State Street Research
Aurora Fund
Prospectus
February 1, 1997
The investment objective of State Street Research Aurora 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 November 30, 1996, the
Investment Manager had assets of approximately $42.5 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; 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, 1997 has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. It is
available at no charge upon request to the Fund at the address indicated on
the cover or by calling 1-800-562-0032.
The Fund is a diversified 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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY,
AND INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
Table of Contents Page
Table of Expenses 2
Financial Highlights 4
The Fund's Investments 5
Limiting Investment Risk 8
Purchase of Shares 9
Redemption of Shares 17
Shareholder Services 19
The Fund and its Shares 23
Management of the Fund 24
Dividends and Distributions; Taxes 25
Calculation of Performance Data 25
<PAGE>
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5%
and (ii) an annual service fee of 0.25% of the average daily net asset value
of the Class A shares.
Class B shares are subject (i) to a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees
of 1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and
large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution
and service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
<TABLE>
<CAPTION>
Class A Class B Class C Class D
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum Sales Charge Imposed on Purchases
(as percentage of offering price) 4.5% None None None
Maximum Deferred Sales Charge
(as a percentage of net asset value at time of
purchase or redemption, whichever is lower) None(2) 5% None 1%
Maximum Sales Charge Imposed on Reinvested
Dividends
(as a percentage of offering price) None None None None
Redemption Fees (as a percentage of amount
redeemed, if applicable) None None None None
Exchange 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
thereafter and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the
sale. Long-term investors in Class A, Class B or Class D shares may, over
a period of years, pay more than the economic equivalent of the maximum
sales charge permissible under applicable rules. See "Purchase of
Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class D
--------- --------- -------------------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a percentage
of average net assets)
Management Fees 0.85% 0.85% 0.85% 0.85%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 2.92% 2.92% 2.92% 2.92%
Less Voluntary Reduction (2.57%) (2.57%) (2.57%) (2.57%)
--------- --------- -------------------
Total Fund Operating Expenses
(after voluntary reduction) 1.45% 2.20% 1.20% 2.20%
========= ========= ===================
</TABLE>
Example:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment including,
for Class A shares, the maximum applicable initial sales charge and
assuming (1) 5% annual return and (2) redemption of the entire
investment at the end of each time period:
Class A shares $59 $89 $121 $211
Class B shares $72 $99 $138 $234
Class C shares $12 $38 $ 66 $145
Class D shares $32 $69 $118 $253
You would pay the following expenses on the same investment, assuming no
redemption:
Class B shares $22 $69 $118 $234
Class D shares $22 $69 $118 $253
</TABLE>
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense levels shown in the table are based on
experience with expenses for the fiscal year ended September 30, 1996; actual
expense levels for the current fiscal year and future years may vary from the
amounts shown. The table does not reflect charges for optional services elected
by certain shareholders, such as the $7.50 fee for remittance of redemption
proceeds by wire. For further information on sales charges, see "Purchase of
Shares--Alternative Purchase Program"; for further information on management
fees, see "Management of the Fund"; and for further information on 12b-1 fees,
see "Purchase of Shares--Distribution Plan."
The Fund has been advised that the Distributor and its affiliates may from
time to time and in varying amounts voluntarily assume some portion of fees
or expenses relating to the Fund. The Fund presently expects such assistance
to be provided for the next 12 months or until the Fund's net assets reach
$100 million, whichever first occurs. However, the Fund has not received any
firm commitment that such assistance will in fact be provided.
