.50 0.00 0.00 0.00
Maximum deferred sales charge (load) 0.00(1) 5.00 1.00 0.00
Annual Fund Expenses (% of average net assets) Class A Class B Class C Class S
- --------------------------------------------------------------------------------------------------------------------------------
Management fee 0.65 0.65 0.65 0.65
Distribution/service (12b-1) fees 0.25 1.00 1.00 0.00
Other expenses(2) 1.50 1.50 1.50 1.50
---- ---- ---- ----
Total annual fund operating expenses* 2.40 3.15 3.15 2.15
==== ==== ==== ====
*Because some of the fund's expenses have
been subsidized, actual total operating
expenses for the prior period were: 1.25 2.00 2.00 1.00
The fund expects the expense subsidy to continue
through the current fiscal year, although there
is no guarantee that it will.
Example Year Class A Class B Class C Class S
- --------------------------------------------------------------------------------------------------------------------------------
1 $682 $818/$318 $418/$318 $218
3 $1,165 $1,271/$971 $971 $673
</TABLE>
(1) Except for investments of $1 million or more; see page 11.
(2) Because the fund has been newly organized, the percentage expense levels
shown in the table as "Other expenses" are based on estimates.
<PAGE>
7
-----
[Graphic: Magnifying glass examining document]
Understanding
Investor Expenses
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund:
[bullet] Shareholder Fees are costs that are charged to you directly. These fees
are not charged on reinvestments or exchanges.
[bullet] Annual Fund Expenses are deducted from the fund's assets every year,
and are thus paid indirectly by all fund investors.
[bullet] The Example is designed to allow you to compare the costs of this fund
with those of other funds. It assumes that you invested $10,000 over
the years indicated, reinvested all distributions, earned a
hypothetical 5% annual return and paid the maximum applicable sales
charges. For Class B shares, it also assumes the automatic conversion
to Class A after eight years.
Where two numbers are shown separated by a slash, the first one assumes you sold
all your shares at the end of the period, while the second assumes you stayed in
the fund. Where there is only one number, the costs would be the same either
way.
Investors should keep in mind that the example is for comparison purposes only.
The fund's actual performance and expenses may be higher or lower.
<PAGE>
8 The Fund continued
- --------------------------------------------------------------------------------
[Graphic: Rodin's statue "The Thinker"]
Investment Management
The fund's investment manager is State Street Research & Management Company. The
firm traces its heritage back to 1924 and the founding of one of America's first
mutual funds. Today the firm has more than $__ billion in assets under
management (as of [DATE]), including more than $__ billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.65% of fund assets, annually) as
compensation. The investment manager is a subsidiary of Metropolitan Life
Insurance Company.
Thomas J. Dillman has had primary responsibility for the fund's day-to-day
portfolio management since its inception in March 1998. A senior vice president,
he has worked as an investment professional since 1980.
<PAGE>
Your Investment 9
- --------------------------------------------------------------------------------
[Graphic: Key]
Opening an Account
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To open an account without the help of a financial professional, please use the
instructions on these pages.
[Graphic: Checklist of funds]
Choosing a Share Class
The fund offers four share classes, each with its own sales charge and expense
structure.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you may want to consider Class B shares (if investing
for at least five years) or Class C shares (if investing for less than five
years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
brokers, you may be eligible to purchase Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
<PAGE>
10 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Magnifying glass examining document]
Understanding
Distribution/Service
Fees
As noted in the descriptions at right, all share classes except Class S have an
annual distribution/service fee. This is also called a 12b-1 fee, after the SEC
rule that permits this type of fee.
Under its current 12b-1 plan, the fund may pay certain distribution and service
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class (the example on page 6 in this prospectus can
be helpful in this regard).
Some of the 12b-1 fee is used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on page
13 shows how these professionals' compensation is calculated.
Class A -- Front Load
[bullet] Initial sales charge of 4.5% or less
[bullet] Lower sales charges for larger investments; see sales charge schedule
on facing page
[bullet] Lower annual expenses than Class B or Class C shares because of lower
distribution/service (12b-1) fee of 0.25%
Class B -- Back Load
[bullet] No initial sales charge
[bullet] Deferred sales charge of 5% or less on shares you sell within five
years
[bullet] Annual distribution/service (12b-1) fee of 1.00%
[bullet] Automatic conversion to Class A shares after eight years, reducing
future annual expenses
Class C -- Level Load
[bullet] No initial sales charge
[bullet] Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
[bullet] Lower deferred sales charge than Class B shares
[bullet] Annual distribution/service (12b-1) fee of 1.00%
[bullet] No conversion to Class A shares after eight years, so annual expenses
do not decrease
Class S -- Special Programs
[bullet] Available only through certain retirement accounts, advisory accounts
of the investment manager and other special programs, including broker
programs with recordkeeping and other services; these programs usually
involve special conditions and separate fees (consult your financial
professional or your program materials)
[bullet] No sales charges of any kind
[bullet] No distribution/service (12b-1) fees; annual expenses are lower than
other share classes
<PAGE>
11
-----
Sales Charges
Class A -- Front Load
<TABLE>
<CAPTION>
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
- --------------------------------------------------
<S> <C> <C>
Up to $99,999 4.50 4.71
$100,000 - $249,999 3.50 3.63
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00 2.04
$1 million or more see next column
</TABLE>
With Class A shares, you pay a sales charge only when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) of 1% of the purchase price of any shares you sell within
the first year. Other policies regarding the calculation of the CDSC are the
same as for Class B.
Class A shares are also offered with low or no sales
charges through various wrap-fee programs and other sponsored arrangements
(consult your financial professional or your program materials).
Class B -- Back Load
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- ---------------------------------------------------------
<S> <C>
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year or later None
</TABLE>
With Class B shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for five years or less, as described in the table above. Any shares
acquired through reinvestment are not subject to the CDSC. There is no CDSC on
exchanges into other State Street Research funds, and the
<PAGE>
12 Your Investment continued
- --------------------------------------------------------------------------------
date of your initial investment will continue to be used as the basis
for CDSC calculations when you exchange. To ensure that you pay the lowest CDSC
possible, the fund will always use the shares with the lowest CDSC to fill your
sell requests.
The CDSC is waived on shares sold for mandatory retirement distributions or
because of disability or death. Consult your financial professional or the State
Street Research Service Center.
Class B shares automatically convert to Class A shares after eight years; Class
A shares have lower annual expenses.
Class C -- Level Load
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- ---------------------------------------------------------
<S> <C>
First year 1.00
Second year or later None
</TABLE>
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. Policies
regarding the calculation of the CDSC are the same as for Class B.
Class C shares currently have the same annual expenses as Class B shares, but
never convert to Class A shares (with their lower annual expenses).
Class S -- Special Programs
Class S shares have no sales charges.
<PAGE>
13
-----
[Graphic: Check (money)]
Dealer Compensation
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions and annual
fees. These are paid by the fund's distributor, using money from sales charges,
distribution/service (12b-1) fees and its other resources.
Financial professionals may impose a transaction fee on the purchase or sale of
shares by shareholders. The distributor may pay its affiliate MetLife
Securities, Inc. additional compensation of up to 0.25% of certain sales or
assets.
<TABLE>
<CAPTION>
Maximum Dealer Compensation Class A Class B Class C Class S
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial commission (%) -- 4.00 1.00 0.00
Investments up to $100,000 (%) 4.00 -- -- --
$100,000 - $249,999 (%) 3.00 -- -- --
$250,000 - $499,999 (%) 2.00 -- -- --
$500,000 - $999,999 (%) 1.75 -- -- --
First $1-3 million (%) 1.00(1) -- -- --
Next $2 million (%) 0.50(1) -- -- --
Next $1 and above (%) 0.25(1) -- -- --
Annual fee (%) 0.25 0.25 0.90 0.00
</TABLE>
(1) If your broker declines this commission, the one-year CDSC on your
investment is waived.
Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider a broker's sales of fund shares.
<PAGE>
14 Buying and Selling Shares
- --------------------------------------------------------------------------------
[Graphic: Old-fashioned hand-crank cash register]
Policies for
Buying Shares
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
Minimum Initial Investments:
[bullet] $10,000 for accounts that use the Investamatic program(1)
[bullet] $2,000 for Individual Retirement Accounts
[bullet] $25,000 for all other accounts(1)
Minimum Additional Investments:
[bullet] $1,000 for Individual Retirement Accounts
[bullet] $50 for all other accounts
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
Timing of Requests All requests received by State Street Research before 4:00
p.m. eastern time will be executed the same day, at that day's closing share
price. Orders received after 4:00 p.m. will be executed the following day, at
that day's closing share price.
Wire Transactions Funds may be wired between 8:00 a.m. and 4:00 p.m. eastern
time. To make a same-day wire investment, please notify State Street Research by
12:00 noon of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. Your bank may charge a fee for wiring money.
(1) $2,500 until October 1,1998. However, the distributor reserves the right to
require the $25,000 minimum ($10,000 for Investamatic program) before this
date, or to continue with a reduced minimum beyond it, without further
notice.
<PAGE>
Instructions for Buying Shares 15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[Graphic: brief case] To Open an Account To Add to an Account
<S> <C> <C>
Through a
Professional Consult your financial professional or Consult your financial professional or
or Program your program materials. your program materials.
- ---------------------------------------------------------------------------------------------------------------------------------
[Graphic: Mail box] Make your check payable to "State Street Fill out an investment slip or indicate
By Mail Research Funds." Forward the check and the fund name and account number on your
your application to State Street check. Make your check payable to "State
Research. Street Research Funds." Forward the
check and stub to State Street Research.
- ---------------------------------------------------------------------------------------------------------------------------------
[Graphic: Capitol Building Call to obtain an account number and Call State Street Research to obtain a
with lightning bolt] forward your application to State Street control number. Instruct your bank to
By Federal Research. Wire funds using the wire funds to:
Funds Wire instructions at right.
[bullet] State Street Bank and Trust
Company, Boston, MA
[bullet] ABA: 011000028
[bullet] BNF: fund name and share class
you want to buy
[bullet] AC: 99029761
[bullet] OBI: your name and your account
number
[bullet] Control: the number given to
you by State Street Research
- ---------------------------------------------------------------------------------------------------------------------------------
[Graphic: electric plug] Verify that your bank is a member of the Call State Street Research to verify
By Electronic ACH (Automated Clearing House) system. that the necessary bank information is
Funds Transfer Forward your application to State Street on file for your account. If it is, you
(ACH) Research. Please be sure to include the may request a transfer with the same
appropriate bank information. Call State phone call. If not, please ask State
Street Research to request a purchase. Street Research to provide you with an
EZ Trader application.
- ---------------------------------------------------------------------------------------------------------------------------------
[Graphic: Calendar with date circled] Forward your application, with all Call State Street Research to verify
By Investamatic appropriate sections completed, to State that Investamatic is in place on your
Street Research, along with a check for account, or to request a form to add it.
your initial investment payable to Investments are automatic once
"State Street Research Funds." Investamatic is in place.
- ---------------------------------------------------------------------------------------------------------------------------------
[Graphic: arrows pointing in Call State Street Research or visit our Call State Street Research or visit our
2 different directions] Web site. Web site.
By Exchange
- ---------------------------------------------------------------------------------------------------------------------------------
State Street Research Service Center Internet www.ssrfunds.com
PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032
(business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
16 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Old-fashioned hand-crank adding machine]
Policies for
Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
[bullet] you are selling more than $100,000 worth of shares
[bullet] the name or address on the account has changed within the last 30 days
[bullet] you want the proceeds to go to a name or address not on the account
registration
[bullet] you are transferring shares to an account with a different registration
or share class
[bullet] you are selling shares held in a corporate or fiduciary account; for
these accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing
document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street Research
before 4:00 p.m. eastern time will be executed the same day, at that day's
closing share price. Requests received after 4:00 p.m. will be executed the
following day, at that day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) for those shares has been collected, you will
not receive the proceeds until your initial payment has cleared. This may take
up to 15 days after your purchase was recorded (in rare cases, longer). If you
open an account with shares purchased by wire, you cannot sell those shares
until your application has been processed.
<PAGE>
Instructions for Selling Shares 17
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[Graphic: Brief case] Consult your financial professional or your program materials.
Through a
Professional
or Program
- --------------------------------------------------------------------------------------------------------------------
[Graphic: Mail Box] Send a letter of instruction, an endorsed stock power or share certificates (if
By Mail you hold certificate shares) to State Street Research. Specify the fund, the
account number and the dollar value or number of shares. Be sure to include all
necessary signatures and any additional documents, as well as signature
guarantees if required (see facing page).
- --------------------------------------------------------------------------------------------------------------------
[Graphic: Capitol Building Check with State Street Research to make sure that a wire redemption privilege,
with lightning bolt] including a bank designation, is in place on your account. Once this is
By Federal established, you may place your request to sell shares with State Street
Funds Wire Research. Proceeds will be wired to your pre-designated bank account. (See
"Wire Transactions" on facing page.)
- --------------------------------------------------------------------------------------------------------------------
[Graphic: electric plug] Check with State Street Research to make sure that the EZ Trader feature,
By Electronic including a bank designation, is in place on your account. Once this is
Funds Transfer established, you may place your request to sell shares with State Street
(ACH) Research. Proceeds will be sent to your pre-designated bank account.
- --------------------------------------------------------------------------------------------------------------------
[Graphic: Telephone] As long as the transaction does not require a written request (see facing
By Telephone page), you or your financial professional can sell shares by calling State
Street Research. A check will be mailed to you on the following business day.
- --------------------------------------------------------------------------------------------------------------------
[Graphic: arrows pointing in Read the prospectus for the fund into which you are exchanging. Call State Street
2 different directions] Research or visit our Web site.
By Exchange
- --------------------------------------------------------------------------------------------------------------------
[Graphic: Calendar See plan information on page 21.
with dates circled]
By Systematic
Withdrawal Plan
- --------------------------------------------------------------------------------------------------------------------
State Street Research Service Center Internet www.ssrfunds.com
PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032
(business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
18 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Sheets of Paper]
Account Policies
Telephone Requests When you open an account you automatically receive
telephone privileges, allowing you to place requests on your account by
telephone. Your financial professional can also use these privileges to request
exchanges on your account and, with your written permission, redemptions. For
your protection, all telephone calls are recorded.
As long as State Street Research takes certain measures to authenticate
telephone requests on your account, you may be held responsible for unauthorized
requests. Unauthorized telephone requests are rare, but if you want to protect
yourself completely, you can decline the telephone privilege on your
application. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class of your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's exchange privilege and may refuse to accept
any exchange request, particularly those associated with "market timing"
strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or, depending on the circumstances, may deduct an annual
maintenance fee (currently $18).
<PAGE>
19
-----
The Fund's Business Hours The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are available
from 8:00 a.m. to 6:00 p.m. eastern time on these days.
Calculating Share Price The fund calculates its share price every business day
at the close of regular trading on the New York Stock Exchange (usually at 4:00
p.m. eastern time). The share price is the fund's total assets minus its
liabilities (net asset value, or NAV) divided by the number of existing shares.
In calculating its NAV, the fund uses the last reported sale price or quotation
for portfolio securities. However, in cases where these are unavailable, or when
the investment manager believes that subsequent events have rendered them
unreliable, the fund may use fair-value estimates instead.
Because foreign securities markets are sometimes open on different days from
U.S. markets, there may be instances when the value of the fund's portfolio
changes on days when you cannot buy or sell fund shares.
Reinstating Recently Sold Shares For 120 days after you sell shares, you have
the right to "reinstate" your investment by putting some or all of the proceeds
into any currently available State Street Research fund at net asset value. Any
CDSC you paid on the amount you are reinstating will be credited to your
account. You may only use this privilege once in any twelve-month period with
respect to your shares of a given fund.
Additional Policies Please note that the fund maintains additional policies
and reserves certain rights, including:
[bullet] The fund may vary its requirements for initial or additional
investments, exchanges, reinvestments, periodic investment plans,
retirement and employee benefit plans, sponsored arrangements and other
similar programs
[bullet] All orders to purchase shares are subject to acceptance by the fund
[bullet] At any time, the fund may change or discontinue its sales charge
waivers and any of its order acceptance practices, and may suspend the
sale of its shares
[bullet] The fund may delay sending you redemption proceeds for up to seven
days, or longer if permitted by the SEC
[bullet] To permit investors to obtain the current price, dealers are
responsible for transmitting all orders to the State Street Research
Service Center promptly
<PAGE>
20 Your Investment continued
- --------------------------------------------------------------------------------
[Graphic: Magnifying glass examining document]
Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
[bullet] investing a large amount in the fund close to the end of the fiscal
year or a calendar year (if the fund makes a capital gains
distribution, you will receive some of your investment back as a
taxable distribution)
[bullet] selling shares at a loss for tax purposes and investing in a
substantially identical investment within 30 days before or after such
sale (such a transaction is usually considered a "wash sale," and you
will not be allowed to claim a tax loss)
[Graphic: "Uncle Sam"]
Distributions and Taxes
Income and Capital Gains Distributions The fund typically distributes its net
income and net capital gains, if any, around the end of the fund's fiscal year,
which is April 30. To comply with tax regulations, the fund may also pay an
additional capital gains distribution in December.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gains distributions you receive from the fund are taxable as
ordinary income. Distributions of other capital gains are generally taxable as
capital gains -- in most cases, at different rates from those that apply to
ordinary income.
The tax you pay on a given capital gains distribution depends generally on how
long the fund has held the portfolio securities it sold. It does not depend on
how long you have owned your fund shares or whether you reinvest your
distributions.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
<PAGE>
21
-----
The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
Backup Withholding By law, the fund must withhold 31% of your distributions
and proceeds if you have not provided complete, correct taxpayer information.
[Graphic: Handshake greeting]
Investor Services
Investamatic Program Use Investamatic to set up regular automatic investments
in the fund from your bank account. You determine the frequency and amount of
your investments.
Systematic Withdrawal Plan This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 8% of your fund assets a year without incurring any
contingent deferred sales charges. Certain terms and minimums apply.
EZ Trader This service allows you to purchase or sell fund shares over the
telephone through the ACH (Automated Clearing House) system.
Dividend Allocation Plan This plan automatically invests your distributions
from the fund into another fund of your choice, without any fees or sales
charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.
Retirement Plans State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
Call 1-800-562-0032 for information on any of the services described above.
<PAGE>
22 Other Information
- --------------------------------------------------------------------------------
[Graphic: Stock certificates]
Other Securities
and Risks
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 3. Below are brief
descriptions of other securities and practices, along with their associated
risks.
Restricted and Illiquid Securities Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and price.
Some of these securities are new and complex, and trade only among institutions;
the markets for these securities are still developing, and may not function as
efficiently as established markets. Owning a large percentage of restricted and
illiquid securities could hamper the fund's ability to raise cash to meet
redemptions. Also, because there may not be an established market price for
these securities, the fund may have to estimate their value, which means that
their valuation (and, to a much smaller extent, the valuation of the fund) may
have a subjective element.
Foreign Investments Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable information and fluctuations in currency exchange rates. These
risks are usually higher in less developed countries. The fund may use foreign
currencies and related instruments to hedge its foreign investments.
In addition, foreign securities may be more difficult to resell and the markets
for them less efficient than for comparable U.S. securities. Even where a
foreign security increases in price in its local currency, the appreciation may
be diluted by the negative effect of exchange rates when the security's value is
converted to U.S. dollars. Foreign withholding taxes also may apply and errors
and delays may occur in the settlement process for foreign securities.
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from another security, an index or a
currency. The fund may use derivatives for hedging (attempting to offset a
potential loss in one position by establishing an interest in an opposite
position). This includes the use of currency-based derivatives for
<PAGE>
23
-----
hedging its positions in foreign securities. The fund may also use derivatives
for speculation (investing for potential income or capital gain).
While hedging can guard against potential risks, it adds to the fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected.
The main risk with derivatives is that some types can amplify a gain or loss,
potentially earning or losing substantially more money than the actual cost of
the derivative.
With some derivatives, whether used for hedging or speculation, there is also
the risk that the counterparty may fail to honor its contract terms, causing a
loss for the fund.
Securities Lending The fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the fund could lose money.
Bonds The value of any bonds held by the fund is likely to decline when
interest rates rise; this risk is greater for bonds with longer maturities. A
less significant risk is that a bond issuer could default on principal or
interest payments, causing a loss for the fund. However, junk bonds (those in
rating categories below BBB/Baa) have a higher risk of default than investment
grade bonds, and their market prices can be more volatile.
When-issued Securities The fund may invest in securities prior to their date
of issue. These securities could fall in value by the time they are actually
issued, which may be any time from a few days to over a year.
Defensive Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the fund does this, it is not pursuing its goal.
Year 2000 The investment manager does not currently anticipate that computer
problems related to the year 2000 will have a material effect on the fund.
However, there can be no assurances is this area, including the possibility that
year 2000 computer problems could negatively affect communications systems,
investment markets or the economy in general.
<PAGE>
24 Financial Highlights
- --------------------------------------------------------------------------------
These highlights are intended to help you understand the Fund's performance
since its inception. The information in these tables has been audited by Coopers
& Lybrand L.L.P., the fund's independent accountants. Total return figures
assume reinvestment of all distributions.
<TABLE>
<CAPTION>
Class A Class B
------------------------- ------------------------------
<S> <C> <C>
3/11/98 -- 3/11/98 --
Per Share Data 4/30/98(1)(2) 4/30/98(1)(2)
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 9.55 9.55
---- ----
Net investment income (loss) ($)* 0.01 (0.00)
Net realized and unrealized gain
on investments ($) 0.36 0.35
---- ----
Total from investment operations ($) 0.37 0.35
---- ----
Net asset value, end of period ($) 9.92 9.90
==== ====
Total return (%)(3) 3.87(4) 3.66(4)
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 6,132 5,142
Expense ratio (%)* 1.25(5) 2.00(5)
Ratio of net investment income (loss)
to average net assets (%)* 0.45(5) (0.31)(5)
Portfolio turnover rate (%) 13.04 13.04
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.03 0.03
</TABLE>
<PAGE>
25
-----
<TABLE>
<CAPTION>
Class C Class S
------------------------- ------------------------------
<S> <C> <C>
3/11/98 -- 3/11/98 --
Per Share Data 4/30/98(1)(2) 4/30/98(1)(2)
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 9.55 9.55
---- ----
Net investment income (loss) ($)* (0.00) 0.02
Net realized and unrealized gain
on investments ($) 0.36 0.35
---- ----
Total from investment operations ($) 0.36 0.37
---- ----
Net asset value, end of period ($) 9.91 9.92
==== ====
Total return (%)(3) 3.77(4) 3.87(4)
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 1,061 4,763
Expense ratio (%)* 2.00(5) 1.00(5)
Ratio of net investment income (loss)
to average net assets (%)* (0.13)(5) 0.98(5)
Portfolio turnover rate (%) 13.04 13.04
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.04 0.06
</TABLE>
(1) March 11, 1998 (commencement of operations) to April 30, 1998.
(2) Per-share figures have been calculated using the average shares method.
(3) 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 reduced the fund's expenses.
(4) Not annualized.
(5) Annualized.
<PAGE>
[back cover]
For Additional Information
- --------------------------------------------------------------------------------
If you have questions about the fund or would like to request a free copy of the
current annual/semiannual report or SAI, contact State Street Research or your
financial professional.
[logo: State Street Research]
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
You can also obtain information about the fund, including the SAI and certain
other fund documents, on the Internet at www.sec.gov, in person at the SEC's
Public Reference Room in Washington, DC (telephone 1-800-SEC-0330) or by mail by
sending your request, along with a duplicating fee, to the SEC's Public
Reference Section, Washington, DC 20549-6009.
prospectus
- --------------------------------------
SEC File Number: 811-8322
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
Statement of Additional Information (SAI) A supplement to the prospectus,
the SAI contains further information about the fund and its investment
limitations and policies. It also includes the most recent annual report and the
independent accountants' report. A current SAI for this fund is on file with the
Securities and Exchange Commission and is incorporated by reference (is legally
part of this prospectus).
<TABLE>
<CAPTION>
Ticker Symbols
======================================================
<S> <C> <C>
Class A (proposed) SGALX
Class B (proposed) SGBLX
Class C (proposed) SGLCX
Class S (proposed) SGLSX
</TABLE>
XX-000X-000 XXX
Control Number: 0000-000000(0000)SSR-LD
<PAGE>
State Street Research Strategic Income Fund
a series of
State Street Research Securities Trust
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVE........................................................2
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS.............................2
ADDITIONAL INFORMATION CONCERNING CERTAIN RISKS AND INVESTMENTS.............4
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS............................17
THE TRUST, THE FUND AND ITS SHARES.........................................24
TRUSTEES AND OFFICERS......................................................25
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY SERVICES....................31
PURCHASE AND REDEMPTION OF SHARES..........................................32
SHAREHOLDER ACCOUNTS.......................................................37
NET ASSET VALUE............................................................42
PORTFOLIO TRANSACTIONS.....................................................43
DISTRIBUTIONS AND CERTAIN TAX MATTERS......................................46
SHARES OF THE FUND.........................................................50
CALCULATION OF PERFORMANCE DATA............................................54
CUSTODIAN..................................................................58
INDEPENDENT ACCOUNTANTS....................................................58
FINANCIAL STATEMENTS.......................................................58
</TABLE>
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 (the "Fund") dated September 1, 1998, 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: 1285T-970829(0998)SSR-LD SI-879D-997
1
<PAGE>
INVESTMENT OBJECTIVE
As set forth under "The Fund--Goal and Strategies--Fundamental Goal" in
the Prospectus of State Street Research Strategic Income Fund (the "Fund"), the
Fund's investment goal, which is to provide high current income consistent with
overall total return, is fundamental and may not be changed by the Fund except
by the affirmative vote of a majority of the outstanding voting securities of
the Fund, 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 the annual or a special meeting of
security holders duly called, (i) of 67% or more of the voting securities
present at the 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.)
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Fund--Principal Risks" and "Other
Information--Other Securities and Risks" in the Fund's Prospectus, the Fund has
adopted certain investment restrictions, and those investment restrictions are
either fundamental or not fundamental. Fundamental restrictions may not be
changed by the Fund except by the affirmative vote of a majority of the
outstanding voting securities of the Fund. Restrictions that are not fundamental
may be changed by a vote of the Trustees of the Trust.
The Fund's fundamental investment restrictions are set forth below.
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;
2
<PAGE>
(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;
(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 investment restrictions may be changed by the Trustees.
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 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;
(3) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (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); and
3
<PAGE>
(4) 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.
ADDITIONAL INFORMATION CONCERNING
CERTAIN RISKS AND INVESTMENTS
Derivatives
The Fund may buy and sell certain types of derivatives, such as
options, futures contracts, options on futures contracts, and swaps under
circumstances in which such instruments are expected by State Street Research &
Management Company, the Fund's Investment Manager (the "Investment Manager"), to
aid in achieving the Fund's investment objective. The Fund 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.
Derivatives, such as options, futures contracts, options on futures
contracts, and swaps enable the Fund to take both "short" positions (positions
which anticipate a decline in the market value of a particular asset or index)
and "long" positions (positions which anticipate an increase in the market value
of a particular asset or index). The Fund may also use strategies which involve
simultaneous short and long positions in response to specific market conditions,
such as where the Investment Manager anticipates unusually high or low market
volatility.
The Investment Manager may enter into derivative positions for the Fund
for either hedging or non-hedging purposes. The term hedging is applied to
defensive strategies designed to protect the Fund from an expected decline in
the market value of an asset or group of assets that the Fund owns (in the case
of a short hedge) or to protect the Fund from an expected rise in the market
value of an asset or group of assets which it intends to acquire in the future
(in the case of a long or "anticipatory" hedge). Non-hedging strategies include
strategies designed to produce incremental income (such as the option writing
strategy described below) or "speculative" strategies which are undertaken to
profit from (i) an expected decline in the market value of an asset or group of
assets which the Fund does not own or (ii) expected increases in the market
value of an asset which it does not plan to acquire. Information about specific
types of instruments is provided below.
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell an
underlying asset or group of assets, such as a currency 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 an equity security or an index of
equity 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 securities, as permitted under applicable regulatory
policies.
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.
In transactions establishing a long position in a futures contract,
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, assets 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 utilize such
assets and methods of cover as appropriate under applicable exchange and
regulatory policies.
Options
The Fund may use options to implement its investment strategy. There
are two basic types of options: "puts" and "calls." Each type of option can
establish either a long or a short position, depending upon whether the Fund is
the purchaser or the writer of the option. 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, that is, 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. In general, a
5
<PAGE>
purchased put increases in value as the value of the underlying security falls
and a purchased call increases in value as the value of the underlying security
rises.
The principal reason to write options is to generate extra income (the
premium paid by the buyer). 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,
that is, 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, that is, 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
its 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.
Among the options which the Fund may enter are options on securities
indices. In general, options on indices of securities are similar to options on
the securities themselves except that delivery requirements are different. For
example, a put option on an index of securities does not give the holder the
right to make actual delivery of a basket of securities but instead 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 equity 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. In
connection with the use of such options, the Fund may cover its position by
identifying assets having a value equal to the aggregate face value of the
option position taken.
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.
Limitations and Risks of Options and Futures Activity
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
6
<PAGE>
the sum of the amount of initial margin deposits and premiums required to
establish such positions for such non-hedging purposes would exceed 5% of the
market value of the Fund's net assets. The Fund applies a similar policy to
options that are not commodities.
As noted above, the Fund may engage in both hedging and nonhedging
strategies. 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.
Non-hedging strategies typically involve special risks. The
profitability of the Fund's non-hedging strategies will depend on the ability of
the Investment Manager to analyze both the applicable derivatives market and the
market for the underlying asset or group of assets. Derivatives markets are
often more volatile than corresponding securities markets and a relatively small
change in the price of the underlying asset or group of assets can have a
magnified effect upon the price of a related derivative instrument.
Derivatives markets also are often less liquid than the market for the
underlying asset or group of assets. 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 carry out their derivative
strategies 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.
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.
Mortgage-Related Securities
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
7
<PAGE>
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.
Mortgage-related also include stripped 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.
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 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.
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.
Asset-Backed Securities
The Fund may invest in asset-backed, which are securities that
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 and Step Coupon Securities
Zero and step coupon securities are debt securities that may 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, in the
case of a step coupon, any fixed rate interest income. Zero and step coupon
securities pay no interest to holders prior to maturity even though interest on
these securities is reported as income to the Fund. 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 amount of the discount
fluctuates with the market value of such securities, which may be more volatile
than that of securities which pay interest at regular intervals.
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<PAGE>
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, although the
Fund does not presently expect to invest more than 5% of its net assets in such
items. 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.
The Fund may enter credit protection swap arrangements involving the
sale by the Fund of a put option on a debt security which is exercisable by the
buyer upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
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 portion of the Fund's portfolio.
However, the Fund may, as noted above, enter into such arrangements for income
purposes to the extent permitted by the Commodities Futures Trading Commission
(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
9
<PAGE>
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.
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 net assets, except
that repurchase agreements extending for more than seven days when combined with
any other illiquid securities held by the Fund will be limited to 15% of the
Fund's net assets.
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.
When-Issued Securities
The Fund may purchase "when-issued" securities, which are traded on a
price or yield 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; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The Trust's custodian will establish a segregated
10
<PAGE>
account when the Fund 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.
Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including restricted securities sold in accordance with Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities") if, as a result, more
than 50% of the Fund's total assets are invested in restricted securities,
provided not more than 10% of the Fund's total assets are invested in restricted
securities 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 relatively new and
still developing; depending on the development of such markets, Rule 144A
Securities may be deemed to be liquid as determined by or in accordance with
methods adopted by the Trustees. Under such methods the following factors are
considered, among others: the frequency of trades and quotes for the security,
the number of dealers and potential purchasers in the market, market making
activity, and the nature of the security and marketplace trades. Investments in
Rule 144A Securities could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the Fund may be
adversely impacted by the subjective valuation of such securities in the absence
of a market for them. Restricted securities that are not resalable under Rule
144A may be subject to risks of illiquidity and subjective valuations to a
greater degree than Rule 144A Securities.
Foreign Investments
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
predominately 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
obligations, both governmental and nongovernmental, are also affected by the
inter-relationships of interest rates in the U.S.
and abroad and exchange rates among currencies.
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<PAGE>
Supranational debt may be denominated in U.S. dollars, a foreign
currency or a multi-national currently 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 also invest in Yankee bonds. 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 reserves the right to invest without limitation in securities
of non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary
Receipts ("GDRs").
ADRs are 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 receipts issued in Europe which evidence a
similar ownership arrangement. GDRs are receipts issued in one country which
also evidence a similar ownership arrangement. Generally, ADRs in registered
form are designed for use in U.S. securities markets and EDRs are designed for
use in European securities markets. GDRs are designed for use when the issuer is
raising capital in more than one market simultaneously, such as the issuer's
local market and the U.S., and have been used to overcome local selling
restrictions to foreign investors. In addition, many GDRs are eligible for
book-entry settlement through Cedel, Euroclear and DTC. The underlying
securities are not always denominated in the same currency as the ADRs, EDRs or
GDRs. Although investment in the form of ADRs, EDRs or GDRs facilitates trading
in foreign securities, it does not mitigate all the risks associated with
investing in foreign securities.
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 compared to a sponsored facility. 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 involved 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
tradings. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
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
12
<PAGE>
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.
These risks are usually higher in less-developed countries. Such
countries include countries that have an emerging stock market on which trade a
small number of securities and/or countries with economies that are based on
only a few industries. The Fund may invest in the securities of issuers in
countries with less developed economies as deemed appropriate by the Investment
Manager. However, it is anticipated that a majority of the foreign investments
by the Fund will consist of securities of issuers in countries with developed
economies.
Currency Transactions
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 German, France, the
United Kingdom, the Netherlands, Belgium and Italy, among others. European
supernational entities, in particular, issue ECU-denominated obligations.
In addition, the Fund may engage in currency exchange transactions in
order to protect against the effect of uncertain future exchange rates on
securities denominated in foreign currencies. 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 entering a forward currency contract, 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. 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.
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<PAGE>
Securities Lending
The Fund may lend portfolio securities with a value of up to 33-1/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may 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 or certain unaffiliated mutual funds, 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 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 or its agents to be of good financial
standing.
Short-Term Trading
The Fund may engage in short-term trading of securities and reserves
full freedom with respect to portfolio turnover. In periods where there are
rapid changes in economic conditions and security price levels or when
reinvestment strategy changes significantly, portfolio turnover may be higher
than during times of economic and market price stability or when investment
strategy remains relatively constant. The Fund's portfolio turnover rate may
involve greater transaction costs, relative to other funds in general, and may
have tax and other consequences.
Temporary and Defensive Investments
The Fund may hold up to 100% of its assets in cash or high-quality 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 adverse market conditions
than adherence to the Fund's other investment policies. The types of
high-quality instruments in which the Fund may invest for such purposes include
money market securities, such as repurchase agreements, and securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances of certain
qualified financial institutions and corporate commercial paper, which at the
time of purchase are rated at least within the "A" major rating category by
Standard & Poor's Corporation ("S&P") or the "Prime" major rating category by
Moody's Investor's Service, Inc. ("Moody's"), or, if not rated, issued by
companies having an outstanding long-term unsecured debt issued rated at least
within the "A" category by S&P or Moody's.
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<PAGE>
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. "Asset-
backed--Mortgages" includes private pools of nongovernment backed mortgages.
<TABLE>
<S> <C> <C>
Aerospace Electronic Equipment Paper Products
Airline Entertainment Personal Care
Asset-backed--Mortgages Financial Service Photography
Asset-backed--Credit Card Food & Beverage Plastics
Receivables Forest Products Printing & Publishing
Automotive Gaming & Lodging Railroad
Automotive Parts Gas Real Estate & Building
Bank Gas Transmission Recreation
Building Grocery Retail Trade
Business Service Healthcare & Hospital Savings & Loan
Cable Management Shipping &
Capital Goods & Equipment Hospital Supply Transportation
Chemical Hotel & Restaurant Technology &
Computer Software & Service Insurance Communications
Conglomerate Machinery Telephone
Consumer Goods & Services Media Textile & Apparel
Container Metal & Mining Tobacco
Cosmetics Office Equipment Truckers
Diversified Oil Production Trust
Drug Oil Refining & Certificates--Government
Electric Marketing Related Lending
Electrical Equipment Oil Service
Electronic Components
</TABLE>
Computer-Related Risks
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates. In addition, many funds
and other companies, especially those funds and companies that do business in
one or more national currencies of the countries in the European Union (the
"EU"), may be adversely affected by computer systems that cannot accommodate
concurrent references to two currencies, the national currency and the euro (the
proposed currency unit of the EU).
15
<PAGE>
Beginning on January 1, 1999 and for the three years thereafter, businesses and
governments in most EU countries generally must be prepared to conduct their
businesses in their national currency and the euro. After such three-year
period, they must conduct their businesses only in the euro.
The euro conversion presents additional risks for the Fund to the
extent that it invests in securities denominated in a national currency that
eventually will be replaced by the euro. For example, trading, accounting and
other administrative systems must be able to reflect exchange rates between a
national currency of an EU member and the euro and to redenominate outstanding
tradeable debt securities into the euro in accordance with specific technical
requirements.
The Investment Manager currently is in the process of reviewing its
internal computer systems as they relate to the Fund, as well as the computer
systems of those service providers upon which the Fund relies, in order to
obtain reasonable assurances that the Fund will not experience a material
adverse impact related to either problem. The Fund does not currently anticipate
that either problem will have a material adverse impact on its portfolio
investments, taken as a whole. There can be no assurances in either area,
however, including the possibility that either or both problems could negatively
affect the investment markets or the economy generally.
DEBT INSTRUMENTS AND
PERMITTED CASH INVESTMENTS
The Fund may invest in long-term and short-term debt securities.
Certain debt securities and money market instruments in which the Fund may
invest are described below.
Managing Volatility
In administering the Fund's investments, the Investment Manager
attempts in part to reduce volatility by managing the duration and weighted
average maturity of the Fund's bond position.
Duration is an indicator of the expected volatility of a bond position
in response to changes in interest rates. In calculating duration, the Fund
measures the average time required to receive all cash flows associated with
those debt securities -- representing payments of principal and interest -- by
considering the timing, frequency and amount of payment expected from each
portfolio debt security. The higher the duration, the greater the gains and
losses when interest rates change. Duration generally is a more accurate measure
of potential volatility with a portfolio composed of high-quality debt
securities, such as U.S. government securities, municipal securities and
high-grade U.S. corporate bonds, than with lower-grade securities.
The Investment Manager may use several methods to manage the duration
of the Fund's bond position in order to increase or decrease its exposure to
changes in interest rates. First, the Investment Manager may adjust duration by
adjusting the mix of debt securities held by the
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<PAGE>
Fund. For example, if the Investment Manager intends to shorten duration, it may
sell debt instruments that individually have a long duration and purchase other
debt instruments that individually have a shorter duration. Among the factors
that will affect a debt security's duration are the length of time to maturity,
the timing of interest and principal payments, and whether the terms of the
security give the issuer of the security the right to call the security prior to
maturity. Second, the Investment Manager may adjust bond duration using
derivative transactions, especially with interest rate futures and options
contracts. For example, if the Investment Manager wants to lengthen the duration
of the Fund's bond position, it could purchase interest rate futures contracts
instead of buying longer-term bonds or selling shorter-term bonds. Similarly,
during periods of lower interest rate volatility, the Investment Manager may use
a technique to extend duration in the event rates rise by writing an
out-of-the-money put option and receiving premium income with the expectation
that the option could be exercised. In managing duration, the use of such
derivatives may be faster and more efficient than trading specific portfolio
securities.
Weighted average maturity is another indicator of potential volatility
used by the Investment Manager with respect to the Fund's bond portfolio,
although for certain types of debt securities, such as high quality debt
securities, it is not as accurate as duration in quantifying potential
volatility. Weighted average maturity is the average of all maturities of the
individual debt securities held by the Fund, weighted by the market value of
each security. Generally, the longer the weighted average maturity, the more
bond prices will vary in response to changes in interest rates.
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.
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
17
<PAGE>
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 Bank, the Federal Farm Credit Bank, 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
18
<PAGE>
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, among others, (a) corporations and (b) domestic or foreign bank
holding companies or 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.
Certain Securities Ratings
Commercial Paper Ratings
Commercial paper investments at the time of purchase will be rated
within the "A" major rating category by S&P or within the "Prime" major rating
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 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.
19
<PAGE>
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 within the "A" category 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.
Rating Categories of Debt Securities
Set forth below is a description of S&P corporate bond and debenture
rating categories:
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 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
20
<PAGE>
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 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 within the CC category 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 exposed to severe prepayments risks-such as interest only (IO) and
principal only (PO) mortgage securities; and obligations with unusually risky
terms, such as inverse floaters.
Set forth below is a description of Moody's corporate bond and
debenture rating categories:
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
21
<PAGE>
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.
22
<PAGE>
Rating Downgrades
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.
THE TRUST, THE FUND AND ITS SHARES
The Fund was organized in 1996 as a separate series of State Street
Research Securities Trust, a Massachusetts business trust. A "series" is a
separate pool of assets of the Trust which is separately managed and may have a
different investment objective and different investment policies from the
objective and policies of another series. The Trust currently is comprised of
four series: State Street Research Strategic Income Fund, State Street Research
Intermediate Bond Fund, State Street Research Galileo Fund and State Street
Research Legacy Fund. The Trustees of the Trust have authority to issue an
unlimited number of shares of beneficial interest of each separate series, $.001
par value per share. The Trustees also 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 classes.
The Trustees have authorized shares of the Fund to be issued in four classes:
Class A, Class B, Class C and Class S shares. Prior to November 1, 1997, the
Fund's current Class C shares were designated as Class D shares and the Fund's
current Class S shares were designated as Class C 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 C
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. Except for those
differences between classes of shares described above, in the Fund's Prospectus
and otherwise this Statement of Additional Information, 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 by the Fund.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have an 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 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 ordinarily will be no shareholder meetings
unless required by the 1940 Act.
23
<PAGE>
Except as otherwise provided under the 1940 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 for 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.
The Fund is an "open-end" management investment company and is a
"diversified company" as those terms are defined in the 1940 Act. Among other
things, a diversified fund must, with respect to 75% of its total assets, not
invest more than 5% of its total assets in any one issuer.
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.
