METLIFE - STATE STREET RESEARCH
CAPITAL APPRECIATION FUND
EQUITY INVESTMENT FUND
EQUITY INCOME FUND
Prospectus--November 1, 1994
As Supplemented June 1, 1995
METLIFE - STATE STREET RESEARCH CAPITAL APPRECIATION FUND (the "Capital
Appreciation Fund" or the "Fund") seeks to achieve maximum capital
appreciation by investing primarily in common stocks of emerging growth
companies and of companies considered to be undervalued special situations.
Current income is not a consideration in the selection of investments for the
Fund. The Fund may engage in short-term trading of portfolio securities. See
page 12.
METLIFE - STATE STREET RESEARCH EQUITY INVESTMENT FUND (the "Equity
Investment Fund" or the "Fund") seeks to achieve long-term growth of capital
and, secondarily, long-term growth of income by investing primarily in common
stocks of established companies with above-average prospects for growth. See
page 12.
METLIFE - STATE STREET RESEARCH EQUITY INCOME FUND (the "Equity Income
Fund" or the "Fund") seeks to provide a high level of current income and,
secondarily, long-term growth of capital by investing primarily in common
stocks offering above-average dividend yields and in securities convertible
into common stocks. The Fund seeks to provide a higher income yield than that
of the Standard & Poor's 500 Stock Index. The Fund has authority to invest
from time to time in lower rated fixed income securities. See page 12.
State Street Research & Management Company serves as investment adviser
for the Funds (the "Investment Manager"). As of September 30, 1994, the
Investment Manager had assets of approximately $23.3 billion under
management. State Street Research Investment Services, Inc. serves as
distributor (the "Distributor") for the Funds.
Shareholders may have their shares redeemed directly by the Funds 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 a Fund will
achieve its investment objective. The net asset value of a share of a Fund
will fluctuate as market conditions change.
This Prospectus sets forth concisely the information a prospective
investor ought to know about the Funds before investing. It should be
retained for future reference. A Statement of Additional Information about
the Funds dated November 1, 1994 has been filed with the Securities and
Exchange Commission and is incorporated by reference in this Prospectus. It
is available, at no charge, upon request to the Funds at the address
indicated on the back cover or by calling 1-800-562-0032.
Each Fund is a diversified series of MetLife - State Street Equity Trust
(the "Trust"), an open-end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS PAGE
Table of Expenses 2
Financial Highlights 6
The Funds' Investments 12
Limiting Investment Risk 15
Purchase of Shares 16
Redemption of Shares 24
Shareholder Services 25
The Funds and Their Shares 29
Management of the Funds 30
Dividends and Distributions; Taxes 31
Calculation of Performance Data 32
Appendix--Description of Debt/Bond Ratings 34
<PAGE>
The Funds offer four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5%
and (ii) an annual service fee of 0.25% of the average daily net asset value
of the Class A shares.
Class B shares are subject to (i) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees
of 1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and
large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution
and service fees of 1% of the average daily net asset value of such shares.
TABLE OF EXPENSES
<TABLE>
<CAPTION>
CLASS CLASS CLASS CLASS
A B C D
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.5% None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering
price) None None None None
Maximum Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable) None(2) 5% None 1%
Redemption Fees (as a percentage of amount
redeemed, if applicable) None None None None
Exchange Fees None None None None
</TABLE>
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
annually through the fifth year, and no contingent deferred sales charge is
imposed after the fifth year. Class D shares are subject to a 1% contingent
deferred sales charge on any portion of the purchase redeemed within one year
of the sale. Long-term investors in a class of shares with a distribution fee
may, over a period of years, pay more than the economic equivalent of the
maximum sales charge permissible under applicable rules. See "Purchase of
Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption. See
"Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.75% 0.75% 0.75% 0.75%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.56% 0.56% 0.56% 0.56%
---- ---- ---- ----
Total Fund Operating Expenses 1.56% 2.31% 1.31% 2.31%
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FUND 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 0.65% 0.65% 0.65% 0.65%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.84% 0.84% 0.84% 0.84%
Less Voluntary Reduction (0.49%) (0.49%) (0.49%) (0.49%)
---- ---- ---- ----
Total Fund Operating Expenses
(after voluntary reduction) 1.25% 2.00% 1.00% 2.00%
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND 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 0.65% 0.65% 0.65% 0.65%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.86% 0.86% 0.86% 0.86%
Less Voluntary Reduction (0.51%) (0.51%) (0.51%) (0.51%)
---- ---- ---- ----
Total Fund Operating Expenses
(after voluntary reduction) 1.25% 2.00% 1.00% 2.00%
===== ===== ===== =====
</TABLE>
3
<PAGE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment including, for
Class A shares, the maximum applicable initial sales charge and assuming (1)
5% annual return and (2) redemption of the entire investment at the end of
each time period:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A shares $60 $ 92 $126 $222
Class B shares (1) $73 $102 $144 $246
Class C shares $13 $ 42 $ 72 $158
Class D shares $33 $ 72 $124 $265
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A shares $57 $83 $ 111 $189
Class B shares (1) $70 $93 $ 128 $213
Class C shares $10 $32 $ 55 $122
Class D shares $30 $63 $ 108 $233
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A shares $57 $83 $111 $189
Class B shares (1) $70 $93 $128 $213
Class C shares $10 $32 $ 55 $122
Class D shares $30 $63 $108 $233
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class B shares (1) $23 $72 $124 $246
Class D shares $23 $72 $124 $265
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class B shares (1) $20 $63 $108 $213
Class D shares $20 $63 $108 $233
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class B shares (1) $20 $63 $108 $213
Class D shares $20 $63 $108 $233
</TABLE>
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense levels shown in the table above are based
on experiences with expenses during the fiscal year ended June 30, 1994
adjusted to reflect the current rate of expenses being incurred; actual
expense levels for the current fiscal year and future years may vary from the
amounts shown. The table reflects a reduction in Rule 12b-1 fees payable by
the Class A shares of each Fund. On March 10, 1995, the Rule 12b-1 fee was
reduced to 0.25% of average net assets on an annualized basis for the Class A
shares of each Fund (formerly the fee was
4
<PAGE>
0.50%). The table also reflects the elimination of the Voluntary Reduction by
the Distributor of fees or expenses incurred by the Capital Appreciation
Fund.
Because the changes in the rate of 12b-1 fees and the rate of Voluntary
Reduction occurred after completion of a substantial part of the current
fiscal year, actual Total Fund Operating Expenses for Class A shares of the
Capital Appreciation Fund for the fiscal year ending June 30, 1995 are
estimated to be approximately 0.04% less than the amounts shown, actual Total
Fund Operating Expenses for Class B, Class C and Class D shares of the
Capital Appreciation Fund for the fiscal year ending June 30, 1995 are
estimated to be 0.21% less than the amounts shown, and actual Total Fund
Operating Expenses for Class A shares of the Equity Investment Fund and the
Equity Income Fund for the fiscal year ending June 30, 1995 are estimated to
be approximately 0.17% more than 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 Funds"; and for further information on 12b-1
fees, see "Purchase of Shares--
Distribution Plan."
