Supplement No. 1 dated July 17, 1995
to
Prospectus dated February 1, 1995
for
STATE STREET RESEARCH CAPITAL FUND
a series of State Street Research Capital Trust
Investment and Other Policy Changes
The following policy changes apply to the Fund:
1. Reclassification of certain investment policies from fundamental policies to
nonfundamental policies to provide greater investment flexibility as to:
a. investments in securities of companies with less than three (3) years'
continuous operation;
b. investments in illiquid securities (investments of up to 15% of net
assets in illiquid securities would be permissible);
c. purchase of securities on margin and short sales of securities
(collateralized short sales up to 5% of net assets would be permissible);
d. transactions in options and futures; and
e. investments in other investment companies (investments in other
investment companies in accordance with the Investment Company Act of 1940
would be permissible).
2. Amendment of the fundamental policy regarding investing in commodities and
commodity contracts to provide greater investment flexibility (investments of up
to 10% of net assets in physical commodities would be permissible and
investments in financial instruments such as options, futures, etc. would not be
deemed investments in commodities).
3. Amendment of the fundamental policy on lending to clarify the permissibility
of securities lending.
4. Inclusion of Class C shares under the Plan of Distribution Pursuant to Rule
12b-1, without the imposition of a fee, to make clear that the Distributor may
incur distribution expenses out of its own resources.
5. Amendment of the Master Trust Agreement to eliminate the need for a vote by
shareholders of the acquiring fund to approve a merger or consolidation, or
acquisition of assets; the approval of shareholders of any acquired fund would
still be required.
The above policy changes will be effective upon, and subject to, shareholder
approval at a meeting scheduled for August, 1995. For more detailed information
about the changes, obtain a copy of the related Proxy Statement by calling
Shareholder Services at 1-800-562-0032.
Minimum Investment
The section under the caption "Purchase of Shares--Minimum Investment" is
revised in its entirety as follows:
"Class of Shares
A B C D
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $50 $50 (a) $50
By Investamatic $50 $50 (a) $50
All other $50 $50 (a) $50
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments under various retirement and employee benefit plans, sponsored
arrangements involving group solicitations of the members of an organization, or
other investment plans such as for reinvestment of dividends and distributions
or for periodic investments (e.g., Investamatic Check Program)."
Other Programs
Immediately after the first sentence of the first paragraph under the caption
"Purchase of Shares--Class A Shares--Initial Sales Charges--Other
Programs," the following is added:
"Sales without a sales charge, or with a reduced sales charge, may also be made
through brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor, in the event the
Distributor determines to implement such arrangements."
Additional Information
Under the caption "Redemption of Shares--Additional Information," the first
paragraph is revised in its entirety as follows:
"Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable sales charges, if any. The Fund may increase such minimum
account value above such amount in the future after notice to affected
shareholders. Involuntarily redeemed shares will be priced at the net asset
value on the date fixed for redemption by the Fund, and the proceeds of the
redemption will be mailed to the affected shareholder at the address of record.
Currently, the maintenance fee is $18 annually, which is paid to the Transfer
Agent. The fee does not apply to certain retirement accounts or if the
shareholder has more than an aggregate $50,000 invested in the Fund and other
Eligible Funds combined. Imposition of a maintenance fee on a small account
could, over time, exhaust the assets of such account."
Investment Plans
The first paragraph under the caption "Shareholder Services--Investment
Plans" is revised in its entirety to read as follows:
"The Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Investamatic application form available from Shareholder Services."
CONTROL NUMBER: 2456C-950717(0896)SSR-LD CF-251E-795IBS
<PAGE>
State Street Research
Capital Fund
Prospectus
February 1, 1995
The investment objective of State Street Research Capital Fund (the "Fund")
is to seek maximum capital appreciation by investing primarily in common
stocks (and preferred stocks and debt securities convertible into or carrying
the right to acquire common stocks) of emerging growth companies and of
companies considered to be undervalued special situations, as determined by
the Fund's investment manager.
State Street Research & Management Company (the "Investment Manager")
serves as investment adviser to the Fund. As of December 31, 1994, the
Investment Manager had assets of approximately $23.2 billion under
management. State Street Research Investment Services, Inc. serves as
distributor (the "Distributor") for the Fund.
Shareholders may have their shares redeemed directly by the Fund at net
asset value plus the applicable contingent deferred sales charge, if any;
redemptions processed through securities dealers may be subject to processing
charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Fund will
achieve its investment objective. The net asset value of the Fund's shares
fluctuates as market conditions change.
Because of the Fund's investment policies, the Fund is subject to
above-average risks. The Fund generally is designed for investors who want an
aggressive investment and can tolerate volatility and possible losses. An
investment in the Fund should be part of a balanced investment program which
includes more conservative investments.
This Prospectus sets forth concisely the information a prospective
investor ought to know about the Fund before investing. It should be retained
for future reference. A Statement of Additional Information about the Fund
dated February 1, 1995 has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. It is
available at no charge upon request to the Fund at the address indicated on
the cover or by calling 1-800-562-0032.
The Fund is a diversified series of State Street Capital Trust (the
"Trust"), an open-end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE FUND MAY ENGAGE IN SHORT-TERM TRADING, WHICH MAY BE CONSIDERED A
SPECULATIVE ACTIVITY AND INVOLVE GREATER RISK AND ADDITIONAL COST TO THE
FUND.
Table of Contents Page
Table of Expenses ........................... 2
Financial Highlights ........................ 4
The Fund's Investments ...................... 5
Limiting Investment Risk .................... 7
Purchase of Shares .......................... 8
Redemption of Shares ........................ 16
Shareholder Services ........................ 17
The Fund and its Shares ..................... 21
Management of the Fund ...................... 22
Dividends and Distributions; Taxes........... 23
Calculation of Performance Data ............. 24
<PAGE>
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5%
and (ii) an annual service fee of 0.25% of the average daily net asset value
of the Class A shares.
Class B shares are subject to (i) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase, and (ii) annual distribution and service fees
of 1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and
large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution
and service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.5% None None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None None None None
Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None(2) 5% None 1%
Redemption Fees (as a percentage of amount redeemed, if
applicable) None None None None
Exchange Fee None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.75% 0.75% 0.75% 0.75%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.43% 0.43% 0.43% 0.43%
---- ---- ---- ----
Total Fund Operating Expenses* 1.43% 2.18% 1.18% 2.18%
==== ==== ==== ====
</TABLE>
* The Fund has been advised that the Distributor and its affiliates may
voluntarily assume some portion of fees or expenses relating to the Fund
through March 15, 1995, which would have the effect of reducing Total Fund
Operating Expenses until such date for each class of shares to the following
levels:
Class A Class B Class C Class D
1.40% 2.15% 1.15% 2.15%
The Fund has not received any assurance that the subsidization will be
received.
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
annually through the fifth year, and no contingent deferred sales charge
is imposed after the fifth year. Class D shares are subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed
2
<PAGE>
within one year of the sale. Long-term investors in a class of shares
with a distribution fee may, over a period of years, pay more than the
economic equivalent of the maximum sales charge permissible under
applicable rules. See "Purchase of Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
Example:
You would pay the following expenses on a $1,000 investment including, for
Class A shares, the maximum applicable initial sales charge and assuming (1)
5% annual return and (2) redemption of the entire investment at the end of
each time period:
1 Year 3 Years 5 Years 10 Years
Class A shares $59 $88 $120 $209
Class B shares (1) $72 $98 $137 $232
Class C shares $12 $37 $ 65 $143
Class D shares $32 $68 $117 $251
You would pay the following expenses on the same investment, assuming no
redemption:
1 Year 3 Years 5 Years 10 Years
Class B shares (1) $22 $68 $117 $232
Class D shares $22 $68 $117 $251
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense levels shown in the table are based on
experience with expenses for the fiscal year ended September 30, 1994; actual
expense levels for the current fiscal year and future years may vary from the
amounts shown. The table does not reflect charges for optional services
elected by certain shareholders, such as the $7.50 fee for remittance of
redemption proceeds by wire. For further information on sales charges, see
"Purchase of Shares--Alternative Purchase Program"; for further information
on management fees, see "Management of the Fund"; and for further information
on 12b-1 fees, see "Purchase of Shares--Distribution Plan."
For the fiscal year ended September 30, 1994, Total Fund Operating
Expenses as a percentage of average net assets of Class A, Class B, Class C
and Class D shares of the Fund would have been 1.43%, 2.18%, 1.18% and 2.18%,
respectively, in the absence of the voluntary assumption of fees or expenses
by the Distributor and its affiliates, which amounted to 0.02% of average net
assets of each of the Class A, Class B, Class C and Class D shares of the
Fund.
3
<PAGE>
Financial Highlights
The data set forth below has been examined by Coopers & Lybrand L.L.P.,
independent accountants, and their report thereon for the latest five years
is included in the Statement of Additional Information. For further
information about the performance of the Fund, see the Fund's Annual Report,
which appears under the caption "Financial Statements" in the Statement of
Additional Information. The Fund's registration under the Investment Company
Act of 1940 was effective in March 1984 and its registration under the
Securities Act of 1933 was effective in November 1987.
<TABLE>
<CAPTION>
Class C
Year ended September 30
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 10.46 $ 7.96 $ 7.74 $ 5.03 $ 6.72 $ 5.00 $ 8.99 $ 8.57 $ 6.39 $ 6.45
Net investment
income (loss)* (.03) (.06) (.06) (.08) (.03) (.01) (.01) (.05) (.07) .07
Net realized and
unrealized gain (loss)
on investments .31 3.90 .63 2.79 (1.31) 1.73 (1.80) 2.88 2.29 .66
Dividends from net
investment income -- -- -- -- -- -- -- -- (.02) (.05)
Distributions from
net realized gains (.75) (1.34) (.35) -- (.35) -- (2.18) (2.41) (.02) (.74)
------- ------- ------ ------ ------ ------- ------ ------ ------ ------
Net asset value,
end of year $ 9.99 $ 10.46 $ 7.96 $ 7.74 $ 5.03 $ 6.72 $ 5.00 $ 8.99 $ 8.57 $ 6.39
======= ======= ====== ====== ====== ======= ====== ====== ====== ======
Total return+ 2.91% 55.46% 7.34% 53.88% (20.81)% 33.93% (13.96)% 42.63% 34.70% 11.17%
Net assets at end
of year (000s) $23,967 $18,342 $11,654 $10,939 $ 7,440 $ 9,479 $ 7,422 $10,556 $ 7,633 $ 6,319
Ratio of expenses to
average net assets* 1.16% 2.11% 1.54% 1.88% 1.93% 1.98% 1.98% 1.67% 1.59% 1.02%
Ratio of net
investment
income (loss) to
average net assets (0.32)% (1.30)% (0.86)% (1.14)% (0.54)% (0.14)% (0.17)% (0.70)% (0.78)% 0.98%
Portfolio turnover rate 167.08% 129.57% 124.94% 219.62% 259.27% 242.88% 272.09% 268.00% 162.80% 114.20%
*Reflects voluntary
assumption of fees or
expenses per share in
each period $ .00 -- -- -- -- -- -- -- -- --
<FN>
+ Total return figures do not reflect any front-end or contingent deferred sales charges.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class D
February 17, March 15,
1993 1993
(Commencement (Commencement March 15, 1993
of Share of Share (Commencement
Year Class Year Class Year of Share Class
ended Designations) ended Designations) ended Designations)
September to September to September to
30, September 30, 30, September 30, 30, September 30,
1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 10.43 $ 8.03 $ 10.40 $ 8.68 $ 10.39 $ 8.68
Net investment loss* (.04) (.03) (.08) (.04) (.09) (.04)
Net realized and
unrealized gain
on investments .28 2.43 .25 1.76 .28 1.75
Distributions from
net year gains (.75) -- (.75) -- (.75) --
------ ------ ------ ------ ------ -------
Net asset value,
end of year $ 9.92 $ 10.43 $ 9.82 $ 10.40 $ 9.83 $ 10.39
====== ====== ====== ====== ====== =======
Total return 2.51%+ 24.61%++ 1.79%+ 19.82%++ 2.00%+ 19.70%++
Net assets at end
of year (000s) $19,891 $ 7,251 $73,354 $16,044 $37,783 $ 5,011
Ratio of expenses to
average net assets* 1.41% 2.43%++ 2.16% 3.16%++ 2.16% 3.16%++
Ratio of net
investment loss to
average net assets (0.55)% (1.43)%# (1.28)% (2.15)%# (1.28)% (2.16)%#
Portfolio turnover
rate 167.08% 129.57% 167.08% 129.57% 167.08% 129.57%
*Reflects voluntary
assumption of fees
or expenses per share
in each period $ .00 -- $ .00 -- $ .00 --
</TABLE>
# Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges.
++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
4
<PAGE>
The Fund's Investments
The Fund's investment objective is to seek maximum capital appreciation by
investing primarily in common stocks (and preferred stocks and debt
securities convertible into or carrying the right to acquire common stocks)
of emerging growth companies and of companies considered to be undervalued
special situations, as determined by the Fund's investment manager. The
investment objective is a fundamental policy that may not be changed without
approval of the Fund's shareholders.
In seeking to achieve its investment objective, the Fund invests at least
65% of its total assets under normal circumstances in the common stock (and
preferred stocks and debt securities convertible into or carrying the right
to acquire common stocks) of emerging growth companies and companies
considered to be undervalued special situations. The Investment Manager
considers emerging growth companies to be those companies which are less
mature and have the potential to grow substantially faster than the economy.
In selecting such investments, the Investment Manager considers a variety of
factors, any one of which may be determinative. These include a company's
expected growth in earnings, relative financial condition and cash flow,
competitive position, management and business strategy, overall potential as
an enterprise, entrepreneurial character, and new or innovative products,
services or processes. The Fund considers undervalued special situations to
include common stocks of more mature companies which trade at prices believed
by the Investment Manager to be below the companies' intrinsic values and
which therefore offer the potential for above-average investment returns. A
special situation company is one which, because of unique circumstances such
as, for example, a particular business niche it fills, is an attractive
investment even though it is not in the emerging growth stage.
Under normal circumstances, the Fund expects to be fully invested in
equity securities as described above. However, the Fund may, consistent with
its investment objective, also invest at any time up to 35% of its total
assets in other equity and debt securities, such as those issued by more
mature companies which are not special situation companies, and U.S.
Government securities. The Fund will purchase investment grade debt
securities (i.e., rated at the time of purchase AAA, AA, A or BBB by Standard
& Poor's Corporation ("S&P") or Aaa, Aa, A or Baa by Moody's Investors
Service, Inc. ("Moody's")), or securities that are not rated but considered
by the Investment Manager to be of equivalent investment quality. The debt
securities, which may have differing maturities and fixed or floating
interest rates, will be U.S. Government securities or issued by larger
capitalization issuers. For more information on debt ratings, see the
Statement of Additional Information.
Investment Practices
Foreign Investments
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") or similar
securities representing interests in the securities of foreign issuers. Under
current policy, however, the Fund limits such investments, including ADRs and
EDRs, to a maximum of 35% of its total assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign corporation
or other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs in registered form are designed for
use in U.S. securities markets and EDRs are designed for use in European
securities markets. The underlying securities are not always denominated in
the same currency as the ADRs or EDRs. Although investment in the form of
ADRs or EDRs facilitates trading in foreign securities, it does not mitigate
all the risks associated with investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the
foreign issuer is not involved, and the ADR holders pay the fees of the
depository. Sponsored ADRs are generally
5
<PAGE>
more advantageous to the ADR holders and the issuer than are unsponsored
ADRs. More and higher fees are generally charged in an unsponsored program
compared to a sponsored facility. Only sponsored ADRs may be listed on the
New York or American Stock Exchanges. Unsponsored ADRs may prove to be more
risky due to (a) the additional costs involved to the Fund; (b) the relative
illiquidity of the issue in U.S. markets; and (c) the possibility of higher
trading costs in the over-the-counter market as opposed to exchange based
trading. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks
of nationalization or expropriation, the possible imposition of currency
exchange blockages, higher operating expenses, foreign withholding and other
taxes which may reduce investment return, reduced availability of public
information concerning issuers, the difficulties in obtaining and enforcing a
judgment against a foreign issuer and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to
those applicable to domestic issuers. Moreover, securities of many foreign
issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers.
It is anticipated that a majority of the foreign investments by the Fund
will consist of securities of issuers in countries with developed economies.
However, the Fund may also invest in the securities of issuers in countries
with less developed economies as deemed appropriate by the Investment
Manager, although the Fund does not presently expect to invest more than 5%
of its total assets in issuers in such less developed countries. Such
countries include countries that have an emerging stock market that trades a
small number of securities; countries with low- to middle-income economies;
and/or countries with economies that are based on only a few industries.
Eastern European countries are considered to have less developed capital
markets.
For further information regarding foreign investments, see the Statement
of Additional Information.
Currency Transactions
In order to protect against the effect of uncertain future exchange rates on
securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market or by entering into forward
contracts to purchase or sell currencies. Although such contracts tend to
minimize the risk of loss resulting from a correctly predicted decline in
value of hedged currency, they tend to limit any potential gain that might
result should the value of such currency increase. In entering a forward
currency transaction, the Fund is dependent upon the creditworthiness and
good faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by a counterparty by dealing only with established, large
institutions with which the Investment Manager has done substantial business
in the past. For further information, see the Statement of Additional
Information.
Other Investment Policies
The Fund may, subject to certain limitations, buy and sell options, futures
contracts and options on futures contracts on securities and securities
indices, enter into repurchase agreements and purchase securities on a "when
issued" basis. The Fund may not establish a position in a futures contract or
purchase or sell an option for other than bona fide hedging purposes if
immediately thereafter the sum of the amount of initial margin deposits and
premiums on open positions with respect to futures and options used for such
nonhedging purposes would exceed 5% of the market value of the Fund's net
assets. The Fund may also enter various forms of swap arrangements with
respect to interest rates, currency rates and indices, although the Fund does
not presently expect to invest more than 5% of its total assets in such
items. See the Statement of Additional Information.
The Fund may invest in restricted securities in accordance with Rule 144A
under the Securities Act of 1933, which allows for the resale of such securi-
6
<PAGE>
ties among certain qualified institutional buyers. Because the market for
such securities is still developing, such securities could possibly become
illiquid in particular circumstances. See the Statement of Additional
Information.
The Fund may engage in short-term trading of securities and reserves full
freedom with respect to portfolio turnover. In periods when there are rapid
changes in economic conditions or security price levels or when investment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy
remains relatively constant. The Fund's portfolio turnover rate involves
greater transaction costs, relative to other funds in general, and may have
tax and other consequences as well. See the Statement of Additional
Information.
Because the Fund invests primarily in emerging growth and special
situation companies, an investment in the Fund involves greater than average
risks and the value of the Fund's shares may fluctuate more widely than the
value of shares of a fund that invests in more established companies.
Securities held by the Fund, particularly those traded over-the-counter, may
have limited marketability and may be subject to more abrupt or erratic
market movements over time than securities of larger, more seasoned companies
or the market as a whole. The issuers of over-the-counter securities may have
limited product lines, markets and financial resources, may be dependent on
entrepreneurial management, typically reinvest most of their net income in
the enterprise and typically do not pay dividends.
Limiting Investment Risk
In seeking to lessen investment risk, the Fund operates under certain
fundamental investment restrictions. Under these restrictions the Fund may
not (a) purchase a security of any one issuer (other than securities issued
by the U.S. Government or its instrumentalities), if such purchase would
cause more than 5% of the Fund's total assets to be invested in the
securities of such issuer; (b) purchase for its portfolio a security of any
one issuer if such purchase would cause more than 10% of the securities of
such issuer to be held by the Fund; (c) invest more than 25% of the Fund's
total assets in securities of issuers principally engaged in any one industry
with certain designated exceptions such as in the case of the U.S.
Government; or (d) invest more than 10% of its total assets in illiquid
securities, including restricted securities, securities which are not readily
marketable, over-the-counter options or securities used as cover for such
options, or repurchase agreements extending for more than seven days (in
connection with this clause (d), the Fund has undertaken with a state
securities authority to limit investments in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A or Regulation
S under the Securities Act of 1933, to 5% of total assets).
The foregoing fundamental investment restrictions may not be changed
except by vote of the holders of a majority of the outstanding voting
securities of the Fund. The vote of a majority of the outstanding voting
securities of the Fund means the vote (A) of 67 per centum or more of the
voting securities present at a meeting, if the holders of more than 50 per
centum of the outstanding voting securities of the Fund are present or
represented by proxy; or (B) of more than 50 per centum of the outstanding
voting securities of the Fund, whichever is less. For further information on
these and other investment restrictions, including nonfundamental investment
restrictions that may be changed without a shareholder vote, see the
Statement of Additional Information.
The Fund may hold up to 100% of its assets in cash or certain short-term
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against adverse market
conditions than adherence to the Fund's other investment policies. To the
extent that the Fund's assets are held in a temporary defensive position, the
Fund will not be achieving its investment objective. The types of short-term
instruments in which the Fund may invest for such purposes are, as more fully
described in the Statement of Additional Information: U.S. Government
securities, custodial receipts, certificates of deposit, time deposits and
bankers' acceptances of certain qualified financial institutions and
corporate commercial paper rated at least "A" by S&P or "Prime" by Moody's
(or, if not rated, issued by compa-
7
<PAGE>
nies having an outstanding long-term unsecured debt issue rated at least "A"
by S&P or Moody's). See the Statement of Additional Information.
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 8 to 21 below.
