State Street Research
Capital Appreciation Fund
Equity Investment Fund
Equity Income Fund
Prospectus--November 1, 1995
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.
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.
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 June 30, 1995, the Investment
Manager had assets of approximately $26.2 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, 1995 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 State Street Research 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 ..................... 25
Shareholder Services ..................... 27
The Funds and Their Shares ............... 31
Management of the Funds .................. 32
Dividends and Distributions; Taxes ....... 33
Calculation of Performance Data .......... 34
Appendix--Description of Debt/Bond Ratings 36
<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>
<CAPTION>
Table of Expenses Class A Class B Class C Class D
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) 4.5% None None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None(2) 5% None 1%
Redemption Fees (as a percentage of amount redeemed,
if applicable) None None None None
Exchange Fees None None None None
</TABLE>
- -----------
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
thereafter and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the
sale. Long-term investors in 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 0.64% 0.64% 0.64% 0.64%
---- ---- ---- ----
Total Fund Operating Expenses 1.64% 2.39% 1.39% 2.39%
==== ==== ==== ====
</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 0.83% 0.83% 0.83% 0.83%
Less Voluntary Reduction (0.48%) (0.48%) (0.48%) (0.48%)
----- ----- ----- -----
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 0.77% 0.77% 0.77% 0.77%
Less Voluntary Reduction (0.42%) (0.42%) (0.42%) (0.42%)
----- ----- ----- -----
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:
Capital Appreciation Fund 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------
Class A shares $61 $ 94 $130 $231
Class B shares (1) $74 $105 $148 $254
Class C shares $14 $ 44 $ 76 $167
Class D shares $34 $ 75 $128 $273
Equity Investment Fund 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------
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
Equity Income Fund 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------
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
You would pay the following expenses on the same investment, assuming no
redemption:
Capital Appreciation Fund 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------
Class B shares (1) $24 $75 $128 $254
Class D shares $24 $75 $128 $273
Equity Investment Fund 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------
Class B shares (1) $20 $63 $108 $213
Class D shares $20 $63 $108 $233
Equity Income Fund 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------
Class B shares (1) $20 $63 $108 $213
Class D shares $20 $63 $108 $233
(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, 1995;
actual expense levels for the current fiscal year and future years may vary
from the amounts shown. The table does not reflect charges for optional
services elected by certain shareholders, such as the $7.50 fee for
remittance of redemption proceeds by wire. For further information on sales
charges, see "Purchase of Shares--Alternative Purchase Program"; for further
information on management fees, see "Management
4
<PAGE>
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, 1995, 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 1.91%, 2.48%, 1.48% and 2.48% of the
Equity Investment Fund, and 1.84%, 2.41%, 1.41% and 2.42% 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%, 0.48%, 0.48% and
0.48% of the Class A, Class B, Class C and Class D shares of the Equity
Investment Fund, respectively, and 0.42%, 0.41%, 0.41% and 0.42% 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, 1995 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
Year ended June 30 Operations) to
1995** 1994 1993 1992 1991 1990 1989 1988 June 30, 1987
------ ---- ---- ---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 9.11 $ 10.42 $ 8.33 $ 6.55 $ 6.70 $ 6.46 $ 5.49 $ 5.93 $ 4.66
Net investment income
(loss)* (.09) (.04) (.05) (.05) (.01) .02 .02 .04 .01
Net realized and
unrealized gain
(loss) on investments 2.95 .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 (.45) (1.36) (.67) -- -- (.80) -- (.21) --
---- ----- ---- ---- ---- ---- ---- ---- ----
Net asset value, end
of year $ 11.52 $ 9.11 $ 10.42 $ 8.33 $ 6.55 $ 6.70 $ 6.46 $ 5.49 $ 5.93
======== ======== ======== ======== ======= ======= ======= ======= =======
Total return 32.56%+ (0.28%)+ 35.78%+ 27.03%+ (1.69)%+ 17.25%+ 18.08%+ (3.43)%+ 27.70%+
Net assets at end of
year (000s) $296,471 $231,356 $183,886 $116,687 $62,898 $59,093 $33,872 $29,757 $23,672
Ratio of operating
expenses to average
net assets* 1.55% 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* (0.87)% (0.81)% (0.63)% (0.71)% (0.13)% 0.39% 0.29% 0.77% 0.31%++
Portfolio turnover
rate 217.28% 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 $ 0.03 $ 0.02 $ 0.01 $ 0.01 $ 0.03 $ 0.02 $ 0.04 $ 0.04 $ 0.04
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
6
<PAGE>
Capital Appreciation Fund
<TABLE>
<CAPTION>
Class B Class C
------------------------------------ ---------------------------------------
June 1, 1993 June 1, 1993
(Commencement (Commencement
Year ended June 30 of Share Class Year ended June 30 of Share Class
------------------ Designations) to ------------------ Designations) to
1995** 1994 June 30, 1993 1995** 1994 June 30, 1993
------ ---- ------------- ------ ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.05 $ 10.41 $ 10.44 $ 9.16 $ 10.42 $ 10.44
Net investment income (loss)* (.15) (.06) (.00) (.05) (.02) .00
Net realized and unrealized gain (loss) on
investments 2.93 .06 (.03) 2.98 .12 (.02)
Dividends from net investment income -- -- -- -- -- --
Dividends in excess of net investment income -- -- -- -- -- --
Distributions from net realized gains (.45) (1.36) -- (.45) (1.36) --
---- ----- ------- ---- ----- -------
Net asset value, end of year $ 11.38 $ 9.05 $ 10.41 $ 11.64 $ 9.16 $ 10.42
======= ======= ======= ========= ======= =======
Total return 31.86%+ (0.83)%+ (0.29)%+++ 33.06%+ 0.25%+ (0.19)%+++
Net assets at end of year (000s) $93,088 $49,236 $ 2,790 $106,675 $62,662 $37,826
Ratio of operating expenses to average net
assets* 2.15% 2.00% 2.00%++ 1.15% 1.00% 1.00%++
Ratio of net investment income (loss) to
average net assets* (1.47)% (1.29)% (0.95)%++ (0.46)% (0.30)% 0.50%++
Portfolio turnover rate 217.28% 147.73% 135.17% 217.28% 147.73% 135.17%
*Reflects voluntary assumption of fees or
expenses per share in each year $ 0.02 $ 0.02 $ 0.00 $ 0.02 $ 0.02 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class D
------------------------------------
June 1, 1993
(Commencement
Year ended June 30 of Share Class
------------------ Designations) to
1995** 1994 June 30, 1993
------ ---- -------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 9.07 $ 10.41 $ 10.44
Net investment income (loss)* (.15) (.07) (.01)
Net realized and unrealized gain (loss) on
investments 2.94 .09 (.02)
Dividends from net investment income -- -- --
Dividends in excess of net investment income -- -- --
Distributions from net realized gains (.45) (1.36) --
---- ----- -------
Net asset value, end of year $ 11.41 $ 9.07 $ 10.41
======= ======= =======
Total return 31.79%+ (0.61)%+ (0.29)%++
Net assets at end of year (000s) $ 4,061 $ 2,201 $ 623
Ratio of operating expenses to average net
assets* 2.15%+ 2.00% 2.00%++
Ratio of net investment income (loss) to
average net assets* (1.47%) (1.29)% (1.10)%++
Portfolio turnover rate $217.28% 147.73% 135.17%
*Reflects voluntary assumption of fees or
expenses per share in each year $ 0.02 $ 0.02 $ 0.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
7
<PAGE>
Equity Investment Fund
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------------------------------------
August 25, 1986
(Commencement of
Year ended June 30 Operations) to
1995** 1994 1993 1992 1991 1990 1989 1988 June 30, 1987
------ ---- ---- ---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 12.44 $ 14.52 $ 13.16 $ 11.19 $ 12.15 $ 10.83 $ 9.70 $ 11.33 $ 9.31
Net investment income
(loss)* .08 .01 .04 .05 .14 .22 .33 .28 .20
Net realized and
unrealized gain
(loss) on investments 2.14 .18 2.48 1.99 (.89) 1.54 1.16 (.99) 1.94
Dividends from net
investment income (.05) -- (.04) (.07) (.19) (.29) (.31) (.22) (.12)
Distributions from net
realized gains (.33) (2.27) (1.12) -- (.02) (.15) (.05) (.70) --
---- ----- ----- ----- ---- ---- ---- ---- ----
Net asset value, end
of year $ 14.28 $ 12.44 $ 14.52 $ 13.16 $ 11.19 $ 12.15 $ 10.83 $ 9.70 $ 11.33
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return 18.34%+ 0.93%+ 20.37%+ 18.27%+ (6.10)%+ 16.54%+ 15.87%+ (6.87)%+ 23.14%+++
Net assets at end of
year (000s) $31,174 $29,821 $26,933 $48,473 $35,733 $35,647 $24,066 $25,197 $22,210
Ratio of operating
expenses to average
net assets* 1.42% 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* 0.64% 0.08% 0.23% 0.43% 1.29% 1.99% 3.17% 2.92% 2.57%++
Portfolio turnover
rate 47.93% 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 $ 0.06 $ 0.04 $ 0.02 $ 0.02 $ 0.03 $ 0.04 $ 0.05 $ 0.05 $ 0.05
</TABLE>
** Per-share figures have been calculated using the average shares method.
++ Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
8
<PAGE>
Equity Investment Fund
<TABLE>
<CAPTION>
Class B Class C
------------------------------------ ------------------------------------
June 1, 1993 June 1, 1993
(Commencement (Commencement
Year ended June 30 of Share Class Year ended June 30 of Share Class
------------------ Designations) to ------------------- Designations) to
1995** 1994 June 30, 1993 1995** 1994 June 30, 1993
------ ---- ------------- ------ ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.36 $14.51 $14.78 $ 12.48 $ 14.51 $ 14.78
Net investment income (loss)* .01 (.02) .00 .14 .07 (.00)
Net realized and unrealized gain (loss) on
investments 2.12 .14 (.26) 2.15 .17 (.25)
Dividends from net investment income -- -- (.01) (.17) -- (.02)
Distributions from net realized gains (.33) (2.27) -- (.33) (2.27) --
---- ----- ----- ---- ----- -----
Net asset value, end of year $14.16 $12.36 $14.51 $ 14.27 $ 12.48 $ 14.51
====== ====== ====== ======= ======= =======
Total return 17.70%+ 0.37%+ (1.77)%+++ 18.83%+ 1.41%+ (1.69)%+++
Net assets at end of year (000s) $5,933 $4,029 $ 663 $50,503 $32,991 $18,796
Ratio of operating expenses to average net
assets* 2.00% 2.00% 2.00%++ 1.00% 1.00% 1.00%++
Ratio of net investment income (loss) to
average net assets* 0.08% (0.39)% 0.03%++ 1.09% 0.59% (0.39)%++
Portfolio turnover rate 47.93% 62.93% 92.35% 47.93% 62.93% 92.35%
*Reflects voluntary assumption of fees or
expenses per share in each year $ 0.06 $ 0.04 $ 0.00 $ 0.06 $ 0.06 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class D
-------------------------------------
June 1, 1993
(Commencement
Year ended June 30, of Share Class
------------------- Designations) to
1995** 1994 June 30, 1993
------ ---- -------------
<S> <C> <C> <C>
Net asset value, beginning of year $12.36 $14.51 $14.78
Net investment income (loss)* .01 (.05) .00
Net realized and unrealized gain (loss) on
investments 2.11 .17 (.26)
Dividends from net investment income -- -- (.01)
Distributions from net realized gains (.33) (2.27) --
---- ----- -------
Net asset value, end of year $14.15 $12.36 $ 14.51
====== ====== =======
Total return 17.53%+ 0.45%+ (1.77)%+++
Net assets at end of year (000s) $ 699 $ 551 $ 491
Ratio of operating expenses to average net
assets* 2.00% 2.00% 2.00%++
Ratio of net investment income (loss) to
average net assets* 0.08% (0.41)% 0.12%++
Portfolio turnover rate 47.93% 62.93% 92.35%
*Reflects voluntary assumption of fees or
expenses per share in each year $ 0.06 $ 0.06 $ 0.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
9
<PAGE>
Equity Income Fund
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------------------------------
August 25,
1986
(Commencement
of
Year ended June 30 Operations) to
1995** 1994 1993 1992 1991 1990 1989 1988 June 30, 1987
------ ---- ---- ---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $10.87 $10.79 $ 9.19 $8.33 $9.83 $9.87 $8.93 $10.35 $ 9.31
Net investment income* .28 .24 .44 .39 .45 .55 .47 .53 .38
Net realized and unrealized
gain (loss) on investments 1.37 .25 1.52 .83 (1.08) .54 .99 (.82) .86
Dividends from net investment
income (.28) (.26) (.36) (.36) (.48) (.52) (.51) (.66) (.20)
Distributions from net
realized gains (.54) (.15) -- -- (.39) (.61) (.01) (.47) --
---- ---- ----- ----- ---- ---- ---- ---- ------
Net asset value, end of year $11.70 $10.87 $10.79 $9.19 $8.33 $9.83 $9.87 $ 8.93 $10.35
====== ====== ====== ===== ===== ===== ===== ====== ======
Total return 16.12%+ 4.30%+ 21.64%+ 14.81%+ (6.51)%+ 11.33%+ 17.01%+ (2.35)%+ 13.42%+++
Net assets at end of year
(000s) $37,327 $40,484 $28,995 $51,585 $45,233 $49,842 $40,411 $30,315 $31,277
Ratio of operating expenses
to average net assets* 1.42% 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* 2.55% 2.42% 3.76% 4.27% 5.30% 5.43% 5.20% 5.91% 5.59%++
Portfolio turnover rate 67.50% 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 $0.05 $0.01 $0.01 $0.01 $0.02 $0.02 $0.03 $0.02
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
10
<PAGE>
Equity Income Fund
<TABLE>
<CAPTION>
Class B Class C
------------------------------------ -------------------------------------
June 1, 1993 June 1, 1993
(Commencement (Commencement
of Share Class of Share Class
Year ended June 30 Designations) to Year ended June 30 Designations) to
------------------ ---------------- ------------------ ----------------
1995** 1994 June 30, 1993 1995** 1994 June 30, 1993
------ ---- ------------- ------ ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.86 $ 10.79 $10.81 $ 10.86 $ 10.79 $ 10.81
Net investment income* .21 .21 .02 .32 .33 .03
Net realized and unrealized gain (loss) on
investments 1.38 .21 (.02) 1.39 .21 (.02)
Dividends from net investment income (.23) (.20) (.02) (.33) (.32) (.03)
Distributions from net realized gains (.54) (.15) -- (.54) (.15) --
Net asset value, end of year $ 11.68 $ 10.86 $10.79 $ 11.70 $ 10.86 $ 10.79
Total return 15.43+ 3.79%+ 0.05%+++ 16.64%+ 4.84%+ 0.14%+++
Net assets at end of year (000s) $16,130 $10,752 $1,060 $34,827 $20,266 $15,988
Ratio of operating expenses to average net
assets* 2.00% 2.00% 2.00%++ 1.00% 1.00% 1.00%++
Ratio of net investment income to average net
assets* 1.95% 1.80% 1.53%++ 2.93% 2.92% 1.65%++
Portfolio turnover rate 67.50% 73.96% 80.42% 67.50% 73.96% 80.42%
*Reflects the voluntary assumption of fees or
expenses per share in each year $ 0.05 $ 0.07 $ 0.00 $ 0.05 $ 0.06 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class D
------------------------------------
June 1, 1993
(Commencement
Year ended June 30 of Share Class
------------------ Designations) to
1995** 1994 June 30, 1993
------ ---- -------------
<S> <C> <C> <C>
Net asset value, beginning of year $10.86 $10.79 $10.81
Net investment income* .22 .21 .02
Net realized and unrealized gain (loss) on
investments 1.36 .21 (.02)
Dividends from net investment income (.23) (.20) (.02)
Distributions from net realized gains (.54) (.15) --
---- ---- -----
Net asset value, end of year $11.67 $10.86 $10.79
====== ====== ======
Total return 15.33%+ 3.78%+ 0.04%+++
Net assets at end of year (000s) $1,366 $1,280 $ 628
Ratio of operating expenses to average net
assets* 2.00% 2.00% 2.00%++
Ratio of net investment income to average net
assets* 1.96% 1.88% 1.49%++
Portfolio turnover rate 67.50% 73.96% 80.42%
*Reflects the voluntary assumption of fees or
expenses per share in each year $ 0.05 $ 0.06 $ 0.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
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.