*+Peter C. Bennett, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 60. His principal occupation is currently,
and during the past five years has been, Executive Vice President and Director
of State Street Research & Management Company. Mr. Bennett's other principal
business affiliations include Director, State Street Research Investment
Services, Inc. and Executive Vice President, GFM International Investors, Inc.
- -----------------
* or + see footnotes on page 28
24
<PAGE>
*+Thomas J. Dillman, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 49. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as research director at Bank of New York.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 60. 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 43. 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 70. 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 57. 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 71. He is engaged principally in private
investments and civic affairs, and is an author of business history. Previously,
he was with an affiliate of J.P. Morgan & Company in New York.
+Robert A. Lawrence, 175 Federal Street, Boston, MA 02110, serves as
Trustee of the Trust. He is 72. He is retired and was formerly a Partner in
Saltonstall & Co., a private investment firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 47. His principal occupation is currently, and
during the past five years has been, Executive Vice President, Treasurer, Chief
Financial Officer and Director of State Street Research & Management 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. and Executive Vice President, Chief Financial
Officer, Administrative Officer and Director, GFM International Investors, Inc.
- -----------------
* or + see footnotes on page 28
25
<PAGE>
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111,
serves as Secretary and General Counsel of the Trust. He is 43. 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,
Senior Vice President of State Street Research Investment Services, Inc. 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
Executive Vice President, Clerk and General Counsel of State Street Research
Investment Services, Inc. and Executive Vice President and General Counsel, GFM
International Investors, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 66. He is retired and was formerly 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 45. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he also served as Vice President of State Street Research & Management
Company.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 60. 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
61. 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 44. 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 principal business
affiliation is 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 55. His principal occupation is currently, and during the past five
years has been, Chairman of the Board, President, Chief Executive Officer and
Director of State Street Research &
- -----------------
* or + see footnotes on page 28
26
<PAGE>
Management 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) and Chairman of the Board, President, Chief Executive
Officer and Director of GFM International Investors, Inc.
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 52. His principal occupation is Executive
Vice President 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, President and Chief Investment Officer of IDS Advisory
Group, Inc. and as Senior Vice President of Stein, Roe & Farnham.
*Elizabeth M. Westvold, One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. She is 38. Her principal occupation is Senior
Vice President of State Street Research & Management Company. During the past
five years, she also has served as Vice President and as an analyst for State
Street Research &Management Company.
*+Kennard Woodworth, Jr., One Financial Center, Boston, MA 02111,
serves as Vice President of the Trust. He is 60. His principal occupation is
currently, and during the past five years has been, Senior Vice President of
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/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 parent, Metropolitan
Life Insurance Company ("Metropolitan"): 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.
27
<PAGE>
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
As of May 31, 1998, the Trustees and principal officers of the Trust as
group owned less than 1% of the Fund's outstanding Class A shares and none of
the Fund's Class B, Class C or Class S shares.
Also as of May 31, 1998, 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:
<TABLE>
<CAPTION>
Shareholder %
----------- ---
<S> <C> <C>
Class A Metropolitan 49.0
Class B Merrill Lynch 28.6
Class C (a) Merrill Lynch 56.6
Donaldson Lufkin Jenrette 7.9
Class S (a) Metropolitan Life 81.5
Andover Newton
Theological School 9.6
State Street Bank, Trustee 7.6
</TABLE>
The full name and address of each of the above persons or entities are
as follows:
Metropolitan Life Insurance Company (b)
One Madison Avenue
New York, NY 10010
Merrill Lynch, Pierce, Fenner & Smith, Inc. (c)
One Liberty Plaza
165 Broadway
New York, NY 10080
Andover Newton Theological School
c/o State Street Research
Service Center
One Financial Center
Boston, MA 02111
State Street Bank & Trust Company (c)(d)
225 Franklin Street
Boston, MA 02110
Donaldson Lufkin Jenrette (c)(d)
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
- --------------------
(a) Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
(b) Metropolitan Life Insurance Company ("Metropolitan"), a New York
corporation, was the record and/or beneficial owner, directly or indirectly
through its subsidiaries or affilites, of such shares.
(c) The Fund believes that such entity does not have beneficial ownership of
such shares.
(d) Includes shares owned by the indicated holder of record for the benefit of
named owners who may separately own less than 5% of the share class.
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.
28
<PAGE>
The Trustees were compensated as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Total
Compensation
Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Fund(a) to Trustees(b)
- --------------------------------------------------------------------------------
<S> <C> <C>
Steve A. Garban $1,900 $ 75,899
Malcolm T. Hopkins $1,900 $ 78,499
Edward M. Lamont $1,800 $ 68,741
Robert A. Lawrence $1,900 $ 93,125
Dean O. Morton $2,200 $ 97,125
Toby Rosenblatt $2,000 $ 68,741
Michael S. Scott Morton $2,400 $103,625
Ralph F. Verni $ 0 $ 0
</TABLE>
- --------------------
(a) For the Fund's fiscal year ended April 30, 1998.
(b) Includes compensation on behalf of all series of 12 investment
companies for which the Investment Manager or its parent, Metropolitan,
served as investment adviser. "Total Compensation from Trust and
Complex Paid to Trustees" for the 12 months ended December 31, 1997.
The Trust does not provide any pension or retirement benefits for the
Trustees.
29
<PAGE>
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY SERVICES
Under the provisions of the Trust's Master Trust Agreement and the laws
of Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
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 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 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.
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 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 regular trading on 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, and for the fiscal year
ended April 30, 1998, the Fund's investment advisory fee was $277,871 and
$693,828, respectively.
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 and for the fiscal year ended April 30, 1998, the voluntary
reduction of fees or assumption of expenses amounted to $63,516 and $103,440,
respectively.
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
30
<PAGE>
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 the Code of Ethics of the Investment Manager, investment
management personnel are only permitted to engage in personal securities
transactions in accordance with certain conditions relating to such person's
position, the identity of the security, the timing of the transaction, and
similar factors. Such personnel 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 State Street Research Investment
Services, Inc. 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 S 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 C shares). General information on how to
buy shares of the Fund, as well as sales charges involved, is set forth under
"Your Investment" in the Prospectus. The following supplements that information.
Public Offering Price. The public offering price for each class of
shares is based on their net asset value determined as of the close of regular
trading on the NYSE on the day the purchase order is received by State Street
Research Service Center (the "Service Center"), provided that the order is
received prior to the close of regular trading on 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 the Service Center 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.
Class A Shares--Reduced Sales Charges. The reduced sales charges set
forth under "Your Investment--Choosing a Share Class" in the Prospectus apply to
purchases made at any one time by any "person," which 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"
(which include the Fund and other funds as designated by the Distributor from
time to time) within a 13-month period. The sales charge
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applicable to each purchase made pursuant to a Letter of Intent will be that
which would apply if the total dollar amount set forth in the Letter of Intent
were being bought in a single transaction. Purchases made within a 90-day period
prior to the execution of a Letter of Intent may be included therein; in such
case the date of the earliest of such purchases marks the commencement of the
13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Fund and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class S 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 S 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.
Other Programs Related to Class A Shares. Class A shares of the Fund
may be sold or issued in an exchange at a reduced sales charge or without 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, registered investment advisers, 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 person: (A) the
Investment Manager, Distributor or any
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affiliated entities, including any direct or indirect parent companies and other
subsidiaries of such parents (collectively "Affiliated Companies"); (B)
employees, officers, sales representatives or current or retired directors or
trustees of the Affiliated Companies or any investment company managed by any of
the Affiliated Companies, any relatives of any such individuals whose
relationship is directly verified by such individuals to the Distributor, or any
beneficial account for such relatives or individuals; and (C) employees,
officers, sales representatives or directors of dealers and other entities with
a selling agreement with the Distributor to sell shares of any aforementioned
investment company, any spouse or child of such person, or any beneficial
account for any of them. The purchase must be made for investment and the shares
purchased may not be resold except through redemption. This purchase program is
subject to such administrative policies, regarding the qualification of
purchasers and any other matters, as may be adopted by the Distributor from time
to time.
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.
Conversion of Class B Shares to Class A Shares. A shareholder's Class B
shares of the Fund, 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.
Contingent Deferred Sales Charges. The amount of any contingent
deferred sales charge paid on Class A shares (on sales of $1 million or more and
which do not involve an initial sales charge) or on Class B or Class C shares of
the Fund will be paid to the Distributor. The Distributor will pay dealers at
the time of sale a 4% commission for selling Class B shares and a 1% commission
for selling Class C shares. In certain cases, a dealer may elect to waive the 4%
commission on Class B shares and receive in lieu thereof an annual fee, usually
1% with respect to such outstanding shares. The proceeds of the contingent
deferred sales charges and the distribution fees are used to offset distribution
expenses and thereby permit the sale of Class B and Class C shares without an
initial sales charge.
In determining the applicability and rate of any contingent deferred
sales charge of Class B or Class C shares, it will be assumed that a redemption
of the 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 shareholder for the
longest period of time. Class B shares that are redeemed within a five-year
period after their
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purchase, and Class C shares that are redeemed within a one-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
holding period for purposes of applying a contingent deferred sales charge for a
particular class of 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 Fund, and shares of the same class 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.
Contingent Deferred Sales Charge Waivers. With respect to Class A
shares (on sales of $1 million or more and which do not involve an initial sales
charge), and Class B and Class C shares of the Fund, 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 of 1986, as amended, for retirement accounts or plans (e.g., age
70-1/2 for Individual Retirement Accounts 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 Individual Retirement Account. (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 at any time; for example, the Fund may limit the
application of multiple waivers and establish other conditions for employee
benefit plans.
Class S Shares. Class S shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants, service arrangements, or similar factors;
insurance companies; investment companies; advisory accounts of the Investment
Manager; endowment funds of nonprofit organizations with substantial minimum
assets (currently a minimum of $10 million); and other similar institutional
investors. Class S shares may be acquired through programs or products sponsored
by Metropolitan, its affiliates, or both for which Class S shares have been
designated. In addition, Class S shares are available through programs under
which, for example, investors pay an asset-based fee and/or a transaction fee to
intermediaries. Class S share availability is determined by the Distributor and
intermediaries based on the overall direct and indirect costs of a particular
program, expected assets, account sizes and similar considerations.
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, the Fund may issue its shares at net asset value (or
more) to such entities or to their security holders.
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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.
Systematic Withdrawal Plan. A shareholder who owns noncertificated
Class A or Class S shares with a value of $5,000 or more, or Class B or Class C
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 Systematic Withdrawal 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 Systematic Withdrawal
Plan was initiated, whichever is higher.
Expenses of the Systematic Withdrawal Plan are borne by the Fund. A
participating shareholder may withdraw from the Systematic Withdrawal Plan, and
the Fund may terminate the Systematic Withdrawal Plan at any time on written
notice. Purchase of additional shares while a shareholder is receiving payments
under a Systematic Withdrawal Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate in
the Investamatic Program (see "Your Investment--Investor Services--Investamatic
Program" in the Fund's Prospectus) and the Systematic Withdrawal Plan at the
same time.
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.
Purchases and Sales Through Certain Intermediaries. For the purpose of
facilitating the sale and redemption of shares through certain intermediaries,
such as mutual fund supermarkets and third-party administrators for pension
plans, (a) the Fund has authorized one or more dealers or certain other agents
(i) to accept on its behalf purchase and redemption orders of Fund shares and
(ii) to designate certain other intermediaries to accept purchase and redemption
orders on the
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Fund's behalf, (b) the Fund will have been deemed to have received each such
purchase or redemption order when an authorized dealer or, if applicable, a
dealer's authorized designee, accepts the order and (c) shares purchased through
such intermediaries will be priced at the Fund's net asset value next computed
after they are accepted by an authorized dealer or dealer's authorized designee.
Signature Guarantees. Signature guarantees are required for, among
other things: (1) written requests for redemptions for more than $100,000; (2)
written requests for redemptions for any amount if the proceeds are transmitted
to other than the current address of record (unchanged in the past 30 days); (3)
written requests for redemptions for any amount submitted by corporations and
certain fiduciaries and other intermediaries; and (4) requests to transfer the
registration of shares to another owner. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived in certain instances.
Dishonored Checks. If a purchaser's 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 canceled.
Processing Charges. Purchases and redemptions processed through
securities dealers may be subject to processing charges imposed by the
securities dealer in addition to sales charges that may be imposed by the Fund
or the Distributor.
SHAREHOLDER ACCOUNTS
General information on shareholder accounts is included in the Fund's
Prospectus under "Your Investment." The following supplements that information.
Maintenance Fees and Involuntary Redemption. Because of the relatively
high cost of maintaining small shareholder accounts, the Fund reserves the right
to 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
involuntarily 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.
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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 to fairly determine the Fund's net asset values; or (3) during such
other periods as the Securities and Exchange Commission (the "SEC") may by order
permit for the protection of investors; and (b) the payment of redemption
proceeds may be postponed as otherwise provided under "Purchase and Redemption
of Shares" in this Statement of Additional Information.
The Open Account System. Under the Open Account System full and
fractional shares of the Fund owned by shareholders are credited to their
accounts by the Transfer Agent, State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110. Certificates representing Class B
or Class C shares will not be issued, while certificates representing Class A or
Class S shares will only be issued if specifically requested in writing and, in
any case, will only be issued for full shares, with any fractional shares to be
carried on the shareholder's account. Shareholders will receive periodic
statements of transactions 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 "State
Street Research Funds" under the terms set forth above under
"Purchase and Redemption of Shares" in this Statement of
Additional Information.
2. The following methods of receiving dividends from investment
income and distributions from capital gains generally are
available:
(a) All income dividends and capital gains distributions
reinvested in additional shares of the Fund.
(b) All income dividends and capital gains distributions in
cash.
(c) All income dividends and capital gains distributions
invested in any one available Eligible Fund designated
by the shareholder as described below. See "--Dividend
Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to
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the Service Center. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privileges. 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 C 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 any acquired Class A, Class B and Class C
shares, the holding period of the redeemed shares is "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 C 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.
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 with
respect to the Fund (see "Your Investment--Account Policies--Telephone Requests"
in the Fund's Prospectus and "--Telephone Privileges," below) as the existing
account unless the Service Center is instructed otherwise. Related
administrative
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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 the Service
Center and delivered by the Service Center 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 the Service Center.
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 the Service
Center of such shareholder's written purchase request and delivery of the
request by the Service Center 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.
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
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shareholder, provided the account into which the dividends and distributions are
directed is initially funded with the requisite minimum amount.
Telephone Privileges. A shareholder with telephone privileges that are
offered with his or her Account (see "Your Investment--Account
Policies--Telephone Requests") is deemed to authorize the Service Center and the
Transfer Agent to: (1) act upon the telephone instructions of any person
purporting to be the shareholder or the shareholder's financial professional to
redeem or 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.
Neither the Fund, the other Eligible Funds, the Transfer Agent, the Investment
Manager nor the Distributor will be liable for any loss, expense or cost arising
out of any request, including any fraudulent or unauthorized requests.
Shareholders assume the risk to the full extent of their accounts that telephone
requests may be unauthorized. Reasonable procedures will be followed to confirm
that instructions communicated by telephone are genuine. The shareholder will
not be liable for any losses arising from unauthorized or fraudulent
instructions if such procedures are not followed.
Alternative Means of Contacting the Fund. It is unlikely, during
periods of extraordinary market conditions, that a shareholder may have
difficulty in reaching the Service Center. In that event, however, the
shareholder should contact the Service Center at 1-800-562-0032, 1-617-357-7800
or otherwise at its main office at One Financial Center, Boston, Massachusetts
02111-2690.
NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily
as of the close of regular trading on the NYSE, ordinarily 4 P.M. New York City
time, Monday through Friday, on each day during which the NYSE is open for
unrestricted trading. The NYSE is currently closed on New Year's Day, Martin
Luther King, Jr. 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 may utilize one or more pricing services in lieu of market quotations
for certain securities which are not readily available on a daily basis. Such
services 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.
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
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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,
Inc.'s (the "NASD") 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.
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, 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. 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). For the period August 30, 1996 (commencement of operations)
through April 30, 1997, and for the fiscal year ended April 30, 1998, the
portfolio turnover rates were 110.37% and 179.82%, respectively. The Investment
Manager believes that the portfolio turnover rate for the fiscal year ended
April 30, 1998 was significantly higher than the rate for the prior fiscal year
because the year ended April 30, 1998 was a full fiscal year compared to the
shorter, initial year ended April 30, 1997 and because of portfolio transactions
to modify portfolio duration and make adjustments in light of interest rate
expectations.
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
41
<PAGE>
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 by the Investment Manager 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 contained in certain trading systems used for
portfolio analysis and modeling and also 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
data relating to the performance of accounts.
In the case of the Fund and other registered investment companies
advised by the Investment Manager or its affiliates, 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
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-dealers from
third parties who are paid for such services by the broker-dealers.
42
<PAGE>
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. The Investment Manager's investment management
personnel conduct internal surveys and uses other methods to evaluate the
quality of the research and other services provided by various broker-dealer
firms, and the results of these efforts are made available to the equity trading
department which uses this information as a consideration to the extent
described above 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 the services to determine the proportion which is allocable to research or
investment decision-making and the proportion allocable to other purposes. The
Investment Manager pays directly from its own funds for that portion allocable
to uses other than research or investment decision-making. 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 providing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which the 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
an 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. For the period August 30,
1996 (commencement of operations) through April 30, 1997 the Fund paid no
brokerage commissions and for the fiscal year ended April 30, 1998, the Fund
paid $1,749 in brokerage commissions in secondary trading. During and at the end
of its most recent fiscal year, the Fund did not hold in its portfolio
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 commissions 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.
In some instances, certain clients of the Investment Manager request
that it place all or part of the orders for their account with certain brokers
or dealers, which in some cases provide services to those clients. The
Investment Manager generally agrees to honor those requests to the
43
<PAGE>
extent practicable. Clients may condition their requests by requiring the
Investment Manager only to effect transactions with the specified broker-dealers
if the broker-dealers are competitive as to price and execution. In other cases,
the Investment Manager may be unable to negotiate commissions or obtain volume
discounts or best execution. In addition, a disparity may exist among the
commissions charged to clients who request the Investment Manager to use
particular brokers or dealers, and also between those clients and those who do
not make such requests. A client who requests the use of a particular
broker-dealer should understand that it may lose the possible advantage which
non-requesting clients derive from understandings with certain firms that in
order for such firms to be able to continuously supply certain services, they
need to receive an allocation of a specified amount of brokerage business. These
understandings are honored to the extent possible in accordance with the
policies set forth above.
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 size of the order, 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.
44
<PAGE>
DISTRIBUTIONS AND CERTAIN TAX MATTERS
Distributions
The Fund has adopted distribution procedures that differ from those
procedures which have been customary for many investment companies. The Fund
will declare a dividend each day in an amount based on monthly projections of
its future net investment income and pay such dividends monthly after the end of
the month. 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.
Taxation Of The Fund--In General
The Fund intends to qualify and elects 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 qualify to do so. Accordingly, 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"); and (b) satisfy certain
diversification requirements on a quarterly basis.
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of the Fund's current or
accumulated earnings and profits. Also, the shareholders, if they received a
distribution in excess of current or accumulated earnings and profits, would
receive a return of capital that would reduce the basis of their shares of the
Fund to the extent thereof. Any distribution in excess of a shareholder's basis
in the shareholder's shares would be taxable as gain realized from the sale of
such shares.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year, the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any undistributed portion of the respective balances from the
prior year. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
45
<PAGE>
Taxation Of The Fund's Investments
Original Issue Discount; Market Discount. For federal income tax
purposes, debt securities purchased by the Fund may be treated as having
original issue discount. Original issue discount represents interest for federal
income tax purposes and can generally be defined as the excess of the stated
redemption price at maturity of a debt obligation over the issue price. Original
issue discount is treated for federal income tax purposes as income earned by
the Fund, whether or not any income is actually received, and therefore is
subject to the distribution requirements of the Code. Generally, the amount of
original issue discount is determined on the basis of a constant yield to
maturity which takes into account the compounding of accrued interest. Under
section 1286 of the Code, an investment in a stripped bond or stripped coupon
may result in original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for income tax
purposes. In the case of any debt security having a fixed maturity date of more
than one year from the date of issue and having market discount, the gain
realized on disposition will be treated as interest to the extent it does not
exceed the accrued market discount on the security (unless the Fund elects to
include such accrued market discount in income in the tax year to which it is
attributable). For debt securities acquired before May 1, 1993, this rule
applies only if the debt security was issued after July 18, 1984. Generally,
market discount is accrued on a daily basis. The Fund may be required to
capitalize, rather than deduct currently, part or all of any direct interest
expense incurred to purchase or carry any debt security having market discount,
unless the Fund makes the election to include market discount in income
currently. Because the Fund must include original issue discount in income, it
will be more difficult for the Fund to make the distributions required for the
Fund to maintain its status as a 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 excise
tax and the distribution requirements applicable to regulated investment
companies; (ii) defer recognition of realized losses; and (iii) characterize
both realized and unrealized gain or loss as short-term or long-term gain or
loss. Such provisions generally apply to, among other investments, options on
debt securities, indices on securities and futures contracts. The Fund will
monitor its transactions and may make certain tax elections available to it in
order to mitigate the impact of these rules and prevent disqualification of the
Fund as a regulated investment company.
Gains or losses attributable to foreign currency contracts or
fluctuations in exchange rates that occur between the time the Fund accrues
income or expenses denominated in a foreign currency and the time the Fund
actually collects such income or pays such expenses are treated as ordinary
income or loss. The portion of any gain or loss on the disposition of a debt
security denominated in a foreign currency that is attributable to fluctuations
in the value of the foreign currency during the holding period of the debt
security will likewise be treated as ordinary income or loss. Such ordinary
income or loss will increase or decrease the amount of the Fund's net investment
income.
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<PAGE>
If the Fund invests in the stock of certain "passive foreign investment
companies" ("PFICs"), income of such companies may become taxable to the Fund
prior to its distribution to the Fund or, alternatively, ordinary income taxes
and interest charges may be imposed on the Fund on "excess distributions"
received by the Fund or on gain from the disposition of such investments by the
Fund. The Fund does not intend to invest in PFICs. Because of the broad scope of
the PFIC rules, however, there can be no assurance that the Fund can avoid doing
so.
Taxation Of The Fund's Shareholders
The Fund may be subject to foreign taxes, including foreign income
taxes. If so, the Fund intends to meet the requirements of the Code for passing
through to its shareholders the tax benefit of foreign income taxes paid,
although there is no assurance that it will be able to do so. Under this
provision, if more than half of the value of the total assets of the Fund at the
close of its taxable year consists of stock or securities of foreign
corporations, the Fund will be eligible and intends to elect to pass through to
its shareholders the amount of foreign taxes it paid if such amounts are
material. Pursuant to this election, a United States shareholder will, in
general, be required to (i) include in gross income, in addition to taxable
distributions actually received, his or her pro rata share of the foreign taxes
paid by the Fund, (ii) treat that share of taxes as having been paid directly by
him or her, and (iii) either deduct such share of taxes or treat such share of
taxes as a credit against United States income tax liability. A tax-exempt
shareholder will ordinarily not benefit from this election.
Generally, a credit for foreign taxes paid by the Fund may not exceed a
shareholder's United States income tax attributable to the shareholder's foreign
source income. This limitation applies separately to different categories of
income, one of which is foreign-source passive income, which is likely to
include all of the foreign-source income of the Fund. As a result of these
limitations, some shareholders may not be able to utilize fully any foreign tax
credits generated by an investment in the Fund. The Fund will provide its
shareholders with information about the source of its income and the foreign
taxes it has paid for use in preparing the shareholder's United States income
tax return.
Dividends from domestic corporations are not expected to comprise a
substantial part of the income of the Fund. If such dividends are earned by the
Fund, then a portion of the dividends paid by the Fund may qualify for the 70%
deduction for dividends received which is available to corporate shareholders of
the Fund. Shareholders will be informed of any portion of the dividends paid by
the Fund which qualifies for this deduction. The dividends-received deduction is
reduced to the extent the dividends received are treated as debt-financed, under
the Code, and is eliminated if the stock is held for less than 46 days.
Any dividend declared in October, November or December and made payable
to shareholders of record in any such month is treated as received by such
shareholder on December 31, provided that the Fund pays the dividend during
January of the following calendar year.
Distributions by the Fund result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless may be taxable
to the shareholder as ordinary income or long-term
47
<PAGE>
capital gain, even though, from an investment standpoint, it may constitute a
partial return of capital. In particular, investors should be careful to
consider the tax implications of buying shares just prior to a taxable
distribution. The price of shares purchased at that time includes the amount of
any forthcoming distribution. Those investors purchasing shares just prior to a
taxable distribution will then receive a return of investment upon distribution
which will nevertheless be taxable to them.
The foregoing discussion of United States federal income tax law
relates solely to the application of that law to United States persons, that is,
United States citizens and residents and United States corporations,
partnerships, trusts and estates. Each shareholder who is not a United States
person should consider the United States and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to United States withholding at a rate of 30% (or at
a lower rate under an applicable treaty) on amounts constituting ordinary income
received by him or her, where such amounts are treated as income from United
States sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
SHARES OF THE FUND
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 (Class B and Class C 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, and for the fiscal
year ended April 30, 1998, total sales charges on Class A shares paid to the
Distributor amounted to $261,358 and $316,057, respectively. For the same
periods, the Distributor retained $33,102 and $43,099, respectively, 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
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<PAGE>
of the Fund are offered at a reduced sales charge or without a sales charge
pursuant to sponsored arrangements and so-called "mutual fund supermarkets,"
among other programs, the amount of the sales charge reduction will similarly
reflect the anticipated reduction in sales expenses associated with such
arrangements. The reductions in sales expenses, and therefore the reduction in
sales charges, 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 or similar
programs at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
For the periods shown below, the Distributor received contingent
deferred sales charges upon redemption of Class A, Class B and Class C shares of
the Fund and paid initial commissions to securities dealers for sales of such
Class A, Class B and Class C shares as follows:
<TABLE>
<CAPTION>
August 30, 1996
(Commencement of Operations) Fiscal Year Ended
April 30, 1997 April 30, 1998
------------------------------------ ------------------------------------
Contingent Contingent
Deferred Commissions Deferred Commissions
Sales Charges Paid to Dealers Sales Charges Paid to Dealers
--------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Class A $ 0 $228,256 $ 0 $272,958
Class B $10,985 $669,590 $45,086 $670,109
Class C $ 6,571 $ 80,335 $ 2,321 $ 52,328
</TABLE>
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 C 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
49
<PAGE>
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 and the Investment Manager 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.
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance or servicing of
shareholder accounts by such dealers. Dealers who have sold Class A shares are
eligible for further reimbursement commencing as of the time of such sale.
Dealers who have sold Class B and Class C 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.
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<PAGE>
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 C shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class C
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 C shares (as the case may be) to make payments for personal
services and/or the maintenance or servicing of shareholder accounts. The
distribution and servicing expenses of a particular class will be borne solely
by that class. In addition, a rule of the NASD limits annual expenditures that
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 that 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.
The Distributor may pay certain dealers and other intermediaries
additional compensation for sales and administrative services. The Distributor
may provide cash and noncash incentives to intermediaries who, for example, sell
significant amounts of shares or develop particular distribution channels. The
Distributor may compensate dealers with clients who maintain their investments
in the Fund over a period of years. The incentives can include merchandise and
trips to, and attendance at, sales seminars at resorts. The Distributor may pay
for administrative services, such as technological and computer systems support
for the maintenance of pension plan participant records, for subaccounting, and
for distribution through mutual fund supermarkets or similar arrangements.
During the fiscal year ended April 30, 1998, 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:
<TABLE>
<CAPTION>
Class A Class B Class C*
<S> <C> <C> <C>
Advertising $ 14,725 $ 14,466 $ 11,452
Printing and mailing of prospectuses
to other than current shareholders 3,690 3,622 2,871
Compensation to dealers 36,781 220,037 61,801
Compensation to sales personnel 31,566 30,637 24,688
Interest 0 0 0
Carrying or other
financing charges 0 0 0
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<PAGE>
Other expenses: marketing; general 16,298 15,971 12,690
-------- -------- --------
Total fees $103,060 $284,733 $113,502
======== ======== ========
</TABLE>
- -----------------
* Prior to November 1, 1997, the Fund's current Class C shares were designated
as Class D shares.
The Distributor may have also used 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
From time to time, in advertisements or in communications to
shareholders or prospective investors, the Fund may compare the performance of
its Class A, Class B, Class C or Class S shares to the performance of other
mutual funds with similar investment objectives, to certificates of deposit
and/or to other financial alternatives. The Fund may also compare its
performance to appropriate indices, such as Standard & Poor's 500 Index,
Consumer Price Index and Dow Jones Industrial Average and/or to appropriate
rankings and averages such as those compiled by Lipper Analytical Services,
Inc., Morningstar, Inc., Money Magazine, Business Week, Forbes Magazine, The
Wall Street Journal and Investor's Daily. For example, the performance of the
Fund might be compared to the Lipper Multi-Sector Income Funds Index.
The average annual total return ("standard total return") of the Class
A, Class B, Class C and Class S shares of the Fund will be calculated as set
forth below. Total return is 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 fees or expenses
relating to the Fund; see "Accrued Expenses and Recurring Charges" later in this
section.
Total Return
The average annual total returns ("standard total return") of each
class of the Fund's shares were as follows:
52
<PAGE>
<TABLE>
<CAPTION>
One Year August 30, 1996
One Year Ended (Commencement of Operations)
April 30, 1998 April 30, 1998
-------------------- ----------------------------
<S> <C> <C>
Class A 8.59% 8.55%
Class B 7.74% 8.35%
Class C 11.74% 10.61%
Class S 13.99% 11.86%
</TABLE>
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:
n
P(1+T) = ERV
<TABLE>
<S> <C>
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
</TABLE>
The calculation is based on the further assumptions that the highest
applicable initial or contingent deferred sales charge 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 and recurring
charges are also taken into account as described later herein.
Yield
The annualized yield of each class of shares of the Fund based on the
month of April 1998 was as follows:
<TABLE>
<S> <C>
Class A 5.94%
Class B 5.48%
Class C 5.48%
Class S 6.48%
</TABLE>
Yield for each of the Fund's Class A, Class B, Class C and Class S
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:
53
<PAGE>
6
a-b
YIELD = 2[(--- + 1) -1]
cd
<TABLE>
<S> <C>
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
</TABLE>
To calculate interest earned (for the purpose of "a" above) on debt
obligations, the Fund computes the yield to effective 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 effective
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 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 and Recurring Charges
Accrued expenses include all recurring charges that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return results take
54
<PAGE>
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 during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class S 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, if any, may not be taken into account and
therefore not deducted from the hypothetical initial payment of $1,000. For
example, the Fund's nonstandardized total returns for the six months ended April
30, 1998 without taking sales charges into account, were as follows:
<TABLE>
<S> <C>
Class A 4.54%
Class B 4.03%
Class C 4.03%
Class S 4.67%
</TABLE>
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 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.
55
<PAGE>
The distribution rates of the Fund, based on the month of April 30,
1998, were as follows:
<TABLE>
<S> <C>
Class A 6.88%
Class B 6.48%
Class C 6.48%
Class S 7.45%
</TABLE>
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 SEC 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 Service
Center.
The following financial statements for the Fund's fiscal year ended
April 30, 1998:
Docs\638468.4
56
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 96.8%
U.S. Treasury 18.9%
U.S. Treasury Bond, 11.625% ..... $1,125,000 11/15/2004 $1,481,130
U.S. Treasury Bond, 12.00% ...... 1,175,000 8/15/2013 1,721,927
U.S. Treasury Bond, 9.875% ...... 175,000 11/15/2015 248,145
U.S. Treasury Bond, 8.75% ....... 625,000 5/15/2017 816,700
U.S. Treasury Bond, 8.50% ....... 600,000 2/15/2020 777,096
U.S. Treasury Bond, 8.125% ...... 4,375,000 8/15/2021 5,498,150
U.S. Treasury Bond, 6.875% ...... 1,550,000 8/15/2025 1,722,686
U.S. Treasury Bond, 6.625% ...... 425,000 2/15/2027 459,995
U.S. Treasury Note, 6.875% ...... 800,000 8/31/1999 813,128
U.S. Treasury Note, 5.625% ...... 1,800,000 10/31/1999 1,800,558
U.S. Treasury Note, 7.875% ...... 1,375,000 11/15/2004 1,533,345
U.S. Treasury TIPS, 3.625% ...... 150,311 1/15/2008 148,666
U.S. Treasury STRIPS, 0.00% ..... 1,400,000 11/15/2001 1,148,686
U.S. Treasury STRIPS, 0.00% ..... 2,400,000 5/15/2007 1,423,295
----------
19,593,507
----------
U.S. Agency Mortgage 8.8%
Federal Home Loan Mortgage
Corp., 6.50% .................. 375,000 10/15/2019 376,755
Federal Home Loan Mortgage
Corp. TBA, 7.00% .............. 1,025,000 5/18/2013 1,044,219
Federal Home Loan Mortgage
Corp. TBA, 6.00% .............. 1,000,000 5/18/2013 986,875
Federal National Mortgage
Association, 8.50% ............ 1,000,000 2/01/2005 1,041,560
Federal National Mortgage
Association, 9.00% ............ 759,688 5/01/2009 805,261
Federal National Mortgage
Association, 8.00% ............ 394,928 5/01/2016 413,194
Federal National Mortgage
Association TBA, 7.00% ........ 575,000 5/13/2028 581,289
Federal National Mortgage
Association TBA, 6.50% ........ 1,175,000 5/13/2028 1,162,895
Government National Mortgage
Association, 8.00% ............ 1,659,328 11/15/2017 1,747,471
Government National Mortgage
Association, 6.50% ............ 485,395 1/15/2024 480,993
Government National Mortgage
Association, 7.50% ............ 527,719 9/15/2025 542,226
----------
9,182,738
----------
Foreign Government 11.0%
Australian Dollar
Commonwealth of Australia,
8.75% ......................... 2,975,000 8/15/2008 2,364,043
New Zealand Dollar
Government of New Zealand,
10.00% ........................ 3,150,000 3/15/2002 1,898,805
New Zealand Dollar
Government of New Zealand,
8.00% ......................... 3,200,000 11/15/2006 $1,897,321
Pound Sterling
United Kingdom Treasury,
8.50% ......................... 2,695,000 12/07/2005 5,213,698
----------
11,373,867
----------
Finance/Mortgage 8.9%
American Express Credit
Account Master Trust Series
97-1A, 6.40% .................. $ 800,000 4/15/2005 811,744
AT&T Universal Card Master
Trust 95-2A, 5.95% ............ 1,000,000 10/17/2002 1,001,250
BankAmerica Institutional
Capital Series B, 7.70%+ ...... 350,000 12/31/2026 364,665
Capital One Bank Note, 6.28% 250,000 2/20/2001 249,653
CNA Financial Corp. Note,
6.50% ......................... 400,000 4/15/2005 398,276
Countrywide Funding Corp.
Note, 6.58% ................... 575,000 9/21/2001 579,830
DLJ Mortgage Acceptance
Corp. Series 97-CF2-A1A,
6.55%+ ........................ 145,782 11/15/2006 147,558
DMARC Corp. 98-1 A1, 6.22% ...... 298,800 6/15/2031 302,162
DMARC Corp. 98-C1 A2,
6.54% ......................... 275,000 6/15/2031 281,188
ERAC USA Finance Co. Note,
6.625%+ ....................... 150,000 2/15/2005 149,700
Finova Capital Corp. Note,
6.50% ......................... 400,000 7/28/2002 400,928
First Union Lehman Brothers
Commercial 97-C2 A2,
6.60% ......................... 1,000,000 11/18/2029 1,007,500
Florida Windstorm Sr. Sec.
Note Series 1997, 6.85%+ ...... 175,000 8/25/2007 179,456
Ford Credit Auto Owner Trust
1996-A A3, 6.50% .............. 317,728 11/15/1999 318,522
Ford Credit Auto Owner Trust
Series 1997B-A3, 6.05% ........ 750,000 4/15/2001 753,281
GMAC Commercial Mortgage
Security Inc. 98-C1 A1,
6.41% ......................... 200,000 11/15/2007 200,997
LB Commercial Conduit
Mortgage Trust 98-C1 A1,
6.33% ......................... 172,823 2/18/2030 171,095
Morgan Stanley Capital Inc.
98-A1, 6.34% .................. 174,113 1/15/2007 177,498
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance/Mortgage (cont'd)
Prudential Home Mortgage
Securities Co. Series 93-45
A-2 PAC, 6.75% ................... $ 325,525 11/25/2007 $ 325,014
Prudential Home Mortgage
Securities Co. Series 93-47
A-11 PAC, 6.10% .................. 375,000 12/25/2023 365,272
Wells Fargo Capital Sec. Note,
7.73%+ ........................... 500,000 12/01/2026 517,870
World Omni Inc. Note 98-1 A4,
6.07% ............................ 200,000 2/15/2002 199,875
Zurich Capital Trust Note,
8.38%+ ........................... 350,000 6/01/2037 381,118
---------
9,284,452
---------
Corporate 49.2%
Advanstar Commerce Inc. Sr.
Note, 9.25%+ ..................... 900,000 5/01/2008 901,125
Allbritton Communications Co.
Series B Sr. Sub. Deb., 9.75% 725,000 11/30/2007 761,250
American Lawyer Media Inc.
Sr. Sub. Note, 9.75%+ ............ 500,000 12/15/2007 518,750
American Pacific Corp.
Sr. Note, 9.25% .................. 550,000 3/01/2005 566,500
American Telecasting Inc. Sr.
Note, 0.00% to 6/14/99,
14.50% from 6/15/99 to
maturity ......................... 450,000 6/15/2004 93,375
Ameristar Casinos Inc. Sr. Sub.
Note, 10.50% ..................... 750,000 8/01/2004 796,875
Archibald Candy Corp. Sr. Sec.
Note, 10.25% ..................... 750,000 7/01/2004 806,250
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 1,185,000
Capstar Broadcasting Partners
Sr. Note, 0.00% to
1/31/2002, 12.75% from
2/1/2002 to maturity ............. 1,000,000 2/01/2009 745,000
Cargill Inc. Sr. Note, 6.875%+ ..... 200,000 5/01/2028 210,220
Cellnet Data Systems Inc. Sr.
Note Series B, 0.00% to
9/30/2002, 14.00% from
10/1/2002 to maturity ............ 750,000 10/01/2007 420,000
CHC Helicopter Corp. Sr. Sub.
Note, 11.50% ..................... 1,000,000 7/15/2002 1,062,500
Clearnet Communications Inc.
Sr. Note, 0.00% to
12/14/2000, 14.75% from
12/15/2000 to maturity ........... $ 900,000 12/15/2005 $ 749,250
Columbia/HCA Healthcare Corp.
Deb., 7.50% ...................... 175,000 12/15/2023 163,618
Columbia/HCA Healthcare Corp.
Note, 8.12% ...................... 325,000 8/04/2003 331,172
Columbia/HCA Healthcare Corp.
Note, 7.69% ...................... 175,000 6/15/2025 167,092
Dobson Communications Corp.
Sr. Note, 11.75% ................. 250,000 4/15/2007 272,500
Drypers Corp. Series B Sr.
Note, 10.25% ..................... 750,000 6/15/2007 772,500
Econophone Inc. Sr. Note,
13.50% ........................... 1,000,000 7/15/2007 1,125,000
Econophone Inc. Sr. Note,
0.00% to 2/14/2003,
11.00% from 2/15/2003 to
maturity+ ........................ 500,000 2/15/2008 283,750
Elgar Holdings Inc. Sr. Note,
9.875%+ .......................... 500,000 2/01/2008 505,000
Elgin National Industries Inc.
Sr. Note, 11.00%+ ................ 250,000 11/01/2007 265,000
Empire Gas Corp. Sr. Sec.
Note, 7.00% to 7/14/99,
12.875% from 7/15/99 to
maturity ......................... 1,000,000 7/15/2004 920,000
Envirosource Inc. Note, 9.75% ...... 1,500,000 6/15/2003 1,530,000
Envirosource Inc. Sr. Note
Series B, 9.75%+ ................. 250,000 6/15/2003 251,563
Finlay Fine Jewelry Corp. Sr.
Note, 8.375% ..................... 500,000 5/01/2008 500,000
First Wave Marine Inc. Sr.
Note, 11.00% ..................... 250,000 2/01/2008 262,500
French Fragrances Inc. Series B
Sr. Note, 10.375% ................ 500,000 5/15/2007 527,500
Golden Ocean Group Ltd. Sr.
Note, 10.00%+ .................... 1,000,000 8/31/2001 855,000
Henry Co. Sr. Note, 10.00%+ ........ 350,000 4/15/2008 356,125
ICF International Inc. Sr. Sub.
Note, 13.00% ..................... 500,000 12/31/2003 532,500
ICG Services Inc. Sr. Note,
0.00% to 2/14/2003,
10.00% from 2/15/2003 to
maturity+ ........................ 750,000 2/15/2008 465,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
ICG Services Inc. Sr. Note,
0.00% to 4/30/2003, 9.875%
from 5/1/2003 to maturity+ ......... $ 500,000 5/01/2008 $ 300,000
International Knife & Saw Inc.
Sr. Sub. Note, 11.375% ............. 500,000 11/15/2006 546,250
International Shipholding Corp.
Sr. Note, 9.00%+ ................... 250,000 7/01/2003 256,563
International Shipholding Corp.
Sr. Note Series B, 7.75% ........... 750,000 10/15/2007 734,062
Intertek Finance PLC Series B
Sr. Sub. Note, 10.25% .............. 1,250,000 11/01/2006 1,325,000
Ionica PLC Sr. Note, 13.50% .......... 750,000 8/15/2006 656,250
J. Crew Group Inc. Sr. Note,
0.00% to 10/14/2002,
13.125% from 10/15/2002 to
maturity ........................... 250,000 10/15/2008 130,000
J. Crew Operating Corp. Sr.
Sub. Note, 10.375% ................. 500,000 10/15/2007 475,000
J.B. Poindexter Inc. Sr. Note,
12.50% ............................. 750,000 5/15/2004 774,375
Johnstown America Industries
Inc. Sr. Sub. Note, 11.75% ......... 750,000 8/15/2005 836,250
Johnstown America Industries
Inc. Sr. Sub. Note Series C,
11.75% ............................. 250,000 8/15/2005 278,750
K-III Communications Corp. Sr.