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers, Individual
Retirement Accounts ("IRAs"), trusts, corporations, individuals, etc. The
applicability of the general information and administrative procedures set
forth below accordingly will vary depending on the investor and the
recordkeeping system established for a shareholder's investment in the Fund.
Participants in 401(k) and other plans should first consult with the
appropriate person at their employer or refer to the plan materials before
following any of the procedures below. For more information or assistance,
anyone may call 1-800-562-0032.
Purchase of Shares
Methods of Purchase
Through Dealers
Shares of the Fund are continuously offered through securities dealers who
have entered into sales agreements with the Distributor. Purchases through
dealers are confirmed at the offering price, which is the net asset value
plus the applicable sales charge, next determined after the order is duly
received by State Street Research Shareholder Services ("Shareholder
Services"), a division of State Street Research Investment Services, Inc.,
from the dealer. ("Duly received" for purposes herein means in accordance
with the conditions of the applicable method of purchase as described below.)
The dealer is responsible for transmitting the order promptly to Shareholder
Services in order to permit the investor to obtain the current price. See
"Purchase of Shares--Net Asset Value" herein.
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's securities dealer a completed Application (accompanying this
Prospectus), together with a check for the total purchase price payable to
the Fund. The dealer must forward the Application and check in accordance
with the instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a
check payable to the Fund in the amount of the total purchase price together
with any one of the following: (i) an Application; (ii) the stub from the
shareholder's account statement; or (iii) a letter setting forth the name of
the Fund, the class of shares and the account name and number. Shareholder
Services will deliver the purchase order to the transfer agent and dividend
paying agent, State Street Bank and Trust Company (the "Transfer Agent").
If the check is not honored for its full amount, the purchaser could be
subject to additional charges to cover collection costs and any investment
loss, and the purchase may be cancelled.
By Wire
An investor may purchase shares by wiring Federal Funds of not less than
$5,000 to State Street Bank and Trust Company, which also serves as the
Trust's custodian (the "Custodian"), as set forth below. Prior to making an
investment by wire, an investor must notify Shareholder Services at
1-800-521-6548 and obtain a control number and instructions. Following such
notification, Federal Funds should be wired through the Federal Reserve
System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research Capital Fund
and class of shares (A, B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State
Street Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder
8
<PAGE>
Services of his or her intention to make such investment by 12 noon Boston
time on the day of his or her investment; and (ii) the wire must be received by
4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete the
Application accompanying this Prospectus and deliver it to his or her
securities dealer, who should forward it as required. No redemptions will be
effected until the Application has been duly processed.
The Fund may in its discretion discontinue, suspend or change the practice of
accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by the Fund. The Fund reserves
the right to reject any purchase order, including orders in connection with
exchanges, for any reason which the Fund in its sole discretion deems
appropriate. The Fund reserves the right to suspend the sale of shares.
Minimum Investment
<TABLE>
<CAPTION>
Class of Shares
A B C D
<S> <C> <C> <C> <C>
Minimum Initial Investment:
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment:
By Wire $5,000 $5,000 $5,000 $5,000
All other $ 50 $ 50 $ 50 $ 50
</TABLE>
(a) Special conditions apply; contact Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments pursuant to various retirement, dividend and other investment
plans, or sponsored arrangements involving group solicitations of the members
of an organization. The Fund also reserves the right at any time to suspend
the offering of shares or to reject any specific purchase order for shares.
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding shares or the
flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in the Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, securities dealers are paid differing
amounts of commission and other compensation depending on which class of
shares they sell.
The major differences among the various classes of shares are as follows:
9
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Sales Charges Initial sales charge Contingent deferred None Contingent
at time of investment sales charge of 5% deferred sales
of up to 4.5% to 2% applies to any charge of 1%
depending on amount of shares redeemed applies to any
investment within first five shares redeemed
years following within one year
their purchase; no following their
contingent deferred purchase
sales charge after
five years
On investments of $1
million or more, no
initial sales charge;
but contingent
deferred sales charge
of 1% applies to any
shares redeemed within
one year following
their purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years; Class B
shares convert
automatically to
Class A shares after
eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Commission Above described 4% None 1%
Received by initial sales charge
Selling Securities less 0.25% to 0.50%
Dealers retained by
Distributor
On investments of $1
million or more, 0.25%
to 1% paid to dealer
by Distributor
</TABLE>
10
<PAGE>
In deciding which class of shares to purchase, the investor should
consider the amount of the investment, the length of time the investment is
expected to be held, and the ongoing service fee and distribution fee, among
other factors.
Class A shares are sold at net asset value plus an initial sales charge of
up to 4.5% of the public offering price. Because of the sales charge, not all
of an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class D shareholders also pay no
initial sales charge, but a contingent deferred sales charge of 1% generally
applies to redemptions made within one year of purchase. For Class B and
Class D shareholders, therefore, the entire purchase amount is immediately
invested in the Fund.
An investor who qualifies for a significantly reduced initial sales
charge, or a complete waiver of the sales charge on investments of $1,000,000
or more, on the purchase of Class A shares might elect that option to take
advantage of the lower ongoing service and distribution fees that
characterize Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. In addition, Class B shares are assessed
an annual distribution fee of 0.75% of daily net assets for an eight-year
period following the date of purchase and are then automatically converted to
Class A shares. Class D shares are assessed an annual distribution fee of
0.75% of daily net assets for as long as the shares are held. The prospective
investor should consider these fees plus the initial or contingent deferred
sales charges in estimating the costs of investing in the various classes of
the Fund's shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its
expense, provide additional cash and noncash incentives to securities dealers
that sell shares. Such incentives may be extended only to those dealers that
have sold or may sell significant amounts of shares and/or meet other
conditions established by the Distributor; for example, the Distributor may
sponsor special promotions to develop particular distribution channels or to
reach certain investor groups. The incentives may include merchandise and
trips to and attendance at sales seminars at resorts.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar
amount of the shares purchased as set forth in the table below. A major
portion of this sales charge is reallowed by the Distributor to the
securities dealer responsible for the sale.
Sales Sales
Charge Charge
Paid By Paid Dealer
Dollar Investor By Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
Less than
$100,000 4.50% 4.71% 4.00%
$100,000 or
above but
less than
$250,000 3.50% 3.63% 3.00%
$250,000 or
above but
less than
$500,000 2.50% 2.56% 2.00%
$500,000 or
above but
less than
$1 million 2.00% 2.04% 1.75%
$1 million See
and above following
0% 0% discussion
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor
11
<PAGE>
will pay the authorized securities dealer a commission at the time of sale as
follows:
Amount of Sale Commission
(a) $1 million to $3 million 1.00%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed
within one year of the sale. However, such redeemed shares will not be
subject to the contingent deferred sales charge to the extent that their
value represents (1) capital appreciation or (2) reinvestment of dividends or
capital gains distributions. In addition, the contingent deferred sales
charge will be waived for certain other redemptions as described under
"Contingent Deferred Sales Charge Waivers" below (as otherwise applicable to
Class B shares).
Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of certain other Eligible Funds, as described
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption
within one year of the Class A shares which are acquired through such
exchange. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption. The amount of any contingent
deferred sales charge will be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement
of Additional Information, of $100,000 or more of Class A shares of the Fund
or a combination of "Eligible Funds." "Eligible Funds" include the Fund and
other funds so designated by the Distributor from time to time. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Securities dealers should call Shareholder Services
for details concerning the other Eligible Funds and any persons who may
qualify for reduced sales charges and related information. See the Statement
of Additional Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Fund and any other Eligible Funds within a 13-month period.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of shares
of the Fund and other Eligible Funds at reduced sales charges pursuant to a
Right of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call
Shareholder Services for details concerning the Right of Accumulation.
Other Programs
Class A shares of the Fund may be sold at a reduced sales charge or without a
sales charge pursuant to certain sponsored arrangements, which include
programs under which a company, employee benefit plan or other organization
makes recommendations to, or permits group solicitation of, its employees,
members or participants, except any organization created primarily for the
purpose of obtaining shares of the Fund at a reduced sales charge or without
a sales charge. Information on such arrangements and further conditions and
limitations is available from the Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, 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
12
<PAGE>
Affiliated Companies or any investment company managed by any of the
Affiliated Companies, any relatives of any such individuals whose
relationship is directly verified by such individuals to the Distributor, or
any beneficial account for such relatives or individuals; and (C) employees,
officers, sales representatives or directors of dealers and other entities
with a selling agreement with the Distributor to sell shares of any
aforementioned investment company, any spouse or child of such person, or any
beneficial account for any of them. The purchase must be made for investment
and the shares purchased may not be resold except through redemption. This
purchase program is subject to such administrative policies, regarding the
qualification of purchasers and any other matters, as may be adopted by the
Distributor from time to time.
Class B Shares--Contingent Deferred
Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Fund. However, a
contingent deferred sales charge may be imposed upon certain redemptions of
Class B shares as described below.
The Distributor will pay securities dealers at the time of sale a 4%
commission for selling Class B shares. The proceeds of the contingent
deferred sales charge and the distribution fee are used to offset
distribution expenses and thereby permit the sale of Class B shares without
an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets or (2) reinvestment of dividends or capital gains distributions.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
Contingent Deferred Sales
Charge As A Percentage
Of Net Asset Value
Redemption During At Redemption
1st Year Since Purchase 5%
2nd Year Since Purchase 4%
3rd Year Since Purchase 3%
4th Year Since Purchase 3%
5th Year Since Purchase 2%
6th Year Since Purchase
and Thereafter None
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first
of those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of the Fund acquired through an exchange from
another Eligible Fund will be measured from the date that such shares were
initially acquired in the other Eligible Funds, and Class B shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gains distribution reinvestments in such other
Eligible Fund. These determinations will result in any contingent deferred
sales charge being imposed at the lowest possible rate. For federal income
tax purposes, the amount of the contingent deferred sales charge will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid
to the Distributor.
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain
conditions. In addition, the contingent deferred sales charge will be waived
for: (i) 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
13
<PAGE>
401(a)(9) of the Internal Revenue Code for retirement accounts or plans
(e.g., age 70-1/2 for IRAs and Section 403(b) plans), calculated solely on
the basis of assets invested in the Fund or other Eligible Funds; and (iii) a
redemption resulting from a tax-free return of an excess contribution to an
IRA. (The foregoing waivers do not apply to a tax-free rollover or transfer
of assets out of the Fund.) The Fund has reserved the right to change, modify
or terminate the waivers described above at any time.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to
Class A shares of the Fund at the end of eight years following the issuance
of such Class B shares; consequently, they will no longer be subject to the
higher expenses borne by Class B shares. The conversion rate will be
determined on the basis of the relative per share net asset values of the two
classes and may result in a shareholder receiving either a greater or fewer
number of Class A shares than the Class B shares so converted. As noted
above, holding periods for Class B shares received in exchange for Class B
shares of other Eligible Funds will be counted toward the eight-year period.
Class C Shares--Institutional; No Sales Charge
The purchase price of a Class C share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
Class C shares are only available for new investments by certain employee
benefit plans and large institutions. See the Statement of Additional
Information. Information on the availability of Class C shares and further
conditions and limitations is available from the Distributor.
Class C shares may be also issued in connection with mergers and
acquisitions involving the Fund, and under certain other circumstances as
described in this Prospectus (e.g., see "Shareholder Services--Exchange
Privilege").
Shares held prior to February 17, 1993 are deemed to be Class C shares,
but shareholders thereof may not acquire additional Class C shares except
through reinvestment of dividends and distributions. Class C shares may have
also been issued directly or through exchanges to those shareholders of the
Fund or other Eligible Funds who previously held shares not subject to any
future sales charge or service fees or distribution fees.
Class D Shares--Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus, the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays securities dealers a 1% commission for selling Class D shares at the
time of purchase. The proceeds of the contingent deferred sales charge and
the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not
be subject to the contingent deferred sales charge to the extent that the
value of such shares represents (1) capital appreciation of Fund assets or
(2) reinvestment of dividends or capital gains distributions. In addition,
the contingent deferred sales charge will be waived for certain other
redemptions as described under "Contingent Deferred Sales Charge Waivers"
above (as otherwise applicable to Class B shares). For federal income tax
purposes, the amount of the contingent deferred sales charge will reduce the
gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid
to the Distributor.
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of the New York Stock Exchange (the "NYSE") exclusive of
14
<PAGE>
days on which the NYSE is closed. The NYSE ordinarily closes at 4 P.M. New
York City time. Assets held by the Fund are valued at the last reported sale
price as of the close of business on the valuation date, except that
securities and assets for which market quotations are not readily available
are valued as determined in good faith by or under the authority of the
Trustees of the Trust. In determining the value of certain assets for which
market quotations are not readily available, the Fund may use one or more
pricing services. The pricing services utilize information with respect to
market transactions, quotations from dealers and various relationships among
securities in determining value and may provide prices determined as of times
prior to the close of the NYSE. The Trustees have authorized the use of the
amortized cost method to value short-term debt instruments issued with a
maturity of one year or less that have a remaining maturity of 60 days or
less when the value obtained is fair value. Further information with respect
to the valuation of the Fund's assets is included in the Statement of
Additional Information.
Distribution Plan
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, the Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class
of shares as follows:
Class Service Fee Distribution Fee
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. A portion
of any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance of
shareholder accounts by such dealers. Dealers who have sold Class A shares
are eligible for further reimbursement commencing as of the time of such
sale. Dealers who have sold Class B and Class D shares are eligible for
further reimbursement after the first year during which such shares have been
held of record by such dealer as nominee for its clients (or by such clients
directly). Any service fees received by the Distributor and not allocated to
dealers may be applied by the Distributor in reduction of expenses incurred
by it directly for personal services and the maintenance of shareholder
accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling such shares. Any
distribution fees received by the Distributor and not allocated to dealers
may be applied by the Distributor in connection with sales or marketing
efforts, including special promotional fees and cash and noncash incentives
based upon sales by securities dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources
of the Distributor (including the advisory fees paid by the Fund), have also
been authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the
Distribution Plan to 1%, of which 0.75% may be used to pay distribution
expenses and 0.25% may be used to pay shareholder service fees. The NASD rule
also limits the aggregate amount which the Fund may pay for such distribution
costs to 6.25% of gross share sales of a class since the inception of any
asset-based sales charge plus interest at the prime rate plus 1% on unpaid
amounts thereof (less any contingent deferred sales charges). Such limitation
does not apply to shareholder service fees. Payments to the Distributor or to
dealers funded under the Distribution Plan may be discontinued at any time by
the Trustees of the Trust.
15
<PAGE>
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the
NYSE is open for business. Redemptions will be effective at the applicable
net asset value per share next determined (see "Purchase of Shares--Net Asset
Value" herein) after receipt of the redemption request, in accordance with
the requirements described below, by Shareholder Services and delivery of the
request by Shareholder Services to the Transfer Agent. To allow time for the
clearance of checks used for the purchase of any shares which are tendered
for redemption shortly after purchase, the remittance of the redemption
proceeds for such shares could be delayed for 15 days or more after the
purchase. Shareholders who anticipate a potential need for immediate access
to their investments should, therefore, purchase shares by wire. Except as
noted, redemption proceeds are normally remitted within seven days after
receipt of the redemption request and any necessary documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed
for transfer or accompanied by an endorsed stock power; (3) any required
signature guarantees (see "Redemption of Shares--Signature Guarantees"
below); and (4) any additional documents which may be required for redemption
in the case of corporations, trustees, etc., such as certified copies of
corporate resolutions, governing instruments, powers of attorney, and the
like. The Transfer Agent will not process requests for redemption until it
has received all necessary documents in good order. A shareholder will be
notified promptly if a redemption request cannot be accepted. Shareholders
having any questions about the requirements for redemption should call
Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Fund
may revoke or suspend the telephone redemption privilege at any time and
without notice. See "Shareholder Services--Telephone Services" for a
discussion of the conditions and risks associated with Telephone Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges, the Trust's custodian will wire redemption proceeds to
the shareholder's predesignated bank account. To make the request, the
shareholder should call 1-800-521-6548 prior to 4 P.M. Boston time. A $7.50
charge against the shareholder's account will be imposed for each wire
redemption. This charge is subject to change without notice. The
shareholder's bank may also impose a charge for receiving wires of redemption
proceeds. The minimum redemption by wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor
as its agent to accept orders from dealers by wire or telephone for the
repurchase of shares by the Distributor from the dealer. The Fund may revoke
or suspend this authorization at any time. The repurchase price is the net
asset value for the applicable shares next determined following the time at
which the shares are offered for repurchase by the dealer to the Distributor.
The dealer is responsible for promptly transmitting a shareholder's order to
the Distributor. Payment of the repurchase proceeds is made to
16
<PAGE>
the dealer who placed the order promptly upon delivery of certificates for
shares in proper form for transfer or, for Open Accounts, upon the receipt of
a stock power with signatures guaranteed as described below, and, if
required, any supporting documents. Neither the Fund nor the Distributor
imposes any charge upon such a repurchase. However, a dealer may impose a
charge as agent for a shareholder in the repurchase of his or her shares.
The Fund has reserved the right to change, modify or terminate the
services described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder
accounts, the Fund reserves the right to involuntarily redeem at its option
any shareholder account which remains below $1,500 for a period of 60 days
after notice is mailed to the applicable shareholder. Such involuntary
redemptions will be subject to applicable sales charges, if any. The Fund may
increase such minimum account value above such amount in the future after
notice to affected shareholders. Involuntarily redeemed shares will be priced
at the net asset value on the date fixed for redemption by the Fund, and the
proceeds of the redemption will be mailed promptly to the affected
shareholder at the address of record.
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 may
by order permit for the protection of investors; and (b) the payment of
redemption proceeds may be postponed as provided under "Redemption of
Shares."
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Transfer
Agent to be certain that the person who has authorized a redemption from the
account is, in fact, the shareholder. Signature guarantees are required for:
(1) all redemptions requested by mail; and (2) requests to transfer the
registration of shares to another owner. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived by the Fund in
certain instances.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of the Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing Class B or Class D shares will not be
issued, while certificates representing Class A or Class C shares will only
be issued if specifically requested in writing and, in any case, will only be
issued for full shares, with any fractional shares to be carried on the
shareholder's account. Shareholders will receive periodic statements of
transactions in their accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through dealers, by
wire or by mailing a check, payable to the Fund, to Shareholder Services
under the terms set forth above under "Purchase of Shares."
17
<PAGE>
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
(b) All income dividends in cash; all capital gains distributions reinvested
in additional shares of the Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in any one
available Eligible Fund designated by the shareholder as described below. See
"Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, the account will automatically be coded for reinvestment of all
dividends and distributions in additional shares of the same class of the
Fund. Selections may be changed at any time by telephone or written notice to
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for available shares with
corresponding characteristics of any of the other Eligible Funds at any time
on the basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws.
Shareholders of any other Eligible Fund may similarly exchange their shares
for Fund shares with corresponding characteristics. Prior to making an
exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class A, Class B and
Class D shares may be redeemed without the payment of any contingent deferred
sales charge that might otherwise be due upon an ordinary redemption of such
shares. The MetLife - State Street Research Money Market Fund issues Class E
shares which are sold without any sales charge. Exchanges of MetLife - State
Street Research Money Market Fund Class E shares into Class A shares of the
Fund or any other Eligible Fund are subject to the initial sales charge or
contingent deferred sales charge applicable to an initial investment in such
Class A shares, unless a prior Class A sales charge has been paid directly or
indirectly with respect to the shares redeemed. For purposes of computing the
contingent deferred sales charge that may be payable upon disposition of the
acquired Class A, Class B and Class D shares, the holding period of the
redeemed shares is "tacked" to the holding period of the acquired shares. The
period any Class E shares are held is not tacked to the holding period of any
acquired shares. No exchange transaction fee is currently imposed on any
exchange.
For the convenience of its shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or
his or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-521-6548. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes,
each exchange actually represents the sale of shares of one fund and the
purchase of shares of another. Accordingly, exchanges may produce a capital
gain or loss for tax purposes. The exchange privilege may be terminated or
suspended or its terms changed at any time, subject, if required under
applicable regulations, to 60 days' prior notice. New accounts established
for investments upon exchange from an existing account in another fund will
have the same Telephone Privileges as the existing account, unless
Shareholder Services is instructed otherwise. Related administrative policies
and procedures may also be adopted with regard to a series of exchanges,
street name accounts, sponsored arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. In order to limit exchange
activity where the
18
<PAGE>
Fund believes doing so would be in the best interests of the Fund, it
reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange for any person. These
measures may be imposed at any time. Subject to the foregoing, if an exchange
request in good order is received by Shareholder Services and delivered by
Shareholder Services to the Transfer Agent by 12 noon Boston time on any
business day, the exchange usually will occur that day. Consult Shareholder
Services before requesting an exchange or for further information.
Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares repurchased
at his or her request may reinvest all or any portion of the proceeds (plus
that amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and
without subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 30 calendar days after a redemption or
repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal income tax
purposes, a sale on which the shareholder may realize a gain or loss. If a
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once with respect to his or her
shares of the Fund. No charge is imposed by the Fund for such reinvestments;
however, dealers may charge fees in connection with the reinvestment
privilege. The reinvestment privilege may be exercised with respect to an
Eligible Fund only in those states where shares of the relevant other
Eligible Fund may legally be sold.
Investment Plans
The Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments
by authorizing withdrawals from their bank accounts each month or quarter on
the Investamatic application form available from Shareholder Services. The
Investamatic Check Program is subject to the same minimum initial investment
and subsequent investment requirements for accounts as applicable otherwise.