The Equity Investment Fund and the Equity Income Fund have 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 such
Funds. For the fiscal year ended June 30, 1994, Total Fund Operating Expenses
as a percentage of average net assets of Class A, Class B, Class C and Class
D shares, respectively, would have been 1.99%, 2.59%, 1.53% and 2.47% of the
Equity Investment Fund, and 2.00%, 2.64%, 1.51% and 2.54% of the Equity
Income Fund, in the absence of the voluntary assumption of fees or expenses
by the Distributor and its affiliates. Such assumption of fees or expenses,
as a percentage of average net assets, amounted to 0.49%, 0.59%, 0.53% and
0.47% of the Class A, Class B, Class C and Class D shares of the Equity
Investment Fund, respectively, and 0.50%, 0.64%, 0.51% and 0.54% of the Class
A, Class B, Class C and Class D shares of the Equity Income Fund,
respectively. The amount of fees or expenses assumed during the fiscal year
ended June 30, 1994 differed among classes because of fluctuations during the
year in relative levels of assets in each class and in expenses before
reimbursement. The Equity Investment Fund and the Equity Income Fund expect
the subsidization of fees or expenses to continue in the current year,
although they cannot give complete assurance that such assistance will be
received.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The data set forth below has been audited by Price Waterhouse LLP,
independent accountants, and their reports thereon for the latest five years
are included in the Statement of Additional Information. For further
information about the performance of the Funds, see the Funds' Annual Reports
which appear under the caption "Financial Statements" in the Statement of
Additional Information.
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
Class A
August
25, 1986
(Commencement
of
Operations)
Year ended June 30 to
June 30,
1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $10.42 $ 8.33 $ 6.55 $ 6.70 $ 6.46 $ 5.49 $ 5.93 $ 4.66
Net investment income (loss)* (.04) (.05) (.05) (.01) .02 .02 .04 .01
Net realized and unrealized
gain (loss) on investments .09 2.81 1.83 (.12) 1.04 .96 (.23) 1.27
Dividends from net investment
income -- -- -- (.01) (.02) (.01) (.04) (.01)
Dividends in excess of net
investment income -- -- -- (.01) -- -- -- --
Distributions from net
realized gains (1.36) (.67) -- -- (.80) -- (.21) --
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year $ 9.11 $10.42 $ 8.33 $ 6.55 $ 6.70 $ 6.46 $ 5.49 $ 5.93
====== ====== ====== ====== ====== ====== ====== ======
Total return (0.28%)+ 35.78%+ 27.03%+ (1.69)%+ 17.25%+ 18.08%+ (3.43)%+ 27.70%+++
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets at end of year
(000s) $231,356 $183,886 $116,687 $62,898 $59,093 $33,872 $29,757 $23,672
Ratio of operating expenses to
average net assets* 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%++
Ratio of net investment income
(loss) to average net assets* (0.81)% (0.63)% (0.71)% (0.13)% 0.39% 0.29% 0.77% 0.31%++
Portfolio turnover rate 147.73% 135.17% 128.10% 245.55% 238.94% 223.19% 330.50% 200.56%
*Reflects the voluntary
assumption of fees or
expenses per share in each
year $ 0.02 $ 0.01 $ 0.01 $ 0.03 $ 0.02 $ 0.04 $ 0.04 $ 0.04
</TABLE>
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
6
<PAGE>
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
Class B Class C Class D
June 1, June 1, June 1,
1993 1993 1993
(Commencement (Commencement (Commencement
of Share of Share of Share
Class Class Class
Year Designations) Year Designations) Year Designations)
ended to ended to ended to
June 30, June 30, June 30, June 30, June 30, June 30,
1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $10.41 $10.44 $10.42 $10.44 $10.41 $10.44
Net investment income (loss)* (.06) (.00) (.02) .00 (.07) (.01)
Net realized and unrealized gain
(loss) on investments .06 (.03) .12 (.02) .09 (.02)
Dividends from net investment
income -- -- -- -- -- --
Dividends in excess of net
investment income -- -- -- -- -- --
Distributions from net realized
gains (1.36) -- (1.36) -- (1.36) --
------ ------ ------ ------ ------ ------
Net asset value, end of year $ 9.05 $10.41 $ 9.16 $10.42 $ 9.07 $10.41
====== ====== ====== ====== ====== ======
Total return (0.83)%+ (0.29)%+++ 0.25%+ (0.19)%+++ (0.61)%+ (0.29)%+++
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net assets at end of year (000s) $49,236 $2,790 $62,662 $37,826 $2,201 $623
Ratio of operating expenses to
average net assets* 2.00% 2.00%++ 1.00% 1.00%++ 2.00% 2.00%++
Ratio of net investment income
(loss) to average net assets* (1.29)% (0.95)%++ (0.30)% 0.50%++ (1.29)% (1.10)%++
Portfolio turnover rate 147.73% 135.17% 147.73% 135.17% 147.73% 135.17%
*Reflects voluntary assumption of
fees or expenses per share in
each year $ 0.02 $ 0.00 $ 0.02 $ 0.00 $ 0.02 $ 0.00
</TABLE>
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
7
<PAGE>
EQUITY INVESTMENT FUND
<TABLE>
<CAPTION>
Class A
August 25, 1986
(Commencement of
Year ended June 30 Operations) to
June 30,
1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $14.52 $13.16 $11.19 $12.15 $10.83 $ 9.70 $11.33 $ 9.31
Net investment income (loss)* .01 .04 .05 .14 .22 .33 .28 .20
Net realized and unrealized
gain (loss) on investments .18 2.48 1.99 (.89) 1.54 1.16 (.99) 1.94
Dividends from net investment
income -- (.04) (.07) (.19) (.29) (.31) (.22) (.12)
Distributions from net
realized gains (2.27) (1.12) -- (.02) (.15) (.05) (.70) --
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year $12.44 $14.52 $13.16 $11.19 $12.15 $10.83 $ 9.70 $11.33
====== ====== ====== ====== ====== ====== ====== ======
Total return 0.93%+ 20.37%+ 18.27%+ (6.10)%+ 16.54%+ 15.87%+ (6.87)%+ 23.14%+++
Net assets at end of year
(000s) $29,821 $26,933 $48,473 $35,733 $35,647 $24,066 $25,197 $22,210
Ratio of operating expenses to
average net assets* 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%++
Ratio of net investment income
(loss) to average net assets* 0.08% 0.23% 0.43% 1.29% 1.99% 3.17% 2.92% 2.57%++
Portfolio turnover rate 62.93% 92.35% 81.89% 72.03% 43.22% 98.70% 175.30% 118.70%
*Reflects the voluntary
assumption of fees or
expenses per share in each
year $ 0.04 $ 0.02 $ 0.02 $ 0.03 $ 0.04 $ 0.05 $ 0.05 $ 0.05
</TABLE>
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
8
<PAGE>
EQUITY INVESTMENT FUND
<TABLE>
<CAPTION>
Class B Class C Class D
June 1, June 1, June 1,
1993 1993 1993
(Commencement (Commencement (Commencement
of Share of Share of Share
Class Class Class
Year Designations) Year Designations) Year Designations)
ended to ended to ended to
June 30, June 30, June 30, June 30, June 30, June 30,
1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $14.51 $14.78 $14.51 $14.78 $14.51 $14.78
Net investment income (loss)* (.02) .00 .07 (.00) (.05) .00
Net realized and unrealized
gain (loss) on investments .14 (.26) .17 (.25) .17 (.26)
Dividends from net investment
income -- (.01) -- (.02) -- (.01)
Distributions from net
realized gains (2.27) -- (2.27) -- (2.27) --
------ ------ ------ ------ ------ ------
Net asset value, end of year $12.36 $14.51 $12.48 $14.51 $12.36 $14.51
====== ====== ====== ====== ====== ======
Total return 0.37%+ (1.77)%+++ 1.41%+ (1.69)%+++ 0.45%+ (1.77)%+++
Net assets at end of year
(000s) $4,029 $663 $32,991 $18,796 $551 $491
Ratio of operating expenses to
average net assets* 2.00% 2.00%++ 1.00% 1.00%++ 2.00% 2.00%++
Ratio of net investment income
(loss) to average net assets* (0.39)% 0.03%++ 0.59% (0.39)%++ (0.41)% 0.12%++
Portfolio turnover rate 62.93% 92.35% 62.93% 92.35% 62.93% 92.35%
*Reflects voluntary assumption
of fees or expenses per share
in each year $ 0.04 $ 0.00 $ 0.06 $ 0.00 $ 0.06 $ 0.00
</TABLE>
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
9
<PAGE>
EQUITY INCOME FUND