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 companies, such as larger, 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. In selecting investments, the Investment Manager may also consider a
variety of other factors. These include a company's expected growth in earnings,
relative financial condition and cash flow, competitive position, management and
business strategy, overall potential as an enterprise, entrepreneurial
character, and/or new or innovative products, services or processes. The
capitalization of the companies in which the Fund invests can range across the
full spectrum from small to large capitalization, with varying or high
proportions from time to time in different capitalization segments. Investing in
stocks of companies which offer high appreciation potential carries greater than
average risks. The length of time that the Fund may hold a particular security
is generally not a consideration in making investment decisions.
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.
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, low price to earnings and/or price to book ratios relative to the S&P
500, and/or whose securities are trading at prices believed by the Investment
Manager to be below the true value of such securities, i.e., value stocks. 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, 1995, 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: 0.6% BB,
11.5% B, 2.1% CCC and 0.2% D, as determined on a dollar weighted basis,
comprising 14.4% of total investments. Of these securities, 70.9% were rated by
a nationally recognized statistical rating organization and 29.1% 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
Under a pending change in policies, each Fund may lend portfolio securities with
a value of up to 33-1/3% of its total assets. A Fund will receive cash or cash
equivalents (e.g., U.S. Government obligations) as collateral in an amount equal
to at least 100% of the current market value of the loaned securities plus
accrued interest. Collateral received by a Fund will generally be held in the
form tendered, although cash may be invested in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, irrevocable
stand-by letters of credit issued by a bank, or any combination thereof. The
investing of cash collateral received from loaning portfolio securities involves
leverage which magnifies the potential for gain or loss on monies invested and,
therefore, results in an increase in the volatility of a Fund's outstanding
securities. Such loans may be terminated at any time.
A Fund will retain most rights of ownership including rights to dividends,
interest or other distributions on the loaned securities. Voting rights pass
with the lending, although a Fund may call loans to vote proxies if desired.
Should the borrower of the securities fail financially, there is a risk of
delay in recovery of the securities or loss of rights in the collateral.
Loans are made only to borrowers which are deemed by the Investment Manager
to be of good financial standing.
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; similar policies apply to options which are not
commodities. Each Fund may enter various forms of swap arrangements, which
have simultaneously the characteristics of a security and a futures contract,
although none of the Funds presently expect to invest more than 5% of its
total assets in such items. These swap arrangements include interest rate
swaps, currency swaps and index swaps. 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
fundamental and nonfundamental investment restrictions. Under the fundamental
investment restrictions, no Fund may (a) purchase a security of any
15
<PAGE>
one issuer (other than securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities), if such purchase would cause more than 5% of
the Fund's total assets to be invested in the securities of such issuer; (b)
purchase for its portfolio a security of any one issuer if such purchase would
cause more than 10% of the outstanding voting securities of such issuer to be
held by the Fund; or (c) invest more than 25% of the Fund's total assets in
securities of issuers principally engaged in any one industry. Pursuant to a
pending change in policies, each Fund will be subject to a nonfundamental
investment restriction under which no Fund may invest more than 15% of such
Fund's total assets in illiquid securities including repurchase agreements
extending for more than seven days and may not invest more than 5% of such
Fund's total assets in restricted securities excluding securities eligible for
resale under Rule 144A under the Securities Act of 1933. Although many illiquid
securities may also be restricted, and vice versa, compliance with each of these
policies will be determined independently.
Fundamental investment restrictions may not be changed except by vote of the
holders of a majority of the outstanding voting securities of each Fund.
Nonfundamental investment restrictions may be changed without a shareholder
vote. For further information on the above and other fundamental and
nonfundamental investment restrictions, see the Statement of Additional
Information.
A Fund may not lend money; however, a Fund may lend portfolio securities under
a pending change in policies, and purchase bonds, debentures, notes and similar
obligations (and enter into repurchase agreements with respect thereto). The
Capital Appreciation and Equity Investment Funds may not invest in warrants.
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 adverse 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 31 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
16
<PAGE>
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.
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. Each Fund reserves
the right to reject any purchase order, including orders in connection with
exchanges, for any reason which the Fund in its sole discretion deems
appropriate. Each Fund reserves the right to suspend the sale of shares.
17
<PAGE>
Minimum Investment
Class of Shares
------------------------------
A B C D
------ ------ --- ------
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $ 50 $ 50 (a) $ 50
By Investamatic $ 50 $ 50 (a) $ 50
All other $ 50 $ 50 (a) $ 50
(a) Special conditions apply; contact the Distributor.
The 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).
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.
18
<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 charge Contingent deferred None Contingent deferred
at time of sales charge of 5% to sales charge of 1%
investment of up 2% applies to any applies to any shares
to 4.5% depending shares redeemed redeemed within one
on amount of investment within first five years year following their
following their purchase
purchase; no
contingent deferred
sales charge
after five years
On investments of $1
million or more, no
initial sales charge;
but contingent deferred
sales charge of 1%
applies to any shares
redeemed within
one year following
their purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years;
Class B shares
convert auto-
matically to
Class A shares
after eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Commission Above described 4% None 1%
Received by Selling initial sales charge
Securities Dealer less 0.25% to 0.50%
retained by Distributor
On investments of $1
million or more,
0.25% to 1% paid
to dealer by Distributor
</TABLE>
19
<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 that
have sold or may sell significant amounts of shares and/or meet other
conditions established by the Distributor; for example, the Distributor may
sponsor special promotions to develop particular distribution channels or to
reach certain investor groups. The incentives may include merchandise and
trips to and attendance at sales seminars at resorts.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of 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.
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
----------- ----- ----- -----
Less than $100,000 4.50% 4.71% 4.00%
- -----------------------------------------------------------
$100,000 or above
but less than $250,000 3.50% 3.63% 3.00%
- -----------------------------------------------------------
$250,000 or above
but less than $500,000 2.50% 2.56% 2.00%
- -----------------------------------------------------------
$500,000 or above
but less than
$1 million 2.00% 2.04% 1.75%
- -----------------------------------------------------------
$1 million and above See
0% 0% following discussion
- -----------------------------------------------------------
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:
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Amount of Sale Commission
-------------- ----------
(a) $1 million to $3 million 1.00%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed
within one year of the sale. However, such redeemed shares will not be
subject to the contingent deferred sales charge to the extent that their
value represents (1) capital appreciation or (2) reinvestment of dividends or
capital gains distributions. In addition, the contingent deferred sales
charge will be waived for certain other redemptions as described under
"Contingent Deferred Sales Charge Waivers" below (as otherwise applicable to
Class B shares).
Class A shares of 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. Sales without a
sales charge, or with a reduced sales charge, may also be made through
brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor, in the event
the Distributor determines to implement such arrangements. Information on
such arrangements and further conditions and limitations is available from
the Distributor.
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<PAGE>
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 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:
Contingent Deferred
Sales Charge
As A Percentage Of
Net Asset Value
Redemption During At Redemption
- ----------------- -------------
1st Year Since Purchase 5%
2nd Year Since Purchase 4
3rd Year Since Purchase 3
4th Year Since Purchase 3
5th Year Since Purchase 2
6th Year Since Purchase and
Thereafter None
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first
of those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of 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
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<PAGE>
addition, the contingent deferred sales charge will be waived for: (i)
redemptions made within one year of the death or total disability, as defined
by the Social Security Administration, of all shareholders of an account;
(ii) redemptions made after attainment of a specific age in an amount which
represents the minimum distribution required at such age under Section
401(a)(9) of the Internal Revenue Code for retirement accounts or plans
(e.g., age 70-1/2 for IRAs and Section 403(b) plans), calculated solely on
the basis of assets invested in 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 redemp-
23
<PAGE>
tion. The amount of any contingent deferred sales charge will be paid to the
Distributor.
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:
Class Service Fee Distribution Fee
----- ----------- ----------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. A portion
of any initial commission paid to dealers for the sale of shares of 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 dis-
24
<PAGE>
tribution 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 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 from a Fund are normally remitted within seven
days after receipt of the redemption request by the Fund and any necessary
documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed
for transfer or accompanied by an endorsed stock power; (3) any required
signature guarantees (see "Redemption of Shares--Signature Guarantees"
below); and (4) any additional documents which may be required for redemption
in the case of corporations, trustees, etc., such as certified copies of
corporate resolutions, governing instruments, powers of attorney, and the
like. The Transfer Agent will not process requests for redemption until it
has received all necessary documents in good order. A shareholder will be
notified promptly if a redemption request cannot be accepted. Shareholders
having any questions about the requirements for redemption should call
Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The 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
25
<PAGE>
subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, 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. Currently, the maintenance fee is $18 annually, which is
paid to the Transfer Agent. The fee does not apply to certain retirement
accounts or if the shareholder has more than an aggregate $50,000 invested in
a Fund and other Eligible Funds combined. Imposition of a maintenance fee on
a small account could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
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 otherwise provided under "Redemption
of Shares" herein.
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 help the Transfer Agent
to determine that the person who has authorized a redemption from the account
is, in fact, the shareholder. Signature guarantees are required for: (1) written
requests for redemptions for more than $50,000; (2) written requests for
redemptions for any amount if the proceeds are transmitted to other than the
current address of record (unchanged in the past 30 days); (3) written requests
for redemptions for any amount submitted by corpo-
26
<PAGE>
rations and certain fiduciaries and other intermediaries; and (4) requests to
transfer the registration of shares to another owner. Signatures must be
guaranteed by a bank, a member firm of a national stock exchange, or other
eligible guarantor institution. The Transfer Agent will not accept guarantees
(or notarizations) from notaries public. The above requirements may be waived in
certain instances. Please contact Shareholder Services at 1-800-562-0032 for
specific requirements relating to your account.
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
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. The State Street Research Money Market Fund issues Class E shares
which are sold without any sales charge. Exchanges of State Street Research
Money Market Fund Class E shares into Class A shares of the 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
27
<PAGE>
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 Eligible Fund may legally be sold. For tax purposes,
each exchange actually represents the sale of shares of one fund and the
purchase of shares of another. Accordingly, exchanges may produce a capital
gain or loss for tax purposes. The exchange privilege may be terminated or
suspended or its terms changed at any time, subject, if required under
applicable regulations, to 60 days' prior notice. New accounts established
for investments upon exchange from an existing account in another fund will
have the same Telephone Privileges as the existing account, unless
Shareholder Services is instructed otherwise. Related administrative policies
and procedures may also be adopted with regard to a series of exchanges,
street name accounts, sponsored arrangements and other matters.
The exchange privilege is not designed for use in connection with short-term
trading or market timing strategies. To protect the interests of shareholders,
each Fund reserves the right to temporarily or permanently terminate the
exchange privilege for any person who makes more than six exchanges out of or
into such Fund per calendar year. Accounts under common ownership or control,
including accounts with the same taxpayer identification number, may be
aggregated for purposes of the six exchange limit. Notwithstanding the six
exchange limit, each Fund reserves the right to refuse exchanges by any person
or group if, in the Investment Manager's judgment, the Fund would be unable to
invest effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected. Exchanges may be restricted
or refused if a Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a pattern of exchanges
that coincides with a "market timing" strategy may be disruptive to a Fund. Each
Fund may impose these restrictions at any time. The exchange limit may be
modified for accounts in certain institutional retirement plans because of plan
exchange limits, Department of Labor regulations or administrative and other
considerations. Subject to the foregoing, if an exchange request in good order
is received by Shareholder Services and delivered by Shareholder Services to the
Transfer Agent by 12 noon Boston time on any business day, the exchange usually
will occur that day. For further information regarding the exchange privilege,
shareholders should contact Shareholder Services.
Reinvestment Privilege
A shareholder of 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 120 calendar days after a redemption or
repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal income tax
purposes, a sale on which the shareholder may realize a gain or loss. If a
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
28
<PAGE>
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once per 12-month period with
respect to his or her shares of 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 Application 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
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
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<PAGE>
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.
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.
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The Funds and Their Shares
The Funds were organized in 1986 as series of State Street Research 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.
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. 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 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. Under a pending amendment to the Master Trust
Agreement, the Trustees may reorganize, merge or liquidate a Fund without prior
shareholder approval. 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, shareholders will be assisted in
shareholder communications to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for
indemnification for all losses and expenses of any shareholder of 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, 1995, Metropolitan Life Insurance Company ("Metropolitan")
was the record and/or beneficial owner, directly or indirectly through its
subsidiaries or affiliates, of approximately 83% and
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42% 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 Research Investment Trust,
which they had formed in 1924. Their investment management philosophy
emphasized comprehensive fundamental research and analysis, including
meetings with the management of companies under consideration for investment.
The Investment Manager's portfolio management group has extensive investment
industry experience managing equity and debt securities. In managing debt
securities, if any, for a portfolio, the Investment Manager may consider
yield curve positioning, sector rotation and duration, among other factors.
The Investment Manager and the Distributor are indirect wholly-owned
subsidiaries of Metropolitan, and 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 Peter C. Bennett. Mr. Bennett has
managed the Fund since October 1995 and previously managed the Fund from July
1989 through October 1994. His principal occupation currently is Executive
Vice President and Director of State Street Research & Management Company.
Mr. Bennett also serves as Chief Investment Officer -- Equity and is a member of
the Management Committee of the Investment Manager. During the past five years
he has also served as Senior Vice President and Vice President of State Street
Research & Management Company.
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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.
The Investment Manager has a Code of Ethics governing personal securities
transactions of certain of its employees; see the Statement of Additional
Information.
Dividends and Distributions; Taxes
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 and the Equity Income 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 compliance with applicable tax regulations.
Both dividends from net investment income and distributions of capital gain
net income will be declared and paid to shareholders in additional shares of
the relevant 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.
33
<PAGE>
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, the
Russell 2000 Index 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.
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
34
<PAGE>
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-
36
<PAGE>
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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[BACK COVER]
STATE STREET RESEARCH
CAPITAL APPRECIATION FUND
EQUITY INVESTMENT FUND
EQUITY INCOME FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
ET-610D-1195IBS
CONTROL NUMBER: 2725-951108(1296)SSR-LD
<PAGE>
[FRONT COVER]
[State Street Logo] State Street Research
State Street Research
Capital Appreciation Fund
Equity Investment Fund
Equity Income Fund
November 1, 1995
P R O S P E C T U S
<PAGE>
State Street Research
Global Resources Fund
Prospectus
November 1, 1995
The investment objective of State Street Research Global Resources Fund (the
"Fund") is to provide long-term growth of capital. In seeking to achieve its
investment objective, the Fund invests primarily in equity securities of
domestic and foreign companies in the energy and natural resources
industries. See page 6.