For the fiscal year ended September 30, 1996, 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 3.51%, 4.88%, 4.36% and 4.88%,
respectively, in the absence of the voluntary assumption of fees or expenses
by the Distributor and its affiliates, which amounted to 2.06%, 2.68%, 3.16%
and 2.68%, respectively. The amount of fees or expenses assumed during the
fiscal year ended September 30, 1996, differed among classes because of
fluctuations during the year in 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 "Financial Statements" in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Class A Class B
----------------------------------- ------------------------------------
February 13, 1995 February 13, 1995
Year ended (Commencement Year ended (Commencement
September 30, of Operations) to September 30, of Operations) to
1996** September 30, 1995 1996** September 30, 1995
--------------------------------------------------- ---------------------------------- --------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.13 $ 9.55 $ 11.08 $ 9.55
Net investment income (loss)* (0.06) 0.07 (0.17) 0.02
Net realized and unrealized gain on
investments 4.66 1.51 4.65 1.51
Dividend from net investment income (0.09) -- (0.04) --
Distribution from net realized gains (0.50) -- (0.50) --
--------------- ---------------------------------- --------------------
Net asset value, end of year $ 15.14 $11.13 $ 15.02 $11.08
=============== ================================== ====================
Total return 43.63%+ 16.54%+++ 42.52%+ 16.02%+++
Net assets at end of year (000s) $ 1,110 $5,782 $ 165 $ 116
Ratio of operating expenses to
average net assets* 1.45% 1.45%++ 2.20% 2.20%++
Ratio of net investment income
(loss) to average net assets* (0.56)% 1.05%++ (1.38)% 0.32%++
Portfolio turnover rate 124.79% 47.34% 124.79% 47.34%
Average commission rate@ $ .0174 -- $ .0174 --
*Reflects voluntary assumption of
fees or expenses per share in
each year $ 0.32 $ 0.15 $ 0.32 $ 0.15
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
----------------------------------- ------------------------------------
February 13, 1995 February 13, 1995
Year ended (Commencement Year ended (Commencement
September 30, of Operations) to September 30, of Operations) to
1996** September 30, 1995 1996** September 30, 1995
--------------------------------------------------- ---------------------------------- --------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.15 $ 9.55 $ 11.08 $ 9.55
Net investment income (loss)* (0.06) 0.09 (0.17) 0.02
Net realized and unrealized gain on
investments 4.70 1.51 4.65 1.51
Dividend from net investment income (0.11) -- (0.04) --
Distribution from net realized gains (0.50) -- (0.50) --
--------------- ---------------------------------- --------------------
Net asset value, end of year $ 15.18 $11.15 $ 15.02 $11.08
=============== ================================== ====================
Total return 43.95%+ 16.75%+++ 42.52%+ 16.02%+++
Net assets at end of year (000s) $ 7,752 $ 117 $ 165 $ 116
Ratio of operating expenses to
average net assets* 1.20% 1.20%++ 2.20% 2.20%++
Ratio of net investment income
(loss) to average net assets* (0.43)% 1.32%++ (1.38)% 0.32%++
Portfolio turnover rate 124.79% 47.34% 124.79% 47.34%
Average commission rate@ $ .0174 -- $ .0174 --
*Reflects voluntary assumption of
fees or expenses per share in each
year $ 0.32 $ 0.15 $ 0.32 $ 0.15
</TABLE>
++ Annualized.
** Per-share figures have been calculated using the average shares method.
+ Total return figures do no reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++ Represents aggregate return for the period without annualization and
does not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the Distributor and its affiliates had
not voluntarily assumed a portion of the Fund's expenses.
@ Average commission rate per share paid for security trades for fiscal
years beginning on or after October 1, 1995.
4
<PAGE>
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 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
5
<PAGE>
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") 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 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
6
<PAGE>
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 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, which have
simultaneously the characteristics of a security and a futures contract,
although the Fund does not presently expect to invest more than 5% of its
total assets in such derivatives. These swap arrangements include interest
rate swaps, currency swaps and index swaps. For a more detailed discussion of
derivatives, see the Statement of Additional Information. The Fund may also
enter into repurchase agreements, reverse repurchase agreements and purchase
securities on a "when-issued" or forward commitment 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 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. An actual portfolio
turnover rate of 100% or more may result in greater transaction costs,
relative to other funds in
7
<PAGE>
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 or cause more
than 10% of the voting securities of such issuer to be held by the Fund; or
(b) invest more than 25% of the Fund's total assets in securities of issuers
principally engaged in any one industry as set forth in the Statement of
Additional Information.
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.
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 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, 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 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.
8
<PAGE>
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 9 to 23 below.
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers, Individual
Retirement Accounts ("IRAs"), trusts, corporations, individuals, etc. The
applicability of the general information and administrative procedures set
forth below accordingly will vary depending on the investor and the
recordkeeping system established for a shareholder's investment in the Fund.
Participants in 401(k) and other plans should first consult with the
appropriate person at their employer or refer to the plan materials before
following any of the procedures below. For more information or assistance,
anyone may call 1-800-562-0032.
Purchase of Shares
Methods of Purchase
Through Dealers and Others
Shares of the Fund are continuously offered through securities dealers,
financial institutions and others (collectively referred to herein as
securities dealers or dealers) who have entered into sales agreements with
the Distributor. Purchases through dealers are confirmed at the offering
price, which is the net asset value plus the applicable sales charge, next
determined after the order is duly received by State Street Research
Shareholder Services ("Shareholder Services"), a division of State Street
Research Investment Services, Inc., from the dealer. ("Duly received" for
purposes herein means in accordance with the conditions of the applicable
method of purchase as described below.) The dealer is responsible for
transmitting the order promptly to Shareholder Services in order to permit
the investor to obtain the current price. See "Purchase of Shares--Net Asset
Value" herein.