The Fund also offers tax-sheltered retirement plans, including prototype and
other employee benefit plans for employees, sole proprietors, partnerships and
corporations and Individual Retirement Accounts. Details of these investment
plans and their availability may be obtained from securities dealers or from
Shareholder Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect by participating in the Fund's Systematic Withdrawal Plan to
have periodic checks issued for specified amounts. These amounts may not be
less than certain minimums, depending on the class of shares held. The Plan
provides that all income dividends and capital gains distributions of the
Fund shall be credited to participating shareholders in additional shares of
the Fund. Thus, the withdrawal amounts paid can only be realized by redeeming
shares of the Fund under the Plan. To the extent such amounts paid exceed
dividends and distributions from the Fund, a shareholder's investment will
decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually
of either (a) the value, at the time the Plan is initiated, of the shares
then in the account or (b) the value, at the time of a withdrawal, of the
same number of shares as in the account when the Plan was initiated,
whichever is higher.
19
<PAGE>
Expenses of the Plan are borne by the Fund. A participating shareholder
may withdraw from the Plan and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is
receiving payments under a Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate
in the Investamatic Check Program and the Systematic Withdrawal Plan at the
same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all of
their dividends and any other distributions from the Fund or any Eligible
Fund automatically invested at net asset value in one other such Eligible
Fund designated by the shareholder, provided the account into which the
investment is made is initially funded with the requisite minimum amount. The
number of shares purchased will be determined as of the dividend payment
date. The Dividend Allocation Plan is subject to state securities law
requirements, to suspension at any time, and to such policies, limitations
and restrictions, as, for instance, may be applicable to street name or
master accounts, that may be adopted from time to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by
the Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions for
amounts up to $50,000 to be mailed to the shareholder's address of record is
available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically; and
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not previously
request such telephone wire privilege on his or her original Application may
request the privilege by completing a Telephone Redemption-by-Wire Form which
may be obtained by calling 1-800-521-6548. The Telephone Redemption-by-Wire
Form requires a signature guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in
(1) and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by
advising Shareholder Services that the shareholder wishes to discontinue the
use of such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account; and (2) honor any written instructions for
a change of address regardless of whether such request is accompanied by a
signature guarantee. All telephone calls will be recorded. None of the Fund,
the other Eligible Funds, the Transfer Agent, the Investment Manager or the
Distributor will be liable for any loss, expense or cost arising out of any
request, including
20
<PAGE>
any fraudulent or unauthorized requests. Shareholders assume the risk to the
full extent of their accounts that telephone requests may be unauthorized.
Reasonable procedures will be followed to confirm that instructions
communicated by telephone are genuine. The shareholder will not be liable for
any losses arising from unauthorized or fraudulent instructions if such
procedures are not followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is unlikely, during periods of extraordinary
market conditions, a shareholder may have difficulty in reaching Shareholder
Services at such telephone number. In that event, the shareholder should
contact Shareholder Services at 1-800-562-0032, 1-617-357-7805 or otherwise
at its main office at One Financial Center, Boston, Massachusetts 02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your
account, including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made
in writing to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408. A fee of up to $10 will be charged against
an account for providing additional account transcripts or photocopies of
paid redemption checks or for researching records in response to special
requests.
Shareholder Telephone Transactions:
Please call 1-800-521-6548
Call this number for assistance in purchasing shares by wire and for
telephone redemptions or telephone exchange transactions. Shareholder
Services will require some form of personal identification prior to acting
upon instructions received by telephone. Written confirmation of each
transaction will be provided.
The Fund and its Shares
The Fund, originally organized as a Massachusetts corporation in 1967, is a
diversified series of State Street Capital Trust, a Massachusetts business
trust, formed in 1988. The Trustees have authorized shares of the Fund to be
issued in four classes: Class A, Class B, Class C and Class D shares. The
Trust is registered with the Securities and Exchange Commission under the
1940 Act as an open-end management investment company. The fiscal year of the
Fund is September 30.
The Fund has received an order from the Securities and Exchange Commission
(the "Commission") permitting the issuance and sale of multiple classes of
shares representing interests in the existing portfolio of any series of the
Trust. Except for those differences between the classes of shares described
below and elsewhere in the Prospectus, each share of the Fund has equal
dividend, redemption and liquidation rights with other shares of the Fund and
when issued is fully paid and nonassessable. The Trustees have authorized the
Fund to offer four classes of shares as described above. In the future,
certain classes may be redesignated, for administrative purposes only, to
conform to standard class designations and common usage of terms which may
develop in the mutual fund industry. For example, Class C shares may be
redesignated as Class Y shares and Class D shares may be redesignated as
Class C shares. Any redesignation would not affect any substantive rights
respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class B and Class D shares bear the
expenses of the deferred sales arrangement and any expenses (including the
higher service and distribution fees) resulting from such sales arrangement,
and certain other incremental expenses related to a class. Each class will
have exclusive voting rights with respect to provisions of the Rule 12b-1
distribution plan pursuant to which the service and distribution fees, if
any, are paid. Although the legal rights of holders of each class of shares
are identical, it is likely that the different expenses borne by each class
will result in different net asset values and dividends. The different
classes of shares of the Fund also have different exchange privileges.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material adverse effect on
the
21
<PAGE>
rights of any shareholder. On any matter submitted to the shareholders, the
holder of each Fund share is entitled to one vote per share (with
proportionate voting for fractional shares) regardless of the relative net
asset value thereof.
Under the Master Trust Agreement of the Trust, no annual or regular
meeting of shareholders is required. Thus, there will ordinarily be no
shareholder meetings unless required by the 1940 Act. Except as otherwise
provided under said Act, the Board of Trustees will be a self-perpetuating
body until fewer than two thirds of the Trustees serving as such are Trustees
who were elected by shareholders of the Trust. In the event less than a
majority of the Trustees serving as such were elected by shareholders of the
Trust, a meeting of shareholders will be called to elect Trustees. Under the
Master Trust Agreement, any Trustee may be removed by vote of two thirds of
the outstanding Trust shares; holders of 10% or more of the outstanding Trust
shares can require that the Trustees call a meeting of shareholders for
purposes of voting on the removal of one or more Trustees. In connection with
such meetings called by shareholders, shareholders will be assisted in
shareholder communications to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for
indemnification for all losses and expenses of any shareholder of the Fund
held personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations. The Investment Manager believes that, in view of the above, the
risk of personal liability to shareholders is remote.
As of October 31, 1994, Metropolitan Life Insurance Company
("Metropolitan") was the record and/or beneficial owner of approximately
45.0% of the outstanding Class C shares of the Fund, and may be deemed to be
in control of such Class C shares of the Fund. Ownership of 25% or more of a
voting security is deemed "control" as defined in the 1940 Act. So long as
25% of a class of shares is so owned, such owners will be presumed to be in
control of such class of shares for purposes of voting on certain matters,
such as any Distribution Plan for a given class.
Management of the Fund
Under the provisions of the Master Trust Agreement and the laws of
Massachusetts, primary responsibility for the management and supervision of
the Fund rests with the Trustees.
The Fund's investment manager is State Street Research & Management
Company. The Investment Manager is charged with the overall responsibility
for managing the investments and business affairs of the Fund, subject to the
authority of the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first
mutual funds, presently known as State Street Investment Trust, which they
had formed in 1924. Their investment management philosophy, which continues
to this day, emphasized comprehensive fundamental research and analysis,
including meetings with the management of companies under consideration for
investment. The Investment Manager's portfolio management group has extensive
investment industry experience.
The Investment Manager is an indirect wholly-owned subsidiary of
Metropolitan and the Distributor is a wholly-owned subsidiary of the
Investment Manager, and both are located at One Financial Center, Boston,
Massachusetts 02111-2690.
Under its Advisory Agreement with the Trust, the Investment Manager
receives a monthly investment advisory fee equal to 0.75% (on an annual
basis) of the average daily value of the net assets of the Fund. Such
fee is higher than that charged by most mutual funds, but is believed by the
Trustees to be justified given the considerable analysis and research necessary
to manage the Fund in light of its investment objective and policies. The Fund
bears all costs of its operation other than those incurred by the Investment
Manager under the Advisory Agreement. In particular, the Fund pays
investment advisory fees, and the compensation and
22
<PAGE>
expenses of the Trustees who are not otherwise currently affiliated with the
Trust, the Investment Manager or any of its affiliates. The Fund also incurs
expenses payable to various states in connection with the offer and sale of
the Fund's shares, and expenses for legal, custodian and transfer agent
services, among other costs. The ratio of Fund expenses to net assets will be
high and will not decrease unless the Fund's assets increase. The Investment
Manager will reduce its management fee payable by the Fund up to the amount
of any expenses (excluding permissible items, such as brokerage commissions,
Rule 12b-1 payments, interest, taxes and litigation expenses) paid or
incurred in any year in excess of the most restrictive expense limitation
imposed by any state in which the Fund sells shares, if any. Under the
Advisory Agreement, the Investment Manager provides the Fund with office
space, facilities and personnel. The Investment Manager compensates Trustees
of the Trust if such persons are employees or affiliates of the Investment
Manager or its affiliates.
The Fund is managed by Frederick R. Kobrick. Mr. Kobrick has managed the
Fund since 1985. Mr. Kobrick's principal occupation currently is, and during
the past five years has been, Senior Vice President of State Street Research &
Management Company.
Subject to the policy of seeking best overall price and execution, sales
of shares of the Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for the Fund's portfolio transactions.
Dividends and Distributions; Taxes
The Fund qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code for its most recent
fiscal year and intends to qualify as such in future fiscal years, although
it cannot give complete assurance that it will do so. As long as it so
qualifies and satisfies certain distribution requirements, it will not be
subject to federal income taxes on its income (including capital gains, if
any) distributed to its shareholders. Consequently, the Fund intends to
distribute annually to its shareholders substantially all of its net
investment income and any capital gain net income (capital gains net of
capital losses).
The Fund declares dividends from net investment income annually and pays
such dividends, if any, after year end. Distributions of capital gain net
income will generally be made after the end of the fiscal year or as
otherwise required for compliance with applicable tax regulations. Both
dividends from net investment income and distributions of capital gain net
income will be declared and paid to shareholders in additional shares of the
Fund at net asset value (except in the case of shareholders who elect a
different available distribution method).
The Fund will provide its shareholders of record with annual information
on a timely basis concerning the federal tax status of dividends and
distributions during the preceding calendar year.
Dividends paid by the Fund from taxable net investment income and
distributions of net short-term capital gains, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax
purposes to shareholders as ordinary income, and a portion 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 consists of
qualifying dividends of domestic corporations. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) which are designated as capital gains distributions, whether paid in
cash or reinvested in additional shares, will be taxable for federal income
tax purposes to shareholders as long-term capital gains, regardless of how
long shareholders have held their shares, and are not eligible for the
dividends-received deduction. If shares of the Fund which are sold at a loss
have been held six months or less, the loss will be considered as a long-term
capital loss to the extent of any capital gains distributions received.
Dividends and other distributions and proceeds of redemptions of Fund
shares paid to individuals and other nonexempt payees will be subject to a
31% federal backup withholding tax if the Transfer Agent is not provided with
the shareholder's correct taxpayer identification number and certification
that the shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as
23
<PAGE>
of the date of this Prospectus. Therefore, prospective shareholders are urged
to consult their own tax advisers regarding tax matters, including state and
local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, the Fund may compare the performance of its Class A,
Class B, Class C and Class D shares to that of other mutual funds with
similar investment objectives, to certificates of deposit and/or to other
financial alternatives. The Fund may also compare the performance of such
classes to appropriate indices such as the NASDAQ Composite Average, Small
Stock Index, Standard & Poor's 500 Stock Index (the "S&P 500"), Consumer
Price Index and Dow Jones Industrial Average and/or to appropriate rankings
and averages, such as the Lipper Capital Appreciation Fund Group average,
compiled by Lipper Analytical Services, Inc., or to those compiled by
Morningstar, Inc., Money Magazine, Business Week, Forbes Magazine, the Wall
Street Journal and Investor's Daily.
Total return is computed separately for each class of shares of the Fund.
The average annual total return ("standard total return") for shares of the
Fund is computed by determining the average annual compounded rate of return
for a designated period that, if applied to a hypothetical $1,000 initial
investment (less the maximum initial or contingent deferred sales charge, if
applicable), would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions and
with recognition of all recurring charges. Standard total return may be
accompanied by nonstandard total return information computed in the same
manner, but for differing periods and with or without annualizing the total
return or taking sales charges into account.
The standard total return results take sales charges into account, if
applicable, but do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for remittance of redemption proceeds by
wire. Where sales charges are not applicable and therefore not taken into
account in the calculation of standard total return, the results will be
increased. Any voluntary waiver of fees or assumption of expenses by the
Fund's affiliates will also increase performance results.
The Fund commenced operations as a registered investment company in 1984.
Shares of the Fund were first publicly available, to institutions and
existing shareholders only, in 1987. The Fund commenced a continuous offering
to the general public on February 17, 1993. During the period that shares of
the Fund were not offered to the general public, the Fund was not subject to
the cash inflows or higher level of redemptions or expenses that could occur
when shares are continuously offered to the general public.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Because
the performance of the Fund varies in response to fluctuations in economic
and market conditions, interest rates and Fund expenses, among other things,
no performance quotation should be considered a representation as to the
Fund's performance for any future period. In addition, the net asset value of
shares of the Fund will fluctuate, with the result that shares of the Fund,
when redeemed, may be worth more or less than their original cost. Neither an
investment in the Fund nor the Fund's performance is insured or guaranteed;
such lack of insurance or guarantees should accordingly be given appropriate
consideration when comparing the Fund to financial alternatives which have
such features.
Shares of the Fund had no class designations until February 17, 1993, when
Class A and Class C designations were assigned, and March 15, 1993 when Class
B and Class D designations were assigned, based on the pricing and Rule 12b-1
fees applicable to shares sold thereafter. Performance data for periods prior
to such dates will not reflect additional Rule 12b-1 Distribution Plan fees,
if any, of up to 1% per year depending on the class of shares, which will
adversely affect performance results for periods after such dates.
Performance data or rankings for a given class of shares should be
interpreted carefully by investors who hold or may invest in a different
class of shares.
24
<PAGE>
[COVER}
STATE STREET RESEARCH
CAPITAL FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
CF-522D-295IBS CONTROL NUMBER: 2003-950131(0296)SSR-LD
[State Street Research Logo]
State Street Research
Capital Fund
February 1, 1995
P R O S P E C T U S
<PAGE>
Supplement No. 1 dated July 17, 1995
to
Prospectus dated February 1, 1995
for
STATE STREET RESEARCH SMALL CAPITALIZATION GROWTH FUND
a series of State Street Research Capital Trust
Minimum Investment
The section under the caption "Purchase of Shares--Minimum Investment" is
revised in its entirety as follows:
"Class of Shares
A B C D
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $50 $50 (a) $50
By Investamatic $50 $50 (a) $50
All other $50 $50 (a) $50
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments under various retirement and employee benefit plans, sponsored
arrangements involving group solicitations of the members of an organization, or
other investment plans such as for reinvestment of dividends and distributions
or for periodic investments (e.g., Investamatic Check Program)."
Other Programs
Immediately after the first sentence of the first paragraph under the caption
"Purchase of Shares--Class A Shares--Initial Sales Charges--Other
Programs," the following is added:
"Sales without a sales charge, or with a reduced sales charge, may also be made
through brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor, in the event the
Distributor determines to implement such arrangements."
Additional Information
Under the caption "Redemption of Shares--Additional Information," the first
paragraph is revised in its entirety as follows:
"Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable sales charges, if any. The Fund may increase such minimum
account value above such amount in the future after notice to affected
shareholders. Involuntarily redeemed shares will be priced at the net asset
value on the date fixed for redemption by the Fund, and the proceeds of the
redemption will be mailed to the affected shareholder at the address of record.
Currently, the maintenance fee is $18 annually, which is paid to the Transfer
Agent. The fee does not apply to certain retirement accounts or if the
shareholder has more than an aggregate $50,000 invested in the Fund and other
Eligible Funds combined. Imposition of a maintenance fee on a small account
could, over time, exhaust the assets of such account."
Investment Plans
The first paragraph under the caption "Shareholder Services--Investment
Plans" is revised in its entirety to read as follows:
"The Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Investamatic application form available from Shareholder Services."
<PAGE>
Other Policy Changes
The following policy changes apply to the Fund:
1. Inclusion of Class C shares under the Plan of Distribution Pursuant to Rule
12b-1, without the imposition of a fee, to make clear that the Distributor and
Investment Manager may incur distribution expenses out of their own resources.
2. Amendment of the Master Trust Agreement to eliminate the need for a vote by
shareholders of the acquiring fund to approve a merger or consolidation, or
acquisition of assets; the approval of shareholders of any acquired fund would
still be required.
The above policy changes will be effective upon, and subject to, shareholder
approval at a meeting scheduled for August, 1995. For more information about the
changes, obtain a copy of the related Proxy Statement by calling Shareholder
Services at 1-800-562-0032.
CONTROL NUMBER: 2456J-950717(0896)SSR-LD SCG-259E-795IBS
<PAGE>
State Street Research Small
Capitalization Growth Fund
Prospectus
February 1, 1995
The investment objective of State Street Research Small Capitalization Growth
Fund (the "Fund") is to provide growth of capital. In seeking to achieve its
investment objective, the Fund invests primarily in the equity securities of
emerging growth and small capitalization companies.
State Street Research & Management Company (the "Investment Manager")
serves as investment adviser to the Fund. As of December 31, 1994, the
Investment Manager had assets of approximately $23.2 billion under
management. State Street Research Investment Services, Inc. serves as
distributor (the "Distributor") for the Fund.
Shares of the Fund are currently available only to existing shareholders
of the Fund through reinvestment of dividends and distributions, additional
investments or exchanges into their existing accounts.
Shareholders may have their shares redeemed directly by the Fund at net
asset value plus the applicable contingent deferred sales charge, if any;
redemptions processed through securities dealers may be subject to processing
charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Fund will
achieve its investment objective. The net asset value of the Fund's shares
fluctuates as market conditions change.
Because of the Fund's investment policies, the Fund is subject to
above-average risks. The Fund generally is designed for investors who want an
aggressive investment and can tolerate volatility and possible losses. An
investment in the Fund should be part of a balanced investment program which
includes more conservative investments. In addition, the Fund may suspend the
offering of its shares at any time because of the limited availability of
investments which meet the Fund's investment parameters.
This Prospectus sets forth concisely the information a prospective
investor ought to know about the Fund before investing. It should be retained
for future reference. A Statement of Additional Information about the Fund
dated February 1, 1995 has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. It is
available at no charge upon request to the Fund at the address indicated on
the cover or by calling 1-800-562-0032.
The Fund is a diversified series of State Street Capital Trust (the
"Trust"), an open-end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Table of Contents Page
<S> <C>
Table of Expenses.............................. 2
Financial Highlights........................... 4
The Fund's Investments......................... 4
Limiting Investment Risk....................... 7
Purchase of Shares............................. 8
Redemption of Shares........................... 16
Shareholder Services........................... 17
The Fund and its Shares........................ 21
Management of the Fund......................... 22
Dividends and Distributions; Taxes............. 23
Calculation of Performance Data................ 24
</TABLE>
<PAGE>
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5%
and (ii) an annual service fee of 0.25% of the average daily net asset value
of the Class A shares.
Class B shares are subject (i) to a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees
of 1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and
large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution
and service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) 4.5% None None None
Maximum Sales Charge Imposed on Reinvested Dividends (as
a percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds, as
applicable) None (2) 5% None 1%
Redemption Fees (as a percentage of amount redeemed, if
applicable) None None None None
Exchange Fees None None None None
</TABLE>
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
annually through the fifth year, and no contingent deferred sales charge is
imposed after the fifth year. Class D shares are subject to a 1% contingent
deferred sales charge on any portion of the purchase redeemed within one year
of the sale. Long-term investors in a class of shares with a distribution fee
may, over a period of years, pay more than the economic equivalent of the
maximum sales charge permissible under applicable rules. See "Purchase of
Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption. See
"Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.75% 0.75% 0.75% 0.75%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.86% 0.86% 0.86% 0.86%
Less Voluntary Reduction (0.51%) (0.51%) (0.51%) (0.51%)
------- ------- ------- -------
Total Fund Operating Expenses
(after voluntary reduction) 1.35% 2.10% 1.10% 2.10%
======= ======= ======= =======
</TABLE>
Example:
You would pay the following expenses on a $1,000 investment including, for
Class A shares, the maximum applicable initial sales charge and assuming (1)
5% annual return and (2) redemption of the entire investment at the end of
each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A shares $58 $86 $116 $200
Class B shares (1) $71 $96 $133 $224
Class C shares $11 $35 $ 61 $134
Class D shares $31 $66 $113 $243
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class B shares (1) $21 $66 $113 $224
Class D shares $21 $66 $113 $243
</TABLE>
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense levels shown in the table above are based
on experience with expenses for the fiscal year ended September 30, 1994;
actual expense levels for the current fiscal year and future years may vary
from the amounts shown. The table does not reflect charges for optional
services elected by certain shareholders, such as the $7.50 fee for
remittance of redemption proceeds by wire. For further information on sales
charges, see "Purchase of Shares--Alternative Purchase Program"; for further
information on management fees, see "Management of the Fund"; and for further
information on 12b-1 fees, see "Purchase of Shares--Distribution Plan."