State Street Research & Management Company serves as investment adviser for
the Fund (the "Investment Manager"). As of June 30, 1995, the Investment
Manager had assets of approximately $26.2 billion under management. State
Street Research Investment Services, Inc. serves as distributor (the
"Distributor") for the Fund.
Shareholders may have their shares redeemed directly by the Fund at net asset
value plus the applicable contingent deferred sales charge, if any;
redemptions processed through securities dealers may be subject to processing
charges.
There are risks in any investment program, including the risk of changing
conditions in the securities markets generally and in the energy, natural
resources and related industries in particular, and there is no assurance
that the Fund will achieve its investment objective. The net asset value of a
share of the Fund will fluctuate as market conditions change.
This Prospectus sets forth concisely the information a prospective investor
ought to know about the Fund before investing. It should be retained for
future reference. A Statement of Additional Information about the Fund
dated November 1, 1995 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 Fund at the address indicated on
the back cover or by calling 1-800-562-0032.
The Fund is a nondiversified series of State Street Research 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 4
The Fund's Investments 6
Limiting Investment Risk 10
Purchase of Shares 11
Redemption of Shares 19
Shareholder Services 20
The Fund and its Shares 24
Management of the Fund 25
Dividends and Distributions; Taxes 26
Calculation of Performance Data 27
<PAGE>
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5% and
(ii) an annual service fee of 0.25% of the average daily net asset value of
the Class A shares.
Class B shares are subject to (i) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees
of 1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1% if
redeemed within one year following purchase and (ii) annual distribution and
service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
<TABLE>
<CAPTION>
Class A Class B Class C Class D
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.5% None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) None None None None
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
thereafter and no contingent deferred sales charge is imposed after the fifth
year. Class D shares are subject to a 1% contingent deferred sales charge on
any portion of the purchase redeemed within one year of the sale. Long-term
investors in a class of shares with a distribution fee may, over a period of
years, pay more than the economic equivalent of the maximum sales charge
permissible under applicable rules. See "Purchase of Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption. See
"Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class D
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.75% 0.75% 0.75% 0.75%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 1.57% 1.57% 1.57% 1.57%
Less Voluntary Reduction (0.82%) (0.82%) (0.82%) (0.82%)
------- ------- ------- ---------
Total Fund Operating Expenses
(after voluntary reduction) 1.75% 2.50% 1.50% 2.50%
======= ======= ======= =========
</TABLE>
<TABLE>
<CAPTION>
Example: 1 Year 3 Years 5 Years 10 Years
------- ------- ------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment including, for
Class A shares, the maximum applicable
initial sales charge and assuming (1)
5% annual return and (2) redemption of
the entire investment at the end of
each time period:
Class A shares $62 $ 98 $136 $242
Class B shares (1) $75 $108 $153 $265
Class C shares $15 $ 47 $ 82 $179
Class D shares $35 $ 78 $133 $284
</TABLE>
You would pay the following expenses on the same
investment, assuming no redemption:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Class B shares (1) $25 $78 $133 $265
Class D shares $25 $78 $133 $284
</TABLE>
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses that an investor will bear directly or indirectly.
The percentage expense levels shown in the table above are based on
experience with expenses during the fiscal year ended June 30, 1995; actual
expense levels for the current fiscal year and future years may vary from the
amounts shown. The table does not reflect charges for optional services
elected by certain shareholders, such as the $7.50 fee for remittance of
redemption proceeds by wire. For further information on sales charges, see
"Purchase of Shares--Alternative Purchase Program"; for further information
on management fees, see "Management of the Fund"; and for further information
on 12b-1 fees, see "Purchase of Shares--Distribution Plan."
The Fund has been advised that the Distributor and its affiliates may from time
to time and in varying amounts voluntarily assume some portion of fees or
expenses relating to the Fund. For the fiscal year ended June 30, 1995, Total
Fund Operating Expenses as a percentage of average net assets of Class A, Class
B, Class C and Class D shares of the Fund would have been 2.57%, 3.12%, 2.06%
and 3.10%, respectively, in the absence of the voluntary assumption of fees or
expenses by the Distributor and its affiliates, which amounted to 0.82%, 0.79%,
0.73% and 0.77% of average net assets of each of the Class A, Class B, Class C
and Class D shares of the Fund, respectively. The amount of fees or expenses
assumed during the fiscal year ended June 30, 1995 differed among classes
because of fluctuations during the year in the relative levels of assets in each
class and in expenses before reimbursement. The Fund expects the subsidization
of fees or expenses to continue in the current year, although it cannot give
complete assurance that such assistance will be received.
3
<PAGE>
Financial Highlights
The data set forth below has been audited by Price Waterhouse LLP,
independent accountants, and their report thereon for the latest five years
is included in the Statement of Additional Information. For further
information about the performance of the Fund, see the Fund's Annual Report
which appears under the caption "Financial Statements" in the Statement of
Additional Information. Past performance may not be indicative of future
performance because of, among other things, changes in the Fund's investment
strategy in July 1995; see "Calculation of Performance Data."
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------------------------------- -------------------------------------
June 1, 1993
March 2, 1990 (Commencement
Commencement of Share Class
Year ended June 30 of Operations) to Year Ended June 30 Designations) to
------------------------------------------------- ------------------- June 30,1993
1995** 1994** 1993 1992 1991 June 30, 1990 1995** 1994**
------- ------- ------- ------- ------- -------------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.84 $13.51 $ 8.02 $9.12 $11.23 $11.94 $11.78 $13.51 $12.99
Net investment income
(loss)* (.16) (.17) (.13) (.12) .03 .03 (.23) (.23) (.02)
Net realized and
unrealized gain
(loss) on investments .48 (1.50) 5.62 (.98) (2.07) (.74) .48 (1.50) .54
Distribution from net
realized gains -- -- -- -- (.06) -- -- -- --
Dividend from net
investment income -- -- -- -- (.01) -- -- -- --
------- ------- ------- ------- ------- ------------ ------- ------- -------------
Net asset value, end
of period $12.16 $11.84 $13.51 $8.02 $ 9.12 $11.23 $12.03 $11.78 $13.51
======= ======= ======= ======= ======= ============ ======= ======= =============
Total return 2.70%+ (12.36)%+ 68.45%+ (12.06)%+ (18.28)%+ (5.95)%+++ 2.12%+ (12.81)%+ 4.00%+++
Net assets at end of
period (000s) $25,692 $30,679 $33,513 $19,227 $29,760 $35,321 $7,030 $6,333 $1,048
Ratio of operating
expenses to average
net assets* 1.75% 1.75% 1.75% 1.75% 1.75% 1.75%++ 2.33% 2.25% 2.25%++
Ratio of net
investment income
(loss) to average net
assets* (1.41)% (1.46)% (1.44)% (1.16)% 0.25% .81%++ (1.98)% (1.93)% (1.98)%++
Portfolio turnover
rate 62.94% 30.98% 61.00% 47.09% 108.18% 17.09% 62.94% 30.98% 61.00%
*Reflects voluntary
assumption of fees or
expenses per share in
each period $ 0.09 $0.11 $0.03 $0.05 $0.03 $0.01 $0.09 $0.14 $0.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
4
<PAGE>
<TABLE>
<CAPTION>
Class C Class D
--------------------------------------- -----------------------------------
June 1, 1993 June 1, 1993
(Commencement (Commencement
of Share Class of Share Class
Year ended June 30 Designations )to Year ended June 30 Designations) to
------------------- ----------------- ------------------ ----------------
1995** 1994** June 30, 1993 1995** 1994** June 30, 1993
------ -------- ----------------- ------ -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.90 $ 13.52 $12.99 $11.77 $ 13.51 $12.99
Net investment income (loss)* (.11) (.15) (.00) (.23) (.23) (.02)
Net realized and unrealized gain
(loss) on investments .48 (1.47) .53 .48 (1.51) .54
Distribution from net realized gains -- -- -- -- -- --
Dividend from net investment income -- -- -- -- -- --
------ -------- ----------- ------ -------- -------------
Net asset value, end of period $12.27 $ 11.90 $13.52 $12.02 $ 11.77 $13.51
====== ======== =========== ====== ======== =============
Total return 3.11%+ (11.98)%+ 4.08%+++ 2.12%+ (12.88)%+ 4.00%+++
Net assets at end of period (000s) $3,288 $ 960 $ 146 $2,350 $ 1,931 $ 588
Ratio of operating expenses to average
net assets* 1.33% 1.25% 1.25%++ 2.33% 2.25% 2.25%++
Ratio of net investment income (loss)
to average net assets* (1.01)% (0.95)% (1.05)%++ (1.99)% (1.94)% (2.00)%++
Portfolio turnover rate 62.94% 30.98% 61.00% 62.94% 30.98% 61.00%
*Reflects voluntary assumption of
fees or expenses per share in each
period $ 0.08 $ 0.16 $ 0.00 $ 0.09 $ 0.13 $ 0.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
5
<PAGE>
The Fund's Investments
The Fund's investment objective is to provide long- term growth of capital.
The Fund's investment objective is a fundamental policy that may not be
changed without approval of the holders of a majority of the outstanding
voting securities of the Fund.
In seeking to achieve its investment objective, the Fund invests not less
than 65% of its total assets under normal market conditions in equity
securities of domestic and foreign companies in the energy and natural
resources industries. Such investments can provide long-term growth of
capital and a measure of protection during inflationary periods. The noted
industries include companies engaged in the exploration, development and
production of energy, energy sources, metals and other resources; the
extraction, refining, processing, distribution, marketing, transportation and
transmission of energy and natural resource products; research,
experimentation, and development respecting such resources and products;
ownership or control of leases, rights or royalty interests in such products;
and manufacturing and supplying equipment, components, parts or services
related to such products.
Energy and energy sources include oil, oil shale, methane gas, propane, coal,
nuclear, solar, biomass, geothermal and similar conventional or new forms of
energy. Other natural resources include ferrous metals such as iron and
steel, aluminum and copper; non-ferrous metals; precious metals such as
gold, silver and platinum; timberland; and similar resources. The kind of
issuers in which the Fund may invest include, for example, gas and oil
exploration companies, oil and oil service companies, utilities, steel mills,
gold and other mining companies. The Investment Manager deems a particular
company to be in an energy or natural resource industry if at the time of
investment at least 50% of the company's assets or gross revenues is directly
connected with or derived from the relevant industry. Under ordinary
conditions, the Fund will invest in the securities markets of at least three
countries, including the United States.
The Fund may also invest up to 35% of its total assets under normal market
conditions in the securities of issuers in industries that are not related to
the energy or natural resources industries. Such securities include domestic
or foreign equity securities, bonds, debentures and notes of varying
maturities.
Equity securities are defined as domestic and foreign common stocks,
preferred stocks, warrants (limited to 5% of the Fund's net assets) to
acquire common stock, depositary receipts in respect of foreign equity
securities and debt securities convertible into or carrying the right to
acquire common stock. The Fund may invest in the equity securities of both
large and small capitalization companies; small capitalization companies
include those whose outstanding publicly traded equity securities have a
market value of less than $1 billion at the time of the investment. These may
include equity securities of companies with above-average prospects for
long-term growth, more cyclical or lesser growing companies when the
securities thereof are considered by the Investment Manager to be
undervalued, and companies which may be attractive because of assets they own
or other circumstances. The Fund anticipates that a majority of the total
value of the equity securities in which it will invest will be listed on a
major domestic or foreign securities exchange or included on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system. The
Fund does not presently expect over-the-counter securities which are not
included on NASDAQ to comprise a substantial portion of the total value of
its portfolio.
The debt securities in which the Fund may invest include investment grade
securities as well as lower quality securities; however, the Fund will not
invest more than 10% of its total assets in lower quality debt securities.
Investment grade securities are securities rated at the time of purchase AAA,
AA, A or BBB by Standard & Poor's Corporation ("S&P") or Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. ("Moody's"), or debt securities that are not
rated but considered by the Investment Manager to be of equivalent investment
quality to comparable rated securities. Bonds rated Baa by Moody's lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Lower quality debt securities include securities
rated, at the time of purchase, BB or lower by S&P or Ba or lower by Moody's,
or debt securities that
6
<PAGE>
are not rated but considered by the Investment Manager to be of equivalent
investment quality to comparable rated securities.
Owing principally to the volatility of price levels of securities of issuers
in the energy and natural resources industries, the Fund may trade portfolio
securities without regard to the length of time held and will engage in
short-term trading whenever the Investment Manager determines market
conditions warrant. For example, if portfolio holdings of an issuer
experienced significant short-term appreciation as a result of changes in its
industry or in circumstances unique to the particular issuer, the Investment
Manager might deem it appropriate to realize such appreciation on behalf of
shareholders. Conversely, the Investment Manager might seek to avoid losses
by disposing of securities held for a relatively short time if significant,
unanticipated decreases in value occurred or appeared imminent. The Fund
might also invest in bonds and other debt securities to preserve capital if
conditions warranted. As part of its investment strategy, the Investment
Manager may employ a portfolio rotation approach, which involves a
reallocation, from time to time, among the best performing areas of the
relevant industries.
As indicated above, the Fund reserves full freedom with respect to portfolio
turnover. In periods when there are rapid changes in economic conditions or
security price levels or when investment strategy is changed significantly,
portfolio turnover may be significantly higher than during times of economic
and market price stability or when investment strategy remains relatively
constant.
A significant level of short-term trading activities will result in higher
brokerage, transaction and administrative costs. In addition, such short-term
trading may increase the amount of capital gains realized by the Fund in a
given year, and thus the amount of taxable distributions to shareholders.
Risk Factors and Special Considerations
Value of Shares and Assets
The value of the Fund's investments (and accordingly the net asset value of
its shares) will be subject to fluctuation in response to a variety of
economic, political and other factors, especially recessionary or
inflationary economies or expectations in the United States and other
countries. Historically, increases in the prices of energy and other natural
resources have often corresponded to periods of high inflation. Under some
circumstances, the securities of companies in the energy and natural
resources industries may increase in response to appreciation in the price of
the underlying energy and other natural resources products relevant to such
companies. To the extent the value of the Fund's portfolio participates in
this appreciation, such investments can provide a measure of inflation
protection during inflationary periods. There can be no assurance that any
such rise in energy or material resources price levels will correspond to
increases in general price levels, or that the value of the securities held
by the Fund will appreciate during inflationary periods. Because the Fund's
investments are concentrated in the energy and natural resources industries,
the value of its shares is especially affected by factors peculiar to those
industries and may fluctuate more widely than the value of shares of a
portfolio that invests in a broader range of industries. The securities of
companies in the energy and natural resources industries are affected by
changes in the supply and demand of oil, natural gas and other energy fuels,
as well as ferrous, non- ferrous and precious metals. Supply and demand can
fluctuate significantly over a short period of time due to changes in, for
example, weather, international politics (including particularly developments
in the former Soviet Union and in the Middle East), policies of the
Organization of Petroleum Exporting Countries ("OPEC"), relationships between
OPEC nations, conservation, the regulatory environment, governmental tax
policies and the economic growth and stability of countries which consume or
produce large amounts of energy and other natural resources.