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's dealer a completed Application (accompanying this Prospectus),
together with a check for the total purchase price payable to the Fund. The
dealer must forward the Application and check in accordance with the
instructions on the Application. Additional shares may be purchased by
mailing to Shareholder Services a check payable to the Fund in the amount of
the total purchase price together with any one of the following: (i) an
Application; (ii) the stub from the shareholder's account statement; or (iii)
a letter setting forth the name of the Fund, the class of shares and the
account name and number. Shareholder Services will deliver the purchase order
to the transfer agent and dividend paying agent, State Street Bank and Trust
Company (the "Transfer Agent").
If the check is not honored for its full amount, the purchaser could be
subject to additional charges to cover collection costs and any investment
loss, and the purchase may be cancelled.
By Wire
An investor may purchase shares by wiring Federal Funds of not less than
$25,000 to State Street Bank and Trust Company, which also serves as the
Trust's custodian (the "Custodian"), as set forth below. Prior to making an
investment by wire, an investor must notify Shareholder Services at
1-800-562-0032 and obtain a control number and instructions. Following such
notification, Federal Funds should be wired through the Federal Reserve
System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research Aurora 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
9
<PAGE>
her investment; and (ii) the wire must be received by 4 P.M. Boston time that
same day.
An investor making an initial investment by wire must promptly complete
the Application accompanying this Prospectus and deliver it to his or her
dealer, who should forward it as required. No redemptions will be effected
until the Application has been duly processed.
The Fund may in its discretion discontinue, suspend or change the practice
of accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by the Fund. The Fund reserves
the right to suspend the sale of shares, or to reject any purchase order,
including orders in connection with exchanges, for any reason.
Minimum Investment
<TABLE>
<CAPTION>
Class of Shares
--------------------------------------
A B C D
--------- --------- ---------------
<S> <C> <C> <C> <C>
Minimum Initial Investment
By Wire $25,000 $25,000 (a) $25,000
IRAs $ 2,000 $ 2,000 (a) $ 2,000
By Investamatic $10,000 $10,000 (a) $10,000
All other $25,000 $25,000 (a) $25,000
Minimum Subsequent Investment
By Wire $ 5,000 $ 5,000 (a) $ 5,000
IRAs $ 1,000 $ 1,000 (a) $ 1,000
By Investamatic $ 50 $ 50 (a) $ 50
All other $ 50 $ 50 (a) $ 50
</TABLE>
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments as in the case of, for example, exchanges and investments under
various retirement and employee benefit plans, sponsored arrangements
involving group solicitations of the members of an organization, or other
investment plans for reinvestment of dividends and distributions or for
periodic investments (e.g., Investamatic Program).
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding Fund shares, or
the flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in the Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, dealers are paid differing amounts
of commissions and other compensation depending on which class of shares they
sell.
10
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------------------ ----------------------- ------------ -----------------------
<S> <C> <C> <C> <C>
Sales Charges Initial sales Contingent deferred None Contingent deferred
charge at time of sales charge of 5% sales charge of 1%
investment of up to 2% applies to applies to any shares
to 4.5% depending any shares redeemed redeemed within one
on amount of within first five years year following
investment following their their purchase
purchase; no
contingent deferred
sales charge
after five years
On investments of
$1 million or more, no
initial sales charge;
but contingent
deferred sales
charge of 1% applies
to any shares
redeemed within
one year following
their purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years;
Class B shares
convert auto-
matically to
Class A shares
after eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Commission Above described 4% None 1%
Received by Selling initial sales charge
Dealers 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>
11
<PAGE>
In deciding which class of shares to purchase, the investor should
consider the amount of the investment, the length of time the investment is
expected to be held, and the ongoing service fee and distribution fee, among
other factors.
Class A shares are sold at net asset value plus an initial sales charge of
up to 4.5% of the public offering price. Because of the sales charge, not all
of an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class D shareholders also pay no
initial sales charge, but a contingent deferred sales charge of 1% generally
applies to redemptions made within one year of purchase. For Class B and
Class D shareholders, therefore, the entire purchase amount is immediately
invested in the Fund.
An investor who qualifies for a significantly reduced initial sales
charge, or a complete waiver of the sales charge on investments of $1,000,000
or more, on the purchase of Class A shares might elect that option to take
advantage of the lower ongoing service and distribution fees that
characterize Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual
distribution fee of 0.75% of daily net assets for an eight-year period
following the date of purchase and are then automatically converted to Class
A shares. Class D shares are assessed an annual distribution fee of 0.75% of
daily net assets for as long as the shares are held. The prospective investor
should consider these fees plus the initial or contingent deferred sales
charges in estimating the costs of investing in the various classes of Fund
shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its
expense, provide additional cash and noncash incentives to dealers that sell
shares. Such incentives may be extended only to those dealers who have sold
or may sell significant amounts of shares and/or meet other conditions
established by the Distributor; for example, the Distributor may sponsor
special promotions to develop particular distribution channels or to reach
certain investor groups. The Distributor may also compensate those dealers
with clients who maintain their investments in a Fund over a period of years.