Note, 8.50% ........................ 750,000 2/01/2006 761,250
Kaiser Aluminum & Chemical
Corp. Sub. Note, 12.75% ............ 500,000 2/01/2003 531,250
Krystal Co. Sr. Note, 10.25% ......... 500,000 10/01/2007 515,000
L 3 Communications Corp. Sr.
Sub. Note, 10.375% ................. 250,000 5/01/2007 275,625
Microcell Telecommunications
Inc. Sr. Note Series B, 0.00%
to 10/14/2002, 11.125% from
10/15/2002 to maturity ............. 1,250,000 10/15/2007 568,202
National Energy Group Inc. Sr.
Note Series D, 10.75% .............. 250,000 11/01/2006 237,500
NBTY Inc. Sr. Sub. Note Series
B, 8.625% .......................... 625,000 9/15/2007 635,937
Newpark Resources Inc. Sr.
Sub. Note Series B,
8.625%+ ............................ 250,000 12/15/2007 252,500
Nextel Communications Inc. Sr.
Note, 0.00% to 2/14/2003,
9.95% from 2/15/2003 to
maturity+ .......................... 500,000 2/15/2008 318,750
North Atlantic Trading Inc. Sr.
Note, 11.00% ....................... $1,000,000 6/15/2004 $1,015,000
Orion Network Systems Inc. Sr.
Note, 11.25% ....................... 1,000,000 1/15/2007 1,140,000
Owens-Illinois Inc. Sr. Note,
8.10% .............................. 500,000 5/15/2007 530,175
Packaging Resources Inc. Sr.
Sec. Note, 11.625% ................. 750,000 5/01/2003 735,000
Pagemart Nationwide Inc. Sr.
Note, 0.00% to 1/31/2000,
15.00% from 2/1/2000 to
maturity ........................... 1,325,000 2/01/2005 1,185,875
Pagemart Wireless Inc. Sr. Sub.
Note, 0.00% to 1/31/2003,
11.25% from 2/1/2003 to
maturity+ .......................... 500,000 2/01/2008 312,500
Phase Metrics Inc. Sr. Note,
10.75%+ ............................ 500,000 2/01/2005 490,000
Primus Telecommunications
Group Sr. Note, 11.75% ............. 500,000 8/01/2004 568,750
Quest Diagnostics Inc. Sr. Sub.
Note, 10.75% ....................... 1,000,000 12/15/2006 1,117,500
RSL Communications Ltd. Sr.
Note, 12.25% ....................... 700,000 11/15/2006 798,000
Service Corp. International
Note, 6.30% ........................ 350,000 3/15/2020 349,244
SFX Entertainment Inc. Sr. Sub.
Note, 9.125%+ ...................... 200,000 2/01/2008 195,000
Spanish Broadcasting Systems
Inc. Sr. Note, 7.50% ............... 1,000,000 6/15/2002 1,150,000
Stena AB Sr. Note, 8.75% ............. 500,000 6/15/2007 512,500
Sun Media Corp. Sr. Sub. Note,
9.50% .............................. 650,000 2/15/2007 695,500
Tekni Plex Inc. Series B Sr.
Sub. Note, 11.25% .................. 500,000 4/01/2007 556,250
Tokheim Corp. Series B Sr. Sub.
Note, 11.50% ....................... 750,000 8/01/2006 836,250
Tom's Foods Inc. Sr. Sec. Note,
10.50% ............................. 500,000 11/01/2004 507,500
Tracor Inc. Sr. Sub. Deb., 8.50% ..... 250,000 3/01/2007 270,000
Transamerican Energy Corp. Sr.
Sec. Note Series B, 11.50% 1,250,000 6/15/2002 1,240,625
Transamerican Energy Corp. Sr.
Sec. Note Series B, 11.50% 1,000,000 6/15/2002 850,000
Transwestern Publishing Co. LP
Sr. Sub. Note, 9.625%+ ............. 250,000 11/15/2007 261,875
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Trump Atlantic City Associates
First Mortgage Note, 11.25% $ 500,000 5/01/2006 $ 501,250
U.S.A. Mobile Communications
Inc. Sr. Note, 14.00% ........... 1,250,000 11/01/2004 1,375,000
Unilab Corp. Sr. Note, 11.00% ..... 500,000 4/01/2006 527,500
Usinor Sacilor SA Note, 7.25% 650,000 8/01/2006 664,768
Viacom Inc. Sr. Note, 7.75% ....... 750,000 6/01/2005 790,642
Viatel Inc. Sr. Note Series A,
0.00% to 4/14/2003,
12.50% from 4/15/2003 to
maturity+ ....................... 500,000 4/15/2008 305,000
Viatel Inc. Sr. Note Series A,
11.25% .......................... 1,000,000 4/15/2008 1,060,000
Wainoco Oil Corp. Sr. Note,
9.125%+ ......................... 500,000 2/15/2006 492,500
Wireless One Inc. Sr. Note,
13.00% .......................... 1,000,000 10/15/2003 237,500
Wireless One Inc. Sr. Note,
0.00% to 7/31/2001, 13.50%
from 8/1/2001 to maturity ....... 750,000 8/01/2006 90,000
Woodside Finance Ltd. Note,
6.60%+ .......................... 300,000 4/15/2008 295,050
-----------
50,967,183
-----------
Total Fixed Income Securities (Cost $100,318,548).......... 100,401,747
-----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Shares
- ----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS & OTHER 2.9%
Ameriking Inc. Com.+* ....................... 300 15,000
Ameriking Inc. Sr. Exch. Pfd.- .............. 14,069 379,859
Econophone Inc. Wts.+* ...................... 750 30,000
Golden Ocean Group Ltd. Wts.+* .............. 250 2,375
Hollinger International, Inc. Cv. Pfd. ...... 158,600 2,131,187
Ionica PLC Wts.+* ........................... 1,000 100,000
North Atlantic Trading Inc. Sr. Pfd.- ....... 10,897 283,322
Orion Network Systems Inc. Wts.+* ........... 1,000 13,500
Primus Telecommunications Group Wts.+* ...... 500 1,350
RSL Communications Ltd. Wts.+* .............. 500 49,500
Wireless One Inc. Wts.* ..................... 750 8
----------
Total Common Stocks & Other (Cost $2,537,380) ............ 3,006,101
-----------
SHORT-TERM INVESTMENTS 15.4%
Navigator Securities Lending Prime Portfolio 15,943,830 15,943,830
----------
Total Short-Term Investments (Cost $15,943,830)........... 15,943,830
-----------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 3.1%
American Express Credit
Corp., 5.51% ...................................... $1,619,000 5/01/1998 $ 1,619,000
American Express Credit
Corp., 5.53% ...................................... 1,169,000 5/04/1998 1,169,000
General Electric Capital Corp.,
5.51% ............................................. 421,000 5/13/1998 421,000
-------------
Total Commercial Paper (Cost $3,209,000) ..................................... 3,209,000
-------------
Total Investments (Cost $122,008,758)--118.2% ................................ 122,560,678
Cash and Other Assets, Less Liabilities--(18.2%) ............................. (18,861,995)
-------------
Net Assets--100.0% ........................................................... $103,698,683
=============
Federal Income Tax Information:
At April 30, 1998, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $122,016,651 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost .............................................................. $ 3,180,749
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ................................................................. (2,636,722)
-------------
$ 544,027
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
* 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, 1998 were $11,391,102 and $11,669,863 (11.25% 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%.
[diamond] Payments of income may be made in cash or in the form of additional
securities.
Forward currency exchange contracts outstanding at April 30, 1998 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 ... 3,516,000 AUD .67830 AUD $ 91,088 5/13/98
Sell Australian dollars, Buy U.S. dollars ... 350,000 AUD .66880 AUD 5,626 6/10/98
Sell Australian dollars, Buy U.S. dollars ... 1,100,000 AUD .65110 AUD (2,471) 7/23/98
Buy Australian dollars, Sell U.S. dollars ... 1,081,000 AUD .66197 AUD (10,353) 5/13/98
Buy Australian dollars, Sell U.S. dollars ... 350,000 AUD .66125 AUD (2,983) 6/10/98
Sell Canadian dollars, Buy U.S. dollars ..... 805,000 CAD .70033 CAD (159) 7/23/98
Sell British pounds, Buy U.S. dollars ....... 3,045,000 GBP 1.67265 GBP 19,986 7/23/98
Sell New Zealand dollars, Buy U.S. dollars .. 110,000 NZD .58265 NZD 3,059 5/13/98
Sell New Zealand dollars, Buy U.S. dollars .. 4,025,000 NZD .55600 NZD 18,119 7/23/98
Sell New Zealand dollars, Buy U.S. dollars .. 2,710,000 NZD .55570 NZD 11,386 7/23/98
---------
$ 133,298
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $122,008,758) (Note 1) ................ $122,560,678
Cash .............................................................. 340
Interest and dividends receivable ................................. 2,083,615
Receivable for securities sold .................................... 2,036,687
Receivable for fund shares sold ................................... 296,436
Receivable for open forward contracts ............................. 149,264
Receivable from Distributor (Note 3) .............................. 21,031
Deferred organization costs and other assets (Note 1) ............. 60,098
------------
127,208,149
Liabilities
Payable for collateral received on securities loaned .............. 15,943,830
Payable for securities purchased .................................. 6,411,174
Payable for fund shares redeemed .................................. 550,858
Dividends payable ................................................. 353,559
Accrued management fee (Note 2) ................................... 63,475
Accrued distribution and service fees (Note 5) .................... 49,835
Accrued transfer agent and shareholder services
(Note 2) ........................................................ 31,285
Payable for open forward contracts ................................ 15,966
Accrued trustees' fees (Note 2) ................................... 8,481
Other accrued expenses ............................................ 81,003
------------
23,509,466
------------
Net Assets $103,698,683
============
Net Assets consist of:
Undistributed net investment income .............................. $ 724,718
Unrealized appreciation of investments ........................... 551,920
Unrealized appreciation of forward contracts and
foreign currency ............................................... 130,912
Accumulated net realized gain .................................... 1,243,762
Paid-in capital .................................................. 101,047,371
------------
$103,698,683
============
Net Asset Value and redemption price per share of
Class A shares ($41,348,122 [divided by] 5,643,672 shares) ...... $7.33
======
Maximum Offering Price per share of Class A shares
($7.33 [divided by] .955) ....................................... $7.68
======
Net Asset Value and offering price per share of
Class B shares ($37,432,377 [divided by] 5,120,654 shares)* ..... $7.31
======
Net Asset Value and offering price per share of
Class C shares ($13,242,764 [divided by] 1,811,375 shares)* ..... $7.31
======
Net Asset Value, offering price and redemption price
per share of Class S shares
($11,675,420 [divided by] 1,593,399 shares) ..................... $7.33
======
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended April 30, 1998
<TABLE>
<S> <C>
Investment Income
Interest (Note 1) ........................................ $ 7,940,496
Dividends ................................................ 257,333
-----------
8,197,829
Expenses
Management fee (Note 2) .................................. 693,828
Custodian fee ............................................ 158,393
Service fee--Class A (Note 5) ............................ 103,060
Distribution and service fees--Class B (Note 5) .......... 284,733
Distribution and service fees--Class C (Note 5) .......... 113,502
Transfer agent and shareholder services (Note 2) ......... 97,004
Reports to shareholders .................................. 51,295
Registration fees ........................................ 41,037
Audit fee ................................................ 21,691
Trustees' fees (Note 2) .................................. 16,552
Amortization of organization costs (Note 1) .............. 16,246
Legal fees ............................................... 14,119
Miscellaneous ............................................ 10,697
-----------
1,622,157
Expenses borne by the Distributor (Note 3) ............... (103,440)
-----------
1,518,717
-----------
Net investment income .................................... 6,679,112
-----------
Realized and Unrealized Gain on Investments,
Foreign Currency and Forward Contracts
Net realized gain on investments (Notes 1 and 4) ......... 2,034,196
Net realized gain on forward contracts and foreign
currency (Note 1) ...................................... 1,133,581
-----------
Total net realized gain ................................ 3,167,777
-----------
Net unrealized appreciation of investments ............... 1,192,559
Net unrealized appreciation of forward contracts and
foreign currency ....................................... 96,501
-----------
Total net unrealized appreciation ...................... 1,289,060
-----------
Net gain on investments, foreign currency and
forward contracts ...................................... 4,456,837
-----------
Net increase in net assets resulting from operations ..... $11,135,949
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 30, 1996
(Commencement of
Operations) to Year ended
April 30, 1997 April 30, 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income ................ $ 2,657,867 $ 6,679,112
Net realized gain on
investments, foreign
currency and forward
contracts .......................... 277,915 3,167,777
Net unrealized appreciation
(depreciation) of
investments, foreign
currency and forward
contracts .......................... (606,228) 1,289,060
----------- ------------
Net increase resulting from
operations ......................... 2,329,554 11,135,949
----------- ------------
Dividends from net
investment income:
Class A ............................. (1,394,457) (3,130,569)
Class B ............................. (441,102) (1,958,332)
Class C ............................. (234,066) (778,492)
Class S ............................. (442,284) (898,928)
----------- ------------
(2,511,909) (6,766,321)
----------- ------------
Distributions from net realized
gains:
Class A ............................. (69,832) (648,291)
Class B ............................. (23,447) (436,211)
Class C ............................. (12,082) (179,325)
Class S ............................. (21,004) (176,107)
----------- ------------
(126,365) (1,439,934)
----------- ------------
Net increase from fund share
transactions (Note 6) .............. 75,595,297 25,482,412
----------- ------------
Total increase in net assets ......... 75,286,577 28,412,106
Net Assets
Beginning of year .................... -- 75,286,577
----------- ------------
End of year (including
undistributed net
investment income of
$150,952 and $724,718,
respectively) ...................... $75,286,577 $103,698,683
=========== ============
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1998
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 four separate funds: State Street Research Strategic
Income Fund, State Street Research Intermediate Bond Fund, State Street
Research Legacy Fund and State Street Research Galileo 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. Before November 1, 1997, Class C shares
were designated Class D and Class S shares were designated Class C. Class A
shares are subject to an initial sales charge of up to 4.50% and an annual
service fee of 0.25% of average daily net assets. Class B shares are subject to
a contingent deferred sales charge on certain redemptions made within five
years of purchase and pay annual distribution and service fees of 1.00%. Class
B shares automatically convert into Class A shares (which pay lower ongoing
expenses) at the end of eight years after the issuance of the Class B shares.
Class C shares are subject to a contingent deferred sales charge of 1.00% on
any shares redeemed within one year of their purchase. Class C shares also pay
annual distribution and service fees of 1.00%. Class S shares are only offered
to certain employee retirement accounts, advisory accounts of State Street
Research & Management Company (the "Adviser"), an indirect wholly owned
subsidiary of Metropolitan Life Insurance Company ("Metropolitan"). No sales
charge is imposed at the time of purchase or redemption of Class S shares.
Class S shares do not pay any distribution or service fees. 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.
9
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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 among all 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. For the year ended April 30, 1998, the Fund has designated its
distributions from net realized gains as $109,468 from 28% rate 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 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.
I. Securities Lending
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the Fund will bear the
loss. At April 30, 1998, the value of the securities loaned and the value of
collateral were $15,273,499 and $15,943,830, respectively. During the year
ended April 30, 1998, income from securities lending amount to $8,928 and is
included in interest income.
Note 2
The Trust and the Adviser 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 year ended April 30, 1998, the fees pursuant
to such agreement amounted to $693,828.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended April 30, 1998, the amount of such
expenses was $24,312.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$16,552 during the year ended April 30, 1998.
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, 1998, the amount of such expenses assumed by
the Distributor and its affiliates was $103,440.
10
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
Note 4
For the year ended April 30, 1998, purchases and sales of securities, exclusive
of short-term obligations, aggregated $188,597,010 and $161,883,244 (including
$74,671,940 and $79,882,521 of U.S. Government securities), respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund will
pay annual service fees to the Distributor at a rate of 0.25% of average daily
net assets for Class A, Class B and Class C shares. In addition, the Fund will
pay annual distribution fees of 0.75% of average daily net assets for Class B
and Class C shares. The Distributor uses such payments for personal service
and/or the maintenance or servicing of shareholder accounts, to compensate or
reimburse securities dealers for distribution and marketing services, to
furnish ongoing assistance to investors and to defray a portion of its
distribution and marketing expenses. For the year ended April 30, 1998, fees
pursuant to such plan amounted to $103,060, $284,733 and $113,502 for Class A,
Class B and Class C shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly-owned subsidiary of Metropolitan, earned initial sales charges
aggregating $43,099 and $206,531, respectively, on sales of Class A shares of
the Fund during the year ended April 30, 1998, and that MetLife Securities,
Inc. earned commissons aggregating $380,665 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$45,086 and $2,321 on redemptions of Class B and Class C 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, 1998, Metropolitan owned 2,815,111 Class A shares and 1,308,518 Class
S shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
August 30, 1996
(Commencement of
Operations) to Year ended
April 30, 1997 April 30, 1998
------------------------------ --------------------------------
Class A Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .................................... 5,223,108 $ 36,828,959 1,831,188 $ 13,384,860
Issued upon reinvestment of:
Dividends from net investment income .......... 28,848 206,117 113,717 832,229
Distributions from net realized gains ......... 9,432 68,100 84,556 616,483
Shares repurchased ............................. (145,983) (1,045,400) (1,501,194) (10,988,056)
--------- ------------ ---------- -------------
Net increase ................................... 5,115,405 $ 36,057,776 528,267 $ 3,845,516
========= ============ ========== =============
Class B Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 2,999,935 $ 21,442,086 3,029,126 $ 22,080,859
Issued upon reinvestment of:
Dividends from net investment income .......... 25,978 185,010 132,474 967,752
Distributions from net realized gains ......... 2,030 14,616 45,675 332,565
Shares repurchased ............................. (235,035) (1,686,127) (879,529) (6,410,034)
--------- ------------ ---------- -------------
Net increase ................................... 2,792,908 $ 19,955,585 2,327,746 $ 16,971,142
========= ============ ========== =============
Class C (Formerly Class D) Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 1,451,840 $ 10,376,070 837,933 $ 6,117,105
Issued upon reinvestment of:
Dividends from net investment income .......... 6,358 45,216 19,637 143,668
Distributions from net realized gains ......... 1,044 7,497 20,990 152,814
Shares repurchased ............................. (240,114) (1,709,452) (286,313) (2,097,991)
--------- ------------ ---------- -------------
Net increase ................................... 1,219,128 $ 8,719,331 592,247 $ 4,315,596
========= ============ ========== =============
Class S (Formerly Class C) Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 1,545,061 $ 10,861,897 21,859 $ 158,930
Issued upon reinvestment of:
Dividends from net investment income .......... 2,993 21,210 20,699 151,403
Distributions from net realized gains ......... 2,899 20,952 24,029 175,173
Shares repurchased ............................. (5,790) (41,454) (18,351) (135,348)
--------- ------------ ---------- -------------
Net increase ................................... 1,545,163 $ 10,862,605 48,236 $ 350,158
========= ============ ========== =============
</TABLE>
11
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
---------------------------------------
August 30, 1996
(Commencement
of Operations) to Year ended
April 30, 1997(1) April 30, 1998(1)
---------------------------------------
<S> <C> <C>
Net asset value, beginning of year ($) 7.00 7.06
------- -------
Net investment income ($)* 0.38 0.55
Net realized and unrealized gain on investments,
foreign currency and forward contracts ($) 0.01 0.38
------- -------
Total from investment operations ($) 0.39 0.93
------- -------
Dividends from net investment income ($) (0.31) (0.55)
Distributions from net realized gains ($) (0.02) (0.11)
------- -------
Total distributions ($) (0.33) (0.66)
------- -------
Net asset value, end of year ($) 7.06 7.33
======= =======
Total return(2) (%) 5.60(3) 13.70
Ratios/supplemental data:
Net assets at end of year ($ thousands) 36,110 41,348
Ratio of operating expenses to average net assets (%)* 1.35(4) 1.35
Ratio of net investment income to average net assets (%)* 7.30(4) 7.51
Portfolio turnover rate (%) 110.37 179.82
* Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) ($) 0.01 0.01
<CAPTION>
Class B
--------------------------------------
August 30, 1996
(Commencement
of Operations) to Year ended
April 30, 1997(1) April 30, 1998(1)
--------------------------------------
<S> <C> <C>
Net asset value, beginning of year ($) 7.00 7.05
------ ------
Net investment income ($)* 0.31 0.49
Net realized and unrealized gain on investments,
foreign currency and forward contracts ($) 0.04 0.38
------ ------
Total from investment operations ($) 0.35 0.87
------ ------
Dividends from net investment income ($) (0.28) (0.50)
Distributions from net realized gains ($) (0.02) (0.11)
------ ------
Total distributions ($) (0.30) (0.61)
------ ------
Net asset value, end of year ($) 7.05 7.31
====== ======
Total return(2) (%) 4.96(3) 12.74
Ratios/supplemental data:
Net assets at end of year ($ thousands) 19,678 37,432
Ratio of operating expenses to average net assets (%)* 2.10(4) 2.10
Ratio of net investment income to average net assets (%)* 6.73(4) 6.77
Portfolio turnover rate (%) 110.37 179.82
* Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) ($) 0.01 0.01
</TABLE>
<TABLE>
<CAPTION>
Class C (Formerly Class D)
---------------------------------------
August 30, 1996
(Commencement
of Operations) to Year ended
April 30, 1997(1) April 30, 1998(1)
---------------------------------------
<S> <C> <C>
Net asset value, beginning of year ($) 7.00 7.05
------ ------
Net investment income ($)* 0.32 0.49
Net realized and unrealized gain on investments,
foreign currency and forward contracts ($) 0.03 0.38
------ ------
Total from investment operations ($) 0.35 0.87
------ ------
Dividends from net investment income ($) (0.28) (0.50)
Distributions from net realized gains ($) (0.02) (0.11)
------ ------
Total distributions ($) (0.30) (0.61)
------ ------
Net asset value, end of year ($) 7.05 7.31
====== ======
Total return(2) (%) 4.96(3) 12.74
Ratios/supplemental data:
Net assets at end of year ($ thousands) 8,590 13,243
Ratio of operating expenses to average net assets (%)* 2.10(4) 2.10
Ratio of net investment income to average net assets (%)* 6.67(4) 6.77
Portfolio turnover rate (%) 110.37 179.82
* Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) ($) 0.01 0.01
<CAPTION>
Class S (Formerly Class C)
--------------------------------------
August 30, 1996
(Commencement
of Operations) to Year ended
April 30, 1997(1) April 30, 1998(1)
--------------------------------------
<S> <C> <C>
Net asset value, beginning of year ($) 7.00 7.06
------ ------
Net investment income ($)* 0.39 0.57
Net realized and unrealized gain on investments,
foreign currency and forward contracts ($) 0.02 0.38
------ ------
Total from investment operations ($) 0.41 0.95
------ ------
Dividends from net investment income ($) (0.33) (0.57)
Distributions from net realized gains ($) (0.02) (0.11)
------ ------
Total distributions ($) (0.35) (0.68)
------ ------
Net asset value, end of year ($) 7.06 7.33
====== ======
Total return(2) (%) 5.76(3) 13.99
Ratios/supplemental data:
Net assets at end of year ($ thousands) 10,908 11,675
Ratio of operating expenses to average net assets (%)* 1.10(4) 1.10
Ratio of net investment income to average net assets (%)* 7.51(4) 7.74
Portfolio turnover rate (%) 110.37 179.82
* Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) ($) 0.01 0.01
</TABLE>
- --------------------------------------------------------------------------------
(1) Per share figures have been calculated using the average shares method.
(2) 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.
(3) Not annualized.
(4) Annualized.
12
<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, 1998, and the related statement of operations for
the year then ended, the statement of changes in net assets and the financial
highlights for the year then ended and for the period 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 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, 1998 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 Strategic Income Fund as of April 30, 1998, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the year then ended and for the period August 30, 1996
(commencement of operations) to April 30, 1997, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 5, 1998
13
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research Strategic Income Fund was ranked in the top quartile of
its Lipper category for the year ended April 30, 1998.* The total return for
the Fund's Class A shares was 13.70% (does not reflect sales charge). The Fund
outperformed the average of the 82 multi-sector income fund classes tracked by
Lipper Analytical Services, which rose 11.39%.
During the period, the Fund benefited from declining U.S. interest rates and a
healthy economy. The Fund's investment in long-term U.S. Treasuries helped
performance, as did its exposure to high-yield bonds. Once again, high-yield
bonds were the best-performing sector in the bond market.
Going forward, we anticipate a slowing U.S. economy. And, contrary to
conventional opinion, we expect interest rates to fall, not rise in the period
ahead. To that end, we have lengthened the Fund's duration from 4.6 to 4.9
years, slightly longer than its benchmark. The Fund continues to own high-yield
bonds, which we believe have the potential to add more return. The Fund owns
bonds in the United Kingdom, Australia and New Zealand, all markets where we
expect interest rates to decline over the period ahead.
April 30, 1998
*Lipper Analytical Services, Inc. ranked the Fund's Class A, B, C and S shares
11, 21, 21 and 10, respectively, out of 82 fund classes for the 12 months ended
April 30, 1998. Rankings do not reflect sales charges and are based on total
return. All classes of the Fund have a common portfolio.
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. Performance reflects maximum 4.5% "A" share
front-end sales charge, or 5% "B" share or 1% "C" share contingent deferred
sales charges, where applicable. "S" shares, offered without a sales charge,
are available through certain employee benefit plans and special programs. The
Lehman Brothers Aggregate Bond Index is a market-value weighted index of
fixed-rate debt issues, including U.S. Treasury, agency, and corporate bond
issues, and mortgage-backed securities. Direct investment in the index is not
possible; results are for illustrative purposes only. Before November 1, 1997,
Class C shares were designated Class D, and Class S shares were designated
Class C.
Change In Value Of $10,000
Based On The Lehman Brothers Aggregate Bond Index
Compared To Change In Value Of $10,000
Invested In Strategic Income Fund
[line charts]
Lehman Brothers
Strategic Income Fund Aggregate Bond Index
Class A Shares
Inception 8/30/96 9550 10000
4/30/97 10085 10577
4/30/98 11466 11731
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
8.59% 8.55%
- ---------------------------
Lehman Brothers
Strategic Income Fund Aggregate Bond Index
Class B Shares
Inception 8/30/96 10000 10000
4/30/97 10496 10577
4/30/98 11832 11731
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
7.74% 8.35%
- ---------------------------
Lehman Brothers
Strategic Income Fund Aggregate Bond Index
Class C Shares
Inception 8/30/96 10000 10000
4/30/97 10496 10577
4/30/98 11832 11731
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
11.74% 10.61%
- ---------------------------
Lehman Brothers
Strategic Income Fund Aggregate Bond Index
Class S Shares
Inception 8/30/96 10000 10000
4/30/97 10576 10577
4/30/98 12056 11731
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
13.99% 11.86%
- ---------------------------
14
<PAGE>
State Street Research Legacy Fund
a series of
State Street Research Securities Trust
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVE...........................................................1
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS................................1
ADDITIONAL INFORMATION CONCERNING CERTAIN RISKS AND INVESTMENTS................3
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS...............................14
THE TRUST, THE FUND AND ITS SHARES............................................17
TRUSTEES AND OFFICERS.........................................................19
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY SERVICES.......................24
PURCHASE AND REDEMPTION OF SHARES.............................................25
SHAREHOLDER ACCOUNTS..........................................................30
NET ASSET VALUE...............................................................34
PORTFOLIO TRANSACTIONS........................................................35
CERTAIN TAX MATTERS...........................................................39
SHARES OF THE FUND............................................................42
CALCULATION OF PERFORMANCE DATA...............................................46
CUSTODIAN.....................................................................49
INDEPENDENT ACCOUNTANTS.......................................................49
FINANCIAL STATEMENTS..........................................................49
</TABLE>
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
Legacy Fund (the "Fund") dated September 1, 1998, 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: 4622-980108(0698)SSR-LD LF-879D-198
<PAGE>
INVESTMENT OBJECTIVE
As set forth under "The Fund--Goal and Strategies--Fundamental Goal" in
the Prospectus of State Street Research Legacy Fund (the "Fund"), the Fund's
investment goal, which is to seek to provide long-term growth of capital, is
fundamental and may not be changed by the Fund except by the affirmative vote of
a majority of the outstanding voting securities of the Fund, 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 the annual or a special meeting of security holders duly called, (i) of
67% or more of the voting securities present at the 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.)
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Fund--Principal Risks" and "Other
Information--Other Securities and Risks" in the Fund's Prospectus, the Fund has
adopted certain investment restrictions, and those investment restrictions are
either fundamental or not fundamental. Fundamental restrictions may not be
changed by the Fund except by the affirmative vote of a majority of the
outstanding voting securities of the Fund. Restrictions that are not fundamental
may be changed by a vote of the Trustees of the Trust.
The Fund's fundamental investment restrictions are set forth below.
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 1940 Act and the rules thereunder
or as permitted by the Securities and Exchange Commission (the
creation of general lines 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;
1
<PAGE>
(4) not to purchase fee simple interest 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;
(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
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 issuers principally engaged in any one industry,
except securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, 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 investment restrictions may be changed by the Trustees.
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 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;
(3) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (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); and
2
<PAGE>
(4) 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.
ADDITIONAL INFORMATION CONCERNING
CERTAIN RISKS AND INVESTMENTS
Derivatives
The Fund may buy and sell certain types of derivatives, such as
options, futures contracts, options on futures contracts, and swaps under
circumstances in which such instruments are expected by State Street Research &
Management Company, the Fund's Investment Manager (the "Investment Manager"), to
aid in achieving the Fund's investment objective. The Fund 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.
Derivatives, such as options, futures contracts, options on futures
contracts, and swaps enable the Fund to take both "short" positions (positions
which anticipate a decline in the market value of a particular asset or index)
and "long" positions (positions which anticipate an increase in the market value
of a particular asset or index). The Fund may also use strategies which involve
simultaneous short and long positions in response to specific market conditions,
such as where the Investment Manager anticipates unusually high or low market
volatility.
The Investment Manager may enter into derivative positions for the Fund
for either hedging or non-hedging purposes. The term hedging is applied to
defensive strategies designed to protect the Fund from an expected decline in
the market value of an asset or group of assets that the Fund owns (in the case
of a short hedge) or to protect the Fund from an expected rise in the market
value of an asset or group of assets which it intends to acquire in the future
(in the case of a long or "anticipatory" hedge). Non-hedging strategies include
strategies designed to produce incremental income (such as the option writing
strategy described below) or "speculative" strategies which are undertaken to
profit from (i) an expected decline in the market value of an asset or group of
assets which the Fund does not own or (ii) expected increases in the market
value of an asset which it does not plan to acquire. Information about specific
types of instruments is provided below.
Futures Contracts.
Futures contracts are publicly traded contracts to buy or sell an
underlying asset or group of assets, such as a currency 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.
3
<PAGE>
The purchase of a futures contract on an equity security or an index of
equity 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 futures commission merchant effecting the futures transaction
an amount of "initial margin" in cash or securities, as permitted under
applicable regulatory policies.
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.
In transactions establishing a long position in a futures contract,
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, assets 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 utilize such
assets and methods of cover as appropriate under applicable exchange and
regulatory policies.
Options.
The Fund may use options to implement its investment strategy. There
are two basic types of options: "puts" and "calls." Each type of option can
establish either a long or a short position, depending upon whether the Fund is
the purchaser or the writer of the option. 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, that is, 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. In general, a
4
<PAGE>
purchased put increases in value as the value of the underlying security falls
and a purchased call increases in value as the value of the underlying security
rises.
The principal reason to write options is to generate extra income (the
premium paid by the buyer). 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,
that is, 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, that is, 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
its 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.
Among the options which the Fund may enter are options on securities
indices. In general, options on indices of securities are similar to options on
the securities themselves except that delivery requirements are different. For
example, a put option on an index of securities does not give the holder the
right to make actual delivery of a basket of securities but instead 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 equity 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. In
connection with the use of such options, the Fund may cover its position by
identifying assets having a value equal to the aggregate face value of the
option position taken.
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.
Limitations and Risks of Options and Futures Activity.
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
5
<PAGE>
the sum of the amount of initial margin deposits and premiums required to
establish such positions for such non-hedging purposes would exceed 5% of the
market value of the Fund's net assets. The Fund applies a similar policy to
options that are not commodities.
As noted above, the Fund may engage in both hedging and nonhedging
strategies. 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.
Non-hedging strategies typically involve special risks. The
profitability of the Fund's non-hedging strategies will depend on the ability of
the Investment Manager to analyze both the applicable derivatives market and the
market for the underlying asset or group of assets. Derivatives markets are
often more volatile than corresponding securities markets and a relatively small
change in the price of the underlying asset or group of assets can have a
magnified effect upon the price of a related derivative instrument.
Derivatives markets also are often less liquid than the market for the
underlying asset or group of assets. 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 carry out their derivative
strategies and might, in some cases, require a 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.
Swap Arrangements
The Fund may invest up to 5% of its total assets in swaps. 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.
6
<PAGE>
The Fund may enter credit protection swap arrangements involving the
sale by the Fund of a put option on a debt security which is exercisable by the
buyer upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
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 portion of the Fund's portfolio.
However, the Fund may, as noted above, enter into such arrangements for income
purposes to the extent permitted by the Commodities Futures Trading Commission
(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.
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 [net] assets, except
that repurchase agreements
7
<PAGE>
extending for more than seven days when combined with any other illiquid
securities held by the Fund will be limited to 15% of the Fund's [net] assets.
When-Issued Securities
The Fund may purchase "when-issued" securities, which are traded on a
price or yield 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; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The Trust's custodian will establish a segregated account when the
Fund 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.
Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including restricted securities sold in accordance with Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities") if, as a result, more
than 35% of the Fund's total assets are invested in restricted securities,
provided not more than 10% of the Fund's total assets are invested in restricted
securities 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 relatively new and
still developing; depending on the development of such markets, Rule 144A
Securities may be deemed to be liquid as determined by or in accordance with
methods adopted by the Trustees. Under such methods the following factors are
considered, among others: the frequency of trades and quotes for the security,
the number of dealers and potential purchasers in the market, market making
activity, and the nature of the security and marketplace trades. Investments in
Rule 144A Securities could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the Fund may be
adversely impacted by the subjective valuation of such securities in the absence
of a market for them. Restricted securities that are not resalable under Rule
144A may be subject to risks of illiquidity and subjective valuations to a
greater degree than Rule 144A Securities.
Lower Quality Debt Securities ("Junk Bonds")
The Fund may invest in lower quality debt securities. Lower quality
convertible or nonconvertible debt securities generally involve more credit risk
than higher rated securities and are considered by S&P and Moody's to be
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Further, such securities may be
8
<PAGE>
subject to greater market fluctuations and risk of loss of income and principal
than lower yielding, higher rated debt securities. Risk of lower quality debt
securities, commonly known as "junk bonds," include (i) limited liquidity and
secondary market support; (ii) substantial market price volatility resulting
from changes in prevailing interest rates and/or investor perceptions; (iii)
subordination to the prior claims of banks and other senior lenders; (iv) the
operation of mandatory sinking fund or call/redemption provisions during periods
of declining interest rates when the Fund may be required to reinvest premature
redemption proceeds in lower yielding portfolio securities; (v) the possibility
that earnings of the issuer may be insufficient to meet its debt service; and
(vi) the issuer's low creditworthiness and potential for insolvency during
period of rising interest rates and economic downturn. For further information
concerning the rating categories of debt securities, see Debt Instruments and
Permitted Cash Investments--Certain Securities Ratings in this Statement of
Additional Information.
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.
Foreign Investments
The Fund reserves the right to invest without limitation in securities
of non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary
Receipts ("GDRs"). Under current policy, however, the Fund limits such
investments, including ADRs, EDRs and GDRs, to a maximum of 35% of its total
investments.
ADRs are 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 receipts issued in Europe which evidence a
similar ownership arrangement. GDRs are receipts issued in one country which
also evidence a similar ownership arrangement. Generally, ADRs in registered
form are designed for use in U.S. securities markets and EDRs are designed for
use in European securities markets. GDRs are designed for use when the issuer is
raising capital in more than one market simultaneously, such as the issuer's
local market and the U.S., and have been used to overcome local selling
restrictions to foreign investors. In addition, many GDRs are eligible for
book-entry settlement through Cedel, Euroclear and DTC. The underlying
securities are not always denominated in the same currency as the ADRs, EDRs or
GDRs. Although investment in the form of ADRs, EDRs or GDRs facilitates trading
in foreign securities, it does not mitigate all the risks associated with
investing in foreign securities.
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 compared to a sponsored facility. Only sponsored ADRs may be
listed on the New York or American Stock Exchanges. Unsponsored ADRs may prove
to be more risky
9
<PAGE>
due to (a) the additional costs involved 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
tradings. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
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.
These risks are usually higher in less-developed countries. Such
countries include countries that have an emerging stock market on which trade a
small number of securities and/or countries with economies that are based on
only a few industries. The Fund may invest in the securities of issuers in
countries with less developed economies as deemed appropriate by the Investment
Manager. However, it is anticipated that a majority of the foreign investments
by the Fund will consist of securities of issuers in countries with developed
economies.
Currency Transactions
The Fund may engage in currency exchange transactions in order to
protect against the effect of uncertain future exchange rates on securities
denominated in foreign currencies. 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 entering a
forward currency contract, 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. 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.
10
<PAGE>
Securities Lending
The Fund may lend portfolio securities with a value of up to 33 1/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may 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 or certain unaffiliated mutual funds, 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 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 or its agents to be of good financial
standing.
Short-Term Trading
The Fund may engage in short-term trading of securities and reserves
full freedom with respect to portfolio turnover. In periods where there are
rapid changes in economic conditions and security price levels or when
reinvestment strategy changes significantly, portfolio turnover may be higher
than during times of economic and market price stability or when investment
strategy remains relatively constant. The Fund's portfolio turnover rate may
involve greater transaction costs, relative to other funds in general, and may
have tax and other consequences.
Temporary and Defensive Investments
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 adverse 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 money market
securities, such as repurchase agreements, and securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, certificates of
deposit, time deposits and bankers' acceptances of certain qualified financial
institutions and corporate commercial paper, which at the time of purchase are
rated at least within the "A" major rating category by Standard & Poor's
Corporation ("S&P") or the "Prime" major rating category by Moody's Investor's
Service, Inc. ("Moody's"), or, if not rated, issued by companies having an
outstanding long-term unsecured debt issued rated at least within the "A"
category by S&P or Moody's.
11
<PAGE>
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. "Asset-backed--Mortgages"
includes private pools of nongovernment backed mortgages.
<TABLE>
<CAPTION>
Basic Industries Consumer Staple Science & Technology
- ---------------- --------------- --------------------
<S> <C> <C>
Chemical Business Service Aerospace
Diversified Container Computer Software & Service
Electrical Equipment Drug Electronic Components
Forest Products Food & Beverage Electronic Equipment
Machinery Hospital Supply Office Equipment
Metal & Mining Personal Care
Railroad Printing & Publishing
Truckers Tobacco
Utility Energy Consumer Cyclical
- ------- ------ -----------------
Electric Oil Refining & Marketing Airline
Gas Oil Production Automotive
Gas Transmission Oil Service Building
Telephone Hotel & Restaurant
Photography
Recreation
Other Finance Retail Trade
- ----- ------- Textile & Apparel
Trust Certificates- Bank
Government Related Financial Service
Lending Insurance
Asset-backed--Mortgages
Asset backed--Credit
Card Receivables
</TABLE>
12
<PAGE>
Computer-Related Risks
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates. In addition, many funds
and other companies, especially those funds and companies that do business in
one or more national currencies of the countries in the European Union (the
"EU"), may be adversely affected by computer systems that cannot accommodate
concurrent references to two currencies, the national currency and the euro (the
proposed currency unit of the EU). Beginning on January 1, 1999 and for the
three years thereafter, businesses and governments in most EU countries
generally must be prepared to conduct their businesses in their national
currency and the euro. After such three-year period, they must conduct their
businesses only in the euro.
The euro conversion presents additional risks for the Fund to the
extent that it invests in securities denominated in a national currency that
eventually will be replaced by the euro. For example, trading, accounting and
other administrative systems must be able to reflect exchange rates between a
national currency of an EU member and the euro and to redenominate outstanding
tradeable debt securities into the euro in accordance with specific technical
requirements.
The Investment Manager currently is in the process of reviewing its
internal computer systems as they relate to the Fund, as well as the computer
systems of those service providers upon which the Fund relies, in order to
obtain reasonable assurances that the Fund will not experience a material
adverse impact related to either problem. The Fund does not currently anticipate
that either problem will have a material adverse impact on its portfolio
investments, taken as a whole. There can be no assurances in either area,
however, including the possibility that either or both problems could negatively
affect the investment markets or the economy generally.
DEBT INSTRUMENTS AND
PERMITTED CASH INVESTMENTS
The Fund may invest in long-term and short-term debt securities.
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:
13
<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 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 Bank, the Federal Farm Credit Bank, 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.
14
<PAGE>
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 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, among others, (a) corporations and (b) domestic or foreign bank
holding companies or 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
15
<PAGE>
debt instrument. Commercial paper is usually sold on a discounted basis and has
a maturity at the time of issuance not exceeding nine months.
Certain Securities Ratings.
Commercial Paper Ratings.
Commercial paper investments at the time of purchase will be rated
within the "A" major rating category by S&P or within the "Prime" major rating
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 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 within the "A" category 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.
16
<PAGE>
THE TRUST, THE FUND AND ITS SHARES
The Fund was organized in 1997 as a separate series of State Street
Research Securities Trust, a Massachusetts business trust. A "series" is a
separate pool of assets of the Trust which is separately managed and may have a
different investment objective and different investment policies from the
objective and policies of another series. The Trust currently is comprised of
four series: State Street Research Strategic Income Fund, State Street Research
Intermediate Bond Fund, State Research Galileo Fund and State Street Research
Legacy Fund. The Trustees of the Trust have authority to issue an unlimited
number of shares of beneficial interest of each separate series, $.001 par value
per share. The Trustees also 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 classes.