The Fund has been advised that the Distributor and its affiliates may from
time to time and in varying amounts voluntarily assume some portion of fees
or expenses relating to the Fund. The Fund presently expects such assistance
to be provided for the next 12 months or until the Fund's net assets reach
$100 million, whichever first occurs. However, the Fund has not received any
firm commitment that such assistance will in fact be provided. For the fiscal
year ended September 30, 1994, Total Fund Operating Expenses as a percentage
of average net assets of Class A, Class B, Class C and Class D shares of the
Fund would have been 1.91%, 2.62%, 1.61% and 2.59%, respectively, in the
absence of the voluntary assumption of fees or expenses by the Distributor
and its affiliates, which amounted to 0.56%, 0.52%, 0.51% and 0.49% of
average net assets of each of the Class A, Class B, Class C and Class D
shares of the Fund, respectively. The amount of fees or expenses assumed
during the fiscal year ended September 30, 1994 differed among classes
because of fluctuations during the year in the relative levels of assets in
each class and in expenses before reimbursement.
3
<PAGE>
Financial Highlights
The data set forth below has been examined by Coopers & Lybrand L.L.P.,
independent accountants, and their report thereon is included in the
Statement of Additional Information. For further information about the
performance of the Fund, see the Fund's Annual Report which appears under the
caption "Financial Statements" in the Statement of Additional Information.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
February 1, 1994 February 1, 1994 February 1, 1994
(Commencement (Commencement October 4, 1993 (Commencement
of Share Class of Share Class (Commencement of Share Class
Designations) to Designations) to of Operations) to Designations) to
September 30, 1994 September 30, 1994 September 30, 1994 September 30, 1994
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $ 9.45 $ 9.45 $ 9.55 $ 9.45
Net investment loss* (.02) (.06) (.06) (.06)
Net realized and unrealized
loss on investments (.87) (.87) (.89) (.87)
--------- ---------- ----------- ----------
Net asset value, end of
period $ 8.56 $ 8.52 $ 8.60 $ 8.52
========= ========== =========== ==========
Total return+ (9.42)% (9.84)% (9.95)% (9.84)%
Net assets at end of period
(000s) $21,986 $29,287 $ 7,033 $10,032
Ratio of operating expenses
to average net assets* 1.35%++ 2.10%++ 1.10%++ 2.10%++
Ratio of net investment
loss to average net
assets* (0.58)%++ (1.32)%++ (0.68)%++ (1.32)%++
Portfolio turnover rate 83.61% 83.61% 83.61% 83.61%
* Reflects voluntary
assumption of fees or
expenses per share in each
period $ .02 $ .02 $ .04 $ .02
</TABLE>
+Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
++Annualized.
The Fund's Investments
The Fund's investment objective is to provide growth of capital. The
investment objective is a fundamental policy that may not be changed without
approval of the Fund's shareholders.
In seeking to achieve its investment objective, the Fund invests at least
65% of its total assets under normal circumstances in the equity securities
of small capitalization companies and companies in the emerging growth stage
of development. A company's market capitalization is the total market value
of its publicly traded equity securities. The Fund currently invests in
companies with market capitalizations of up to $700 million, although this
figure may fluctuate over time because of market conditions, inflation, etc.
While a company's market capitalization may be small at the time the Fund
first invests in the company, the Fund may continue to hold and acquire
shares of a company after its market capitalization increases.
The Investment Manager considers emerging growth companies to be those
companies which are less mature and have the potential to grow substantially
faster than the economy. In selecting investments, the Investment Manager
considers a variety of factors, any one of which may be determinative. These
include a company's expected growth in earnings, relative financial condition
and cash flow, competitive position, management and business strategy,
overall potential as an enterprise, entrepreneurial character, and new or
innovative products, services or processes.
4
<PAGE>
The equity securities in which the Fund will invest consist of common
stocks, or securities (preferred stock, bonds and debentures) convertible
into common stocks, or which carry the right to acquire equity securities
(warrants). The Fund anticipates that more than half of the total value, at
the time of investment, of the equity securities held by the Fund will be
included on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") system or listed on a major securities exchange.
Under normal circumstances, the Fund expects to be fully invested in
equity securities as described above. However, the Fund may, consistent with
its investment objective, also invest at any time up to 35% of its total
assets in other equity and debt securities, such as those issued by larger
capitalization, more mature, or special situation companies, and U.S.
Government securities. A special situation company is one which, because of
unique circumstances such as, for example, a particular business niche it
fills, is an attractive investment even though it is not a small
capitalization issuer or in the emerging growth stage. The Fund will purchase
investment grade debt securities (i.e., rated at the time of purchase AAA,
AA, A or BBB by Standard & Poor's Corporation ("S&P") or Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. ("Moody's")), or securities that are not
rated but considered by the Investment Manager to be of equivalent investment
quality. The debt securities, which may have differing maturities and fixed
or floating interest rates, will be U.S. Government securities or issued by
larger capitalization issuers. For more information on debt ratings, see the
Statement of Additional Information.
Because the Fund invests primarily in small capitalization and emerging
growth companies, an investment in the Fund involves greater than average
risks and the value of the Fund's shares may fluctuate more widely than the
value of shares of a fund that invests in larger, more established companies.
Securities held by the Fund, particularly those traded over- the-counter, may
have limited marketability and may be subject to more abrupt or erratic
market movements over time than securities of larger, more seasoned companies
or the market as a whole. The issuers of over-the-counter securities may have
limited product lines, markets and financial resources, may be dependent on
entrepreneurial management, typically reinvest most of their net income in
the enterprise and typically do not pay dividends.
Other Investments and Risk Considerations
Foreign Investments
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") or similar
securities representing interests in the securities of foreign issuers. Under
current policy, however, the Fund limits such investments, including ADRs and
EDRs, to a maximum of 35% of its total assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign corporation
or other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs in registered form are designed for
use in U.S. securities markets and EDRs are designed for use in European
securities markets. The underlying securities are not always denominated in
the same currency as the ADRs or EDRs. Although investment in the form of
ADRs or EDRs facilitates trading in foreign securities, it does not mitigate
all the risks associated with investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the
foreign issuer is not involved, and the ADR holders pay the fees of the
depository. Sponsored ADRs are generally more advantageous to the ADR holders
and the issuer than are unsponsored ADRs. More and higher fees are generally
charged in an unsponsored program compared to a sponsored facility. Only
sponsored ADRs may be listed on the New York or American Stock Exchanges.
Unsponsored ADRs may prove to be more risky due to (a) the additional costs
involved to the Fund; (b) the relative illiquidity of the issue in U.S.
markets; and (c) the possibility of higher trading costs in the
over-the-counter market as opposed to exchange-based trading. The Fund will
take these and
5
<PAGE>
other risk considerations into account before making an investment in an
unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks
of nationalization or expropriation, the possible imposition of currency
exchange blockages, higher operating expenses, foreign withholding and other
taxes which may reduce investment return, reduced availability of public
information concerning issuers, the difficulties in obtaining and enforcing a
judgment against a foreign issuer and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to
those applicable to domestic issuers. Moreover, securities of many foreign
issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers.
It is anticipated that most of the foreign investments of the Fund will
consist of securities of issuers in countries with developed economies.
However, the Fund may also invest in the securities of issuers in countries
with less developed economies as deemed appropriate by the Investment
Manager, although the Fund does not presently expect to invest more than 5%
of its total assets in issuers in such less developed countries. Such
countries include countries that have an emerging stock market that trades a
small number of securities; countries with low- to middle-income economies;
and/or countries with economies that are based on only a few industries.
Eastern European countries are considered to have less developed capital
markets.
For further information regarding foreign investments, see the Statement
of Additional Information.
Currency Transactions
In order to protect against the effect of uncertain future exchange rates on
securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market or by entering into forward
contracts to purchase or sell currencies. Although such contracts tend to
minimize the risk of loss resulting from a correctly predicted decline in
value of hedged currency, they tend to limit any potential gain that might
result should the value of such currency increase. In entering a forward
currency transaction, the Fund is dependent upon the creditworthiness and
good faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by a counterparty by dealing only with established, large
institutions with which the Investment Manager has done substantial business
in the past. For further information, see the Statement of Additional
Information.
Other Investment Policies
The Fund may lend portfolio securities with a value of up to 33-1/3% of its
total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of
the current market value of the loaned securities plus accrued interest.
Collateral received by the Fund will generally be held in the form tendered,
although cash may be invested in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, irrevocable stand-by letters
of credit issued by a bank, or any combination thereof. The investing of cash
collateral received from loaning portfolio securities invovles leverage which
magnifies the potential for gain or loss on monies invested and, therefore,
results in an increase in the volatility of the Fund's outstanding
securities. Such loans may be terminated at any time.
The Fund will retain most rights of ownership including rights to
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending, although the Fund may call loans to vote
proxies if desired. Should the borrower of the securities fail financially,
there is a risk of delay in recovery of the securities or loss of rights in
the collateral. Loans are made only to borrowers which are deemed by the
Investment Manager to be of good financial standing.
To aid in achieving its investment objective, the Fund may, subject to
certain limitations, buy and sell options, futures contracts and options on
futures contracts on securities, securities indices and currencies. The Fund
may not establish a position in a futures contract or purchase or sell an
option for other than hedging pur-
6
<PAGE>
poses if immediately thereafter the sum of the amount of initial margin
deposits and premiums on open positions with respect to futures and options
used for such nonhedging purposes would exceed 5% of the market value of the
Fund's total assets. The Fund's positions in futures and options may be
closed out only on an exchange or in a market which provides liquidity, and
there can be no assurance that a liquid market will exist. The inability to
close options and futures positions could have an adverse impact on the
Fund's ability to effectively hedge its securities and might in some cases
require the Fund to deposit cash to meet applicable margin requirements.
The Fund may enter into repurchase agreements involving U.S. Government
securities and invest in securities on a "when-issued" basis. The Fund may
also enter various forms of swap arrangements with respect to interest rates,
currency rates and indices, although the Fund does not presently expect that
the aggregate notional amount of swap arrangements outstanding at any time
would exceed 5% of its total assets. See the Statement of Additional
Information.
The Fund anticipates that its portfolio turnover rate will generally not
exceed 125% under normal conditions. The Fund does, however, reserve full
freedom with respect to portfolio turnover. In periods when there are rapid
changes in economic conditions or security price levels or when investment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy
remains relatively constant. An actual portfolio turnover rate of 100% or
more may result in greater transaction costs, relative to other funds in
general, and may have tax and other consequences as well. See the Statement
of Additional Information.
Limiting Investment Risk
In seeking to lessen investment risk, the Fund operates under certain
fundamental and nonfundamental investment restrictions. Under the fundamental
investment restrictions, the Fund may not (a) purchase a security of any one
issuer (other than securities issued or guaranteed as to principal or
interest by the U.S. Government or its agencies or instrumentalities or
mixed-ownership Government corporations), if such purchase would, with
respect to 75% of the Fund's total assets, cause more than 5% of the Fund's
total assets to be invested in the securities of such issuer; (b) purchase
for its portfolio a security of any one issuer if such purchase would cause
more than 10% of the voting securities of such issuer to be held by the Fund;
or (c) invest more than 25% of the Fund's total assets in securities of
issuers principally engaged in any one industry with certain designated
exceptions such as in the case of the U.S. Government. Under the
nonfundamental investment restrictions, the Fund may not invest more than 15%
of the Fund's total assets in illiquid securities including repurchase
agreements extending for more than seven days and may not invest more than 5%
of the Fund's total assets in restricted securities excluding securities
eligible for resale under Rule 144A under the Securities Act of 1933.
Although many illiquid securities may also be restricted, and vice versa,
compliance with each of these policies will be determined independently.
The foregoing fundamental investment restrictions may not be changed
except by vote of the holders of a majority of the outstanding voting
securities of the Fund. The vote of a majority of the outstanding voting
securities of the Fund means the vote (A) of 67 per centum or more of the
voting securities present at a meeting, if the holders of more than 50 per
centum of the outstanding voting securities of the Fund are present or
represented by proxy; or (B) of more than 50 per centum of the outstanding
voting securities of the Fund, whichever is less. The foregoing
nonfundamental investment restriction may be changed without a shareholder
vote. For further information on the above and other fundamental and
nonfundamental investment restrictions, see the Statement of Additional
Information.
The Fund may hold up to 100% of its assets in cash or certain short-term
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against adverse market
conditions than adherence to the Fund's other investment policies. To the
extent that the Fund's assets are held in a temporary defensive position, the
Fund will not be achieving its investment objective. The types of
7
<PAGE>
short-term instruments in which the Fund may invest for such purposes are, as
more fully described in the Statement of Additional Information: U.S.
Government securities, custodial receipts, certificates of deposit, time
deposits and bankers' acceptances of certain qualified financial institutions
and corporate commercial paper rated at least "A" by S&P or "Prime" by
Moody's (or, if not rated, issued by companies having an outstanding
long-term unsecured debt issue rated at least "A" by S&P or Moody's). See the
Statement of Additional Information.
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 8 to 21 below.
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers, Individual
Retirement Accounts ("IRAs"), trusts, corporations, individuals, etc. The
applicability of the general information and administrative procedures set
forth below accordingly will vary depending on the investor and the
recordkeeping system established for a shareholder's investment in the Fund.
Participants in 401(k) and other plans should first consult with the
appropriate person at their employer or refer to the plan materials before
following any of the procedures below. For more information or assistance,
anyone may call 1-800-562-0032.
Purchase of Shares
Methods of Purchase
Through Dealers
Shares of the Fund are continuously offered through securities dealers who
have entered into sales agreements with the Distributor. Purchases through
dealers are confirmed at the offering price, which is the net asset value
plus the applicable sales charge, next determined after the order is duly
received by State Street Research Shareholder Services ("Shareholder
Services"), a division of State Street Research Investment Services, Inc.,
from the dealer. ("Duly received" for purposes herein means in accordance
with the conditions of the applicable method of purchase as described below.)
The dealer is responsible for transmitting the order promptly to Shareholder
Services in order to permit the investor to obtain the current price. See
"Purchase of Shares--Net Asset Value" herein.
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's securities dealer a completed Application (accompanying this
Prospectus), together with a check for the total purchase price payable to
the Fund. The dealer must forward the Application and check in accordance
with the instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a
check payable to the Fund in the amount of the total purchase price together
with any one of the following: (i) an Application; (ii) the stub from the
shareholder's account statement; or (iii) a letter setting forth the name of
the Fund, the class of shares and the account name and number. Shareholder
Services will deliver the purchase order to the transfer agent and dividend
paying agent, State Street Bank and Trust Company (the "Transfer Agent").
If the check is not honored for its full amount, the purchaser could be
subject to additional charges to cover collection costs and any investment
loss, and the purchase may be cancelled.
By Wire
An investor may purchase shares by wiring Federal Funds of not less than
$5,000 to State Street Bank and Trust Company, which also serves as the
Trust's custodian (the "Custodian"), as set forth below. Prior to making an
investment by wire, an investor must notify Shareholder Services at
1-800-521-6548 and obtain a control number and instructions. Following such
notification, Federal Funds should be wired through the Federal Reserve
System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research
Small Capitalization Growth Fund
and class of shares
(A, B, C or D)
8
<PAGE>
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make
such investment by 12 noon Boston time on the day of his or her investment;
and (ii) the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete
the Application accompanying this Prospectus and deliver it to his or her
securities dealer, who should forward it as required. No redemptions will be
effected until the Application has been duly processed.
The Fund may in its discretion discontinue, suspend or change the practice
of accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by the Fund. The Fund reserves
the right to reject any purchase order, including orders in connection with
exchanges, for any reason which the Fund in its sole discretion deems
appropriate. The Fund reserves the right to suspend the sale of shares.
Minimum Investment
<TABLE>
<CAPTION>
Class of Shares
A B C D
<S> <C> <C> <C> <C>
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent
Investment
By Wire $5,000 $5,000 $5,000 $5,000
All Other $ 50 $ 50 $ 50 $ 50
</TABLE>
(a) Special conditions apply; contact Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments pursuant to various retirement, dividend and other investment
plans, or sponsored arrangements involving group solicitations of the members
of an organization. The Fund also reserves the right at any time to suspend
the offering of shares or to reject any specific purchase order for shares.
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding Fund shares, or
the flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in the Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, securities dealers are paid
differing amounts of commissions and other compensation depending on which
class of shares they sell.
9
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Sales Charges Initial sales Contingent None Contingent deferred
charge at time of deferred sales sales charge of 1%
investment of up charge of 5% to applies to any
to 4.5% depending 2% applies to any shares redeemed
on amount of shares redeemed within one year
investment within first five following their
years following purchase
their purchase;
no contingent
deferred sales
charge after five
years
On investments of
$1 million or
more, no initial
sales charge; but
contingent
deferred sales
charge of 1%
applies to any
shares redeemed
within one year
following their
purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years;
Class B shares
convert
automatically to
Class A shares
after eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Commission Above described 4% None 1%
Received by Selling initial sales
Securities Dealers charge less 0.25%
to 0.50% retained
by Distributor
On investments of
$1 million or
more, 0.25% to 1%
paid to dealer by
Distributor
</TABLE>
10
<PAGE>
In deciding which class of shares to purchase, the investor should
consider the amount of the investment, the length of time the investment is
expected to be held, and the ongoing service fee and distribution fee, among
other factors.
Class A shares are sold at net asset value plus an initial sales charge of
up to 4.5% of the public offering price. Because of the sales charge, not all
of an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class D shareholders also pay no
initial sales charge, but a contingent deferred sales charge of 1% generally
applies to redemptions made within one year of purchase. For Class B and
Class D shareholders, therefore, the entire purchase amount is immediately
invested in the Fund.
An investor who qualifies for a significantly reduced initial sales
charge, or a complete waiver of the sales charge on investments of $1,000,000
or more, on the purchase of Class A shares might elect that option to take
advantage of the lower ongoing service and distribution fees that
characterize Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual
distribution fee of 0.75% of daily net assets for an eight-year period
following the date of purchase and are then automatically converted to Class
A shares. Class D shares are assessed an annual distribution fee of 0.75% of
daily net assets for as long as the shares are held. The prospective investor
should consider these fees plus the initial or contingent deferred sales
charges in estimating the costs of investing in the various classes of Fund
shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its
expense, provide additional cash and noncash incentives to securities dealers
that sell shares. Such incentives may be extended only to those dealers that
have sold or may sell significant amounts of shares and/or meet other
conditions established by the Distributor; for example, the Distributor may
sponsor special promotions to develop particular distribution channels or to
reach certain investor groups. The incentives may include merchandise and
trips to and attendance at sales seminars at resorts.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar
amount of the shares purchased as set forth in the table below. A major
portion of this sales charge is reallowed by the Distributor to the
securities dealer responsible for the sale.
<TABLE>
<CAPTION>
Sales Sales
Charge Charge
Paid by Paid by Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 or above but
less than $250,000 3.50% 3.63% 3.00%
$250,000 or above but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or above but
less than
$1 million 2.00% 2.04% 1.75%
$1 million and above 0% 0% See
following
discussion
</TABLE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
a commission at the time of sale as follows:
11
<PAGE>
<TABLE>
<CAPTION>
Amount of Sale Commission
<S> <C>
(a) $1 million to $3 million 1.00%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
</TABLE>
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed
within one year of the sale. However, such redeemed shares will not be
subject to the contingent deferred sales charge to the extent that their
value represents (1) capital appreciation or (2) reinvestment of dividends or
capital gains distributions. In addition, the contingent deferred sales
charge will be waived for certain other redemptions as described under
"Contingent Deferred Sales Charge Waivers" below (as otherwise applicable to
Class B shares).
Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of certain other Eligible Funds, as described
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption
within one year of the Class A shares which are acquired through such
exchange. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption. The amount of any contingent
deferred sales charge will be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement
of Additional Information, of $100,000 or more of Class A shares of the Fund
or a combination of "Eligible Funds." "Eligible Funds" include the Fund and
other funds so designated by the Distributor from time to time. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Securities dealers should call Shareholder Services
for details concerning the other Eligible Funds and any persons who may
qualify for reduced sales charges and related information. See the Statement
of Additional Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Fund and any other Eligible Funds within a 13-month period.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of shares
of the Fund and other Eligible Funds at reduced sales charges pursuant to a
Right of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call
Shareholder Services for details concerning the Right of Accumulation.
Other Programs
Class A shares of the Fund may be sold at a reduced sales charge or without a
sales charge pursuant to certain sponsored arrangements, which include
programs under which a company, employee benefit plan or other organization
makes recommendations to, or permits group solicitation of, its employees,
members or participants, except any organization created primarily for the
purpose of obtaining shares of the Fund at a reduced sales charge or without
a sales charge. Information on such arrangements and further conditions and
limitations is available from the Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, 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
12
<PAGE>
Affiliated Companies or any investment company managed by any of the
Affiliated Companies, any relatives of any such individuals whose
relationship is directly verified by such individuals to the Distributor, or
any beneficial account for such relatives or individuals; and (C) employees,
officers, sales representatives or directors of dealers and other entities
with a selling agreement with the Distributor to sell shares of any
aforementioned investment company, any spouse or child of such person, or any
beneficial account for any of them. The purchase must be made for investment
and the shares purchased may not be resold except through redemption. This
purchase program is subject to such administrative policies, regarding the
qualification of purchasers and any other matters, as may be adopted by the
Distributor from time to time.