The incentives may include merchandise and trips to and attendance at sales
seminars at resorts.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar
amount of the shares purchased as set forth in the table below. A major
portion of this sales charge is reallowed by the Distributor to the dealer
responsible for the sale.
<TABLE>
<CAPTION>
Sales Sales
Charge Charge
Paid by Paid by Dealer
Investor Investor Concession
Dollar Amount As % of As % of As % of
of Purchase Purchase Net Asset Purchase
Transaction Price Value Price
<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 See following
0% 0% 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 dealer a
commission based on the aggregate of such sales as follows:
12
<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, unless the above commission is waived
by the dealer, the investor is subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the sale.
However, such redeemed shares will not be subject to the contingent deferred
sales charge to the extent that their value represents (1) capital
appreciation or (2) reinvestment of dividends or capital gains distributions.
In addition, the contingent deferred sales charge will be waived for certain
other redemptions as described under "Contingent Deferred Sales Charge
Waivers" below (as otherwise applicable to Class B shares).
Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of certain other Eligible Funds, as described
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption
within one year of the Class A shares which are acquired through such
exchange. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption. The amount of any contingent
deferred sales charge will be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement
of Additional Information, of $100,000 or more of Class A shares of the Fund
or a combination of "Eligible Funds." "Eligible Funds" include the Fund and
other funds so designated by the Distributor from time to time. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Securities dealers should call Shareholder Services
for details concerning the other Eligible Funds and any persons who may
qualify for reduced sales charges and related information. See the Statement
of Additional Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Fund and any other Eligible Funds within a 13-month period.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of shares
of the Fund and other Eligible Funds at reduced sales charges pursuant to a
Right of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call
Shareholder Services for details concerning the Right of Accumulation.
Other Programs
Class A shares of the Fund may be sold at a reduced sales charge or without a
sales charge pursuant to certain sponsored arrangements, which include
programs under which a company, employee benefit plan or other organization
makes recommendations to, or permits group solicitation of, its employees,
members or participants, except any organization created primarily for the
purpose of obtaining shares of the Fund at a reduced sales charge or without
a sales charge. Sales without a sales charge, or with a reduced sales charge,
may also be made through brokers, financial planners, institutions, and
others, under managed fee-based programs (e.g., "wrap fee" or similar
programs) which meet certain requirements established from time to time by
the Distributor. Information on such arrangements and further conditions and
limitations is available from the Distributor.
13
<PAGE>
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, minimum investments by various groups of eligible
persons and any other matters, as may be adopted by the Distributor from
time to time.
Class B Shares--Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Fund. However, a
contingent deferred sales charge may be imposed upon redemptions of Class B
shares as described below.
The Distributor will pay dealers at the time of sale a 4% commission for
selling Class B shares. The proceeds of the contingent deferred sales charge
and the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class B shares without an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets or (2) reinvestment of dividends or capital gains distributions.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
<TABLE>
<CAPTION>
Contingent Deferred Sales
Charge As A Percentage Of
Redemption During Net Asset Value
- ----------------------- ------------------------------
<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
14
<PAGE>
withdrawal plan which meets certain conditions. In addition, the contingent
deferred sales charge will be waived for: (i) redemptions made within one
year of the death or total disability, as defined by the Social Security
Administration, of all shareholders of an account; (ii) redemptions made
after attainment of a specific age in an amount which represents the minimum
distribution required at such age under Section 401(a)(9) of the Internal
Revenue Code for retirement accounts or plans (e.g., age 701/2 for IRAs and
Section 403(b) plans), calculated solely on the basis of assets invested in
the Fund or other Eligible Funds; and (iii) a redemption resulting from a
tax-free return of an excess contribution to an IRA. (The foregoing waivers
do not apply to a tax-free rollover or transfer of assets out of the Fund.)
The Fund may modify or terminate the waivers described above at any time; for
example, the Fund may limit the application of multiple waivers and establish
other conditions for employee benefit plans.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to
Class A shares of the Fund at the end of eight years following the issuance
of such Class B shares; consequently, they will no longer be subject to the
higher expenses borne by Class B shares. The conversion rate will be
determined on the basis of the relative per share net asset values of the two
classes and may result in a shareholder receiving either a greater or fewer
number of Class A shares than the Class B shares so converted. As noted
above, holding periods for Class B shares received in exchange for Class B
shares of other Eligible Funds will be counted toward the eight-year period.