The Trustees have authorized shares of the Fund to be issued in four classes:
Class A, Class B, Class C and Class S 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 C
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. Except for those
differences between classes of shares described above, in the Fund's Prospectus
and otherwise this Statement of Additional Information, 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 by the Fund.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have an 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 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 ordinarily will be no shareholder meetings
unless required by the 1940 Act. Except as otherwise provided under the 1940
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.
17
<PAGE>
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations for 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.
The Fund is an "open-end" management investment company and is a
"diversified company" as those terms are defined in the 1940 Act. Among other
things, a diversified fund must, with respect to 75% of its total assets, not
invest more than 5% of its total assets in any one issuer.
18
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their addresses, and
their principal occupations and positions with certain affiliates of the
Investment Manager are set forth below.
*+Peter C. Bennett, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 60. His principal occupation is currently,
and during the past five years has been, Executive Vice President and Director
of State Street Research & Management Company. Mr. Bennett's other principal
business affiliations include Director, State Street Research Investment
Services, Inc. and Executive Vice President, GFM International Investors, Inc.
*+Thomas J. Dillman, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 49. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as research director at Bank of New York.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 60. 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 43. 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 70. 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 57. 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 71. He is engaged principally in private
investments and civic affairs, and is an author of business history. Previously,
he was with an affiliate of J.P. Morgan & Company in New York.
+Robert A. Lawrence, 175 Federal Street, Boston, MA 02110, serves as
Trustee of the Trust. He is 72. He is retired and was formerly a Partner in
Saltonstall & Co., a private investment firm.
- -----------------
* or + see footnotes on page 21
19
<PAGE>
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 47. His principal occupation is currently, and
during the past five years has been, Executive Vice President, Treasurer, Chief
Financial Officer and Director of State Street Research & Management 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. and Executive Vice President, Chief Financial
Officer, Administrative Officer and Director, GFM International Investors, Inc.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111,
serves as Secretary and General Counsel of the Trust. He is 43. 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,
Senior Vice President of State Street Research Investment Services, Inc. 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
Executive Vice President, Clerk and General Counsel of State Street Research
Investment Services, Inc. and Executive Vice President and General Counsel, GFM
International Investors, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 66. He is retired and was formerly 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 45. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he also served as Vice President of State Street Research & Management
Company.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 60. 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
61. 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 44. 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.
- -----------------
* or + see footnotes on page 21
20
<PAGE>
Shively's other principal business affiliation is 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 55. His principal occupation is currently, and during the past five
years has been, Chairman of the Board, President, Chief Executive Officer and
Director of State Street Research & Management 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) and Chairman
of the Board, Chief Executive Officer and Director of GFM International
Investors, Inc.
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 52. His principal occupation is Executive
Vice President 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, President and Chief Investment Officer of IDS Advisory
Group, Inc. and as Senior Vice President of Stein, Roe & Farnham.
*Elizabeth M. Westvold, One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. She is 38. Her principal occupation is Senior
Vice President of State Street Research & Management Company. During the past
five years, she also has served as Vice President and as an analyst for State
Street Research &Management Company.
*+Kennard Woodworth, Jr., One Financial Center, Boston, MA 02111,
serves as Vice President of the Trust. He is 60. His principal occupation is
currently, and during the past five years has been, Senior Vice President of
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/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 parent, Metropolitan Life Insurance Company
("Metropolitan"): 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.
21
<PAGE>
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
As of May 31, 1998, the Trustees and principal officers of the Trust as
a group owned approximately 2.1% of the Fund's Class A shares and none of the
Fund's Class B, Class C or Class S shares.
Also as of May 31, 1998, 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:
<TABLE>
<CAPTION>
Shareholder %
----------- ---
<S> <C> <C>
Class A W.J. Chmura and
K.J. Chmura Jt. Ten. 8.4
Class B Merrill Lynch 5.8
Merrill Lynch 19.8
Class C Merrill Lynch 33.3
Metropolitan Life 9.7
Donaldson Lufkin Jenrette 15.4
PaineWebber 5.3
Class S Metropolitan Life 98.9
</TABLE>
The Full name and address of each of the above persons or entities are
as follows:
W.J. Chmura and K.J. Chmura Jt. Ten.
c/o State Street Research
Service Center
One Financial Center
Boston, MA 02111
Merrill Lynch, Pierce, Fenner & Smith (b)
4800 Deerlake Drive East
Jacksonville, FL 32246
Metropolitan Life Insurance Company (a)
One Madison Avenue
New York, NY 10010
Donaldson Lufkin Jenrette (b)(c)
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
PaineWebber, Incorporated (b)(c)
1285 Avenue of the Americas
New York, New York 10019
(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.
(c) Includes shares owned by the indicated holder of record for the benefit of
named owners who may separately own less than 5% of the share class.
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.
The Trustees were compensated as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Total
Compensation
Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Fund(a) to Trustees(b)
- --------------------------------------------------------------------------------
<S> <C> <C>
Steve A. Garban $1,900 $ 75,899
Malcolm T. Hopkins $1,900 $ 78,499
Edward M. Lamont $1,900 $ 68,741
Robert A. Lawrence $1,900 $ 93,125
Dean O. Morton $1,900 $ 97,125
Toby Rosenblatt $1,900 $ 68,741
Michael S. Scott Morton $2,100 $103,625
Ralph F. Verni $ 0 $ 0
</TABLE>
22
<PAGE>
- --------------------
(a) Because the Fund was newly organized in December 1997, the amounts shown
are estimates of compensation from the Fund for the current fiscal year
ending April 30, 1999.
(b) Includes compensation on behalf of all series of 12 investment companies
for which the Investment Manager or its parent, Metropolitan served as
investment adviser. "Total Compensation from Trust and Complex Paid to
Trustees" for the 12 months ended December 31, 1997. The Trust does not
provide any pension or retirement benefits for the Trustees.
23
<PAGE>
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY SERVICES
Under the provisions of the Trust's Master Trust Agreement and the laws
of Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
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 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 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.
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 Advisory Agreement provides that the
Investment Manager shall furnish the Fund with an investment program, office
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 Life Insurance Company
("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 regular trading on the New York Stock
Exchange (the "NYSE") on each day the NYSE is open for trading. For the period
December 31, 1997 (commencement of operations) through April 30, 1998, the
Fund's Investment Advisory Fee was $38,533.
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 December 31, 1997 (commencement of operations) through
April 30, 1998 the voluntary reduction of fees or assumption of expenses
amounted to $75,650.
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
24
<PAGE>
that a transaction which does not result in a change of actual control or
management of an adviser is not deemed an assignment.
Under the Code of Ethics of the Investment Manager, investment
management personnel are only permitted to engage in personal securities
transactions in accordance with certain conditions relating to such person's
position, the identity of the security, the timing of the transaction, and
similar factors. Such personnel 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 State Street Research Investment
Services, Inc. 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 S 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 C shares). General information on how to
buy shares of the Fund, as well as sales charges involved, is set forth under
"Your Investment" in the Prospectus. The following supplements that information.
Public Offering Price. The public offering price for each class of
shares is based on their net asset value determined as of the close of regular
trading on the NYSE on the day the purchase order is received by State Street
Research Service Center (the "Service Center"), provided that the order is
received prior to the close of regular trading on 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 the Service Center 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.
Class A Shares--Reduced Sales Charges. The reduced sales charges set
forth under "Your Investment--Choosing a Share Class" in the Prospectus apply to
purchases made at any one time by any "person," which 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"
(which include the Fund and other funds as designated by the Distributor from
time to time) 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
25
<PAGE>
the total dollar amount set forth in the Letter of Intent were being bought in a
single transaction. Purchases made within a 90-day period prior to the execution
of a Letter of Intent may be included therein; in such case the date of the
earliest of such purchases marks the commencement of the 13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Fund and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class S 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 S 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.
Other Programs Related to Class A Shares. Class A shares of the Fund
may be sold or issued in an exchange at a reduced sales charge or without 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, registered investment advisers, 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 person: (A) the
Investment Manager, Distributor or any affiliated entities, including any direct
or indirect parent companies and other subsidiaries of such
26
<PAGE>
parents (collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated Companies,
any relatives of any such individuals whose relationship is directly verified by
such individuals to the Distributor, or any beneficial account for such
relatives or individuals; and (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any spouse
or child of such person, or any beneficial account for any of them. The purchase
must be made for investment and the shares purchased may not be resold except
through redemption. This purchase program is subject to such administrative
policies, regarding the qualification of purchasers and any other matters, as
may be adopted by the Distributor from time to time.
Conversion of Class B Shares to Class A Shares. A shareholder's Class B
shares of the Fund, 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.
Contingent Deferred Sales Charges. The amount of any contingent
deferred sales charge paid on Class A shares (on sales of $1 million or more and
which do not involve an initial sales charge) or on Class B or Class C shares of
the Fund will be paid to the Distributor. The Distributor will pay dealers at
the time of sale a 4% commission for selling Class B shares and a 1% commission
for selling Class C shares. In certain cases, a dealer may elect to waive the 4%
commission on Class B shares and receive in lieu thereof an annual fee, usually
1% with respect to such outstanding shares. The proceeds of the contingent
deferred sales charges and the distribution fees are used to offset distribution
expenses and thereby permit the sale of Class B and Class C shares without an
initial sales charge.
In determining the applicability and rate of any contingent deferred
sales charge of Class B or Class C shares, it will be assumed that a redemption
of the 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 shareholder for the
longest period of time. Class B shares that are redeemed within a five-year
period after their purchase, and Class C shares that are redeemed within a
one-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 holding period for purposes of applying a contingent
deferred sales charge for a particular class of 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 Fund, and shares
of the same class 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
27
<PAGE>
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.
Contingent Deferred Sales Charge Waivers. With respect to Class A
shares (on sales of $1 million or more and which do not involve an initial sales
charge), and Class B and Class C shares of the Fund, 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 of 1986, as amended, for retirement accounts or plans (e.g., age
70-1/2 for Individual Retirement Accounts 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 Individual Retirement Account. (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 at any time; for example, the Fund may limit the
application of multiple waivers and establish other conditions for employee
benefit plans.
Class S Shares. Class S shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants, service arrangements, or similar factors;
insurance companies; investment companies; advisory accounts of the Investment
Manager; endowment funds of nonprofit organizations with substantial minimum
assets (currently a minimum of $10 million); and other similar institutional
investors. Class S shares may be acquired through programs or products sponsored
by Metropolitan, its affiliates, or both for which Class S shares have been
designated. In addition, Class S shares are available through programs under
which, for example, investors pay an asset-based fee and/or a transaction fee to
intermediaries. Class S share availability is determined by the Distributor and
intermediaries based on the overall direct and indirect costs of a particular
program, expected assets, account sizes and similar considerations.
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, 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.
28
<PAGE>
Systematic Withdrawal Plan. A shareholder who owns noncertificated
Class A or Class S shares with a value of $5,000 or more, or Class B or Class C
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 Systematic Withdrawal 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 Systematic Withdrawal
Plan was initiated, whichever is higher.
Expenses of the Systematic Withdrawal Plan are borne by the Fund. A
participating shareholder may withdraw from the Systematic Withdrawal Plan, and
the Fund may terminate the Systematic Withdrawal Plan at any time on written
notice. Purchase of additional shares while a shareholder is receiving payments
under a Systematic Withdrawal Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate in
the Investamatic Program (see "Your Investment--Investor Services--Investamatic
Program" in the Fund's Prospectus) and the Systematic Withdrawal Plan at the
same time.
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.
Signature Guarantees. Signature guarantees are required for, among
other things: (1) written requests for redemptions for more than $100,000; (2)
written requests for redemptions for any amount if the proceeds are transmitted
to other than the current address of record (unchanged in the past 30 days); (3)
written requests for redemptions for any amount submitted by corporations and
certain fiduciaries and other intermediaries; and (4) requests to transfer the
registration of shares to another owner. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived in certain instances.
Dishonored Checks. If a purchaser's 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 canceled.
29
<PAGE>
Processing Charges. Purchases and redemptions processed through
securities dealers may be subject to processing charges imposed by the
securities dealer in addition to sales charges that may be imposed by the Fund
or the Distributor.
SHAREHOLDER ACCOUNTS
General information on shareholder accounts is included in the Fund's
Prospectus under "Your Investment." The following supplements that information.
Maintenance Fees and Involuntary Redemption. Because of the relatively
high cost of maintaining small shareholder accounts, the Fund reserves the right
to 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
involuntarily 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 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 to fairly determine the Fund's net asset values; or (3) during such
other periods as the Securities and Exchange Commission (the "SEC") may by order
permit for the protection of investors; and (b) the payment of redemption
proceeds may be postponed as otherwise provided under "Purchase and Redemption
of Shares" in this Statement of Additional Information.
The Open Account System. Under the Open Account System full and
fractional shares of the Fund owned by shareholders are credited to their
accounts by the Transfer Agent, State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110. Certificates representing Class B
or Class C shares will not be issued, while certificates representing Class A or
Class S shares will only be issued if specifically requested in writing and, in
any case, will only be issued for full shares, with any fractional shares to be
carried on the shareholder's account. Shareholders will receive periodic
statements of transactions in their accounts.
30
<PAGE>
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 "State
Street Research Funds" under the terms set forth above under
"Purchase and Redemption of Shares" in this Statement of
Additional Information.
2. The following methods of receiving dividends from investment
income and distributions from capital gains generally are
available:
(a) All income dividends and capital gains distributions
reinvested in additional shares of the Fund.
(b) All income dividends and capital gains distributions in
cash.
(c) All income dividends and capital gains distributions
invested in any one available Eligible Fund designated
by the shareholder as described below. See "--Dividend
Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to the
Service Center. Dividends and distributions are reinvested at net asset value
without a sales charge.
Exchange Privileges. 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 C 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 any acquired Class A, Class B and Class C
shares, the holding period of the redeemed shares is "tacked" to the holding
period of any acquired shares. No exchange transaction fee is currently imposed
on any exchange.
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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 C 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.
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 with
respect to the Fund (see "Your Investment--Account Policies--Telephone Requests"
in the Fund's Prospectus and "--Telephone Privileges," below) as the existing
account unless the Service Center 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 the Service
Center and delivered by the Service Center 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 the Service Center.
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Reinvestment Privilege. A shareholder of the Fund who has redeemed
shares or had shares repurchased at his or her request may reinvest all or any
portion of the proceeds (plus that amount necessary to acquire a fractional
share to round off his or her reinvestment to full shares) in shares, of the
same class as the shares redeemed, of the Fund or any other Eligible Fund at net
asset value and without subjecting the reinvestment to an initial sales charge,
provided such reinvestment is made within 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 the Service
Center of such shareholder's written purchase request and delivery of the
request by the Service Center 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.
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 amount.
Telephone Privileges. A shareholder with telephone privileges that are
offered with his or her Account (see "Your Investment--Account
Policies--Telephone Requests") is deemed to authorize the Service Center and the
Transfer Agent to: (1) act upon the telephone instructions of any person
purporting to be the shareholder or the shareholder's financial professional to
redeem or 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.
Neither the Fund, the other Eligible Funds, the Transfer Agent, the Investment
Manager nor the Distributor will be liable for any loss, expense or cost arising
out of any request, including any fraudulent or unauthorized requests.
Shareholders assume the risk to the full extent of their accounts that telephone
requests may be unauthorized. Reasonable procedures will be followed to confirm
that instructions communicated by telephone are genuine. The shareholder will
not be liable for any losses arising from unauthorized or fraudulent
instructions if such procedures are not followed.
Alternative Means of Contacting the Fund. It is unlikely, during
periods of extraordinary market conditions, that a shareholder may have
difficulty in reaching the Service Center. In that event, however, the
shareholder should contact the Service Center at 1-800-562-0032, 1-617-357-7800
or otherwise at its main office at One Financial Center, Boston, Massachusetts
02111-2690.
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NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily
as of the close of regular trading on the NYSE, ordinarily 4 P.M. New York City
time, Monday through Friday, on each day during which the NYSE is open for
unrestricted trading. The NYSE is currently closed on New Year's Day, Martin
Luther King, Jr. 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 may utilize one or more pricing services in lieu of market quotations
for certain securities which are not readily available on a daily basis. Such
services 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.
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, Inc.'s (the "NASD") 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.
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, 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. 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 anticipates that its portfolio turnover rate will not exceed
75% under normal conditions. In periods when there are rapid changes in economic
conditions or security price levels, or when the Investment Manager's investment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when the Investment Manager's
investment strategy remains relatively constant.
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 December 31, 1997 (commencement of operations)
through April 30, 1998 the portfolio turnover rate was 6.44%.
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 by the Investment Manager 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
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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 contained in
certain trading systems used for portfolio analysis and modeling and also
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 or its affiliates, 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
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-dealers from
third parties who are paid for such services by the broker-dealers.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. The Investment Manager's investment management
personnel conduct internal surveys and uses other methods to evaluate the
quality of the research and other services provided by various broker-dealer
firms, and the results of these efforts are made available to the equity trading
department, which sometimes uses this information as consideration to the extent
described above 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 the services to determine the proportion which is allocable to research or
investment decision-making and the proportion allocable to other purposes. The
Investment Manager pays directly from its own funds for that portion allocable
to uses other than research or investment decision-making. 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 providing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which the 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
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<PAGE>
need to receive an 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. For the period December
31, 1997 (commencement of operations) through April 30, 1998 the Fund paid
$18,667 in brokerage commissions in secondary trading. During and at the end of
its most recent fiscal year, the Fund did not hold in its portfolio 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 commissions 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.
In some instances, certain clients of the Investment Manager request
that it place all or part of the orders for their account with certain brokers
or dealers, which in some cases provide services to those clients. The
Investment Manager generally agrees to honor these requests to the extent
practicable. Clients may condition their requests by requiring the Investment
Manager only effect transactions with the specified broker-dealers if the
broker-dealers are competitive as to price and execution. In other cases, the
Investment Manager may be unable to negotiate commissions or obtain volume
discounts or best execution. In addition, a disparity may exist among the
commissions charged to clients who request the Investment Manager to use
particular brokers or dealers, and also between those clients and those who do
not make such requests. A client who requests the use of a particular
broker-dealer should understand that it may lose the possible advantage which
non-requesting clients derive from aggregation of orders for several clients as
a single transaction for the purchase or sale of a particular security. Among
other reasons why best execution may not be achieved with directed brokerage is
that, in an effort to achieve orderly execution of transactions, execution of
orders that have designated particular brokers may, at the discretion of the
trading desk, be delayed until execution of other non-designated orders has been
completed.
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 size of the order, 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
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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
Taxation Of The Fund--In General
The Fund intends to qualify and elects 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 qualify to do so. Accordingly, 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"); and (b) satisfy certain
diversification requirements on a quarterly basis.
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of the Fund's current or
accumulated earnings and profits. Also, the shareholders, if they received a
distribution in excess of current or accumulated earnings and profits, would
receive a return of capital that would reduce the basis of their shares of the
Fund to the extent thereof. Any distribution in excess of a shareholder's basis
in the shareholder's shares would be taxable as gain realized from the sale of
such shares.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year, the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any
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undistributed portion of the respective balances from the prior year. The Fund
intends to make sufficient distributions to avoid this 4% excise tax.
Taxation Of The Fund's Investments
Original Issue Discount; Market Discount. For federal income tax
purposes, debt securities purchased by the Fund may be treated as having
original issue discount. Original issue discount represents interest for federal
income tax purposes and can generally be defined as the excess of the stated
redemption price at maturity of a debt obligation over the issue price. Original
issue discount is treated for federal income tax purposes as income earned by
the Fund, whether or not any income is actually received, and therefore is
subject to the distribution requirements of the Code. Generally, the amount of
original issue discount is determined on the basis of a constant yield to
maturity which takes into account the compounding of accrued interest. Under
section 1286 of the Code, an investment in a stripped bond or stripped coupon
may result in original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for income tax
purposes. In the case of any debt security having a fixed maturity date of more
than one year from the date of issue and having market discount, the gain
realized on disposition will be treated as interest to the extent it does not
exceed the accrued market discount on the security (unless the Fund elects to
include such accrued market discount in income in the tax year to which it is
attributable). For debt securities acquired before May 1, 1993, this rule
applies only if the debt security was issued after July 18, 1984. Generally,
market discount is accrued on a daily basis. The Fund may be required to
capitalize, rather than deduct currently, part or all of any direct interest
expense incurred to purchase or carry any debt security having market discount,
unless the Fund makes the election to include market discount in income
currently. Because the Fund must include original issue discount in income, it
will be more difficult for the Fund to make the distributions required for the
Fund to maintain its status as a 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 excise
tax and the distribution requirements applicable to regulated investment
companies; (ii) defer recognition of realized losses; and (iii) characterize
both realized and unrealized gain or loss as short-term or long-term gain or
loss. Such provisions generally apply to, among other investments, options on
debt securities, indices on securities and futures contracts. The Fund will
monitor its transactions and may make certain tax elections available to it in
order to mitigate the impact of these rules and prevent disqualification of the
Fund as a regulated investment company.
Gains or losses attributable to foreign currency contracts or
fluctuations in exchange rates that occur between the time the Fund accrues
income or expenses denominated in a foreign currency and the time the Fund
actually collects such income or pays such expenses are treated as ordinary
income or loss. The portion of any gain or loss on the disposition of a debt
security
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<PAGE>
denominated in a foreign currency that is attributable to fluctuations in the
value of the foreign currency during the holding period of the debt security
will likewise be treated as ordinary income or loss. Such ordinary income or
loss will increase or decrease the amount of the Fund's net investment income.
If the Fund invests in the stock of certain "passive foreign investment
companies" ("PFICs"), income of such companies may become taxable to the Fund
prior to its distribution to the Fund or, alternatively, ordinary income taxes
and interest charges may be imposed on the Fund on "excess distributions"
received by the Fund or on gain from the disposition of such investments by the
Fund. The Fund does not intend to invest in PFICs. Because of the broad scope of
the PFIC rules, however, there can be no assurance that the Fund can avoid doing
so.
Taxation Of The Fund's Shareholders
The Fund may be subject to foreign taxes, including foreign income
taxes. If so, the Fund intends to meet the requirements of the Code for passing
through to its shareholders the tax benefit of foreign income taxes paid,
although there is no assurance that it will be able to do so. Under this
provision, if more than half of the value of the total assets of the Fund at the
close of its taxable year consists of stock or securities of foreign
corporations, the Fund will be eligible and intends to elect to pass through to
its shareholders the amount of foreign taxes it paid if such amounts are
material. Pursuant to this election, a United States shareholder will, in
general, be required to (i) include in gross income, in addition to taxable
distributions actually received, his or her pro rata share of the foreign taxes
paid by the Fund, (ii) treat that share of taxes as having been paid directly by
him or her, and (iii) either deduct such share of taxes or treat such share of
taxes as a credit against United States income tax liability. A tax-exempt
shareholder will ordinarily not benefit from this election.
Generally, a credit for foreign taxes paid by the Fund may not exceed a
shareholder's United States income tax attributable to the shareholder's foreign
source income. This limitation applies separately to different categories of
income, one of which is foreign-source passive income, which is likely to
include all of the foreign-source income of the Fund. As a result of these
limitations, some shareholders may not be able to utilize fully any foreign tax
credits generated by an investment in the Fund. The Fund will provide its
shareholders with information about the source of its income and the foreign
taxes it has paid for use in preparing the shareholder's United States income
tax return.
Dividends from domestic corporations are not expected to comprise a
substantial part of the income of the Fund. If such dividends are earned by the
Fund, then a portion of the dividends paid by the Fund may qualify for the 70%
deduction for dividends received which is available to corporate shareholders of
the Fund. Shareholders will be informed of any portion of the dividends paid by
the Fund which qualifies for this deduction. The dividends-received deduction is
reduced to the extent the dividends received are treated as debt-financed, under
the Code, and is eliminated if the stock is held for less than 46 days.
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Any dividend declared in October, November or December and made payable
to shareholders of record in any such month is treated as received by such
shareholder on December 31, provided that the Fund pays the dividend during
January of the following calendar year.
Distributions by the Fund result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless may be taxable
to the shareholder as ordinary income or long-term capital gain, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a taxable distribution will then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
The foregoing discussion of United States federal income tax law
relates solely to the application of that law to United States persons, that is,
United States citizens and residents and United States corporations,
partnerships, trusts and estates. Each shareholder who is not a United States
person should consider the United States and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to United States withholding at a rate of 30% (or at
a lower rate under an applicable treaty) on amounts constituting ordinary income
received by him or her, where such amounts are treated as income from United
States sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
SHARES OF THE FUND
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 (Class B and Class C shares). The Distributor may reallow all or
portions of such sales charges as concessions to dealers. For the period
December 31, 1997 (commencement of operations) through April 30, 1998, total
sales charges on Class A shares paid to the Distributor amounted to $155,909.
For the same period, the Distributor retained $18,809 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
41
<PAGE>
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, managed fee-based programs and so-called "mutual fund
supermarkets," among other programs, the amount of the sales charge reduction
will similarly reflect the anticipated reduction in sales expenses associated
with such arrangements. The reductions in sales expenses, and therefore the
reduction in sales charges, will vary depending on factors such as the size and
other characteristics of the organization or program, and the nature of its
membership or the participants. The Fund reserves the right to make variations
in, or eliminate, sales charges at any time or to revise the terms of or to
suspend or discontinue sales pursuant to sponsored arrangements or similar
programs at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
For the period December 31, 1997 (commencement of operations) through
April 30, 1998, the Distributor received contingent deferred sales charges upon
redemption of Class A, Class B and Class C shares of the Fund and paid initial
commissions to dealers for sales of such shares as follows:
<TABLE>
<CAPTION>
Contingent Commissions
Deferred Paid to
Sales Charges Dealers
------------- -------
<S> <C> <C>
Class A $0 $137,100
Class B $0 $606,852
Class C $0 $ 36,660
</TABLE>
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 C shares, including, but not
42
<PAGE>
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 and the Investment Manager 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.
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance or servicing of
shareholder accounts by such dealers. Dealers who have sold Class A shares are
eligible for further reimbursement commencing as of the time of such sale.
Dealers who have sold Class B and Class C 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.
43
<PAGE>
Commissions and other cash and noncash incentives and payments to
dealers, to the extent payable out of the general profits, revenues or other
sources of the Distributor (including the advisory fees paid by the Fund), have
also been authorized pursuant to the Distribution Plan.
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 C shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class C
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 C shares (as the case may be) to make payments for personal
services and/or the maintenance or servicing of shareholder accounts. The
distribution and servicing expenses of a particular class will be borne solely
by that class. In addition, a rule of the NASD limits annual expenditures that
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 that 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.
The Distributor may pay certain dealers and other intermediaries
additional compensation for sales and administrative services. The Distributor
may provide cash and noncash incentives to intermediaries who, for example, sell
significant amounts of shares or develop particular distribution channels. The
Distributor may compensate dealers with clients who maintain their investments
in the Fund over a period of years. The incentives can include merchandise and
trips to, and attendance at, sales seminars at resorts. The Distributor may pay
for administrative services, such as technological and computer systems support
for the maintenance of pension plan participant records, for subaccounting, and
for distribution through mutual fund supermarkets or similar arrangements.
For the period December 31, 1997 (commencement of operations) through
April 30, 1998 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:
44
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Advertising $ 547 $ 4,336 $ 0
Printing and mailing of prospectuses
to other than current shareholders 40 315 0
Compensation to dealers 1,087 4,078 0
Compensation to sales personnel 1,244 9,809 7,847
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing; general 784 6,199 0
------ ------- ------
Total fees received $3,702 $24,737 $7,847
====== ======= ======
</TABLE>
The Distributor may have also used 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
From time to time, in advertisements or in communications to
shareholders or prospective investors, the Fund may compare the performance of
its Class A, Class B, Class C or Class S shares to the performance of other
mutual funds with similar investment objectives, to certificates of deposit
and/or to other financial alternatives. The Fund may also compare its
performance to appropriate indices, such as Standard & Poor's 500 Index,
Consumer Price Index and Dow Jones Industrial Average and/or to appropriate
rankings and averages such as those compiled by Lipper Analytical Services,
Inc., Morningstar, Inc., CDC/Wisenberger Investment Companies Service, Frank
Russell Company, Money Magazine, Business Week, Forbes Magazine, The Wall Street
Journal and Investor's Daily. For example, the performance of the Fund might be
compared to the Lipper Growth Funds category.
45
<PAGE>
The average annual total return ("standard total return") of the Class
A, Class B, Class C and Class S shares of the Fund will be calculated as set
forth below. Total return is 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 fees or expenses
relating to the Fund; see "Accrued Expenses and Recurring Charges" later in this
section.
Total Return
The Fund's standard average annual total return ("standard total
return") of each class of shares was as follows:
December 31, 1997
(commencement of operations)
to April 30, 1998
----------------------------
<TABLE>
<CAPTION>
SEC Aggregate
Total Return Total Return
(Annualized)* (Not Annualized)*
------------- -----------------
<S> <C> <C>
Class A 52.96 11.35
Class B 54.33 11.40
Class C 57.91 15.30
Class S 61.01 16.80
</TABLE>
*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 119-day period involved and should be interpreted carefully since
annualization in this instance presumes that the performance for the 119 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:
46
<PAGE>
n
P(1+T) = ERV
<TABLE>
<S> <C>
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
</TABLE>
The calculation is based on the further assumptions that the highest
applicable initial or contingent deferred sales charge 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 and recurring
charges are also taken into account as described later herein.
Accrued Expenses and Recurring Charges
Accrued expenses include all recurring charges 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 during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class S shares for periods which end no
earlier than the most recent calendar quarter end and which begin at the time of
commencement of such Funds 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, if any, may not be taken into account and therefore not
deducted from the hypothetical initial payment of $1,000. For example, the
Fund's nonstandardized total returns for the period ended December 31, 1997
(commencement of operations) through April 30, 1998 without taking sales charges
into account, were as follows:
47
<PAGE>
<TABLE>
<S> <C>
Class A 16.60%
Class B 16.40%
Class C 16.30%
Class S 16.80%
</TABLE>
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 SEC 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 Service
Center.
The following financial statements are for the period December 31, 1997
(commencement of operations) through April 30, 1998.
DOCS\548253.9
48
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 96.0%
Basic Industries 10.4%
Chemical 4.1%
E.I. Du Pont De Nemours & Co. ................. 23,000 $ 1,674,688
-----------
Electrical Equipment 4.1%
General Electric Co. .......................... 19,400 1,651,425
-----------
Machinery 2.2%
Tyco International Ltd. ....................... 16,600 904,700
-----------
Total Basic Industries ........................ 4,230,813
-----------
Consumer Cyclical 14.8%
Automotive 3.0%
Danaher Corp. ................................. 17,000 1,221,875
-----------
Recreation 5.0%
News Corp. Ltd. ADR ........................... 34,700 947,744
US West Inc.* ................................. 28,800 1,087,200
-----------
2,034,944
-----------
Retail Trade 6.8%
CVS Corp. ..................................... 11,500 848,125
Dayton Hudson Corp. ........................... 11,600 1,012,825
Home Depot Inc. ............................... 13,400 932,975
-----------
2,793,925
-----------
Total Consumer Cyclical ....................... 6,050,744
-----------
Consumer Staple 28.1%
Business Service 4.6%
Apollo Group Inc. Cl. A* ...................... 14,400 493,200
HBO & Co. ..................................... 7,500 448,594
Interpublic Group of Companies, Inc. .......... 14,400 919,800
-----------
1,861,594
-----------
Drug 7.7%
Merck & Company, Inc. ......................... 8,700 1,048,350
Pfizer Inc. ................................... 10,900 1,240,556
Warner-Lambert Co. ............................ 4,400 832,425
-----------
3,121,331
-----------
Food & Beverage 5.9%
Coca-Cola Co. ................................. 18,450 1,399,894
Sara Lee Corp. ................................ 17,200 1,024,475
-----------
2,424,369
-----------
Hospital Supply 4.5%
Johnson & Johnson ............................. 17,600 1,256,200
Medtronic Inc. ................................ 11,200 589,400
-----------
1,845,600
-----------
Personal Care 5.4%
Gillette Co. .................................. 7,500 $ 865,781
Procter & Gamble Co. .......................... 16,300 1,339,656
-----------
2,205,437
-----------
Total Consumer Staple ......................... 11,458,331
-----------
Energy 4.1%
Oil 4.1%
Total SA Cl. B ADR ............................ 28,800 1,692,000
-----------
Total Energy .................................. 1,692,000
-----------
Finance 15.9%
Bank 8.4%
Banc One Corp. ................................ 28,300 1,664,394
BankAmerica Corp. ............................. 20,500 1,742,500
-----------
3,406,894
-----------
Financial Service 2.7%
American Express Co. .......................... 10,700 1,091,400
-----------
Insurance 4.8%
Ace Ltd. ...................................... 27,300 1,033,987
UNUM Corp. .................................... 17,100 919,125
-----------
1,953,112
-----------
Total Finance ................................. 6,451,406
-----------
Science & Technology 19.9%
Aerospace 1.7%
Boeing Co. .................................... 14,200 710,888
-----------
Computer Software & Service 7.2%
Cisco Systems Inc.* ........................... 15,200 1,113,400
i2 Technologies Inc.* ......................... 5,300 353,775
J.D. Edwards & Co.* ........................... 12,300 438,187
Microsoft Corp.* .............................. 11,600 1,045,450
-----------
2,950,812
-----------
Electronic Components 2.1%
Analog Devices Inc.* .......................... 21,600 841,050
-----------
Electronic Equipment 2.2%
Lucent Technologies Inc. ...................... 11,800 898,275
-----------
Office Equipment 6.7%
International Business Machines Corp. ......... 8,900 1,031,287
Xerox Corp. ................................... 14,900 1,691,150
-----------
2,722,437
-----------
Total Science & Technology .................... 8,123,462
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Utility 2.8%
Telephone 2.8%
AirTouch Communications Inc.* .................. 21,500 $1,142,188
----------
Total Utility .................................. 1,142,188
----------
Total Common Stocks (Cost $36,586,915) ......... 39,148,944
----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 3.9%
American Express Credit Corp.,
5.51% .............................. $ 276,000 5/04/1998 276,000
Ford Motor Credit Co., 5.50% ......... 1,007,000 5/05/1998 1,007,000
General Electric Capital Corp.,
5.45% .............................. 316,000 5/01/1998 316,000
-----------
Total Commercial Paper (Cost $1,599,000)....................... 1,599,000
-----------
Total Investments (Cost $38,185,915)--99.9%.................... 40,747,944
Cash and Other Assets, Less Liabilities--0.1% ................. 27,380
-----------
Net Assets--100.0% ............................................ $40,775,324
===========
</TABLE>
<TABLE>
<S> <C>
Federal Income Tax Information:
At April 30, 1998, the net unrealized
appreciation of investments based on cost
for Federal income tax purposes of
$38,185,915 was as follows:
Aggregate gross unrealized appreciation
for all investments in which there is an
excess of value over tax cost ........ $ 2,660,042
Aggregate gross unrealized depreciation
for all investments in which there is an
excess of tax cost over value ........ (98,013)
-----------
$ 2,562,029
===========
</TABLE>
- --------------------------------------------------------------------------------
*Nonincome-producing securities
ADR stands for American Depository Receipt, representing ownership of foreign
securities.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $38,185,915)(Note 1) ..................... $40,747,944
Cash ................................................................. 10,796
Receivable for fund shares sold ...................................... 1,247,306
Receivable from Distributor (Note 3) ................................. 39,280
Dividends and interest receivable .................................... 12,916
Deferred organization costs (Note 1) ................................. 77,878
-----------
42,136,120
Liabilities
Payable for securities purchased ..................................... 1,180,078
Accrued distribution and service fees (Note 5) ....................... 18,759
Accrued management fee (Note 2) ...................................... 17,581
Accrued transfer agent and shareholder services
(Note 2) ........................................................... 16,450
Accrued trustees' fees (Note 2) ...................................... 8,168
Payable for fund shares redeemed ..................................... 2,082
Other accrued expenses ............................................... 117,678
-----------
1,360,796
-----------
Net Assets $40,775,324
===========
Net Assets consist of:
Unrealized appreciation of investments .............................. $ 2,562,029
Accumulated net realized gain ....................................... 57,450
Paid-in capital ..................................................... 38,155,845
-----------
$40,775,324
===========
Net Asset Value and redemption price per share of
Class A shares ($11,984,052 [divided by] 1,027,449 shares) ......... $11.66
=======
Maximum Offering Price per share of Class A shares
($11.66 [divided by] .955) ......................................... $12.21
=======
Net Asset Value and offering price per share of Class
B shares ($19,687,904 [divided by] 1,692,083 shares)* .............. $11.64
=======
Net Asset Value and offering price per share of Class
C shares ($4,976,619 [divided by] 427,799 shares)* ................. $11.63
=======
Net Asset Value, offering price and redemption price
per share of Class S shares
($4,126,749 [divided by] 353,464 shares) ........................... $11.68
=======
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the period December 31, 1997
(commencement of operations) to April 30, 1998
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $139 .................. $ 36,889
Interest ................................................. 42,045
----------
78,934
Expenses
Management fee (Note 2) .................................. 38,533
Custodian fee ............................................ 27,960
Transfer agent and shareholder services (Note 2) ......... 16,450
Audit fee ................................................ 14,820
Registration fees ........................................ 11,400
Trustees' fees (Note 2) .................................. 8,168
Reports to shareholders .................................. 8,164
Amortization of organization costs (Note 1) .............. 5,432
Service fee-Class A (Note 5) ............................. 3,702
Distribution and service fees--Class B (Note 5) .......... 24,737
Distribution and service fees--Class C (Note 5) .......... 7,487
Legal fees ............................................... 2,032
Miscellaneous ............................................ 1,972
----------
170,857
Expenses borne by the Distributor (Note 3) ............... (75,650)
----------
95,207
----------
Net investment loss ...................................... (16,273)
----------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) ......... 68,845
Net unrealized appreciation of investments ............... 2,562,029
----------
Net gain on investments .................................. 2,630,874
----------
Net increase in net assets resulting from operations ..... $2,614,601
==========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period December 31, 1997
(commencement of operations) to April 30, 1998
<TABLE>
<S> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss ........................................ $ (16,273)
Net realized gain on investments ........................... 68,845
Net unrealized appreciation of investments ................. 2,562,029
-----------
Net increase resulting from operations ..................... 2,614,601
-----------
Net increase from fund share transactions (Note 6) ......... 38,160,723
-----------
Total increase in net assets ............................... 40,775,324
Net Assets
Beginning of period ........................................ --
-----------
End of period .............................................. $40,775,324
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1998
Note 1
State Street Research Legacy 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 December, 1997. The Trust presently consists of four
separate funds: State Street Research Legacy Fund, State Street Research
Galileo Fund, State Street Research Intermediate Bond Fund and State Street
Research Strategic Income Fund.
The investment objective of the Fund is to provide long-term growth of capital.
In seeking to achieve its investment objective, the Fund invests at least 65%
of total assets in stocks and convertible securities of mid- and large-size
companies. The Fund employs a tax-managed strategy, generally seeking to
identify stocks with long-term growth potential and holding them for extended
periods.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and pay
annual distribution and service fees of 1.00%. Class B shares automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years after the issuance of the Class B shares. Class C shares are
subject to a contingent deferred sales charge of 1.00% on any shares redeemed
within one year of their purchase. Class C shares also pay annual distribution
and service fees of 1.00%. Class S shares are only offered through certain
retirement accounts, advisory accounts of State Street Research & Management
Company (the "Adviser"), an indirect wholly owned subsidiary of Metropolitan
Life Insurance Company ("Metropolitan"), and special programs. No sales charge
is imposed at the time of purchase or redemption of Class S shares. Class S
shares do not pay any distribution or service fees. 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
Values for listed securities represent final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at the closing price
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are at
the mean of the closing bid and asked quotations. Short-term securities
maturing within sixty days are valued at amortized cost. Other securities, if
any, are valued at their fair value as determined in accordance with
established methods consistently applied.
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.
C. Net Investment Income
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to it,
while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a
period of five years.
G. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
H. Securities Lending
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the Fund will bear the
loss. During the period December 31, 1997 (commencement of operations) to April
30, 1998, there were no loaned securities.
5
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.65% 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 December 31, 1997 (commencement of
operations) to April 30, 1998, the fees pursuant to such agreement amounted to
$38,533.
State Street Research Service Center, 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 December 31, 1997 (commencement of
operations) to April 30, 1998, the amount of such expenses was $2,774.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$8,168 during the period December 31, 1997 (commencement of operations) to
April 30, 1998.
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 December 31, 1997 (commencement of operations) to April 30,
1998, the amount of such expenses assumed by the Distributor and its affiliates
was $75,650.
Note 4
For the period December 31, 1997 (commencement of operations) to April 30,
1998, purchases and sales of securities, exclusive of short-term obligations,
aggregated $37,581,040 and $1,062,970, 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 C shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B and
Class C shares. The Distributor uses such payments for personal service and/or
the maintenance or servicing of shareholder accounts, to compensate or
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 December 31, 1997
(commencement of operations) to April 30, 1998, fees pursuant to such plan
amounted to $3,702, $24,737 and $7,487 for Class A, Class B and Class C shares,
respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $18,809 and $60,247, respectively, on sales of Class A shares of
the Fund during the period December 31, 1997 (commencement of operations) to
April 30, 1998, and that MetLife Securities, Inc. earned commissions
aggregating $223,185 on sales of Class B shares 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, 1998, the Adviser
owned one share of each of Class A, Class B, Class C and Class S and
Metropolitan owned 50,000 shares of each of Class A, Class B, Class C and
350,000 Class S shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
December 31, 1997
(Commencement of
Operations) to
April 30, 1998
---------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold ................ 1,060,271 $11,720,798
Shares repurchased ......... (32,822) (360,909)
--------- -----------
Net increase ............... 1,027,449 $11,359,889
========= ===========
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold ................ 1,699,460 $18,706,942
Shares repurchased ......... (7,377) (83,326)
--------- -----------
Net increase ............... 1,692,083 $18,623,616
========= ===========
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold ................ 428,033 $ 4,641,277
Shares repurchased ......... (234) (2,653)
--------- -----------
Net increase ............... 427,799 $ 4,638,624
========= ===========
Class S Shares Amount
- ----------------------------------------------------------------
Shares sold ................ 353,464 $ 3,538,594
--------- -----------
Net increase ............... 353,464 $ 3,538,594
========= ===========
</TABLE>
6
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding from December 31, 1997 (commencement of operations) to
April 30,1998(1)
<TABLE>
<CAPTION>
Class A Class B Class C Class S
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 10.00 10.00 10.00
------ ------ ------ -----
Net investment income (loss) ($)* 0.00 (0.03) (0.03) 0.03
Net realized and unrealized gain on investments ($) 1.66 1.67 1.66 1.65
------ ------ ------ -----
Total from investment operations ($) 1.66 1.64 1.63 1.68
------ ------ ------ -----
Net asset value, end of period ($) 11.66 11.64 11.63 11.68
====== ====== ====== =====
Total return(2) (%) 16.60(3) 16.40(3) 16.30(3) 16.80(3)
Ratios/supplemental data:
Net assets at end of period ($ thousands) 11,984 19,688 4,977 4,127
Ratio of operating expenses to average net assets (%)* 1.25(4) 2.00(4) 2.00(4) 1.00(4)
Ratio of net investment income (loss) to average net assets (%)* 0.01(4) (0.76)(4) (0.69)(4) 0.60(4)
Portfolio turnover rate (%) 6.44 6.44 6.44 6.44
*Reflects voluntary assumption of fees or expenses per share (Note 3) ($) 0.04 0.04 0.04 0.09
</TABLE>
- --------------------------------------------------------------------------------
(1) Per share figures have been calculated using the average shares method.
