[LOGO] STATE STREET RESEARCH
Equity Index Fund
[GRAPHIC OF CLOCK]
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This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
A stock fund that
closely tracks the
S&P 500 Index
Prospectus
September 1, 2000
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<PAGE>
Contents 1
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2 The Fund
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2 Goal and Strategies
4 Principal Risks
6 Investor Expenses
8 Investment Management
and Administration
9 Your Investment
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9 Opening an Account
9 Choosing a Share Class
10 Sales Charges
13 Dealer Compensation
14 Buying and Selling Shares
18 Account Policies
20 Distributions and Taxes
21 Investor Services
22 Other Information
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22 Other Securities and Risks
25 Board of Trustees
Back Cover For Additional Information
<PAGE>
2 The Fund
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[CHESS PIECE] Goal and Strategies
GOAL The fund seeks to match as closely as possible, before expenses, the
performance of the S&P 500 Composite Stock Price Index(a) (the "S&P 500 Index").
PRINCIPAL STRATEGIES The fund invests substantially all of its investable assets
in another, separate mutual fund with the same investment objective as the fund:
State Street Equity 500 Index Portfolio ("Portfolio"), a portfolio of State
Street Master Funds ("SSMF")(the Portfolio and SSMF are not related to the
fund).
The fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial and market analysis and investment judgment. Instead, the
fund uses a "passive" or "indexing" investment approach and attempts to match,
before expenses, the performance of the S&P 500 Index. The S&P 500 Index is a
well-known stock market index that includes common stocks of 500 companies from
several industrial sectors representing a significant portion of the market
value of all stocks publicly traded in the United States.
Because the fund currently invests exclusively in the shares of the Portfolio,
the fund has adopted substantially all of the Portfolio's investment policies as
set forth in this prospectus.
The Portfolio seeks a correlation of 0.95 or better between its performance and
the performance of the index (1.00 would represent perfect correlation). The
Portfolio intends to invest in all 500 stocks comprising the index in proportion
to their weightings in the index. However, under various circumstances, it may
not be possible or practicable to purchase all 500 stocks in those weightings.
In those circumstances, the Portfolio may purchase a sample of the stocks in the
index in proportions expected to match generally the performance of the index as
a whole. In addition, from time to time, stocks are added to or removed from the
index. The Portfolio may sell stocks that are represented in the index, or
purchase stocks that are not yet represented in the index, in anticipation of
their removal from or addition to the index.
The Portfolio may at times purchase or sell futures contracts on the index,
[footnote]
(a) "Standard & Poor's(R)", "S&P", "S&P 500", "Standard & Poor's 500" and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by the fund. The fund is not sponsored, endorsed, sold or
promoted by S&P, and S&P makes no representation regarding the
advisability of investing in the fund.
[end footnote]
<PAGE>
3
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or options on those futures, in lieu of investment directly in the stocks making
up the index. The Portfolio might do so, for example, in order to increase its
investment exposure pending investment of cash in the stocks comprising the
index. Alternatively, the Portfolio might use futures or options on futures to
reduce its investment exposure in situations where it intends to sell a portion
of the stocks in its portfolio but the sale has not yet been completed. The
Portfolio may also, to the extent permitted by applicable law, invest in shares
of other mutual funds whose investment objectives and policies are similar to
those of the fund. The Portfolio may also enter into other derivatives
transactions, including the purchase or sale of options or enter into swap
transactions, to assist in matching the performance of the index.
For more information about the fund's investments and practices, see page 22.
[MAGNIFYING GLASS] Who May Want To Invest
State Street Research Equity Index Fund is designed for investors who seek one
or more of the following:
o a fund that invests primarily in large capitalization companies
o a fund that is broadly diversified
o efficient participation in the stock market
o a stock fund for a long-term goal
The fund is NOT appropriate for investors who:
o want to avoid high volatility or possible losses
o are making short-term investments
o are investing emergency reserve money
o are seeking regular income
<PAGE>
4 The Fund continued
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[TRAFFIC SIGN] Principal Risks
Because the Portfolio invests primarily in stocks, the fund's major risks are
those of stock investing, including sudden and unpredictable drops in value
resulting from market fluctuations and the potential for periods of lackluster
or negative performance.
Because the S&P 500 Index includes mainly large U.S. companies, the Portfolio's
investments consist mainly of stocks of large U.S. companies. Returns on
investments in stocks of large U.S. companies could trail the returns on
investments in stocks of smaller companies.
The return of the fund and the Portfolio may not match the return of the index
for a number of reasons. For example, the fund and the Portfolio incur a number
of operating expenses not applicable to the index. The Portfolio also incurs
costs in buying and selling securities. The fund or the Portfolio may not be
fully invested at times, either as a result of cash flows into the fund or
reserves of cash held by the fund to meet redemptions. The return on the sample
of stocks purchased by the Portfolio, or futures or other derivative positions
taken by the Portfolio, to replicate the performance of the index may not
correlate precisely with the return on the index.
The fund's goal, investment strategies, and most other investment policies may
be changed without shareholder approval.
The fund's shares will rise and fall in value and there is a risk that you could
lose money by investing in the fund. Also, the fund cannot be certain that it
will achieve its goal. Finally, fund shares are not bank deposits and are not
guaranteed, endorsed or insured by any financial institution, government entity
or the FDIC.
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
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[sidebar]
[MAGNIFYING GLASS] Equity Index Investing
By investing in a fund that invests in the companies that comprise a particular
index, a so-called index fund, investors can obtain performance which is similar
to the performance of the index. Index funds provide investors with an efficient
means of obtaining the performance of a particular index without having to
invest in all of the securities that make up the index.
An index of securities is not managed. An index is a list of companies compiled
by its sponsors to reflect the performance of a market, an industry or other
group of companies based on a broad or narrow set of characteristics as defined
by the sponsors. Generally, companies are included in a broad-based index to
reflect general movements in a large market.
The S&P 500 Index is a well-known stock market index that includes the common
stocks of 500 companies. Most of the stocks are listed on the New York Stock
Exchange, Inc. (the "NYSE"). Stocks in the S&P 500 Index are weighted according
to their market capitalizations (i.e., the number of shares outstanding
multiplied by the stock's current price). The companies chosen for the S&P 500
Index generally have the largest market value within their respective
industries. The composition of the S&P 500 Index is determined by Standard &
Poor's and is based on such factors as the market capitalization and trading
activity of each stock and its adequacy as a representation of stocks in a
particular industry group, and may be changed from time to time.
[end sidebar]
<PAGE>
6 Investor Expenses
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<TABLE>
<CAPTION>
Class descriptions begin on page 9
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Shareholder Fees (% of offering price) Class A Class B(1) Class B Class C Class S
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<S> <C> <C> <C> <C> <C>
Maximum front-end sales charge (load) 0.00(a) 0.00 0.00 0.00 0.00
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Maximum deferred sales charge (load) 0.00(a) 5.00 5.00 1.00 0.00
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<CAPTION>
Annual Fund Operating Expenses (% of average net assets) Class A Class B(1) Class B Class C Class S
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<S> <C> <C> <C> <C> <C>
Management fee(b) 0.045 0.045 0.045 0.045 0.045
Administrative fee 0.250 0.250 0.250 0.250 0.250
Service/distribution (12b-1) fees 0.250(c) 1.000 1.000 1.000 0.000
Other expenses(d) 1.600 1.600 1.600 1.600 1.600
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Total annual fund operating expenses* 2.145 2.895 2.895 2.895 1.895
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* Because the fund anticipates that its
expenses will be subsidized, actual total
operating expenses are expected to be: 0.60 1.35 1.35 1.35 0.35
The fund expects the expense subsidy to
continue through the current fiscal year,
although there is no guarantee
that it will.(e)
<CAPTION>
Example Year Class A Class B(1) Class B Class C Class S
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<S> <C> <C> <C> <C> <C>
1 $218 $ 793/$293 $ 793/$293 $393/$293 $192
3 $671 $1,196/$896 $1,196/$896 $896 $595
</TABLE>
(a) Currently, Class A shares are only available to certain retirement plans
and no front-end sales charges apply. Sales charges of up to 5.75% can
apply if Class A shares are made available to other investors.
(b) The management fee includes 0.045% paid by the Portfolio of State Street
Master Funds to State Street Bank and Trust Company, as the Portfolio's
investment adviser, administrator and custodian (and for assuming certain
ordinary operating expenses). A management fee of 0.25% also applies to
assets managed directly by the investment manager. Currently, however, the
fund invests exclusively in the Portfolio and no management fee is paid to
the investment manager.
(c) The Trustees may increase the current fees shown for Class A shares at any
time, provided that the fees do not exceed a maximum of 0.40%.
(d) Because the fund has been newly organized, the percentage expense levels
shown in the table as other expenses are based on estimates. The table
reflects the expenses of both the fund and the Portfolio.
(e) The distributor has voluntarily undertaken to pay certain fund expenses.
It has done this to assist the fund in achieving the actual total
operating expense ratio shown, as set by the distributor and Board of
Trustees from time to time. In the future, the distributor may seek
repayment of such expenses from the fund (as long as these payments do not
cause the fund's expenses to exceed certain limits).
<PAGE>
7
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[MAGNIFYING GLASS] 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:
o Shareholder Fees are costs that are charged to you directly. These fees
are not charged on reinvestments or exchanges.
o Annual Fund Expenses are deducted from the fund's assets every year, and
are thus paid indirectly by all fund investors.
o 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.
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.
The figures in the example assume full annual expenses, and would be lower
if they reflected the subsidy.
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
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[THINKER] Investment Management and Administration
The fund's investment manager is State Street Research & Management Company, One
Financial Center, Boston, Massachusetts 02111. State Street Research traces its
heritage back to 1924 and the founding of one of America's first mutual funds.
Today the firm has more than $54 billion in assets under management (as of
July 31, 2000), including more than $19 billion in mutual funds. The investment
manager is a subsidiary of Metropolitan Life Insurance Company.
The fund may pay a management fee of 0.25% annually on assets managed directly
by the investment manager. Currently, however, the fund invests exclusively in
the Portfolio and no management fee is paid to the investment manager.
The Portfolio is a series of State Street Master Funds. The Portfolio is managed
by State Street Global Advisors ("SSgA"), a division of State Street Bank and
Trust Company ("SS Bank"). Neither State Street Master Funds, SSgA nor SS Bank
is an affiliate of the fund or the investment manager. For its services to the
Portfolio as investment adviser, administrator and custodian (and for assuming
certain ordinary operating expenses), SS Bank receives an advisory fee of 0.045%
of the Portfolio's average daily net assets.
The investment manager is also entitled to a general administration fee of 0.25%
of the fund's average daily net assets for administrative services provided to
the fund.
<PAGE>
Your Investment 9
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[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.
[CKECKLIST] Choosing a Share Class
At the present time, only Class A shares of the fund are available for
investment through purchases and exchanges for (a) retirement plan accounts with
minimum assets of $500,000 that have adopted a State Street Research prototype
retirement plan or (b) Taft-Hartley retirement plans. The availability of shares
is subject to change at any time. For details, contact the distributor.