Class C Shares--Institutional; No Sales Charge
The purchase price of a Class C share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
In general, Class C shares are only available for new investments by
certain large institutions and employee benefit plans which acquire shares
through programs or products sponsored by Metropolitan Life Insurance Company
("Metropolitan") and/or its affiliates, for which Class C shares have been
designated. 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 issued directly or through exchanges to those
shareholders of the Fund or other Eligible Funds who previously held shares
not subject to any future sales charge or service fees or distribution fees.
Class D Shares--Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays dealers a 1% commission for selling Class D shares at the time of
purchase. The proceeds of the contingent deferred sales charge and the
distribution fee are used to offset distribution expenses and thereby permit
the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not
be subject to the contingent deferred sales charge to the extent that the
value of such shares represents (1) capital appreciation of Fund assets or
(2) reinvestment of dividends or 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.
15
<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 pay or reimburse dealers
(including 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 or servicing
of shareholder accounts by such dealers. Dealers who have sold Class A shares
are eligible for further reimbursement commencing as of the time of such
sale. Dealers who have sold Class B and Class D shares are eligible for
further reimbursement after the first year during which such shares have been
held of record by such dealer as nominee for its clients (or by such clients
directly). Any service fees received by the Distributor and not allocated to
dealers may be applied by the Distributor in reduction of expenses incurred
by it directly for personal services and the maintenance or servicing of
shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by
the Distributor in connection with sales or marketing efforts, including
special promotional fees and cash and noncash incentives based upon sales by
dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources
of the Distributor (including the advisory fees paid by the Fund), have also
been authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the
Distribution Plan to 1%, of which 0.75% may be used to pay distribution
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
16
<PAGE>
the prime rate plus 1% on unpaid amounts thereof (less any contingent
deferred sales charges). Such limitation does not apply to shareholder
service fees. Payments to the Distributor or to dealers funded under the
Distribution Plan may be discontinued at any time by the Trustees of the
Trust.
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the
NYSE is open for business. Redemptions will be effective at the applicable
net asset value per share next determined (see "Purchase of Shares--Net Asset
Value" herein) after receipt of the redemption request, in accordance with
the requirements described below, by Shareholder Services and delivery of the
request by Shareholder Services to the Transfer Agent. To allow time for the
clearance of checks used for the purchase of any shares which are tendered
for redemption shortly after purchase, the remittance of the redemption
proceeds for such shares could be delayed for 15 days or more after the
purchase. Shareholders who anticipate a potential need for immediate access
to their investments should, therefore, purchase shares by wire. Except as
noted, redemption proceeds from the Fund are normally remitted within seven
days after receipt of the redemption request by the Fund and any necessary
documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed
for transfer or accompanied by an endorsed stock power; (3) any required
signature guarantees (see "Redemption of Shares--Signature Guarantees"
below); and (4) any additional documents which may be required for redemption
in the case of corporations, trustees, etc., such as certified copies of
corporate resolutions, governing instruments, powers of attorney, and the
like. The Transfer Agent will not process requests for redemption until it
has received all necessary documents in good order. A shareholder will be
notified promptly if a redemption request cannot be accepted. Shareholders
having any questions about the requirements for redemption should call
Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Fund
may revoke or suspend the telephone redemption privilege at any time and
without notice. See "Shareholder Services--Telephone Services" for a
discussion of the conditions and risks associated with Telephone Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800-562-0032 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge
is subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor
as its agent to accept orders from dealers by wire or telephone for the
17
<PAGE>
repurchase of shares by the Distributor from the dealer. The Fund may revoke
or suspend this authorization at any time. The repurchase price is the net
asset value for the applicable shares next determined following the time at
which the shares are offered for repurchase by the dealer to the Distributor.
The dealer is responsible for promptly transmitting a shareholder's order to
the Distributor. Payment of the repurchase proceeds is made to the dealer who
placed the order promptly upon delivery of certificates for shares in proper
form for transfer or, for Open Accounts, upon the receipt of a stock power
with signatures guaranteed as described below, and, if required, any
supporting documents. Neither the Fund nor the Distributor imposes any charge
upon such a repurchase. However, a dealer may impose a charge as agent for a
shareholder in the repurchase of his or her shares. The Fund has reserved the
right to change, modify or terminate the services described above at any
time.