Class B Shares--Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Fund. However, a
contingent deferred sales charge may be imposed upon redemptions of Class B
shares as described below.
The Distributor will pay securities dealers at the time of sale a 4%
commission for selling Class B shares. The proceeds of the contingent
deferred sales charge and the distribution fee are used to offset
distribution expenses and thereby permit the sale of Class B shares without
an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets or (2) reinvestment of dividends or capital gains distributions.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
<TABLE>
<CAPTION>
Contingent
Deferred
Sales Charge
As A Percentage Of
Net Asset Value
Redemption During At Redemption
<S> <C>
1st Year Since Purchase 5%
2nd Year Since Purchase 4%
3rd Year Since Purchase 3%
4th Year Since Purchase 3%
5th Year Since Purchase 2%
6th Year Since Purchase and Thereafter None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first
of those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of the Fund acquired through an exchange from
another Eligible Fund will be measured from the date that such shares were
initially acquired in the other Eligible Funds, and Class B shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gains distribution reinvestments in such other
Eligible Fund. These determinations will result in any contingent deferred
sales charge being imposed at the lowest possible rate. For federal income
tax purposes, the amount of the contingent deferred sales charge will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid
to the Distributor.
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain
conditions. In addition, the contingent deferred sales charge will be waived
for: (i) 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
13
<PAGE>
specific age in an amount which represents the minimum distribution required
at such age under Section 401(a)(9) of the Internal Revenue Code for
retirement accounts or plans (e.g., age 70-1/2 for IRAs and Section 403(b)
plans), calculated solely on the basis of assets invested in the Fund or
other Eligible Funds; and (iii) a redemption resulting from a tax-free return
of an excess contribution to an IRA. (The foregoing waivers do not apply to a
tax-free rollover or transfer of assets out of the Fund.) The Fund has
reserved the right to change, modify or terminate the waivers described above
at any time.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to
Class A shares of the Fund at the end of eight years following the issuance
of such Class B shares; consequently, they will no longer be subject to the
higher expenses borne by Class B shares. The conversion rate will be
determined on the basis of the relative per share net asset values of the two
classes and may result in a shareholder receiving either a greater or fewer
number of Class A shares than the Class B shares so converted. As noted
above, holding periods for Class B shares received in exchange for Class B
shares of other Eligible Funds will be counted toward the eight-year period.
Class C Shares--Institutional; No Sales Charge
The purchase price of a Class C share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
Class C shares are only available for new investments by certain employee
benefit plans and large institutions. See the Statement of Additional
Information. Information on the availability of Class C shares and further
conditions and limitations is available from the Distributor.
Class C shares may be also issued in connection with mergers and
acquisitions involving the Fund, and under certain other circumstances as
described in this Prospectus (e.g., see "Shareholder Services--Exchange
Privilege").
Shares held prior to February 1, 1994 are deemed to be Class C shares.
Class C shares may have also been issued directly or through exchanges to
those shareholders of the Fund or other Eligible Funds who previously held
shares not subject to any future sales charge or service fees or distribution
fees.
Class D Shares--Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays securities dealers a 1% commission for selling Class D shares at the
time of purchase. The proceeds of the contingent deferred sales charge and
the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not
be subject to the contingent deferred sales charge to the extent that the
value of such shares represents (1) capital appreciation of Fund assets or
(2) reinvestment of dividends or capital gains distributions. In addition,
the contingent deferred sales charge will be waived for certain other
redemptions as described under "Contingent Deferred Sales Charge Waivers"
above (as otherwise applicable to Class B shares). For federal income tax
purposes, the amount of the contingent deferred sales charge will reduce the
gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid
to the Distributor.
14
<PAGE>
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of the New York Stock Exchange (the "NYSE") exclusive of days on
which the NYSE is closed. The NYSE ordinarily closes at 4 P.M. New York City
time. Assets held by the Fund are valued at the last reported sale price as
of the close of business on the valuation date, except that securities and
assets for which market quotations are not readily available are valued as
determined in good faith by or under the authority of the Trustees of the
Trust. In determining the value of certain assets for which market quotations
are not readily available, the Fund may use one or more pricing services. The
pricing services utilize information with respect to market transactions,
quotations from dealers and various relationships among securities in
determining value and may provide prices determined as of times prior to the
close of the NYSE. The Trustees have authorized the use of the amortized cost
method to value short-term debt instruments issued with a maturity of one
year or less that have a remaining maturity of 60 days or less when the value
obtained is fair value. Further information with respect to the valuation of
the Fund's assets is included in the Statement of Additional Information.
Distribution Plan
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, the Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class
of shares as follows:
<TABLE>
<CAPTION>
Class Service Fee Distribution Fee
<S> <C> <C>
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
</TABLE>
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. A portion
of any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance of
shareholder accounts by such dealers. Dealers who have sold Class A shares
are eligible for further reimbursement commencing as of the time of such
sale. Dealers who have sold Class B and Class D shares are eligible for
further reimbursement after the first year during which such shares have been
held of record by such dealer as nominee for its clients (or by such clients
directly). Any service fees received by the Distributor and not allocated to
dealers may be applied by the Distributor in reduction of expenses incurred
by it directly for personal services and the maintenance of shareholder
accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling such shares. Any
distribution fees received by the Distributor and not allocated to dealers
may be applied by the Distributor in connection with sales or marketing
efforts, including special promotional fees and cash and noncash incentives
based upon sales by securities dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources
of the Distributor (including the advisory fees paid by the Fund), have also
been authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the
Distribution Plan to 1%, of which 0.75% may be used to pay distribution
expenses and 0.25% may be used to pay shareholder service fees. The NASD rule
also limits the aggregate amount which the Fund may pay for such distribution
costs to 6.25% of gross share sales
15
<PAGE>
of a class since the inception of any asset-based sales charge plus interest
at the prime rate plus 1% on unpaid amounts thereof (less any contingent
deferred sales charges). Such limitation does not apply to shareholder
service fees. Payments to the Distributor or to dealers funded under the
Distribution Plan may be discontinued at any time by the Trustees of the
Trust.
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the
NYSE is open for business. Redemptions will be effective at the applicable
net asset value per share next determined (see "Purchase of Shares--Net Asset
Value" herein) after receipt of the redemption request, in accordance with
the requirements described below, by Shareholder Services and delivery of the
request by Shareholder Services to the Transfer Agent. To allow time for the
clearance of checks used for the purchase of any shares which are tendered
for redemption shortly after purchase, the remittance of the redemption
proceeds for such shares could be delayed for 15 days or more after the
purchase. Shareholders who anticipate a potential need for immediate access
to their investments should, therefore, purchase shares by wire. Except as
noted, redemption proceeds are normally remitted within seven days after
receipt of the redemption request and any necessary documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266- 8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed
for transfer or accompanied by an endorsed stock power; (3) any required
signature guarantees (see "Redemption of Shares--Signature Guarantees"
below); and (4) any additional documents which may be required for redemption
in the case of corporations, trustees, etc., such as certified copies of
corporate resolutions, governing instruments, powers of attorney, and the
like. The Transfer Agent will not process requests for redemption until it
has received all necessary documents in good order. A shareholder will be
notified promptly if a redemption request cannot be accepted. Shareholders
having any questions about the requirements for redemption should call
Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Fund
may revoke or suspend the telephone redemption privilege at any time and
without notice. See "Shareholder Services--Telephone Services" for a
discussion of the conditions and risks associated with Telephone Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800- 521-6548 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge
is subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor
as its agent to accept
16
<PAGE>
orders from dealers by wire or telephone for the repurchase of shares by the
Distributor from the dealer. The Fund may revoke or suspend this
authorization at any time. The repurchase price is the net asset value for
the applicable shares next determined following the time at which the shares
are offered for repurchase by the dealer to the Distributor. The dealer is
responsible for promptly transmitting a shareholder's order to the
Distributor. Payment of the repurchase proceeds is made to the dealer who
placed the order promptly upon delivery of certificates for shares in proper
form for transfer or, for Open Accounts, upon the receipt of a stock power
with signatures guaranteed as described below, and, if required, any
supporting documents. Neither the Fund nor the Distributor imposes any charge
upon such a repurchase. However, a dealer may impose a charge as agent for a
shareholder in the repurchase of his or her shares.
The Fund has reserved the right to change, modify or terminate the
services described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder
accounts, the Fund reserves the right to involuntarily redeem at its option
any shareholder account which remains below $1,500 for a period of 60 days
after notice is mailed to the applicable shareholder. Such involuntary
redemptions will be subject to applicable sales charges, if any. The Fund may
increase such minimum account value above such amount in the future after
notice to affected shareholders. Involuntarily redeemed shares will be priced
at the net asset value on the date fixed for redemption by the Fund, and the
proceeds of the redemption will be mailed promptly to the affected
shareholder at the address of record.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment
of redemption proceeds: (1) during any period that the NYSE is closed (other
than customary weekend and holiday closings) or trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable for the Fund fairly to determine the value of its
net assets; or (3) during such other periods as the Securities and Exchange
Commission may by order permit for the protection of investors; and (b) the
payment of redemption proceeds may be postponed as provided under "Redemption
of Shares."
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Transfer
Agent to be certain that the person who has authorized a redemption from the
account is, in fact, the shareholder. Signature guarantees are required for:
(1) all redemptions requested by mail; and (2) requests to transfer the
registration of shares to another owner. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived by the Fund in
certain instances.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of the Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing Class B or Class D shares will not be
issued, while certificates representing Class A or Class C shares will only
be issued if specifically requested by shareholders in writing and, in any
case, will only be issued for full shares, with any fractional shares to be
carried on the shareholder's account. Shareholders will receive periodic
statements of transactions in their accounts.
17
<PAGE>
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through dealers,
by wire or by mailing a check, payable to the Fund, to Shareholder Services
under the terms set forth above under "Purchase of Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
(b) All income dividends in cash; all capital gains distributions
reinvested in additional shares of the Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in any
one available Eligible Fund designated by the shareholder as described below.
See "Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, the account will automatically be coded for reinvestment of all
dividends and distributions in additional shares of the same class of the
Fund. Selections may be changed at any time by telephone or written notice to
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for available shares with
corresponding characteristics of any of the other Eligible Funds at any time
on the basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws.
Shareholders of any other Eligible Fund may similarly exchange their shares
for Fund shares with corresponding characteristics. Prior to making an
exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class A, Class B and
Class D shares may be redeemed without the payment of any contingent deferred
sales charge that might otherwise be due upon an ordinary redemption of such
shares. The MetLife - State Street Research Money Market Fund issues Class E
shares which
are sold without any sales charge. Exchanges of MetLife - State Street
Research Money Market Fund Class E shares into Class A shares of the Fund or
any other Eligible Fund are subject to the initial sales charge or contingent
deferred sales charge applicable to an initial investment in such Class A
shares, unless a prior Class A sales charge has been paid directly or
indirectly with respect to the shares redeemed. For purposes of computing the
contingent deferred sales charge that may be payable upon disposition of the
acquired Class A, Class B and Class D shares, the holding period of the
redeemed shares is "tacked" to the holding period of the acquired shares. The
period any Class E shares are held is not tacked to the holding period of any
acquired shares. No exchange transaction fee is currently imposed on any
exchange.
For the convenience of its shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or
his or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-521-6548. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes,
each exchange actually represents the sale of shares of one fund and the
purchase of shares of another. Accordingly, exchanges may produce a capital
gain or loss for tax purposes. The exchange privilege may be terminated or
suspended or its terms changed at any time, subject, if required under
applicable regula-
18
<PAGE>
tions, to 60 days' prior notice. New accounts established for investments
upon exchange from an existing account in another fund will have the same
Telephone Privileges as the existing account, unless Shareholder Services is
instructed otherwise. Related administrative policies and procedures may also
be adopted with regard to a series of exchanges, street name accounts,
sponsored arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. In order to limit exchange
activity where the Fund believes doing so would be in the best interests of
the Fund, it reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any exchange for
any person. These measures may be imposed at any time. Subject to the
foregoing, if an exchange request in good order is received by Shareholder
Services and delivered by Shareholder Services to the Transfer Agent by 12
noon Boston time on any business day, the exchange usually will occur that
day. Consult Shareholder Services before requesting an exchange or for
further information.
Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares repurchased
at his or her request may reinvest all or any portion of the proceeds (plus
that amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and
without subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 30 calendar days after a redemption or
repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal income tax
purposes, a sale on which the shareholder may realize a gain or loss. If a
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once with respect to his or her
shares of the Fund. No charge is imposed by the Fund for such reinvestments;
however, dealers may charge fees in connection with the reinvestment
privilege. The reinvestment privilege may be exercised with respect to an
Eligible Fund only in those states where shares of the relevant other
Eligible Fund may legally be sold.
Investment Plans
The Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments
by authorizing withdrawals from their bank accounts each month or quarter on
the Investamatic application form available from Shareholder Services. The
Investamatic Check Program is subject to the same minimum initial investment
and subsequent investment requirements for accounts as applicable otherwise.
The Fund also offers tax-sheltered retirement plans, including prototype
and other employee benefit plans for employees, sole proprietors,
partnerships and corporations and IRAs. Details of these investment plans and
their availability may be obtained from securities dealers or from
Shareholder Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Fund's Systematic Withdrawal Plan,
to have periodic checks issued for specified amounts. These amounts may not
be less than certain minimums, depending on the class of shares held. The
Plan provides that all income dividends and capital gains distributions of
19
<PAGE>
the Fund shall be credited to participating shareholders in additional shares
of the Fund. Thus, the withdrawal amounts paid can only be realized by
redeeming shares of the Fund under the Plan. To the extent such amounts paid
exceed dividends and distributions from the Fund, a shareholder's investment
will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually
of either (a) the value, at the time the Plan is initiated, of the shares
then in the account or (b) the value, at the time of a withdrawal, of the
same number of shares as in the account when the Plan was initiated,
whichever is higher.
Expenses of the Plan are borne by the Fund. A participating shareholder
may withdraw from the Plan and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is
receiving payments under a Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate
in the Investamatic Check Program and the Systematic Withdrawal Plan at the
same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all of
their dividends and any other distributions from the Fund or any Eligible
Fund automatically invested at net asset value in one other such Eligible
Fund designated by the shareholder, provided the account into which the
investment is made is initially funded with the requisite minimum amount. The
number of shares purchased will be determined as of the dividend payment
date. The Dividend Allocation Plan is subject to state securities law
requirements, to suspension at any time, and to such policies, limitations
and restrictions, as, for instance, may be applicable to street name or
master accounts, that may be adopted from time to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by
the Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions
for amounts up to $50,000 to be mailed to the shareholder's address of record
is available automatically;
(2) The privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically; and
(3) the privilege allowing the shareholder to make telephone redemptions
for amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not previously
request such telephone wire privilege on his or her original Application may
request the privilege by completing a Telephone Redemption-by-Wire Form which
may be obtained by calling 1-800-521-6548. The Telephone Redemption-by-Wire
Form requires a signature guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in
(1) and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by
advising Shareholder Services that the shareholder wishes to discontinue the
use of such privileges in the future.
20
<PAGE>
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account; and (2) honor any written instructions for
a change of address regardless of whether such request is accompanied by a
signature guarantee. All telephone calls will be recorded. None of the Fund,
the other Eligible Funds, the Transfer Agent, the Investment Manager or the
Distributor will be liable for any loss, expense or cost arising out of any
request, including any fraudulent or unauthorized requests. Shareholders
assume the risk to the full extent of their accounts that telephone requests
may be unauthorized. Reasonable procedures will be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not
be liable for any losses arising from unauthorized or fraudulent instructions
if such procedures are not followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is unlikely, during periods of extraordinary
market conditions, a shareholder may have difficulty in reaching Shareholder
Services at such telephone number. In that event, the shareholder should
contact Shareholder Services at 1-800-562-0032, 1-617-357-7805 or
otherwise at its main office at One Financial Center, Boston, Massachusetts
02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your
account, including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made
in writing to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408. A fee of up to $10 will be charged against
an account for providing additional account transcripts or photocopies of
paid redemption checks or for researching records in response to special
requests.
Shareholder Telephone Transactions:
Please call 1-800-521-6548
Call this number for assistance in purchasing shares by wire and for
telephone redemptions or telephone exchange transactions. Shareholder
Services will require some form of personal identification prior to acting
upon instructions received by telephone. Written confirmation of each
transaction will be provided.
The Fund and its Shares
The Fund commenced operations in October 1993 as an additional series of
State Street Capital Trust, a Massachusetts business trust, formed in 1988.
The Trust is registered with the Securities and Exchange Commission under the
1940 Act as an open-end management investment company. The fiscal year end of
the Fund is September 30.
The Fund has received an order from the Securities and Exchange Commission
(the "Commission") permitting the issuance and sale of multiple classes of
shares representing interests in the existing portfolio of any series of the
Trust. Except for those differences between the classes of shares described
below and elsewhere in the Prospectus, each share of the Fund has equal
dividend, redemption and liquidation rights with other shares of the Fund and
when issued is fully paid and nonassessable. The Trustees have authorized the
Fund to offer four classes of shares as described above. In the future,
certain classes may be redesignated, for administrative purposes only, to
conform to standard class designations and common usage of terms which may
develop in the mutual fund industry. For example, Class C shares may be
redesignated as Class Y shares and Class D shares may be redesignated as
Class C shares. Any redesignation would not affect any substantive rights
respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and
21
<PAGE>
Class D shares bear the expenses of the deferred sales arrangement and any
expenses (including the higher service and distribution fees) resulting from
such sales arrangement, and certain other incremental expenses related to a
class. Each class will have exclusive voting rights with respect to
provisions of the Rule 12b-1 distribution plan pursuant to which the service
and distribution fees, if any, are paid. Although the legal rights of holders
of each class of shares are identical, it is likely that the different
expenses borne by each class will result in different net asset values and
dividends. The different classes of shares of the Fund also have different
exchange privileges.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material adverse effect on
the rights of any shareholder. On any matter submitted to the shareholders,
the holder of each Fund share is entitled to one vote per share (with
proportionate voting for fractional shares) regardless of the relative net
asset value thereof.
Under the Master Trust Agreement of the Trust, no annual or regular
meeting of shareholders is required. Thus, there will ordinarily be no
shareholder meetings unless required by the 1940 Act. Except as otherwise
provided under said Act, the Board of Trustees will be a self-perpetuating
body until fewer than two thirds of the Trustees serving as such are Trustees
who were elected by shareholders of the Trust. In the event less than a
majority of the Trustees serving as such were elected by shareholders of the
Trust, a meeting of shareholders will be called to elect Trustees. Under the
Master Trust Agreement, any Trustee may be removed by vote of two thirds of
the outstanding Trust shares; holders of 10% or more of the outstanding Trust
shares can require that the Trustees call a meeting of shareholders for
purposes of voting on the removal of one or more Trustees. In connection with
such meetings called by shareholders, shareholders will be assisted in
shareholder communications to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for
indemnification for all losses and expenses of any shareholder of the Fund
held personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations. The Investment Manager believes that, in view of the above, the
risk of personal liability to shareholders is remote.
Management of the Fund
Under the provisions of the Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
The Fund's investment manager is State Street Research & Management
Company. The Investment Manager is charged with the overall responsibility
for managing the investments and business affairs of the Fund, subject to the
authority of the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first
mutual funds, presently known as State Street Investment Trust, which they
had formed in 1924. Their investment management philosophy, which continues
to this day, emphasized comprehensive fundamental research and analysis,
including meetings with the management of companies under consideration for
investment. The Investment Manager's portfolio management group has extensive
investment industry experience.
22
<PAGE>
The Investment Manager is an indirect wholly- owned subsidiary of
Metropolitan, and the Distributor is a wholly-owned subsidiary of the
Investment Manager, and both are located at One Financial Center, Boston,
Massachusetts 02111-2690.
Under its Advisory Agreement with the Trust, the Investment Manager
receives a monthly investment advisory fee equal to 0.75% (on an annual
basis) of the average daily value of the net assets of the Fund. Such fee is
higher than that charged by most mutual funds, but is believed by the
Trustees to be justified given the considerable analysis and research
necessary to manage the Fund in light of its investment objective and
policies. The Fund bears all costs of its operation other than those incurred
by the Investment Manager under the Advisory Agreement. In particular, the
Fund pays, among other expenses, investment advisory fees, certain
distribution expenses under the Fund's Distribution Plan and the compensation
and expenses of the Trustees who are not otherwise currently affiliated with
the Investment Manager or any of its affiliates. The Fund also incurs
expenses payable to various states in connection with the offer and sale of
the Fund's shares, and expenses for legal, custodian and transfer agent
services, among other costs. The Investment Manager will reduce its
management fee payable by the Fund up to the amount of any expenses
(excluding permissible items, such as brokerage commissions, Rule 12b-1
payments, interest, taxes and litigation expenses) paid or incurred in any
year in excess of the most restrictive expense limitation imposed by any
state in which the Fund sells shares, if any. Under the Advisory Agreement,
the Investment Manager provides the Fund with office space, facilities and
personnel. The Investment Manager compensates Trustees of the Trust if such
persons are employees or affiliates of the Investment Manager or its
affiliates.
The Fund is managed by Charles S. Glovsky. Mr. Glovsky has managed the
Fund since its inception. Mr. Glovsky's principal occupation currently is
Senior Vice President of State Street Research & Management Company. During
the past five years he has also served as Vice President of State Street
Research & Management Company.
Subject to the policy of seeking best overall price and execution, sales
of shares of the Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for the Fund's portfolio transactions.