The fund generally offers four share classes, each with its own sales charge and
expense structure: Class A, Class B(1), Class C and Class S. The fund also
offers Class B shares, but only to current Class B shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of the State Street Research funds.
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(1) shares (if
investing for at least six years) or Class C shares (if investing for less than
six 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
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Class A -- Front Load
o Initial sales charge of 5.75% or less; no sales charges apply to certain
retirement plans
o Lower sales charges for larger investments; see sales charge schedule at
right
o Lower annual expenses than Class B(1) or Class C shares because of lower
service/distribution (12b-1) fee of up to 0.40%
Class B(1) -- Back Load
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within six years
o Annual service/distribution (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Class B -- Back Load
o Available only to current Class B shareholders; see page 11 for details
Class C -- Level Load
o No initial sales charge
o Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
o Lower deferred sales charge than Class B(1) shares
o Annual service/distribution (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do
not decrease
Class S -- Special Programs
o Available only through certain retirement accounts, advisory accounts of
the investment manager and other special programs, including programs
through financial professionals with recordkeeping and other services;
these programs usually involve special conditions and separate fees
(consult your financial professional or your program materials)
o No sales charges of any kind
o No service/distribution (12b-1) fees; annual expenses are lower than other
share classes
Sales Charges
Class A -- Front Load
this % is which equals
deducted this % of
when you invest for sales your net
this amount charges investment
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Up to $50,000 5.75 6.10
$50,000 to $100,000 4.50 4.71
$100,000 to $250,000 3.50 3.63
$250,000 to $500,000 2.50 2.56
$500,000 to $1 million 2.00 2.04
$1 million or more see below
With Class A shares, you pay a sales charge 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 up to 1% if you sell any shares within one year of
<PAGE>
11
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purchasing them. See "Other CDSC Policies" on page 12.
Class A shares are currently offered with no sales charges through certain
retirement plans and other sponsored arrangements (consult your financial
professional or your program materials).
Class B(1) -- Back Load
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
---------------------------------------------------------------
First year 5.00
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Second year 4.00
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Third year 3.00
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Fourth year 3.00
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Fifth year 2.00
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Sixth year 1.00
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Seventh or eighth year None
With Class B(1) 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 six years or less, as described in the table above. See "Other
CDSC Policies" on page 12.
Class B(1) shares automatically convert to Class A shares after eight years;
Class A shares have lower annual expenses.
Class B -- Back Load
Class B shares are available only to current shareholders through reinvestment
of dividends and distributions or through exchanges from existing Class B
accounts of the State Street Research funds. Other investments made by current
Class B shareholders will be in Class B(1) shares.
With Class B shares, you are charged a "contingent deferred sales charge" (CDSC)
when you sell shares you have held for five years or less. The CDSC is a
percentage of net asset value at the time of purchase (or of sale, if lower) and
is deducted from your proceeds. When you sell shares in the first year after you
bought them, the CDSC is 5.00%; second year, 4.00%; third year, 3.00%; fourth
year, 3.00%; fifth year, 2.00%; sixth year or later, none. See "Other CDSC
Policies" on page 12.
Class B shares automatically convert to Class A shares after eight years.
Class C -- Level Load
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
---------------------------------------------------------------
First year 1.00
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Second year or later None
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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
<PAGE>
12 Your Investment continued
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described in the table above. See "Other CDSC Policies" below.
Class C shares currently have the same annual expenses as Class B(1) shares, but
never convert to Class A shares.
Class S -- Special Programs
Class S shares have no sales charges.
Other CDSC Policies
The CDSC will be based on the net asset value of the shares at the time of
purchase (or sale, if lower). 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 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 participant initiated distributions from
State Street Research prototype retirement plans. In other cases, the CDSC is
waived on shares sold for mandatory retirement distributions or for
distributions because of disability or death. Consult your financial
professional or the State Street Research Service Center for more information.
[MAGNIFYING GLASS] Understanding Service/Distribution Fees
As noted in the descriptions on pages 10 through 12, all share classes except
Class S have annual service/distribution fees, also called 12b-1 fees.
Under its current 12b-1 plan, the fund may pay certain service and distribution
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.
Some of the 12b-1 fees are 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.
The fund may continue to pay 12b-1 fees even if the fund is subsequently closed
to new investors.
<PAGE>
13
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[CHECK] Dealer Compensation
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions, annual fees
and other compensation. These are paid by the fund's distributor, using money
from sales charges, service/distribution (12b-1) fees and its other resources.
Brokers and agents may charge a transaction fee on orders of fund shares placed
directly through them. The distributor may pay its affiliate MetLife Securities,
Inc. additional compensation of up to 0.25% of certain sales or assets.
<TABLE>
<CAPTION>
Dealer Commissions (%) Class A Class B(1) Class B Class C Class S
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<S> <C> <C> <C> <C> <C>
Commission see below 4.00 4.00 1.00 0.00
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Investments up to $50,000 5.00 -- -- -- --
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$50,000 to $100,000 4.00 -- -- -- --
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$100,000 to $250,000 3.00 -- -- -- --
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$250,000 to $500,000 2.00 -- -- -- --
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$500,000 to $1 million 1.75 -- -- -- --
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First $1 to 3 million 1.00(a) -- -- -- --
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Next $2 million 0.75(a) -- -- -- --
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Next $2 million 0.50(a) -- -- -- --
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Next $1 and above 0.25(a) -- -- -- --
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Annual fee 0.25 0.25 0.25 1.00 0.00
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</TABLE>
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 the sale of shares of the State Street Research
funds by the broker.
[footnote]
(a) If your financial professional declines this commission, the one-year CDSC
on your investment is waived.
[end footnote]
<PAGE>
14 Buying and Selling Shares
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Note: The following information on buying and selling shares does not apply to
certain retirement plans.
Participants in 401(k) and other plans should consult with the appropriate
person at their employer or refer to their plan materials.
For more information or assistance, call 1-87-SSR-FUNDS (1-877-773-8637).
[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:
o $1,000 for accounts that use the Investamatic program(a)
o $2,000 for Individual Retirement Accounts(a)
o $2,500 for all other accounts
Minimum Additional Investments:
o $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 in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Orders received thereafter 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. If the New York Stock Exchange closes before 4:00 p.m. eastern time,
you may be unable to make a same day wire investment. Your bank may charge a fee
for wiring money.
[footnote]
(a) Except $500 for Individual Retirement Accounts during special promotional
periods.
[end footnote]
<PAGE>
Instructions for Buying Shares 15
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<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C> <C>
[BRIEFCASE] Through a Consult your financial Consult your financial
Professional professional or your program professional or your program
or Program materials. materials.
By Mail [MAILBOX] Make your check payable to Fill out an investment slip
"State Street Research Funds." from an account statement, or
Forward the check and your indicate the fund name and
application to State Street account number on your check.
Research. Make your check payable to
"State Street Research Funds."
Forward the check and slip to
State Street Research.
[CAPITAL BUILDING] By Federal Call to obtain an account Call State Street Research to
Funds Wire number and forward your obtain a control number.
application to State Street Instruct your bank to wire
Research. Wire funds using the funds to:
instructions at right. o State Street Bank and Trust
Company, Boston, MA
o ABA: 011000028
o BNF: fund name and share
class you want to buy
o AC: 99029761
o OBI: your name and your
account number
o Control: the number given to
you by State Street Research
By Electronic [PLUG] Verify that your bank is a Call State Street Research to
Funds Transfer member of the ACH (Automated verify that the necessary bank
(ACH) Clearing House) system. information is on file for
Forward your application to your account. If it is, you
State Street Research. Please may request a transfer by
be sure to include the telephone or Internet. If not,
appropriate bank information. please ask State Street
Call State Street Research to Research to provide you with
request a purchase. an EZ Trader application.
[CALENDAR] By Investamatic Forward your application, with Call State Street Research to
all appropriate sections verify that Investamatic is in
completed, to State Street place on your account, or to
Research, along with a check request a form to add it.
for your initial investment Investments are automatic once
payable to "State Street Investamatic is in place.
Research Funds."
By Exchange [ARROWS GOING IN Read the prospectus for the fund Read the prospectus for the fund
OPPOSITE DIRECTIONS] into which you are exchanging. into which you are exchanging.
Call State Street Research or Call State Street Research or
visit our Web site. visit our Web site.
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408 Internet www.StateStreetResearch.com
Call toll-free: 1-87-SSR-FUNDS (1-877-773-8637) (business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
16 Your Investment continued
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[CASH REGISTER] Policies for Selling Shares
CIRCUMSTANCES THAT REQUIRE WRITTEN REQUESTS Please submit instructions in
writing when any of the following apply:
o you are selling more than $100,000 worth of shares
o the name or address on the account has changed within the last 30 days
o you want the proceeds to go to a name or address not on the account
registration
o you are transferring shares to an account with a different registration or
share class
o 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 the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Requests received thereafter 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
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To Sell Some or All of Your Shares
[BRIEFCASE] Through a Consult your financial professional or your
Professional program materials.
or Program
By Mail [MAILBOX] Send a letter of instruction, an endorsed stock
power or share certificates (if 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).
[CAPITAL BUILDING] By Federal Check with State Street Research to make sure
Funds Wire that a wire redemption privilege, including a
bank designation, is in place on your account.
Once this is established, you may place your
request to sell shares with State Street
Research. Proceeds will be wired to your
pre-designated bank account. (See "Wire
Transactions" on facing page.)
By Electronic [PLUG] Check with State Street Research to make sure
Funds Transfer that the EZ Trader feature, including a bank
(ACH) designation, is in place on your account. Once
this is established, you may place your request
to sell shares with State Street Research by
telephone or Internet. Proceeds will be sent to
your pre-designated bank account.
[COMPUTER] By Internet Visit our Web site. Certain limitations may
apply.
By Telephone [TELEPHONE] As long as the transaction does not require a
written request (see facing page), you or your
financial professional can sell shares by
calling State Street Research. A check will be
mailed to your address of record on the
following business day.
[ARROWS GOING IN By Exchange Read the prospectus for the fund into which you
OPPOSITE DIRECTIONS] are exchanging. Call State Street Research or
visit our Web site.
By Systematic [CALENDAR] See plan information on page 21.
Withdrawal Plan
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Internet www.StateStreetResearch.com
Call toll-free: 1-87-SSR-FUNDS (1-877-773-8637) (business days 8:00 a.m. - 6:00
p.m., eastern time)
<PAGE>
18 Your Investment continued
--------------------------------------------------------------------------------
[POLICIES] Account Policies
TELEPHONE AND INTERNET REQUESTS When you open an account you automatically
receive telephone privileges, allowing you to place requests for your account by
telephone. Your financial professional can also use these privileges to request
exchanges and redemptions on your account. For your protection, all telephone
calls are recorded.
You may also use our Web site for submitting certain requests over the Internet.