(2) 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.
(3) Not annualized
(4) Annualized
7
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research
Securities Trust and Shareholders of
State Street Research Legacy Fund:
We have audited the accompanying statement of assets and liabilities of State
Street Research Legacy Fund, including the schedule of portfolio investments,
as of April 30, 1998, and the related statements of operations and changes in
net assets and the financial highlights for the period December 31, 1997
(commencement of operations) to April 30, 1998. 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, 1998, 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 Legacy Fund as of April 30, 1998, the results of its operations
and changes in its net assets and the financial highlights for the period
December 31, 1997 (commencement of operations) to April 30, 1998, in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 5, 1998
8
<PAGE>
State Street Research Galileo Fund
a series of
State Street Research Securities Trust
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVE..........................................................1
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS...............................1
ADDITIONAL INFORMATION CONCERNING CERTAIN RISKS AND INVESTMENTS...............3
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS..............................14
THE TRUST, THE FUND AND ITS SHARES...........................................17
TRUSTEES AND OFFICERS........................................................19
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY SERVICES......................23
PURCHASE AND REDEMPTION OF SHARES............................................24
SHAREHOLDER ACCOUNTS.........................................................28
NET ASSET VALUE..............................................................32
PORTFOLIO TRANSACTIONS.......................................................33
CERTAIN TAX MATTERS..........................................................36
SHARES OF THE FUND...........................................................39
CALCULATION OF PERFORMANCE DATA..............................................43
CUSTODIAN....................................................................45
INDEPENDENT ACCOUNTANTS......................................................45
FINANCIAL STATEMENTS.........................................................46
</TABLE>
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
Galileo Fund (the "Fund") dated September 1, 1998, 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: 1285U-980321(0399)SSR-LD GA-879D-398
<PAGE>
INVESTMENT OBJECTIVE
As set forth under "The Fund--Goal and Strategies--Fundamental Goal" in
the Prospectus of State Street Research Legacy Fund (the "Fund"), the Fund's
investment goal, which is to seek to provide long-term growth of capital, is
fundamental and may not be changed by the Fund except by the affirmative vote of
a majority of the outstanding voting securities of the Fund, 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 the annual or a special meeting of security holders duly called, (i) of
67% or more of the voting securities present at the 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.)
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Fund--Principal Risks" and "Other
Information--Other Securities and Risks" in the Fund's Prospectus, the Fund has
adopted certain investment restrictions, and those investment restrictions are
either fundamental or not fundamental. Fundamental restrictions may not be
changed by the Fund except by the affirmative vote of a majority of the
outstanding voting securities of the Fund. Restrictions that are not fundamental
may be changed by a vote of the Trustees of the Trust.
The Fund's fundamental investment restrictions are set forth below.
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 1940 Act and the rules thereunder
or as permitted by the Securities and Exchange Commission (the
creation of general lines 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 interest 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;
<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 directly to natural persons; however, the
Fund may lend portfolio securities and purchase bonds,
debentures, notes, bills and any other debt related
instruments or interests directly from the issuer thereof or
in the open market and may enter into repurchase transactions
collateralized by obligations of the U.S. Government or its
agencies and instrumentalities or other high quality
securities;
(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,
except securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities or mixed ownership
Government corporations or sponsored enterprises, 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 investment restrictions may be changed by the Trustees.
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 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;
(3) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (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); and
(4) 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.
2
<PAGE>
ADDITIONAL INFORMATION CONCERNING
CERTAIN RISKS AND INVESTMENTS
Derivatives
The Fund may buy and sell certain types of derivatives, such as
options, futures contracts, options on futures contracts, and swaps under
circumstances in which such instruments are expected by State Street Research &
Management Company, the Fund's Investment Manager (the "Investment Manager"), to
aid in achieving the Fund's investment objective. The Fund 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.
Derivatives such as options, futures contracts, options on futures
contracts, and swaps enable the Fund to take both "short" positions (positions
which anticipate a decline in the market value of a particular asset or index)
and "long" positions (positions which anticipate an increase in the market value
of a particular asset or index). The Fund may also use strategies which involve
simultaneous short and long positions in response to specific market conditions,
such as where the Investment Manager anticipates unusually high or low market
volatility.
The Investment Manager may enter into derivative positions for the Fund
for either hedging or nonhedging purposes. The term hedging is applied to
defensive strategies designed to protect the Fund from an expected decline in
the market value of an asset or group of assets that the Fund owns (in the case
of a short hedge) or to protect the Fund from an expected rise in the market
value of an asset or group of assets which it intends to acquire in the future
(in the case of a long or "anticipatory" hedge). Non-hedging strategies include
strategies designed to produce incremental income (such as the option writing
strategy described below) or "speculative" strategies which are undertaken to
profit (i) from an expected decline in the market value of an asset or group of
assets which the Fund does not own or (ii) expected increases in the market
value of an asset which it does not plan to acquire. Information about specific
types of instruments is provided below.
Futures Contracts.
Futures contracts are publicly traded contracts to buy or sell an
underlying asset or group of assets, such as a currency 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 an equity security or an index of
equity 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 futures commission merchant effecting the futures
transaction an amount of "initial margin" in cash or securities, as permitted
under applicable regulatory policies.
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
3
<PAGE>
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.
In transactions establishing a long position in a futures contract,
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, assets 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 utilize such
assets and methods of cover as appropriate under applicable exchange and
regulatory policies.
Options.
The Fund may use options to implement its investment strategy. There
are two basic types of options: "puts" and "calls." Each type of option can
establish either a long or a short position, depending upon whether the Fund is
the purchaser or the writer of the option. 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, that is, 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. In general, a purchased put increases in value
as the value of the underlying security falls and a purchased call increases in
value as the value of the underlying security rises.
The principal reason to write options is to generate extra income (the
premium paid by the buyer). 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, that is, 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, that is, 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
its 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.
4
<PAGE>
Among the options which the Fund may enter are options on securities
indices. In general, options on indices of securities are similar to options on
the securities themselves except that delivery requirements are different. For
example, a put option on an index of securities does not give the holder the
right to make actual delivery of a basket of securities but instead 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 equity 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. In
connection with the use of such options, the Fund may cover its position by
identifying assets having a value equal to the aggregate face value of the
option position taken.
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.
Limitations and Risks of Options and Futures Activity.
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. The Fund
applies a similar policy to options that are not commodities.
As noted above, the Fund may engage in both hedging and nonhedging
strategies. 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.
Nonhedging strategies typically involve special risks. The
profitability of the Fund's nonhedging strategies will depend on the ability of
the Investment Manager to analyze both the applicable derivatives market and the
market for the underlying asset or group of assets. Derivatives markets are
often more volatile than corresponding securities markets and a relatively small
change in the price of the underlying asset or group of assets can have a
magnified effect upon the price of a related derivative instrument.
Derivatives markets also are often less liquid than the market for the
underlying asset or group of assets. 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 carry out their derivative
strategies and might, in some cases, require a Fund to
5
<PAGE>
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.
Swap Arrangements
The Fund may invest up to 5% of its total assets in swaps. 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.
The Fund may enter credit protection arrangements involving the sale by
the Fund of a put option on a debt security which is exercisable by the buyer
upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
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 portion of the Fund's portfolio.
However, the Fund may, as noted above, enter into such arrangements for income
purposes to the extent permitted by the Commodities Futures Trading Commission
(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.
6
<PAGE>
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 net assets, except
that repurchase agreements extending for more than seven days when combined with
any other illiquid securities held by the Fund will be limited to 15% of the
Fund's net assets.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements but not in excess
of 5% of the Fund's total assets. In a reverse repurchase agreement, the Fund
transfers possession of 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.
When-Issued Securities
The Fund may purchase "when-issued" securities, which are traded on a
price or yield 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; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The Trust's custodian will establish a segregated account when the
Fund 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.
Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including restricted securities sold in accordance with Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities") if, as a result, more
than 35% of the Fund's total assets are invested in
7
<PAGE>
restricted securities, provided not more than 10% of the Fund's total assets are
invested in restricted securities 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 relatively new and
still developing; depending on the development of such markets, Rule 144A
Securities may be deemed to be liquid as determined by or in accordance with
methods adopted by the Trustees. Under such methods the following factors are
considered, among others: the frequency of trades and quotes for the security,
the number of dealers and potential purchasers in the market, market making
activity, and the nature of the security and marketplace trades. Investments in
Rule 144A Securities could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the Fund may be
adversely impacted by the subjective valuation of such securities in the absence
of a market for them. Restricted securities that are not resalable under Rule
144A may be subject to risks of illiquidity and subjective valuations to a
greater degree than Rule 144A Securities.
Lower Quality Debt Securities ("Junk Bonds")
The Fund may invest in lower quality debt securities. Lower quality
convertible or nonconvertible debt securities generally involve more credit risk
than higher rated securities and are considered by S&P and Moody's to be
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Further, such securities may be
subject to greater market fluctuations and risk of loss of income and principal
than lower yielding, higher rated debt securities. Risk of lower quality debt
securities, commonly known as "junk bonds," include (i) limited liquidity and
secondary market support; (ii) substantial market price volatility resulting
from changes in prevailing interest rates and/or investor perceptions; (iii)
subordination to the prior claims of banks and other senior lenders; (iv) the
operation of mandatory sinking fund or call/redemption provisions during periods
of declining interest rates when the Fund may be required to reinvest premature
redemption proceeds in lower yielding portfolio securities; (v) the possibility
that earnings of the issuer may be insufficient to meet its debt service; and
(vi) the issuer's low creditworthiness and potential for insolvency during
period of rising interest rates and economic downturn. For further information
concerning the rating categories of debt securities, see Debt Instruments and
Permitted Cash Investments--Certain Securities Ratings in this Statement of
Additional Information.
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.
Foreign Investments
The Fund reserves the right to invest without limitation in securities
of non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary
Receipts ("GDRs"). Under current policy, however, the Fund limits such
investments, including ADRs, EDRs and GDRs, to a maximum of 35% of its total
investments.
ADRs are 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 receipts issued in Europe which evidence a
similar ownership arrangement. GDRs are receipts issued in one country which
also evidence a similar ownership arrangement. Generally, ADRs in
8
<PAGE>
registered form are designed for use in U.S. securities markets and EDRs are
designed for use in European securities markets. GDRs are designed for use when
the issuer is raising capital in more than one market simultaneously, such as
the issuer's local market and the U.S., and have been used to overcome local
selling restrictions to foreign investors. In addition, many GDRs are eligible
for book-entry settlement through Cedel, Euroclear and DTC. The underlying
securities are not always denominated in the same currency as the ADRs, EDRs or
GDRs. Although investment in the form of ADRs, EDRs or GDRs facilitates trading
in foreign securities, it does not mitigate all the risks associated with
investing in foreign securities.
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 compared to a sponsored facility. 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 involved 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
tradings. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
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.
These risks are usually higher in less-developed countries. Such
countries include countries that have an emerging stock market on which trade a
small number of securities and/or countries with economies that are based on
only a few industries. The Fund may invest in the securities of issuers in
countries with less developed economies as deemed appropriate by the Investment
Manager. However, it is anticipated that a majority of the foreign investments
by the Fund will consist of securities of issuers in countries with developed
economies.
Currency Transactions
The Fund may engage in currency exchange transactions in order to
protect against the effect of uncertain future exchange rates on securities
denominated in foreign currencies. 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
9
<PAGE>
commercial banks) and their customers. In entering a forward currency contract,
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. 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.
Securities Lending
The Fund may lend portfolio securities with a value of up to 33 1/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may 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 or certain unaffiliated mutual funds, 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 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 or its agents to be of good financial
standing.
Short-Term Trading
The Fund may engage in short-term trading of securities and reserves
full freedom with respect to portfolio turnover. In periods where there are
rapid changes in economic conditions and security price levels or when
reinvestment strategy changes significantly, portfolio turnover may be higher
than during times of economic and market price stability or when investment
strategy remains relatively constant. The Fund's portfolio turnover rate may
involve greater transaction costs, relative to other funds in general, and may
have tax and other consequences.
Temporary and Defensive Investments
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 adverse 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 money market
securities, such as repurchase agreements, and securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, certificates of
deposit, time deposits and bankers' acceptances of certain qualified financial
institutions and corporate commercial paper, which at the time of purchase are
rated at least within the "A" major rating category by Standard & Poor's
Corporation ("S&P") or the "Prime" major rating category by Moody's Investor's
10
<PAGE>
Service, Inc. ("Moody's"), or, if not rated, issued by companies having an
outstanding long-term unsecured debt issued rated at least within the "A"
category by S&P or Moody's.
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. "Asset-
backed--Mortgages" includes private pools of nongovernment backed mortgages.
Autos & Transportation
- ----------------------
Air Transport
Auto Parts
Automobiles
Miscellaneous
Transportation
Railroad Equipment
Railroads
Recreational Vehicles &
Boats
Tires & Rubber
Truckers
Consumer Discretionary
- ----------------------
Advertising Agencies
Casino/Gambling,
Hotel/Motel
Commercial Services
Communications, Media &
Entertainment
Consumer Electronics
Consumer Products
Consumer Services
Household Furnishings
Leisure Time
Photography
Printing & Publishing
Restaurants
Retail
Shoes
Textile Apparel
Manufacturers
Toys
Consumer Staples
- ----------------
Beverages
Drug & Grocery Store
Chains
Foods
Household Products
Tobacco
Financial Services
- ------------------
Banks & Savings and Loans
Financial Data Processing
Services & Systems
Insurance
Miscellaneous Financial
Real Estate Investment
Trusts
Rental & Leasing Services:
Commercial
Securities Brokerage &
Services
Health Care
- -----------
Drugs & Biotechnology
Health Care Facilities
Health Care Services
Hospital Supply
Service Miscellaneous
Integrated Oils
- ---------------
Oil: Integrated Domestic
Oil: Integrated International
Materials & Processing
- ----------------------
Agriculture
Building & Construction
Chemicals
Containers & Packaging
Diversified Manufacturing
Engineering & Contracting
Serv.
Fertilizers
Forest Products
Gold & Precious Metals
Miscellaneous Materials &
Processing
Non-Ferrous Metals
Office Supplies
Paper and Forest Products
Real Estate & Construction
11
<PAGE>
Steel
Textile Products
Other
- -----
Trust Certificates --
Government Related
Lending
Asset-backed-Mortgages
Asset-backed-Credit Card
Receivables
Miscellaneous
Multi-Sector Companies
Other Energy
- ------------
Gas Pipelines
Miscellaneous Energy
Offshore Drilling
Oil and Gas Producers
Oil Well Equipment &
Services
Producer Durables
- -----------------
Aerospace
Electrical Equipment &
Components
Electronics: Industrial
Homebuilding
Industrial Products
Machine Tools
Machinery
Miscellaneous Equipment
Miscellaneous Producer
Durables
Office Furniture & Business
Equipment
Pollution Control and
Environmental Services
Production Technology
Equipment
Telecommunications
Equipment
Technology
- ----------
Communications Technology
Computer Software
Computer Technology
Electronics
Electronics: Semi-
Conductors/Components
Miscellaneous Technology
Utilities
- ---------
Miscellaneous Utilities
Utilities: Cable TV & Radio
Utilities: Electrical
Utilities: Gas distribution
Utilities:Telecommunications
Utilities: Water
Computer-Related Risks
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates. In addition, many funds
and other companies, especially those funds and companies that do business in
one or more national currencies of the countries in the European Union (the
"EU"), may be adversely affected by computer systems that cannot accommodate
concurrent references to two currencies, the national currency and the euro (the
proposed currency unit of the EU). Beginning on January 1, 1999 and for the
three years thereafter, businesses and governments in most EU countries
generally must be prepared to conduct their businesses in their national
currency and the euro. After such three-year period, they must conduct their
businesses only in the euro.
The euro conversion presents additional risks for the Fund to the
extent that it invests in securities denominated in a national currency that
eventually will be replaced by the euro. For example, trading, accounting and
other administrative systems must be able to reflect exchange rates between a
national currency of an EU member and the euro and to redenominate outstanding
tradeable debt securities into the euro in accordance with specific technical
requirements.
The Investment Manager currently is in the process of reviewing its
internal computer systems as they relate to the Fund, as well as the computer
systems of those service providers upon which the Fund relies, in order to
obtain reasonable assurances that the Fund will not experience a material
adverse impact related to either problem. The Fund does not currently anticipate
that either problem will have a material adverse impact on its portfolio
investments, taken as a whole. There can be no assurances in either area,
however, including the possibility
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<PAGE>
that either or both problems could negatively affect the investment markets or
the economy generally.
DEBT INSTRUMENTS AND
PERMITTED CASH INVESTMENTS
The Fund may invest in long-term and short-term debt securities.
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.
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 Bank, the Federal Farm Credit Bank, 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
13
<PAGE>
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 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.
14
<PAGE>
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, among others, (a) corporations and (b) domestic or foreign bank
holding companies or 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.
Certain Securities Ratings.
Commercial Paper Ratings.
Commercial paper investments at the time of purchase will be rated
within the "A" major rating category by S&P or within the "Prime" major rating
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 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 within the "A" category 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.
15
<PAGE>
THE TRUST, THE FUND AND ITS SHARES
The Fund was organized in 1998 as a separate series of State Street
Research Securities Trust, a Massachusetts business trust. A "series" is a
separate pool of assets of the Trust which is separately managed and may have a
different investment objective and different investment policies from the
objective and policies of another series. The Trust currently is comprised of
four series: State Street Research Strategic Income Fund, State Street Research
Intermediate Bond Fund, State Street Research Galileo Fund and State Street
Research Legacy Fund. The Trustees of the Trust have authority to issue an
unlimited number of shares of beneficial interest of each separate series, $.001
par value per share. The Trustees also 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 classes.
The Trustees have authorized shares of the Fund to be issued in four classes:
Class A, Class B, Class C and Class S 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 C
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. Except for those
differences between classes of shares described above, in the Fund's Prospectus
and otherwise this Statement of Additional Information, 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 by the Fund.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have an 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 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 ordinarily will be no shareholder meetings
unless required by the 1940 Act. Except as otherwise provided under the 1940
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 for the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust
16
<PAGE>
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.
The Fund is an "open-end" management investment company and is a
"diversified company" as those terms are defined in the 1940 Act. Among other
things, a diversified fund must, with respect to 75% of its total assets, not
invest more than 5% of its total assets in any one issuer.
17
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their addresses, and
their principal occupations and positions with certain affiliates of the
Investment Manager are set forth below.
*+Peter C. Bennett, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 60. His principal occupation is currently,
and during the past five years has been, Executive Vice President and Director
of State Street Research & Management Company. Mr. Bennett's other principal
business affiliations include Director, State Street Research Investment
Services, Inc. and Executive Vice President, GFM International Investors, Inc.
*+Thomas J. Dillman, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 49. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as research director at Bank of New York.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 60. 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 43. 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 70. 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 57. 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 71. He is engaged principally in private
investments and civic affairs, and is an author of business history. Previously,
he was with an affiliate of J.P. Morgan & Company in New York.
+Robert A. Lawrence, 175 Federal Street, Boston, MA 02110, serves as
Trustee of the Trust. He is 72. He is retired and was formerly a Partner in
Saltonstall & Co., a private investment firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 47. His principal occupation is currently, and
during the past five years has been, Executive Vice President, Treasurer, Chief
Financial Officer and Director of State Street Research & Management Company.
Mr. Maus's other principal business affiliations include
- -----------------
* or + see footnotes on page 21
18
<PAGE>
Executive Vice President, Treasurer, Chief Financial Officer and Director of
State Street Research Investment Services, Inc. and Executive Vice President,
Chief Financial Officer, Administrative Officer and Director, GFM International
Investors, Inc.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111,
serves as Secretary and General Counsel of the Trust. He is 43. 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,
Senior Vice President of State Street Research Investment Services, Inc. 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
Executive Vice President, Clerk and General Counsel of State Street Research
Investment Services, Inc. and Executive Vice President and General Counsel, GFM
International Investors, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 66. He is retired and was formerly 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 45. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he also served as Vice President of State Street Research & Management
Company.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 60. 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
61. 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 44. 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 principal business
affiliation is 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 55. His principal occupation is currently, and during the past five
years has been, Chairman of the Board, President, Chief Executive Officer and
Director of State Street Research & Management 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
- -----------------
* or + see footnotes on page 21
19
<PAGE>
positions as President and Chief Executive Officer of that company) and Chairman
of the Board, Chief Executive Officer and Director of GFM International
Investors, Inc.
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 52. His principal occupation is Executive
Vice President 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, President and Chief Investment Officer of IDS Advisory
Group, Inc. and as Senior Vice President of Stein, Roe & Farnham.
*Elizabeth M. Westvold, One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. She is 38. Her principal occupation is Senior
Vice President of State Street Research & Management Company. During the past
five years, she also has served as Vice President and as an analyst for State
Street Research &Management Company.
*+Kennard Woodworth, Jr., One Financial Center, Boston, MA 02111,
serves as Vice President of the Trust. He is 60. His principal occupation is
currently, and during the past five years has been, Senior Vice President of
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/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 parent, Metropolitan Life Insurance Company
("Metropolitan"): 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.
20
<PAGE>
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
As of May 31, 1998, the Trustees and principal officers of the Trust as
a group owned less than 1% of the Fund's Class A shares and none of the Fund's
Class B, Class C or Class S shares.
Also as of May 31, 1998, 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:
<TABLE>
<CAPTION>
Shareholder %
----------- ---
<S> <C> <C>
Class A Metropolitan Life 5.8
Class B Merrill Lynch 8.8
Metropolitan Life 5.7
Wexford Clearing Services 5.6
Class C Merrill Lynch 46.9
Metropolitan Life 34.4
Class S Metropolitan Life 96.8
</TABLE>
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 (b)
4800 Deerlake Drive East
Jacksonville, FL 32246
Wexford Clearing Services Corp. (b)
Chicago, IL 60606
(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.
21
<PAGE>
The Trustees were compensated as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Total
Compensation
Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Fund(a) to Trustees(b)
- --------------------------------------------------------------------------------
<S> <C> <C>
Steve A. Garban $1,425 $ 75,899
Malcolm T. Hopkins $1,425 $ 78,499
Edward M. Lamont $1,425 $ 68,741
Robert A. Lawrence $1,425 $ 93,125
Dean O. Morton $1,425 $ 97,125
Toby Rosenblatt $1,425 $ 68,741
Michael S. Scott Morton $1,625 $103,625
Ralph F. Verni $ 0 $ 0
</TABLE>
- --------------------
(a) Because the Fund was newly organized in March 1998, the amounts shown are
estimates of compensation from the Fund for the current fiscal year ending
April 30, 1999.
(b) Includes compensation on behalf of all series of 12 investment companies
for which the Investment Manager or its parent, Metropolitan served as
investment adviser. "Total Compensation from Trust and Complex Paid to
Trustees" for the 12 months ended December 31, 1997. The Trust does not
provide any pension or retirement benefits for the Trustees.
22
<PAGE>
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY SERVICES
Under the provisions of the Trust's Master Trust Agreement and the laws
of Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
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 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 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.
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 Advisory Agreement provides that the
Investment Manager shall furnish the Fund with an investment program, office
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 Life Insurance Company
("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 regular trading on the New York Stock
Exchange (the "NYSE") on each day the NYSE is open for trading. For the period
March 11, 1998 (commencement of operations) through April 30, 1998, the Fund's
Investment Advisory Fee was $9,148.
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 March 11, 1998 (commencement of operations) through
April 30, 1998 the voluntary reduction of fees or assumption of expenses
amounted to $34,714.
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 the Code of Ethics of the Investment Manager, investment
management personnel 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
23
<PAGE>
transaction, and similar factors. Such personnel 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 State Street Research Investment
Services, Inc. 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 S 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 C shares). General information on how to
buy shares of the Fund, as well as sales charges involved, is set forth under
"Your Investment" in the Prospectus. The following supplements that information.
Public Offering Price. The public offering price for each class of
shares is based on their net asset value determined as of the close of regular
trading on the NYSE on the day the purchase order is received by State Street
Research Service Center (the "Service Center"), provided that the order is
received prior to the close of regular trading on 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 the Service Center 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.
Class A Shares--Reduced Sales Charges. The reduced sales charges set
forth under "Your Investment--Choosing a Share Class" in the Prospectus apply to
purchases made at any one time by any "person," which 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"
(which include the Fund and other funds as designated by the Distributor from
time to time) within a 13-month period. The sales charge applicable to each
purchase made pursuant to a Letter of Intent will be that which would apply if
the total dollar amount set forth in the Letter of Intent were being bought in a
single transaction. Purchases made within a 90-day period prior to the execution
of a Letter of Intent may be included therein; in such case the date of the
earliest of such purchases marks the commencement of the 13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Fund and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class S shares may also be included in the
combination under certain circumstances.
24
<PAGE>
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class S 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.
Other Programs Related to Class A Shares. Class A shares of the Fund
may be sold or issued in an exchange at a reduced sales charge or without 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, registered investment advisers, 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 person: (A) the
Investment 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 and any other matters, as
may be adopted by the Distributor from time to time.
Conversion of Class B Shares to Class A Shares. A shareholder's Class B
shares of the Fund, 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
25
<PAGE>
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.
Contingent Deferred Sales Charges. The amount of any contingent
deferred sales charge paid on Class A shares (on sales of $1 million or more and
which do not involve an initial sales charge) or on Class B or Class C shares of
the Fund will be paid to the Distributor. The Distributor will pay dealers at
the time of sale a 4% commission for selling Class B shares and a 1% commission
for selling Class C shares. In certain cases, a dealer may elect to waive the 4%
commission on Class B shares and receive in lieu thereof an annual fee, usually
1% with respect to such outstanding shares. The proceeds of the contingent
deferred sales charges and the distribution fees are used to offset distribution
expenses and thereby permit the sale of Class B and Class C shares without an
initial sales charge.
In determining the applicability and rate of any contingent deferred
sales charge of Class B or Class C shares, it will be assumed that a redemption
of the 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 shareholder for the
longest period of time. Class B shares that are redeemed within a five-year
period after their purchase, and Class C shares that are redeemed within a
one-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 holding period for purposes of applying a contingent
deferred sales charge for a particular class of 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 Fund, and shares
of the same class 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.
Contingent Deferred Sales Charge Waivers. With respect to Class A
shares (on sales of $1 million or more and which do 3not involve an initial
sales charge), and Class B and Class C shares of the Fund, 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 of 1986, as amended, for retirement accounts or plans (e.g., age 70
1/2 for Individual Retirement Accounts 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 Individual Retirement Account. (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 at any time; for example, the Fund may limit the
application of multiple waivers and establish other conditions for employee
benefit plans.
Class S Shares. Class S shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants, service arrangements, or similar factors;
insurance companies; investment companies; advisory accounts of the Investment
Manager; endowment funds of nonprofit organizations with substantial
26
<PAGE>
minimum assets (currently a minimum of $10 million); and other similar
institutional investors. Class S shares may be acquired through programs or
products sponsored by Metropolitan, its affiliates, or both for which Class S
shares have been designated. In addition, Class S shares are available through
programs under which, for example, investors pay an asset-based fee and/or a
transaction fee to intermediaries. Class S share availability is determined by
the Distributor and intermediaries based on the overall direct and indirect
costs of a particular program, expected assets, account sizes and similar
considerations.
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, 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.
Systematic Withdrawal Plan. A shareholder who owns noncertificated
Class A or Class S shares with a value of $5,000 or more, or Class B or Class C
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 Systematic Withdrawal 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 Systematic Withdrawal
Plan was initiated, whichever is higher.
Expenses of the Systematic Withdrawal Plan are borne by the Fund. A
participating shareholder may withdraw from the Systematic Withdrawal Plan, and
the Fund may terminate the Systematic Withdrawal Plan at any time on written
notice. Purchase of additional shares while a shareholder is receiving payments
under a Systematic Withdrawal Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate in
the Investamatic Program (see "Your Investment--Investor Services--Investamatic
Program" in the Fund's Prospectus) and the Systematic Withdrawal Plan at the
same time.
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.
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Signature Guarantees. Signature guarantees are required for, among
other things: (1) written requests for redemptions for more than $100,000; (2)
written requests for redemptions for any amount if the proceeds are transmitted
to other than the current address of record (unchanged in the past 30 days); (3)
written requests for redemptions for any amount submitted by corporations and
certain fiduciaries and other intermediaries; and (4) requests to transfer the
registration of shares to another owner. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived in certain instances.
Dishonored Checks. If a purchaser's 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 canceled.
Processing Charges. Purchases and redemptions processed through
securities dealers may be subject to processing charges imposed by the
securities dealer in addition to sales charges that may be imposed by the Fund
or the Distributor.
SHAREHOLDER ACCOUNTS
General information on shareholder accounts is included in the Fund's
Prospectus under "Your Investment." The following supplements that information.
Maintenance Fees and Involuntary Redemption. Because of the relatively
high cost of maintaining small shareholder accounts, the Fund reserves the right
to 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
involuntarily 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 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 to fairly determine the Fund's net asset values; or (3) during such
other periods as the Securities and Exchange Commission (the "SEC") may by order
permit for the protection of
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investors; and (b) the payment of redemption proceeds may be postponed as
otherwise provided under "Purchase and Redemption of Shares" in this Statement
of Additional Information.
The Open Account System. Under the Open Account System full and
fractional shares of the Fund owned by shareholders are credited to their
accounts by the Transfer Agent, State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110. Certificates representing Class B
or Class C shares will not be issued, while certificates representing Class A or
Class S shares will only be issued if specifically requested in writing and, in
any case, will only be issued for full shares, with any fractional shares to be
carried on the shareholder's account. Shareholders will receive periodic
statements of transactions 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 "State
Street Research Funds" under the terms set forth above under
"Purchase and Redemption of Shares" in this Statement of
Additional Information.
2. The following methods of receiving dividends from investment
income and distributions from capital gains generally are
available:
(a) All income dividends and capital gains distributions
reinvested in additional shares of the Fund.
(b) All income dividends and capital gains distributions in
cash.
(c) All income dividends and capital gains distributions
invested in any one available Eligible Fund designated by
the shareholder as described below. See "--Dividend
Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to the
Service Center. Dividends and distributions are reinvested at net asset value
without a sales charge.
Exchange Privileges. 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 C 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
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shares redeemed. For purposes of computing the contingent deferred sales charge
that may be payable upon disposition of any acquired Class A, Class B and Class
C shares, the holding period of the redeemed shares is "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 C 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.
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 with
respect to the Fund (see "Your Investment--Account Policies--Telephone Requests"
in the Fund's Prospectus and "--Telephone Privileges," below) as the existing
account unless the Service Center 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 the Service
Center and delivered by the Service Center 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 the Service Center.
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
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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 the Service
Center of such shareholder's written purchase request and delivery of the
request by the Service Center 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.
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 amount.
Telephone Privileges. A shareholder with telephone privileges that are
offered with his or her Account (see "Your Investment--Account
Policies--Telephone Requests") is deemed to authorize the Service Center and the
Transfer Agent to: (1) act upon the telephone instructions of any person
purporting to be the shareholder or the shareholder's financial professional to
redeem or 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.
Neither the Fund, the other Eligible Funds, the Transfer Agent, the Investment
Manager nor the Distributor will be liable for any loss, expense or cost arising
out of any request, including any fraudulent or unauthorized requests.
Shareholders assume the risk to the full extent of their accounts that telephone
requests may be unauthorized. Reasonable procedures will be followed to confirm
that instructions communicated by telephone are genuine. The shareholder will
not be liable for any losses arising from unauthorized or fraudulent
instructions if such procedures are not followed.
Alternative Means of Contacting the Fund. It is unlikely, during
periods of extraordinary market conditions, that a shareholder may have
difficulty in reaching the Service Center. In that event, however, the
shareholder should contact the Service Center at 1-800-562-0032, 1-617-357-7800
or otherwise at its main office at One Financial Center, Boston, Massachusetts
02111-2690.
NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily
as of the close of regular trading on the NYSE, ordinarily 4 P.M. New York City
time, Monday through Friday, on each day during which the NYSE is open for
unrestricted trading. The NYSE is currently closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
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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 may utilize one or more pricing services in lieu of market quotations
for certain securities which are not readily available on a daily basis. Such
services 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.
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, Inc.'s (the "NASD") 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.
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, 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. 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 anticipates that its portfolio turnover rate will not exceed
125% under normal conditions. In periods when there are rapid changes in
economic conditions or security price levels, or when the Investment Manager's
investment strategy changes significantly, portfolio turnover may be higher than
during times of economic and market price stability or when the Investment
Manager's investment strategy remains relatively constant.
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
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their acquisition were one year or less). For the period March 11, 1998
(commencement of operations) through April 30, 1998 the portfolio turnover rate
was 13.04%.
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 by the Investment Manager 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 contained in certain trading systems used for
portfolio analysis and modeling and also 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 or its affiliates, 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
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
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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 regularly reviews and evaluates the services
furnished by broker-dealers. The Investment Manager's investment management
personnel conduct internal surveys and uses other methods to evaluate the
quality of the research and other services provided by various broker-dealer
firms, and the results of these efforts are made available to the equity trading
department, which sometimes uses this information as consideration to the extent
described above 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 the services to determine the proportion which is allocable to research or
investment decision-making and the proportion allocable to other purposes. The
Investment Manager pays directly from its own funds for that portion allocable
to uses other than research or investment decision-making. 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 providing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which the 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
an 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. For the period March 11,
1998 (commencement of operations) through April 30, 1998 the Fund paid $10,227
in brokerage commissions in secondary trading. During and at the end of its most
recent fiscal year, the Fund did not hold in its portfolio 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 commissions 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.
In some instances, certain clients of the Investment Manager request
that it place all or part of the orders for their account with certain brokers
or dealers, which in some cases provide services to those clients. The
Investment Manager generally agrees to honor these requests to the extent
practicable. Clients may condition their requests by requiring that the
Investment Manager only to effect transactions with the specified broker-dealers
if the broker-dealers are
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competitive as to price and execution. In other cases, the Investment Manager
may be unable to negotiate commissions or obtain volume discounts or best
execution. In addition, a disparity may exist among the commissions charged to
clients who request the Investment Manager to use particular brokers or dealers,
and also between those clients and those who do not make such requests. A client
who requests the use of a particular broker-dealer should understand that it may
lose the possible advantage which non-requesting clients derive from aggregation
of orders for several clients as a single transaction for the purchase or sale
of a particular security. Among other reasons why best execution may not be
achieved with directed brokerage is that, in an effort to achieve orderly
execution of transactions, execution of orders that have designated particular
brokers may, at the discretion of the trading desk, be delayed until execution
of other non-designated orders has been completed.
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 size of the order, 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
Taxation Of The Fund--In General
The Fund intends to qualify and elects 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 qualify to do so. Accordingly, 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"); and (b) satisfy certain
diversification requirements on a quarterly basis.
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
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<PAGE>
without any deduction for distributions to shareholders, and such distributions
will be taxable to shareholders as ordinary income to the extent of the Fund's
current or accumulated earnings and profits. Also, the shareholders, if they
received a distribution in excess of current or accumulated earnings and
profits, would receive a return of capital that would reduce the basis of their
shares of the Fund to the extent thereof. Any distribution in excess of a
shareholder's basis in the shareholder's shares would be taxable as gain
realized from the sale of such shares.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year, the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any undistributed portion of the respective balances from the
prior year. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
Taxation Of The Fund's Investments
Original Issue Discount; Market Discount. For federal income tax
purposes, debt securities purchased by the Fund may be treated as having
original issue discount. Original issue discount represents interest for federal
income tax purposes and can generally be defined as the excess of the stated
redemption price at maturity of a debt obligation over the issue price. Original
issue discount is treated for federal income tax purposes as income earned by
the Fund, whether or not any income is actually received, and therefore is
subject to the distribution requirements of the Code. Generally, the amount of
original issue discount is determined on the basis of a constant yield to
maturity which takes into account the compounding of accrued interest. Under
section 1286 of the Code, an investment in a stripped bond or stripped coupon
may result in original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for income tax
purposes. In the case of any debt security having a fixed maturity date of more
than one year from the date of issue and having market discount, the gain
realized on disposition will be treated as interest to the extent it does not
exceed the accrued market discount on the security (unless the Fund elects to
include such accrued market discount in income in the tax year to which it is
attributable). For debt securities acquired before May 1, 1993, this rule
applies only if the debt security was issued after July 18, 1984. Generally,
market discount is accrued on a daily basis. The Fund may be required to
capitalize, rather than deduct currently, part or all of any direct interest
expense incurred to purchase or carry any debt security having market discount,
unless the Fund makes the election to include market discount in income
currently. Because the Fund must include original issue discount in income, it
will be more difficult for the Fund to make the distributions required for the
Fund to maintain its status as a 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 excise
tax and the distribution requirements applicable to regulated investment
companies; (ii) defer recognition of realized losses; and (iii) characterize
both realized and unrealized gain or loss as short-term or long-term gain or
loss. Such provisions generally apply to, among other investments, options on
debt securities, indices on securities and futures contracts. The Fund will
monitor its transactions and may make certain tax elections
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<PAGE>
available to it in order to mitigate the impact of these rules and prevent
disqualification of the Fund as a regulated investment company.
Gains or losses attributable to foreign currency contracts or
fluctuations in exchange rates that occur between the time the Fund accrues
income or expenses denominated in a foreign currency and the time the Fund
actually collects such income or pays such expenses are treated as ordinary
income or loss. The portion of any gain or loss on the disposition of a debt
security denominated in a foreign currency that is attributable to fluctuations
in the value of the foreign currency during the holding period of the debt
security will likewise be treated as ordinary income or loss. Such ordinary
income or loss will increase or decrease the amount of the Fund's net investment
income.
If the Fund invests in the stock of certain "passive foreign investment
companies" ("PFICs"), income of such companies may become taxable to the Fund
prior to its distribution to the Fund or, alternatively, ordinary income taxes
and interest charges may be imposed on the Fund on "excess distributions"
received by the Fund or on gain from the disposition of such investments by the
Fund. The Fund does not intend to invest in PFICs. Because of the broad scope of
the PFIC rules, however, there can be no assurance that the Fund can avoid doing
so.
Taxation Of The Fund's Shareholders
The Fund may be subject to foreign taxes, including foreign income
taxes. If so, the Fund intends to meet the requirements of the Code for passing
through to its shareholders the tax benefit of foreign income taxes paid,
although there is no assurance that it will be able to do so. Under this
provision, if more than half of the value of the total assets of the Fund at the
close of its taxable year consists of stock or securities of foreign
corporations, the Fund will be eligible and intends to elect to pass through to
its shareholders the amount of foreign taxes it paid if such amounts are
material. Pursuant to this election, a United States shareholder will, in
general, be required to (i) include in gross income, in addition to taxable
distributions actually received, his or her pro rata share of the foreign taxes
paid by the Fund, (ii) treat that share of taxes as having been paid directly by
him or her, and (iii) either deduct such share of taxes or treat such share of
taxes as a credit against United States income tax liability. A tax-exempt
shareholder will ordinarily not benefit from this election.
Generally, a credit for foreign taxes paid by the Fund may not exceed a
shareholder's United States income tax attributable to the shareholder's foreign
source income. This limitation applies separately to different categories of
income, one of which is foreign-source passive income, which is likely to
include all of the foreign-source income of the Fund. As a result of these
limitations, some shareholders may not be able to utilize fully any foreign tax
credits generated by an investment in the Fund. The Fund will provide its
shareholders with information about the source of its income and the foreign
taxes it has paid for use in preparing the shareholder's United States income
tax return.
Dividends from domestic corporations are not expected to comprise a
substantial part of the income of the Fund. If such dividends are earned by the
Fund, then a portion of the dividends paid by the Fund may qualify for the 70%
deduction for dividends received which is available to corporate shareholders of
the Fund. Shareholders will be informed of any portion of the dividends paid by
the Fund which qualifies for this deduction. The dividends-received deduction is
reduced to the extent the dividends received are treated as debt-financed, under
the Code, and is eliminated if the stock is held for less than 46 days.
37
<PAGE>
Any dividend declared in October, November or December and made payable
to shareholders of record in any such month is treated as received by such
shareholder on December 31, provided that the Fund pays the dividend during
January of the following calendar year.