Additional Information
Because of the relatively high cost of maintaining small shareholder
accounts, the Fund reserves the right to involuntarily redeem at its option
any shareholder account which remains below $1,500 for a period of 60 days
after notice is mailed to the applicable shareholder, or to impose a
maintenance fee on such account after 60 days' notice. Such involuntary
redemptions will be subject to applicable sales charges, if any. The Fund may
increase such minimum account value above such amount in the future after
notice to affected shareholders. Involuntarily redeemed shares will be priced
at the net asset value on the date fixed for redemption by the Fund, and the
proceeds of the redemption will be mailed promptly to the affected
shareholder at the address of record. Currently, the maintenance fee is $18
annually, which is paid to the Transfer Agent. The fee does not apply to
certain retirement accounts or if the shareholder has more than an aggregate
$50,000 invested in the Fund and other Eligible Funds combined. Imposition of
a maintenance fee on a small account could, over time, exhaust the assets of
such account.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment
of redemption proceeds: (1) during any period that the NYSE is closed (other
than customary weekend and holiday closings) or trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable for the Fund fairly to determine the value of its
net assets; or (3) during such other periods as the Securities and Exchange
Commission may by order permit for the protection of investors; and (b) the
payment of redemption proceeds may be postponed as otherwise provided under
"Redemption of Shares" herein.
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees help the Transfer
Agent to determine that the person who has authorized a redemption from the
account is, in fact, the shareholder. Signature guarantees are required for,
among other things: (1) written requests for redemptions for more than
$50,000; (2) written requests for redemptions for any amount if the proceeds
are transmitted to other than the current address of record (unchanged in the
past 30 days); (3) written requests for redemptions for any amount submitted
by corporations and certain fiduciaries and other intermediaries; and (4)
requests to transfer the registration of shares to another owner. Signatures
must be guaranteed by a bank, a member firm of a national stock exchange, or
other eligible guarantor institution. The Transfer Agent will not accept
guarantees (or notarizations) from notaries public. The above requirements
may be waived in certain instances. Please contact Shareholder Services at
1-800-562-0032 for specific requirements relating to your account.
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Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of the Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing shares will not be issued. Shareholders will
receive periodic statements of transactions in their accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through dealers,
by wire or by mailing a check, payable to the Fund, to Shareholder
Services under the terms set forth above under "Purchase of Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
(b) All income dividends in cash; all capital gains distributions
reinvested in additional shares of the Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in
any one available Eligible Fund designated by the shareholder as
described below. See "Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, the account will automatically be coded for reinvestment of all
dividends and distributions in additional shares of the same class of the
Fund. Selections may be changed at any time by telephone or written notice to
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for available shares with
corresponding characteristics of any of the other Eligible Funds at any time
on the basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws.
Shareholders of any other Eligible Fund may similarly exchange their shares
for Fund shares with corresponding characteristics. Prior to making an
exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class A, Class B and
Class D shares may be redeemed without the payment of any contingent deferred
sales charge that might otherwise be due upon an ordinary redemption of such
shares. The State Street Research Money Market Fund issues Class E shares
which are sold without any sales charge. Exchanges of State Street Research
Money Market Fund Class E shares into Class A shares of the Fund or any other
Eligible Fund are subject to the initial sales charge or contingent deferred
sales charge applicable to an initial investment in such Class A shares,
unless a prior Class A sales charge has been paid directly or indirectly with
respect to the shares redeemed. For purposes of computing the contingent
deferred sales charge that may be payable upon disposition of the acquired
Class A, Class B and Class D shares, the holding period of the redeemed
shares is "tacked" to the holding period of the acquired shares. The period
any Class E shares are held is not tacked to the holding period of any
acquired shares. No exchange transaction fee is currently imposed on any
exchange.
Shares of the Fund may also be acquired or redeemed in exchange for shares
of the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers of
Merrill Lynch, Pierce, Fenner & Smith Incorporated (subject to completion of
steps necessary to implement the program). The Fund and Summit Cash Reserves
are related mutual funds for purposes of investment and investor services.
Upon the acquisition of shares of Summit Cash Reserves by exchange for
redeemed shares of the Fund, (a) no
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sales charge is imposed by Summit Cash Reserves, (b) no contingent deferred
sales charge is imposed by the Fund on the Fund shares redeemed, and (c) any
applicable holding period of the Fund shares redeemed is "tolled," that is,
the holding period clock stops running pending further transactions. Upon the
acquisition of shares of the Fund by exchange for redeemed shares of Summit
Cash Reserves, (a) the acquisition of Class A shares shall be subject to the
initial sales charges or contingent deferred sales charges applicable to an
initial investment in such Class A shares, unless a prior Class A sales
charge has been paid indirectly, and (b) the acquisition of Class B or Class
D shares of the Fund shall restart any holding period previously tolled, or
shall be subject to the contingent deferred sales charge applicable to an
initial investment in such shares.