As long as State Street Research takes certain measures to authenticate requests
over the telephone or Internet for 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. Similarly, you may choose not to use the Internet for your account.
The fund may suspend or eliminate the telephone or Internet privileges 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.
You must hold Class A shares of any fund for at least 30 days before you may
exchange them at net asset value for Class A shares of a different fund with a
higher applicable sales charge.
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.
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
<PAGE>
19
-----
or, depending on the circumstances, may deduct an annual maintenance fee
(currently $18).
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 net asset value per share (NAV)
every business day at the close of regular trading on the New York Stock
Exchange (but not later than 4:00 p.m. eastern time). NAV is calculated by
dividing the fund's net assets by the number of its shares outstanding.
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:
o Requirements for initial or additional investments, reinvestments,
periodic investment plans, retirement and employee benefit plans,
sponsored arrangements and other similar programs may be changed from time
to time without further notice or supplement to this prospectus
o All orders to purchase shares are subject to acceptance by the fund
o 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
o The fund may delay sending you redemption proceeds for up to seven days,
or longer if permitted by the SEC
o The fund reserves the right to redeem in kind
o 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
--------------------------------------------------------------------------------
[sidebar]
[MAGNIFYING GLASS] Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
o 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)
o selling shares at a loss for tax purposes and investing in a substantially
identical investment within 30 days before or after that sale (such a
transaction is usually considered a "wash sale," and you will not be
allowed to claim a tax loss in the current year)
[end sidebar]
["UNCLE SAM"] Distributions and Taxes
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund typically distributes any net
income and net capital gains to shareholders around the end of its fiscal year,
which is December 31. To comply with tax regulations, the fund may also be
required to pay an additional income dividend or capital gains distribution.
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 long-term capital gains are generally taxable
as capital gains--in most cases, at a different rate from that which applies to
ordinary income.
The tax you pay on a given capital gains distribution generally depends 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.
<PAGE>
21
-----
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
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.
[HANDS] 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 12% of your fund assets a year (minimum $50 per withdrawal) without incurring
any contingent deferred sales charges. Certain terms and minimums apply.
EZ TRADER This service allows you to purchase or sell fund shares by telephone
or over the Internet 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 1-87-SSR-FUNDS (1-877-773-8637) for information on any of the services
described above.
<PAGE>
22 Other Information
--------------------------------------------------------------------------------
[STOCK CERTIFICATES] Other Securities and Risks
The securities held by the Portfolio and its investment practices offer certain
opportunities and carry various risks. Major investment 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.
INDEX FUTURES CONTRACTS AND RELATED OPTIONS The Portfolio buys and sells futures
contracts on the index and options on those futures contracts. An "index
futures" contract is a contract to buy or sell units of an index at an agreed
price on a specified future date. Depending on the change in value of the index
between the time when the Portfolio enters into and terminates an index future
or option transaction, the Portfolio realizes a gain or loss. Options and
futures transactions involve risks. For example, it is possible that changes in
the prices of futures contracts on the index will not correlate precisely with
changes in the value of the index. In those cases, use of futures contracts and
related options might decrease the correlation between the return of the
Portfolio and the return of the index. In addition, the Portfolio incurs
transaction costs in entering into, and closing out, positions in futures
contracts and related options. These costs typically have the effect of reducing
the correlation between the return of the Portfolio and the return of the index.
<PAGE>
23
-----
OTHER DERIVATIVE TRANSACTIONS The Portfolio may enter into derivatives
transactions involving options and swaps. These transactions involve many of the
same risks as those described above under "Index Futures Contracts and Related
Options." In addition, since many of such transactions are conducted directly
with counterparties, and not on an exchange or board of trade, the Portfolio's
ability to realize any investment return on such transactions may be dependent
on the counterparty's ability or willingness to meet its obligations.
REPURCHASE AGREEMENTS AND SECURITIES LOANS The Portfolio may enter into
repurchase agreements and securities loans. Under a repurchase agreement, the
Portfolio purchases a debt instrument for a relatively short period (usually not
more than one week), which the seller agrees to repurchase at a fixed time and
price, representing the Portfolio's cost plus interest. Under a securities loan,
the Portfolio lends portfolio securities. The Portfolio will enter into
repurchase agreements and securities loans only with commercial banks and with
registered broker-dealers who are members of a national securities exchange or
market makers in government securities, and in the case of repurchase
agreements, only if the debt instrument is a U.S. government security. Although
SSgA will monitor these transactions to ensure that they will be fully
collateralized at all times, the Portfolio bears a risk of loss if the other
party defaults on its obligation and the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral. If the other party should
become involved in bankruptcy or insolvency proceedings, it is possible that the
Portfolio may be treated as an unsecured creditor and be required to return the
underlying collateral to the other party's estate.
MASTER-FEEDER STRUCTURE The fund is a "feeder" fund and the Portfolio is a
"master" fund, each part of a master-feeder fund structure. In a master-feeder
fund structure, the
<PAGE>
24 Other Information continued
--------------------------------------------------------------------------------
feeder fund invests all of its investable assets in shares of a master fund with
the same investment objective. The master fund purchases the securities for
investment.
The fund may withdraw its entire investment in the Portfolio at any time if it
is in the best interest of the fund and its shareholders to do so. If the fund
withdraws its entire investment in the Portfolio, the fund's assets will be
invested according to its investment policies and restrictions, which may
include investment in another master fund.
<PAGE>
Board of Trustees 25
--------------------------------------------------------------------------------
[COLUMNS] The Board of Trustees is responsible for the operation of the fund.
They establish the fund's major policies, review investments, and provide
guidance to the investment manager and others who provide services to the fund.
The Trustees have diverse backgrounds and substantial experience in business and
other areas.
Gerard P. Maus
Chief Financial Officer, Chief Administrative Officer,
Director and Interim Chief Operating Officer,
State Street Research & Management Company
Bruce R. Bond
Former Chairman of the Board,
Chief Executive Officer
and President,
PictureTel Corporation
Steve A. Garban
Former Senior Vice President for Finance
and Operations and Treasurer,
The Pennsylvania State University
Dean O. Morton
Former Executive Vice President,
Chief Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and Public
Management, George Washington
University, former Member of the Board of
Governors of the Federal Reserve System
and Chairman and Commissioner of the
Commodity Futures Trading Commission
Toby Rosenblatt
President, Founders Investments Ltd.
President, The Glen Ellen Company
Michael S. Scott Morton
Jay W. Forrester Professor of Management,
Sloan School of Management,
Massachusetts Institute of Technology
<PAGE>
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: 1-87-SSR-FUNDS (1-877-773-8637)
Internet: www.StateStreetResearch.com
You can also obtain information about the fund, including the SAI and certain
other fund documents, on the SEC's EDGAR database on the Internet at
www.sec.gov, by electronic request at [email protected], in person at the SEC's
Public Reference Room in Washington, DC (telephone 1-202-942-8090) or by mail by
sending your request, along with a duplicating fee, to the SEC's Public
Reference Section, Washington, DC 20549-0102.
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 on the fund's financial statements.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
A supplement to the prospectus, the SAI contains further information about the
fund and its investment limitations and policies. 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).
Ticker Symbols
================================================================================
Class A (proposed) SREAX
--------------------------------------------------------------------------------
Class B(1) (proposed) SREPX
--------------------------------------------------------------------------------
Class B (proposed) SREBX
--------------------------------------------------------------------------------
Class C (proposed) SRECX
--------------------------------------------------------------------------------
Class S (proposed) SRESX
prospectus
--------------------------------------------------------------------------------
SEC File Number: 811-84
EI-2000-0500
Control Number: (exp0501)SSR-LD
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
STATE STREET RESEARCH EQUITY INDEX FUND
A Series of State Street Research Master Investment Trust
September 1, 2000
This Statement of Additional Information is divided into two sections:
Section I contains information which is specific to the Fund identified
above.
Section II contains general investment information and other
non-investment information which generally is shared by certain mutual funds of
the State Street Research complex, including the Fund.
The Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the current Prospectus of the above Fund, dated
September 1, 2000.
The Fund's Prospectus may be obtained without charge from State Street
Research Investment Services, Inc., One Financial Center, Boston, Massachusetts
02111-2690 or by calling 1-87-SSR-FUNDS (1-877-773-8637).
Control Number: (exp0501)SSR-LD EI-2011-0800
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
DEFINITIONS.......................................................... (ii)
SECTION I............................................................ I,1-1
STATE STREET RESEARCH EQUITY INDEX FUND........................ I,1-1
A. The Fund.................................................. I,1-1
B. Investment Objective...................................... I,1-1
C. Fundamental and Nonfundamental Restrictions............... I,1-1
D. Control Persons and Principal Holders of Securities....... I,1-3
E. Trustee Compensation...................................... I,1-4
F. Investment Advisory Fee................................... I,1-5
G. General Administration Fee................................ I,1-5
H. Distributor's Payment of Fund Expenses.................... I,1-5
I. Portfolio Turnover........................................ I,1-6
J. Rule 12b-1 Fees........................................... I,1-6
(i)
<PAGE>
DEFINITIONS
Each of the following terms used in this Statement of Additional
Information has the meaning set forth below.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Distributor" means State Street Research Investment Services, Inc., One
Financial Center, Boston, Massachusetts 02111-2690
"Investment Manager" means State Street Research & Management Company, One
Financial Center, Boston, Massachusetts 02111-2690.
"MetLife" means Metropolitan Life Insurance Company.
"NYSE" means the New York Stock Exchange, Inc.
"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.
(ii)
<PAGE>
SECTION I
STATE STREET RESEARCH EQUITY INDEX FUND
A. The Fund
The Fund was organized in 2000 as a separate series of State Street
Research Master Investment Trust ("Trust"), a Massachusetts business trust. The
Trust is an "open-end" management investment company as defined in the 1940 Act.
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 the following series: State Street Research Investment Trust and
State Street Research Equity Index Fund ("Equity Index Fund" or "Fund").
The Fund is "diversified" as that term is 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 or invest
in more than 10% of the outstanding voting securities of an issuer. The
percentage limitations do not apply to investments in other investment companies
and government securities.
Under the Trust's Master Trust Agreement, the Trustees may reorganize,
merge or liquidate the Fund without prior shareholder approval.
B. Investment Objective
The investment objective of Equity Index Fund is a nonfundamental
policy and may be changed without shareholder approval.
C. Fundamental and Nonfundamental Restrictions
The Equity Index Fund has adopted the following 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 without a shareholder
vote.
The fundamental and nonfundamental policies of the Fund do not apply to
any matters involving the issuance of multiple classes of shares of the Fund or
the creation or use of structures (e.g., fund of funds, master-feeder structure)
allowing the Fund to invest any or all of its assets in collective investment
vehicles or allowing the Fund to serve as such a collective investment vehicle
for other funds, to the extent permitted by law and regulatory authorities.