Distributions by the Fund result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless may be taxable
to the shareholder as ordinary income or long-term capital gain, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a taxable distribution will then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
The foregoing discussion of United States federal income tax law
relates solely to the application of that law to United States persons, that is,
United States citizens and residents and United States corporations,
partnerships, trusts and estates. Each shareholder who is not a United States
person should consider the United States and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to United States withholding at a rate of 30% (or at
a lower rate under an applicable treaty) on amounts constituting ordinary income
received by him or her, where such amounts are treated as income from United
States sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
SHARES OF THE FUND
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 (Class B and Class C shares). The Distributor may reallow all or
portions of such sales charges as concessions to dealers. For the period March
11, 1998 (commencement of operations) through April 30, 1998, total sales
charges on Class A shares paid to the Distributor amounted to $74,276. For the
same period, the Distributor retained $9,170 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
38
<PAGE>
of the Fund are offered at a reduced sales charge or without a sales charge
pursuant to sponsored arrangements, managed fee-based programs and so-called
"mutual fund supermarkets," among other programs, the amount of the sales charge
reduction will similarly reflect the anticipated reduction in sales expenses
associated with such arrangements. The reductions in sales expenses, and
therefore the reduction in sales charges, will vary depending on factors such as
the size and other characteristics of the organization or program, and the
nature of its membership or the participants. The Fund reserves the right to
make variations in, or eliminate, sales charges at any time or to revise the
terms of or to suspend or discontinue sales pursuant to sponsored arrangements
or similar programs at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
For the period March 11, 1998 (commencement of operations) through
April 30, 1998, the Distributor received contingent deferred sales charges upon
redemption of Class A, Class B and Class C shares of the Fund and paid initial
commissions to dealers for sales of such shares as follows:
<TABLE>
<CAPTION>
Contingent Commissions
Deferred Paid to
Sales Charges Dealers
------------- -------------
<S> <C> <C>
Class A $ 0 $ 65,106
Class B $ 0 $ 133,482
Class C $ 0 $ 4,040
</TABLE>
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 C 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,
39
<PAGE>
deem advisable, and (3) reimbursement of expenses incurred by the Distributor in
connection with the servicing of shareholder accounts including payments to
securities dealers and others in consideration of the provision of personal
services to investors and/or the maintenance or servicing of shareholder
accounts and expenses associated with the provision of personal services by the
Distributor directly to investors. In addition, the Distribution Plan is deemed
to authorize the Distributor and the Investment Manager 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.
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance or servicing of
shareholder accounts by such dealers. Dealers who have sold Class A shares are
eligible for further reimbursement commencing as of the time of such sale.
Dealers who have sold Class B and Class C 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.
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 C shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class C
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 C shares (as the case may be) to make payments for personal
services and/or the maintenance or servicing of shareholder accounts. The
distribution and servicing expenses of a particular class will be borne solely
by that class. In addition, a rule of the NASD limits annual expenditures that
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 that 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
40
<PAGE>
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.
The Distributor may pay certain dealers and other intermediaries
additional compensation for sales and administrative services. The Distributor
may provide cash and noncash incentives to intermediaries who, for example, sell
significant amounts of shares or develop particular distribution channels. The
Distributor may compensate dealers with clients who maintain their investments
in the Fund over a period of years. The incentives can include merchandise and
trips to, and attendance at, sales seminars at resorts. The Distributor may pay
for administrative services, such as technological and computer systems support
for the maintenance of pension plan participant records, for subaccounting, and
for distribution through mutual fund supermarkets or similar arrangements.
For the period March 11, 1998 (commencement of operations) through
April 30, 1998 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:
<TABLE>
<CAPTION>
Class A Class B Class C
-------- -------- -------
<S> <C> <C> <C>
Advertising $ 46 $ 137 $ 49
Printing and mailing of prospectuses
to other than current shareholders 231 685 243
Compensation to dealers 185 548 194
Compensation to sales personnel 371 1,096 389
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing; general 93 274 97
------- -------- ------
Total fees received $ 926 $ 2,740 $ 972
======= ======== ======
</TABLE>
The Distributor may have also used 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.
41
<PAGE>
CALCULATION OF PERFORMANCE DATA
From time to time, in advertisements or in communications to
shareholders or prospective investors, the Fund may compare the performance of
its Class A, Class B, Class C or Class S shares to the performance of other
mutual funds with similar investment objectives, to certificates of deposit
and/or to other financial alternatives. The Fund may also compare its
performance to appropriate indices, such as Standard & Poor's 500 Index,
Consumer Price Index and Dow Jones Industrial Average and/or to appropriate
rankings and averages such as those compiled by Lipper Analytical Services,
Inc., Morningstar, Inc., CDC/Wisenberger, Investment Companies Service, Frank
Russell Company, Money Magazine, Business Week, Forbes Magazine, The Wall Street
Journal and Investor's Daily. For example, the performance of the Fund might be
compared to the Lipper Funds Growth category.
The average annual total return ("standard total return") of the Class
A, Class B, Class C and Class S shares of the Fund will be calculated as set
forth below. Total return is 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 fees or expenses
relating to the Fund; see "Accrued Expenses and Recurring Charges" later in this
section.
Total Return
The Fund's standard average annual total return ("standard total
return") of each class of shares was as follows:
<TABLE>
<CAPTION>
March 11, 1998
(commencement of operations)
to April 30, 1998
---------------------------
SEC Aggregate
Total Return Total Return
(Annualized)* (Not Annualized)*
------------- -----------------
<S> <C> <C>
Class A 25.32 -0.80
Class B 24.34 -1.34
Class C 29.32 2.77
Class S 31.23 3.87
</TABLE>
*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 51-day period involved and should be interpreted carefully since
annualization in this instance presumes that the performance for the 51 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:
42
<PAGE>
<TABLE>
<CAPTION>
P(1+T)n = ERV
<S> <C> <C> <C>
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
</TABLE>
The calculation is based on the further assumptions that the highest
applicable initial or contingent deferred sales charge 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 and recurring
charges are also taken into account as described later herein.
Accrued Expenses and Recurring Charges
Accrued expenses include all recurring charges 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 during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class S shares for periods which end no
earlier than the most recent calendar quarter end and which begin at the time of
commencement of such Funds 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, if any, may not be taken into account and therefore not
deducted from the hypothetical initial payment of $1,000. For example, the
Fund's nonstandardized total returns for the period ended March 11, 1998
(commencement of operations) through April 30, 1998 without taking sales charges
into account, were as follows:
<TABLE>
<S> <C>
Class A 3.87%
Class B 3.66%
Class C 3.77%
Class S 3.87%
</TABLE>
43
<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 SEC 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 Service
Center.
The following financial statements are for the period March 11, 1998
(commencement of operations) through April 30, 1998:
44
DOCS/575947.8
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 86.9%
Automobiles & Transportation 2.9%
Air Transport 0.5%
America West Holdings Corp. Cl. B ............... 2,800 $ 84,700
-----------
Automobile Parts 0.5%
Magna International, Inc. Cl. A ................. 1,200 89,475
-----------
Miscellaneous Transportation 1.0%
Harley Davidson, Inc. ........................... 4,800 172,800
-----------
Truckers 0.9%
CNF Transportation, Inc. ........................ 4,000 154,500
-----------
Total Automobiles & Transportation ..................... 501,475
-----------
Consumer Discretionary 9.1%
Casinos/Gambling, Hotel/Motel 0.7%
Mirage Resorts, Inc.* ........................... 5,300 116,931
-----------
Commercial Services 2.7%
Cendent Corp.* .................................. 7,900 197,500
Cintas Corp. .................................... 1,400 66,675
USA Waste Services, Inc.* ....................... 3,900 191,344
-----------
455,519
-----------
Consumer Products 0.6%
Avon Products, Inc. ............................. 1,200 98,625
-----------
Consumer Services 0.8%
Apollo Group, Inc. Cl. A* ....................... 4,005 137,171
-----------
Printing & Publishing 0.5%
News Corp. Ltd. ADR ............................. 3,200 87,400
-----------
Retail 2.5%
Dayton Hudson Corp. ............................. 1,800 157,162
Family Dollar Stores, Inc. ...................... 2,700 91,800
Limited, Inc. ................................... 1,500 50,344
Proffitts, Inc.* ................................ 3,400 135,150
-----------
434,456
-----------
Textile/Apparel Manufacturers 0.8%
Warnaco Group, Inc. Cl. A ....................... 3,000 126,750
-----------
Toys 0.5%
Mattel, Inc. .................................... 2,400 91,950
-----------
Total Consumer Discretionary .......................... 1,548,802
-----------
Consumer Staples 7.9%
Beverages 0.8%
Coca-Cola Enterprises, Inc. ..................... 2,100 79,275
PepsiCo, Inc. ................................... 1,600 63,500
-----------
142,775
-----------
Drug & Grocery Store Chains 3.5%
CVS Corp. ....................................... 2,100 $ 154,875
Kroger Co.* ..................................... 2,400 100,500
Rite Aid Corp. .................................. 5,800 186,325
Safeway Inc. .................................... 4,000 153,000
-----------
594,700
-----------
Foods 0.9%
Sara Lee Corp. .................................. 2,500 148,906
-----------
Household Products 2.7%
Colgate-Palmolive Co. ........................... 2,100 188,344
Procter & Gamble Co. ............................ 3,400 279,438
-----------
467,782
-----------
Total Consumer Staples ................................ 1,354,163
-----------
Financial Services 16.8%
Banks & Savings & Loans 8.1%
Banc One Corp. .................................. 3,900 229,369
BankAmerica Corp. ............................... 2,500 212,500
Chase Manhattan Corp. ........................... 1,900 263,269
Mellon Bank Corp. ............................... 2,450 176,400
NationsBank Corp. ............................... 1,200 90,900
Norwest Corp. ................................... 2,800 111,125
State Street Corp. .............................. 1,800 128,700
U.S. Bancorp .................................... 1,400 177,800
-----------
1,390,063
-----------
Insurance 6.6%
General Re Corp. ................................ 800 178,850
Hartford Financial Services Group, Inc. ......... 1,500 166,125
Mutual Risk Management Ltd. ..................... 2,500 84,687
NAC Re Corp. .................................... 1,800 90,000
Saint Paul Cos., Inc. ........................... 1,200 101,700
Travelers Property Casualty Corp. Cl. A ......... 3,000 126,000
UNUM Corp. ...................................... 1,500 80,625
ACE Ltd. ........................................ 4,900 185,587
Mid Ocean Ltd. .................................. 1,600 120,600
-----------
1,134,174
-----------
Miscellaneous Financial 2.1%
Federal National Mortgage Association ........... 2,500 149,687
AMBAC Financial Group, Inc. ..................... 1,800 102,038
Travelers Group, Inc. ........................... 1,600 97,900
-----------
349,625
-----------
Total Financial Services .............................. 2,873,862
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------------
<S> <C> <C>
Health Care 11.1%
Drugs & Biotechnology 8.1%
American Home Products Corp. ................ 1,160 $ 108,025
Bristol-Myers Squibb Co. .................... 1,410 149,284
Merck & Company, Inc. ....................... 1,020 122,910
Novartis AG ADR ............................. 1,200 99,204
Pfizer, Inc. ................................ 1,915 217,951
Schering-Plough, Inc. ....................... 1,420 113,778
Warner-Lambert Co. .......................... 1,600 302,700
Abbott Laboratories ......................... 1,100 80,437
Baxter International, Inc. .................. 1,600 88,700
Johnson & Johnson ........................... 1,400 99,925
-----------
1,382,914
-----------
Health Care Facilities 0.9%
Health Management Associates Cl. A* ......... 2,500 78,750
Tenet Healthcare Corp.* ..................... 1,800 67,387
-----------
146,137
-----------
Health Care Services 0.0%
HBO & Co. ................................... 100 5,981
-----------
Hospital Supply 2.1%
Boston Scientific Corp.* .................... 1,400 101,238
Guidant Corp. ............................... 2,700 180,562
U.S. Surgical Corp. ......................... 2,400 75,600
-----------
357,400
-----------
Total Health Care ...................................... 1,892,432
-----------
Integrated Oils 1.5%
Oil: Integrated Domestic 0.9%
Amerada Hess Corp. .......................... 1,100 63,250
Unocal Corp. ................................ 2,400 98,250
-----------
161,500
-----------
Oil: Integrated International 0.6%
Mobil Corp. ................................. 1,200 94,800
-----------
Total Integrated Oils .................................. 256,300
-----------
Materials & Processing 5.1%
Chemicals 2.9%
BOC Group PLC ADR ........................... 3,900 135,038
Cambrex Corp. ............................... 2,400 133,200
Rohm & Haas Co. ............................. 2,100 226,406
-----------
494,644
-----------
Miscellaneous Materials & Processing 0.7%
Wyman-Gordon Co.* ........................... 5,800 117,450
-----------
Steel 1.5%
Harsco Corp. ................................ 1,800 $ 82,800
British Steel Corp. PLC ADR ................. 3,000 81,562
LTV Corp. ................................... 7,200 93,600
-----------
257,962
-----------
Total Materials & Processing ........................... 870,056
-----------
Other 4.9%
Multi-Sector 4.9%
Cooper Industries, Inc. ..................... 1,400 93,625
General Electric Co. ........................ 2,300 195,787
Tyco International Ltd. ..................... 4,500 245,250
Trinity Industries, Inc. .................... 3,500 178,500
Raytheon Co. Cl. B .......................... 2,100 119,044
-----------
832,206
-----------
Total Other ............................................ 832,206
-----------
Other Energy 3.8%
Oil and Gas Producers 2.3%
Anadarko Petroleum Corp. .................... 1,800 131,850
Burlington Resources, Inc. .................. 2,100 98,700
Oryx Energy Co.* ............................ 2,800 73,150
Vastar Resources, Inc. ...................... 1,800 85,613
-----------
389,313
-----------
Oil Well Equipment & Services 1.5%
Ultramar Diamond Shamrock Co. ............... 2,100 67,856
Schlumberger Ltd. ........................... 1,200 99,450
Valero Energy Corp. ......................... 2,800 90,650
-----------
257,956
-----------
Total Other Energy ..................................... 647,269
-----------
Producer Durables 4.0%
Aerospace 0.8%
Boeing Co. .................................. 2,700 135,169
-----------
Electrical Equipment & Components 0.7%
Philips Electronics NV ...................... 1,400 126,000
-----------
Industrial Products 0.8%
Honeywell, Inc. ............................. 1,400 130,375
-----------
Miscellaneous Equipment 0.5%
Case Corp. .................................. 1,500 95,344
-----------
Office Furniture & Business Equipment 1.2%
Xerox Corp. ................................. 1,800 204,300
-----------
Total Producer Durables ................................ 691,188
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------------
<S> <C> <C>
Technology 10.1%
Communications Technology 2.1%
L.M. Ericsson Telephone Co. ADR Cl. B ......... 3,000 $ 154,313
Network Associates, Inc.* ..................... 1,400 95,900
Tellabs, Inc.* ................................ 1,500 106,313
-----------
356,526
-----------
Computer Software 2.8%
J.D. Edwards & Co.* ........................... 2,100 74,812
i2 Technologies, Inc.* ........................ 1,200 80,100
Microsoft Corp.* .............................. 1,150 103,644
SAP AG ADR .................................... 500 84,940
Checkpoint Software Technologies Ltd.* ........ 4,800 141,000
-----------
484,496
-----------
Computer Technology 1.5%
Cisco Systems, Inc.* .......................... 1,600 117,200
Electronic Data Systems Corp. ................. 600 25,800
Gateway 2000, Inc.* ........................... 1,900 111,506
-----------
254,506
-----------
Electronics: Semi-Conductors/Components 3.7%
Altera Corp.* ................................. 2,100 85,050
Analog Devices, Inc.* ......................... 5,200 202,475
Intel Corp. ................................... 2,200 177,787
Texas Instruments, Inc. ....................... 2,700 172,969
-----------
638,281
-----------
Total Technology ......................................... 1,733,809
-----------
Utilities 9.7%
Electrical 2.4%
DPL Inc. ...................................... 3,500 63,656
Idaho Power Co. ............................... 1,800 64,125
OGE Energy Corp. .............................. 1,600 87,900
Sierra Pacific Resources ...................... 1,800 63,000
Unicom Corp. .................................. 3,700 128,575
-----------
407,256
-----------
Gas Distribution 1.6%
Questar Corp. ................................. 2,800 121,450
Williams Cos., Inc. ........................... 4,800 151,800
-----------
273,250
-----------
Telecommunications 5.7%
US West Media Group* .......................... 3,900 $ 147,225
AirTouch Communications, Inc.* ................ 2,500 132,812
LCI International, Inc.* ...................... 5,200 206,700
Qwest Communications International, Inc.* ..... 5,200 200,525
WorldCom, Inc.* ............................... 6,600 282,357
-----------
969,619
-----------
Total Utilities .......................................... 1,650,125
-----------
Total Common Stocks (Cost $14,565,330) ................... 14,851,687
-----------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Principal Maturity
Amount Date
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 8.3%
American Express Credit Corp.,
5.51% .............................. $532,000 5/01/1998 532,000
Ford Motor Credit Co., 5.50% ......... 604,000 5/05/1998 604,000
General Electric Capital Corp.,
5.45% .............................. 282,000 5/01/1998 282,000
-----------
Total Commerical Paper (Cost $1,418,000)...................... 1,418,000
-----------
Total Investments (Cost $15,983,330)--95.2%................... 16,269,687
Cash and Other Assets, Less Liabilities--4.8% ................ 828,656
-----------
Net Assets--100.0% ........................................... $17,098,343
===========
</TABLE>
<TABLE>
<S> <C>
Federal Income Tax Information:
At April 30, 1998, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $15,986,105 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost .......................................... $516,396
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ........................................ (232,814)
--------
$283,582
========
</TABLE>
- --------------------------------------------------------------------------------
*Nonincome-producing securities
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $15,983,330) (Note 1) ................. $16,269,687
Cash .............................................................. 39,193
Receivable for fund shares sold ................................... 751,824
Receivable from Distributor (Note 3) .............................. 34,714
Dividends and interest receivable ................................. 8,061
Deferred organization costs and other assets (Note 1) 91,276
-----------
17,194,755
Liabilities
Payable for securities purchased .................................. 38,641
Payable for fund shares redeemed .................................. 18,962
Accrued management fee (Note 2) ................................... 6,402
Accrued trustees' fees (Note 2) ................................... 5,364
Accrued distribution and service fees (Note 5) .................... 3,688
Accrued transfer agent and shareholder services
(Note 2) ........................................................ 3,600
Other accrued expenses ............................................ 19,755
-----------
96,412
-----------
Net Assets $17,098,343
===========
Net Assets consist of:
Undistributed net investment income .............................. $ 9,454
Unrealized appreciation of investments ........................... 286,357
Accumulated net realized loss .................................... (2,159)
Paid-in capital .................................................. 16,804,691
-----------
$17,098,343
===========
Net Asset Value and redemption price per share of
Class A shares ($6,131,691 [divided by] 618,158 shares) ......... $ 9.92
======
Maximum Offering Price per share of Class A shares
($9.92 [divided by] .955) ....................................... $10.39
======
Net Asset Value and offering price per share of
Class B shares ($5,142,190 [divided by] 519,235 shares)*......... $ 9.90
======
Net Asset Value and offering price per share of
Class C shares ($1,061,159 [divided by] 107,096 shares)*......... $ 9.91
======
Net Asset Value, offering price and redemption
price per share of Class S shares
($4,763,303 [divided by] 480,088 shares) ........................ $ 9.92
======
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
- ----------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------
For the period March 11, 1998
(commencement of operations) to April 30, 1998
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $326 .................. $ 12,892
Interest ................................................. 13,018
--------
25,910
Expenses
Custodian fee ............................................ 10,800
Management fee (Note 2) .................................. 9,148
Audit fee ................................................ 6,588
Registration fees ........................................ 5,400
Trustees' fees (Note 2) .................................. 5,364
Transfer agent and shareholder services (Note 2) ......... 3,600
Reports to shareholders .................................. 3,600
Amortization of organization costs (Note 1) .............. 2,488
Service fee--Class A (Note 5) ............................ 925
Distribution and service fees--Class B (Note 5) .......... 2,740
Distribution and service fees--Class C (Note 5) .......... 972
Legal fees ............................................... 900
Miscellaneous ............................................ 900
--------
53,425
Expenses borne by the Distributor (Note 3) ............... (34,714)
--------
18,711
--------
Net investment income .................................... 7,199
--------
Realized and Unrealized Gain (Loss) on Investments
Net realized loss on investments (Notes 1 and 4) ......... (2,159)
Net unrealized appreciation of investments ............... 286,357
--------
Net gain on investments .................................. 284,198
--------
Net increase in net assets resulting from operations ..... $291,397
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period March 11, 1998
(commencement of operations) to April 30, 1998
<TABLE>
<S> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income ...................................... $ 7,199
Net realized loss on investments ........................... (2,159)
Net unrealized appreciation of investments ................. 286,357
-----------
Net increase resulting from operations ..................... 291,397
-----------
Net increase from fund share transactions (Note 6) ......... 16,806,946
-----------
Total increase in net assets ............................... 17,098,343
Net Assets
Beginning of period ........................................ --
-----------
End of period (including undistributed net investment
income of $9,454) ........................................ $17,098,343
===========
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1998
Note 1
State Street Research Galileo 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 March, 1998. The Trust presently consists of four
separate funds: State Street Research Galileo Fund, State Street Research
Legacy Fund, State Street Research Intermediate Bond Fund and State Street
Research Strategic Income Fund.
The Fund seeks to provide long-term growth of capital. Under normal market
conditions, the Fund invests at least 65% of total assets in stocks and
convertible securities of companies in the Russell 1000 Index and of other U.S.
and foreign companies of comparable size.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and pay
annual distribution and service fees of 1.00%. Class B shares automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years after the issuance of the Class B shares. Class C shares are
subject to a contingent deferred sales charge of 1.00% on any shares redeemed
within one year of their purchase. Class C shares also pay annual distribution
and service fees of 1.00%. Class S shares are only offered through certain
retirement accounts, advisory accounts of State Street Research & Management
Company (the "Adviser"), an indirect wholly owned subsidiary of Metropolitan
Life Insurance Company ("Metropolitan"), and special programs. No sales charge
is imposed at the time of purchase or redemption of Class S shares. Class S
shares do not pay any distribution or service fees. 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
Values for listed securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at closing prices
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are at
the mean of the closing bid and asked quotations. Short-term securities maturing
within sixty days are valued at amortized cost. Other securities, if any, are
valued at their fair value as determined in accordance with established methods
consistently applied.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH GALILEO 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.
C. Net Investment Income
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to it,
while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No Provision for Federal income taxes is necessary because the Fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a
period of five years.
G. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
H. Securities Lending
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the Fund will bear the
loss. During the period March 11, 1998 (commencement of operations) to April
30, 1998, there were no loaned securities.
Note 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.65% 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 March 11, 1998 (commencement of
operations) to April 30, 1998, the fees pursuant to such agreement amounted to
$9,148.
State Street Research Service Center, 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 March 11, 1998, (commencement of
operations) to April 30, 1998, the amount of such expenses was $1,387.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$5,364 during the period March 11, 1998 (commencement of operations) to April
30, 1998.
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 March 11, 1998 (commencement of operations) to April 30,
1998, the amount of such expenses assumed by the Distributor and its affiliates
was $34,714.
Note 4
For the period March 11, 1998 (commencement of operations) to April 30, 1998,
purchases and sales of securities, exclusive of short-term obligations,
aggregated $15,543,714 and $976,225, 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 C shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B and
Class C shares. The Distributor uses such payments for personal service and/or
the maintenance or servicing of shareholder accounts, to compensate or
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 March 11, 1998,
(commencement of operations) to April 30, 1998, fees pursuant to such plan
amounted to $925, $2,740 and $972 for Class A, Class B and Class C shares,
respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $9,170 and $28,702, respectively, on sales of Class A shares of the
Fund during the period March 11, 1998 (commencement of operations) to April 30,
1998, and that MetLife Securities, Inc. earned commissions aggregating $81,084
on sales of Class B shares during the same period.
7
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1998, Metropolitan
owned 52,356 shares of each of Class A, Class B and Class C and 471,204 Class S
shares of the Fund and the Adviser owned one share of each of Class A, Class B,
Class C and Class S of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
March 11, 1998
(Commencement of
Operations) to
April 30, 1998
-------------------------
Class A Shares Amount
- ----------------------------------------------------------
<S> <C> <C>
Shares sold ................ 622,025 $6,115,137
Shares repurchased ......... (3,867) (38,335)
------- ----------
Net increase ............... 618,158 $6,076,802
======= ==========
Class B Shares Amount
- ----------------------------------------------------------
Shares sold ................ 555,377 $5,459,591
Shares repurchased ......... (36,142) (355,963)
------- ----------
Net increase ............... 519,235 $5,103,628
======= ==========
Class C Shares Amount
- ----------------------------------------------------------
Shares sold ................ 107,096 $1,038,510
------- ----------
Net increase ............... 107,096 $1,038,510
======= ==========
Class S Shares Amount
- ----------------------------------------------------------
Shares sold ................ 480,088 $4,588,006
------- ----------
Net increase ............... 480,088 $4,588,006
======= ==========
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding from March 11, 1998 (commencement of operations) to
April 30, 1998(1)
<TABLE>
<CAPTION>
Class A Class B Class C Class S
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ($) 9.55 9.55 9.55 9.55
----- ----- ----- ------
Net investment income (loss) ($)* 0.01 (0.00) (0.00) 0.02
Net realized and unrealized gain on investments ($) 0.36 0.35 0.36 0.35
----- ------ ------ ------
Total from investment operations ($) 0.37 0.35 0.36 0.37
----- ------ ------ ------
Net asset value, end of period ($) 9.92 9.90 9.91 9.92
===== ====== ====== ======
Total return(2) (%) 3.87(3) 3.66(3) 3.77(3) 3.87(3)
Ratios/supplemental data:
Net assets at end of period ($ thousands) 6,132 5,142 1,061 4,763
Ratio of operating expenses to average net assets (%)* 1.25(4) 2.00(4) 2.00(4) 1.00(4)
Ratio of net investment income (loss) to average net assets (%)* 0.45(4) (0.31)(4) (0.13)(4) 0.98(4)
Portfolio turnover rate (%) 13.04 13.04 13.04 13.04
*Reflects voluntary assumption of fees or expenses per share (Note 3) ($) 0.03 0.03 0.04 0.06
</TABLE>
- --------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) 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.
(3) Not annualized
(4) Annualized
8
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research
Securities Trust and Shareholders of
State Street Research Galileo Fund:
We have audited the accompanying statement of assets and liabilities of State
Street Research Galileo Fund, including the schedule of portfolio investments,
as of April 30, 1998, and the related statements of operations and changes in
net assets and the financial highlights for the period March 11, 1998
(commencement of operations) to April 30, 1998. 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, 1998, 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 Galileo Fund as of April 30, 1998, the results of its
operations and changes in its net assets and the financial highlights for the
period March 11, 1998 (commencement of operations) to April 30, 1998, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 5, 1998
9
<PAGE>
STATE STREET RESEARCH SECURITIES TRUST
PART C
OTHER INFORMATION
Item 23: 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)
(1)(c) Amendment No. 3 to the Master Trust Agreement
(1)(d) Amendment No. 4 to the Master Trust Agreement
(2) By-Laws of the Registrant (1)*
(3) Not applicable
(4) Not applicable
(5)(a) Advisory Agreement with State Street Research & Management
Company (5)
(5)(b) Letter Agreement with respect to the Advisory Agreement
relating to State Street Research Strategic Income Fund (8)
(5)(c) Letter Agreement with respect to the Advisory Agreement
relating to State Street Research Legacy Fund
(5)(d) Letter Agreement with respect to the Advisory Agreement
relating to State Street Research Galileo 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(9)
(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)
(6)(f) Letter Agreement with respect to the Distribution Agreement
relating to State Street Research Legacy Fund
(6)(g) Letter Agreement with respect to the Distribution
Agreement relating to State Street Research Galileo Fund
(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)
(8)(c) Letter Agreement with respect to Custodian Contract relating
to the State Street Research Legacy Fund
(8)(d) Letter Agreement with respect to Custodian Contract relating
to the State Street Research Galileo Fund
(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)
(10)(c) Opinion and Consent of Goodwin, Procter & Hoar LLP with
respect to State Street Research Legacy Fund (10)
(10)(d) Opinion and Consent of Goodwin, Procter & Hoar LLP with
respect to State Street Research Galileo Fund (11)
(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)
(13)(c) Purchase Agreements and Investment Letters with respect to
State Street Research Legacy Fund
(13)(d) Subscription and Investment Letter with respect to State
Street Research Galileo Fund
(14)(a) Deleted
(14)(b) Deleted
(14)(c) Deleted
(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)
(15)(c) Letter Agreement with respect to Plan of Distribution
Pursuant to Rule 12b-1 relating to State Street Research
Legacy Fund
(15)(d) Letter Agreement with respect to Plan of Distribution
Pursuant to Rule 12b-1 relating to State Street Research
Galileo Fund
(16) Deleted
(17) Powers of Attorney (9)
(18) Certificate of Board Resolution Respecting Powers of
Attorney (9)
(19)(a) State Street Research New Account Application
(19)(b) Additional Services Application
(19)(c) MetLife Securities, Inc. New Account Application
(20) First Amended and Restated Multiple Class Expense Allocation
Plan (5)
(27)(a) Financial Data Schedules for State Street Research
Intermediate Bond Fund (9)
(27)(b) Financial Data Schedules for State Street Research Strategic
Income Fund, State Street Research Legacy Fund and State
Street Research Galileo Fund
* 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:
<TABLE>
<CAPTION>
Footnote Securities Act of 1933
Reference Registration/Amendment Dated Filed
- --------- ---------------------- -----------
<S> <C> <C>
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
9 Post-Effective Amendment No. 7 August 29, 1997
10 Post-Effective Amendment No. 8 October 1, 1997
11 Post-Effective Amendment No. 9 December 22, 1997
</TABLE>
C-2
<PAGE>
Item 24. Persons Controlled by or Under Common Control with the Fund
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1997
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1997. Those entities which are listed at
the left margin (labeled 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.
<TABLE>
<CAPTION>
<S>
A. Metropolitan Tower Corp. (Delaware)
<C>
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)
f. MetLife Healthcare Holdings, 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%).
(i) MetLife Capital CFLI Holdings, LLC (DE)
(1) MetLife Capital CFLI Leasing, LLC
(DE)
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
(7) MetLife Capital Funding Corp. II (Delaware)
(8) MetLife Capital Funding Corp. III (Delaware)
ii. MetLife Capital Financial Corporation (Delaware)
90% of outstanding equity interest in Metlife
Capital Financial Corporation held directly
by Metropolitan Life Insurance Company.
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 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.
5. SSRM Holdings, Inc. (Delaware)
a. GFM International Investors Ltd. (United Kingdom).
b. GFM International Investors, Inc. (United Kingdom).
i. GFM Investments Limited (United Kingdom)
c. 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 Investment Services, Inc.
(Massachusetts)
d. SSR Realty Advisors, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Property Management, Inc. (Delaware)
(1) Metric Realty (Delaware). SSR Realty Advisors, Inc.
and Metric Property Management, Inc. each hold 50% of
the common stock of Metric Realty.
(a) 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.
(2) Metric Colorado, Inc. (Colorado). Metric Property
Management, Inc. holds 80% of the common stock of
Metric Colorado, Inc.
iii. Metric Capital Corporation (California)
iv. Metric Assignor, Inc. (California)
v. SSR AV, Inc. (Delaware)
C-5
<PAGE>
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. Security First Group, Inc. (DE)
a. Security First Life Insurance Company (DE)
(i) Security First Life Insurance Company of Arizona (AZ)
b. Security First Insurance Agency, Inc. (MA)
c. Security First Financial Insurance Agency, Inc. (NV)
d. Security First Group of Ohio, Inc. (OH)
e. Security First Financial, Inc. (DE)
f. Security First Investment Management Corporation (DE)
g. Security First Management Corporation (DE)
h. Security First Real Estate, Inc. (DE)
10. Natiloportem 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 (72%) and by employees of Morguard
(28%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
H. 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)
I. 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>
J. Metropolitan Life Seguros de Vida S.A. (Argentina)
K. Metropolitan Life Seguros de Retiro S.A. (Argentina).
L. Met Life Holdings Luxembourg (Luxembourg)
M. Metropolitan Life Holdings, Netherlands BV (Netherlands)
N. MetLife International Holdings, Inc. (Delaware)
O. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
P. Metropolitan Marine Way Investments Limited (Canada)
Q. P.T. MetLife Sejahtera (Indonesia)
R. Seguros Genesis S.A. (Mexico) Metropolitan holds 85.49%, Metropolitan Tower
Corp. holds 7.31% and Metropolitan Asset Management Corporation holds 7.20%
of the common stock of Seguros Genesis S.A.
S. AFORE Genesis Metropolitan S.A. de C.V. (Mexico)
T. Metropolitan Life Seguros E Previdencia Privada S.A. (Brazil)
U. Hyatt Legal Plans, Inc. (Delaware)
V. One Madison Merchandising L.L.C. (Connecticut) Ownership of membership
interests in One Madison Merchandising L.L.C. is as follows: Metropolitan
owns 99% and Metropolitan Tower Corp. owns 1%.
C-8
<PAGE>
W. 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. Subrown Corp. (New York)
X. MetPark Funding, Inc. (Delaware)
Y. 2154 Trading Corporation (New York)
Z. Transmountain Land & Livestock Company (Montana)
AA. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
C-9
<PAGE>
A.B. MetLife Trust Company, National Association. (United States)
A.C. 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)
A.D. Benefit Services Corporation (Georgia)
A.E. G.A. Holding Corporation (MA)
A.F. TNE-Y, Inc. (DE)
A.G. CRH., Inc. (MA)
A.H. NELRECO Troy, Inc. (MA)
A.I. TNE Funding Corporation (DE)
A.J. L/C Development Corporation (CA)
A.K. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.L. 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.M. DPA Holding Corp. (MA)
A.N. Lyon/Copley Development Corporation (CA)
A.O. NEL Partnership Investments I, Inc. (MA)
A.P. New England Life Mortgage Funding Corporation (MA)
A.Q. 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.R. 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.S. MetLife New England Holdings, Inc. (DE)
1. New England Life Insurance Company (MA)
a. New England Life Holdings, Inc. (DE)
i. New England Securities Corporation (MA)
1. Hereford Insurance Agency, Inc. (MA)
2. Hereford Insurance Agency of Alabama, Inc. (AL)
3. Hereford Insurance Agency of Minnesota, Inc. (MN)
4. Hereford Insurance Agency of Ohio, Inc. (OH)
5. Hereford Insurance Agency of New Mexico, Inc. (NM)
ii. TNE Advisers, Inc. (MA)
iii. TNE Information Services, Inc. (MA)
b. Exeter Reassurance Company, Ltd. (MA)
c. Omega Reinsurance Corporation (AZ)
d. New England Pension and Annuity Company (DE)
e. Newbury Insurance Company, Limited (Bermuda)
2. New England Investment Companies, Inc. (MA)
a. New England Investment companies, L.P. (DE) New England Investment
Companies, Inc. holds a 1.7% general partnership interest in New
England Investment Companies, L.P. MetLife New England Holdings,
Inc. holds a 3.3% general partnership interest in New England
Investment Companies, L.P.
3. NEIC Operating Partnership, L.P.
New England Investment Companies, L.P. holds a 14.2% general
partnership Interest and New England Investment Companies, Inc.
C-10
<PAGE>
holds a 0.00002% general Partnership Interest in NEIC operating
Partnership, L.P. Metropolitan holds a 46.3% Limited Partnership
Interest in NEIC Operating Partnership, L.P.
a. NEIC Holdings, Inc. (MA)
i. Back Bay Advisors, Inc. (MA)
(1) 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. R & T Asset Management, Inc. (MA)
(1) Reich & Tang Distributors, L.P. (DE)
R & T Asset Management Inc.
holds a 1% general interest and
R & T Asset Management, L.P.
holds a 99.5% limited partner
interest in Reich Tang Distributors, L.P.
(2) R & T Asset Management L.P.
R & T Asset Management, Inc.
holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited
partner interest in &
Asset Management, L.P.
(3) Reich & Tang Services, L.P. (DE)
R & T Asset Management, Inc.
holds a 1% general partner interest and
R & T 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
R & T 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.
a. Breen Trust Company
vi. MC Management, Inc. (MA)
C-11
<PAGE>
(1) MC Management, L.P. (DE)
MC Management, Inc. holds a 1% general partner
interest and R & T 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 NEIC Operating Partnership,
L.P. 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
NEIC Operating Partnership, 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 NEIC Operating
Partnership, 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
NEIC Operating Partnership, L.P. holds a 99%
limited partner interest in New England Funds
C-12
<PAGE>
Management, L.P.
x. New England Investment Associates, Inc.
xi. Snyder Capital Management, Inc.
(1) Snyder Capital Management, L.P. NEIC Operating
Partnership holds a 99.5% limited partnership
interest and Snyder Capital Management Inc. holds a
0.5% general partnership interest.
xii. Jurika & Voyles, Inc.
(1) Jurika & Voyles, L.P NEIC Operating Partnership,
L.P. holds a 99% limited partnership interest and
Jurika & Voyles, Inc. holds a 1% general partnership
interest.
b. Capital Growth Management, L.P. (DE)
NEIC Operating Partnership, L.P. holds a 50% limited partner
interest in Capital Growth Management, L.P.
c. AEW Capital Management, Inc. (DE)
i. AEW Securities, L.P. (DE) AEW Capital Management, Inc. holds
a 1% general partnership and AEW Capital Management, L.P.
holds a 99% limited partnership interest in AEW Securities,
L.P.
d. 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. Copley Public Partnership Holding, L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75%
limited partnership interest in Copley Public Partnership
Holding, L.P.
b. AEW Management and Advisors L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75% limited
partnership interest in AEW Management and Advisors L.P.
i. BBC Investment Advisors, Inc. (MA)
AEW Investment Group, Inc. holds 60% of the voting securities
and Back Bay Advisors, L.P. holds 40% of the voting securities
of BBC Investment Advisors, Inc.
1. BBC Investment Advisors, L.P. (MA)
BBC Investment Advisors, Inc. holds a 1% general partnership interest
and AEW Management and Advisors, L.P. holds a 59.4% limited
partnership interest and Back Bay Advisors, L.P. holds a 39.6% limited
partnership interest in BBC Investment Advisors, L.P.
ii. AEW Real Estate Advisors, Inc. (MA)
1. AEW Advisors, Inc. (MA)
2. Copley Properties Company, Inc. (MA)
3. Copley Properties Company II, Inc. (MA)
4. Copley Properties Company III, Inc. (MA)
5. Fourth Copley Corp. (MA)
6. Fifth Copley Corp. (MA)
7. Sixth Copley Corp. (MA)
8. Seventh Copley Corp. (MA).
9. Eighth Copley Corp. (MA).
10. First Income Corp. (MA).
11. Second Income Corp. (MA).
12. Third Income Corp. (MA).
C-13
<PAGE>
13. Fourth Income Corp. (MA).
14. Third Singleton Corp. (MA).
15. Fourth Singleton Corp. (MA)
16. Fifth Singleton Corp. (MA)
17. Sixth Singleton Corp. (MA).
18. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general
partner interest in BCOP Associates L.P.
iii. CREA Western Investors I, Inc. (MA)
1. CREA Western Investors I, L.P. (DE)
CREA Western Investors I, Inc. holds a 24.28% general
partnership interest and Copley Public Partnership Holding,
L.P. holds a 57.62% limited partnership interest in CREA
Western Investors I, L.P.
iv. CREA Investors Santa Fe Springs, Inc. (MA)
2. Copley Public Partnership 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 and
CREA Western Investors I, L.P holds a 57.62% Limited Partnership
interest.
3. AEW Real Estate Advisors, Limited Partnership (MA)
AEW Real Estate Advisors, Inc. holds a 25% general partnership interest
and AEW Capital Management, L.P. holds a 75% limited partnership
interest in AEW Real Estate Advisors, Limited Partnership.
4. AEW Hotel Investment Corporation (MA)
a. AEW Hotel Investment, Limited Partnership (MA)
AEW Hotel Investment Corporation holds a 1% general
partnership interest and AEW Capital Management, L.P. holds a
99% limited partnership interest in AEW Hotel Investment,
Limited Partnership.
5. Aldrich Eastman Global Investment Strategies, LLC (DE)
AEW Capital Management, L.P. holds a 25% membership interest and an
unaffiliated third party holds a 75% membership interest in Aldrich
Eastman Global Investment Strategies, LLC.
</TABLE>
C-14
<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.
5) 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-15
<PAGE>
6) Metropolitan owns varying interests in certain mutual funds distributed by
its affiliates. These ownership interests are generally expected to decrease as
shares of the funds are purchased by unaffiliated investors.
7) Metropolitan Lloyds Insurance Company of Texas, an affiliated association,
provides homeowner and related insurance for the Texas market. It is an
association of individuals designated as underwriters. Metropolitan Lloyds,
Inc., a subsidiary of Metropolitan Property and Casualty Insurance Company ("MET
P&C"), serves as the attorney-in-fact and manages the association.
8) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited
partnerships, are investment vehicles through which investments in certain
entities are held. A wholly owned subsidiary of Metropolitan serves as the
general partner of the limited partnerships and Metropolitan directly owns a 99%
limited partnership interest in each MILP. The MILPs have various's ownership
interests in certain companies. The various MILPs own, directly or indirectly,
more than 50% of the voting stock of the following company: Coating
Technologies International, Inc.
NOTE: THE METROPOLITAN LIFE ORGANIZATIONAL CHART DOES NOT INCLUDE REAL ESTATE
JOINT VENTURES AND PARTNERSHIPS OF WHICH METROPOLITAN LIFE AND/OR ITS
SUBSIDIARIES IS AN INVESTMENT PARTNER. IN ADDITION, CERTAIN INACTIVE
SUBSIDIARIES HAVE ALSO BEEN OMITTED.
C-16
<PAGE>
Item 25: 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-17
<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-18
<PAGE>
Item 26. 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. Vice President State Street Research Portfolios, Inc. Boston, MA
Director and Vice President State Street Research Securities Trust Boston, MA
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 SSRM Services, Inc. Boston, MA
Director State Street Research Investment Services, Inc Boston, MA
Director State Street Research Luxembourg
Director Boston Private Bank & Trust Co. Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Executive Vice President GFM International Investors, Inc. London, England
Bochman, Kathleen None
Vice President
Borzilleri, John Vice President Montgomery Securities San Francisco, CA
Senior Vice (until 6/97)
President
(Vice President
until 4/98)
Bray, Michael J. Employee Merrill Lynch & Co. Boston, MA
Senior Vice (until 7/96)
President
(Vice President
until 4/98)
Brezinsk, Karen None
Vice President
Brown, Susan H. None
Vice President
Buffum, Andrea Project Manager BankBoston Boston, MA
Vice President (until 12/96)
Burbank, John F. None
Senior Vice President
(Vice President until
7/96)
Cabrera, Jesus A. Vice President State Street Research Capital Trust Boston, MA
Senior Vice
President
(Vice President
until 4/98)
Calame, Mara D. Assistant Vice President, Counsel GFM International Investors, Inc. London, England
Vice President and Assistant Secretary
Assistant Clerk State Street Research Energy, Inc. Boston, MA
Canavan, Joseph W. Assistant Treasurer State Street Research Equity Trust Boston, MA
</TABLE>
<TABLE>
<S> <C> <C> <C>
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President until Assistant Treasurer State Street Research Income Trust Boston, MA
4/98) 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
Vice President GFM International Investors, Inc. London, England
Vice President State Street Research Energy, Inc. Boston, MA
</TABLE>
C-19
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
Carstens, Linda C. None
Vice President
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President
Coleman, Thomas J. Account Manager MetLife Investment Management New York, NY
Vice President (until 9/96)
Cowling, Dyann Vice President State Street Research Boston, MA
Vice President Money Market Trust
Cullen, Terrence J. Vice President and Counsel Keystone-Evergreen Boston, MA
Vice President (until 2/98)
Vice President State Street Research Investment Boston, MA
Services, Inc.