Dividends and Distributions; Taxes
The Fund intends to qualify and elect to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code, although it cannot
give complete assurance that it will do so. As long as it so qualifies and
satisfies certain distribution requirements, it will not be subject to
federal income taxes on its income (including capital gains, if any)
distributed to its shareholders. Consequently, the Fund intends to distribute
annually to its shareholders substantially all of its net investment income
and any capital gain net income (capital gains net of capital losses).
The Fund declares dividends from net investment income and distributions
of net capital gains annually and pays such dividends and distributions, if
any, after year end or as otherwise required for compliance with applicable
tax regulations. Both dividends from net investment income and distributions
of capital gain net income will be declared and paid to shareholders in
additional shares of the Fund at net asset value on the record date of that
dividend or distribution, except in the case of shareholders who elect a
different available distribution method.
The Fund will provide its shareholders of record with annual information
on a timely basis concerning the federal tax status of dividends and
distributions during the preceding calendar year.
Dividends paid by the Fund from taxable net investment income and
distributions of net short-term capital gains, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax
purposes to shareholders as ordinary income, and a portion 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 consists of
qualifying dividends of domestic corporations. Distri-
23
<PAGE>
butions of net capital gains (the excess of net long- term capital gains over
net short-term capital losses) which are designated as capital gains
distributions, whether paid in cash or reinvested in additional shares, will
be taxable for federal income tax purposes to shareholders as long-term
capital gains, regardless of how long shareholders have held their shares,
and are not eligible for the dividends-received deduction. If shares of the
Fund which are sold at a loss have been held six months or less, the loss
will be considered as a long-term capital loss to the extent of any capital
gains distributions received.
Dividends and other distributions and proceeds of redemptions of Fund
shares paid to individuals and other nonexempt payees will be subject to a
31% federal backup withholding tax if State Street Bank and Trust Company,
the Fund's transfer agent, is not provided with the shareholder's correct
taxpayer identification number and certification that the shareholder is not
subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisers
regarding tax matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, the Fund may compare the performance of its Class A,
Class B, Class C and Class D shares to that of other mutual funds with
similar investment objectives, to certificates of deposit and/or to other
financial alternatives. The Fund may also compare its performance to
appropriate indices such as the NASDAQ Composite Average, Small Stock Index,
Russell 2000 Index, Standard & Poor's 500 Stock Index (the "S&P 500"),
Consumer Price Index and Dow Jones Industrial Average and/or to appropriate
rankings and averages, such as the Lipper Small Company Growth Funds average,
compiled by Lipper Analytical Services, Inc., or to those compiled by
Morningstar, Inc., Money Magazine, Business Week, Forbes Magazine, the Wall
Street Journal and Investor's Daily.
Total return is computed separately for each class of shares of the Fund.
The average annual total return ("standard total return") for shares of the
Fund is computed by determining the average annual compounded rate of return
for a designated period that, if applied to a hypothetical $1,000 initial
investment (less the maximum initial or contingent deferred sales charge, if
applicable), would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions and
with recognition of all recurring charges. Standard total return will be
calculated for the periods specified in applicable regulations and may be
accompanied by nonstandard total return information for differing periods
computed in the same manner with or without annualizing the total return or
taking sales charges into account.
The standard total return results take sales charges into account, if
applicable, but do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for remittance of redemption proceeds by
wire. Where sales charges are not applicable and therefore not taken into
account in the calculation of standard total return, the results will be
increased. Any voluntary waiver of management fees or assumption of expenses
by the Fund's affiliates will also increase performance results.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of the Fund varies in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
performance quotation should be considered a representation as to the Fund's
performance for any future period. In addition, the net asset value of shares
of the Fund will fluctuate, with the result that shares of the Fund, when
redeemed, may be worth more or less than their original cost. Neither an
investment in the Fund nor the Fund's performance is insured or guaranteed;
such lack of insurance or guarantees should accordingly be given appropriate
consideration when comparing the Fund to financial alternatives which have
such features.
24
<PAGE>
Shares of the Fund had no class designations until February 1, 1994, when
designations were assigned based on the pricing and Rule 12b-1 fees
applicable to shares sold thereafter. Performance data for a specified class
includes periods prior to the adoption of class designations. Performance
data for periods prior to February 1, 1994 will not reflect additional Rule
12b-1 Distribution Plan fees, if any, of up to 1% per year depending on the
class of shares, which will adversely affect performance results for periods
after such date. Performance data or rankings for a given class of shares
should be interpreted carefully by investors who hold or may invest in a
different class of shares.
<PAGE>
[COVER}
STATE STREET RESEARCH
SMALL CAPITALIZATION
GROWTH FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
SCG-769D-295IBS CONTROL NUMBER: 2002-950125(0396)SSR-LD
[State Street Research Logo]
State Street Research
Small Capitalization
Growth Fund
February 1, 1995
P R O S P E C T U S
<PAGE>
Supplement No. 2 dated July 17, 1995
(Supplanting Supplement No. 1 dated February 1, 1995)
to
Prospectus dated February 1, 1995
for
STATE STREET RESEARCH SMALL CAPITALIZATION VALUE FUND
a series of State Street Research Capital Trust
Share Classes Available
At the present time, only Class A shares are generally available for purchase.
For information on the availability of other classes of shares, contact the
Distributor.
Minimum Investment
The section under the caption "Purchase of Shares--Minimum Investment" is
revised in its entirety as follows:
Class of Shares
A B C D
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $50 $50 (a) $50
By Investamatic $50 $50 (a) $50
All other $50 $50 (a) $50
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments under various retirement and employee benefit plans, sponsored
arrangements involving group solicitations of the members of an organization, or
other investment plans such as for reinvestment of dividends and distributions
or for periodic investments (e.g., Investamatic Check Program)."
Other Programs
Immediately after the first sentence of the first paragraph under the caption
"Purchase of Shares--Class A Shares--Initial Sales Charges--Other
Programs," the following is added:
"Sales without a sales charge, or with a reduced sales charge, may also be made
through brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor, in the event the
Distributor determines to implement such arrangements."
Additional Information
Under the caption "Redemption of Shares--Additional Information," the first
paragraph is revised in its entirety as follows:
"Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable sales charges, if any. The Fund may increase such minimum
account value above such amount in the future after notice to affected
shareholders. Involuntarily redeemed shares will be priced at the net asset
value on the date fixed for redemption by the Fund, and the proceeds of the
redemption will be mailed to the affected shareholder at the address of record.
Currently, the maintenance fee is $18 annually, which is paid to the Transfer
Agent. The fee does not apply to certain retirement accounts or if the
shareholder has more than an aggregate $50,000 invested in the Fund and other
Eligible Funds combined. Imposition of a maintenance fee on a small account
could, over time, exhaust the assets of such account."
<PAGE>
Investment Plans
The first paragraph under the caption "Shareholder Services--Investment
Plans" is revised in its entirety to read as follows:
"The Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Investamatic application form available from Shareholder Services."
Other Policy Changes
The Master Trust Agreement will be amended to eliminate the need for a vote by
shareholders of the acquiring fund to approve a merger or consolidation, or
acquisition of assets; the approval of shareholders of any acquired fund would
still be required. This policy change will be effective upon, and subject to,
shareholder approval at a meeting scheduled for August, 1995. For more
information about the changes, obtain a copy of the related Proxy Statement by
calling Shareholder Services at 1-800-562-0032.
CONTROL NUMBER: 2456K-950717(0896)SSR-LD SCV-260E-795IBS
<PAGE>
State Street Research
Small Capitalization Value Fund
Prospectus
February 1, 1995
The investment objective of State Street Research Small Capitalization
Value Fund (the "Fund") is to provide high total return consisting principally
of capital appreciation. In seeking to achieve its investment objective, the
Fund invests primarily in the equity securities of small capitalization
companies which are trading at prices believed to be below the true values of
such securities. For further information, see "The Fund's Investments."
State Street Research & Management Company (the "Investment Manager")
serves as investment adviser to the Fund. As of December 31, 1994, the
Investment Manager had assets of approximately $23.2 billion under management.
State Street Research Investment Services, Inc. serves as distributor (the
"Distributor") for the Fund.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Fund will
achieve its investment objective. The net asset value of the Fund's shares
fluctuates as market conditions change.
Because of the Fund's investment policies, the Fund is subject to
above-average risks; it may invest substantial amounts in foreign securities and
special situation companies and have a high portfolio turnover rate. The Fund
generally is designed for investors who want an aggressive investment and can
tolerate volatility and possible losses. An investment in the Fund should be
part of a balanced investment program which includes more conservative
investments. For further information, see "The Fund's Investments -- Other
Investments and Risk Considerations." In addition, the Fund may suspend the
offering of its shares at any time because of the limited availability of
investments which meet the Fund's investment parameters.
This Prospectus sets forth concisely the information a prospective
investor ought to know about the Fund before investing. It should be retained
for future reference. A Statement of Additional Information about the Fund dated
February 1, 1995 has been filed with the Securities and Exchange Commission and
is incorporated by reference into this Prospectus. It is available at no charge
upon request to the Fund at the address indicated on the cover or by calling
1-800-562-0032.
The Fund is a diversified series of State Street Research Capital Trust
(the "Trust"), an open-end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
CONTROL NUMBER: 2146-950220(0396)SSR-LD SCV-175E-295IBS
<PAGE>
Shareholders may have their shares redeemed directly by the Fund at net
asset value plus the applicable contingent deferred sales charge, if any;
redemptions processed through securities dealers may be subject to processing
charges.
Table of Contents Page
Table of Expenses ...................................................... 3
The Fund's Investments ................................................. 5
Limiting Investment Risk ............................................... 10
Purchase of Shares ..................................................... 11
Redemption of Shares ................................................... 24
Shareholder Services ................................................... 27
The Fund and its Shares ................................................ 33
Management of the Fund ................................................. 35
Dividends and Distributions; Taxes ..................................... 36
Calculation of Performance Data ........................................ 38
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a deferred
basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5%
and (ii) an annual service fee of 0.25% of the average daily net asset value of
the Class A shares.
Class B shares are subject (i) to a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made within
five years of purchase and (ii) annual distribution and service fees of 1% of
the average daily net asset value of such shares. Class B shares automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years after purchase. No contingent deferred sales charge applies after
the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and
large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution and
service fees of 1% of the average daily net asset value of such shares.
2
<PAGE>
Table of Expenses
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum Sales Charge Imposed on Purchases (as
percentage of offering price) ............... 4.5% None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable) ......... None(2) 5% None 1%
Redemption Fees (as a percentage of amount
redeemed, if applicable) .................... None None None None
Exchange Fees ................................. None None None None
</TABLE>
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
annually through the fifth year, and no contingent deferred sales charge
is imposed after the fifth year. Class D shares are subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed
within one year of the sale. Long-term investors in a class of shares with
a distribution fee may, over a period of years, pay more than the economic
equivalent of the maximum sales charge permissible under applicable rules.
See "Purchase of Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
3
<PAGE>
Class A Class B Class C Class D
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees ............... 0.85% 0.85% 0.85% 0.85%
12b-1 Fees .................... 0.25% 1.00% None 1.00%
Other Expenses ................ 1.05% 1.05% 1.05% 1.05%
Less Voluntary Reduction ..... (0.70%) (0.70%) (0.70%) (0.70%)
------- ------- ------- -------
Total Fund Operating Expenses
(after voluntary reduction) 1.45% 2.20% 1.20% 2.20%
======= ======= ======= =======
Example: 1 Year 3 Years
You would pay the following expenses on a $1,000 investment including, for Class
A shares, the maximum applicable initial sales charge and assuming (1) 5%
annual return and (2) redemption of the entire investment at the end of each
time period:
Class A shares .................................. $59 $89
Class B shares .................................. $72 $99
Class C shares .................................. $12 $38
Class D shares .................................. $32 $69
You would pay the following expenses on the same investment, assuming no
redemption:
Class B shares .................................. $22 $69
Class D shares .................................. $22 $69
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. Because the Fund is newly organized, the percentage expense levels
shown in the table as "Other Expenses" are based on estimated amounts for the
current year. Actual expense levels for the current fiscal year and future years
may vary from the amounts shown. The table does not reflect charges for optional
services elected by certain shareholders, such as the $7.50 fee for remittance
of redemption proceeds by wire. For further information on sales charges, see
"Purchase of Shares -- Alternative Purchase Program"; for further information on
management fees, see "Management of the Fund"; and for further information on
12b-1 fees, see "Purchase of Shares -- Distribution Plan."
4
<PAGE>
The Fund has been advised that the Distributor and its affiliates may from
time to time and in varying amounts voluntarily assume some portion of fees or
expenses relating to the Fund. The Fund presently expects such assistance to be
provided for the next 12 months or until the Fund's net assets reach $100
million, whichever first occurs. However, the Fund has not received any firm
commitment that such assistance will in fact be provided. For the current fiscal
year, Total Fund Operating Expenses for the Fund are estimated to be 2.15%,
2.90%, 1.90% and 2.90% for Class A, Class B, Class C and Class D shares,
respectively, in the absence of the voluntary assumption of expenses by the
Distributor and its affiliates.
The Fund's Investments
The Fund's investment objective is to provide high total return consisting
principally of capital appreciation. The investment objective is a fundamental
policy that may not be changed without approval of the Fund's shareholders.
In seeking to achieve its investment objective, the Fund invests at least
65% of its total assets under normal circumstances in the equity securities of
small capitalization companies which are trading at prices believed by the
Investment Manager to be below the true values of such securities. A company's
market capitalization is the total market value of its publicly traded equity
securities. The Fund currently invests in companies with market capitalizations
of up to $1 billion, although this figure may fluctuate over time because of
market conditions, inflation, etc. While a company's market capitalization may
be small at the time the Fund first invests in the company, the Fund may
continue to hold and acquire shares of a company after its market capitalization
increases. The definition of a "small capitalization company" may be revised by
the Investment Manager from time to time.
In selecting investments, the Investment Manager considers a variety of
factors, any one or more of which may be determinative. These include a
company's expected growth in earnings, relative financial condition and cash
flow, competitive position, management and business strategy, overall potential
as an enterprise, entrepreneurial character, and new or innovative products,
services or processes. In assessing a security's value in comparison to its
current price the Investment Manager analyzes such measurements as price to
earnings ratio, price to cash flow ratio, price to book value ratio, price to
replacement cost ratio and price to private market value ratio.
The equity securities in which the Fund will invest consist of common and
preferred stocks, convertible securities (e.g., preferred stock, bonds and
debentures) and warrants. Preferred stocks are stocks which have preferences,
such as payment of dividends, over common stocks; debentures are debt securities
5
<PAGE>
subject to protective covenants such as the maintenance of minimum financial
conditions; convertible securities are securities which may be converted into
different securities, such as a preferred stock being converted into a common
stock; and warrants are rights to acquire other securities. The Fund anticipates
that more than half of the total value, at the time of investment, of the equity
securities held by the Fund will be included on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system or listed on a major
securities exchange.
Under normal circumstances, the Fund expects to be fully invested in
equity securities as described above. However, the Fund may, consistent with its
investment objective, also invest at any time up to 35% of its total assets in
other equity and debt securities, such as those issued by larger capitalization,
more mature, or special situation companies, and U.S. Government securities. A
special situation company is one which, because of unique circumstances such as,
for example, a particular business niche it fills, is an attractive investment
even though it is not a small capitalization issuer. The Fund will generally
purchase investment grade debt securities (i.e., rated at the time of purchase
AAA, AA, A or BBB by Standard & Poor's Corporation ("S&P") or Aaa, Aa, A or Baa
by Moody's Investors Service, Inc. ("Moody's")), or securities that are not
rated but considered by the Investment Manager to be of equivalent investment
quality; bonds rated Baa by Moody's, or equivalent, may have speculative
characteristics. The Fund may, however, invest up to 5% of its total assets in
debt securities rated as low as C by S&P and Moody's. The debt securities, which
may have differing maturities and fixed or floating interest rates, generally
will be U.S. Government securities or issued by larger capitalization issuers.
For more information on debt ratings and the risks of lower rated debt
securities, see the Statement of Additional Information.
Because the Fund invests primarily in small capitalization companies, an
investment in the Fund involves greater than average risks and the value of the
Fund's shares may fluctuate more widely than the value of shares of a fund that
invests in larger, more established companies. Securities held by the Fund,
particularly those traded over-the-counter, may have limited marketability and
may be subject to more abrupt or erratic market movements over time than
securities of larger, more seasoned companies or the market as a whole. The
issuers of over-the-counter securities may have limited product lines, markets
and financial resources, may be dependent on entrepreneurial management,
typically reinvest most of their net income in the enterprise and typically do
not pay dividends.
6
<PAGE>
Other Investments and Risk Considerations
Foreign Investments
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Under current
policy, however, the Fund limits such investments, including ADRs and EDRs, to a
maximum of 35% of its total assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign corporation or
other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs in registered form are designed for use
in U.S. securities markets and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of ADRs or EDRs
facilitates trading in foreign securities, it does not mitigate all the risks
associated with investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the issuer
than are unsponsored ADRs. More and higher fees are generally charged in an
unsponsored program compared to a sponsored facility. Only sponsored ADRs may be
listed on the New York or American Stock Exchanges. Unsponsored ADRs may prove
to be more risky due to (a) the additional costs involved to the Fund; (b) the
relative illiquidity of the issue in U.S. markets; and (c) the possibility of
higher trading costs in the over-the-counter market as opposed to exchange-based
trading. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or expropriation, the possible imposition of currency exchange
blockages, higher operating expenses, foreign withholding and other taxes which
may reduce investment return, reduced availability of public information
concerning issuers and the fact that foreign issuers are not generally subject
to uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to domestic
issuers. Moreover, securities of many
7
<PAGE>
foreign issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers.
It is anticipated that most of the foreign investments of the Fund will
consist of securities of issuers in countries with developed economies. However,
the Fund may also invest in the securities of issuers in countries with less
developed economies as deemed appropriate by the Investment Manager, although
the Fund does not presently expect to invest more than 5% of its total assets in
issuers in such less developed countries. Such countries include countries that
have an emerging stock market that trades a small number of securities;
countries with low- to middle-income economies; and/or countries with economies
that are based on only a few industries. Eastern European countries are
considered to have less developed capital markets.
For further information regarding foreign investments, see the Statement
of Additional Information.
Currency Transactions
In order to protect against the effect of uncertain future exchange rates
on securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the rate prevailing
in the currency exchange market or by entering into forward contracts to
purchase or sell currencies. Although such contracts tend to minimize the risk
of loss resulting from a correctly predicted decline in value of hedged
currency, they tend to limit any potential gain that might result should the
value of such currency increase. In entering a forward currency transaction, the
Fund is dependent upon the creditworthiness and good faith of the counterparty.
The Fund attempts to reduce the risks of nonperformance by the counterparty by
dealing only with established, large institutions with which the Investment
Manager has done substantial business in the past. For further information, see
the Statement of Additional Information.
Other Investment Policies
The Fund may lend portfolio securities with a value of up to 33 1/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of the loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, irrevocable stand-by letters of credit issued by
a bank, or any combination thereof. The investing of cash collateral received
from loaning portfolio securities involves leverage which magnifies the
potential for gain or loss on monies invested and, therefore, results in an
increase in the volatility of the Fund's
8
<PAGE>
outstanding securities. Such loans may be terminated at any time.
The Fund will retain most rights of ownership including rights to
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending, although the Fund may call loans to vote proxies
if desired. Should the borrower of the securities fail financially, there is a
risk of delay in recovery of the securities or loss of rights in the collateral.
Loans are made only to borrowers which are deemed by the Investment Manager to
be of good financial standing.
The Fund may, subject to certain percentage limitations below, buy and
sell options, futures contracts and options on futures contracts on securities,
securities indices and currencies; such instruments are commonly known as
derivatives because they derive their value from underlying assets, such as the
securities on which they are based. The Fund may not establish a position in a
commodity futures contract or purchase or sell a commodity option contract for
other than bona fide hedging purposes if immediately thereafter the sum of the
amount of initial margin deposits and premiums required to establish such
derivative positions for nonhedging purposes would exceed 5% of the market value
of the Fund's net assets; similar policies apply to options which are not
commodities. The Fund may also invest in derivatives through various forms of
swap arrangements with respect to interest rates, currency rates and indices;
the Fund does not expect to invest more than 5% of its total assets in such
derivatives. For a more detailed discussion of derivatives, see the Statement of
Additional Information. The Fund may also enter into repurchase agreements,
reverse repurchase agreements and purchase securities on a "when-issued" basis.
See the Statement of Additional Information.
The Fund may invest in restricted securities in accordance with Rule 144A
under the Securities Act of 1933, which allows for the resale of such securities
among certain qualified institutional buyers. Because the market for such
securities is still developing, such securities could possibly become illiquid
in particular circumstances. See the Statement of Additional Information.
The Fund anticipates that its portfolio turnover rate will generally not
exceed 125% under normal conditions. The Fund does, however, reserve full
freedom with respect to portfolio turnover. In periods when there are rapid
changes in economic conditions or security price levels or when investment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy remains
relatively constant. An actual portfolio turnover rate of 100% or more may
result in greater transaction costs, relative to other funds in general, and may
have tax and
9
<PAGE>
other consequences as well. See the Statement of Additional Information.