Issuers of securities in which the Fund invests, particularly those whose
securities are traded over-the-counter, may be limited in product lines,
markets and financial resources and may be dependent on entrepreneurial
management. The securities of such companies may have limited marketability
and may be subject to more abrupt or erratic market movements over time than
securities of larger, more sea-
7
<PAGE>
soned companies or the market as a whole. Such companies also typically
reinvest most of their net income in the enterprise and typically do not pay
dividends.
The Fund may invest from time to time in equity securities of public
utilities. Such issuers are subject to regulation by local governmental
authorities which may inhibit the potential for capital appreciation of their
securities.
The Fund is a nondiversified fund, which is defined under the Investment
Company Act of 1940, as amended (the "1940 Act"), as any fund other than a
diversified fund. A diversified fund means, with certain exceptions, any fund
that with respect to 75% of its total assets does not invest more than 5% of
its total assets in any one issuer or invest in more than 10% of the
outstanding voting securities of any such issuer. As a nondiversified fund,
it will not be subject to the 75% limit noted; the Fund therefore will be
subject to greater risk from adverse developments which affect such issuers
than would a fund that has greater diversification of investments. However,
with respect to 50% of its total assets, the Fund will not invest more than
5% of its total assets in any single issuer.
As noted above, the Fund may invest up to 10% of its total assets in debt
securities rated BB or lower by S&P or Ba or lower by Moody's or debt
securities that are unrated but considered by the Investment Manager to be of
equivalent investment quality to comparable rated securities. Such securities
generally involve more credit risk than higher rated securities and are
considered by S&P and Moody's to be predominantly 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 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 Statement of Additional Information. In
the event the rating of a security is downgraded, the Investment Manager will
determine whether the security should be retained or sold depending on an
assessment of all facts and circumstances at that time.
Foreign Investments
Under normal conditions, the Fund will invest in the underlying securities of
issuers organized under the laws of at least three different countries,
including the United States. The Fund will invest in securities of non- U.S.
issuers directly, or indirectly in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") or similar securities
representing interests in the securities of foreign issuers. 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 the risks
associated with investing in foreign securities. It is anticipated that most
of the foreign investments of the Fund will consist of securities of issuers
in countries with developed economies. However, the Fund may also invest in
the securities of issuers in countries with less developed economies as
deemed appropriate by the Investment Manager. 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.
8
<PAGE>
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. The Fund will
take these and other risk considerations into account before making an
investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks
of nationalization or expropriation, the possible imposition of currency
exchange blockages, higher operating expenses, foreign withholding and other
taxes which may reduce investment return, reduced availability of public
information concerning issuers, the difficulties in obtaining and enforcing a
judgment against a foreign issuer and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to
those applicable to domestic issuers. Moreover, securities of many foreign
issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers. Investments in foreign securities
also involve the additional cost of converting the foreign currency into U.S.
dollars.
Although the Fund may invest in securities denominated in foreign currencies,
the Fund values its securities and other assets in U.S. dollars. As a result,
the net asset value of the Fund's shares may fluctuate with U.S. dollar
exchange rates as well as with price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in the local markets.
Currency Transactions
In order to protect against the effects of uncertain future exchange rates on
securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, or by entering into forward
contracts to purchase or sell currencies. Although such contracts tend to
minimize the risk of loss resulting from a correctly predicted decline in
value of hedged currency, they tend to limit any potential gain that might
result should the value of such currency increase. In entering a forward
currency contract, the Fund is dependent upon the creditworthiness and good
faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by the counterparty by dealing only with established, large
institutions with which the Investment Manager has done substantial business
in the past. See the Statement of Additional Information.
Other Investment Policies
The Fund may, subject to certain limitations, buy and sell options, futures
contracts and options on futures contracts on securities, securities indices
and currencies. The Fund may not establish a position in a commodity futures
contract or purchase or sell a commodity option contract for other than bona
fide hedging purposes if immediately thereafter the sum of the amount of
initial margin deposits and premiums required to establish such positions for
such nonhedging purposes would exceed 5% of the market value of the Fund's
net assets; similar policies apply to options which are not commodities. The
Fund may enter various forms of swap arrangements, which have simultaneously
the characteristics of a security and a futures contract, although the
9
<PAGE>
Fund does not presently expect to invest more than 5% of its total assets in
such items. These swap arrangements include interest rate swaps, currency
swaps and index swaps. See the Statement of Additional Information.
The Fund may invest in restricted securities in accordance with Rule 144A
under the Securities Act of 1933, which allows for the resale of such
securities among certain qualified institutional buyers. Because the market
for such securities is still developing, such securities could possibly
become illiquid in particular circumstances. See the Statement of Additional
Information. The Fund may enter into repurchase agreements and purchase
when-issued securities.
The Fund may lend portfolio securities with a value of up to 33-1/3% of its
total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of
the current market value of the loaned securities plus accrued interest.
Collateral received by the Fund will generally be held in the form tendered,
although cash may be invested in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, irrevocable stand-by letters
of credit issued by a bank, or any combination thereof. The investing of cash
collateral received from loaning portfolio securities involves leverage which
magnifies the potential for gain or loss on monies invested and, therefore,
results in an increase in the volatility of the Fund's outstanding
securities. Such loans may be terminated at any time.
The Fund will retain most rights of ownership including rights to dividends,
interest or other distributions on the loaned securities. Voting rights pass
with the lending, although the Fund may call loans to vote proxies if
desired. Should the borrower of the securities fail financially, there is a
risk of delay in recovery of the securities or loss of rights in the
collateral. Loans are made only to borrowers which are deemed by the
Investment Manager to be of good financial standing.
Limiting Investment Risk
In seeking to lessen investment risk, the Fund operates under certain
fundamental investment restrictions. Under these restrictions the Fund may
not invest in a security if the transaction would result in: (i) the Fund
owning more than 10% of any class of voting securities of an issuer; or (ii)
more than 25% of the Fund's assets being invested in securities of issuers in
any one industry other than any energy industry (provided that the foregoing
restrictions do not apply to investments in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities or backed by the
U.S. Government). The fundamental investment restrictions set forth in this
paragraph may not be changed except by vote of the holders of a majority of
the outstanding voting securities of the Fund.
The Fund may not purchase any security or enter into a repurchase agreement
if as a result more than 15% of its total assets would be invested in (a)
securities that are illiquid, provided that restricted securities, excluding
restricted securities eligible for resale pursuant to exemptive rules or
regulations under the Securities Act of 1933, shall be limited to 5% of total
assets, and (b) repurchase agreements not entitling the holder to payment of
principal and interest within seven days.
For further information on these and other investment restrictions, including
other nonfundamental investment restrictions which may be changed without a
shareholder vote, see the Statement of Additional Information. The investment
restrictions and limitations set forth apply as of the time of the relevant
investment.
The Fund may hold up to 100% of its assets in cash or short-term securities
for temporary defensive purposes when in the opinion of the Investment
Manager market conditions warrant. To the extent the Fund's assets are
invested for temporary defensive purposes, such assets will not be invested
in a manner designed to achieve the Fund's investment objective. The types of
short-term instruments in which the Fund may invest for temporary defensive
purposes are described in the Statement of Additional Information and include
short-term money market securities such as 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
10
<PAGE>
corporate commercial paper rated at least "A" by S&P or "Prime" by Moody's
(or, if not rated, issued by companies having an outstanding long-term
unsecured debt issue rated at least "A" by S&P or Moody's). For further
information, see the Statement of Additional Information.
The Investment Manager also manages the assets of other clients that, in
seeking to achieve their investment objectives, may hold investments that are
similar to those held by the Fund and that trade in the same markets as the
Fund. It is also possible that a particular investment may be held by more
than one client when the Investment Manager determines that holding such
investment is in the best interests of each and the investment meets the
differing investment objectives of each.
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 11 to 24 below.
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers, Individual
Retirement Accounts ("IRAs"), trusts, corporations, individuals, etc. The
applicability of the general information and administrative procedures set
forth below accordingly will vary depending on the investor and the
recordkeeping system established for a shareholder's investment in 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 Fund are continuously offered through securities dealers who
have entered into sales agreements with the Distributor. Purchases through
dealers are confirmed at the offering price, which is the net asset value
plus the applicable sales charge, next determined after the order is duly
received by State Street Research Shareholder Services ("Shareholder
Services"), a division of State Street Research Investment Services, Inc.,
from the dealer. ("Duly received" for purposes herein means in accordance
with the conditions of the applicable method of purchase as described below.)
The dealer is responsible for transmitting the order promptly to Shareholder
Services in order to permit the investor to obtain the current price. See
"Purchase of Shares--Net Asset Value" herein.
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's securities dealer a completed Application (accompanying this
Prospectus), together with a check for the total purchase price payable to
the Fund. The dealer must forward the Application and check in accordance
with the instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a check
payable to the Fund in the amount of the total purchase price together with
any one of the following: (i) an Application; (ii) the stub from 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.
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:
11
<PAGE>
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research Global Resources 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.
The Fund may in its discretion discontinue, suspend or change the practice of
accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by the Fund. The Fund reserves
the right to reject any purchase order, including orders in connection with
exchanges, for any reason which the Fund in its sole discretion deems
appropriate. The Fund reserves the right to suspend the sale of shares.
Minimum Investment
Class of Shares
-------------------------------
A B C D
----- ----- -- -------
Minimum Initial
Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All Other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $ 50 $ 50 (a) $ 50
By Investamatic $ 50 $ 50 (a) $ 50
All Other $ 50 $ 50 (a) $ 50
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments under various retirement and employee benefit plans, sponsored
arrangements involving group solicitations of the members of an organization,
or other investment plans such as for reinvestment of dividends and
distributions or for periodic investments (e.g. Investamatic Check Program).
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding Fund shares, or
the flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in the Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, securities dealers are paid differing
amounts of commission and other compensation depending on which class of
shares they sell.
12
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------------------- -------------------------- -------- -----------------------
<S> <C> <C> <C> <C>
Sales Charges Initial sales Contingent deferred None Contingent deferred
charge at time of sales charge of 5% sales charge of 1%
investment of up to 2% applies to any applies to any shares
to 4.5% depending shares redeemed within redeemed within one
on amount of first five years following year following
investment their purchase; no their purchase
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 Above described 4% None 1%
Commission initial sales charge
Received less 0.25% to 0.50%
by Selling retained by
Securities Distributor
Dealer
On investments of $1
million or more,
0.25% to 1% paid
to dealer by
Distributor
</TABLE>
13
<PAGE>
In deciding which class of shares to purchase, the investor should consider
the amount of the investment, the length of time the investment is expected
to be held, and the ongoing service fee and distribution fee, among other
factors.
Class A shares are sold at net asset value plus an initial sales charge of up
to 4.5% of the public offering price. Because of the sales charge, not all of
an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class D shareholders also pay no
initial sales charge, but a contingent deferred sales charge of 1% generally
applies to redemptions made within one year of purchase. For Class B and
Class D shareholders, therefore, the entire purchase amount is immediately
invested in the Fund.
An investor who qualifies for a significantly reduced initial sales charge,
or a complete waiver of the sales charge on investments of $1,000,000 or
more, on the purchase of Class A shares might elect that option to take
advantage of the lower ongoing service and distribution fees that
characterize Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. In addition, Class B shares are assessed
an annual distribution fee of 0.75% of daily net assets for an eight- year
period following the date of purchase and are then automatically converted to
Class A shares. Class D shares are assessed an annual distribution fee of
0.75% of daily net assets for as long as the shares are held. The prospective
investor should consider these fees plus the initial or contingent deferred
sales charges in estimating the costs of investing in the various classes of
the Fund's shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its
expense, provide additional cash and noncash incentives to securities dealers
that sell shares. Such incentives may be extended only to those dealers that
have sold or may sell significant amounts of shares and/or meet other
conditions established by the Distributor; for example, the Distributor may
sponsor special promotions to develop particular distribution channels or to
reach certain investor groups. The incentives may include merchandise and
trips to and attendance at sales seminars at resorts.
Class A Shares - Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar
amount of the shares purchased as set forth in the table below. A major
portion of this sales charge is reallowed by the Distributor to the
securities dealer responsible for the sale.
Sales Sales
Charge Charge
Paid by Paid by Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
Less than $100,000 4.50% 4.71% 4.00%
$100,000 or above but
less than $250,000 3.50% 3.63% 3.00%
$250,000 or above but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or above but
less than
$1 million 2.00% 2.04% 1.75%
$1 million and above See
following
0% 0% discussion
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
a commission as follows:
14
<PAGE>
Amount of Sale Commission
- ---------------------------- -----------
(a) $1 million to $3 million 1.00%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed
within one year of the sale. However, such redeemed shares will not be
subject to the contingent deferred sales charge to the extent that their
value represents (1) capital appreciation or (2) reinvestment of dividends or
capital gains distributions. In addition, the contingent deferred sales
charge will be waived for certain other redemptions as described under
"Contingent Deferred Sales Charge Waivers" below (as otherwise applicable to
Class B shares).
Class A shares of the Fund that are purchased without a sales charge may be
exchanged for Class A shares of certain other Eligible Funds, as described
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption
within one year of the Class A shares which are acquired through such
exchange. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption. The amount of any contingent
deferred sales charge will be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement
of Additional Information, of $100,000 or more of Class A shares of the Fund
or a combination of "Eligible Funds." "Eligible Funds" include the Fund and
other funds so designated by the Distributor from time to time. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Securities dealers should call Shareholder Services
for details concerning the other Eligible Funds and any persons who may
qualify for reduced sales charges and related information. See the Statement
of Additional Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Fund and any other Eligible Funds within a 13-month period.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of shares
of the Fund and other Eligible Funds at reduced sales charges pursuant to a
Right of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call
Shareholder Services for details concerning the Right of Accumulation.
Other Programs
Class A shares of the Fund may be sold 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
Fund at a reduced sales charge or without a sales charge. Sales without a
sales charge, or with a reduced sales charge, may also be made through
brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor, in the event
the Distributor determines to implement such arrangements. Information on
such arrangements and further conditions and limitations is available from
the Distributor.
In addition, no sales charge is imposed in connection with the sale of Class
A shares of the Fund to the following entities and persons: (A) the
Investment Man-
15
<PAGE>
ager, the Distributor, or any affiliated entities, including any direct or
indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated
Companies, any relatives of any such individuals whose relationship is
directly verified by such individuals to the Distributor, or any beneficial
account for such relatives or individuals; and (C) employees, officers, sales
representatives or directors of dealers and other entities with a selling
agreement with the Distributor to sell shares of any aforementioned
investment company, any spouse or child of such person, or any beneficial
account for any of them. The purchase must be made for investment and the
shares purchased may not be resold except through redemption. This purchase
program is subject to such administrative policies, regarding the
qualification of purchasers and any other matters, as may be adopted by the
Distributor from time to time.
Class B Shares - Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Fund. However, a
contingent deferred sales charge may be imposed upon redemptions of Class B
shares as described below.