I, 1-1
<PAGE>
Fundamental Investment Restrictions
It is the Equity Index Fund's policy:
(1) not to borrow more than 33 1/3% of the value of its total
assets less all liabilities and indebtedness (other than such
borrowings);
(2) not to underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its
portfolio investments, it may be deemed to be an underwriter
under certain federal securities laws;
(3) not to purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities
which are secured by interests in real estate, and securities
which represent interests in real estate, and it may acquire
and dispose of real estate or interests in real estate
acquired through the exercise of its rights as a holder of
debt obligations secured by real estate or interests therein;
(4) not to purchase or sell commodities or commodity contracts,
except that it may purchase and sell financial futures
contracts and options and may enter into foreign exchange
contracts and other financial transactions not involving the
direct purchase or sale of physical commodities;
(5) not to make loans, except by purchase of debt obligations in
which the Fund may invest consistent with its investment
policies, by entering into repurchase agreements, or by
lending its portfolio securities;
(6) not to, with respect to 75% of its total assets, invest in the
securities of any issuer if, immediately after such
investment, more than 5% of the total assets of the Fund
(taken at current value) would be invested in the securities
of such issuer; provided that this limitation does not apply
to obligations issued or guaranteed as to interest or
principal by the U.S. government or its agencies or agencies
or instrumentalities, or to securities issued by other
investment companies;
(7) not to, with respect to 75% of its total assets, acquire more
than 10% of the outstanding voting securities of any issuer,
provided that such limitation does not apply to securities
issued by other investment companies;
(8) not to purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities), if, as a
result of such purchase, more than 25% of the Fund's total
assets would be invested in any one industry; and
I, 1-2
<PAGE>
(9) not to issue any class of securities which is senior to the
Fund's shares, to the extent prohibited by the Investment
Company Act of 1940, as amended.
Nonfundamental Investment Restrictions
It is the Equity Index Fund's policy:
(1) not to invest in securities which are not readily marketable;
(2) not to invest in securities restricted as to resale (excluding
securities issued by a corresponding portfolio of State Street
Master Funds and securities determined by the Trustees of the
Trust (or the person designated by the Trustees of the Trust
to make such determinations) to be readily marketable); and
(3) not to invest in repurchase agreements maturing in more than
seven days, if, as a result, more than 15% of the Fund's net
assets (taken at current value) would be invested in
securities described in (1), (2) and (3).
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
D. Control Persons and Principal Holders of Securities
As of the approximate date of this Statement of Additional Information,
the Investment Manager, the Distributor and/or their indirect parent MetLife,
were the beneficial owners of all or a substantial amount of the outstanding
Class A, Class B(1), Class B, Class C and/or Class S shares of the Fund, and may
be deemed to be in "control" of such class or the Fund, as defined in the 1940
Act. Although sales of Fund shares to other investors will reduce their
percentage ownership, 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 Rule
12b-1 plan for a given class.
I, 1-3
<PAGE>
E. Trustee Compensation
The Trustees of State Street Research Master Investment Trust were
compensated as follows:
<TABLE>
<CAPTION>
Total Total Compensation
Compensation From All State
Aggregate From All Street Research Funds
Compensation From State Street and Metropolitan
Equity Index Research Funds Series Fund, Inc.
Name of Trustee Fund (a)(b) Paid to Trustees (c) Paid to Trustees (d)
--------------- ----------- -------------------- --------------------
<S> <C> <C> <C>
Bruce R. Bond $ 250 $ 55,495 $ 55,495
Steven A. Garban $ 250 $ 80,150 $ 110,900
Gerard P. Maus $ 0 $ 0 $ 0
Dean O. Morton $ 250 $ 81,150 $ 108,900
Susan M. Phillips $ 250 $ 57,150 $ 57,150
Toby Rosenblatt $ 250 $ 67,900 $ 67,900
Michael S. Scott Morton $ 250 $ 85,250 $ 113,000
</TABLE>
-----------------
(a) Estimated for the Fund's fiscal year ending December 31, 2000.
(b) The Fund does not provide any pension or retirement benefits for the
Trustees.
(c) Includes compensation on behalf of all series of 11 investment companies
for which the Investment Manager has served as sole investment adviser. The
figure in this column is for the 12 months ended December 31, 1999.
(d) Includes compensation on behalf of all series of 11 investment companies
for which the Investment Manager has served as sole investment adviser and
all series of Metropolitan Series Fund, Inc. The primary adviser to
Metropolitan Series Fund, Inc. is Metropolitan Life Insurance Company,
which has retained State Street Research & Management Company as
sub-adviser to certain series of Metropolitan Series Fund, Inc. The figure
in this column includes compensation relating to series of Metropolitan
Series Fund, Inc. which are not advised by State Street Research &
Management Company. The figure is for the 12 months ended December 31,
1999.
For more information on the Trustees and officers of State Street
Research Master Investment Trust, see Section II, B of this Statement of
Additional Information.
I, 1-4
<PAGE>
F. Investment Advisory Fee
The advisory fee payable monthly by the Equity Index Fund to the
Investment Manager is computed as a percentage of the average of the value of
the net assets of the Fund managed directly by the Investment Manager as
determined at the close of regular trading on the NYSE on each day the NYSE is
open for trading.
The annual percentage rate is: 0.25%. Currently, however, the Fund
invests exclusively in the State Street Equity 500 Index Portfolio
("Portfolio"), a portfolio of State Street Master Funds, and no management fee
is paid to the Investment Manager.
The Portfolio is managed by State Street Global Advisors ("SSgA"), a
division of State Street Bank and Trust Company ("SS Bank"). Neither SSgA nor
SS Bank is an affiliate of the Equity Index Fund or the Investment Manager. For
its services to the Portfolio as investment adviser, administrator and custodian
(and for assuming certain ordinary operating expenses), SS Bank receives an
advisory fee of 0.045% of the Portfolio's average daily net assets.
G. General Administration Fee
The general administration fee payable monthly by the Equity Index 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 NYSE on each day the NYSE is open for trading.
The annual percentage rate is: 0.25%.
H. Distributor's Payment of Fund Expenses
The Distributor has voluntarily undertaken to pay certain expenses of
the Fund up to an amount which will enable the Fund to maintain a level of
actual total operating expenses of approximately 0.35% of net assets or as
otherwise mutually agreed from time to time by the Distributor and Trustees on
behalf of the Fund ("Expense Benchmark"). The following expenses are excluded
from this undertaking: Rule 12b-1 fees and any other class specific expenses,
interest, taxes, brokerage commissions, and extraordinary expenses such as
litigation and other expenses not incurred in the ordinary course of the Fund's
business. The Distributor may unilaterally cease to pay Fund expenses pursuant
to this undertaking at any time.
The Distributor is entitled to payment from the Fund for the amount of
expenses paid on behalf of the Fund when the Fund's actual total operating
expenses are less than the Expense Benchmark then in effect, provided that the
effect of such payment does not cause the Fund to exceed the lower of (a) the
Expense Benchmark then in effect or (b) the Expense Benchmark in effect in the
year that the expenses were originally paid. The Distributor will not be
entitled to such repayments from the Fund after the end of the fifth fiscal year
of the Fund following the year in which the expenses were originally paid.
I, 1-5
<PAGE>
I. Portfolio Turnover
The Fund reserves full freedom with respect to portfolio turnover. 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.
J. Rule 12b-1 Fees
The Fund has adopted a plan of distribution pursuant to Rule 12b-1
under the 1940 Act ("Distribution Plan"). Under the Distribution Plan, the Fund
may engage, directly or indirectly, in financing any activities primarily
intended to result in the sale of shares of the Fund. Under the Distribution
Plan, the Fund provides the Distributor with a service fee at an annual rate of
0.25% on the average daily net assets of Class A, Class B(1), Class B and Class
C shares. The Fund also provides a distribution fee at an annual rate of (i) up
to 0.15% on the average daily net assets of Class A shares, and (ii) 0.75% of
Class B(1), Class B and Class C shares. The service and distribution fees are
used to cover personal services and/or the maintenance of shareholder accounts
provided by the Distributor, brokers, dealers, financial professionals or
others, and sales, promotional and marketing activities relating to the
respective classes.
Under the Distribution Plan, the Fund's payments compensate the
Distributor for services and expenditures incurred under the plan and none of
the payments are returnable to the Fund.
I, 1-6
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
SECTION II
----------
This Section II contains general information applicable to the fund
identified on the cover page of this Statement of Additional Information.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
A. Additional Information Concerning Investment Restrictions,
Certain Risks and Investment Techniques.............................II-1
B. The Trust, the Trustees and Officers and Fund Shares................II-5
C. Investment Advisory and General Administration Services............II-14
D. Purchase and Redemption of Shares..................................II-15
E. Shareholder Accounts...............................................II-23
F. Net Asset Value....................................................II-28
G. Portfolio Transactions.............................................II-30
H. Certain Tax Matters................................................II-31
I. Distribution of Fund Shares........................................II-33
J. Calculation of Performance Data....................................II-36
K. Custodian..........................................................II-39
L. Independent Accountants............................................II-40
M. Financial Reports..................................................II-40
</TABLE>
<PAGE>
A. Additional Information Concerning Investment Restrictions, Certain
Risks and Investment Techniques
The Fund follows certain fundamental and nonfundamental investment
restrictions. The fundamental and nonfundamental investment restrictions for the
Fund are included in Section I of this Statement of Additional Information.
Because the fund currently invests exclusively in the shares of the
State Street Equity 500 Index Portfolio ("Portfolio"), a series of State Street
Master Funds, the Fund has adopted the Portfolio's investment policies.
Additional information about the Portfolio's policies and practices is set forth
below.
The S&P 500 Index
Neither the Fund nor the Portfolio is sponsored, endorsed, sold or
promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"). S&P makes no representation or warranty, express or implied, to the
owners of shares of the Fund or any member of the public regarding the
advisability of investing in securities generally or in the Fund particularly or
the ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to the Fund is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 Index, which is determined, composed and
calculated by S&P without regard to the Fund. S&P has no obligation to take the
needs of the Fund or the owners of shares of the Fund into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the determination of the price and number of
shares of the Fund or the timing of the issuance or sale of shares of the Fund,
or calculation of the equation by which shares of the Fund are redeemable for
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of shares of the Fund.
S&P does not guarantee the accuracy or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the Fund, owners of shares of the Fund
or any other person or entity, from the use of the S&P 500 Index or any data
included therein. S&P makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the S&P 500 Index or any data included therein. Without
limiting any of the foregoing, in no event shall S&P have any liability for any
special, punitive, indirect or consequential damages (including lost profits),
even if notified of the possibility of such damages.
II-1
<PAGE>
Cash Reserves
The Portfolio may hold portions of its assets in short-term debt
instruments with remaining maturities of 397 days or less pending investment or
to meet anticipated redemptions and day-to-day operating expenses. Short-term
debt instruments consist of:
(i) short-term obligations of the U.S. government, its agencies,
instrumentalities, authorities or political subdivisions;
(ii) other short-term debt securities rated at the time of purchase
Aa or higher by Moody's Investors Service, Inc. ("Moody's") or
AA or higher by Standard & Poor's Rating Group ("S&P") or, if
unrated, of comparable quality in the opinion of the adviser to
the Portfolio;
(iii) commercial paper;
(iv) bank obligations, including negotiable certificates of deposit,
time deposits and bankers' acceptances; and
(v) repurchase agreements.