<TABLE>
<CAPTION>
Class A
August 25, 1986
(Commencement of
Year ended June 30 Operations) to
June 30,
1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $10.79 $ 9.19 $ 8.33 $ 9.83 $ 9.87 $ 8.93 $10.35 $ 9.31
Net investment income* .24 .44 .39 .45 .55 .47 .53 .38
Net realized and unrealized
gain (loss) on investments .25 1.52 .83 (1.08) .54 .99 (.82) .86
Dividends from net
investment income (.26) (.36) (.36) (.48) (.52) (.51) (.66) (.20)
Distributions from net
realized gains (.15) -- -- (.39) (.61) (.01) (.47) --
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
year $10.87 $10.79 $ 9.19 $ 8.33 $ 9.83 $ 9.87 $ 8.93 $10.35
====== ====== ====== ====== ====== ====== ====== ======
Total return 4.30%+ 21.64%+ 14.81%+ (6.51)%+ 11.33%+ 17.01%+ (2.35)%+ 13.42%+++
Net assets at end of year
(000s) $40,484 $28,995 $51,585 $45,233 $49,842 $40,411 $30,315 $31,277
Ratio of operating expenses
to average net assets* 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%++
Ratio of net investment
income (loss) to average
net assets* 2.42% 3.76% 4.27% 5.30% 5.43% 5.20% 5.91% 5.59%++
Portfolio turnover rate 73.96% 80.42% 102.39% 131.43% 106.40% 87.43% 163.00% 74.24%
*Reflects the voluntary
assumption of fees or
expenses per share in each
year $ 0.05 $ 0.01 $ 0.01 $ 0.01 $ 0.02 $ 0.02 $ 0.03 $ 0.02
</TABLE>
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
10
<PAGE>
EQUITY INCOME FUND
<TABLE>
<CAPTION>
Class B Class C Class D
June 1,1993 June 1, 1993 June 1,1993
(Commencement (Commencement (Commencement
of Share Class of Share Class of Share Class
Year Designations) Year Designations) Year Designations)
ended to ended to ended to
June 30, June 30, June 30, June 30, June 30, June 30,
1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $10.79 $10.81 $10.79 $10.81 $10.79 $10.81
Net investment income* .21 .02 .33 .03 .21 .02
Net realized and unrealized
gain (loss) on investments .21 (.02) .21 (.02) .21 (.02)
Dividends from net investment
income (.20) (.02) (.32) (.03) (.20) (.02)
Distributions from net
realized gains (.15) -- (.15) -- (.15) --
------ ------ ------ ------ ------ ------
Net asset value, end of year $10.86 $10.79 $10.86 $10.79 $10.86 $10.79
====== ====== ====== ====== ====== ======
Total return 3.79%+ 0.05%+++ 4.84%+ 0.14%+++ 3.78%+ 0.04%+++
Net assets at end of year
(000s) $10,752 $1,060 $20,266 $15,988 $1,280 $628
Ratio of operating expenses to
average net assets* 2.00% 2.00%++ 1.00% 1.00%++ 2.00% 2.00%++
Ratio of net investment income
to average net assets* 1.80% 1.53%++ 2.92% 1.65%++ 1.88% 1.49%++
Portfolio turnover rate 73.96% 80.42% 73.96% 80.42% 73.96% 80.42%
*Reflects the voluntary
assumption of fees or
expenses per share in each
year $ 0.07 $ 0.00 $ 0.06 $ 0.00 $ 0.06 $ 0.00
</TABLE>
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
11
<PAGE>
THE FUNDS' INVESTMENTS
Each of the Capital Appreciation Fund, the Equity Investment Fund and the
Equity Income Fund has its own investment objective and policies, as
described below. Each Fund's investment objective is a fundamental policy of
that Fund and may not be changed without approval of the shareholders of that
Fund.
METLIFE - STATE STREET RESEARCH
CAPITAL APPRECIATION FUND
The investment objective of the Capital Appreciation Fund is to achieve
maximum capital appreciation by investing primarily in common stocks (and
equity and debt securities convertible into or carrying the right to acquire
common stocks) of emerging growth companies and of companies considered to be
undervalued special situations. Current income is not a consideration in the
selection of investments for the Fund.
The Capital Appreciation Fund considers emerging growth companies to be
less mature companies that are growing substantially faster than the U.S.
economy. The Fund will invest in those emerging growth companies believed by
the Investment Manager to offer appreciation potential greater than the stock
market as a whole. The Fund considers undervalued special situations to
include common stocks of larger and more mature companies which trade at
prices believed by the Investment Manager to be below the companies'
intrinsic values and which therefore offer the potential for above-average
investment returns. Investing in stocks of companies which offer high
appreciation potential carries greater than average risks. Securities are
selected for the Capital Appreciation Fund by the Investment Manager based on
a continuous study of trends in industries and companies, earning power,
growth features and other investment criteria. The length of time that the
Fund may hold a particular security is generally not a consideration in
making investment decisions.
METLIFE - STATE STREET RESEARCH
EQUITY INVESTMENT FUND
The investment objective of the Equity Investment Fund is to achieve
long-term growth of capital and, secondarily, long-term growth of income by
investing primarily in common stocks (and equity and debt securities
convertible into or carrying the right to acquire common stocks) of
established companies with above-average prospects for growth. It is a
fundamental policy of the Fund under normal market conditions to invest at
least 65% of its assets in equity securities (and securities convertible into
equity securities).
The Equity Investment Fund invests primarily in a diversified portfolio of
companies in a broad range of industries whose earnings and/or assets are
expected to grow at a rate above the average for the Standard & Poor's 500
Stock Index (the "S&P 500") over the long term. Consequently, the Investment
Manager seeks to identify those industries which offer the greatest
possibilities for profitable expansion and, within such industries, those
companies which appear most capable of sustained growth. Investments will
also be made in securities of companies believed by the Investment Manager to
be selling below their intrinsic values or in securities of cyclical
companies believed by the Investment Manager to be at a low point in their
cycles. Although the Fund's investments are not limited to companies of any
particular size, it is anticipated that a majority of the securities in which
the Fund invests will be listed on a national securities exchange.
The Equity Investment Fund will not ordinarily trade in securities for
short-term profits. However, when circumstances warrant, securities may be
sold without regard to the length of time held.
METLIFE - STATE STREET RESEARCH
EQUITY INCOME FUND
The investment objective of the Equity Income Fund is to provide a high level
of current income and, secondarily, long-term growth of capital by investing
primarily in common stocks offering above-average dividend yields and in
equity and debt securities convertible into or carrying the right to acquire
common stocks. The Fund seeks to provide a higher income yield than that of
the S&P 500. It is a fundamental policy of the Fund under normal market
conditions to invest at least 65% of its assets in equity securities and
securities convertible into equity securities.
12
<PAGE>
In seeking high current income, the Equity Income Fund will invest
primarily in companies with established operating histories, potential for
dividend growth and low price to earnings and/or price to book ratios
relative to the S&P 500. It is anticipated that a majority of the equity
securities in which the Fund invests will be listed on a national securities
exchange.
In order to further enhance its income, the Equity Income Fund may invest
up to 35% of its total assets in nonconvertible debt securities (corporate
and government bonds of various maturities) and warrants (limited in the
latter case to 5% of net assets) when the Investment Manager believes such
investments will help to achieve the Fund's investment objective of high
current income.