The Distributor will pay securities dealers at the time of sale a 4%
commission for selling Class B shares. The proceeds of the contingent
deferred sales charge and the distribution fee are used to offset
distribution expenses and thereby permit the sale of Class B shares without
an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets or (2) reinvestment of dividends or capital gains distributions.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
Contingent Deferred
Sales Charge
As A Percentage Of
Net Asset Value
Redemption During At Redemption
- ------------------------------------------ ---------------------
1st Year Since Purchase 5%
2nd Year Since Purchase 4
3rd Year Since Purchase 3
4th Year Since Purchase 3
5th Year Since Purchase 2
6th Year Since Purchase and Thereafter None
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first
of those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of the Fund acquired through an exchange from
another Eligible Fund will be measured from the date that such shares were
initially acquired in the other Eligible 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
16
<PAGE>
specific age in an amount which represents the minimum distribution required
at such age under Section 401(a)(9) of the Internal Revenue Code for
retirement accounts or plans (e.g., age 70-1/2 for IRAs and Section 403(b)
plans), calculated solely on the basis of assets invested in the Fund or
other Eligible Funds; and (iii) a redemption resulting from a tax-free return
of an excess contribution to an IRA. (The foregoing waivers do not apply to a
tax-free rollover or transfer of assets out of the Fund.) The Fund may modify
or terminate the waivers at any time; for example, the 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 the Fund at the end of eight years following the issuance
of the Class B shares; consequently, they will no longer be subject to the
higher expenses borne by Class B shares. The conversion rate will be
determined on the basis of the relative per share net asset values of the two
classes and may result in a shareholder receiving either a greater or fewer
number of Class A shares than the Class B shares so converted. As noted
above, holding periods for Class B shares received in exchange for Class B
shares of other Eligible Funds will be counted toward the eight-year period.
Class C Shares - Institutional; No Sales Charge
The purchase price of a Class C share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
Class C shares are only available for new investments by certain employee
benefit plans and large institutions. See the Statement of Additional
Information. Information on the availability of Class C shares and further
conditions and limitations with respect thereto is available from the
Distributor.
Class C shares may be also issued in connection with mergers and acquisitions
involving the Fund, and under certain other circumstances as described in
this Prospectus (e.g., see "Shareholder Services--
Exchange Privilege").
Class C shares may have also been issued directly or through exchanges to
those shareholders of the Fund or other Eligible Funds who previously held
shares not subject to any future sales charge or service fees or distribution
fees.
Class D Shares - Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays securities dealers a 1% commission for selling Class D shares at the
time of purchase. The proceeds of the contingent deferred sales charge and
the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not be
subject to the contingent deferred sales charge to the extent that the value
of such shares represents (1) capital appreciation of Fund assets or (2)
reinvestment of dividends or capital gains distributions. In addition, the
contingent deferred sales charge will be waived for certain other redemptions
as described under "Contingent Deferred Sales Charge Waivers" above (as
otherwise applicable to Class B shares). For federal income tax purposes, the
amount of the contingent deferred sales charge will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The amount of any contingent deferred sales charge will be paid to the
Distributor.
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of the New York Stock Exchange (the "NYSE") exclusive of days on
which the NYSE is closed. The NYSE ordi-
17
<PAGE>
narily closes at 4 P.M. New York City time. Assets held by the 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 Fund may use one or more pricing services. The
pricing services utilize information with respect to market transactions,
quotations from dealers and various relationships among securities in
determining value and may provide prices determined as of times prior to the
close of the NYSE. The Trustees have authorized the use of the amortized cost
method to value short-term debt instruments issued with a maturity of one
year or less 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 Fund's assets is included in the Statement of Additional
Information.
Distribution Plan
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the 1940 Act.
Under the provisions of the Distribution Plan, the Fund makes payments to the
Distributor based on an annual percentage of the average daily value of the
net assets of each class of shares as follows:
Class Service Fee Distribution Fee
- -------- ------------ -------------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. A portion
of any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance of
shareholder accounts by such dealers. Dealers who have sold Class A shares
are eligible for further reimbursement commencing as of the time of such
sale. Dealers who have sold Class B and Class D shares are eligible for
further reimbursement after the first year during which such shares have been
held of record by such dealer as nominee for its clients (or by such clients
directly). Any service fees received by the Distributor and not allocated to
dealers may be applied by the Distributor in reduction of expenses incurred
by it directly for personal services and the maintenance of shareholder
accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling such shares. Any
distribution fees received by the Distributor and not allocated to dealers
may be applied by the Distributor in connection with sales or marketing
efforts, including special promotional fees and cash and noncash incentives
based upon sales by securities dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers, to
the extent payable out of the general profits, revenues or other sources of
the Distributor (including the advisory fees paid by the Fund), have also
been authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the
Distribution Plan to 1%, of which 0.75% may be used to pay distribution
expenses and 0.25% may be used to pay shareholder service fees. The NASD rule
also limits the aggregate amount which the Fund may pay for such distribution
costs to 6.25% of gross share sales of a class since the inception of any
asset-based sales charge plus interest at the prime rate plus 1% on unpaid
amounts thereof (less any contingent deferred sales charges). Such limitation
does not apply to shareholder service fees. Payments to the Distributor or to
dealers funded under the Distribution Plan may be discontinued at any time by
the Trustees of the Trust.
18
<PAGE>
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the
NYSE is open for business. Redemptions will be effective at the net asset
value per share next determined (see "Purchase of Shares--Net Asset Value"
herein) after receipt of the redemption request, in accordance with the
requirements described below, by Shareholder Services and delivery of the
request by Shareholder Services to the Transfer Agent. To allow time for the
clearance of checks used for the purchase of any shares which are tendered
for redemption shortly after purchase, the remittance of the redemption
proceeds for such shares could be delayed for 15 days or more after the
purchase. Shareholders who anticipate a potential need for immediate access
to their investments should, therefore, purchase shares by wire. Except as
noted, redemption proceeds from the Fund are normally remitted within seven
days after receipt of the redemption request by the Fund and any necessary
documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below) by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed
for transfer or accompanied by an endorsed stock power; (3) any required
signature guarantees (see "Redemption of Shares--Signature Guarantees"
below); and (4) any additional documents which may be required for redemption
in the case of corporations, trustees, etc., such as certified copies of
corporate resolutions, governing instruments, powers of attorney, and the
like. The Transfer Agent will not process requests for redemption until it
has received all necessary documents in good order. A shareholder will be
notified promptly if a redemption request cannot be accepted. Shareholders
having any questions about the requirements for redemption should call
Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Fund
may revoke or suspend the telephone redemption privilege at any time and
without notice. See "Shareholder Services--Telephone Services" for a
discussion of the conditions and risks associated with Telephone Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800-521-6548 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge
is subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor
as its agent to accept orders from dealers by wire or telephone for the
repurchase of shares by the Distributor from the dealer. The Fund may revoke
or suspend this authorization at any time. The repurchase price is the net
asset value for the applicable shares next determined following the time at
which the shares are offered for repurchase by the dealer to the Distributor.
The dealer is responsible for promptly transmitting a shareholder's order to
the Distributor. Payment of the repurchase proceeds is made to the dealer who
placed the order promptly upon delivery
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of certificates for shares in proper form for transfer or, for Open Accounts,
upon the receipt of a stock power with signatures guaranteed as described
below, and, if required, any supporting documents. Neither the Fund nor the
Distributor imposes any charge upon such a repurchase. However, a dealer may
impose a charge as agent for a shareholder in the repurchase of his or her
shares.
The Fund has reserved the right to change, modify or terminate the services
described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder
accounts, the Fund reserves the right to involuntarily redeem at its option
any shareholder account which remains below $1,500 for a period of 60 days
after notice is mailed to the applicable shareholder, or to impose a
maintenance fee on such account after 60 days' notice. Such involuntary
redemptions will be subject to applicable sales charges, if any. The Fund may
increase such minimum account value above such amount in the future after
notice to affected shareholders. Involuntarily redeemed shares will be priced
at the net asset value on the date fixed for redemption by the Fund, and the
proceeds of the redemption will be mailed to the affected shareholder at the
address of record. Currently, the maintenance fee is $18 annually, which is
paid to the Transfer Agent. The fee does not apply to certain retirement
accounts or if the shareholder has more than an aggregate $50,000 invested in
the Fund and other Eligible Funds combined. Imposition of a maintenance fee
on a small account could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee will be
charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment
of redemption proceeds: (1) during any period that the NYSE is closed (other
than customary weekend and holiday closings) or trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the Fund's net asset value; or
(3) during such other periods as the Securities and Exchange Commission may
by order permit for the protection of investors; and (b) the payment of
redemption proceeds may be postponed as otherwise provided under "Redemption
of Shares" herein.
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees help the Transfer Agent
to determine that the person who has authorized a redemption from the account
is, in fact, the shareholder. Signature guarantees are required for: (1) written
requests for redemptions for more than $50,000; (2) written requests for
redemptions for any amount if the proceeds are transmitted to other than the
current address of record (unchanged in the past 30 days); (3) written requests
for redemptions for any amount submitted by corporations and certain fiduciaries
and other intermediaries; and (4) requests to transfer the registration of
shares to another owner. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange, or other eligible guarantor institution. The
Transfer Agent will not accept guarantees (or notarizations) from notaries
public. The above requirements may be waived in certain instances. Please
contact Shareholder Services at 1-800-562- 0032 for specific requirements
relating to your account.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of the Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing Class B or Class D shares will not be
issued, while certificates representing Class A or Class C shares will only
be issued if specifically requested in writing and, in any case, will only be
issued for full shares, with any fractional shares to be carried on the
shareholder's account. Shareholders will receive periodic statements of
transactions in their accounts.
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The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through dealers, by
wire or by mailing a check payable to the Fund to Shareholder Services under
the terms set forth above under "Purchase of Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
(b) All income dividends in cash; all capital gains distributions reinvested
in additional shares of the Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in any one
available Eligible Fund designated by the shareholder as described below. See
"Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the
Fund. Selections may be changed at any time by telephone or written notice to
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for available shares with
corresponding characteristics of any of the other Eligible Funds at any time
on the basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws.
Shareholders of any other Eligible Fund may similarly exchange their shares
for Fund shares with corresponding characteristics. Prior to making an
exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class A, Class B and
Class D shares may be redeemed without the payment of any contingent deferred
sales charge that might otherwise be due upon an ordinary redemption of such
shares. The State Street Research Money Market Fund issues Class E shares
which are sold without any sales charge. Exchanges of State Street Research
Money Market Fund Class E shares into Class A shares of the Fund or any other
Eligible Fund are subject to the initial sales charge or contingent deferred
sales charge applicable to an initial investment in such Class A shares,
unless a prior Class A sales charge has been paid directly or indirectly with
respect to the shares redeemed. For purposes of computing the contingent
deferred sales charge that may be payable upon disposition of 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
Fund permits exchanges by telephone request from either the shareholder or
his or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-521-6548. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares of
the relevant other Eligible Fund may legally be sold. For tax purposes, each
exchange actually represents the sale of shares of one fund and the purchase
of shares of another. Accordingly, exchanges may produce a capital gain or
loss for tax purposes. The exchange privilege may be terminated or suspended
or its terms changed at any time, subject, if required under applicable
regulations, to 60 days' prior notice. New accounts established for
investments upon exchange from an existing account in another fund will have
the same
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Telephone Privileges as the existing account, unless Shareholder Services is
instructed otherwise. Related administrative policies and procedures may also
be adopted with regard to a series of exchanges, street name accounts,
sponsored arrangements and other matters.
The exchange privilege is not designed for use in connection with short-term
trading or market timing strategies. To protect the interests of shareholders,
the Fund reserves the right to temporarily or permanently terminate the exchange
privilege for any person who makes more than six exchanges out of the Fund per
calendar year. Accounts under common ownership or control, including accounts
with the same taxpayer identification number, may be aggregated for purposes of
the six exchange limit. Notwithstanding the six exchange limit, the Fund
reserves the right to refuse exchanges by any person or group if, in the
Investment Manager's judgment, the Fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. Exchanges may be restricted or refused if the
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincides with
a "market timing" strategy may be disruptive to the Fund. The Fund may impose
these restrictions at any time. The exchange limit may be modified for accounts
in certain institutional retirement plans to conform to plan exchange limits and
Department of Labor regulations. Subject to the foregoing, if an exchange
request in good order is received by Shareholder Services and delivered by
Shareholder Services to the Transfer Agent by 12 noon Boston time on any
business day, the exchange usually will occur that day. Consult Shareholder
Services before requesting an exchange or for further information.
Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares repurchased
at his or her request may reinvest all or any portion of the proceeds (plus
that amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and
without subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 120 calendar days after a redemption or
repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal income tax
purposes, a sale on which the shareholder may realize a gain or loss. If a
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once per 12-month period with
respect to his or her shares of the Fund. No charge is imposed by the Fund
for such reinvestments; however, dealers may charge fees in connection with
the reinvestment privilege. The reinvestment privilege may be exercised with
respect to an Eligible Fund only in those states where shares of the relevant
other Eligible Fund may legally be sold.
Investment Plans
The 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 Application available from Shareholder Services.
The Fund also offers tax-sheltered retirement plans, including prototype and
other employee benefit plans for employees, sole proprietors, partnerships
and corporations and IRAs. Details of these investment plans and their
availability may be obtained from securities dealers or from Shareholder
Services.
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Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Fund's Systematic Withdrawal Plan,
to have periodic checks issued for specified amounts. These amounts may not
be less than certain minimums, depending on the class of shares held. The
Plan provides that all income dividends and capital gains distributions of
the Fund shall be credited to participating shareholders in additional shares
of the Fund. Thus, the withdrawal amounts paid can only be realized by
redeeming shares of the Fund under the Plan. To the extent such amounts paid
exceed dividends and distributions from the Fund, a shareholder's investment
will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales charges,
no such charges will be imposed on withdrawals of up to 8% annually of either
(a) the value, at the time the Plan is initiated, of the shares then in the
account or (b) the value, at the time of a withdrawal, of the same number of
shares as in the account when the Plan was initiated, whichever is higher.
Expenses of the Plan are borne by the Fund. A participating shareholder may
withdraw from the Plan, and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is
receiving payments under a Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate
in the Investamatic 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 the Fund or any Eligible Fund
automatically invested at net asset value in one other such Eligible Fund
designated by the shareholder, provided the account into which the investment
is made is initially funded with the requisite minimum amount. The number of
shares purchased will be determined as of the dividend payment date. The
Dividend Allocation Plan is subject to state securities law requirements, to
suspension at any time, and to such policies, limitations and restrictions,
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 Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by
the Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions for
amounts up to $50,000 to be mailed to the shareholder's address of record is
available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically; and
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not previously
request such telephone wire privilege on his or her original Application may
request the privilege by completing a Telephone Redemption-by-Wire Form which
may be obtained by calling 1-800-521-6548. The Telephone Redemption-by-Wire
Form requires a signature guarantee.
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A shareholder may decline the automatic Telephone Privileges set forth in (1)
and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by advising
Shareholder Services that the shareholder wishes to discontinue the use of
such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account; and (2) honor any written instructions for
a change of address regardless of whether such request is accompanied by a
signature guarantee. All telephone calls will be recorded. None of the Fund,
the other Eligible Funds, the Transfer Agent, the Investment Manager or the
Distributor will be liable for any loss, expense or cost arising out of any
request, including any fraudulent or unauthorized requests. Shareholders
assume the risk to the full extent of their accounts that telephone requests
may be unauthorized. Reasonable procedures will be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not
be liable for any losses arising from unauthorized or fraudulent instructions
if such procedures are not followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is unlikely, during periods of extraordinary
market conditions, a shareholder may have difficulty in reaching Shareholder
Services at such telephone number. In that event, the shareholder should
contact Shareholder Services at 1-800-562-0032, 1-617-357-7805 or otherwise
at its main office at One Financial Center, Boston, Massachusetts 02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your
account, including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made
in writing to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408. A fee of up to $10 will be charged against
an account for providing additional account transcripts or photocopies of
paid redemption checks or for researching records in response to special
requests.