At the time the Portfolio invests in commercial paper, bank obligations or
repurchase agreements, the issuer or the issuer's parent must have outstanding
debt rated Aa or higher by Moody's or AA or higher by S&P or outstanding
commercial paper or bank obligations rated Prime-1 by Moody's or A-1 by S&P; or,
if no such ratings are available, the instrument must be of comparable quality
in the opinion of the adviser to the Portfolio. To the extent that the Portfolio
holds the foregoing instruments its ability to tract its corresponding Index may
be adversely affected.
Futures Contracts and Options on Futures
The Portfolio may enter into futures contracts on securities in which
it may invest or on indices comprised of such securities and may purchase and
write call and put options on such contracts.
A financial futures contract is a contract to buy or sell a specified
quantity of financial instruments such as U.S. Treasury bills, notes and bonds
at a specified future date at a price agreed upon when the contract is made. An
index futures contract is a contract to buy or sell specified units of an index
at a specified future data at a price agreed upon when the contract is made. The
value of a unit is based on the current value of the index. Under such contracts
no delivery of the actual securities making up the index takes place. Rather,
upon expiration of the contract, settlement is made by exchanging cash in an
amount equal to the difference between the contract price and the closing price
of the index at expiration, net of variation margin previously paid.
Substantially all futures contracts are closed out before settlement date or
called for cash settlement. A futures contract is closed out by buying or
selling an identical offsetting futures contract. Upon entering into a futures
contract, the Portfolio is required to deposit an initial margin with its
custodian for the benefit of the futures broker. The initial margin serves as a
"good faith" deposit that the Portfolio will honor its futures
II-2
<PAGE>
commitments. Subsequent payments (called "variation margin") to and from the
broker are made on a daily basis as the price of the underlying investment
fluctuates. Options on futures contracts give the purchaser the right to assume
a position in a futures contract at a specified price at any time before
expiration of the option. The Portfolio will not commit more than 5% of the
market value of its total assets to initial margin deposits on futures and
premiums paid for options on futures.
Illiquid Securities
The Portfolio may invest in illiquid securities. The Portfolio will
invest no more than 15% of its net assets in illiquid securities or securities
that are not readily marketable, including repurchase agreements and time
deposits of more than seven days' duration. The absence of a regular trading
market for illiquid securities imposes additional risks on investments in these
securities. Illiquid securities may be difficult to value and may often be
disposed of only after considerable expense and delay.
Lending of Portfolio Securities
The Portfolio has the authority to lend portfolio securities to
brokers, dealers and other financial organizations in amounts up to 33 1/3% of
the total value of its assets. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current basis in an
amount at least equal to the market value of the securities loaned by the
Portfolio. The Portfolio would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned, and would
receive an additional return that may be in the form of a fixed fee or a
percentage of the collateral. The Portfolio would have the right to call the
loan and obtain the securities loaned at any time on notice of not more than
five business days. In the event of bankruptcy or other default of the borrower,
the Portfolio could experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible decline in
the value of collateral or in the value of the securities loaned during the
period while the Portfolio seeks to enforce its rights thereto, (b) possible
subnormal levels of income and lack of access to income during this period, and
(c) expenses of enforcing its rights.
Options on Securities and Securities Indices
The Portfolio may purchase or sell options on securities in which it
may invest and on indices that are comprised of securities in which it may
invest, subject to the limitations set forth above and provided such options are
traded on a national securities exchange or in the over-the-counter market.
Options on securities indices are similar to options on securities except there
is no transfer of a security and settlement is in cash. A call option on a
securities index grants the purchaser of the call, for a premium paid to the
seller, the right to receive in cash an amount equal to the different between
the closing value of the index and the exercise price of the option times a
multiplier established by the exchange upon which the option is traded.
Typically, a call option will be profitable to the holder of the option if the
value of the
II-3
<PAGE>
security or the index increases during the term of the option; a put option will
be valuable if the value of the security or the index decreases during the term
of the option. The Portfolio may also invest in warrants, which entitle the
holder to buy equity securities at a specific price for a specific period of
time.
Purchase of Other Investment Company Funds
The Portfolio may, to the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, invest in shares of other investment
companies which invest exclusively in money market instruments or in investment
companies with investment policies and objectives which are substantially
similar to the Fund's. These investments may be made temporarily, for example,
to invest uncommitted cash balances or, in limited circumstances, to assist in
meeting shareholder redemptions.
Repurchase Agreements
The Portfolio may enter into repurchase agreements with banks and other
financial institutions, such as broker-dealers. In substance, a repurchase
agreement is a loan for which the Fund receives securities as collateral. Under
a repurchase agreement, the Portfolio purchases securities from a financial
institution that agrees to repurchase the securities at the Portfolio's original
purchase price plus interest within a specified time (normally one business
day). The Portfolio will limit repurchase transactions to those member banks of
the Federal Reserve System and broker-dealers whose creditworthiness the
Portfolio's adviser considers satisfactory. Should the counterparty to a
transaction fail financially, the Portfolio may encounter delay and incur costs
before being able to sell the securities, or may be prevented from realizing on
the securities. Further, the amount realized upon the sale of the securities may
be less than that necessary to fully compensate the Portfolio.
U.S. Government Securities
The Portfolio may purchase U.S. government securities. U.S. government
securities include U.S. Treasury bills, notes, and bonds and other obligations
issued or guaranteed as to interest or principal by the U.S. government and its
agencies or instrumentalities. Obligations issued or guaranteed as to interest
or principal by the U.S. government, its agencies or instrumentalities include
securities that are supported by the full faith and credit of the United States
Treasury, securities that are supported by the right of the issuer to borrow
from the United States Treasury, discretionary authority of the U.S. government
agency or instrumentality, and securities supported solely by the
creditworthiness of the issuer.
When-Issued Securities
The Portfolio may purchase securities on a when-issued basis. Delivery
of a payment for these securities may take place as long as a month or more
after the date of the purchase commitment. The value of these securities is
subject to market fluctuation during this period,
II-4
<PAGE>
and no income accrues to the Portfolio until settlement takes place. The
Portfolio segregates liquid securities in an amount at least equal to these
commitments. When entering into a when-issued transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged.
B. The Trust, the Trustees and Officers and Fund Shares
The Trustees of the Trust have authority to issue an unlimited number
of shares of beneficial interest of separate series, $.001 par value per share.
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 each Fund to be issued in multiple classes.
Each share of each class of shares represents an identical legal
interest in the same portfolio of investments of a Fund, has the same rights and
is identical in all respects, except that Class A, Class B(1), 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.
Shareholder rights granted under the Master Trust Agreement may be
modified, suspended or repealed, in whole or part, by the Trustees, except as
provided by law or under the terms of the Master Trust Agreement. The Master
Trust Agreement may not be amended by the Trustees if the amendment would (a)
repeal the limitation on personal liability of any shareholder or Trustee, or
repeal the prohibition of assessment upon shareholders, without the express
consent of each shareholder or Trustee involved or (b) adversely modify any
shareholder right without the consent of the holders of a majority of the
outstanding shares entitled to vote. On any matter submitted to the
shareholders, the holder of a Fund share is entitled to one vote per share (with
proportionate voting for fractional shares) regardless of the relative net asset
value thereof.
Under the Trust's Master Trust Agreement, no annual or regular meeting
of shareholders is required. Thus, there 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
II-5
<PAGE>
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 a Trust could, under
certain circumstances, be held personally liable for the obligations for the
Trust. However, the Master Trust Agreement 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 Trustees and officers of the Trust are identified below, together
with biographical information.
II-6
<PAGE>
<TABLE>
<CAPTION>
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STATE STREET Capital Equity Exchange Financial Growth Income
-------------------------------------------------------------------------------------------------------------------
RESEARCH: Trust Trust Trust Trust Trust Trust
-------------------------------------------------------------------------------------------------------------------
TRUSTEES AND
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL
-------------------------------------------------------------------------------------------------------------------
OFFICERS
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce R. Bond Trustee Trustee Trustee Trustee Trustee Trustee
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
John R. Borzilleri Vice President
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Paul J. Clifford, Jr.
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Maureen Depp
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Catherine Dudley Vice President
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Bruce A. Ebel Vice President
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Steve A. Garban Trustee Trustee Trustee Trustee Trustee Trustee
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Bartlett R. Geer Vice President Vice
President
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Lawrence J. Haverty, Vice President
Jr.
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
F. Gardner Jackson, Vice President
Jr.
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
John H. Kallis Vice President Vice
President
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Dyann H. Kiessling
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------------------------------
Master Money
-------------------------------------------------------------------------------------------
STATE STREET Investment Market Securities Tax-Exempt
-------------------------------------------------------------------------------------------
RESEARCH: Trust Trust Trust Trust
-------------------------------------------------------------------------------------------
TRUSTEES AND
-------------------------------------------------------------------------------------------
PRINCIPAL
-------------------------------------------------------------------------------------------
OFFICERS
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bruce R. Bond Trustee Trustee Trustee Trustee
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
John R. Borzilleri
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Paul J. Clifford, Jr. Vice President
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Maureen Depp Vice President
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Catherine Dudley
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Bruce A. Ebel
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Steve A. Garban Trustee Trustee Trustee Trustee
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Bartlett R. Geer Vice President
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Lawrence J. Haverty,
Jr.
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
F. Gardner Jackson,
Jr.
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
John H. Kallis Vice President Vice President Vice President
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Dyann H. Kiessling Vice President
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
STATE STREET Capital Equity Exchange Financial Growth Income
------------------------------------------------------------------------------------------------------------
RESEARCH: Trust Trust Trust Trust Trust Trust
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
TRUSTEES AND
------------------------------------------------------------------------------------------------------------
PRINCIPAL
------------------------------------------------------------------------------------------------------------
OFFICERS
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rudolph K. Kluiber Vice President
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Francis J. McNamara, Secretary Secretary Secretary Secretary Secretary Secretary
III
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Gerard P. Maus Trustee, Trustee, Trustee, Trustee, Trustee, Trustee,
Chairman of Chairman of Chairman of Chairman of Chairman Chairman
the Board, the Board, the Board, the Board, of the of the
President, President, President, President, Board, Board,
Chief Executive Chief Chief Chief President, President,
Officer and Executive Executive Executive Chief Chief
Treasurer Officer and Officer and Officer and Executive Executive
Treasurer Treasurer Treasurer Officer Officer
and and
Treasurer Treasurer
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Thomas P. Moore, Jr. Vice President Vice President Vice President
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Dean O. Morton Trustee Trustee Trustee Trustee Trustee Trustee
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Brian P. O'Dell Vice President
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Trustee Trustee Trustee Trustee Trustee
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
E.K. Easton Vice President
Ragsdale, Jr.