Limiting Investment Risk
In seeking to lessen investment risk, the Fund operates under certain
fundamental and nonfundamental investment restrictions. Under the fundamental
investment restrictions, the Fund may not (a) purchase a security of any one
issuer (other than securities issued or guaranteed as to principal or interest
by the U.S. Government or its agencies or instrumentalities or mixed-ownership
Government corporations), if such purchase would, with respect to 75% of the
Fund's total assets, cause more than 5% of the Fund's total assets to be
invested in the securities of such issuer; (b) purchase for its portfolio a
security of any one issuer if such purchase would cause more than 10% of the
voting securities of such issuer to be held by the Fund; or (c) invest more than
25% of the Fund's total assets in securities of issuers principally engaged in
any one industry as set forth in the Statement of Additional Information. Under
the nonfundamental investment restrictions, the Fund may not invest more than
15% of the Fund's total assets in illiquid securities including repurchase
agreements extending for more than seven days and may not invest more than 5% of
the Fund's total assets in restricted securities excluding securities eligible
for resale under Rule 144A under the Securities Act of 1933. Although many
illiquid securities may also be restricted, and vice versa, compliance with each
of these policies will be determined independently.
The foregoing fundamental investment restrictions may not be changed
except by vote of the holders of a majority of the outstanding voting securities
of the Fund. The vote of a majority of the outstanding voting securities of the
Fund means the vote (A) of 67 per centum or more of the voting securities
present at a meeting, if the holders of more than 50 per centum of the
outstanding voting securities of the Fund are present or represented by proxy;
or (B) of more than 50 per centum of the outstanding voting securities of the
Fund, whichever is less. The foregoing nonfundamental investment restriction may
be changed without a shareholder vote. For further information on the above and
other fundamental and nonfundamental investment restrictions, see the Statement
of Additional Information.
The Fund may hold up to 100% of its assets in cash or certain short-term
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against adverse market conditions.
To the extent that the Fund's assets are held in a temporary defensive position,
the Fund will not be achieving its investment objective. The types of short-term
instruments in which the Fund may invest for such purposes are, as more fully
described in the Statement of Additional Information: U.S. Government securities
(including STRIPS, as defined below), custodial receipts, cer-
10
<PAGE>
tificates of deposit, time deposits and bankers' acceptances of certain
qualified financial institutions and corporate commercial paper rated at least
"A" by S&P or "Prime" by Moody's (or, if not rated, issued by companies having
an outstanding unsecured debt issue rated at least "A" by S&P or Moody's). Under
the Separate Trading of Registered Interest and Principal of Securities
("STRIPS") program, the principal and interest components of selected U.S.
Government securities are traded independently. Custodial receipts are
instruments that evidence ownership of future interest payments, principal
payments or both on certain U.S. Treasury notes or bonds and are known by
various names, including "Treasury Investment Growth Receipts" ("TIGRs") and
"Certificates of Accrual on Treasury Securities" ("CATS"). See the Statement of
Additional Information.
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 11 to 33 below.
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers, Individual
Retirement Accounts ("IRAs"), trusts, corporations, individuals, etc. The
applicability of the general information and administrative procedures set
forth below accordingly will vary depending on the investor and the
recordkeeping system established for a shareholder's investment in the Fund.
Participants in 401(k) and other plans should first consult with the
appropriate person at their employer or refer to the plan materials before
following any of the procedures below. For more information or assistance,
anyone may call 1-800-562-0032.
Purchase of Shares
Methods of Purchase
Through Dealers
Shares of the Fund are continuously offered through securities dealers who
have entered into sales agreements with the Distributor. Purchases through
dealers are confirmed at the offering price, which is the net asset value plus
the applicable sales charge, next determined after the order is duly received by
State Street Research Shareholder Services ("Shareholder Services"), a division
of State Street Research Investment Services, Inc., from the dealer. ("Duly
received" for purposes herein means in accordance with the conditions of the
applicable method of purchase as described below.) The dealer is responsible for
transmitting the order promptly to Shareholder Services in order to permit the
investor to obtain the current price. See "Purchase of Shares -- Net Asset
Value" herein.
11
<PAGE>
By Mail
Initial investments in the Fund may be made by mailing or delivering to
the investor's securities dealer a completed Application (accompanying this
Prospectus), together with a check for the total purchase price payable to the
Fund. The dealer must forward the Application and check in accordance with the
instructions on the Application. Additional shares may be purchased by mailing
to Shareholder Services a check payable to the Fund in the amount of the total
purchase price together with any one of the following: (i) an Application; (ii)
the stub from the shareholder's account statement; or (iii) a letter setting
forth the name of the Fund, the class of shares and the account name and number.
Shareholder Services will deliver the purchase order to the transfer agent and
dividend paying agent, State Street Bank and Trust Company (the "Transfer
Agent").
If the check is not honored for its full amount, the purchaser could be
subject to additional charges to cover collection costs and any investment loss,
and the purchase may be cancelled.
By Wire
An investor may purchase shares by wiring Federal Funds of not less than
$5,000 to State Street Bank and Trust Company, which also serves as the Trust's
custodian (the "Custodian"), as set forth below. Prior to making an investment
by wire, an investor must notify Shareholder Services at 1-800-521-6548 and
obtain a control number and instructions. Following such notification, Federal
Funds should be wired through the Federal Reserve System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research
Small Capitalization Value Fund
and class of shares
(A, B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street
Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make such
investment by 12 noon Boston time on the day of his or her investment; and (ii)
the wire must be received by 4 P.M. Boston time that same day.
12
<PAGE>
An investor making an initial investment by wire must promptly complete
the Application accompanying this Prospectus and deliver it to his or her
securities dealer, who should forward it as required. No redemptions will be
effected until the Application has been duly processed.
The Fund may in its discretion discontinue, suspend or change the practice
of accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by the Fund. The Fund reserves the
right to reject any purchase order, including orders in connection with
exchanges, for any reason which the Fund in its sole discretion deems
appropriate. The Fund reserves the right to suspend the sale of shares.
13
<PAGE>
Minimum Investment
Class of Shares
A B C D
Minimum Initial
Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent
Investment $5,000 $5,000 $5,000 $5,000
By Wire $50 $50 $50 $50
All other
(a) Special conditions apply; contact Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments pursuant to various retirement, dividend and other investment plans,
or sponsored arrangements involving group solicitations of the members of an
organization. The Fund also reserves the right at any time to suspend the
offering of shares or to reject any specific purchase order for shares.
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase
program which they believe will be the most advantageous for them, given the
amount of their purchase, the length of time they anticipate holding Fund
shares, or the flexibility they desire in this regard, and other relevant
circumstances. Investors will be able to determine whether in their particular
circumstances it is more advantageous to incur an initial sales charge and not
be subject to certain ongoing charges or to have their entire initial purchase
price invested in the Fund with the investment being subject thereafter to
ongoing service fees and distribution fees. As described in greater detail
below, securities dealers are paid differing amounts of commissions and other
compensation depending on which class of shares they sell.
14
<PAGE>
The major differences among the various classes of shares are as follows:
Class A Class B Class C Class D
Sales Initial sales Contingent None Contingent
Charges charge at time deferred sales deferred sales
of investment charge of 5% charge of 1%
of up to 4.5% to 2% applies applies to any
depending on to any shares shares
amount of redeemed redeemed
investment within first within one
five years year following
following their purchase
their
purchase; no
contingent
deferred sales
charge after
five years
On investments
of $1 million
or more, no
initial sales
charge; but
contingent
deferred sales
charge of 1%
applies to any
shares redeemed
within one year
following their
purchase
Distribution None 0.75% for None 0.75% each year
Fee first eight
years; Class B
shares convert
automatically
to Class A
shares after
eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Above 4% None 1%
Commission described
Received by initial sales
Selling charge less
Securities 0.25% to 0.50%
Dealers retained by
Distributor
On investments
of $1 million
or more, 0.25%
to 1% paid to
dealer by
Distributor
In deciding which class of shares to purchase, the investor should
consider the amount of the investment, the length of time the investment is
expected to be held, and the ongoing service fee and distribution fee, among
other factors.
15
<PAGE>
Class A shares are sold at net asset value plus an initial sales charge of
up to 4.5% of the public offering price. Because of the sales charge, not all of
an investor's purchase amount is invested unless the purchase equals $1,000,000
or more. Class B shareholders pay no initial sales charge, but a contingent
deferred sales charge of up to 5% generally applies to shares redeemed within
five years of purchase. Class D shareholders also pay no initial sales charge,
but a contingent deferred sales charge of 1% generally applies to redemptions
made within one year of purchase. For Class B and Class D shareholders,
therefore, the entire purchase amount is immediately invested in the Fund.
An investor who qualifies for a significantly reduced initial sales
charge, or a complete waiver of the sales charge on investments of $1,000,000 or
more, on the purchase of Class A shares might elect that option to take
advantage of the lower ongoing service and distribution fees that characterize
Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual
distribution fee of 0.75% of daily net assets for an eight-year period following
the date of purchase and are then automatically converted to Class A shares.
Class D shares are assessed an annual distribution fee of 0.75% of daily net
assets for as long as the shares are held. The prospective investor should
consider these fees plus the initial or contingent deferred sales charges in
estimating the costs of investing in the various classes of Fund shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its expense,
provide additional cash and noncash incentives to securities dealers that sell
shares. Such incentives may be extended only to those dealers who have sold or
may sell significant amounts of shares and/or meet other conditions established
by the Distributor; for example, the Distributor may sponsor special promotions
to develop particular distribution channels or to reach certain investor groups.
The incentives may include merchandise and trips to and attendance at sales
seminars at resorts.
16
<PAGE>
Class A Shares -- Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share
net asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar amount
of the shares purchased as set forth in the table below. A major portion of this
sales charge is reallowed by the Distributor to the securities dealer
responsible for the sale.
Dollar Sales Sales Dealer
Amount of Charge Charge Concession
Purchase Paid by Paid by As % of
Transaction Investor Investor Purchase
As % of As % of Price
Purchase Net Asset
Price Value
Less than 4.50% 4.71% 4.00%
$100,000
$100,000 or 3.50% 3.63% 3.00%
above but less
than $250,000
$250,000 or 2.50% 2.56% 2.00%
above but less
than $500,000
$500,000 or 2.00% 2.04% 1.75%
above but less
than
$1 million
$1 million and 0% 0% See following discussion
above
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer a
commission at the time of sale as follows:
Amount of Sale Commission
(a) $1 million to $3 million 1.00%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed within
one year of the sale. However, such
17
<PAGE>
redeemed shares will not be subject to the contingent deferred sales charge to
the extent that their value represents (1) capital appreciation or (2)
reinvestment of dividends or capital gains distributions. In addition, the
contingent deferred sales charge will be waived for certain other redemptions as
described under "Contingent Deferred Sales Charge Waivers" below (as otherwise
applicable to Class B shares).
Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of certain other Eligible Funds, as described
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption within
one year of the Class A shares which are acquired through such exchange. For
federal income tax purposes, the amount of the contingent deferred sales charge
will reduce the gain or increase the loss, as the case may be, on the amount
realized on redemption. The amount of any contingent deferred sales charge will
be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement of
Additional Information, of $100,000 or more of Class A shares of the Fund or a
combination of "Eligible Funds." "Eligible Funds" include the Fund and other
funds so designated by the Distributor from time to time. Class B, Class C and
Class D shares may also be included in the combination under certain
circumstances. Securities dealers should call Shareholder Services for details
concerning the other Eligible Funds and any persons who may qualify for reduced
sales charges and related information. See the Statement of Additional
Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced
sales charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Fund and any other Eligible Funds within a 13-month period. Class
B, Class C and Class D shares may also be included in the combination under
certain circumstances. Additional information on a Letter of Intent is available
from dealers, or from the Distributor, and also appears in the Statement of
Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of
shares of the Fund and other Eligible Funds at reduced sales charges pursuant to
a Right of Accumulation. Under
18
<PAGE>
the Right of Accumulation, the sales charge is determined by combining the
current purchase with the value of the Class A shares of other Eligible Funds
held at the time of purchase. Class B, Class C and Class D shares may also be
included in the combination under certain circumstances. See the Statement of
Additional Information and call Shareholder Services for details concerning the
Right of Accumulation.
Other Programs
Class A shares of the Fund may be sold at a reduced sales charge or
without a sales charge pursuant to certain sponsored arrangements, which include
programs under which a company, employee benefit plan or other organization
makes recommendations to, or permits group solicitation of, its employees,
members or participants, except any organization created primarily for the
purpose of obtaining shares of the Fund at a reduced sales charge or without a
sales charge. Information on such arrangements and further conditions and
limitations is available from the Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, Distributor, or any affiliated entities, including any
direct or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated Companies,
any relatives of any such individuals whose relationship is directly verified by
such individuals to the Distributor, or any beneficial account for such
relatives or individuals; and (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any spouse
or child of such person, or any beneficial account for any of them. The purchase
must be made for investment and the shares purchased may not be resold except
through redemption. This purchase program is subject to such administrative
policies, regarding the qualification of purchasers and any other matters, as
may be adopted by the Distributor from time to time.
Class B Shares -- Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per
share next determined after the purchase order is duly received, as defined
herein. No sales charge is imposed at the time of purchase; thus the full amount
of the investor's purchase
19
<PAGE>
payment will be invested in the Fund. However, a contingent deferred sales
charge may be imposed upon redemptions of Class B shares as described below.
The Distributor will pay securities dealers at the time of sale a 4%
commission for selling Class B shares. The proceeds of the contingent deferred
sales charge and the distribution fee are used to offset distribution expenses
and thereby permit the sale of Class B shares without an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the extent
that the value of such shares represents (1) capital appreciation of Fund assets
or (2) reinvestment of dividends or capital gains distributions. The amount of
any applicable contingent deferred sales charge will be calculated by
multiplying the net asset value of such shares at the time of redemption or at
the time of purchase, whichever is lower, by the applicable percentage shown in
the table below:
Contingent
Deferred
Sales Charge
As A Percentage Of
Net Asset Value
Redemption During At Redemption
1st Year Since Purchase 5%
2nd Year Since Purchase 4%
3rd Year Since Purchase 3%
4th Year Since Purchase 3%
5th Year Since Purchase 2%
6th Year Since Purchase
and Thereafter None
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first of
those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of the Fund acquired through an exchange from another
Eligible Fund will be measured from the date that such shares were initially
acquired in the other Eligible Funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gains distribution reinvestments in such other Eligible Fund. These
determinations will result in any contingent deferred sales charge being imposed
at the lowest possible rate. For federal income tax purposes, the amount of the
contingent deferred sales charge will reduce the gain or increase the loss, as
the case may be, on the amount realized on
20
<PAGE>
redemption. The amount of any contingent deferred sales charge will be paid to
the Distributor.
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain conditions.
In addition, the contingent deferred sales charge will be waived for: (i)
redemptions made within one year of the death or total disability, as defined by
the Social Security Administration, of all shareholders of an account; (ii)
redemptions made after attainment of a specific age in an amount which
represents the minimum distribution required at such age under Section 401(a)(9)
of the Internal Revenue Code for retirement accounts or plans (e.g., age 70 1/2
for IRAs and Section 403(b) plans), calculated solely on the basis of assets
invested in the Fund or other Eligible Funds; and (iii) a redemption resulting
from a tax-free return of an excess contribution to an IRA. (The foregoing
waivers do not apply to a tax-free rollover or transfer of assets out of the
Fund.) The Fund has reserved the right to change, modify or terminate the
waivers described above at any time.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends
or distributions with respect to such shares, will automatically convert to
Class A shares of the Fund at the end of eight years following the issuance of
such Class B shares; consequently, they will no longer be subject to the higher
expenses borne by Class B shares. The conversion rate will be determined on the
basis of the relative per share net asset values of the two classes and may
result in a shareholder receiving either a greater or fewer number of Class A
shares than the Class B shares so converted. As noted above, holding periods for
Class B shares received in exchange for Class B shares of other Eligible Funds
will be counted toward the eight-year period.
Class C Shares -- Institutional; No Sales Charge
The purchase price of a Class C share of the Fund is the Fund's per share
net asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
Class C shares are only available for new investments by certain employee
benefit plans and large institutions. See the Statement of Additional
Information. Information on the
21
<PAGE>
availability of Class C shares and further conditions and limitations is
available from the Distributor.
Class C shares may be also issued in connection with mergers and
acquisitions involving the Fund, and under certain other circumstances as
described in this Prospectus (e.g., see "Shareholder Services -- Exchange
Privilege").
Class C shares may be issued directly or through exchanges to those
shareholders of the Fund or other Eligible Funds who previously held shares not
subject to any future sales charge or service fees or distribution fees.
Class D Shares -- Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share
net asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays securities dealers a 1% commission for selling Class D shares at the time
of purchase. The proceeds of the contingent deferred sales charge and the
distribution fee are used to offset distribution expenses and thereby permit the
sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not
be subject to the contingent deferred sales charge to the extent that the value
of such shares represents (1) capital appreciation of Fund assets or (2)
reinvestment of dividends or capital gains distributions. In addition, the
contingent deferred sales charge will be waived for certain other redemptions as
described under "Contingent Deferred Sales Charge Waivers" above (as otherwise
applicable to Class B shares). For federal income tax purposes, the amount of
the contingent deferred sales charge will reduce the gain or increase the loss,
as the case may be, on the amount realized on redemption. The amount of any
contingent deferred sales charge will be paid to the Distributor.
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday
as of the close of the New York Stock Exchange (the "NYSE") exclusive of days on
which the NYSE is closed. The NYSE ordinarily closes at 4 P.M. New York City
time. Assets held by the Fund are valued at the last reported sale price as of
the
22
<PAGE>
close of business on the valuation date, except that securities and assets
for which market quotations are not readily available are valued as determined
in good faith by or under the authority of the Trustees of the Trust. In
determining the value of certain assets for which market quotations are not
readily available, the Fund may use one or more pricing services. The pricing
services utilize information with respect to market transactions, quotations
from dealers and various relationships among securities in determining value and
may provide prices determined as of times prior to the close of the NYSE. The
Trustees have authorized the use of the amortized cost method to value
short-term debt instruments issued with a maturity of one year or less that have
a remaining maturity of 60 days or less when the value obtained is fair value.
Further information with respect to the valuation of the Fund's assets is
included in the Statement of Additional Information.
Distribution Plan
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, the Fund makes payments to the Distributor based on an annual
percentage of the average daily value of the net assets of each class of shares
as follows:
Class Service Fee Distribution Fee
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance of shareholder
accounts by such dealers. Dealers who have sold Class A shares are eligible for
further reimbursement commencing as of the time of such sale. Dealers who have
sold Class B and Class D shares are eligible for further reimbursement after the
first year during which such shares have been held of record by such dealer as
nominee for its clients (or by such clients directly). Any service fees received
by the Distributor and not allocated to dealers may be applied by the
Distributor in reduction of expenses incurred by it directly for personal
services and the maintenance of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling
23
<PAGE>
such shares. Any distribution fees received by the Distributor and not allocated
to dealers may be applied by the Distributor in connection with sales or
marketing efforts, including special promotional fees and cash and noncash
incentives based upon sales by securities dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs similar
expenses on behalf of, such other funds. When expenses of the Distributor cannot
be identified as relating to a specific fund, the Distributor allocates expenses
among the funds in a manner deemed fair and equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources of
the Distributor (including the advisory fees paid by the Fund), have also been
authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the Distribution
Plan to 1%, of which 0.75% may be used to pay distribution expenses and 0.25%
may be used to pay shareholder service fees. The NASD rule also limits the
aggregate amount which the Fund may pay for such distribution costs to 6.25% of
gross share sales of a class since the inception of any asset-based sales charge
plus interest at the prime rate plus 1% on unpaid amounts thereof (less any
contingent deferred sales charges). Such limitation does not apply to
shareholder service fees. Payments to the Distributor or to dealers funded under
the Distribution Plan may be discontinued at any time by the Trustees of the
Trust.
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day
the NYSE is open for business. Redemptions will be effective at the applicable
net asset value per share next determined (see "Purchase of Shares -- Net Asset
Value" herein) after receipt of the redemption request, in accordance with the
requirements described below, by Shareholder Services and delivery of the
request by Shareholder Services to the Transfer Agent. To allow time for the
clearance of checks used for the purchase of any shares which are tendered for
redemption shortly after purchase, the remittance of the redemption proceeds for
such shares could be delayed for 15 days or more after the purchase.
Shareholders who anticipate a potential need for immediate access to their
investments should, therefore, purchase shares by wire. Except as noted,
redemption proceeds are normally remitted within seven days after receipt of the
redemption request and any necessary documents in good order.
24
<PAGE>
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed
to the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O. Box
8408, Boston, Massachusetts 02266-8408: (1) a written request for redemption
signed by the registered owner(s) of the shares, exactly as the account is
registered; (2) an endorsed stock power in good order with respect to the shares
or, if issued, the share certificates for the shares endorsed for transfer or
accompanied by an endorsed stock power; (3) any required signature guarantees
(see "Redemption of Shares -- Signature Guarantees" below); and (4) any
additional documents which may be required for redemption in the case of
corporations, trustees, etc., such as certified copies of corporate resolutions,
governing instruments, powers of attorney, and the like. The Transfer Agent will
not process requests for redemption until it has received all necessary
documents in good order. A shareholder will be notified promptly if a redemption
request cannot be accepted. Shareholders having any questions about the
requirements for redemption should call Shareholder Services toll-free at
1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It is
not available for shares held in certificate form or if the address of record
has been changed within 30 days of the redemption request. The Fund may revoke
or suspend the telephone redemption privilege at any time and without notice.