Shareholder Telephone Transactions:
Please call 1-800-521-6548
Call this number for assistance in purchasing shares by wire and for
telephone redemptions or telephone exchange transactions. Shareholder
Services will require some form of personal identification prior to acting
upon instructions received by telephone. Written confirmation of each
transaction will be provided.
The Fund and its Shares
The Fund was organized in 1990 as an additional series of State Street
Research Equity Trust, a Massachusetts business trust. The Trustees have
authorized shares of the Fund to be issued in four classes: Class A, Class B,
Class C and Class D shares. The Trust is registered with the Securities and
Exchange Commission as an open-end management investment company. The fiscal
year end of the Fund is June 30.
Except for those differences between the classes of shares described below
and elsewhere in the Prospectus, each share of the Fund has equal dividend,
redemption and liquidation rights with other shares of the Fund and when
issued is fully paid and nonassessable. In the future, certain classes may be
redesignated, for administrative purposes only, to conform to standard class
designations and common usage of terms which may develop in the mutual fund
industry. For example, Class C shares may be redesignated as Class Y shares
and Class D shares may be redesignated as Class C shares. Any redesignations
would not affect any substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest in
the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class D shares
bear the expenses of the deferred sales arrange-
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<PAGE>
ment and any expenses (including the higher service and distribution fees)
resulting from such sales arrangement, and certain other incremental expenses
related to a class. Each class will have exclusive voting rights with respect
to provisions of the Rule 12b-1 distribution plan pursuant to which the
service and distribution fees, if any, are paid. Although the legal rights of
holders of each class of shares are identical, it is likely that the
different expenses borne by each class will result in different net asset
values and dividends. The different classes of shares of the Fund also have
different exchange privileges.
The rights of holders of shares may be modified by the Trustees at any time, so
long as such modifications do not have a material, adverse effect on the rights
of any shareholder. Under a pending amendment to the Master Trust Agreement, the
Trustees may reorganize, merge or liquidate the Fund without prior shareholder
approval. On any matter submitted to the shareholders, the holder of shares of
the Fund 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, shareholders will be assisted in
shareholder communications to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for
indemnification for all losses and expenses of any shareholder of the Fund
held personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations. The Investment Manager believes that, in view of the above, the
risk of personal liability to shareholders is remote.
Management of the Fund
Under the provisions of the Trust's Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
The Fund's investment manager is State Street Research & Management Company.
The Investment Manager is charged with the overall responsibility for
managing the investments and business affairs of the
Fund, subject to the authority of the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first
mutual funds, presently known as State Street Research Investment Trust,
which they had formed in 1924. Their investment management philosophy
emphasized comprehensive fundamental research and analysis, including
meetings with the management of companies under consideration for investment.
The Investment Manager's portfolio management group has extensive investment
industry experience managing equity and debt securities. In managing debt
securities, if any, for a portfolio, the Investment Manager may consider
yield curve, sector rotation and duration, among other factors.
The Investment Manager and the Distributor are indirect wholly-owned
subsidiaries of Metropolitan Life Insurance Company 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
25
<PAGE>
services, office facilities and personnel are provided for the Fund in
consideration of a fee from the Fund.
Under its Advisory Agreement with the Trust, the Investment Manager receives
a monthly investment advisory fee equal to 0.75% (on an annual basis) of the
average daily value of the net assets of the Fund. The Fund bears all costs
of its operation other than those incurred by the Investment Manager under
the Advisory Agreement. In particular, the Fund pays, among other expenses,
investment advisory fees, certain distribution expenses under the Fund's
Distribution Plan and the compensation and expenses of the Trustees who are
not otherwise currently affiliated with the Investment Manager or any of its
affiliates. The Investment Manager will reduce its management fee payable by
the Fund up to the amount of any expenses (excluding permissible items, such
as brokerage commissions, Rule 12b-1 payments, interest, taxes and litigation
expenses) paid or incurred in any year in excess of the most restrictive
expense limitation imposed by any state in which the Fund sells shares, if
any. The Investment Manager compensates Trustees of the Trust if such persons
are employees or affiliates of the Investment Manager or its affiliates.
The Fund is managed by Daniel J. Rice III. Mr. Rice has managed the Fund
since its inception in March 1990. Mr. Rice's principal occupation currently
is Senior Vice President of State Street Research & Management Company.
During the past five years he has also served as Vice President of State
Street Research & Management Company.
Subject to the policy of seeking best overall price and execution, sales of
shares of the Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for the Fund's portfolio transactions.
The Investment Manager has a Code of Ethics governing personal securities
transactions of certain of its employees; see the Statement of Additional
Information.
Dividends and Distributions; Taxes
The Fund qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code for its most recent
fiscal year and intends to qualify as such in future fiscal years, although
it cannot give complete assurance that it will do so. As long as it so
qualifies and satisfies certain distribution requirements, it will not be
subject to federal income taxes on its taxable income (including capital
gains, if any) distributed to its shareholders. Consequently, the Fund
intends to distribute annually to its shareholders substantially all of its
net investment income and any capital gain net income (capital gains net of
capital losses).
The Fund declares dividends from net investment income semiannually and pays
such dividends, if any, twice each year; distributions of long-term and
short-term capital gain net income will generally be made on an annual
basis, shortly after the end of the fiscal year in which such gains are
realized (or as otherwise required for compliance with applicable tax
regulations). Both dividends from net investment income and distributions of
capital gain net income will be declared and paid in additional shares of the
Fund at net asset value (except in the case of shareholders who elect a
different available distribution method). The Fund will provide its
shareholders of record with annual information on a timely basis concerning
the federal tax status of dividends and distributions during the preceding
calendar year.
Dividends paid by the Fund from taxable net investment income and
distributions of net short-term capital gains, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax
purposes to shareholders as ordinary income, and a portion may be eligible
for the 70% dividends-received deduction for corporations. The percentage of
the Fund's dividends eligible for such tax treatment may be less than 100% to
the extent that less than 100% of the Fund's gross income 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 the Fund which are sold at a
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<PAGE>
loss have been held six months or less, the loss will be considered as a
long-term capital loss to the extent of any capital gains distributions
received.
Dividends and other distributions and proceeds of 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, the 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. The Fund may also compare its performance to appropriate
indices such as the Natural Resource Funds Index compiled by Lipper
Analytical Services, Inc., 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 Morningstar, Inc., Money Magazine, Business Week,
Forbes Magazine, The Wall Street Journal and Investor's Daily.
Total return is computed separately for each class of shares of the Fund. The
average annual total return ("standard total return") for shares of the Fund
is computed by determining the average annual compounded rate of return for a
designated period that, if applied to a hypothetical $1,000 initial
investment (less the maximum initial or contingent deferred sales charge, if
applicable), would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions and
with recognition of all recurring charges. Standard total return may be
accompanied with nonstandard total return information computed in the same
manner, but for differing periods and with or without annualizing the total
return or taking sales charges into account.
The standard total return results take sales charges into account, if
applicable, but do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for remittance of redemption proceeds by
wire. Where sales charges are not applicable and therefore not taken into
account in the calculation of standard total return, the results will be
increased. Any voluntary waiver of fees or assumption of expenses by the
Fund's affiliates will also increase performance results.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of the Fund 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 the Fund's
performance for any future period. In evaluating the Fund's performance,
consideration should be given to changes in the Fund's investment strategy in
July, 1995. The investment strategy of the Fund was changed to include more
investments in the natural resources industries. Prior to the change, the
Fund invested at least 65% of its total assets in the equity securities of
companies in the energy industries. Under its current investment strategy,
the Fund invests at least 65% of its total assets in the equity securities of
companies in the energy and natural resources industries.
In addition, the net asset values of shares of the Fund will fluctuate, with
the result that shares of the Fund, when redeemed, may be worth more or less
than their original cost. Neither an investment in the Fund nor its
performance is insured or guaranteed; such lack of insurance or guarantees
should accordingly be given appropriate consideration when comparing the Fund
to financial alternatives which have such features.
Shares of the Fund had no class designations until 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
27
<PAGE>
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.
28
<PAGE>
[STATE STREET RESEARCH LOGO]
State Street Research
Global Resources Fund
STATE STREET RESEARCH
GLOBAL RESOURCES FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research & Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
November 1, 1995
PROSPECTUS
EG-611D-1195IBS CONTROL NUMBER: 2726-951026(1196)SSR-LD
<PAGE>
Supplement No. 1 dated November 1, 1995
to
Statement of Additional Information dated November 1, 1995
for
STATE STREET RESEARCH CAPITAL APPRECIATION FUND
STATE STREET RESEARCH EQUITY INVESTMENT FUND
STATE STREET RESEARCH EQUITY INCOME FUND
Series of State Street Research Equity Trust
The section captioned "Additional Investment Policies and Restrictions" at
pages 2 through 5 in the attached Statement of Additional Information reflects
policy changes which have not been finalized. Until such finalization, the
section reads in its entirety as follows:
"ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Funds' Investments" and "Limiting Investment Risk"
in the Funds' Prospectus, State Street Research Capital Appreciation Fund (the
"Capital Appreciation Fund" or the "Fund"), State Street Research Equity
Investment Fund (the "Equity Investment Fund" or the "Fund") and State Street
Research Equity Income Fund (the "Equity Income Fund" or the "Fund") have
adopted certain investment restrictions.
All of the Funds' fundamental investment restrictions are set forth below.
These fundamental restrictions may not be changed by a Fund except by the
affirmative vote of a majority of the outstanding voting securities of that Fund
as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(Under the 1940 Act, a "vote of the majority of the outstanding voting
securities" mean the vote, at the annual or a special meeting of security
holders duly called, (i) of 67% or more of the voting securities present at the
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy or (ii) of more than 50% of the outstanding
voting securities, whichever is less.) Under these restrictions, it is each
Fund's policy:
(1) not to invest in a security if the transaction would result in more
than 5% of a Fund's total assets being invested in any one issuer,
except that this restriction does not apply to investments in
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(2) not to invest in a security if the transaction would result in a
Fund's owning more than 10% of the outstanding voting securities of
an issuer, except that this restriction does not apply to investments
in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
<PAGE>
(3) not to invest in a security if the transaction would result in more
than 5% of a 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 Standard & Poor's Corporation ("S&P") or Baa or higher
by Moody's Investors Service, Inc. ("Moody's"), and except that this
restriction does not apply to investments in securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities;
(4) not to issue senior securities;
(5) not to underwrite or participate in the marketing of securities of
other issuers, although a Fund may, acting alone or in syndicates or
groups, if determined by the Trust's Board of Trustees, purchase or
otherwise acquire securities of other issuers for investment, either
from the issuers or from persons in a control relationship with the
issuers or from underwriters of such securities;
(6) not to purchase or sell real estate in fee simple or real estate
mortgage loans;
(7) not to invest in commodities or commodity contracts, except that a
Fund may make investments in financial futures, options on financial
futures and forward currency exchange contracts to the extent set
forth in the Trust's Prospectus and Statement of Additional
Information;
(8) not to make loans except that a Fund may purchase bonds, debentures,
notes and similar 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;
(9) not to invest more than 10% of its 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;
(10) not to conduct arbitrage transactions (provided that investments in
futures and options for hedging purposes shall not be deemed
arbitrage transactions);
(11) not to invest in oil, gas or other mineral exploration or development
programs (provided that a Fund may invest in securities issued by or
which are based, directly or indirectly, on the credit of companies
which invest in or sponsor such programs);
2
<PAGE>
(12) not to make any investment which would cause more than 25% of the
value of a Fund's total assets to be invested in securities of
issuers principally engaged in any one industry (for purposes of this
restriction, (a) utilities will be divided according to their
services so that, for example, gas, gas transmission, electric and
telephone companies will each be deemed in a separate industry, (b)
oil and oil related companies will be divided by type so that, for
example, oil production companies, oil service companies and refining
and marketing companies will each be deemed in a separate industry
and (c) securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities shall be excluded); and
(13) not to borrow money (through reverse repurchase agreements or
otherwise) except for extraordinary and emergency purposes, such as
permitting redemption requests to be honored, and then not in an
amount in excess of 10% of the value of its total assets, provided
that additional investments will be suspended during any period when
borrowings exceed 5% of a Fund's total assets, and provided further
that reverse repurchase agreements shall not exceed 5% of a Fund's
total assets. Reverse repurchase agreements occur when a Fund sells
money market securities and agrees to repurchase such securities at
an agreed-upon price, date and interest payment. A Fund would use the
proceeds from the transaction to buy other money market securities,
which are either maturing or under the terms of a resale agreement,
on the same day as (or day prior to) the expiration of the reverse
repurchase agreement, and would employ a reverse repurchase agreement
when interest income from investing the proceeds of the transaction
is greater than the interest expense of the reverse repurchase
transaction.
The following investment restrictions may be changed with respect to any
Fund by a vote of a majority of the Trustees. Under these restrictions, it is
each Fund's policy:
(1) not to purchase securities on margin, make a short sale of any
securities or purchase or deal in puts, calls, straddles or spreads
with respect to any security, except in connection with the purchase
or writing of options, including options on financial futures, and
futures contracts to the extent set forth in the Trust's Prospectus
and Statement of Additional Information;
(2) not to hypothecate, mortgage or pledge any of its assets except as
may be necessary in connection with permitted borrowings and then not
in excess of 15% of such Fund's total assets, taken at cost (for the
purpose of this restriction financial futures, options on financial
futures and forward currency exchange contracts are not deemed to
involve a pledge of assets);
(3) not to acquire any security issued by any other investment company
(the "acquired company") if immediately after such acquisition the
Fund and all companies controlled by the Fund, if any, would own in
the aggregate (i)
3
<PAGE>
more than 3% of the outstanding voting stock of the acquired company,
(ii) securities issued by the acquired company having an aggregate
value in excess of 5% of the Fund's total assets or (iii) securities
issued by the acquired company and all other investment companies
(other than treasury stock of the Fund) having an aggregate value in
excess of 10% of the Fund's total assets, except to complete a
merger, consolidation or other acquisition of assets;
(4) not to purchase or retain any security of an issuer if , to the
knowledge of the Trust, those of its officers and Trustees and
officers and directors of its investment advisers who individually
own more than 1/2 of 1% of the securities of such issuer, when
combined, own more than 5% of the securities of such issuer taken at
market;
(5) not to invest in warrants more than 5% of the value of its total
assets, taken at the lower of cost or market value (warrants
initially attached to securities and acquired by the Fund upon
original issuance thereof shall be deemed to be without value); and
(6) not to invest in companies for the purpose of exercising control over
their management, although the Trust may from time to time present
its views on various matters to the management of issuers in which it
holds investments.
At the present time, notwithstanding clause (5) above, the Capital Appreciation
Fund and the Equity Investment Fund may not invest in any warrants, as noted in
the Prospectus. Also, the Equity Income Fund has undertaken with a state
securities authority that, for so long as such Fund's shares are required to be
registered for sale in such state, the Fund's investment in warrants, valued at
the lower of cost or market, may not exceed 5% of its net assets and included
within that amount, but not to exceed 2% of the value of its net assets, may be
warrants which are not listed on the New York or American Stock Exchange."