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Daniel J. Rice III Vice President
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Trustee Trustee Trustee Trustee Trustee
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Michael S. Scott Trustee Trustee Trustee Trustee Trustee Trustee
Morton
------------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------
Master Money
------------------------------------------------------------------------------------------
STATE STREET Investment Market Securities Tax-Exempt
------------------------------------------------------------------------------------------
RESEARCH: Trust Trust Trust Trust
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
TRUSTEES AND
------------------------------------------------------------------------------------------
PRINCIPAL
------------------------------------------------------------------------------------------
OFFICERS
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rudolph K. Kluiber
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Francis J. McNamara, Secretary Secretary Secretary Secretary
III
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Gerard P. Maus Trustee, Trustee, Trustee, Trustee, Chairman
Chairman Chairman of Chairman of of the Board,
of the the Board, the Board, President, Chief
Board, President, President, Executive Officer
President, Chief Chief Executive and Treasurer
Chief Executive Officer and
Executive Officer and Treasurer
Officer Treasurer
and
Treasurer
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Thomas P. Moore, Jr.
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Dean O. Morton Trustee Trustee Trustee Trustee
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Brian P. O'Dell
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Trustee Trustee Trustee
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
E.K. Easton
Ragsdale, Jr.
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Daniel J. Rice III
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Trustee Trustee Trustee
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Michael S. Scott Trustee Trustee Trustee Trustee
Morton
------------------------------------------------------------------------------------------
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
STATE STREET Capital Equity Exchange Financial Growth Income
---------------------------------------------------------------------------------------------------------------------
RESEARCH: Trust Trust Trust Trust Trust Trust
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
TRUSTEES AND
---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
---------------------------------------------------------------------------------------------------------------------
OFFICERS
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Shively Vice President Vice
President
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Tucker Walsh Vice President
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
James M. Weiss Vice President Vice President Vice President Vice President Vice Vice
President President
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Elizabeth M. Westvold
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
John T. Wilson Vice President
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Kennard Woodworth, Vice President Vice President Vice
Jr. President
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Peter A. Zuger Vice President
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------------------------------------------------------
Master Money
----------------------------------------------------------------------------------------------------
STATE STREET Investment Market Securities Tax-Exempt
----------------------------------------------------------------------------------------------------
RESEARCH: Trust Trust Trust Trust
------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
TRUSTEES AND
----------------------------------------------------------------------------------------------------
PRINCIPAL
----------------------------------------------------------------------------------------------------
OFFICERS
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas A. Shively Vice President Vice President Vice President
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Tucker Walsh
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
James M. Weiss Vice Vice President
President
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Elizabeth M. Westvold Vice President
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
John T. Wilson Vice
President
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Kennard Woodworth, Vice President
Jr.
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Peter A. Zuger Vice President
----------------------------------------------------------------------------------------------------
</TABLE>
II-9
<PAGE>
Additional information on the Trustees, Directors and principal
officers of the State Street Research Funds is provided below. The address for
each person is One Financial Center, Boston, Massachusetts 02111.
Bruce R. Bond: He is 54. During the past five years, Mr. Bond has also
served as Chairman of the Board, Chief Executive Officer and President of
PictureTel Corporation, Chief Executive Officer of ANS Communications (a
communications networking company) and as managing director of British
Telecommunications PLC.
*John R. Borzilleri, MD: He is 41 and his principal occupation is
Senior Vice President of the Investment Manager. During the past five years he
has also served as a Vice President of the Investment Manager, as a Vice
President of Montgomery Securities and as an equity analyst at Dean Witter.
*Paul J. Clifford, Jr.: He is 38 and his principal occupation is Senior
Vice President of the Investment Manager. During the past five years he has also
served as Vice President of the Investment Manager.
*Maureen Depp: She is 46 and her principal occupation is Vice President
of State Street Research & Management Company. During the past five years she
has also served as an analyst at Wellington Management.
*Catherine Dudley: She is 40 and her principal occupation is senior
Vice President of the Investment Manager. During the past five years she has
also served as a senior portfolio manager at Chancellor Capital Management and
as a portfolio manager at Phoenix Investment Council.
*Bruce A. Ebel: He is 44 and his principal occupation is Senior Vice
President of the Investment Manager. During the past five years he has also
served as a Vice President and portfolio manager at Loomis, Sayles & Company,
L.P.
+Steve A. Garban: He is 62 and he is retired and was formerly Senior
Vice President for Finance and Operations and Treasurer of The Pennsylvania
State University. Mr. Garban is also a Director of Metropolitan Series Fund,
Inc. (an investment company).
*Bartlett R. Geer: He is 45 and his principal occupation is currently,
and during the past five years has been, Senior Vice President of the Investment
Manager.
*Lawrence J. Haverty, Jr.: He is 56 and his principal occupation is
currently, and during the past five years has been, Senior Vice President of the
Investment Manager.
II-10
<PAGE>
*F. Gardner Jackson, Jr.: He is 57 and his principal occupation is
currently, and during the past five years has been Senior Vice President of the
Investment Manager.
*John H. Kallis: He is 59 and his principal occupation is currently,
and during the past five years has been, Senior Vice President of the Investment
Manager.
*Dyann H. Kiessling: She is 37 and her principal occupation is Vice
President of the Investment Manager. During the past five years she has also
served as a fixed income trader for the Investment Manager.
*Rudolph K. Kluiber: He is 40 and his principal occupation currently is
Senior Vice President of the Investment Manager. During the past five years he
has also served as a Vice President of the Investment Manager.
*Gerard P. Maus: He is 49 and his principal occupation is currently,
and during the past five years has been Executive Vice President, Treasurer,
Chief Financial Officer, Chief Administrative Officer and Director of the
Investment Manager, and since May 2000 Interim Chief Operating Officer of the
Investment Manager. Mr. Maus's other principal business affiliations include
Executive Vice President, Chief Financial Officer, Chief Administrative Officer,
Treasurer and Director of State Street Research Investment Services, Inc.;
Treasurer and Chief Financial Officer of SSRM Holdings, Inc.; and Director of
SSR Realty Advisors, Inc.
*Francis J. McNamara, III: He is 45 and his principal occupation is
Executive Vice President, General Counsel and Secretary of the Investment
Manager. During the past five years he has also served as Senior Vice President
of the Investment Manager. Mr. McNamara's other principal business affiliations
include Executive Vice President, General Counsel and Clerk of State Street
Research Investment Services, Inc.; and Secretary and General Counsel of SSRM
Holdings, Inc.
*Thomas P. Moore, Jr.: He is 61 and his principal occupation is
currently, and during the past five years has been, Senior Vice President of the
Investment Manager.
+Dean O. Morton: He is 68 and he is retired and was formerly Executive
Vice President, Chief Operating Officer and Director of Hewlett-Packard Company.
Mr. Morton is also a Director of Metropolitan Series Fund, Inc. (an investment
company).
*Brian P. O'Dell: He is 35 and his principal occupation is currently
Assistant Portfolio Manager for the Investment Manager. During the past five
years he has also served as a portfolio manager and analyst at Freedom Capital
Management Corporation.
II-11
<PAGE>
Susan M. Phillips: She is 55 and her principal occupation is currently
Dean of the School of Business and Public Management at George Washington
University and Professor of Finance. Previously, she was a member of the Board
of Governors of the Federal Reserve System and Chairman and Commissioner of the
Commodity Futures Trading Commission.
*E.K. Easton Ragsdale, Jr.: He is 48 and his principal occupation is
Senior Vice President of the Investment Manager. During the past five years he
has also served as Vice President of the Investment Manager.
*Daniel J. Rice III: He is 48 and his principal occupation is
currently, and during the past five years has been, Senior Vice President of the
Investment Manager.
Toby Rosenblatt: He is 62 and his principal occupations during the past
five years have been President of Founders Investments Ltd. and President of The
Glen Ellen Company, a private investment company.
+Michael S. Scott Morton: He is 63 and 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. Dr. Scott Morton is
also a Director of Metropolitan Series Fund, Inc. (an investment company).
*Thomas A. Shively: He is 46 and his principal occupation is currently,
and during the past five years has been, Executive Vice President of the
Investment Manager. Mr. Shively is also a Director of the Investment Manager.
Mr. Shively's other principal business affiliations include Director of State
Street Research Investment Services, Inc.
*Tucker Walsh: He is 30 and his principal occupation is Vice President
of the Investment Manager. During the past five years he has also served as an
analyst for the Investment Manager and for Chilton Investment Partners and Cowen
Asset Management.
*James M. Weiss: He is 54 and his principal occupation is Executive
Vice President and Director of the Investment Manager. During the past five
years he has also served as Senior Vice President of the Investment Manager and
as President and Chief Investment Officer of IDS Equity Advisors.
*Elizabeth M. Westvold: She is 40 and her principal occupation is
Senior Vice President of the Investment Manager. During the past five years she
has also served as Vice President for the Investment Manager.
*John T. Wilson: He is 37 and his principal occupation is Senior Vice
President of the Investment Manager. During the past five years he has also
served as a Vice President of
II-12
<PAGE>
the Investment Manager, as an analyst and portfolio manager at Phoenix Home Life
Mutual Insurance Company and as a Vice President of Phoenix Investment Counsel
Inc.
*Kennard Woodworth, Jr.: He is 62 and his principal occupation is
currently, and during the past five years has been, Senior Vice President of the
Investment Manager.
*Peter A. Zuger: He is 52. 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 American Century Investment
Management Company.
--------------------------------
* These Trustees and/or Officers are 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 Director of Metropolitan Series Fund, Inc., which has an
advisory relationship with the Investment Manager or its parent,
Metropolitan Life Insurance Company.
II-13
<PAGE>
C. Investment Advisory and General Administration 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 directly manage the assets of the Fund in the event
that the Trust's Board of Trustees determines it is in the best interests of the
Fund's shareholders to withdraw its investment in the Portfolio. In addition,
the Investment Manager shall provide such other direct management of the assets
of the Fund, including asset allocation services, as the Board of Trustees may
determine in its discretion. The Investment Manager compensates all executive
and clerical personnel and Trustees if such persons are employees of the
Investment Manager or its affiliates. The Investment Manager is an indirect
wholly owned subsidiary of MetLife.
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.
Information about rates at which fees are calculated under the Advisory
Agreement, as well as the fees paid to the Investment Manager in previous years,
if applicable, is included in Section I of this Statement of Additional
Information.
Under the General Administration Agreement with the Trust, State Street
Research & Management Company, as Administrator, is responsible for the general
administration of the Fund. Under the agreement, the Administrator manages,
supervises and conducts the Fund's business
II-14
<PAGE>
affairs and provides such services as necessary for effective administration of
the Fund, to the extent not otherwise covered by a separate agreement or
arrangement. Among other things, the Administrator monitors the performance of
the Portfolio and reports on the Portfolio's performance to the Trustees,
furnishes necessary assistance in the preparation of required reports and
registration statements, furnishes the Fund with office space and facilities,
and provides personnel for clerical, bookkeeping, accounting and other office
functions.