The Fund may invest up to 15% of its total assets in lower quality,
nonconvertible debt securities rated at the time of purchase BB or B by
Standard & Poor's Corporation ("S&P") or Ba or B 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 to comparable
rated securities. The Fund is not subject to any rating limitations with
respect to its investments in convertible securities. The mix of convertible
and nonconvertible securities in different rating categories varies over time
depending on, among other factors, changes in investment strategy.
Lower quality convertible or nonconvertible debt securities generally
involve more credit risk than higher rated securities and are considered by
S&P and Moody's to be speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. Further,
such securities may be subject to greater market fluctuations and risk of
loss of income and principal than lower yielding, higher rated debt
securities. Risks of lower quality debt securities, commonly known as "junk
bonds," include (i) limited liquidity and secondary market support; (ii)
substantial market price volatility resulting from changes in prevailing
interest rates and/or investor perceptions; (iii) subordination to the prior
claims of banks and other senior lenders; (iv) the operation of mandatory
sinking fund or call/redemption provisions during periods of declining
interest rates when the Fund may be required to reinvest premature redemption
proceeds in lower yielding portfolio securities; (v) the possibility that
earnings of the issuer may be insufficient to meet its debt service; and (vi)
the issuer's low creditworthiness and potential for insolvency during periods
of rising interest rates and economic downturn. For further information
concerning the ratings of debt securities, see the Appendix to this
Prospectus.
For the fiscal year ended June 30, 1994, the percentage of the Equity
Income Fund's total investments on an average annual basis invested in
nonconvertible debt and convertible securities of any particular rating
category or its equivalent, as determined by the Investment Manager, was as
follows: 2.1% BBB, 2.3% BB, 14.0% B, 3.5% CCC, 0.4% CC and 0.1% D, as
determined on a dollar weighted basis, comprising 22.4% of total investments.
Of these securities, 64.3% were rated by a nationally recognized statistical
rating organization and 35.7% were unrated but considered to be equivalent,
as determined by the Investment Manager, to comparable rated securities. The
above percentages reflect ratings, as of the time of purchase and subsequent
changes, if any, including downgrades, for the period the securities were
held.
In the event the rating of a security is downgraded, the Investment
Manager will determine whether the security should be retained or sold
depending on an assessment of all facts and circumstances at that time.
The Equity Income Fund will not ordinarily trade in securities for
short-term profits. However, when circumstances warrant, securities may be
sold without regard to the length of time held.
INVESTMENT PRACTICES
FOREIGN INVESTMENTS
Each 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
13
<PAGE>
("EDRs"). Under current policy, however, each 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 a Fund; (b) the relative illiquidity of the issue in U.S.
markets; and (c) the possibility of higher trading costs in the
over-the-counter market as opposed to exchange based tradings. Each Fund will
take these and other risk considerations into account before making an
investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks
of nationalization or expropriation, the possible imposition of currency
exchange blockages, higher operating expenses, foreign withholding and other
taxes which may reduce investment return, reduced availability of public
information concerning issuers, the difficulties in obtaining and enforcing a
judgment against a foreign issuer and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to
those applicable to domestic issuers. Moreover, securities of many foreign
issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers.
It is anticipated that a majority of the foreign investments by each Fund
will consist of securities of issuers in countries with developed economies.
However, each Fund may also invest in the securities of issuers in countries
with less developed economies as deemed appropriate by the Investment
Manager, although no Fund presently expects to invest more than 5% of its
total assets in issuers in such less developed countries. Such countries
include countries that have an emerging stock market that trades a small
number of securities; countries with low- to middle-income economies; and/or
countries with economies that are based on only a few industries. Eastern
European countries are considered to have less developed capital markets.
For further information regarding foreign investments, see the Statement
of Additional Information.
CURRENCY TRANSACTIONS
In order to protect against the effect of uncertain future exchange rates
on securities denominated in foreign currencies, each 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 Funds are dependent upon the creditworthiness and
good faith of the counterparty. The Funds will attempt to reduce the risks of
nonperformance by a counterparty by dealing only with established, large
14
<PAGE>
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
Each Fund may, subject to certain limitations, buy and sell options, futures
contracts and options on futures contracts on securities and securities
indices, enter into repurchase agreements and purchase securities on a "when
issued" basis. A Fund may not establish a position in a commodity futures
contract or purchase or sell a commodity option contract for other than bona
fide hedging purposes if immediately thereafter the sum of the amount of
initial margin deposits and premiums required to establish such positions for
such nonhedging purposes would exceed 5% of the market value of a Fund's net
assets. Each Fund may also enter various forms of swap arrangements with
respect to interest rates, currency rates and indices, although none of the
Funds presently expect to invest more than 5% of its total assets in such
items. See the Statement of Additional Information.
The Funds 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.
As detailed above, each Fund seeks to attain a particular investment
objective. From time to time, however, the Funds, in seeking to achieve their
different investment objectives, may hold securities which are issued by
similar companies and traded in the same markets. It is also possible that a
particular security may be held by more than one Fund when the Investment
Manager determines that holding such security is in the best interests of
each such Fund and the security meets the criteria set forth above. For
example, a stock which is deemed by the Investment Manager to have
above-average potential for long- term earnings growth, to be undervalued
relative to other stocks with similar earnings potential and to have an
above-average dividend yield could be held simultaneously by all three Funds.
In all cases, securities will be selected for each Fund by the Investment
Manager with a view to realizing that Fund's investment objective.
During periods when the Investment Manager deems it advisable, the Funds
may engage in active trading of portfolio securities. This could result in a
high rate of portfolio turnover and correspondingly greater transaction costs
to the Funds, including brokerage commissions.
LIMITING INVESTMENT RISK
In seeking to lessen investment risk, each Fund operates under certain
investment restrictions. The restrictions in the following two paragraphs may
not be changed with respect to any Fund except by a vote of the shareholders
of that Fund. The remaining restrictions and policies are subject to change
by the Trustees.
No Fund may invest in a security if the transaction would result in: (a)
more than 5% of the Fund's total assets being invested in any one issuer; (b)
the Fund's owning more than 10% of the outstanding voting securities of an
issuer; (c) more than 5% of the Fund's total assets being invested in
securities of issuers (including predecessors) with less than three years of
continuous operations except in the case of debt securities rated BBB or
higher by S&P or Baa or higher by Moody's; or (d) more than 25% of the Fund's
total assets being invested in any one industry. These restrictions do not
apply to investments in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities.
A Fund may not invest more than 10% of its total assets in illiquid
securities, including securities restricted as to resale (limited to 5% of
total assets), repurchase agreements extending for more than seven days and
other securities which are not readily marketable. A Fund will not make loans
except that it may purchase debt obligations, including money market
instruments, directly from the issuer thereof or in the open market and may
engage in repurchase transactions collateralized by obligations of the U.S.
Government and its agencies and instrumentalities. The Capital Appreciation
and Equity Investment Funds may not invest in warrants.
For further information on these and other investment restrictions,
including nonfundamental invest
15
<PAGE>
ment restrictions which may be changed without a shareholder vote, see the
Statement of Additional Information.
Each Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. A Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against unfavorable market
conditions than adherence to the Fund's other investment policies. The types
of short-term instruments in which the Funds may invest for such purposes
include short-term money market securities such as repurchase agreements and
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits and bankers'
acceptances of certain qualified financial institutions and corporate
commercial paper rated at the time of purchase at least "A" by S&P or "Prime"
by Moody's (or, if not rated, issued by companies having an outstanding
long-term unsecured debt issue rated at least "A" by S&P or Moody's). See the
Statement of Additional Information.
Information on the Purchase of Shares, Redemption of Shares and
Shareholder Services is set forth on pages 16 to 29 below.
A 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 a Fund.
Participants in 401(k) and other plans should first consult with the
appropriate person at their employer or refer to the plan materials before
following any of the procedures below. For more information or assistance,
anyone may call 1-800-562-0032.