See "Shareholder Services -- Telephone Services" for a discussion of the
conditions and risks associated with Telephone Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder
has Telephone Privileges (see "Shareholder Services -- Telephone Services"
herein), the Trust's custodian will wire redemption proceeds to the
shareholder's predesignated bank account. To make the request, the shareholder
should call 1-800-521-6548 prior to 4 P.M. Boston time. A $7.50 charge against
the shareholder's account will be imposed for each wire redemption. This charge
is subject to change without notice. The
25
<PAGE>
shareholder's bank may also impose a charge for receiving wires of redemption
proceeds. The minimum redemption by wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the
Distributor as its agent to accept orders from dealers by wire or telephone for
the repurchase of shares by the Distributor from the dealer. The Fund may revoke
or suspend this authorization at any time. The repurchase price is the net asset
value for the applicable shares next determined following the time at which the
shares are offered for repurchase by the dealer to the Distributor. The dealer
is responsible for promptly transmitting a shareholder's order to the
Distributor. Payment of the repurchase proceeds is made to the dealer who placed
the order promptly upon delivery of certificates for shares in proper form for
transfer or, for Open Accounts, upon the receipt of a stock power with
signatures guaranteed as described below, and, if required, any supporting
documents. Neither the Fund nor the Distributor imposes any charge upon such a
repurchase. However, a dealer may impose a charge as agent for a shareholder in
the repurchase of his or her shares. The Fund has reserved the right to change,
modify or terminate the services described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder
accounts, the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder. Such involuntary redemptions
will be subject to applicable sales charges, if any. The Fund may increase such
minimum account value above such amount in the future after notice to affected
shareholders. Involuntarily redeemed shares will be priced at the net asset
value on the date fixed for redemption by the Fund, and the proceeds of the
redemption will be mailed promptly to the affected shareholder at the address of
record. To cover the cost of additional compliance administration, a $20 fee
will be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it may
elect to suspend the redemption of shares or postpone the date of payment of
redemption proceeds: (1) during any period that the NYSE is closed (other than
customary weekend and holiday closings) or trading on the NYSE is restricted;
(2) during any period in which an emergency exists as a result of which disposal
of portfolio securities is not reasonably practicable or it is not reasonably
practicable for
26
<PAGE>
the Fund fairly to determine the value of its net assets; or (3) during such
other periods as the Securities and Exchange Commission may by order permit for
the protection of investors; and (b) the payment of redemption proceeds may be
postponed as provided under "Redemption of Shares."
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the
Investment Manager and the Distributor from possible fraud, signature guarantees
are required for certain redemptions. Signature guarantees enable the Transfer
Agent to be certain that the person who has authorized a redemption from the
account is, in fact, the shareholder. Signature guarantees are required for: (1)
all redemptions requested by mail; and (2) requests to transfer the registration
of shares to another owner. Signatures must be guaranteed by a bank, a member
firm of a national stock exchange, or other eligible guarantor institution. The
Transfer Agent will not accept guarantees (or notarizations) from notaries
public. The above requirements may be waived by the Fund in certain instances.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of the Fund owned
by shareholders are credited to their accounts by the Transfer Agent, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110.
Certificates representing shares will not be issued. Shareholders will receive
periodic statements of transactions in their accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through
dealers, by wire or by mailing a check, payable to the Fund, to
Shareholder Services under the terms set forth above under "Purchase
of Shares."
2. The following methods of receiving dividends from investment income
and distributions from capital gains are available:
(a) All income dividends and capital gains distributions
reinvested in additional shares of the Fund.
27
<PAGE>
(b) All income dividends in cash; all capital gains distributions
reinvested in additional shares of the Fund.
(c) All income dividends and capital gains distributions in
cash.
(d) All income dividends and capital gains distributions invested
in any one available Eligible Fund designated by the
shareholder as described below. See "Dividend Allocation Plan"
herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, the account will automatically be coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for available shares
with corresponding characteristics of any of the other Eligible Funds at any
time on the basis of the relative net asset values of the respective shares to
be exchanged, subject to compliance with applicable securities laws.
Shareholders of any other Eligible Fund may similarly exchange their shares for
Fund shares with corresponding characteristics. Prior to making an exchange,
shareholders should obtain the Prospectus of the Eligible Fund into which they
are exchanging. Under the Direct Program, subject to certain conditions,
shareholders may make arrangements for regular exchanges from the Fund into
other Eligible Funds. To effect an exchange, Class A, Class B and Class D shares
may be redeemed without the payment of any contingent deferred sales charge that
might otherwise be due upon an ordinary redemption of such shares. The MetLife -
State Street Research Money Market Fund issues Class E shares which are sold
without any sales charge. Exchanges of MetLife - State Street Research Money
Market Fund Class E shares into Class A shares of the Fund or any other Eligible
Fund are subject to the initial sales charge or contingent deferred sales charge
applicable to an initial investment in such Class A shares, unless a prior Class
A sales charge has been paid directly or indirectly with respect to the shares
redeemed. For purposes of computing the contingent deferred sales charge that
may be payable upon disposition of the acquired Class A, Class B and Class D
shares, the holding period of the redeemed shares is "tacked" to the holding
period of the acquired shares. The period any Class E shares are held is not
tacked to the holding period of any acquired shares. No exchange transaction fee
is currently imposed on any exchange.
28
<PAGE>
For the convenience of its shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or his
or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for exchanges
is 1-800-521-6548. See "Telephone Services" herein for a discussion of
conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes, each
exchange actually represents the sale of shares of one fund and the purchase of
shares of another. Accordingly, exchanges may produce a capital gain or loss for
tax purposes. The exchange privilege may be terminated or suspended or its terms
changed at any time, subject, if required under applicable regulations, to 60
days' prior notice. New accounts established for investments upon exchange from
an existing account in another fund will have the same Telephone Privileges as
the existing account, unless Shareholder Services is instructed otherwise.
Related administrative policies and procedures may also be adopted with regard
to a series of exchanges, street name accounts, sponsored arrangements and other
matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. In order to limit exchange
activity where the Fund believes doing so would be in the best interests of the
Fund, it reserves the right to revise or terminate the exchange privilege, limit
the amount or number of exchanges or reject any exchange for any person. These
measures may be imposed at any time. Subject to the foregoing, if an exchange
request in good order is received by Shareholder Services and delivered by
Shareholder Services to the Transfer Agent by 12 noon Boston time on any
business day, the exchange usually will occur that day. Consult Shareholder
Services before requesting an exchange or for further information.
Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares
repurchased at his or her request may reinvest all or any portion of the
proceeds (plus that amount necessary to acquire a fractional share to round off
his or her reinvestment to full
29
<PAGE>
shares) in shares, of the same class as the shares redeemed, of the Fund or any
other Eligible Fund at net asset value and without subjecting the reinvestment
to an initial sales charge, provided such reinvestment is made within 30
calendar days after a redemption or repurchase. Upon such reinvestment, the
shareholder will be credited with any contingent deferred sales charge
previously charged with respect to the amount reinvested. The redemption of
shares is, for federal income tax purposes, a sale on which the shareholder may
realize a gain or loss. If a redemption at a loss is followed by a reinvestment
within 30 days, the transaction may be a "wash sale" resulting in a denial of
the loss for federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once with respect to his or her shares
of the Fund. No charge is imposed by the Fund for such reinvestments; however,
dealers may charge fees in connection with the reinvestment privilege. The
reinvestment privilege may be exercised with respect to an Eligible Fund only in
those states where shares of the relevant other Eligible Fund may legally be
sold.
Investment Plans
The Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Investamatic application form available from Shareholder Services. The
Investamatic Check Program is subject to the same minimum initial investment and
subsequent investment requirements for accounts as applicable otherwise. The
Fund also offers tax-sheltered retirement plans, including prototype and other
employee benefit plans for employees, sole proprietors, partnerships and
corporations and IRAs. Details of these investment plans and their availability
may be obtained from securities dealers or from Shareholder Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a
value of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Fund's Systematic Withdrawal Plan, to
have periodic checks issued for specified amounts. These amounts may not be less
than certain minimums, depending on the class of
30
<PAGE>
shares held. The Plan provides that all income dividends and capital gains
distributions of the Fund shall be credited to participating shareholders in
additional shares of the Fund. Thus, the withdrawal amounts paid can only be
realized by redeeming shares of the Fund under the Plan. To the extent such
amounts paid exceed dividends and distributions from the Fund, a shareholder's
investment will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually of
either (a) the value, at the time the Plan is initiated, of the shares then in
the account or (b) the value, at the time of a withdrawal, of the same number of
shares as in the account when the Plan was initiated, whichever is higher.
Expenses of the Plan are borne by the Fund. A participating shareholder
may withdraw from the Plan and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is receiving
payments under a Plan is ordinarily disadvantageous because of duplicative sales
charges. For this reason, a shareholder may not participate in the Investamatic
Check Program and the Systematic Withdrawal Plan at the same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all of
their dividends and any other distributions from the Fund or any Eligible Fund
automatically invested at net asset value in one other such Eligible Fund
designated by the shareholder, provided the account into which the investment is
made is initially funded with the requisite minimum amount. The number of shares
purchased will be determined as of the dividend payment date. The Dividend
Allocation Plan is subject to state securities law requirements, to suspension
at any time, and to such policies, limitations and restrictions, as, for
instance, may be applicable to street name or master accounts, that may be
adopted from time to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
31
<PAGE>
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by the
Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions
for amounts up to $50,000 to be mailed to the shareholder's address
of record is available automatically;
(2) the privilege allowing the shareholder or his or her dealer to
make telephone exchanges is available automatically; and
(3) the privilege allowing the shareholder to make telephone redemptions
for amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the
Application accompanying this Prospectus. A current shareholder who
did not previously request such telephone wire privilege on his or
her original Application may request the privilege by completing a
Telephone Redemption-by-Wire Form which may be obtained by calling
1-800-521-6548. The Telephone Redemption-by-Wire form requires a
signature guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in
(1) and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by
advising Shareholder Services that the shareholder wishes to discontinue the use
of such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to redeem,
or purporting to be the shareholder or the shareholder's dealer to exchange,
shares from any account; and (2) honor any written instructions for a change of
address regardless of whether such request is accompanied by a signature
guarantee. All telephone calls will be recorded. None of the Fund, the other
Eligible Funds, the Transfer Agent, the Investment Manager or the Distributor
will be liable for any loss, expense or cost arising out of any request,
including any fraudulent or unauthorized requests. Shareholders
32
<PAGE>
assume the risk to the full extent of their accounts that telephone requests may
be unauthorized. Reasonable procedures must be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not be
liable for any losses due to unauthorized or fraudulent instructions if such
procedures are not followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is unlikely, during periods of extraordinary market
conditions, a shareholder may have difficulty in reaching Shareholder Services
at such telephone number. In that event, the shareholder should contact
Shareholder Services at 1-800-562-0032, 1-617-357-7805 or otherwise at its main
office at One Financial Center, Boston, Massachusetts 02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your
account, including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made in
writing to State Street Research Shareholder Services, P.O. Box 8408, Boston,
Massachusetts 02266-8408. A fee of up to $10 will be charged against an account
for providing additional account transcripts or photocopies of paid redemption
checks or for researching records in response to special requests.
Shareholder Telephone Transactions:
Please call 1-800-521-6548
Call this number for assistance in purchasing shares by wire and for
telephone redemptions or telephone exchange transactions. For more information
and/or requisite authorization forms for telephone redemption and exchange
privileges call 1-800-562-0032. Shareholder Services will require some form of
personal identification prior to acting upon instructions received by telephone.
Written confirmation of each transaction will be provided.
The Fund and its Shares
The Fund commenced operations in February 1995 as an additional series of
State Street Research Capital Trust, a Massachusetts business trust, formed in
1988. The Trust is registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The fiscal year end of the Fund is September 30.
33
<PAGE>
The Fund has received an order from the Securities and Exchange Commission
(the "Commission") permitting the issuance and sale of multiple classes of
shares representing interests in the existing portfolio of any series of the
Trust. Except for those differences between the classes of shares described
below and elsewhere in the Prospectus, each share of the Fund has equal
dividend, redemption and liquidation rights with other shares of the Fund and
when issued is fully paid and nonassessable. The Trustees have authorized the
Fund to offer four classes of shares as described above. In the future, certain
classes may be redesignated, for administrative purposes only, to conform to
standard class designations and common usage of terms which may develop in the
mutual fund industry. For example, Class C shares may be redesignated as Class Y
shares and Class D shares may be redesignated as Class C shares. Any
redesignation would not affect any substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class D shares bear
the expenses of the deferred sales arrangement and any expenses (including the
higher service and distribution fees) resulting from such sales arrangement, and
certain other incremental expenses related to a class. Each class will have
exclusive voting rights with respect to provisions of the Rule 12b-1
distribution plan pursuant to which the service and distribution fees, if any,
are paid. Although the legal rights of holders of each class of shares are
identical, it is likely that the different expenses borne by each class will
result in different net asset values and dividends. The different classes of
shares of the Fund also have different exchange privileges.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material adverse effect on the
rights of any shareholder. On any matter submitted to the shareholders, the
holder of each Fund share is entitled to one vote per share (with proportionate
voting for fractional shares) regardless of the relative net asset value
thereof.
Under the Master Trust Agreement of the Trust, no annual or regular
meeting of shareholders is required. Thus, there will ordinarily be no
shareholder meetings unless required by the 1940 Act. Except as otherwise
provided under said Act, the Board of Trustees will be a self-perpetuating body
until fewer than two thirds of the Trustees serving as such are Trustees who
were elected by shareholders of the Trust. In the event less than a majority of
the Trustees serving as such were elected by shareholders of the Trust, a
meeting of shareholders will be called to elect Trustees. Under the Master Trust
Agreement, any Trustee may be removed by vote of two thirds of the outstanding
Trust shares; holders of 10% or more of the outstanding Trust shares can require
that the Trustees call a meeting of
34
<PAGE>
shareholders for purposes of voting on the removal of one or more Trustees. In
connection with such meetings called by shareholders, shareholders will be
assisted in shareholder communications to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for indemnification
for all losses and expenses of any shareholder of the Fund held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund would be unable to meet its obligations. The
Investment Manager believes that, in view of the above, the risk of personal
liability to shareholders is remote.
As of the approximate time of this Prospectus, the Investment Manager, the
Distributor and/or Metropolitan Life Insurance Company ("Metropolitan"), their
indirect parent, were the beneficial owners of all or a substantial amount of
the outstanding shares of the Fund, and may be deemed to be in control of the
Fund as "control" is defined in the 1940 Act. Such owners may acquire additional
shares of the Fund. Although sales of the Fund's shares to other investors will
reduce their percentage ownership, so long as 25% of the Fund's shares are so
owned, such owners will be presumed to be in control of the Fund for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
Management of the Fund
Under the provisions of the Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees. The Fund's investment manager is State Street Research
& Management Company. The Investment Manager is charged with the overall
responsibility for managing the investments and business affairs of the Fund,
subject to the authority of the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first mutual
funds, presently known as State Street Investment Trust, which they had formed
in 1924. Their investment management philosophy, which continues to this day,
emphasized comprehensive fundamental research and analysis, including meetings
with the management of companies under consideration for investment. The
Investment Manager's portfolio management group has extensive investment
industry experience. The Investment Manager is an indirect wholly-owned
subsidiary of Metropolitan, and the Distributor is a wholly-owned subsidiary of
35
<PAGE>
the Investment Manager, and both are located at One Financial Center, Boston,
Massachusetts 02111-2690.
Under its Advisory Agreement with the Trust, the Investment Manager
receives a monthly investment advisory fee equal to 0.85% (on an annual basis)
of the average daily value of the net assets of the Fund. Such fee is higher
than that charged by most mutual funds, but is believed by the Trustees to be
justified given the considerable analysis and research necessary to manage the
Fund in light of its investment objective and policies. The Fund bears all costs
of its operation other than those incurred by the Investment Manager under the
Advisory Agreement. In particular, the Fund pays, among other expenses,
investment advisory fees, certain distribution expenses under the Fund's
Distribution Plan and the compensation and expenses of the Trustees who are not
otherwise currently affiliated with the Investment Manager or any of its
affiliates. The Fund also incurs expenses payable to various states in
connection with the offer and sale of the Fund's shares, and expenses for legal,
custodian and transfer agent services, among other costs. The Investment Manager
will reduce its management fee payable by the Fund up to the amount of any
expenses (excluding permissible items, such as brokerage commissions, Rule 12b-1
payments, interest, taxes and litigation expenses) paid or incurred in any year
in excess of the most restrictive expense limitation imposed by any state in
which the Fund sells shares, if any. Under the Advisory Agreement, the
Investment Manager provides the Fund with office space, facilities and
personnel. The Investment Manager compensates Trustees of the Trust if such
persons are employees or affiliates of the Investment Manager or its affiliates.
The Fund is managed by Rudolph K. Kluiber. Mr. Kluiber has managed the
Fund since its inception. Mr. Kluiber's principal occupation currently is
Vice President of State Street Research & Management Company. During the past
five years he has also served as an analyst for State Street Research &
Management Company.
Subject to the policy of seeking best overall price and execution, sales
of shares of the Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for the Fund's portfolio transactions.
Dividends and Distributions; Taxes
The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code, although it
cannot give complete assurance that it will do so. As long as it so qualifies
and satisfies certain distribution requirements, it will not be subject to
federal income taxes on its income (including capital gains, if any) distributed
to its shareholders. Consequently, the Fund intends to distribute annually to
its shareholders substantially all of its net investment income and any capital
gain net income
36
<PAGE>
(capital gains net of capital losses). The Fund declares dividends from net
investment income and distributions of net capital gains annually and pays such
dividends and distributions, if any, after year end or as otherwise required for
compliance with applicable tax regulations. Both dividends from net investment
income and distributions of capital gain net income will be declared and paid to
shareholders in additional shares of the Fund at net asset value on the record
date of that dividend or distribution, except in the case of shareholders who
elect a different available distribution method.
The Fund will provide its shareholders of record with annual information
on a timely basis concerning the federal tax status of dividends and
distributions during the preceding calendar year.
Dividends paid by the Fund from taxable net investment income and
distributions of net short-term capital gains, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax purposes
to shareholders as ordinary income, and a portion 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 consists of qualifying dividends
of domestic corporations. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses) which are designated
as capital gains distributions, whether paid in cash or reinvested in additional
shares, will be taxable for federal income tax purposes to shareholders as
long-term capital gains, regardless of how long shareholders have held their
shares, and are not eligible for the dividends-received deduction. If shares of
the Fund which are sold at a loss have been held six months or less, the loss
will be considered as a long-term capital loss to the extent of any capital
gains distributions received.
Dividends and other distributions and proceeds of redemptions of Fund
shares paid to individuals and other nonexempt payees will be subject to a 31%
federal backup withholding tax if State Street Bank and Trust Company, the
Fund's transfer agent, is not provided with the shareholder's correct taxpayer
identification number and certification that the shareholder is not subject to
such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisers regarding
tax matters, including state and local tax consequences.
37
<PAGE>
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders
or prospective investors, the Fund may compare the performance of its Class A,
Class B, Class C and Class D shares to that of other mutual funds with similar
investment objectives, to certificates of deposit and/or to other financial
alternatives. The Fund may also compare its performance to appropriate indices
such as the NASDAQ Composite Average, Small Stock Index, Russell 2000 Value
Index, Standard & Poor's 500 Stock Index (the "S&P 500"), Consumer Price Index
and Dow Jones Industrial Average and/or to appropriate rankings and averages,
such as the Lipper Small Company Growth Funds average, compiled by Lipper
Analytical Services, Inc., or to those compiled by Morningstar, Inc., Money
Magazine, Business Week, Forbes Magazine, the Wall Street Journal and Investor's
Daily. Total return is computed separately for each class of shares of the Fund.
The average annual total return ("standard total return") for shares of the Fund
is computed by determining the average annual compounded rate of return for a
designated period that, if applied to a hypothetical $1,000 initial investment
(less the maximum initial or contingent deferred sales charge, if applicable),
would produce the redeemable value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions and with recognition of
all recurring charges. Standard total return will be calculated for the periods
specified in applicable regulations and may be accompanied by nonstandard total
return information for differing periods computed in the same manner with or
without annualizing the total return or taking sales charges into account.
During the first year of operations, the Fund may also advertise its aggregate
total return without annualization.
The standard total return results take sales charges into account, if
applicable, but do not take into account recurring and nonrecurring charges for
optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for remittance of redemption proceeds by
wire. Where sales charges are not applicable and therefore not taken into
account in the calculation of standard total return, the results will be
increased. Any voluntary waiver of management fees or assumption of expenses by
the Fund's affiliates will also increase performance results.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of the Fund varies in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
performance quotation should be considered a representation as to the Fund's
performance for any future period. In addition, the net asset value of shares of
the Fund will fluctuate, with the result that shares of the Fund, when redeemed,
may be worth more or less than their original cost. Neither an investment in the
38
<PAGE>
Fund nor the Fund's performance is insured or guaranteed; such lack of insurance
or guarantees should accordingly be given appropriate consideration when
comparing the Fund to financial alternatives which have such features.
Performance data or rankings for a given class of shares should be interpreted
carefully by investors who hold or may invest in a different class of shares.
39
<PAGE>
State Street Research
Small Capitalization
Value Fund
February 1, 1995
P R O S P E C T U S
STATE STREET RESEARCH
SMALL CAPITALIZATION
VALUE FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266
1-800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
CT\value
40