For the convenience of its shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or
his or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-562-0032. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes,
each exchange actually represents the sale of shares of one fund and the
purchase of shares of another. Accordingly, exchanges may produce a capital
gain or loss for tax purposes. The exchange privilege may be terminated or
suspended or its terms changed at any time, subject, if required under
applicable regulations, to 60 days' prior notice. New accounts established
for investments upon exchange from an existing account in another fund will
have the same Telephone Privileges as the existing account, unless
Shareholder Services is instructed otherwise. Related administrative policies
and procedures may also be adopted with regard to a series of exchanges,
street name accounts, sponsored arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, may be aggregated for purposes of the six exchange
limit. Notwithstanding the six exchange limit, the Fund reserves the right to
refuse exchanges by any person or group if, in the Investment Manager's
judgment, the Fund would be unable to invest effectively in accordance with
its investment objective and policies, or would otherwise potentially be
adversely affected. Exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincides with
a "market timing" strategy may be disruptive to the Fund. The Fund may impose
these restrictions at any time. The exchange limit may be modified for
accounts in certain institutional retirement plans because of plan exchange
limits, Department of Labor regulations or administrative and other
considerations. Subject to the foregoing, if an exchange request in good
order is received by Shareholder Services and delivered by Shareholder
Services to the Transfer Agent by 12 noon Boston time on any business day,
the exchange usually will occur that day. For further information regarding
the exchange privilege, shareholders should contact Shareholder Services.
Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares repurchased
at his or her request may reinvest all or any portion of the proceeds (plus
that amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and
without subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 120 calendar days after a redemption or
repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal
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<PAGE>
income tax purposes, a sale on which the shareholder may realize a gain or
loss. If a redemption at a loss is followed by a reinvestment within 30 days,
the transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once per 12-month period with
respect to his or her shares of the Fund. No charge is imposed by the Fund
for such reinvestments; however, dealers may charge fees in connection with
the reinvestment privilege. The reinvestment privilege may be exercised with
respect to an Eligible Fund only in those states where shares of the relevant
other Eligible Fund may legally be sold.
Investment Plans
The Investamatic Program is available to Class A, Class B and Class D
shareholders. Under this Program, shareholders may make regular investments
by authorizing withdrawals from their bank accounts each month or quarter on
the Application available from Shareholder Services.
The Distributor also offers IRAs and tax-sheltered retirement plans,
including prototype and other employee benefit plans for employees, sole
proprietors, partnerships and corporations. Details of these investment plans
and their availability may be obtained from securities dealers or from
Shareholder Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Fund's Systematic Withdrawal Plan,
to have periodic checks issued for specified amounts. These amounts may not
be less than certain minimums, depending on the class of shares held. The
Plan provides that all income dividends and capital gains distributions of
the Fund shall be credited to participating shareholders in additional shares
of the Fund. Thus, the withdrawal amounts paid can only be realized by
redeeming shares of the Fund under the Plan. To the extent such amounts paid
exceed dividends and distributions from the Fund, a shareholder's investment
will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually
of either (a) the value, at the time the Plan is initiated, of the shares
then in the account or (b) the value, at the time of a withdrawal, of the
same number of shares as in the account when the Plan was initiated,
whichever is higher.
Expenses of the Plan are borne by the Fund. A participating shareholder
may withdraw from the Plan and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is
receiving payments under a Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate
in the Investamatic Program and the Systematic Withdrawal Plan at the same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all of
their dividends and any other distributions from the Fund or any Eligible
Fund automatically invested at net asset value in one other such Eligible
Fund designated by the shareholder, provided the account into which the
dividends and distributions are directed is initially funded with the
requisite minimum amount. The number of shares purchased will be determined
as of the dividend payment date. The Dividend Allocation Plan is subject to
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
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dividends and other distributions, including Systematic Withdrawal Plan
payments, automatically deposited in the shareholder's bank account by
electronic funds transfer. Some contingent deferred sales charges may apply.
See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by
the Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions
for amounts up to $50,000 to be mailed to the shareholder's address of
record is available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically;
(3) the privilege allowing the shareholder to make telephone redemptions
for amounts over $5,000,
to be remitted by wire to the shareholder's predesignated bank
account, is available by election on the Application accompanying this
Prospectus. A current shareholder who did not previously request such
telephone wire privilege on his or her original Application may
request the privilege by completing a Telephone Redemption-by-Wire
Form which may be obtained by calling 1-800-562-0032. The Telephone
Redemption-by-Wire form requires a signature guarantee; and
(4) the privilege allowing the shareholder to make telephone purchases or
redemptions, transmitted via the Automated Clearing House system, into
or from the shareholder's predesignated bank account, is available
upon completion of the requisite initial documentation. For details
and forms, call 1-800-562-0032. The documentation requires a signature
guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in
(1) and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by
advising Shareholder Services that the shareholder wishes to discontinue the
use of such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account; and (2) honor any written instructions for
a change of address regardless of whether such request is accompanied by a
signature guarantee. All telephone calls will be recorded. None of the Fund,
the other Eligible Funds, the Transfer Agent, the Investment Manager or the
Distributor will be liable for any loss, expense or cost arising out of any
request, including any fraudulent or unauthorized requests. Shareholders
assume the risk to the full extent of their accounts that telephone requests
may be unauthorized. Reasonable procedures must be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not
be liable for any losses due to unauthorized or fraudulent instructions if
such procedures are not followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-562-0032. Although it is unlikely, during periods of extraordinary
market conditions, a shareholder may have difficulty in reaching Shareholder
Services at such telephone number. In that event, the shareholder should
contact Shareholder Services at 1-800-562-0032 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
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<PAGE>
also be made in writing to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408. A fee of up to $10 will be
charged against an account for providing additional account transcripts or
photocopies of paid redemption checks or for researching records in response
to special requests.