PURCHASE OF SHARES
METHODS OF PURCHASE
THROUGH DEALERS
Shares of the Funds are continuously offered through securities dealers who
have entered into sales agreements with the Distributor. Purchases through
dealers are confirmed at the offering price, which is the net asset value
plus the applicable sales charge, next determined after the order is duly
received by State Street Research Shareholder Services ("Shareholder
Services"), a division of State Street Research Investment Services, Inc.,
from the dealer. ("Duly received" for purposes herein means in accordance
with the conditions of the applicable method of purchase as described below.)
The dealer is responsible for transmitting the order promptly to Shareholder
Services in order to permit the investor to obtain the current price. See
"Purchase of Shares--Net Asset Value" herein.
BY MAIL
Initial investments in a Fund may be made by mailing or delivering to the
investor's securities dealer a completed Application (accompanying this
Prospectus), together with a check for the total purchase price payable to
the Fund. The dealer must forward the Application and check in accordance
with the instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a
check payable to the Fund in the amount of the total purchase price together
with any one of the following: (i) an Application; (ii) the stub from a
shareholder's account statement; or (iii) a letter setting forth the name of
the Fund, the class of shares and the shareholder's account name and number.
Shareholder Services will deliver the purchase order to the transfer agent
and dividend paying agent, State Street Bank and Trust Company (the "Transfer
Agent").
If a check is not honored for its full amount, the purchaser could be
subject to additional charges to cover collection costs and any investment
loss, and the purchase may be cancelled.
16
<PAGE>
BY WIRE
An investor may purchase shares by wiring Federal Funds of not less than
$5,000 to State Street Bank and Trust Company, which also serves as the
Trust's custodian (the "Custodian"), as set forth below. Prior to making an
investment by wire, an investor must notify Shareholder Services at
1-800-521-6548 and obtain a control number and instructions. Following such
notification, Federal Funds should be wired through the Federal Reserve
System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = Name of Fund and class of shares
(A, B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make
such investment by 12 noon Boston time on the day of his or her investment;
and (ii) the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete
the Application accompanying this Prospectus and deliver it to his or her
securities dealer, who should forward it as required. No redemptions will be
effected until the Application has been duly processed.
A 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 a Fund.
MINIMUM INVESTMENT
<TABLE>
<CAPTION>
CLASS OF SHARES
A B C D
<S> <C> <C> <C> <C>
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $ 50 $ 50 (a) $ 50
By Investamatic $ 50 $ 50 (a) $ 50
All other $ 50 $ 50 (a) $ 50
(a) Special conditions apply; contact the Distributor.
</TABLE>
The Funds reserve the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments under various retirement and employee benefit plans, sponsored
arrangements involving group solicitations of the members of an organization,
or other investment plans such as for reinvestment of dividends and
distributions or for periodic investments (e.g., Investamatic Check Program).
The Funds also reserve the right at any time to suspend the offering of
shares or to reject any specific purchase order for shares.
ALTERNATIVE PURCHASE PROGRAM
GENERAL
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding Fund shares, or
the flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in a Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, securities dealers are paid
differing amounts of commission and other compensation depending on which
class of shares they sell.
17
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
Sales Charges Initial sales Contingent None Contingent deferred
charge at time deferred sales sales charge of 1%
of investment of charge of 5% to applies to any
up to 4.5% 2% applies to any shares redeemed
depending on shares redeemed within one year
amount of within first five following their
investment years following purchase
their purchase; no
contingent
deferred sales
charge after five
years
On investments of
$1 million or
more, no initial
sales charge; but
contingent
deferred sales
charge of 1%
applies to any
shares redeemed
within one year
following their
purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years;
Class B shares
convert 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 initial sales
Selling charge less 0.25%
Securities Dealer to 0.50% retained
by Distributor
On investments of
$1 million or
more, 0.25% to 1%
paid to dealer by
Distributor
</TABLE>
18
<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 a 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 a
Fund's shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its
expense, provide additional cash and noncash incentives to securities dealers
that sell shares. Such incentives may be extended only to those dealers who
have sold or may sell significant amounts of shares and/or meet other
conditions established by the Distributor; for example, the Distributor may
sponsor special promotions to develop particular distribution channels or to
reach certain investor groups. The incentives include luxury merchandise,
trips to luxury resorts in exotic locations and attendance at sales seminars
at luxury resorts.
CLASS A SHARES--INITIAL SALES CHARGES
SALES CHARGES
The purchase price of a Class A share of a Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar
amount of the shares purchased as set forth in the table below. A major
portion of this sales charge is reallowed by the Distributor to the
securities dealer responsible for the sale.
<TABLE>
<CAPTION>
Sales Sales
Charge Charge
Paid by Paid by Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 or above but
less than $250,000 3.50% 3.63% 3.00%
$250,000 or above but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or above but
less than
$1 million 2.00% 2.04% 1.75%
$1 million and above 0% 0% See
following
discussion
</TABLE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
a commission as follows:
19
<PAGE>
<TABLE>
<CAPTION>
Amount of Sale Commission
<S> <C>
(a) $1 million to $3 million 1.00%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
</TABLE>
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed
within one year of the sale. However, such redeemed shares will not be
subject to the contingent deferred sales charge to the extent that their
value represents (1) capital appreciation or (2) reinvestment of dividends or
capital gains distributions. In addition, the contingent deferred sales
charge will be waived for certain other redemptions as described under
"Contingent Deferred Sales Charge Waivers" below (as otherwise applicable to
Class B shares).
Class A shares of a 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 a Fund or
a combination of "Eligible Funds." "Eligible Funds" include the Funds 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 Funds 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 a Fund or a combination of shares of
the Funds 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 Funds may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored
arrangements, which include programs under which a company, employee benefit
plan or other organization makes recommendations to, or permits group
solicitation of, its employees, members or participants, except any
organization created primarily for the purpose of obtaining shares of the
Funds at a reduced sales charge or without a sales charge. Information on
such arrangements and further conditions and limitations is available from
the Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of a 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
20
<PAGE>
or current or retired directors or trustees of the Affiliated Companies or
any investment company managed by any of the Affiliated Companies, any
relatives of any such individuals whose relationship is directly verified by
such individuals to the Distributor, or any beneficial account for such
relatives or individuals; and (C) employees, officers, sales representatives
or directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any
spouse or child of such person, or any beneficial account for any of them.
The purchase must be made for investment and the shares purchased may not be
resold except through redemption. This purchase program is subject to such
administrative policies, regarding the qualification of purchasers and any
other matters, as may be adopted by the Distributor from time to time.
CLASS B SHARES--CONTINGENT DEFERRED
SALES CHARGES
CONTINGENT DEFERRED SALES CHARGES
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Funds. However, a
contingent deferred sales charge may be imposed upon redemptions of Class B
shares as described below.
The Distributor will pay securities dealers at the time of sale a 4%
commission for selling Class B shares. The proceeds of the contingent
deferred sales charge and the distribution fee are used to offset
distribution expenses and thereby permit the sale of Class B shares without
an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets or (2) reinvestment of dividends or capital gains distributions.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
As A Percentage Of
Net Asset Value
Redemption During At Redemption
<S> <C>
1st Year Since Purchase 5%
2nd Year Since Purchase 4
3rd Year Since Purchase 3
4th Year Since Purchase 3
5th Year Since Purchase 2
6th Year Since Purchase and
Thereafter None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first
of those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of a Fund acquired through an exchange from another
Eligible Fund will be measured from the date that such shares were initially
acquired in the other Eligible Fund, and Class B shares being redeemed will
be considered to represent, as applicable, capital appreciation or dividend
and capital gains distribution reinvestments in such other Eligible Fund.
These determinations will result in any contingent deferred sales charge
being imposed at the lowest possible rate. For federal income tax purposes,
the amount of the contingent deferred sales charge will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The amount of any contingent deferred sales charge will be paid to the
Distributor.