4
CONTROL NUMBER: 2770-951101(1296)SSR-LD ET-365E-1195
<PAGE>
State Street Research Capital Appreciation Fund
State Street Research Equity Investment Fund
State Street Research Equity Income Fund
Series of
State Street Research Equity Trust
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1995
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS ........................... 2
ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT TECHNIQUES ........... 5
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS ........................... 13
TRUSTEES AND OFFICERS ..................................................... 18
INVESTMENT ADVISORY SERVICES .............................................. 23
PURCHASE AND REDEMPTION OF SHARES ......................................... 25
NET ASSET VALUE ........................................................... 27
PORTFOLIO TRANSACTIONS .................................................... 29
CERTAIN TAX MATTERS ....................................................... 31
DISTRIBUTION OF SHARES OF THE FUNDS ....................................... 33
CALCULATION OF PERFORMANCE DATA ........................................... 40
CUSTODIAN ................................................................. 45
INDEPENDENT ACCOUNTANTS ................................................... 45
FINANCIAL STATEMENTS ...................................................... 46
The following Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the Prospectus of State Street Research Capital
Appreciation Fund, State Street Research Equity Investment Fund and State Street
Research Equity Income Fund dated November 1, 1995, which may be obtained
without charge from the offices of State Street Research Equity Trust (the
"Trust") or State Street Research Investment Services, Inc. (the "Distributor"),
One Financial Center, Boston, Massachusetts 02111-2690.
XXX
CONTROL NUMBER: 1285B-951101(1296)SSR-LD ET-879D-1195
1
<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Funds' Investments" and "Limiting Investment
Risk" in the Funds' Prospectus, State Street Research Capital Appreciation Fund
(the "Capital Appreciation Fund" or the "Fund"), State Street Research Equity
Investment Fund (the "Equity Investment Fund" or the "Fund") and State Street
Research Equity Income Fund (the "Equity Income Fund" or the "Fund") have
adopted certain investment restrictions.
All of the Funds' fundamental investment restrictions are set forth below. These
fundamental restrictions may not be changed by a Fund except by the affirmative
vote of a majority of the outstanding voting securities of that Fund as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). (Under the
1940 Act, a "vote of the majority of the outstanding voting securities" means
the vote, at the annual or a special meeting of security holders duly called,
(i) of 67% or more of the voting securities present at the meeting if the
holders of more than 50% of the outstanding voting securities are present or
represented by proxy or (ii) of more than 50% of the outstanding voting
securities, whichever is less.) Under these restrictions, it is each Fund's
policy:
(1) not to invest in a security if the transaction would result in
more than 5% of a Fund's total assets being invested in any
one issuer, except that this restriction does not apply to
investments in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
(2) not to invest in a security if the transaction would result in
a Fund's owning more than 10% of the outstanding voting
securities of an issuer, except that this restriction does not
apply to investments in securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities;
(3) not to issue senior securities;
(4) not to underwrite or participate in the marketing of
securities of other issuers, although a Fund may, acting alone
or in syndicates or groups, if determined by the Trust's Board
of Trustees, purchase or otherwise acquire securities of other
issuers for investment, either from the issuers or from
persons in a control relationship with the issuers or from
underwriters of such securities;
(5) not to purchase or sell real estate in fee simple or real
estate mortgage loans;
(6) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Fund's total
assets, except that investments in essentially financial items
or arrangements such as, but not limited to, swap
arrangements, hybrids, currencies, currency and other forward
contracts, futures contracts and options on futures contracts
on securities, securities indices, interest rates and
2
<PAGE>
currencies shall not be deemed investments in commodities or
commodities contracts;
(7) not to lend money; however, a Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (and enter into repurchase agreements with
respect thereto);
(8) not to conduct arbitrage transactions (provided that
investments in futures and options for hedging purposes shall
not be deemed arbitrage transactions);
(9) not to invest in oil, gas or other mineral exploration or
development programs (provided that a Fund may invest in
securities issued by or which are based, directly or
indirectly, on the credit of companies which invest in or
sponsor such programs);
(10) not to make any investment which would cause more than 25% of
the value of a Fund's total assets to be invested in
securities of issuers principally engaged in any one industry
(for purposes of this restriction, (a) utilities will be
divided according to their services so that, for example, gas,
gas transmission, electric and telephone companies will each
be deemed in a separate industry, (b) oil and oil related
companies will be divided by type so that, for example, oil
production companies, oil service companies and refining and
marketing companies will each be deemed in a separate industry
and (c) securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities shall be excluded); and
(11) not to borrow money (through reverse repurchase agreements or
otherwise) except for extraordinary and emergency purposes,
such as permitting redemption requests to be honored, and then
not in an amount in excess of 10% of the value of its total
assets, provided that additional investments will be suspended
during any period when borrowings exceed 5% of a Fund's total
assets, and provided further that reverse repurchase
agreements shall not exceed 5% of a Fund's total assets.
Reverse repurchase agreements occur when a Fund sells money
market securities and agrees to repurchase such securities at
an agreed-upon price, date and interest payment. A Fund would
use the proceeds from the transaction to buy other money
market securities, which are either maturing or under the
terms of a resale agreement, on the same day as (or day prior
to) the expiration of the reverse repurchase agreement, and
would employ a reverse repurchase agreement when interest
income from investing the proceeds of the transaction is
greater than the interest expense of the reverse repurchase
transaction.
3
<PAGE>
The following investment restrictions may be changed with respect to
any Fund by a vote of a majority of the Trustees. Under these restrictions, it
is each Fund's policy:
(1) not to purchase any security or enter into a repurchase
agreement if as a result more than 15% of its net assets would
be invested in securities that are illiquid (including
repurchase agreements not entitling the holder to payment of
principal and interest within seven days);
(2) not to invest more than 15% of its net assets in restricted
securities of all types (including not more than 5% of its net
assets in restricted securities which are not eligible for
resale pursuant to Rule 144A, Regulation S or other exemptive
provisions under the Securities Act of 1933);
(3) not to invest more than 5% of its total assets in securities
of private companies including predecessors with less than
three years' continuous operations except (a) securities
guaranteed or backed by an affiliate of the issuer with three
years of continuous operations, (b) securities issued or
guaranteed as to principal or interest by the U.S. Government,
or its agencies or instrumentalities, or a mixed- ownership
Government corporation, (c) securities of issuers with debt
securities rated at least "BBB" by Standard & Poor's
Corporation or "Baa" by Moody's Investor's Service, Inc. (or
their equivalent by any other nationally recognized
statistical rating organization) or securities of issuers
considered by the Investment Manager to be equivalent, (d)
securities issued by a holding company with at least 50% of
its assets invested in companies with three years of
continuous operations including predecessors, and (e)
securities which generate income which is exempt from local,
state or federal taxes; provided that the Fund may invest up
to 15% in such issuers so long as such investments plus
investments in restricted securities (other than those which
are eligible for resale under Rule 144A, Regulation S or other
exemptive provisions) do not exceed 15% of the Fund's total
assets;
(4) not to purchase securities on margin, make a short sale of any
securities or purchase or deal in puts, calls, straddles or
spreads with respect to any security, except in connection
with the purchase or writing of options, including options on
financial futures, and futures contracts to the extent set
forth in the Trust's Prospectus and Statement of Additional
Information;
(5) not to hypothecate, mortgage or pledge any of its assets
except as may be necessary in connection with permitted
borrowings and then not in excess of 15% of such Fund's total
assets, taken at cost (for the purpose of this restriction
financial futures, options on financial futures and forward
currency exchange contracts are not deemed to involve a pledge
of assets);
4
<PAGE>
(6) not to acquire any security issued by any other investment
company (the "acquired company") if immediately after such
acquisition the Fund and all companies controlled by the Fund,
if any, would own in the aggregate (i) more than 3% of the
outstanding voting stock of the acquired company, (ii)
securities issued by the acquired company having an aggregate
value in excess of 5% of the Fund's total assets or (iii)
securities issued by the acquired company and all other
investment companies (other than treasury stock of the Fund)
having an aggregate value in excess of 10% of the Fund's total
assets, except to complete a merger, consolidation or other
acquisition of assets;
(7) not to purchase or retain any security of an issuer if, to the
knowledge of the Trust, those of its officers and Trustees and
officers and directors of its investment advisers who
individually own more than 1/2 of 1% of the securities of such
issuer, when combined, own more than 5% of the securities of
such issuer taken at market;
(8) not to invest in warrants more than 5% of the value of its
total assets, taken at the lower of cost or market value
(warrants initially attached to securities and acquired by the
Fund upon original issuance thereof shall be deemed to be
without value); and
(9) not to invest in companies for the purpose of exercising
control over their management, although the Trust may from
time to time present its views on various matters to the
management of issuers in which it holds investments.
At the present time, notwithstanding clause (8) above, the Capital Appreciation
Fund and the Equity Investment Fund may not invest in any warrants, as noted in
the Prospectus. Also, the Equity Income Fund has undertaken with a state
securities authority that, for so long as such Fund's shares are required to be
registered for sale in such state, the Fund's investment in warrants, valued at
the lower of cost or market, may not exceed 5% of its net assets and included
within that amount, but not to exceed 2% of the value of its net assets, may be
warrants which are not listed on the New York or American Stock Exchange.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Among other investments described below, each Fund may buy and sell
options, futures contracts and options on futures contracts with respect to
securities, securities indices, and currencies, and may enter into closing
transactions with respect to each of the foregoing under circumstances in which
such instruments and techniques are expected by State Street Research &
Management Company (the "Investment Manager") to aid in achieving the investment
objectives of a Fund. Each Fund on occasion may also purchase instruments with
5
<PAGE>
characteristics of both futures and securities (e.g., debt instruments with
interest and principal payments determined by reference to the value of a
commodity or a currency at a future time) and which, therefore, possess the
risks of both futures and securities investments.
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell
underlying assets, such as certain securities, currencies, or an index of
securities, at a future time at a specified price. A contract to buy establishes
a "long" position while a contract to sell establishes a "short" position.
The purchase of a futures contract on an equity security or an index of
equity securities normally enables a buyer to participate in the market movement
of the underlying asset or index after paying a transaction charge and posting
margin in an amount equal to a small percentage of the value of the underlying
asset or index. Each Fund will initially be required to deposit with the Trust's
custodian or the broker effecting the futures transaction an amount of "initial
margin" in cash or U.S. Treasury obligations.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when a Fund has taken a long position
in a futures contract and the value of the underlying asset has risen, that
position will have increased in value and the Fund will receive from the broker
a maintenance margin payment equal to the increase in value of the underlying
asset. Conversely, when the Fund has taken a long position in a futures contract
and the value of the underlying instrument has declined, the position would be
less valuable, and the Fund would be required to make a maintenance margin
payment to the broker.
At any time prior to expiration of the futures contract, a Fund may
elect to close the position by taking an opposite position which will terminate
the Fund's position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain. While futures
contracts with respect to securities do provide for the delivery and acceptance
of such securities, such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus protect a Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and thus to participate
in an expected rise in market value of securities which a Fund intends to
purchase. In transactions establishing a long position in a futures contract,
money market
6
<PAGE>
instruments equal to the face value of the futures contract will be identified
by the Fund to the Trust's custodian for maintenance in a separate account to
insure that the use of such futures contracts is unleveraged. Similarly, a
representative portfolio of securities having a value equal to the aggregate
face value of the futures contract will be identified with respect to each short
position. Each Fund will employ any other appropriate method of cover which is
consistent with applicable regulatory and exchange requirements.
Options on Securities
Each Fund may use options on equity securities to implement its
investment strategy. A call option on a security, for example, gives the
purchaser of the option the right to buy, and the writer the obligation to sell,
the underlying asset at the exercise price during the option period. Conversely,
a put option on a security gives the purchaser the right to sell, and the writer
the obligation to buy, the underlying asset at the exercise price during the
option period.
Purchased options have defined risk, i.e., the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset.
Written options have varying degrees of risk. An uncovered written call
option theoretically carries unlimited risk, as the market price of the
underlying asset could rise far above the exercise price before its expiration.
This risk is tempered when the call option is covered, i.e., when the option
writer owns the underlying asset. In this case, the writer runs the risk of the
lost opportunity to participate in the appreciation in value of the asset rather
than the risk of an out-of-pocket loss. A written put option has defined risk,
i.e., the difference between the agreed-upon price that a Fund must pay to the
buyer upon exercise of the put and the value, which could be zero, of the asset
at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
his obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Options on Securities Indices
Each Fund may engage in transactions in call and put options on
securities indices. For example, a Fund may purchase put options on indices of
securities in anticipation of or during a market decline to attempt to offset
the decrease in market value of its equity securities that might otherwise
result.
Put options on indices of securities are similar to put options on the
securities themselves except that the delivery requirements are different.
Instead of giving the right to
7
<PAGE>
make delivery of a security at a specified price, a put option on an index of
securities gives the holder the right to receive an amount of cash upon exercise
of the option if the value of the underlying index has fallen below the exercise
price. The amount of cash received will be equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple. As with options on equity securities or
futures contracts, a Fund may offset its position in index options prior to
expiration by entering into a closing transaction on an exchange or it may let
the option expire unexercised.
A securities index assigns relative values to the securities included
in the index and the index options are based on a broad market index. Although
there are at present few available options on indices of fixed income
securities, other than tax-exempt securities, or futures and related options
based on such indices, such instruments may become available in the future. In
connection with the use of such options, a Fund may cover its position by
identifying a representative portfolio of securities having a value equal to the
aggregate face value of the option position taken. However, a Fund may employ
any appropriate method to cover its positions that is consistent with applicable
regulatory and exchange requirements.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Options Strategy
A basic option strategy for protecting a Fund against a decline in
securities prices could involve (a) the purchase of a put -- thus "locking in"
the selling price of the underlying securities or securities indices -- or (b)
the writing of a call on securities or securities indices held by a Fund --
thereby generating income (the premium paid by the buyer) by giving the holder
of such call the option to buy the underlying asset at a fixed price. The
premium will offset, in whole or in part, a decline in portfolio value; however,
if prices of the relevant securities or securities indices rose instead of
falling, the call might be exercised, thereby resulting in a potential loss of
appreciation in the underlying securities or securities indices.
A basic option strategy when a rise in securities prices is anticipated
is the purchase of a call -- thus "locking in" the purchase price of the
underlying security or other asset. In transactions involving the purchase of
call options by a Fund, money market instruments equal to the aggregate exercise
price of the options will be identified by that Fund to the Trust's custodian to
insure that the use of such investments is unleveraged.
A Fund may write options in connection with buy-and-write transactions;
that is, a Fund may purchase a security and concurrently write a call option
against that security. If the call
8
<PAGE>
option is exercised in such a transaction, the Fund's maximum gain will be the
premium received by it for writing the option, adjusted upward or downward by
the difference between the Fund's purchase price of the security and the
exercise price of the option. If the option is not exercised and the price of
the underlying security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund's return will be the premium received from
writing the put option minus the amount by which the market price of the
security is below the exercise price.
Limitations and Risks of Options and Futures Activity
The Funds will engage in transactions in futures contracts or options
only as a hedge against changes resulting from market conditions which produce
changes in the values of their securities or the securities which they intend to
purchase (e.g., to replace portfolio securities which will mature in the near
future) and, subject to the limitations described below, to enhance return. No
Fund will purchase any futures contract or purchase any call option if,
immediately thereafter, more than one third of the Fund's net assets would be
represented by long futures contracts or call options. No Fund will write a
covered call or put option if, immediately thereafter, the aggregate value of
the assets (securities in the case of written calls and cash or cash equivalents
in the case of written puts) underlying all such options, determined as of the
dates such options were written, would exceed 25% of that Fund's net assets. In
addition, no Fund may establish a position in a commodity futures contract or
purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of the Fund's net assets.