D'Vari, Ronald None
Vice President
Depp, Maureen G. Vice President Wellington Management Company Boston, MA
Vice President (until 9/97)
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 Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Drake, Susan W. None
Vice President
Dudley, Catherine Senior Portfolio Manager Chancellor Capital Management Boston, MA
Senior Vice President (until 2/98)
Duggan, Peter J. None
Senior Vice
President
Even, Karen None
Vice President
Federoff, Alex G. None
Vice President
Fee, Richard CIGNA Retirement & Investment Services Hartford, CT
Vice President
Feliciano, Rosalina None
Vice President
Ficco, Bonnie None
Vice President
Fochtman, Jr., Leo None
Vice President
Fromm, Stuart Vice President State Street Research Boston, MA
Vice President Investment Services, Inc.
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
Giroux, June M. None
Vice President
Govoni, Electra None
Vice President
</TABLE>
C-20
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
Grace, Evan None
Vice President
Granger, Allison None
Vice President
Haggerty, Bryan D. 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. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
Healy, Laura J. None
Vice President
Heineke, George R. None
Vice President
Hickman, Joanne Managing Director (until 1/98) Zurich Investment Management Chicago, IL
Senior Vice President
Huang, Jesse C. None
Vice President
Jackson, Jr., F. Gardner Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Trustee Certain trusts of related and
non-related individuals
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
(until 1/97)
Senior Vice President GFM International Investors, Inc. London, England
Asst. Treasurer State Street Research Energy, Inc Boston, MA
Jodka, Richard J. Portfolio Manager (until 1/98) Frontier Capital Management Boston, MA
Senior Vice President
Vice President State Street Research Capital Trust Boston, MA
Kallis, John H. Vice President State Street Research Financial Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Money Market Trust Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Vice President State Street Research Portfolios, Inc Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Director and President K&G Enterprises Washington, D.C.
Kasper, M. Katherine None
Vice President
</TABLE>
C-21
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
Kern, Stephen F. None
Vice President
King, Stephen R. Vice President State Street Research Investment Boston, MA
Vice President Services, Inc.
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
(Vice President
until 4/98)
Langholm, Knut Director State Street Research Luxembourg
Vice President
Leary, Eileen M. None
Vice President
Lomasney, Mary T. Business Analyst Fidelity Boston, MA
Vice President (until 6/97)
Mauer, Jacqueline J. None
Vice President
McNamara, III, Francis J. Executive Vice President, Clerk State Street Research Investment Services, Inc. Boston, MA
Executive Vice and General Counsel
President, Secretary State Street Research Master Investment Trust Boston, MA
Secretary and Secretary State Street Research Capital Trust Boston, MA
General Counsel Secretary State Street Research Exchange Trust Boston, MA
(Senior Vice President Secretary State Street Research Growth Trust Boston, MA
until 7/96) Secretary State Street Research Securities Trust Boston, MA
Secretary State Street Research Equity Trust Boston, MA
Secretary State Street Research Financial Trust Boston, MA
Secretary State Street Research Income Trust Boston, MA
Secretary State Street Research Money Market Trust Boston, MA
Secretary State Street Research Portfolios, Inc. Boston, MA
Secretary State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
Executive Vice President, GFM International Investors, Inc. London, England
Secretary and General Counsel
Clerk State Street Research Energy, Inc. Boston, MA
Clerk SSRM Services, Inc. Boston, MA
C-22
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Maus, Gerard P. Treasurer State Street Research Equity Trust Boston, MA
Director, Executive Treasurer State Street Research Financial Trust Boston, MA
Vice President, Treasurer State Street Research Income Trust Boston, MA
Treasurer, Chief Treasurer State Street Research Money Market Trust Boston, MA
Financial Officer Treasurer State Street Research Tax-Exempt Trust Boston, MA
and Chief Treasurer State Street Research Capital Trust Boston, MA
Administrative Treasurer State Street Research Exchange Trust Boston, MA
Officer 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, Executive Vice President,
Treasurer, Chief Financial Officer
and Chief Administrative Officer GFM International Investors, Inc. London, England
Director State Street Research Luxembourg
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
Director and Treasurer State Street Research Energy Inc. Boston, MA
Director and Treasurer SSRM Services Inc. Boston, MA
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
Morey, Andrew None
Vice President
Mulligan, JoAnne C. Vice President State Street Research Money Market Trust Boston, MA
Senior Vice President (until 5/98)
(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-23
<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
Senior Vice President
(Vice President
until 4/97)
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Pierce, James D. None
Vice President
Poritzky, Dean E. Portfolio Manager Fidelity Investments Boston, MA
Vice President (until 4/97)
Pyle, David J. Analyst Oak Value Capital Management Durham, NC
Vice President (until 4/97)
Ragsdale, E.K. Easton Senior Vice President GFM International Investors, Inc. London, England
Senior Vice President
(Vice President
until 7/96)
Ransom, Clifford Director of Special NatWest Markets
Vice President Situations (until 2/97)
Rawlins, Jeffrey A. None
Senior Vice President
(Vice President
until 7/96)
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Richards, Scott None
Vice President
Romich, Douglas A. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President Assistant Treasurer State Street Research Income Trust Boston, MA
until 4/98) 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
Vice President GFM International Investors, Inc. London, England
Vice President State Street Research Energy, Inc. Boston, MA
Ryan, Michael J. Senior Vice President Delaware Management Philadelphia, PA
Senior Vice President (until 1/98)
Sanderson, Derek Senior Vice President Freedom Capital Management Boston, MA
Senior Vice President (until 9/97)
Saperstone, Paul None
Vice President
C-24
<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, Chief Executive State Street Research Investment Services, Inc. Boston, MA
Executive Vice Officer and Executive Vice
President President
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 Luxembourg
Vice President State Street Research Securities Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Vice President State Street Research Investment Trust Boston, MA
Shoemaker, Richard D.
Senior Vice President Senior Vice President GFM International Investors, Inc. London, England
Stambaugh, Kenneth None
Vice President
(Assistant Vice
President until 9/97)
Stolberg, Thomas None
Vice President
Strelow, Dan R. None
Senior Vice President
C-25
<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
Verni, Ralph F. Chairman, President, Chief State Street Research Capital Trust Boston, MA
Chairman, President, Executive Officer and Trustee
Chief Executive Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Growth Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Master Investment Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Securities Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Equity Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Financial Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Income Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Money Market Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research 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
Chairman, President, GFM International Investors, Inc. London, England
CEO and Director
Director and President State Street Research Energy, Inc. Boston, MA
Director, President and
Chairman SSRM Services, Inc. Boston, MA
Director State Street Research Luxembourg
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-26
<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
Walsh, Tucker None
Vice President
Weiss, James M. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Capital Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Welch, Timothy M. None
Vice President
Westvold, Vice President State Street Research Securities Trust Boston, MA
Elizabeth McCombs
Senior Vice President
(Vice President
until 7/96)
Wilkins, Kevin Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Various Positions Fidelity Investments Boston, MA
(until 10/96)
Wilson, John T. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Master Investment Trust Boston, MA
Vice President
(until 6/96)
Wing, Darman A.
Senior Vice President, Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Assistant Secretary Asst. Clerk
and Assistant Assistant Secretary State Street Research Capital Trust Boston, MA
General Counsel Assistant Secretary State Street Research Exchange Trust Boston, MA
(Vice President Assistant Secretary State Street Research Growth Trust Boston, MA
until 4/98) Assistant Secretary State Street Research Master Investment Trust Boston, MA
Assistant Secretary State Street Research Securities Trust Boston, MA
Assistant Secretary State Street Research Equity Trust Boston, MA
Assistant Secretary State Street Research Financial Trust Boston, MA
Assistant Secretary State Street Research Income Trust Boston, MA
Assistant Secretary State Street Research Money Market Trust Boston, MA
Assistant Secretary State Street Research Portfolios, Inc. Boston, MA
Assistant Secretary State Street Research Tax-Exempt Trust Boston, MA
Assistant Secretary and SSRM Holdings, Inc. Boston, MA
Assistant General Counsel
Vice President and GFM International Investors, Inc. London, England
Assistant General Counsel
Woodbury, Robert S. None
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 Vice President State Street Research Securities Trust Boston, MA
C-27
<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
Yannone, John T. Vice President State Street Research Investment Boston, MA
Vice President Services, Inc.
</TABLE>
C-28
<PAGE>
Item 27: 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:
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
<S> <C> <C>
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 Vice President
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, Chief None
One Financial Center Executive Officer and
Boston, MA 02111 Executive Vice President
Francis J. McNamara, III Executive Vice President, Secretary
One Financial Center General Counsel
Boston, MA 02111 and Clerk
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-29
<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
Russell A. Labrasca Senior Vice President None
One Financial Center
Boston, MA 02111
Joan D. Miller Senior Vice President None
One Financial Center
Boston, MA 02111
Darman A. Wing Senior Vice President, Assistant Secretary
One Financial Center Assistant General Counsel
Boston, MA 02111 and Assistant Clerk
Terrence J. Cullen Vice President None
One Financial Center
Boston, MA 02111
Stuart Fromm Vice President None
One Financial Center
Boston, MA 02111
Robert M. Gunville Vice President None
One Financial Center
Boston, MA 02111
Patricia A. Howell Vice President None
One Financial Center
Boston, MA 02111
Frederick H. Jamieson Vice President None
One Financial Center and Assistant
Boston, MA 02111 Treasurer
Steven R. King 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
John T. Yannone Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-30
<PAGE>
Item 28: Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 29: Management Services
Under a Shareholders' Administrative Services Agreement between
Registrant 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 series of the
Registrant and received the amounts set forth below:
<TABLE>
<CAPTION>
Year-end Year-end
4/30/97 4/30/98
------- -------
<S> <C> <C>
State Street Research
Strategic Income Fund $6,254 $24,312
State Street Research
Legacy Fund N/A $ 2,774
State Street Research
Galileo Fund N/A $ 1,387
</TABLE>
Item 30: Undertakings
(a) Inapplicable.
(b) Deleted.
(c) Deleted.
(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.
(f) Deleted.
C-31
<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-32
<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. 10 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 30th day of June, 1998.
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.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* 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
C-33
<PAGE>
* Trustee
---------------------
Toby Rosenblatt
* Trustee
---------------------
Michael S. Scott Morton
</TABLE>
*By: /s/ Francis J. McNamara, III
-------------------------------
Francis J. McNamara, III
Attorney-in-Fact
under Powers of Attorney
dated August 29, 1997,
incorporated by reference
from Post-Effective Amendment
No 7.
C-34
<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. 10 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 11 [X]
--------------------
STATE STREET RESEARCH SECURITIES TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
--------------------
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(1)(c) Amendment No. 3 to the Master Trust Agreement
(1)(d) Amendment No. 4 to the Master Trust Agreement
(5)(c) Letter Agreement with respect to the Advisory Agreement
relating to the State Street Research Legacy Fund
(5)(d) Letter Agreement with respect to the Advisory Agreement relating
to State Street Research Galileo Fund
(6)(f) Letter Agreement with respect to the Distribution Agreement
relating to State Street Research Legacy Fund
(6)(g) Letter Agreement with respect to the Distribution Agreement
relating to State Street Research Galileo Fund
(8)(c) Letter Agreement with respect to the Custodian Contract relating
to the State Street Research Legacy Fund
(8)(d) Letter Agreement with respect to the Custodian Contract relating
to the State Street Research Galileo Fund
(11) Consent of Independent Accountants
(13)(c) Subscription and Investment Letter with respect to State Street
Research Legacy Fund
(13)(d) Subscription and Investment Letter with respect to State Street
Research Galileo Fund
(15)(c) Letter Agreement with respect to Plan of Distribution Pursuant
to Rule 12b-1 relating to State Street Research Legacy Fund
(15)(d) Letter Agreement with respect to Plan of Distribution Pursuant
to Rule 12b-1 relating to State Street Research Galileo Fund
(19)(a) State Street Research New Account Application
(19)(b) Additional Services Application
(19)(c) MetLife Securities, Inc. New Account Application
(27)(b) Financial Data Schedules for State Street Research Strategic
Income Fund, State Street Research Legacy Fund and State
Street Research Galileo Fund
2
Exhibit (1)(c)
STATE STREET RESEARCH SECURITIES TRUST
Amendment No. 3 to Master Trust Agreement
INSTRUMENT OF AMENDMENT
Pursuant to Article IV, Sections 4.1 and 4.2 and Article VII, Section
7.3 of the Master Trust Agreement of the State Street Research Securities Trust
(the "Trust") dated January 25, 1994 ("Master Trust Agreement"), as heretofore
amended, the Master Trust Agreement is hereby amended to establish and designate
an additional series of shares to be known as State Street Research Legacy
Fund, such new series to have the relative rights and preferences set forth in
Article IV, Section 4.2, subsections (a) through (1) of the Master Trust
Agreement.
Pursuant to Article VII, Section 7.3 of the Master Trust Agreement, the
following is added immediately prior to the last sentence of Article V, Section
5.1:
"Execution of a proxy by a person or organization, which has
been authorized to do so by a Shareholder pursuant to telephonic
or electronically transmitted instructions, shall constitute
execution of such proxy by or on behalf of such Shareholder."
This Amendment shall be effective as of December 15, 1997.
IN WITNESS WHEREOF, the undersigned officer of the Trust hereby adopts
the foregoing on behalf of the Trust pursuant to authorization by the Trustees
of the Trust.
/s/ Francis J. McNamara, III
-------------------------
Francis J. McNamara, III
Secretary
m:\n1a\securiti\taxmngd\mta3.doc
Exhibit (1)(d)
STATE STREET RESEARCH SECURITIES TRUST
Amendment No. 4 to Master Trust Agreement
INSTRUMENT OF AMENDMENT
Pursuant to Article IV, Sections 4.1 and 4.2 and Article VII, Section
7.3 of the Master Trust Agreement of the State Street Research Securities Trust
(the "Trust") dated January 25, 1994 ("Master Trust Agreement"), as heretofore
amended, the Master Trust Agreement is hereby amended to establish and designate
an additional series of shares to be known as State Street Research Galileo
Fund, such new series to have the relative rights and preferences set forth in
Article IV, Section 4.2, subsections (a) through (1) of the Master Trust
Agreement.
This Amendment shall be effective as of March 9, 1998.
IN WITNESS WHEREOF, the undersigned officer of the Trust hereby adopts
the foregoing on behalf of the Trust pursuant to authorization by the Trustees
of the Trust.
/s/ Francis J. McNamara, III
-------------------------
Francis J. McNamara, III
Secretary
m:\n1a\securiti\taxmngd\mta3.doc
Exhibit (5)(c)
STATE STREET RESEARCH SECURITIES TRUST
One Financial Center
Boston, Massachusetts 02111-2690
December 15, 1997
State Street Research &
Management Company
One Financial Center
Boston, Massachusetts 02111-2690
Gentlemen:
This letter is to confirm to you that State Street Research Securities
Trust (the "Trust") has created a new series of shares to be known as State
Street Research Legacy Fund (the "Fund") and that pursuant to Section 1(b)
of the Advisory Agreement dated as of May 16, 1994 (the "Agreement"), the Trust
desires to retain you to render management and investment advisory services
under the Agreement to the Fund as a "Series" thereunder for a fee equal to
0.70% on an annual basis of the average daily net asset value of the Fund.
Nothing in the Agreement shall be construed as requiring that the initial public
shareholders of the Fund approve of the Agreement in respect of the Fund.
Notwithstanding paragraph 8(b) of the Agreement, no shareholder vote shall be
required for any amendments to the Agreement for which the Securities and
Exchange Commission has indicated that no shareholder vote is necessary, as for
example, in the case of a decrease in the advisory fee under the Agreement.
Please indicate your acceptance of this responsibility in accordance
with the terms of the Agreement by signing this letter as indicated below.
The term "State Street Research Securities Trust" means and refers to
the Trustees from time to time serving under the Master Trust Agreement dated
January 24, 1994 ("Master Trust Agreement"), as the same may subsequently
thereto have been, or subsequently hereto may be, amended. It is expressly
agreed that the obligations of the Trust hereunder shall not be binding upon any
of the Trustees, shareholders, nominees, officers, agents or employees of the
Trust as individuals or personally, but shall bind only the trust property of
the Trust, as provided in the Master Trust Agreement of the Trust. The execution
and delivery of this Agreement have been authorized by the Trustees of the Trust
and signed by a duly authorized officer of the Trust, acting as such, and
neither such authorization nor such execution and delivery shall be deemed to
have been made individually or to impose any personal liability, but shall bind
only the trust property of the Trust as provided in its Master Trust Agreement.
The Master Trust Agreement of the Trust provides, and it is expressly agreed,
that each Fund of the Trust shall be solely and exclusively responsible for the
payment of its debts, liabilities and obligations, and that no other fund shall
be responsible for the same.
STATE STREET RESEARCH
SECURITIES TRUST
By: /s/ Ralph F. Verni
----------------------
Ralph F. Verni
President
ACCEPTED AND AGREED TO:
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Gerard P. Maus
----------------------
Gerard P. Maus
Treasurer
m:\n1a\securiti\taxmngd\advisagr.doc
Exhibit (5)(d)
STATE STREET RESEARCH SECURITIES TRUST
One Financial Center
Boston, Massachusetts 02111-2690
March 9, 1998
State Street Research &
Management Company
One Financial Center
Boston, Massachusetts 02111-2690
Gentlemen:
This letter is to confirm to you that State Street Research Securities
Trust (the "Trust") has created a new series of shares to be known as State
Street Research Galileo Fund (the "Fund") and that pursuant to Section 1(b)
of the Advisory Agreement dated as of May 16, 1994 (the "Agreement"), the Trust
desires to retain you to render management and investment advisory services
under the Agreement to the Fund as a "Series" thereunder for a fee equal to
0.65% on an annual basis of the average daily net asset value of the Fund.
Nothing in the Agreement shall be construed as requiring that the initial public
shareholders of the Fund approve of the Agreement in respect of the Fund.
Notwithstanding paragraph 8(b) of the Agreement, no shareholder vote shall be
required for any amendments to the Agreement for which the Securities and
Exchange Commission has indicated that no shareholder vote is necessary, as for
example, in the case of a decrease in the advisory fee under the Agreement.
Please indicate your acceptance of this responsibility in accordance
with the terms of the Agreement by signing this letter as indicated below.
The term "State Street Research Securities Trust" means and refers to
the Trustees from time to time serving under the Master Trust Agreement dated
January 24, 1994 ("Master Trust Agreement"), as the same may subsequently
thereto have been, or subsequently hereto may be, amended. It is expressly
agreed that the obligations of the Trust hereunder shall not be binding upon any
of the Trustees, shareholders, nominees, officers, agents or employees of the
Trust as individuals or personally, but shall bind only the trust property of
the Trust, as provided in the Master Trust Agreement of the Trust. The execution
and delivery of this Agreement have been authorized by the Trustees of the Trust
and signed by a duly authorized officer of the Trust, acting as such, and
neither such authorization nor such execution and delivery shall be deemed to
have been made individually or to impose any personal liability, but shall bind
only the trust property of the Trust as provided in its Master Trust Agreement.
The Master Trust Agreement of the Trust provides, and it is expressly agreed,
that each Fund of the Trust shall be solely and exclusively responsible for the
payment of its debts, liabilities and obligations, and that no other fund shall
be responsible for the same.
STATE STREET RESEARCH
SECURITIES TRUST
By: /s/ Ralph F. Verni
----------------------
Ralph F. Verni
President
ACCEPTED AND AGREED TO:
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Gerard P. Maus
----------------------
Gerard P. Maus
Treasurer
m:\n1a\securiti\taxmngd\advisagr.doc
Exhibit (6)(f)
STATE STREET RESEARCH SECURITIES TRUST
One Financial Center
Boston, Massachusetts 02111-2690
December 15, 1997
State Street Research
Investment Services, Inc.
One Financial Center
Boston, Massachusetts 02111-2690
Gentlemen:
This letter is to confirm to you that State Street Research Securities
Trust (the "Trust"), has created a new series of shares to be known as State
Street Research Legacy Fund (the "Fund"), which is authorized to be issued
in four classes (Class A shares, Class B shares, Class S shares and Class C
shares), and that pursuant to the Distribution Agreement between the Trust and
you dated as of May 16, 1994 (the "Agreement"), you will serve as distributor
and principal underwriter of the Fund (which shall be deemed a "Fund" under the
Agreement) with respect to the sale of its shares and each class thereof. Shares
of each class of the Fund will be sold at the "net asset value per share" of the
Fund plus any applicable sales charge in accordance with the then current
prospectus and statement of additional information of the Fund, as from time to
time amended.
Please indicate your acceptance of the above in accordance with the
terms of the Agreement by signing this letter as indicated below.
The term "State Street Research Securities Trust" means and refers to
the Trustees from time to time serving under the Master Trust Agreement dated
January 25, 1994 ("Master Trust Agreement") as the same may subsequently thereto
have been, or subsequently hereto may be, amended. It is expressly agreed that
the obligations of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Trust as
individuals or personally, but shall bind only the trust property of the Trust,
as provided in the Master Trust Agreement of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust and
signed by a duly authorized officer of the Trust, acting as such, and neither
such authorization nor such execution and delivery shall be deemed to have been
made individually or to impose any personal liability, but shall bind only the
trust property of the Trust as provided in its Master Trust Agreement. The
Master Trust Agreement of the Trust provides, and it is expressly agreed, that
each Fund of the Trust shall be solely and exclusively responsible for the
payment of its debts, liabilities and obligations, and that no other fund shall
be responsible for the same.
STATE STREET RESEARCH
SECURITIES TRUST
By: /s/ Ralph F. Verni
----------------------
Ralph F. Verni
President
ACCEPTED AND AGREED TO:
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By: /s/ C. Troy Shaver, Jr.
---------------------------
C. Troy Shaver, Jr.
President
m:\n1a\securiti\taxmngd\distragr.doc
Exhibit (6)(g)
STATE STREET RESEARCH SECURITIES TRUST
One Financial Center
Boston, Massachusetts 02111-2690
March 9, 1998
State Street Research
Investment Services, Inc.
One Financial Center
Boston, Massachusetts 02111-2690
Gentlemen:
This letter is to confirm to you that State Street Research Securities
Trust (the "Trust"), has created a new series of shares to be known as State
Street Research Galileo Fund (the "Fund"), which is authorized to be issued
in four classes (Class A shares, Class B shares, Class S shares and Class C
shares), and that pursuant to the Distribution Agreement between the Trust and
you dated as of May 16, 1994 (the "Agreement"), you will serve as distributor
and principal underwriter of the Fund (which shall be deemed a "Fund" under the
Agreement) with respect to the sale of its shares and each class thereof. Shares
of each class of the Fund will be sold at the "net asset value per share" of the
Fund plus any applicable sales charge in accordance with the then current
prospectus and statement of additional information of the Fund, as from time to
time amended.
Please indicate your acceptance of the above in accordance with the
terms of the Agreement by signing this letter as indicated below.
The term "State Street Research Securities Trust" means and refers to
the Trustees from time to time serving under the Master Trust Agreement dated
January 25, 1994 ("Master Trust Agreement") as the same may subsequently thereto
have been, or subsequently hereto may be, amended. It is expressly agreed that
the obligations of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Trust as
individuals or personally, but shall bind only the trust property of the Trust,
as provided in the Master Trust Agreement of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust and
signed by a duly authorized officer of the Trust, acting as such, and neither
such authorization nor such execution and delivery shall be deemed to have been
made individually or to impose any personal liability, but shall bind only the
trust property of the Trust as provided in its Master Trust Agreement. The
Master Trust Agreement of the Trust provides, and it is expressly agreed, that
each Fund of the Trust shall be solely and exclusively responsible for the
payment of its debts, liabilities and obligations, and that no other fund shall
be responsible for the same.
STATE STREET RESEARCH
SECURITIES TRUST
By: /s/ Gerard P. Maus
----------------------
Gerard P. Maus
Treasurer
ACCEPTED AND AGREED TO:
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By: /s/ C. Troy Shaver, Jr.
---------------------------
C. Troy Shaver, Jr.
President
m:\n1a\securiti\taxmngd\distragr.doc
Exhibit (8)(c)
STATE STREET RESEARCH SECURITIES TRUST
One Financial Center
Boston, Massachusetts 02111-2690
December 15, 1997
State Street Bank and
Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Gentlemen:
This letter is to confirm to you that State Street Research Securities
Trust (the "Trust") has created a new series of shares to be known as State
Street Research Legacy Fund (the "Fund"), and that pursuant to paragraph 17
of the Custodian Contract dated as of May 16, 1994 between the Trust and you
(the "Agreement"), the Trust desires to retain you to act as Custodian of the
assets of the Fund as set forth in the Custodian Contract.
Please indicate your acceptance of the above in accordance with the
terms of the Agreement by signing this letter as indicated below.
The term "State Street Research Securities Trust" means and refers to
the Trustees from time to time serving under the Master Trust Agreement dated
January 25, 1994 ("Master Trust Agreement") as the same may subsequently thereto
have been, or subsequently hereto may be, amended. It is expressly agreed that
the obligations of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Trust as
individuals or personally, but shall bind only the trust property of the Trust,
as provided in the Master Trust Agreement of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust and
signed by a duly authorized officer of the Trust, acting as such, and neither
such authorization nor such execution and delivery shall be deemed to have been
made individually or to impose any personal liability, but shall bind only the
trust property of the Trust as provided in its Master Trust Agreement. The
Master Trust Agreement of the Trust provides, and it is
<PAGE>
expressly agreed, that each fund of the Trust shall be solely and exclusively
responsible for the payment of its debts, liabilities and obligations, and that
no other fund shall be responsible for the same.
STATE STREET RESEARCH
SECURITIES TRUST
By: /s/ Gerard P. Maus
----------------------
Gerard P. Maus
Treasurer
ACCEPTED AND AGREED TO:
STATE STREET BANK AND
TRUST COMPANY
By: /s/ Timothy J. Panaro
-------------------------
Name: Timothy J. Panaro
Title: Vice President
m:\n1a\securiti\taxmngd\custdian.doc
Exhibit (8)(d)
STATE STREET RESEARCH SECURITIES TRUST
One Financial Center
Boston, Massachusetts 02111-2690
March 9, 1998
State Street Bank and
Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Gentlemen:
This letter is to confirm to you that State Street Research Securities
Trust (the "Trust") has created a new series of shares to be known as State
Street Research Galileo Fund (the "Fund"), and that pursuant to paragraph 17
of the Custodian Contract dated as of May 16, 1994 between the Trust and you
(the "Agreement"), the Trust desires to retain you to act as Custodian of the
assets of the Fund as set forth in the Custodian Contract.
Please indicate your acceptance of the above in accordance with the
terms of the Agreement by signing this letter as indicated below.
The term "State Street Research Securities Trust" means and refers to
the Trustees from time to time serving under the Master Trust Agreement dated
January 25, 1994 ("Master Trust Agreement") as the same may subsequently thereto
have been, or subsequently hereto may be, amended. It is expressly agreed that
the obligations of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Trust as
individuals or personally, but shall bind only the trust property of the Trust,
as provided in the Master Trust Agreement of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust and
signed by a duly authorized officer of the Trust, acting as such, and neither
such authorization nor such execution and delivery shall be deemed to have been
made individually or to impose any personal liability, but shall bind only the
trust property of the Trust as provided in its Master Trust Agreement. The
Master Trust Agreement of the Trust provides, and it is
<PAGE>
expressly agreed, that each fund of the Trust shall be solely and exclusively
responsible for the payment of its debts, liabilities and obligations, and that
no other fund shall be responsible for the same.
STATE STREET RESEARCH
SECURITIES TRUST
By: /s/ Joseph W. Canavan
-------------------------
Joseph W. Canavan
Assistant Treasurer
ACCEPTED AND AGREED TO:
STATE STREET BANK AND
TRUST COMPANY
By: /s/ Timothy J. Panaro
-------------------------
Name: Timothy J. Panaro
Title: Vice President
m:\n1a\securiti\taxmngd\custdian.doc
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statements of Additional Information
constituting part of this Post-Effective Amendment No. 10 to the registration
statement (No. 33-74628) on Form N-1A (the "Registration Statement") of our
reports dated June 5, 1998 relating to the financial statements and financial
highlights of State Street Research Strategic Income Fund, State Street Research
Legacy Fund and State Street Research Galileo Fund (each a series of State
Street Research Securities Trust), which appear in such Statements of Additional
Information and to the incorporation by reference of our reports into the
Prospectuses which constitute 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 Prospectuses.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 29, 1998
Exhibit (13)(c)
SUBSCRIPTION
December 15, 1997
To: The Trustees of the
State Street Research Securities Trust
One Financial Center
Boston, Massachusetts 02111-2690
The undersigned hereby subscribes to one Class A share of beneficial
interest of State Street Research Legacy Fund, having a par value of $.001,
at a price of $9.55 per share and agrees to pay therefor upon demand in cash
the amount of $9.55.
Very truly yours,
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Frederick H. Jamieson
-----------------------------
Frederick H. Jamieson
Senior Vice President
m:\n1a\securiti\taxmngd\sbscrptn
<PAGE>
SUBSCRIPTION
December 15, 1997
To: The Trustees of the
State Street Research Securities Trust
One Financial Center
Boston, Massachusetts 02111-2690
The undersigned hereby subscribes to one Class B share of beneficial
interest of State Street Research Legacy Fund, having a par value of $.001,
at a price of $9.55 per share and agrees to pay therefor upon demand in cash
the amount of $9.55.
Very truly yours,
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Frederick H. Jamieson
-----------------------------
Frederick H. Jamieson
Senior Vice President
m:\n1a\securiti\taxmngd\sbscrptn
<PAGE>
SUBSCRIPTION
December 15, 1997
To: The Trustees of the
State Street Research Securities Trust
One Financial Center
Boston, Massachusetts 02111-2690
The undersigned hereby subscribes to one Class C share of beneficial
interest of State Street Research Legacy Fund, having a par value of $.001,
at a price of $9.55 per share and agrees to pay therefor upon demand in cash
the amount of $9.55.
Very truly yours,
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Frederick H. Jamieson
-----------------------------
Frederick H. Jamieson
Senior Vice President
m:\n1a\securiti\taxmngd\sbscrptn
<PAGE>
SUBSCRIPTION
December 15, 1997
To: The Trustees of the
State Street Research Strategic Income Trust
One Financial Center
Boston, Massachusetts 02111-2690
The undersigned hereby subscribes to one Class S share of beneficial
interest of State Street Research Legacy Fund, having a par value of $.001,
at a price of $9.55 per share and agrees to pay therefor upon demand in cash
the amount of $9.55.
Very truly yours,
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Frederick H. Jamieson
-----------------------------
Frederick H. Jamieson
Senior Vice President
m:\n1a\securiti\taxmngd\sbscrptn
<PAGE>
December 15, 1997
State Street Research Securities Trust
One Financial Center
Boston, Massachusetts 02111-2690
In connection with your sale to us of one Class A share of beneficial
interest of State Street Research Legacy Fund (the "Share"), we understand
that: (i) the Share has not been registered under the Securities Act of 1933, as
amended (the "1933 Act"); (ii) your sale of the Share to us is made in reliance
on such sale being exempt under Section 4(2) of the 1933 Act as not involving
any public offering; and (iii) in part, your reliance on such exemption is
predicated on our representation, which we hereby confirm, that we are acquiring
the Share for investment for our own account as the sole beneficial owner
thereof, and not with a view to or in connection with any resale or distribution
of the Share or of any interest therein. We hereby agree that we will not sell,
assign or transfer the Share or any interest therein, except upon repurchase or
redemption by the Fund, unless and until the Share has been registered under the
1933 Act or you have received an opinion of your counsel indicating to your
satisfaction that said sale, assignment or transfer will not violate the
provisions of the 1933 Act or any rules or regulations promulgated thereunder.
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Frederick H. Jamieson
-----------------------------
Frederick H. Jamieson
Senior Vice President
m:\n1a\securiti\taxmngd\sbscrptn
<PAGE>
December 15, 1997
State Street Research Securities Trust
One Financial Center
Boston, Massachusetts 02111-2690
In connection with your sale to us of one Class B share of beneficial
interest of State Street Research Legacy Fund (the "Share"), we understand
that: (i) the Share has not been registered under the Securities Act of 1933, as
amended (the "1933 Act"); (ii) your sale of the Share to us is made in reliance
on such sale being exempt under Section 4(2) of the 1933 Act as not involving
any public offering; and (iii) in part, your reliance on such exemption is
predicated on our representation, which we hereby confirm, that we are acquiring
the Share for investment for our own account as the sole beneficial owner
thereof, and not with a view to or in connection with any resale or distribution
of the Share or of any interest therein. We hereby agree that we will not sell,
assign or transfer the Share or any interest therein, except upon repurchase or
redemption by the Fund, unless and until the Share has been registered under the
1933 Act or you have received an opinion of your counsel indicating to your
satisfaction that said sale, assignment or transfer will not violate the
provisions of the 1933 Act or any rules or regulations promulgated thereunder.
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Frederick H. Jamieson
-----------------------------
Frederick H. Jamieson
Senior Vice President
m:\n1a\securiti\taxmngd\sbscrptn
<PAGE>
December 15, 1997
State Street Research Securities Trust
One Financial Center
Boston, Massachusetts 02111-2690
In connection with your sale to us of one Class C share of beneficial
interest of State Street Research Legacy Fund (the "Share"), we understand
that: (i) the Share has not been registered under the Securities Act of 1933, as
amended (the "1933 Act"); (ii) your sale of the Share to us is made in reliance
on such sale being exempt under Section 4(2) of the 1933 Act as not involving
any public offering; and (iii) in part, your reliance on such exemption is
predicated on our representation, which we hereby confirm, that we are acquiring
the Share for investment for our own account as the sole beneficial owner
thereof, and not with a view to or in connection with any resale or distribution
of the Share or of any interest therein. We hereby agree that we will not sell,
assign or transfer the Share or any interest therein, except upon repurchase or
redemption by the Fund, unless and until the Share has been registered under the
1933 Act or you have received an opinion of your counsel indicating to your
satisfaction that said sale, assignment or transfer will not violate the
provisions of the 1933 Act or any rules or regulations promulgated thereunder.
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Frederick H. Jamieson
-----------------------------
Frederick H. Jamieson
Senior Vice President
m:\n1a\securiti\taxmngd\sbscrptn
<PAGE>
December 15, 1997
State Street Research Securities Trust
One Financial Center
Boston, Massachusetts 02111-2690
In connection with your sale to us of one Class S share of beneficial
interest of State Street Research Legacy Fund (the "Share"), we understand
that: (i) the Share has not been registered under the Securities Act of 1933, as
amended (the "1933 Act"); (ii) your sale of the Share to us is made in reliance
on such sale being exempt under Section 4(2) of the 1933 Act as not involving
any public offering; and (iii) in part, your reliance on such exemption is
predicated on our representation, which we hereby confirm, that we are acquiring
the Share for investment for our own account as the sole beneficial owner
thereof, and not with a view to or in connection with any resale or distribution
of the Share or of any interest therein. We hereby agree that we will not sell,
assign or transfer the Share or any interest therein, except upon repurchase or
redemption by the Fund, unless and until the Share has been registered under the
1933 Act or you have received an opinion of your counsel indicating to your
satisfaction that said sale, assignment or transfer will not violate the
provisions of the 1933 Act or any rules or regulations promulgated thereunder.
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Frederick H. Jamieson
-----------------------------
Frederick H. Jamieson
Senior Vice President
m:\n1a\securiti\taxmngd\sbscrptn
Exhibit (13)(d)
SUBSCRIPTION
March 9, 1998
To: The Trustees of the
State Street Research Securities Trust
One Financial Center
Boston, Massachusetts 02111-2690
The undersigned hereby subscribes to one Class A share, one Class B
share, one Class C share and one Class S share of beneficial interest of State
Street Research Galileo Fund, having a par value of $.001, at a price of $9.55
per share and agrees to pay therefor upon demand in cash the amount of $9.55.
Very truly yours,
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Frederick H. Jamieson
-----------------------------
Frederick H. Jamieson
Senior Vice President
m:\n1a\securiti\taxmngd\sbscrptn
<PAGE>
March 9, 1998
State Street Research Securities Trust
One Financial Center
Boston, Massachusetts 02111-2690
In connection with your sale to us of one Class A, Class B, Class C and
Class S share of beneficial interest of State Street Research Galileo Fund (the
"Share"), we understand that: (i) the Share has not been registered under the
Securities Act of 1933, as amended (the "1933 Act"); (ii) your sale of the Share
to us is made in reliance on such sale being exempt under Section 4(2) of the
1933 Act as not involving any public offering; and (iii) in part, your reliance
on such exemption is predicated on our representation, which we hereby confirm,
that we are acquiring the Share for investment for our own account as the sole
beneficial owner thereof, and not with a view to or in connection with any
resale or distribution of the Share or of any interest therein. We hereby agree
that we will not sell, assign or transfer the Share or any interest therein,
except upon repurchase or redemption by the Fund, unless and until the Share has
been registered under the 1933 Act or you have received an opinion of your
counsel indicating to your satisfaction that said sale, assignment or transfer
will not violate the provisions of the 1933 Act or any rules or regulations
promulgated thereunder.
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Frederick H. Jamieson
-----------------------------
Frederick H. Jamieson
Senior Vice President
m:\n1a\securiti\taxmngd\sbscrptn
Exhibit B(15)(c)
STATE STREET RESEARCH SECURITIES TRUST
One Financial Center
Boston, MA 02111
December 15, 1997
State Street Research Investment
Services, Inc.
One Financial Center
Boston, Massachusetts 02111
Ladies and Gentlemen:
This letter is to confirm to you that the Plan of Distribution Pursuant
to Rule 12b-1 dated as of May 16, 1994 (the "Plan") adopted by State Street
Research Securities Trust (the "Trust") shall apply to State Street Research
Legacy Fund (the "Fund") as a "Series" thereunder and under the terms set
forth in the then current prospectus and statement of additional information of
the Fund, as from time to time amended. No approval of the Plan in respect of
the Fund shall be required on behalf of any initial public shareholders,
provided that prior to any initial public offering, no Fund shares are sold to
persons who are not affiliated persons of the Fund, affiliated persons of such
persons, promoters of the Fund, or affiliated persons of such promoters.
Please indicate your acceptance of the above in accordance with the
terms of the Plan by signing this letter as indicated below.
The term "State Street Research Securities Trust" means and refers to
the Trustees from time to time serving under the Master Trust Agreement ("Master
Trust Agreement") of the Trust dated January 25, 1994 as the same may
subsequently thereto have been, or subsequently hereto may be, amended. It is
expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Trust as individuals or personally, but shall bind only the
trust property of the Trust, as provided in the Master Trust Agreement of the
Trust. This Agreement has been authorized by the Trustees of the Trust and
signed by a duly authorized officer of the Trust, acting as such, and neither
such authorization nor such execution shall be deemed to have been made
individually or to impose any personal liability, but shall bind only the trust
property of the Trust as provided in its Master Trust Agreement. The Master
Trust Agreement of the Trust provides, and it is expressly agreed, that each
Fund of the Trust shall be solely and exclusively responsible for the payment of
<PAGE>
its debts, liabilities and obligations, and that no other fund shall be
responsible for the same.
STATE STREET RESEARCH
SECURITIES TRUST
By: /s/ Ralph F. Verni
----------------------
Ralph F. Verni
President
ACCEPTED AND AGREED TO:
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By: /s/ C. Troy Shaver, Jr.
---------------------------
C. Troy Shaver, Jr.
President
m:\n1a\securiti\taxmngd\12b1.doc
Exhibit B(15)(d)
STATE STREET RESEARCH SECURITIES TRUST
One Financial Center
Boston, MA 02111
March 9, 1998
State Street Research Investment
Services, Inc.
One Financial Center
Boston, Massachusetts 02111
Ladies and Gentlemen:
This letter is to confirm to you that the Plan of Distribution Pursuant
to Rule 12b-1 dated as of May 16, 1994 (the "Plan") adopted by State Street
Research Securities Trust (the "Trust") shall apply to State Street Research
Galileo Fund (the "Fund") as a "Series" thereunder and under the terms set
forth in the then current prospectus and statement of additional information of
the Fund, as from time to time amended. No approval of the Plan in respect of
the Fund shall be required on behalf of any initial public shareholders,
provided that prior to any initial public offering, no Fund shares are sold to
persons who are not affiliated persons of the Fund, affiliated persons of such
persons, promoters of the Fund, or affiliated persons of such promoters.
Please indicate your acceptance of the above in accordance with the
terms of the Plan by signing this letter as indicated below.
The term "State Street Research Securities Trust" means and refers to
the Trustees from time to time serving under the Master Trust Agreement ("Master
Trust Agreement") of the Trust dated January 25, 1994 as the same may
subsequently thereto have been, or subsequently hereto may be, amended. It is
expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Trust as individuals or personally, but shall bind only the
trust property of the Trust, as provided in the Master Trust Agreement of the
Trust. This Agreement has been authorized by the Trustees of the Trust and
signed by a duly authorized officer of the Trust, acting as such, and neither
such authorization nor such execution shall be deemed to have been made
individually or to impose any personal liability, but shall bind only the trust
property of the Trust as provided in its Master Trust Agreement. The Master
Trust Agreement of the Trust provides, and it is expressly agreed, that each
Fund of the Trust shall be solely and exclusively responsible for the payment of
<PAGE>
its debts, liabilities and obligations, and that no other fund shall be
responsible for the same.