CONTINGENT DEFERRED SALES CHARGE WAIVERS
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain
conditions. In addition, the contingent deferred sales charge will be waived
for: (i) redemptions made within one year of the death or total disability,
as defined by the Social Security Administration, of all shareholders of an
account; (ii) redemptions made after attainment of a specific age in an
amount which represents the mini
21
<PAGE>
mum distribution required at such age under Section 401(a)(9) of the Internal
Revenue Code for retirement accounts or plans (e.g., age 70-1/2 for IRAs and
Section 403(b) plans), calculated solely on the basis of assets invested in a
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 a Fund.)
Each Fund may modify or terminate the waivers at any time; for example, a
Fund may limit the application of multiple waivers.
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 a 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 a 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 Funds will receive the full amount of the investor's purchase
payment.
Class C shares are only available for new investments by certain employee
benefit plans and large institutions. See the Statement of Additional
Information. Information on the availability of Class C shares and further
conditions and limitations with respect thereto is available from the
Distributor.
Class C shares may be also issued in connection with mergers and
acquisitions involving a Fund, and under certain other circumstances as
described in this Prospectus (e.g., see "Shareholder Services--Exchange
Privilege").
Class C shares may have also been issued directly or through exchanges to
those shareholders of the Funds 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 a 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 Funds.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays securities dealers a 1% commission for selling Class D shares at the
time of purchase. The proceeds of the contingent deferred sales charge and
the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not
be subject to the contingent deferred sales charge to the extent that the
value of such shares represents (1) capital appreciation of Fund assets or
(2) reinvestment of dividends or capital gains distributions. In addition,
the contingent deferred sales charge will be waived for certain other
redemptions as described under "Contingent Deferred Sales Charge Waivers"
above (as otherwise applicable to Class B shares). For federal income tax
purposes, the amount of the contingent deferred sales charge will reduce the
gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid
to the Distributor.
22
<PAGE>
NET ASSET VALUE
Each 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 a Fund are valued on the basis of the last reported
sale price or quotations 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 Funds 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 and having a remaining maturity of 60 days or
less when the value obtained is fair value. Further information with respect
to the valuation of the Funds' assets is included in the Statement of
Additional Information.
DISTRIBUTION PLAN
The Funds have 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, each Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class
of shares as follows:
<TABLE>
<CAPTION>
Class Service Fee Distribution Fee
<S> <C> <C>
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
</TABLE>
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. A portion
of any initial commission paid to dealers for the sale of shares of a Fund
represents payment for personal services and/or the maintenance of
shareholder accounts by such dealers. Dealers who have sold Class A shares
are eligible for further reimbursement commencing as of the time of such
sale. Dealers who have sold Class B and Class D shares are eligible for
further reimbursement after the first year during which such shares have been
held of record by such dealer as nominee for its clients (or by such clients
directly). Any service fees received by the Distributor and not allocated to
dealers may be applied by the Distributor in reduction of expenses incurred
by it directly for personal services and the maintenance of shareholder
accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling such shares. Any
distribution fees received by the Distributor and not allocated to dealers
may be applied by the Distributor in connection with sales or marketing
efforts, including special promotional fees and cash and noncash incentives
based upon sales by securities dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources
of the Distributor (including the advisory fees paid by the Funds), 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 a 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 a Fund may pay for
23
<PAGE>
such distribution costs to 6.25% of gross share sales of a class since the
inception of any asset-based sales charge plus interest at the prime rate
plus 1% on unpaid amounts thereof (less any contingent deferred sales
charges). Such limitation does not apply to shareholder service fees.
Payments to the Distributor or to dealers funded under the Distribution Plan
may be discontinued at any time by the Trustees of the Trust.
REDEMPTION OF SHARES
Shareholders may redeem all or any portion of their accounts on any day the
NYSE is open for business. Redemptions will be effective at the net asset
value per share next determined (see "Purchase of Shares--Net Asset Value"
herein) after receipt of the redemption request, in accordance with the
requirements described below, by Shareholder Services and delivery of the
request by Shareholder Services to the Transfer Agent. To allow time for the
clearance of checks used for the purchase of any shares which are tendered
for redemption shortly after purchase, the remittance of the redemption
proceeds for such shares could be delayed for 15 days or more after the
purchase. Shareholders who anticipate a potential need for immediate access
to their investments should, therefore, purchase shares by wire. Except as
noted, redemption proceeds are normally remitted within seven days after
receipt of the redemption request and any necessary documents in good order.
METHODS OF REDEMPTION
REQUEST BY MAIL
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed
for transfer or accompanied by an endorsed stock power; (3) any required
signature guarantees (see "Redemption of Shares--Signature Guarantees"
below); and (4) any additional documents which may be required for redemption
in the case of corporations, trustees, etc., such as certified copies of
corporate resolutions, governing instruments, powers of attorney, and the
like. The Transfer Agent will not process requests for redemption until it
has received all necessary documents in good order. A shareholder will be
notified promptly if a redemption request cannot be accepted. Shareholders
having any questions about the requirements for redemption should call
Shareholder Services toll-free at 1-800-562-0032.
REQUEST BY TELEPHONE
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Funds
may revoke or suspend the telephone redemption privilege at any time and
without notice. See "Shareholder Services--Telephone Services" for a
discussion of the conditions and risks associated with Telephone Privileges.
PROCEEDS BY WIRE
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800- 521-6548 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge
is subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
24
<PAGE>
REQUEST TO DEALER TO REPURCHASE
For the convenience of shareholders, each Fund has authorized the Distributor
as its agent to accept orders from dealers by wire or telephone for the
repurchase of shares by the Distributor from the dealer. The Funds 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 Funds 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 Funds have 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, each 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. A 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 a Fund, and the
proceeds of the redemption will be mailed to the affected shareholder at the
address of record. 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.
A Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment
of redemption proceeds: (1) during any period that the NYSE is closed (other
than customary weekend and holiday closings) or trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the Fund's net asset values;
or (3) during such other periods as the Securities and Exchange Commission
may by order permit for the protection of investors; and (b) the payment of
redemption proceeds may be postponed as provided under "Redemption of
Shares."
SIGNATURE GUARANTEES
To protect shareholder accounts, the Transfer Agent, the Funds, the
Investment Manager and the Distributor from possible fraud, signature
guarantees are required for certain redemptions. Signature guarantees enable
the Transfer Agent to be certain that the person who has authorized a
redemption from the account is, in fact, the shareholder. Signature
guarantees are required for: (1) all redemptions requested by mail; and (2)
requests to transfer the registration of shares to another owner. Signatures
must be guaranteed by a bank, a member firm of a national stock exchange, or
other eligible guarantor institution. The Transfer Agent will not accept
guarantees (or notarizations) from notaries public. The above requirements
may be waived by a Fund in certain instances.
SHAREHOLDER SERVICES
THE OPEN ACCOUNT SYSTEM
Under the Open Account System full and fractional shares of each Fund owned
by shareholders are credited to their accounts by the Transfer Agent, State
25
<PAGE>
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing Class B or Class D shares will not be
issued, while certificates representing Class A or Class C shares will only
be issued if specifically requested in writing and, in any case, will only be
issued for full shares, with any fractional shares to be carried on the
shareholder's account. Shareholders will receive periodic statements of
transactions in their accounts.
The Funds' Open Account System provides the following options:
1. Additional purchases of shares of any Fund may be made through dealers,
by wire or by mailing a check payable to the applicable 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 applicable Fund.