Shareholder Telephone Transactions:
Please call 1-800-562-0032
Call this number for assistance in purchasing shares by wire and for
telephone redemptions or telephone exchange transactions. Shareholder
Services will require some form of personal identification prior to acting
upon instructions received by telephone. Written confirmation of each
transaction will be provided.
The Fund and its Shares
The Fund commenced operations in February 1995 as an additional series of
State Street Research Capital Trust, a Massachusetts business trust, formed
in 1988. The Fund was originally known as State Street Research Small
Capitalization Value Fund, and changed its name to State Street Research
Aurora Fund in 1996. The Trustees have authorized shares of the Fund to be
issued in four classes: Class A, Class B, Class C and Class D. The Trust is
registered with the Securities and Exchange Commission 1940 Act as an open-end
management investment company. The fiscal year end of the Fund is September 30.
Except for those differences between the classes of shares described below
and elsewhere in the Prospectus, each share of the Fund has equal dividend,
redemption and liquidation rights with other shares of the Fund and when
issued is fully paid and nonassessable. In the future, certain classes may be
redesignated, for administrative purposes only, to conform to standard class
designations and common usage of terms which may develop in the mutual fund
industry. For example, Class C shares may be redesignated as Class Y shares
and Class D shares may be redesignated as Class C shares. Any 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, 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.
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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 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 December 31, 1996, Metropolitan was the record and/or beneficial owner,
directly or indirectly through its subsidiaries or affiliates, of approximately
99.8%, 99.9% and 99.8% of the outstanding Class B, Class C and Class D shares of
the Fund, respectively, and may be deemed to be in control of such shares as
"control" is defined in the 1940 Act. 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, responsibility for the management and supervision of the Fund
rests with the Trustees. The Fund's investment manager is State Street
Research & Management Company. The Investment Manager is charged with the
overall responsibility for managing the investments and business affairs of
the Fund, subject to the authority of the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first
mutual funds, presently known as State Street Research Investment Trust,
which they had formed in 1924. Their investment management philosophy, which
continues to this day, emphasized comprehensive fundamental research and
analysis, including meetings with the management of companies under
consideration for investment. The Investment Manager's portfolio management
group has extensive investment industry experience managing equity and debt
securities. In managing debt securities, if any, for a portfolio, the
Investment Manager may consider yield curve positioning, sector rotation and
duration, among other factors.
The Investment Manager and the Distributor are indirect wholly-owned
subsidiaries of Metropolitan, and both are located at One Financial Center,
Boston, Massachusetts 02111-2690.
Under its Advisory Agreement with the Trust, the Investment Manager receives
a monthly investment advisory fee equal to 0.85% (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. 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.
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<PAGE>
Subject to the policy of seeking best overall price and execution, sales of
shares of the Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for the Fund's portfolio transactions.
The Investment Manager has a Code of Ethics governing personal securities
transactions of certain of its employees; see the Statement of Additional
Information.
Dividends and Distributions; Taxes
The Fund has qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code for its most recent
fiscal year 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 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.
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, Russell 2000 Index, Russell 2000 Growth 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
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<PAGE>
Analytical Services, Inc., or to those compiled by Morningstar, Inc., Money
Magazine, Business Week, Forbes Magazine, the Wall Street Journal and
Investor's Daily.
Total return is computed separately for each class of shares of the Fund.
The average annual total return ("standard total return") for shares of the
Fund is computed by determining the average annual compounded rate of return
for a designated historical period as applied to a hypothetical $1,000
initial investment, which is redeemed in total at the end of such period. In
making the calculation, all dividends and distributions are assumed to be
reinvested, and all recurring expenses, including management and distribution
fees, are recognized. The calculation also reflects the highest applicable
initial or contingent deferred sales charge, determined as of the assumed
date of initial investment or the assumed date of redemption, as the case may
be. Standard total return may be accompanied with nonstandard total return
information computed in the same manner, but for differing periods and with
or without annualizing the total return or taking sales charges into account.
The 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. 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.
26