STATE STREET RESEARCH
SECURITIES TRUST
By: /s/ Gerard P. Maus
----------------------
Gerard P. Maus
Treasurer
ACCEPTED AND AGREED TO:
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By: /s/ C. Troy Shaver, Jr.
---------------------------
C. Troy Shaver, Jr.
President
m:\n1a\securiti\taxmngd\12b1.doc
Exhibit (19)(a)
State Street Research Funds
<TABLE>
<CAPTION>
New Account Application
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
[round bullet] Use a pen. Please print in CAPITAL LETTERS.
[round bullet] Use the Additional Services Application to take advantage
of a range of services, including checkwriting and Systematic
Withdrawal Plan.
[ ] Check here if you are including the Additional Services
Application with your New Account Application.
[Graphic: Telephone]
[1] Your Account
- ------------------------------------------------------------------------------------------------------------------------------------
[round bullet] Fill in one account type only.
[round bullet] Individual Retirement Accounts require a different application.
To obtain an IRA application, call 1-800-562-0032.
[square bullet] Individual / Joint Account
[ ][ ][ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
First name Middle Last name
[ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ] [ ][ ]/[ ][ ]/[ ][ ]
Social Security number Date of birth [month / day / year]
[ ][ ][ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Joint owner (if applicable): first name Middle Last name
[ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ] [ ][ ]/[ ][ ]/[ ][ ]
Joint owner's Social Security number Joint owner's date of birth [month / day / year]
Joint owners will be joint tenants with rights of survivorship unless you check a different option:
[ ] Tenants in common [ ] Tenants by entirety [ ] Community property
[square bullet] Gift / Transfer to a Minor (UGMA/UTMA)
[ ][ ][ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Custodian's first name Middle Last name
[ ][ ][ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
As custodian for: first name Middle Last name
Under the [ ][ ] [minor's state of residence] Uniform Gifts / Transfers to Minors Act
[ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ] [ ][ ]/[ ][ ]/[ ][ ]
Minor's Social Security number Minor's date of birth [month / day / year]
[square bullet] Trust Account
[ ][ ][ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Trustee's first name Middle Last name
[ ][ ][ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Co-trustee (if applicable): first name Middle Last name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
As trustees of [name of trust]
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
For the benefit of [trust beneficiary]
[ ][ ]-[ ][ ][ ][ ][ ][ ][ ] [ ][ ]/[ ][ ]/[ ][ ]
Trust's federal tax identification number Date of trust agreement [month / day / year]
[square bullet] Business / Other Account
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name of entity
[ ][ ][ ][ ][ ][ ][ ][ ][ ]
Federal tax identification or Social Security number
[ ][ ] I / We have included a corporate resolution, as is required to open this account.
Type of entity: [ ] Corporation [ ] Partnership [ ] Estate [ ] Unincorporated association [ ] Guardian
For all other types of accounts, please call 1-800-562-0032 for a different application.
Page 1.
<PAGE>
[2] Your Address
- ------------------------------------------------------------------------------------------------------------------------------------
[ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Street number / P.O. Box Street name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ] [ ][ ][ ][ ][ ]
City State Zip code
[ ][ ][ ]-[ ][ ][ ]-[ ][ ][ ][ ] [ ][ ][ ]-[ ][ ][ ]-[ ][ ][ ][ ]
Daytime phone number Evening phone number
Check one: [ ] U.S. citizen [ ] Non-U.S. citizen
Check one: [ ] U.S. resident [ ] Resident of: [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Country
[3] Your Investment
- ------------------------------------------------------------------------------------------------------------------------------------
[round bullet] Choose one share class and one distribution option for each fund.
[round bullet] Unless noted below, the minimum investment is $2,500 per account ($1,000 using Investamatic).
Please refer to prospectus for details.
Fund Name Amount You Are Investing Share Class All Distributions
- ------------------------------------------------------------------------------------------------------------------------------------
State Street Research: A B C Reinvested In Cash
[ ] Alpha $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Aurora(1) $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Capital $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Emerging Growth $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Equity Investment $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Galileo(2) $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Global Resources $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Government Income $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Growth $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] High Income $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] International Equity $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Investment Trust $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Legacy(2) $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Managed Assets $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Money Market $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] Class E only [ ] [ ]
[ ] New York Tax-Free $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Strategic Income $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Tax-Exempt $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
[ ] Other: ________________ $ [ ] , [ ][ ][ ] , [ ][ ][ ] . [ ][ ] [ ] [ ] [ ] [ ] [ ]
(1) Check with your financial professional about the current availability of this fund. Minimum investment is $100,000.
(2) For these funds, the minimum investment is $25,000 per account ($10,000 using Investamatic).
This investment is being made: [ ] by mail -- make check payable to State Street Research Funds
[ ] by Federal Funds Wire; the control number is: [ ] through a dealer; the wire order confirmation number is:
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
[4] Options for Reducing Sales Charges
- ------------------------------------------------------------------------------------------------------------------------------------
[square bullet] I wish to apply for reduced Class A sales charges through:
[ ] Right of Accumulation
When calculating my sales charges for this investment, please include the
assets owned by me, my family members or other eligible persons.
[ ] Check here if you have existing accounts.
[ ] Letter of Intent
I plan to invest, without obligation, a total of at least the following
amount in eligible mutual funds over the next 13 months:
[ ] $100,000 [ ] $250,000
[ ] $500,000 [ ] $1 Million
[ ] Please include investments made within the past 90 days
in these accounts.
[ ] Check here if you have existing accounts.
Page 2.
<PAGE>
[5] Telephone Exchanges / Redemptions
- ------------------------------------------------------------------------------------------------------------------------------------
[round bullet] See terms and conditions for telephone requests in current prospectus(es).
[round bullet] Not available for certificate shares.
[square bullet] Telephone Exchange Privilege For You and Your Dealer
[round bullet] You automatically receive this privilege unless you decline it.
[round bullet] Allows you or your dealer to request exchanges into other State Street Research funds
(and assumes you have read the relevant prospectuses).
[ ] I DO NOT want this privilege on my account. [ ]
Initial here
[square bullet] Telephone Redemption Privilege For You
[round bullet] You automatically receive this privilege unless you decline it.
[round bullet] Allows you to phone requests to sell shares, with the proceeds sent to the address of record.
[ ] I DO NOT want this privilege on my account. [ ]
Initial here
[square bullet] Telephone Redemption Privilege For Your Dealer
(This privilege is not automatic; you must specifically select it below).
[ ] I DO NOT want this privilege on my account. [ ]
Initial here
[ ] I DO want this privilege on my account. [ ]
Initial here
[6] Transfers To / From Your Bank
- ------------------------------------------------------------------------------------------------------------------------------------
[round bullet] Convenient services to help you buy or sell fund shares.
[round bullet] Be sure to attach a deposit slip or voided, unsigned check depending on the service(s) you are requesting.
[square bullet] I would like to request one or more of the following services
(Please provide your Bank Account Information below):
[ ] Investamatic
Makes periodic investments in the State Street Research fund of your choice.
I authorize automatic withdrawals from the bank account specified at the bottom
of the page. I request these withdrawals to occur [ ] every month, on the [ ] 5th of the month.
[ ] every quarter, [ ] 20th of the month
[ ] 5th and 20th of the month.
Starting month: [ ][ ]
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Fund name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] $ [ ][ ][ ],[ ][ ][ ].[ ][ ]
Account number (if existing account) Investment amount ($50 minimum)
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Fund name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] $ [ ][ ][ ],[ ][ ][ ].[ ][ ]
Account number (if existing account) Investment amount ($50 minimum)
[ ] EZ Trader
Allows you to move money between your fund account and bank account by calling State Street Research.
NOTE: Your bank must be a member of the Automated Clearing House (ACH)system.
[ ] Wire Redemption Capability
Lets you designate a bank account to receive proceeds by wire when you sell State Street Research shares.
- ------------------------------------------------------------------------------------------------------------------------------------
[square bullet] Bank Account Information
Please establish the service(s) between my fund account and my:
[ ] Checking account (voided, unsigned check attached)
[ ] NOW / money market / savings account (deposit slip attached)
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Bank name
[ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Street number of bank Street name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ] [ ][ ][ ][ ][ ]
City State Zip code
[ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Bank routing number Bank account number
[ ][ ][ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Bank account holder's first name Middle Last name (list exactly as on bank statements)
[ ][ ][ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Second bank account holder Middle Last name
(if applicable): first name
______________________________________ ______________________________________
[______________________________________] [______________________________________]
Signature of first bank account holder, exactly as on bank statements Signature of second bank account holder (if applicable)
Page 3.
<PAGE>
[7] Your Signature
- ------------------------------------------------------------------------------------------------------------------------------------
[round bullet] All owners listed in Section 1 need to sign this application. [Graphic: Pen]
[round bullet] Please note that the certification below and the provision of your federal tax identification number are
the only portions of this application for which the IRS requires your certification.
I acknowledge that I:
[round bullet] have received current prospectus(es) for all funds in which I am investing.
[round bullet] accept the terms of investment described in the prospectus(es) and this application.
[round bullet] understand that these same terms will also apply to all shares obtained by exchange.
[round bullet] accept responsibility for unauthorized telephone instructions unless the fund's agents are negligent or unless I
declined the privileges in Section 5.
I certify, under penalties of perjury, that:
[round bullet] (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
[round bullet] (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.
______________________________________
[______________________________________] [ ][ ]/[ ][ ]/[ ][ ]
Your signature, exactly as your name appears in Section 1 Date [month / day / year]
______________________________________
[______________________________________] [ ][ ]/[ ][ ]/[ ][ ]
Signature of joint owner (if applicable) exactly as name appears in Section 1 Date [month / day / year]
[8] Signature Guarantee
- ------------------------------------------------------------------------------------------------------------------------------------
[round bullet] If you are investing directly, have Part I completed; if not, have your dealer fill out Part II.
[square bullet] I -- For Direct Investments
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name of bank or other guarantor
[ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Street number Street name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ] [ ][ ][ ][ ][ ]
City State Zip code
The bank or guarantor guarantees the owner's legal capacity and all signatures on this application and on related investment
checks and instructions, including the Additional Services Application.
______________________________________
[______________________________________] [ ][ ]/[ ][ ]/[ ][ ]
Signature of bank's or guarantor's authorized representative Date [month / day / year]
[square bullet] II -- For Investments Through a Dealer
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Dealer name
[ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Street number of home office Street name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ] [ ][ ][ ][ ][ ]
City State Zip code
[ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Street number of branch office Street name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ] [ ][ ][ ][ ][ ]
City State Zip code
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ]-[ ][ ][ ]-[ ][ ][ ][ ]
Branch office number Branch office phone number
The Dealer:
[round bullet] agrees to the terms of the current prospectus(es), application and
current dealer agreement, which is included by reference.
[round bullet] represents that it has given the owner(s) the relevant prospectus(es).
[round bullet] represents that it has completed this application according to
instructions from the owner(s).
[round bullet] will indemnify the fund, its adviser, distributor or other agents
from any losses resulting from these instructions.
[round bullet] guarantees the owner's legal capacity and all signatures on this
application and on related investment checks and instructions,
including the Additional Services Application.
[ ][ ][ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Registered Representative's first name Middle Last name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Registered Representative number
______________________________________
[______________________________________] [ ][ ]/[ ][ ]/[ ][ ]
Signature of authorized officer of dealer Date [month / day / year]
[State Street Research logo] Mail this application, along with any other required documents to:
State Street Research Funds, P.O. Box 8408, Boston, MA 02266-8408.
Registered representatives, mail this application to your home office for approval.
Questions? Call 1-800-562-0032.
SSR-760E-0498
</TABLE>
[FRONT SIDE OF CARD] Exhibit 19(b)
STATE STREET RESEARCH FUNDS
- --------------------------------------------------------------------------------
Additional Services Application
[bullet] Use a pen. Please print in CAPITAL LETTERS.
[bullet] Use this application to add any of the features below to a new or
existing State Street Research account.
[bullet] When providing bank information, be sure to attach a deposit slip or
voided, unsigned check
[bullet] Be sure to sign this application.
[bullet] If you are submitting this application with a New Account Application,
you don't need to duplicate any bank information or signature
guarantees that are included with that application.
A Name
- --------------------------------------------------------------------------------
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name (as it appears on the account)
|_|_|_|_|_|_|_|_|_| |_|_|_|-|_|_|_|-|_|_|_|_|
Federal tax identification or Daytime phone number
Social Security number
B Regular Transfers and Redemptions
- --------------------------------------------------------------------------------
[bullet] Not available on retirement plan accounts.
[bullet] Choose one option only. To add different options to different accounts,
please fill out a separate application.
[bullet] Be sure to attach a deposit slip or voided, unsigned check depending
on the service you are requesting.
[ ] I request the following automatic redemptions or transfers:
[ ] Please deposit my income dividends directly into my bank account.
[ ] Please deposit my income dividends and capital gains distribtions directly
into my bank account.
[ ] Systematic Withdrawal Plan: Please redeem $|_|_|,|_|_|_|.00 ($50 minimum)
from my fund account: [ ] every month [ ] every 3 months
[ ] every 6 months [ ] every 12 months
I would like these redemptions to begin in month number |_|_|.
I would like the money [ ] deposited directly into my bank account
[ ] sent to me by check
[ ] sent by check to the following payee:
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Payee's name
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Payee's street address/P.O. Box
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_| |_|_|_|_|_|-|_|_|_|_|
City State Zip
[] Please make these redemptions or transfers from my accounts in each of the
following State Street Research funds:
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|
Fund name Account number
(if existing account)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|
Fund name Account number
(if existing account)
[] Please direct any bank deposits to my:
[ ] Checking account (voided, unsigned check attached)
[ ] NOW / money market / savings account (deposit slip attached)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Bank name
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Bank address
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_| |_|_|_|_|_|-|_|_|_|_|
City State Zip
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Bank routing number Bank account number
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| ____________________________________
Name of one bank account holder, Signature
exactly as on bank statements
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| ____________________________________
Name of second bank account holder, Signature
if any
C Checkwriting
- --------------------------------------------------------------------------------
[bullet] Available on some funds' Class A shares and on Money Market Fund
Class E shares.
[bullet] For corporate and other accounts, include the appropriate resolution
forms.
[bullet] Please do not detach the perforated card.
[] I request State Street Bank and Trust Company to provide me with
checkwriting on these funds:
|_|_|_|_|_|_|_|_|_|_|
Account number (if existing account)
|_|_|_|_|_|_|_|_|_|_|
Account number (if existing account)
[ ] Government Income
[ ] High Income
[ ] Money Market
[ ] New York Tax-Free
[ ] Strategic Income
[ ] Tax-Exempt
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Your name
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Address
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
City
|_|_| |_|_|_|_|_|_|_|_|_|_|
State Zip
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Federal tax identification or Social Security number
_______________________________________________________
Your signature exactly as your name appears on your new
account application or your fund statements
(including any capacity)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of joint owner, if any
_______________________________________________________
Signature of joint owner exactly as name appears on
fund statements (including any capacity)
Number of signatures you with to be required on a check:
See reverse side of card for additional terms and conditions.
[REVERSE SIDE OF CARD]
D Dividend Allocation Plan (DAP)
- --------------------------------------------------------------------------------
[] Please collect my dividends and distributions from this fund/account...
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Fund name
|_|_|_|_|_|_|_|_|_|_|_|_|
Account number (if existing account)
[]...and invest them in this fund/account (new accounts must meet initial
investment minimums):
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Fund name
|_|_|_|_|_|_|_|_|_|_|_|_|
Account number (if existing account)
E Signature Guarantee
- --------------------------------------------------------------------------------
[bullet] If you are investing directly, have Part I completed; if not, have your
dealer fill out Part II.
[bullet] If you are submitting this application with a New Account Application,
you don't need to duplicate the signature guarantee if it is included
with that application.
[] I - For Direct Investments
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of bank or other guarantor
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Street address
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_| |_|_|_|_|_|-|_|_|_|_|
City State Zip
The bank or guarantor guarantees the owner's legal capacity and all signatures
on this application and on related investment checks and instructions.
_______________________________________ |_|_| / |_|_| / |_|_|
Signature of bank's or guarantor's Date [month/day/year/
authorized representative
[] II - For Investments Through a Dealer
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Dealer Name
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Home office address
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_| |_|_|_|_|_|-|_|_|_|_|
City State Zip
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Branch office address City
|_|_| |_|_|_|_|_|-|_|_|_|_| |_|_|_|-|_|_|_|-|_|_|_|_|
State Zip Branch office telephone number
The dealer:
[bullet] Agrees to the terms of the current prospectus(es) and current dealer
agreement, which is included by reference.
[bullet] represents that it has given the owner(s) the relevant prospectus(es).
[bullet] represents that it has completed this application according to
instructions from the owner(s).
[bullet] will indemnify the fund, its adviser, distributor or other agents from
any losses resulting from these instructions.
[bullet] guarantees the owner's legal capacity and all signatures on this
application and on related investment checks and instructions.
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Registered Representative Registered Representative number
_________________________________________ |_|_| / |_|_| / |_|_|
Signature of authorized officer or dealer Date [month/day/year/
F Your Signature
- --------------------------------------------------------------------------------
[bullet] All owners whose names are on the account [graphic of a pen]
need to sign this application.
I acknowledge that I:
[bullet] am authorizing the additional services described above.
[bullet] have received current prospectus(es) for all funds in which I am
investing.
[bullet] have the right to cancel any service at any time by writing to
State Street Research.
___________________________________________
Your signature exactly as your name appears
on your New Account Application or your
fund statements
___________________________________________
Signature of joint owner (if any) exactly
as anem appears on fund application or
statements
|_|_| / |_|_| / |_|_|
Date [month/day/year/
By signing this form, I agree to all of the provisions and applicable rules
under the Massachusetts Uniform Commercial Code and to any conditions on
redeeming shares from the State Street Research funds.
I also agree that:
[bullet] this form applies to any other identically registered State Street
Research fund account with the checkwriting privilege I establish
later.
[bullet] if I am subject to IRS backup withholding, I may write checks only on
money fund accounts;
[bullet] State Street Bank and Trust Company and the fund reserve the right to
terminate my checkwriting privelege.
I represent that the signatures are authentic, and, for organizations, I have
submitted a certified resolution authorizing the individuals with legal capacity
to sign and act on behlaf of the organization.
I understand that I am authorizing the bank to instruct State Street Research
to sell sufficient shares in my mutual fund account to honor the check.
[Logo: State Street Research] State Street Research
Mail this application, along with any other required documents to:
State Street Research Funds
P.O. Box 8408, Boston, MA 02266-8408.
Questions? Call 1-800-562-0032.
SSR-759E-1097
State Street Reserach is not affiliated with State Street Bank and Trust
Company.
Exhibit 19(c)
[STATE STREET RESEARCH LOGO] [METLIFE SECURITIES LOGO]
MUTUAL FUND ACCOUNT APPLICATION
Mail this application to MetLife Securities, Inc., P.O. Box 30421, Tampa, FL
33630
[ ] New Application [ ] Change-Account #____________________________
Type of Account (PLEASE PRINT FULL NAME(S) CONSISTENT WITH YOUR SIGNATURE(S) IN
SECTION 6.)
<TABLE>
<S> <C> <C>
[ ] Individual-complete (a) only [ ] Joint Tenant-complete (a & b) only [ ] Gift to a Minor-complete (c) only
[ ] Trust(1)-complete (d) only [ ] Corporation(1)-complete (e) only [ ] Partnership/Other Entity-complete (e) only
</TABLE>
Note: If the investment is to be used for an Individual Retirement Account
(IRA), a separate IRA application must be used.
(1)Call 1-800-638-8378 for additional forms.
Do you have any other mutual fund accounts with State Street Research?
[ ] Yes [ ] No
Individual or Joint Tenant
a _____________________________________________________________-______-_________
Name of Investor Social Security Number
b ______________________________________________________________________________
Name(s) of Joint Tenant(s)
Gift to a Minor
c _____________________________________ as custodian for _____________ under the
Name of Custodian (one only) Name of Minor (one only)
___________________________ "Uniform Gifts to Minors Act" _____-______-_________
Minor's State of Residence Minor's Social Security Number
Trust Account
d ______________________________________________________________________________
Trustee(s) Name(s)
_______________________________________________________________-______-_________
Name and Date of Trust Agreement Tax Identification
Number
Corporation, Partnership or Other Entity (Please include corporate resolution.)
e ______________________________________________________________________________
Name of Corporation or Other Entity
________________________________________________________________________________
Type of Business (specify corporation, Tax Identification Number
partnership, estate, guardian, etc.)
2 Your Mailing Address (PLEASE PRINT.)
( )
________________________________________________________________________________
Street Address Home Telephone Number
( )
________________________________________________________________________________
City State ZIP Business Telephone
Number
Residency [ ] U.S. (State _______________) [ ] Other(2) __________________
Specify Country
(2)Call 1-800-638-8378 for additional forms.
3 Fund Selection(s) and Distribution Option(s) (Choose only one distribution
option per Fund; see Fund prospectus for minimum initial investment
requirements.)
[ ] By Mail-Make check payable to "State Street Research"
[ ] By Federal Funds Wire
<TABLE>
<CAPTION>
Fund Name Class Designation(3) Amount Distribution Option
- ---------------------------------------------------------------------------------------------------------------------
Dividends & Dividends in Dividends & Dividend
Capital Gains Cash; Capital Capital Gains Allocation
A B(4) Reinvested Gains Reinvested(5) in Cash Plan (DAP)(6)
<S> <C> <C> <C> <C> <C> <C>
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
</TABLE>
(3)All Money Market Fund investments will purchase Class E shares. Be sure to
designate Class A or B shares for Money Market Fund DAP allocations.
(4)For purchase of Class B shares of more than $250,000, I hereby acknowledge
that I am aware of the reduced front-end sales charges available to me for the
purchase of Class A shares, and have chosen to purchase Class B shares. I am
aware that Class B shares have higher asset-based charges than Class A shares
for the first eight years.
(5)Does not apply to Money Market Fund.
(6)Dividend Allocation Plan: The Transfer Agent is authorized to invest all
dividends and distributions from________________________________________________
Fund Name
in the following Eligible Fund:_________________________________________________
Fund Name (Fund must meet Account
minimum investment requirements) Number (if
existing
account)
Authorization of Dividend Allocation Plan constitutes an acknowledgment that the
shareholder has received the current prospectus of the Fund to be acquired.
Except for Money Market Fund Class E, DAP must be allocated to same class
designation.
<PAGE>
4 Reduced Sales Charges (Applies to Class A shares only)
[ ] Right of Accumulation (ROA): I apply for Right of Accumulation reduced sales
charges subject to the Transfer Agent's confirmation of the following holdings
of certain designated persons, e.g. family members, in the Eligible Funds:
________________________________________________________________________________
Name on Account Account Number
________________________________________________________________________________
Name on Account Account Number
[ ] Letter of Intent (LOI): Although I am not obligated to purchase and the
Funds are not obligated to sell, I intend to invest over a 13-month period
beginning _______________, 19__ (purchase date not more than 90 days prior to
this letter) at least an aggregate of
[ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000 of Eligible Funds.
5 Optional Shareholder Services
Your Bank Account (You must complete this section if you request Section A, B, C
or D below.)
Type of Bank Account: [ ] Checking [ ] NOW or Money Market
________________________________________________________________________________
Account Title (print exactly as it Bank Routing Number
appears on bank records)
________________________________________________________________________________
Bank Account Number Bank Name
________________________________________________________________________________
Bank Address City State ZIP
________________________________________________________________________________
Depositor's Signature(s) (exactly as it Date
appears on bank records)
________________________________________________________________________________
Depositor's Address City State ZIP
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
A Telephone Redemption and Exchange Privileges (Service available only for
shares held on deposit with Transfer Agent)
None of the Transfer Agent, the Fund, any other Eligible Funds, State Street
Research Shareholder Services, the Investment Manager or the Distributor will be
liable for any loss, injury, damage or expense as a result of acting upon, and
will not be responsible for the authenticity of, any telephone instructions. I
understand that all telephone calls are tape recorded. My liability shall be
subject to the use of reasonable procedures to confirm that instructions
communicated by telephone are genuine.
Telephone Exchange By Shareholder OR DEALER
The Transfer Agent may effect exchanges for my account according to telephone
instructions FROM ME OR MY DEALER as set forth in the Prospectus, and may
register the shares of the fund to be acquired exactly the same as my existing
account. Authorizing an exchange constitutes an acknowledgment that the
shareholder has received the current prospectus of the fund to be acquired. The
account will automatically have this privilege unless it is expressly declined
by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE EXCHANGE PRIVILEGE. _____ (Initial here.)
Telephone Redemption By Shareholder Only
1. Proceeds to Shareholder's Address of Record. The Transfer Agent may effect
redemptions of shares from my account according to telephone instructions from
me, as set forth in the Prospectus, and send the proceeds to my address of
record. The account will automatically have this privilege unless it is
expressly declined by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE REDEMPTION PRIVILEGE (to address of record).
_____ (Initial here.)
2. Proceeds to Bank Designated by Shareholder. The Telephone Redemption
Privilege (to bank designated by shareholder) is not provided automatically;
please check the box below if you want this Privilege for the account. ATTACH A
BLANK CHECK MARKED "VOID" AND FILL OUT "YOUR BANK ACCOUNT" SECTION.
The Transfer Agent may effect redemptions of shares from my account according to
telephone instructions from me, as set forth in the Prospectus, and send the
proceeds to the bank named in "Your Bank Account." [ ] (Check here.)
<PAGE>
B Investamatic Check Program (YOU MUST ATTACH A BLANK CHECK MARKED "VOID.")
I hereby request and authorize the bank named in "Your Bank Account" section to
pay and charge checks drawn on, or debits against, my account initiated by and
payable to the order of the mutual fund transfer agent designated by the
Distributor. I agree that the named Bank's rights in respect to each such check
or debit shall be the same as if it were a check drawn on or debit against my
account authorized personally by me. This authority is to remain in effect until
revoked by me in writing, and until the named Bank actually receives such
notice, I agree that the named Bank shall be fully protected in honoring any
such check or debit authorization. I further agree that if any check or debit
authorization be dishonored, whether with or without cause and whether
intentionally or inadvertently, the named Bank shall be under no liability
whatsoever, unless the nonpayment is because of insufficient funds. I understand
that this Program may be revoked by the Transfer Agent or the Distributor
without prior notice if any check is not paid upon presentation, and that this
Program may be discontinued by the Distributor, the Transfer Agent or me upon
thirty (30) business days' notice prior to the due date of any deposit.
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
_____________________________________
Total Amount of Investment: $______ Account Registration (exactly as it
appears on Fund records)
[ ] Monthly Investment Date: [ ] 5th or [ ] 20th If you do not choose a date,
[ ] Quarterly Investment Date: [ ] 5th or [ ] 20th the 5th will be chosen
automatically.
C Automatic Bank Connection (ABC) Not available for retirement plan accounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate $______________ (minimum-$50)
from my fund account beginning the month of to provide [ ] monthly,
[ ] quarterly, [ ] semiannual or [ ] annual payments. I would like the following
payment to be deposited directly into the bank account named in "Your Bank
Account" section. (Choose only one.)
[ ] Income dividends only [ ] Income dividends and capital gains
[ ] Systematic Withdrawal Plan payments (see below)
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
I hereby authorize the Fund and the Transfer Agent to effect the deposit of the
above indicated items by initiating credit entries to my account at the bank
named in "Your Bank Account" section. The named Bank shall not be responsible
for the correctness of the items, and the Transfer Agent is authorized to
correct and adjust any incorrect items to my bank account. This authorization
may be terminated at any time by written notification to the Fund, the Transfer
Agent and the Bank.
D Systematic Withdrawal Plan (SWP) Not available for retirement plan accounts.
See the prospectus for minimum account size and maximum withdrawal amounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate shares in and withdraw cash
(minimum-$50) from my fund account beginning the month of ____________________
to provide [ ] monthly, [ ] quarterly, [ ] semiannual or [ ] annual Systematic
Withdrawal Plan (SWP) payments in the amount of $_________________ to [ ] me
[ ] the bank named in "Your Bank Account" section, or [ ] the following payee.
(Note: If you authorize a SWP, you may not receive dividend or capital gain
distributions in cash.)
________________________________________________________________________________
Name of Payee
________________________________________________________________________________
Street Address City State ZIP
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
E Checkwriting Privilege
(Available for Class A shares and Money Market
Fund Class E shares only)
[ ] I request the checkwriting feature and have
completed the signature card below.
_______________________________________________
Account Number (if existing account)
_______________________________________________
Account Number (if existing account)
Signature Card Complete and sign this card and return it with your application
and investment. Do not detach.
Check applicable Fund(s) TO: State Street Bank and Trust Company ("Bank")
[ ] Money Market, Class E ________________________________________________
[ ] High Income Name (please print)
[ ] Tax-Exempt ________________________________________________
[ ] Government Income Name (please print)
[ ] NY Tax-Free ________________________________________________
[ ] Strategic Income Address City State ZIP
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Indicate the number of signatures required
______-_________________________________________
Tax Identification Number
Corporate and other accounts must include appropriate resolution forms. In
signing this signature card, the signator(s) signifies his/her or their
agreement to be subject to the rules and regulations of State Street Bank and
Trust Company pertaining thereto, as amended from time to time, and subject to
the conditions printed on the reverse side.
<PAGE>
MetLife Securities, Inc. Customer Profile
1
________________________________________________________________________________
Client's Name (or minor if U.G.M.A.) Age Social Security Number
________________________________________________________________________________
Joint Tenant Name (if any, or Age Social Security Number
custodian if U.G.M.A.)
Occupation ______________________ State of Residence ______________________
Name/Address of Employer _______________________________________________________
Is client an associated person of a broker/dealer? [ ] Yes [ ] No
If yes, furnish name and address _______________________________________________
2 Client's Estimated Annual Income (Not including income from this investment)
(N/A for UGMA, Trust, Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000+
3 Savings and Investments (Exclusive of personal residence, home furnishings,
personal automobiles, and the amount of this investment) (N/A for UGMA, Trust,
Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999 [ ] $400,000+
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000-399,999
4 Net Worth (Assets minus liabilities exclusive of assets and liabilities
relating to personal residence, home furnishings and automobiles) (N/A for
UGMA, Trust, Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999 [ ] $400,000+
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000-399,999
<TABLE>
<CAPTION>
5 Main Investment Objective (select one) Secondary Investment Objective (optional)
<S> <C> <C> <C> <C> <C>
[ ] Aggressive Growth [ ] Growth & Income [ ] Tax Advantages [ ] Aggressive Growth [ ] Growth & Income [ ] Tax Advantages
[ ] Growth [ ] Current Income [ ] Growth [ ] Current Income
</TABLE>
<TABLE>
<CAPTION>
6 Source of Funds for This Investment
<S> <C> <C>
[ ] CD (Certificate of Deposit) [ ] Savings [ ] Money Market Fund
[ ] Surrender Life/Annuity Contract [ ] Rollover/Transfer of Pension Assets [ ] Another MetLife Policy, Account or Contract
[ ] Discretionary Income [ ] Loan [ ] Other ___________________________________
</TABLE>
7 This account was: [ ] Solicited [ ] Unsolicited
8 Tax Status of These Funds: [ ] Qualified [ ] Non-Qualified
9 Prior Investment Experience: Stocks ___ yrs. Bonds ___ yrs.
(complete all that apply) Mutual Funds ___ yrs. Margin ___ yrs.
Limited Partnerships ___ yrs. Options ___ yrs.
Other __________________ None ___
Investor Receipt and Arbitration Agreement
1. Arbitration
(i) Arbitration is final and binding on the parties.
(ii) The parties are waiving their right to seek remedies in court, including
the right to jury trial.
(iii) Pre-arbitration discovery is generally more limited than and different
from court proceedings.
(iv) The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification of
rulings by the arbitrators is strictly limited.
(v) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
(vi) No person shall bring a putative or certified class action to
arbitration, nor seek to enforce any pre-dispute arbitration agreement
against any person who has initiated in court a putative class action; or who
is a member of a putative class who has not opted out of the class with
respect to any claims encompassed by the putative class action until: (i) the
class certification is denied; or (ii) the class is decertified; or (iii) the
customer is excluded from the class by the court. Such forbearance to enforce
an agreement to arbitrate shall not constitute a waiver of any rights under
this agreement except to the extent stated herein.
2. MetLife Securities, Inc. (hereinafter "MSI") and the purchaser of the
shares, who is the signatory below (hereinafter the "Customer"), agree that
any controversy between MSI, its employees, directors, agents, officers or
affiliates and the Customer arising out of or relating to any transactions
between such parties shall be determined by arbitration. Any arbitration
pursuant to this agreement shall be conducted before, and under the rules of,
the National Association of Securities Dealers, Inc. Judgment upon the award
of the arbitrators may be entered in any federal or state court having
jurisdiction.
3. This agreement and any arbitration hereunder shall be governed and
construed in accordance with the laws of the State of New York, United States
of America, including New York procedural and substantive arbitration laws
and rules, without giving effect to conflicts of law principles.
The predispute arbitration agreement located immediately above is accepted and
agreed to. I have also received the current prospectus of the fund and have
given a check in the amount of $___________________ on this, the ____________
day of ________________ 19__
_______________________________________ ________________________________________
Customer Signature (exactly as your Registered Representative's Signature
name appears in Section 1)
/s/ Elaine S. Stevenson
_______________________________________ ________________________________________
Customer Signature MetLife Securities, Inc.; by:
Elaine S. Stevenson, President
_______________________________________ ________________________________________
Capacity
<PAGE>
6 Your Signature (All registered shareholders must sign.)
The undersigned confirms that all the information, instructions and agreements
set forth hereon shall apply to the account, and if applicable, shall also apply
to any other fund account with shares acquired upon exchange of shares of the
Fund.
Under penalties of perjury, I certify that (1) the number shown on this form is
my correct taxpayer identification number (or I am waiting for a number to be
issued to me), and (2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the Internal
Revenue Service that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
Certification instructions: You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return.
1. Arbitration
(i) Arbitration is final and binding on the parties.
(ii) The parties are waiving their right to seek remedies in court, including
the right to jury trial.
(iii) Pre-arbitration discovery is generally more limited than and different
from court proceedings.
(iv) The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification of
rulings by the arbitrators is strictly limited.
(v) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
(vi) No person shall bring a putative or certified class action to
arbitration, nor seek to enforce any pre-dispute arbitration agreement
against any person who has initiated in court a putative class action; or who
is a member of a putative class who has not opted out of the class with
respect to any claims encompassed by the putative class action until (i) the
class certification is denied; or (ii) the class is decertified; or (iii) the
customer is excluded from the class by the court. Such forbearance to enforce
an agreement to arbitrate shall not constitute a waiver of any rights under
this agreement except to the extent stated herein.
2. MetLife Securities, Inc. (hereinafter "MSI") and the purchaser of the shares,
who is the signatory below (hereinafter the "Customer"), agree that any
controversy between MSI, its employees, directors, agents, officers or
affiliates and the Customer arising out of or relating to any transactions
between such parties shall be determined by arbitration. Any arbitration
pursuant to this agreement shall be conducted before, and under the rules of,
the National Association of Securities Dealers, Inc. Judgment upon the award of
the arbitrators may be entered in any federal or state court having
jurisdiction.
3. This agreement and any arbitration hereunder shall be governed and construed
in accordance with the laws of the State of New York, United States of America,
including New York procedural and substantive arbitration laws and rules,
without giving effect to conflicts of law principles.
The predispute arbitration agreement located immediately above is accepted and
agreed to. I have also received the current prospectus of the fund and have
given a check in the amount of $_________________ on this, the ______________
day of ___________________________ 19__
The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup withholding.
_______________________________________ ________________________________________
Customer Signature (exactly as your Registered Representative's Signature
name appears in Section 1)
/s/ Elaine S. Stevenson
_______________________________________ ________________________________________
Customer Signature MetLife Securities, Inc.;
by: Elaine S. Stevenson, President
_______________________________________
Capacity
7 Dealer Information and Signature Guarantee (For Dealer use only)
The Dealer agrees to all applicable provisions in this application and in the
Prospectus, guarantees the signature and legal capacity of the shareholder, and
represents that it has provided a current Prospectus to the Applicant and that
the application is properly executed by a person authorized by the Dealer to
guarantee signatures. The Dealer warrants that this application is completed in
accordance with the shareholder's instructions and information and agrees to
indemnify the Fund, any other Eligible Funds, the Investment Manager, the
Distributor, State Street Research Shareholder Services and the Transfer Agent
for any loss or liability from acting or relying upon such instructions and
information. Signature(s) Guaranteed By
MetLife Securities, Inc.
_______________________________________ ________________________________________
Dealer Name Branch Office Number
P.O. Box 30421
_______________________________________ ________________________________________
Address of Home Office Address of Branch Office
Servicing Account
Tampa, FL 33630
_______________________________________ ________________________________________
City State ZIP City State ZIP
_______________________________________ ________________________________________
Authorized Signature of Dealer Registered Representative's
- Tampa, FL Name and Number
_______________________________________
Signature Guarantee
The payment of monies is authorized by the signature(s) on the reverse side.
If the shareholder's account with the Fund is joint, all checks drawn upon this
account must include the signatures of all persons named in the account, unless
the persons signing this card have indicated on the reverse side of this card
that the Bank is authorized to accept any one signature. Each person guarantees
the genuineness of the other's signature. Checks may not be for less than $500
or such other minimum or maximum amounts as may from time to time be established
by the Fund.
The Bank is hereby appointed agent by the person(s) signing this card (the
"Depositor(s)") and, as agent, is authorized and directed to present checks
drawn on this checking account to the Fund or its redemption agent as requests
to redeem shares of the Fund registered in the name of the Depositor(s) in the
amounts of such checks and to deposit the proceeds of such redemptions in this
checking account. The Bank shall be liable only for its own negligence.
Depositor(s) hereby authorize(s) the Fund or its redemption agent to honor
redemption requests presented in the above manner by the Bank. The Fund and its
redemption agent will not be liable for any loss, expense or cost arising out of
check redemptions. If shares of the Fund are purchased by check, redemption
proceeds will ordinarily be withheld until the Fund is reasonably assured that
payment has been collected on the check. The Bank has the right not to honor
checks in amounts exceeding the value of the depositor(s) shareholder account at
the time the check is presented for payment.
The Bank reserves the right to change, modify or terminate this checking account
at any time upon notification mailed to the address of record of the
Depositor(s).
The terms and conditions of the Distributor's currently effective Selected
Dealer Agreement are included by reference in this section. The Dealer
represents that it has a currently effective Selected Dealer Agreement with the
Distributor authorizing the Dealer to sell shares of the Fund and the Eligible
Funds, and that it may lawfully sell shares of the designated Fund(s) in the
state designated as the Applicant's address of record.
- -------------------------------
DO NOT COMPLETE
MSI - Tampa
Dealer #__________ ST _____
Rep #______________________
Rep Name __________________
- -------------------------------
CONTROL NUMBER: 3672-970214(0398)SSR-LD
ML-598E-297
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000918572
<NAME> STATE STREET RESEARCH SECURITIES TRUST
<SERIES>
<NUMBER> 021
<NAME> STATE STREET RESEARCH STRATEGIC INCOME FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 122,008,758
<INVESTMENTS-AT-VALUE> 122,560,678
<RECEIVABLES> 4,587,033
<ASSETS-OTHER> 60,438
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,208,149
<PAYABLE-FOR-SECURITIES> 6,411,174
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,098,292
<TOTAL-LIABILITIES> 23,509,466
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,047,371
<SHARES-COMMON-STOCK> 5,643,672
<SHARES-COMMON-PRIOR> 5,115,405
<ACCUMULATED-NII-CURRENT> 724,718
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,243,762
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 682,832
<NET-ASSETS> 103,698,683
<DIVIDEND-INCOME> 257,333
<INTEREST-INCOME> 7,940,496
<OTHER-INCOME> 0
<EXPENSES-NET> 1,518,717
<NET-INVESTMENT-INCOME> 6,679,112
<REALIZED-GAINS-CURRENT> 3,167,777
<APPREC-INCREASE-CURRENT> 1,289,060
<NET-CHANGE-FROM-OPS> 11,135,949
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,130,569)
<DISTRIBUTIONS-OF-GAINS> (648,291)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,831,188
<NUMBER-OF-SHARES-REDEEMED> (1,501,194)
<SHARES-REINVESTED> 198,273
<NET-CHANGE-IN-ASSETS> 28,412,106
<ACCUMULATED-NII-PRIOR> 150,952
<ACCUMULATED-GAINS-PRIOR> 149,838
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 693,828
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,622,157
<AVERAGE-NET-ASSETS> 92,510,400
<PER-SHARE-NAV-BEGIN> 7.06
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.38
<PER-SHARE-DIVIDEND> (0.55)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.33
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000918572
<NAME> STATE STREET RESEARCH SECURITIES TRUST
<SERIES>
<NUMBER> 022
<NAME> STATE STREET RESEARCH STRATEGIC INCOME FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 122,008,758
<INVESTMENTS-AT-VALUE> 122,560,678
<RECEIVABLES> 4,587,033
<ASSETS-OTHER> 60,438
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,208,149
<PAYABLE-FOR-SECURITIES> 6,411,174
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,098,292
<TOTAL-LIABILITIES> 23,509,466
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,047,371
<SHARES-COMMON-STOCK> 5,120,654
<SHARES-COMMON-PRIOR> 2,792,908
<ACCUMULATED-NII-CURRENT> 724,718
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,243,762
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 682,832
<NET-ASSETS> 103,698,683
<DIVIDEND-INCOME> 257,333
<INTEREST-INCOME> 7,940,496
<OTHER-INCOME> 0
<EXPENSES-NET> 1,518,717
<NET-INVESTMENT-INCOME> 6,679,112
<REALIZED-GAINS-CURRENT> 3,167,777
<APPREC-INCREASE-CURRENT> 1,289,060
<NET-CHANGE-FROM-OPS> 11,135,949
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,958,332)
<DISTRIBUTIONS-OF-GAINS> (436,211)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,029,126
<NUMBER-OF-SHARES-REDEEMED> (879,529)
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<NAME> STATE STREET RESEARCH SECURITIES TRUST
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<NAME> STATE STREET RESEARCH SECURITIES TRUST
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<NAME> STATE STREET RESEARCH GALILEO FUND CLASS S
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