(b) All income dividends in cash; all capital gains distributions reinvested
in additional shares of the applicable Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in any one
available Eligible Fund designated by the shareholder as described below. See
"Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the
applicable 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 a 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 a
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. Exchanges of Class E shares from a money market fund into Class A
shares of the Funds or any other Eligible Fund are subject to the initial
sales charge or contingent deferred sales charge applicable to an initial
investment in such Class A shares, unless a prior Class A sales charge has
been paid directly or indirectly with respect to the shares redeemed. For
purposes of computing the contingent deferred sales charge that may be
payable upon disposition of any acquired Class A, Class B and Class D shares,
the holding period of the redeemed shares is "tacked" to the holding period
of the acquired shares. The period any Class E shares are held is not tacked
to the holding period of any acquired shares. No exchange transaction fee is
currently imposed on any exchange.
For the convenience of the shareholders who have Telephone Privileges, the
Funds permit exchanges by telephone request from either the shareholder or
his or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-521-6548. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eli
26
<PAGE>
gible 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.
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 a 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 a Fund or any other Eligible Fund at net asset value and without
subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 30 calendar days after a redemption or
repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal income tax
purposes, a sale on which the shareholder may realize a gain or loss. If a
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once with respect to his or her
shares of a Fund. No charge is imposed by the Funds 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
Each Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments
by authorizing withdrawals from their bank accounts each month or quarter on
the Investamatic application form available from Shareholder Services.
The Funds also offer tax-sheltered retirement plans, including prototype
and other employee benefit plans for employees, sole proprietors,
partnerships and corporations and IRAs. Details of these investment plans and
their availability may be obtained from securities dealers or from
Shareholder Services.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Funds' 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 designated Fund shall be credited to participating shareholders in
27
<PAGE>
additional shares of that 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 relevant Fund or
Funds, 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 Funds. A participating shareholder
may withdraw from the Plan, and a Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is
receiving payments under a Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate
in the Investamatic Check Program and the Systematic Withdrawal Plan at the
same time.
DIVIDEND ALLOCATION PLAN
The Dividend Allocation Plan allows shareholders to elect to have all their
dividends and any other distributions from a Fund or any Eligible Fund
automatically invested at net asset value in one other such Eligible Fund
designated by the shareholder, provided the account into which the investment
is made is initially funded with the requisite minimum amount. The number of
shares purchased will be determined as of the dividend payment date. The
Dividend Allocation Plan is subject to state securities law requirements, to
suspension at any time, and to such policies, limitations and restrictions,
such as 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 Funds' Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
REPORTS
Reports for each Fund will be sent to shareholders of record of that Fund at
least semiannually. These reports will include a list of the securities owned
by the applicable Fund as well as the Fund's financial statements.
TELEPHONE SERVICES
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions
for amounts up to $50,000 to be mailed to the shareholder's address of record
is available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically; and
(3) the privilege allowing the shareholder to make telephone redemptions
for amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not previously
request such telephone wire privilege on his or her original Application may
request the privilege by completing a Telephone Redemption-by-Wire Form which
may be obtained by calling 1-800-521-6548. The Telephone Redemption-by-Wire
Form requires a signature guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in
(1) and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by
advising Shareholder Services that the shareholder wishes to discontinue the
use of such privileges in the future.
28
<PAGE>
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account; and (2) honor any written instructions for
a change of address regardless of whether such request is accompanied by a
signature guarantee. All telephone calls will be recorded. None of the Funds,
the other Eligible Funds, the Transfer Agent, the Investment Manager or the
Distributor will be liable for any loss, expense or cost arising out of any
request, including any fraudulent or unauthorized requests. Shareholders
assume the risk to the full extent of their accounts that telephone requests
may be unauthorized. Reasonable procedures will be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not
be liable for any losses arising from unauthorized or fraudulent instructions
if such procedures are not
followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is unlikely, during periods of extraordinary
market conditions, a shareholder may have difficulty in reaching Shareholder
Services at such telephone number. In that event, the shareholder should
contact Shareholder Services at 1-800-562-0032, 1-617-357-7805 or otherwise
at its main office at One Financial Center, Boston, Massachusetts 02111-2690.
SHAREHOLDER ACCOUNT INQUIRIES:
PLEASE CALL 1-800-562-0032
Call this number for assistance in answering general questions on your
account, including account balance, available shareholder services, statement
information and performance of the Funds. Account inquiries may also be made
in writing to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408. A fee of up to $10 will be charged against
an account for providing additional account transcripts or photocopies of
paid redemption checks or for researching records in response to special
requests.
SHAREHOLDER TELEPHONE TRANSACTIONS:
PLEASE CALL 1-800-521-6548
Call this number for assistance in purchasing shares by wire and for
telephone redemptions or telephone exchange transactions. Shareholder
Services will require some form of personal identification prior to acting
upon instructions received by telephone. Written confirmation of each
transaction will be provided.
THE FUNDS AND THEIR SHARES
The Funds were organized in 1986 as series of MetLife - State Street Equity
Trust, a Massachusetts business trust. The Trustees have authorized shares of
the Funds to be issued in four classes: Class A, Class B, Class C and Class D
shares. The Trust is registered with the Securities and Exchange Commission
as an open-end management investment company. The fiscal year end of the
Funds is June 30.
The Funds have received an order from the Securities and Exchange
Commission permitting the issuance and sale of multiple classes of shares
representing interests in the existing portfolio of any series of the Trust.
Except for those differences between the classes of shares described below
and elsewhere in the Prospectus, each share of a Fund has equal dividend,
redemption and liquidation rights with other shares of the Fund and when
issued is fully paid and nonassessable. The Trustees have authorized the
Funds to offer four classes of shares as described above. In the future,
certain classes may be redesignated, for administrative purposes only, to
conform to standard class designations and common usage of terms which may
develop in the mutual fund industry. For example, Class C shares may be
redesignated as Class Y shares and Class D shares may be redesignated as
Class C shares. Any redesignation would not affect any substantive rights
respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of a 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
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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 Funds 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 Trust's 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 shares of
the Trust can require that the Trustees call a meeting of shareholders for
purposes of voting on the removal of one or more Trustees. In connection with
such meetings called by shareholders, the relevant Fund or Funds will assist
shareholders in shareholder communications to the extent required by
applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for
indemnification for all losses and expenses of any shareholder of a 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 a Fund would be unable to meet its
obligations. The Investment Manager believes that, in view of the above, the
risk of personal liability to shareholders is remote.
As of July 31, 1994, Metropolitan Life Insurance Company ("Metropolitan")
was the record and/or beneficial owner, directly or indirectly through its
subsidiaries or affiliates, of approximately 89% and 40% of the outstanding
Class D shares of the Equity Investment Fund and the Equity Income Fund,
respectively, and may be deemed to be in control of such Class D shares of
the Funds. 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 FUNDS
Under the provisions of the Trust's Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Funds
rests with the Trustees.
The Funds' 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 Funds, subject to
the authority of the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first
mutual funds, presently known as State Street Investment Trust, which they
had formed in 1924. Their investment management philosophy emphasized
comprehensive fundamental research and analysis, including meetings with the
management of companies under consideration for investment. State Street
Research & Management Company's portfolio man
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agement group has extensive investment industry experience. The Investment
Manager and the Distributor are indirect wholly-owned subsidiaries of
Metropolitan, and are located at One Financial
Center, Boston, Massachusetts 02111-2690.
The Investment Manager has entered into an Advisory Agreement with the
Trust pursuant to which investment research and management, administrative
services, office facilities and personnel are provided for each Fund in
consideration of a fee from each Fund.
Under its Advisory Agreement with the Trust, the Investment Manager
receives a monthly investment advisory fee equal to 0.65% (on an annual
basis) of the average daily value of the net assets of each of the Equity
Investment Fund and the Equity Income Fund and 0.75% (on an annual basis) of
the average daily value of the net assets of the Capital Appreciation Fund.