Information about rates at which fees are calculated under the General
Administration Agreement, as well as the fees paid to the Administrator in
previous years, if applicable, is included in Section I of this Statement of
Additional Information.
The Fund, the Investment Manager, and the Distributor have adopted a
Code of Ethics pursuant to the requirements of the 1940 Act. Under the Code of
Ethics, 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. Transactions in securities that may be held by the Fund are
permitted, subject to compliance with applicable provisions of the Code.
Personal securities transactions must be reported quarterly and broker
confirmations of such transactions must be provided for review.
Also, the Portfolio and its adviser have each adopted a code of ethics,
as required by applicable law, which is designed to prevent affiliated persons
of the Portfolio and its adviser from engaging in deceptive, manipulative or
fraudulent activities in connection with securities held or to be acquired by
the Portfolio (which may also be held by persons subject to the code of ethics).
There can be no assurance that the codes of ethics will be effective in
preventing such activities.
D. Purchase and Redemption of Shares
Shares of the Fund are distributed by State Street Research Investment
Services, Inc., the Distributor. Class A, Class B(1), Class B, Class C and Class
S shares of the Fund 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(1), Class
B and Class C shares). Class B shares are available only to current Class B
shareholders through reinvestment of dividends and capital gains distributions
or through exchanges from existing Class B accounts of the State Street Research
Funds. General information on how to buy shares of the Fund, as well as sales
charges involved, are 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, but not later than 4 p.m. eastern time, 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 broker-dealer,
that broker-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 broker-dealer's failure to
transmit an order promptly is a matter for settlement between the investor and
the
II-15
<PAGE>
broker-dealer. Under certain pre-established operational arrangements, the price
may be determined as of the time the order is received by the broker-dealer or
its designee.
Alternative Purchase Program. Alternative classes of shares permit
investors to select a purchase program which they believe will be the most
advantageous for them, given the amount of their purchase, the length of time
they anticipate holding Fund shares, or the flexibility they desire in this
regard, and other relevant circumstances. Investors will be able to determine
whether in their particular circumstances it is more advantageous to incur an
initial sales charge and not be subject to certain ongoing charges or to have
their entire purchase price invested in the Fund with the investment being
subject thereafter to ongoing service fees and distribution fees.
As described in greater detail below, financial professionals are paid
differing amounts of compensation depending on which class of shares they sell.
II-16
<PAGE>
The major differences among the various classes of shares are as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Class A Class B(1) Class B Class C Class S
------- ---------- ------- ------- -------
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales Charges Paid by Initial sales Contingent Contingent Contingent None
Investor to Distributor charge at time deferred sales deferred sales deferred sales
of investment of charge of 5% to 1% charge of 5% to charge of 1%
up to 5.75%* applies to any 2% applies to any applies to any
depending on shares redeemed shares redeemed shares redeemed
amount of within first six within first five within one year
investment years following years following following their
their purchase; no their purchase; purchase
contingent no contingent
deferred sales deferred sales
charge after six charge after five
years years
----------------------------------------------------------------------------------------------------------------------
On investments of
$1 million or
more, no initial
sales charge;
but contingent
deferred sales
charge of up to
1% may apply
to any shares
redeemed within
one year
following their
purchase
----------------------------------------------------------------------------------------------------------------------
Initial Commission Above described 4% 4% 1% None
Paid by Distributor to initial sales
Financial Professional charge less
0.25% to 0.75%
retained by
distributor
On investments
of $1 million or
more, 0.25% to
1% paid to
dealer by
Distributor
----------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Service Fee
----------------------------------------------------------------------------------------------------------------------
Paid by Fund to 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
Distributor
----------------------------------------------------------------------------------------------------------------------
Paid by 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
Distributor to commencing after commencing after commencing after
Financial one year following one year one year
Professional purchase following purchase following
purchase
----------------------------------------------------------------------------------------------------------------------
Rule 12b-1
Distribution Fee
----------------------------------------------------------------------------------------------------------------------
Paid by Fund to Up to 0.15% each 0.75% for first 0.75% for first 0.75% each year None
Distributor year eight years; Class eight years;
B(1) shares Class B shares
convert convert
automatically to automatically to
Class A shares Class A shares
after eight years after eight years
----------------------------------------------------------------------------------------------------------------------
Paid by Up to 0.15% each None None 0.75% each year None
Distributor to year commencing after
Financial one year
Professional following
purchase
----------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------------
* or up to 4.50% for State Street Research Government Income Fund, State Street
Research High Income Fund, State Street Research Strategic Income Fund, State
Street Research Tax-Exempt Fund and State Street Research New York Tax Free
Fund.
II-17
<PAGE>
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(1), 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
II-18
<PAGE>
herein as eligible to join with the investor in a single purchase. Class B(1),
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 a
sales charge pursuant to certain sponsored arrangements for designated classes
of investors. These arrangements include programs sponsored by the Distributor
or others under which, for example, a company, employee benefit plan or other
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants to purchase Fund shares. (These arrangements
are not available to any organization created primarily for the purpose of
obtaining shares of the Fund at a reduced sales charge or without a sales
charge.) Sponsored arrangements may be established for non-profit organizations,
holders of individual retirement accounts or participants in limited promotional
campaigns, such as a special offering to shareholders of funds in other
complexes that may be liquidating. 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 by the Distributor. Information on such arrangements and further
conditions and limitations is available from the Distributor.
The entire sales charge on Class A shares may be reallowed to financial
professionals who sell shares during certain special promotional periods which
may be instituted from time to time. The Fund reserves the right to have such
promotions without further supplement to the Prospectus or Statement of
Additional Information. The financial professionals who receive the entire sales
charge may be deemed to be underwriters of the Fund's shares under the
Securities Act of 1933 during such promotions.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, 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; (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; and (D)
others who because of their business relationship with the Fund, the Distributor
or its affiliates, and because of their knowledge of the Fund, do not require
any significant sales effort or expense to educate them about the Fund. 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
II-19
<PAGE>
administrative policies, regarding the qualification of purchasers, minimum
investments by various groups and any other matters, as may be adopted by the
Distributor from time to time.
Conversion of Class B(1) and Class B Shares to Class A Shares. A
shareholder's Class B(1) and 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(1) and Class B shares; consequently, they
will no longer be subject to the higher expenses borne by Class B(1) and 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(1)
and Class B shares so converted. As noted above, holding periods for Class B(1)
shares received in exchange for Class B(1) shares of other Eligible Funds and
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(1), 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(1) and 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(1) and 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(1), 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(1), 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(1) shares that are redeemed within a
six-year period after purchase, 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
II-20
<PAGE>
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(1), 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. The contingent
deferred sales charge will be waived for participant initiated distributions
from State Street Research prototype employee retirement plans. 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 waive the
contingent deferred sales charge on any class, or modify or terminate any
waivers, at any time. The Fund may limit the application of multiple waivers and
establish other conditions for employee benefit plans. Certain employee benefit
plans sponsored by a financial professional may be subject to other conditions
for waivers under which the plans may initially invest in Class B(1) or Class B
shares and then Class A shares of certain funds upon meeting specific criteria.
No contingent deferred sales charges apply to shares held by MetLife, the
Investment Manager or the Distributor.
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 MetLife, 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. For
information on different conditions that may apply to certain Funds, see Section
I for the relevant Fund.
In the discretion of the Distributor, Class S shares may be made
available to (a) current and former employees, officers and directors of the
Investment Manager and
II-21
<PAGE>
Distributor; (b) current and former directors or trustees of the investment
companies for which the Investment Manager serves as the primary investment
adviser; and (c) relatives of any such individuals, provided that the
relationship is directly verified by such individuals to the Distributor, and
any beneficial account for such relatives or individuals. Class A shares
acquired by such individuals and relatives may, in the discretion of the
Distributor, be converted into Class S shares. 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.
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.
In-Kind Purchase Option. In the discretion of the Investment Manager,
shares of the Fund may be offered for purchase partly or entirely in exchange
for securities. This option is available only in very limited circumstances. The
Investment Manager will not approve the acceptance of any securities in exchange
for Fund shares unless it believes the securities are appropriate investments
for the Fund.
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(1), 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 12% annually
(minimum $50 per withdrawal) 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
II-22
<PAGE>
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
broker-dealers by wire or telephone for the repurchase of shares by the
Distributor from the broker-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 broker-dealer to the Distributor. The
broker-dealer is responsible for promptly transmitting a shareholder's order to
the Distributor. Under certain pre-established operational arrangements, the
price may be determined as of the time the order is received by the
broker-dealer or its 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; (4) requests to transfer the
registration of shares to another owner; and (5) if checkwriting is available
for the account, authorizations to establish the checkwriting privilege.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange, or other eligible guarantor institution. The Transfer Agent will not
accept guarantees (or notarizations) from notaries public. The above
requirements may be waived in certain instances.
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.
E. 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
II-23
<PAGE>
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. Share certificates will not be
issued. Shareholders will receive periodic statements of transactions in their
accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through
dealers, by wire or by mailing a check payable to "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:
II-24
<PAGE>
(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 on the basis of the relative net asset values of the respective
shares to be exchanged, and 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(1),
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. Class A shares acquired through a new investment after
January 1, 1999, are subject to an incremental sales charge if exchanged within
30 days of acquisition for Class A shares of a Fund with a higher applicable
sales charge. For purposes of computing the contingent deferred sales charge
that may be payable upon disposition of any acquired Class A, Class B(1), 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
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<PAGE>
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(1), 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. The exchange limit
may also be modified under certain exchange arrangements for selected brokers
with substantial asset allocation programs. 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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<PAGE>
Reinvestment Privilege. A shareholder of the Fund who has redeemed
shares or had shares repurchased at his or her request may reinvest all or any
portion of the proceeds (plus that amount necessary to acquire a fractional
share to round off his or her reinvestment to full shares) in shares, of the
same class as the shares redeemed, of the Fund or any other Eligible Fund at net
asset value and without subjecting the reinvestment to an initial sales charge,
provided such reinvestment is made within 120 calendar days after a redemption
or repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the amount
reinvested. The redemption of shares is, for federal income tax purposes, a sale
on which the shareholder may realize a gain or loss. If a redemption at a loss
is followed by a reinvestment within 30 days, the transaction may be a "wash
sale" resulting in a denial of the loss for federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject
to any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by 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 and Internet Privileges. The following privileges are
available:
o Telephone Exchange and Redemption Privilege
o Shareholders automatically receive this privilege
unless declined.
o This privilege allows a shareholder or any person
claiming to act as the shareholder's representative
to request exchanges into other State Street Research
funds or make redemptions.
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<PAGE>
o Internet Privilege for Shareholder
o Shareholders may access the Fund's Web site to enter
transactions and for other purposes, subject to
acceptance of the important conditions set forth on
the Web site.