The advisory fee payable by the Capital Appreciation Fund is higher than
advisory fees paid by many other investment companies. Each Fund bears all
costs of its operation other than those incurred by the Investment Manager
under the Advisory Agreement. In particular, the Funds pay, among other
expenses, investment advisory fees, certain distribution expenses under the
Funds' Distribution Plan and the compensation and expenses of the Trustees
who are not otherwise currently affiliated with the Investment Manager or any
of its affiliates. The Investment Manager will reduce its management fee
payable by each Fund up to the amount of any expenses (excluding permissible
items, such as brokerage commissions, Rule 12b-1 payments, interest, taxes
and litigation expenses) paid or incurred in any year in excess of the most
restrictive expense limitation imposed by any state in which the Funds sell
shares, if any. The Investment Manager compensates Trustees of the Trust if
such persons are employees or affiliates of the Investment Manager or its
affiliates.
The Capital Appreciation Fund is managed by Frederick R. Kobrick. Mr.
Kobrick has managed the Fund since its inception in August 1986. Mr.
Kobrick's principal occupation currently is, and during the past five years
has been, Senior Vice President of State Street Research & Management
Company.
The Equity Investment Fund is managed by Steven P. Somes. Mr. Somes has
managed the Fund since November 1994. Mr. Somes's principal occupation
currently is Vice President of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President of
Gardner & Preston Moss, a Boston-based investment advisory firm, and prior
thereto, as Vice President and portfolio manager for State Street Research &
Management Company.
The Equity Income Fund is managed by Bartlett R. Geer. Mr. Geer has
managed the Fund since January 1992. Mr. Geer's principal occupation
currently is Senior Vice President of State Street Research & Management
Company. During the past five years he has also served as Vice President of
State Street Research & Management Company.
Subject to the policy of seeking best overall price and execution, sales
of shares of a Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for a Fund's portfolio transactions.
DIVIDENDS AND DISTRIBUTIONS; TAXES
Each Fund is treated as a separate entity for federal tax purposes. Each Fund
qualified and elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code for its most recent fiscal year and
intends to qualify as such in future fiscal years, although it cannot give
complete assurance that it will do so. As long as a Fund so qualifies and
satisfies certain distribution requirements, it will not be subject to
federal income tax on its taxable income (including capital gains, if any)
distributed to its shareholders. Consequently, each Fund intends to
distribute annually to its shareholders substantially all of its net
investment income and any capital gain net income (capital gains net of
capital losses).
Dividends from net investment income, if any, normally will be paid twice
each year for the Capital Appreciation Fund, and four times each year for the
Equity Investment Fund. Distributions of capital gain net income, if any,
will generally be made after the end of the fiscal year or as otherwise
required for
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compliance with applicable tax regulations. Both dividends from net
investment income and distributions of capital gain net income for the
Capital Appreciation Fund and the Equity Investment Fund will be declared and
paid to shareholders in additional shares of the relevant Fund at net asset
value (except in the case of shareholders who elect a different available
distribution method).
Until January 1, 1995, the Equity Income Fund will continue to follow its
established policy of declaring dividends each day. Under such policy, the
Fund declares a dividend each day in an amount based on quarterly projections
of its future net investment income and pays such dividends after the end of
a quarter. Commencing January 1, 1995, the Equity Income Fund will change the
above policy of daily dividend declarations to that of quarterly dividend
declarations paid four times each year. Distributions of long-term gains, if
any, will generally be made after the end of the fiscal year or as otherwise
required for compliance with applicable tax regulations. Both dividends from
net investment income and distributions of capital gain net income will be
paid in additional shares of the Equity Income Fund at net asset value
(except in the case of shareholders who elect a different available
distribution method).
Each 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 a 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
a Fund's dividends eligible for such tax treatment may be less than 100% to
the extent that less than 100% of a Fund's gross income may be from
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 a 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 the proceeds of redemption of Fund
shares paid to individuals and other nonexempt payees will be subject to a
31% federal backup withholding tax if the Transfer Agent is not provided with
the shareholder's correct taxpayer identification number 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, a Fund may compare the performance of its Class A,
Class B, Class C or Class D shares to that of other mutual funds with similar
investment objectives, to certificates of deposit and/or to other financial
alternatives. A Fund may also compare its performance to appropriate indices,
such as Standard & Poor's 500 Index, Consumer Price Index and Dow Jones
Industrial Average and/or to appropriate rankings and averages such as those
compiled by Lipper Analytical Services, Inc., Morningstar, Inc., Money
Magazine, Business Week, Forbes Magazine, The Wall Street Journal and
Investor's Daily. For example, the performance of the Capital Appreciation
Fund might be compared to the Lipper Capital Appreciation Funds Group and the
Small Stock Index. The performance of the Equity Investment and Equity Income
Funds might be compared to the Lipper Growth and Income Funds Group and the
Lipper Equity Income Funds Group, respectively.
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Total return is computed separately for each class of shares of the Funds.
The average annual total return ("standard total return") for shares of a
Fund is computed by determining the average annual compounded rate of return
for a designated period that, if applied to a hypothetical $1,000 initial
investment (less the maximum initial or contingent deferred sales charge, if
applicable), would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions and
with recognition of all recurring charges. Standard total return may be
accompanied 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.
A Fund's yield is computed separately for each class of shares by dividing
the net investment income, after recognition of all recurring charges, per
share earned during the most recent month or other specified 30-day period by
the applicable maximum offering price per share on the last day of such
period and annualizing the result.
The standard total return and yield results take sales charges into
account, if applicable, but do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders
elect and which involve nominal fees, such as the $7.50 fee for remittance of
redemption proceeds by wire. Where sales charges are not applicable and
therefore not taken into account in the calculation of standard total return
and yield, the results will be increased. Any voluntary waiver of fees or
assumption of expenses by the Funds' affiliates will also increase
performance results.
A Fund's distribution rate is calculated separately for each class of
shares by annualizing the latest distribution and dividing the result by the
maximum offering price per share as of the end of the period to which the
distribution relates. The distribution rate is not computed in the same
manner as the above described yield, and therefore, can be significantly
different from it. In its supplemental sales literature, a Fund may quote its
distribution rate together with the above described standard total return and
yield information. The use of such distribution rates would be subject to an
appropriate explanation of how the components of the distribution rate differ
from the above described yield.
Performance information may be useful in evaluating a Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of a Fund changes 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 a Fund's
performance for any future period. In addition, the net asset value of shares
of a Fund will fluctuate, with the result that shares of a Fund, when
redeemed, may be worth more or less than their original cost. Neither an
investment in a Fund nor its performance is insured or guaranteed; such lack
of insurance or guarantees should accordingly be given appropriate
consideration when comparing a Fund to financial alternatives which have such
features.
Shares of the Funds had no class designations until June 1, 1993, when
designations were assigned based on the pricing and Rule 12b-1 fees
applicable to shares sold thereafter. Performance data for a specified class
includes periods prior to the adoption of class designations.
Performance data for periods prior to June 1, 1993 will not reflect
additional Rule 12b-1 Distribution Plan fees, if any, of up to 1% per year
depending on the class of shares, which will adversely affect performance
results for periods after such date. Performance data or rankings for a given
class of shares should be interpreted carefully by investors who hold or may
invest in a different class of shares.
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APPENDIX
DESCRIPTION OF DEBT/BOND RATINGS
STANDARD & POOR'S CORPORATION
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having speculative
characteristics with respect to capacity to pay interest and repay principal.
BB indicates the least degree of speculation and C the highest. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the due date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high
variability in expected returns due to noncredit risks created by the terms
of the obligation, such as securities whose principal or interest return is
indexed to equi
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ties, commodities, or currencies, certain swaps and options, and interest
only (IO) and principal only (PO) mortgage securities.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the addition
of a numeral indicating a bond's rank within its rating category.
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