A shareholder with the above privileges is deemed to authorize the
Fund's agents to: (1) act upon the telephone instructions of any person
purporting to be any of the shareholders of an account or a shareholder's
financial professional; (2) act upon the Internet instructions of any person
purporting to be any of the shareholders of an account; and (3) honor any
telephone or Internet instructions for a change of address. All telephone calls
will be recorded. Neither the Fund, any other State Street Research Fund, the
Investment Manager, the Distributor, nor any of their agents 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 or Internet requests may be unauthorized.
Reasonable procedures will be followed to confirm that instructions communicated
by telephone or Internet 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 a 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.
F. Net Asset Value
The net asset value of the shares of each Fund is determined once daily
as of the close of regular trading on the NYSE, but not later than 4 P.M.
eastern 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 each 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
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<PAGE>
extraordinary or nonrecurring expenses, borne by the Fund, including the
investment management fee payable to the Investment Manager, are accrued daily.
In determining the values of portfolio assets as provided below, the
Trustees utilize one or more pricing services 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 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 authorized by the Trustees. The Trustees also reserve the right to
adopt other valuations based on fair value in pricing in unusual circumstances
where use of other methods as discussed in part above, could otherwise have a
material adverse effect on the Fund as a whole.
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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<PAGE>
G. 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).
Brokerage Allocation and Other Practices
The Portfolio is managed consistent with the following policies on
brokerage allocation and other practices.
The policy regarding purchases and sales of securities for the
Portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Portfolio's policy is to pay commissions that are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Portfolio believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Portfolio and its adviser from obtaining a high quality of
brokerage and research services.
In seeking to determine the reasonableness of brokerage commissions
paid in any transaction, the Portfolio's adviser relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable. In seeking to implement the Portfolio's policies, the Portfolio's
adviser effects transactions with those brokers and dealers who it believes
provides the most favorable prices and are capable of providing efficient
executions. If the Portfolio's adviser believes such price and execution are
obtainable for more than one broker or dealer, it may give consideration placing
portfolio transactions with those brokers and dealers who also furnish research
and other services to the Portfolio, related portfolios or the Portfolio's
adviser. Such services may include, but are not limited to, information as to
the availability of securities for purchase or sale and statistical information
pertaining to corporate actions affecting stocks, including but not limited to,
stocks within the index whose performance the Portfolio seeks to replicate. The
fee paid by the Portfolio is not reduced because its adviser and its affiliates
receive these services even though the adviser might otherwise have been
required to purchase some of these services for cash.
The Portfolio's adviser assumes general supervision over placing orders
on behalf of the Portfolio for the purchase or sale of portfolio securities. If
purchases or sales of securities of the Portfolio and one or more other
investment companies or clients supervised
II-30
<PAGE>
by its adviser are considered at or about the same time, transactions in such
securities are allocated among the several investment companies and clients in a
manner deemed equitable to all by the adviser. In some cases, this procedure
could have a detrimental effect on the price or volume of the security so far as
the Portfolio is concerned. However, in other cases, it is possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commission will be beneficial to the Portfolio. The primary consideration is
prompt execution of orders at the most favorable net price.
Information about portfolio turnover rates and certain brokerage
commissions paid by the Fund is included in Section I of this Statement of
Additional Information.
H. Certain Tax Matters
Federal 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 in any year the Fund derives more than 10% of its gross income (as
defined in the Code, which disregards losses for that purpose) from investments
made directly in commodities, including precious metal investments, or
commodity-related options, futures or indices, the Fund in such year may fail to
qualify as a regulated investment company under the Code. The Investment Manager
intends to manage the Fund's portfolio so as to minimize the risk of such a
disqualification.
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.
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<PAGE>
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any undistributed portion of the respective balances from the
prior year. For that purpose, any income or gain retained by the Fund that is
subject to corporate tax will be considered to have been distributed by
year-end. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
Taxation of Certain Financial Instruments
The Portfolio may enter into futures contracts, options on futures
contracts and options on securities indices. Such contracts held by the
Portfolio at the close of its taxable year will generally be treated for federal
income tax purposes as sold for their fair market value on the last business day
of such year, a process known as "marking-to-market". Forty percent of any gain
or loss resulting from this constructive sale will be treated as short-term
capital gain or loss and 60 percent of such gain or loss will be treated as
long-term capital gain or loss without regard to the period the Portfolio
actually held the instruments. The amount of any capital gain or loss actually
realized by the Portfolio in a subsequent sale or other disposition of the
instruments is adjusted to reflect any capital gain or loss taken into account
in a prior year as a result of the constructive sale of the instruments. The
hedging transactions undertaken by the Portfolio may result in "straddles" for
federal income tax purposes. The straddle rules may affect the character of
gains or losses realized by the Portfolio. In addition, losses realized by the
Portfolio on positions that are part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which the losses are realized.
The Portfolio may make one or more of the elections available under the
Code which are applicable to straddles. If the Portfolio makes any of the
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions will be determined under the rules
that vary according to the election(s) made. The rules applicable under certain
of the elections may operate to accelerate the recognition of gains or losses
from the affected straddle positions. Because the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition of
gains or losses from the affected straddle positions, the amount which may be
reported to investors and which will be taxable to them as ordinary income or
long-term capital gain, may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
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<PAGE>
Federal Income Taxation of Shareholders
Dividends paid by the Fund may be eligible for the 70%
dividends-received deduction for corporations. The percentage of the Fund's
dividends eligible for such tax treatment may be less than 100% to the extent
that less than 100% of the Fund's gross income may be from qualifying dividends
of domestic corporations. Any dividend declared in October, November or December
and made payable to shareholders of record in any such month is treated as
received by such shareholder on December 31, provided that the Fund pays the
dividend during January of the following calendar year.
Distributions by the Fund can result in a reduction in the fair market
value of 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 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.
I. Distribution of Fund Shares
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 broker-dealers who have entered into sales agreements with the
Distributor. The Fund has authorized certain broker-dealers to receive on its
behalf purchase and redemption orders, and such broker-dealers are authorized to
designate other intermediaries to receive orders on the Fund's behalf. The Fund
will be deemed to have received a purchase or redemption order when such
broker-dealer, or, if applicable, the broker-dealer's designee, receives the
order. In such case, orders will be priced at the Fund's net asset value next
computed after the orders are received by an authorized broker-dealer or its
designee. 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(1), Class B and Class C shares). The
Distributor may reallow all or portions of such sales charges as concessions to
broker-dealers. The Distributor may also pay its affiliate MetLife Securities,
Inc. additional sales compensation of up to 0.25% of certain sales or assets.
The differences in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, or Class S shares are
offered, as described in the Fund's Prospectus, result from cost savings
inherent in economies of scale, among other factors. Management believes that
the cost of sales efforts of the Distributor and broker-
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<PAGE>
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 special 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 may pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission may also be paid 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 up to 1.00% on any
portion of such shares redeemed within one year following their sale. After a
particular purchase of Class A shares is made under the Letter of Intent, the
commission will be paid only in respect of that particular purchase of shares.
If the Letter of Intent is not completed, the commission paid will be deducted
from any discounts or commissions otherwise payable to such dealer in respect of
shares actually sold. If an investor is eligible to purchase shares at net asset
value on account of the Right of Accumulation, the commission will be paid only
in respect of the incremental purchase at net asset value.
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<PAGE>
Plan(s) of Distribution Pursuant to Rule 12b-1
The Fund may have one or more Distribution Plans under Rule 12b-1, as
set forth in Section I of this Statement of Additional Information for the Fund.
Under the Fund's Distribution Plans, the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of shares, including, but not limited to, (1) the payment of commissions to
underwriters, securities dealers and others engaged in the sale of shares,
including payments to the Distributor to be used to pay commissions to
securities dealers (which securities dealers may be affiliates of the
Distributor), (2) expenditures incurred by the Distributor in connection with
the distribution and marketing of shares and the servicing of investor accounts,
and (3) expenses incurred by the Distributor in connection with the servicing of
shareholder accounts including payments to securities dealers and others for the
provision of personal service to investors and/or the maintenance or servicing
of shareholder accounts. In addition, the Distribution Plans authorize the
Distributor and the Investment Manager to make payments out of management fees,
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 an indirect financing of any activity primarily
resulting in the sale of shares of the Fund within the scope of Rule 12b-1 under
the 1940 Act. Payments by the Fund under the Distribution Plan may be
discontinued at any time. The Distributor may also voluntarily waive receipt of
payments from the Fund from time to time.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits annual expenditures that the Fund may incur to 0.75% for distribution
expenses and 0.25% for 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 the
service fees.
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. The distribution fees are used primarily
to offset initial and ongoing commissions paid to dealers for selling such
shares and for other sales and marketing expenditures. Dealers who have sold
Class A shares are eligible for ongoing payments commencing as of the time of
such sale. Dealers who have sold Class B(1), Class B and Class C shares are
eligible for ongoing payments 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).
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs similar
expenses on behalf
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<PAGE>
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.
The payment of service and distribution fees may continue even if the
Fund ceases, temporarily or permanently, to sell one or more classes of shares
to new accounts. During the period the Fund is closed to new accounts, the
distribution fee will not be used for promotion expenses. The service and
distribution fees are used during a closed period to cover services provided to
current shareholders and to cover the compensation of financial professionals in
connection with the prior sale of Fund shares, among other non-promotional
distribution expenditures.
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.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plans. The Distributor's interest
in the Distribution Plans is described above.
J. 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(1), Class B, Class C or Class S shares to the performance
of the Portfolio and to other mutual funds with investment objectives similar to
the Fund or the Portfolio, 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.
The average annual total return ("standard total return") of the Class
A, Class B(1), Class B, Class C and Class S shares of each Fund will be
calculated as set forth below. Total return is computed separately for each
class of shares of the Fund.
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<PAGE>
Total Return
Standard total return is computed separately for each class of shares
by determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
P(1+T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
designated period assuming a hypothetical $1,000
payment made at the beginning of the designated
period
The calculation is based on the further assumptions that the highest
applicable 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
Yield for each class of the Fund'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:
YIELD = 2[(a-b + 1)(6) -1]
---
cd
Where a= dividends and interest earned during the period
b= expenses accrued for the period (net of voluntary
expense reductions by the Investment Manager)
c= the average daily number of shares outstanding during
the period that were entitled to receive dividends
d= the maximum offering price per share on the last day of
the period
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<PAGE>
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 the maximum applicable sales charge.
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 and yield results take sales charges, if applicable, into
account, although the results do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $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. Subsidization can
include the Investment Manager's waiver of a portion of its advisory fee, the
Distributor's waiver of a portion of its Rule 12b-1
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fee, or the assumption of a portion of the Fund's expenses by either of them or
their affiliates. 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(1), 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, five years before and ten years before (or the commencement of
the Fund's operations, whichever is earlier). 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.
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.
K. Custodian
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian for Fund assets. 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 each Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
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L. Independent Accountants
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as the Trusts' independent accountants, providing professional
services including (1) audits of each 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 each Fund.
M. Financial Reports
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.
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