Although effective hedging can generally capture the bulk of a desired
risk adjustment, no hedge is completely effective. Each Fund's ability to hedge
effectively through transactions in futures and options depends on the degree to
which price movements in its holdings correlate with price movements of the
futures and options.
Some positions in futures and options may be closed out only on an
exchange which provides a secondary market therefor. There can be no assurance
that a liquid secondary market will exist for any particular futures contract or
option at any specific time. Thus, it may not be possible to close such an
option or futures position prior to maturity. The inability to close options and
futures positions also could have an adverse impact on the Funds' ability to
effectively hedge their securities and might, in some cases, require a Fund to
deposit cash to
9
<PAGE>
meet applicable margin requirements. Each Fund will enter into an option or
futures position only if it appears to be a liquid investment.
Currency Transactions
The Funds may engage in currency exchange transactions in order to
protect against the effect of uncertain future exchange rates on securities
denominated in foreign currencies. Each Fund will conduct its currency exchange
transactions either on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, or by entering into forward contracts to purchase or
sell currencies. Each Fund's dealings in forward currency exchange contracts
will be limited to hedging involving either specific transactions or aggregate
portfolio positions. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are not commodities and
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. In entering a
forward currency contract, a Fund is dependent upon the creditworthiness and
good faith of the counterparty. Each Fund attempts to reduce the risks of
nonperformance by the counterparty by dealing only with established, reputable
institutions. Although spot and forward contracts will be used primarily to
protect a Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted, which may
result in losses to such Fund. This method of protecting the value of the Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange that can be achieved at some future point in
time. Although such contracts tend to minimize the risk of loss due to a decline
in the value of hedged currency, they tend to limit any potential gain that
might result should the value of such currency increase.
Repurchase Agreements
The Funds may enter into repurchase agreements. Repurchase agreements
occur when a Fund acquires a security and the seller, which may be either (i) a
primary dealer in U.S. Government securities or (ii) an FDIC-insured bank having
gross assets in excess of $500 million, simultaneously commits to repurchase it
at an agreed-upon price on an agreed-upon date within a specified number of days
(usually not more than seven) from the date of purchase. The repurchase price
reflects the purchase price plus an agreed-upon market rate of interest which is
unrelated to the coupon rate or maturity of the acquired security. The Funds
will only enter into repurchase agreements involving U.S. Government securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities. Repurchase agreements
will be limited to 30% of a Fund's total assets, except that
10
<PAGE>
repurchase agreements extending for more than seven days when combined with any
other illiquid securities held by a Fund will be limited to 10% of a Fund's
total assets.
When-Issued Securities
Each Fund may purchase "when-issued" securities, which are traded on a
price or yield basis prior to actual issuance. Such purchases will be made only
to achieve a Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to up to a month or more; during
this period dividends or interest on the securities are not payable. A frequent
form of when-issued trading occurs when corporate securities to be created by a
merger of companies are traded prior to the actual consummation of the merger.
Such transactions may involve a risk of loss if the value of the securities
falls below the price committed to prior to actual issuance. The Trust's
custodian will establish a segregated account when a Fund purchases securities
on a when-issued basis consisting of cash or liquid securities equal to the
amount of the when-issued commitments.
Rule 144A Securities
Subject to the limitations on illiquid and restricted securities noted
above, a Fund may buy or sell restricted securities in accordance with Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities"). Securities may be
resold pursuant to Rule 144A under certain circumstances only to qualified
institutional buyers as defined in the rule, and the markets and trading
practices for such securities are relatively new and still developing; depending
on the development of such markets, Rule 144A Securities may be deemed to be
liquid as determined by or in accordance with methods adopted by the Trustees.
Under such methods the following factors are considered, among others: the
frequency of trades and quotes for the security, the number of dealers and
potential purchasers in the market, market making activity, and the nature of
the security and marketplace trades. Investments in Rule 144A Securities could
have the effect of increasing the level of a Fund's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing such securities. Also, a Fund may be adversely impacted by the
subjective valuation of such securities in the absence of a market for them.
Swap Arrangements
Each Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap a Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay such
Fund a fixed rate of interest on the notional principal amount. In a currency
swap a Fund would agree with the other party to exchange cash flows based on the
relative differences in values of a notional amount of two (or
11
<PAGE>
more) currencies; in an index swap, a Fund would agree to exchange cash flows on
a notional amount based on changes in the values of the selected indices.
Purchase of a cap entitles the purchaser to receive payments from the seller on
a notional amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an agreed
upon interest rate or amount. A collar combines a cap and a floor.
Most swaps entered into by a Fund will be on a net basis; for example,
in an interest rate swap, amounts generated by application of the fixed rate and
the floating rate to the notional principal amount would first offset one
another, with a Fund either receiving or paying the difference between such
amounts. In order to be in a position to meet any obligations resulting from
swaps, a Fund will set up a segregated custodial account to hold appropriate
liquid assets, including cash; for swaps entered into on a net basis, assets
will be segregated having a daily net asset value equal to any excess of a
Fund's accrued obligations over the accrued obligations of the other party,
while for swaps on other than a net basis assets will be segregated having a
value equal to the total amount of a Fund's obligations.
These arrangements will be made primarily for hedging purposes, to
preserve the return on an investment or on a portion of a Fund's portfolio.
However, a Fund may enter into such arrangements for income purposes to the
extent permitted by the Commodities Futures Trading Commission for entities
which are not commodity pool operators, such as the Fund. In entering a swap
arrangement, a Fund is dependent upon the creditworthiness and good faith of the
counterparty. Each Fund attempts to reduce the risks of nonperformance by the
counterparty by dealing only with established, reputable institutions. The swap
market is still relatively new and emerging; positions in swap arrangements may
become illiquid to the extent that nonstandard arrangements with one
counterparty are not readily transferable to another counterparty or if a market
for the transfer of swap positions does not develop. The use of interest rate
swaps is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Investment Manager is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment performance
of a Fund would diminish compared with what it would have been if these
investment techniques were not used. Moreover, even if the Investment Manager is
correct in its forecasts, there is a risk that the swap position may correlate
imperfectly with the price of the asset or liability being hedged.
Industry Classifications
In determining how much of a Fund's portfolio is invested in a given
industry, the following industry classifications, grouped by sectors, are
currently used:
12
<PAGE>
Basic Industries Consumer Staple Science & Technology
- ---------------- --------------- --------------------
Chemical Business Service Aerospace
Diversified Container Computer Software & Service
Electrical Equipment Drug Electronic Components
Forest Products Food & Beverage Electronic Equipment
Machinery Hospital Supply Office Equipment
Metal & Mining Personal Care
Railroad Printing & Publishing
Truckers Tobacco
Utility Energy Consumer Cyclical
- ------- ------ -----------------
Electric Oil Airline
Natural Gas Oil Service Automotive
Telephone Building
Hotel & Restaurant
Miscellaneous Finance Photography
- ------------- ------- Recreation
Bank Retail Trade
Financial Service Textile & Apparel
Insurance
Other Investment Limitations
Each Fund has undertaken with a state securities authority that, for so
long as a Fund's shares are required to be registered for sale in such state, a
Fund will not purchase real estate limited partnerships or make investments in
oil, gas or mineral leases.
DEBT INSTRUMENTS AND
PERMITTED CASH INVESTMENTS
As indicated in the Funds' Prospectus, the Funds may invest in
long-term and short-term debt securities. The Funds may invest in cash and
short-term securities for temporary defensive purposes when, in the opinion of
the Investment Manager, such a position is more likely to provide protection
against unfavorable market conditions than adherence to other investment
policies. Certain debt securities and money market instruments in which the
Funds may invest are described below.
13
<PAGE>
U.S. Government and Related Securities. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
(bullet) direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
(bullet) obligations of U.S. Government agencies or instrumentalities such
as the Federal Home Loan Banks, the Federal Farm Credit Banks, the
Federal National Mortgage Association, the Government National
Mortgage Association and the Federal Home Loan Mortgage
Corporation; and
(bullet) obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which a Fund may buy are backed in a variety
of ways by the U.S. Government, its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S. Treasury. Other
obligations, such as those of the Federal National Mortgage Association, are
backed by the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities, although the U.S. Government has
no legal obligation to do so. Obligations such as those of the Federal Home Loan
Banks, the Federal Farm Credit Banks, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation are backed by the credit of the
agency or instrumentality issuing the obligations. Certain obligations of
Resolution Funding Corporation, a mixed-ownership Government corporation, are
backed with respect to interest payments by the U.S. Treasury, and with respect
to principal payments by U.S. Treasury obligations held in a segregated account
with a Federal Reserve Bank. Except for certain mortgage-related securities, a
Fund will only invest in obligations issued by mixed-ownership Government
corporations where such securities are guaranteed as to payment of principal or
interest by the U.S. Government or a U.S. Government agency or instrumentality,
and any unguaranteed principal or interest is otherwise supported by U.S.
Government obligations held in a segregated account.
U.S. Government securities may be acquired by a Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions,
14
<PAGE>
which then trade the component parts independently. Obligations of Resolution
Funding Corporation are similarly divided into principal and interest components
and maintained as such on the book entry records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and may
not be deemed U.S. Government securities.
The Fund may also invest from time to time in collective investment
vehicles, the assets of which consist principally of U.S. Government securities
or other assets substantially collateralized or supported by such securities,
such as Government trust certificates.
Bank Money Investments. Bank money investments include but are not
limited to certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are generally short-term (i.e., less than one year),
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). A banker's acceptance may be
obtained from a domestic or foreign bank, including a U.S. branch or agency of a
foreign bank. The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. Time deposits are nonnegotiable deposits
for a fixed period of time at a stated interest rate. A Fund will not invest in
any such bank money investment unless the investment is issued by a U.S. bank
that is a member of the Federal Deposit Insurance Corporation ("FDIC"),
including any foreign branch thereof, a U.S. branch or agency of a foreign bank,
a foreign branch of a foreign bank, or a savings bank or savings and loan
association that is a member of the FDIC and which at the date of investment has
capital, surplus and undivided profits (as of the date of its most recently
published financial statements) in excess of $50 million. A Fund will not invest
in time deposits maturing in more than seven days and will not invest more than
10% of its total assets in time deposits maturing in two to seven days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such
15
<PAGE>
branches elect FDIC insurance. Unlike U.S. branches of foreign banks, U.S.
agencies of foreign banks may not accept deposits and thus are not eligible for
FDIC insurance. Both branches and agencies can maintain credit balances, which
are funds received by the office incidental to or arising out of the exercise of
their banking powers and can exercise other commercial functions, such as
lending activities.
Short-Term Corporate Debt Instruments. Short-term corporate debt
instruments include commercial paper to finance short-term credit needs (i.e.,
short-term, unsecured promissory notes) issued by corporations including but not
limited to (a) domestic or foreign bank holding companies or (b) their
subsidiaries or affiliates where the debt instrument is guaranteed by the bank
holding company or an affiliated bank or where the bank holding company or the
affiliated bank is unconditionally liable for the debt instrument. Commercial
paper is usually sold on a discounted basis and has a maturity at the time of
issuance not exceeding nine months.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated 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 by Moody's. The money market investments in corporate bonds and
debentures (which must have maturities at the date of settlement of one year or
less) must be rated at the time of purchase at least A by S&P or by Moody's.
Commercial paper rated A (highest quality) by S&P is issued by entities
which have liquidity ratios which are adequate to meet cash requirements.
Long-term senior debt is rated A or better, although in some cases BBB credits
may be allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1, A-2
or A-3. (Those A-1 issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign:
A-1+.)
The rating Prime is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
16
<PAGE>
In the event the lowering of ratings of debt instruments held by the
Equity Income Fund by applicable rating agencies results in a material decline
in the overall quality of such Fund's portfolio, the Trustees of the Trust will
review the situation and take such action as they deem in the best interests of
such Fund's shareholders, including, if necessary, changing the composition of
the portfolio.
17
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their addresses, and their
principal occupations and positions with certain affiliates of the Investment
Manager are set forth below.
*+Peter C. Bennett, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 57. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President and Vice
President of State Street Research & Management Company. Mr. Bennett's other
principal business affiliation is Director, State Street Research Investment
Services, Inc.
*+Bartlett R. Geer, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 40. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
*+Frederick R. Kobrick, One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. He is 52. His principal occupation is currently,
and during the past five years has been, Senior Vice President of State Street
Research & Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 68. He is engaged principally in private
investments and civic affairs and is an author of business history. Previously,
he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Trustee of the Trust. He is 69. His principal occupation during
the past five years has been Partner, Saltonstall & Co., a private investment
firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 44. His principal occupation is Executive Vice
President, Treasurer and Director of State Street Research & Management Company.
During the past five years he has also served as Executive Vice President and
Chief Financial Officer of New England Investment Companies and as Senior Vice
President and Vice President of New England Mutual Life Insurance Company. Mr.
Maus's other principal business affiliations include Executive Vice President,
Treasurer, Chief Financial Officer and Director of State Street Research
Investment Services, Inc.
*+Francis J. McNamara, III has served as Secretary and General Counsel
of the Trust since May, 1995. He is 40. His principal occupation is Senior Vice
President, Secretary and General Counsel of the Investment Manager. During the
past five years he has also served as Senior Vice President, General Counsel and
Assistant Secretary of The Boston Company, Inc.,
- -------------------------
* or +, see footnotes on page 20.
18
<PAGE>
Boston Safe Deposit and Trust Company and The Boston Company Advisors, Inc. Mr.
McNamara's other principal business affiliations include Senior Vice President,
Clerk and General Counsel of State Street Research Investment Services, Inc.
*+Thomas P. Moore, Jr., One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. He is 57. His principal occupation is Senior
Vice President of State Street Research & Management Company. During the past
five years he has also served as Vice President of State Street Research &
Management Company.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 63. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173 serves as
Trustee of the Trust. He is 71. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
*Daniel J. Rice III, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 43. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 57. His principal occupations during the past
five years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
58. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. He is 52. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as
- -------------------------
* or +, see footnotes on page 20.
19
<PAGE>
President and Chief Executive Officer of New England Investment Companies and as
Chief Investment Officer and Director of New England Mutual Life Insurance
Company. Mr. Verni's other principal business affiliations include Chairman of
the Board, President, Chief Executive Officer and Director of State Street
Research Investment Services, Inc.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 70. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
- --------------------
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations
with the Funds' investment adviser.
+ Serves as a Trustee and/or officer of one or more of the following
investment companies, each of which has an advisory or distribution
relationship with the Investment Manager or its affiliates: State
Street Research Equity Trust, MetLife - State Street Financial Trust,
State Street Research Income Trust, State Street Research Money Market
Trust,State Street Research Tax-Exempt Trust, State Street Research
Capital Trust, State Street Research Exchange Trust, State Street
Research Growth Trust, State Street Research Master Investment Trust,
State Street Research Securities Trust, State Street Research
Portfolios, Inc. and Metropolitan Series Fund, Inc.
20
<PAGE>
Record ownership of shares of the Funds as of July 31, 1995 was as
follows:
<TABLE>
<CAPTION>
Capital Appreciation Equity Investment Equity Income
-------------------- ----------------- -------------
% of % of % of
Class Holder Class Holder Class Holder Class
- ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
C United States Trust 96.9 United States Trust 89.3 United States Trust 82.2
Company Company Company
Bank of New York 11.7
D Metropolitan Life 15.7 Metropolitan Life 82.9 Metropolitan Life 42.2
Merrill Lynch 45.0 Merrill Lynch 6.3 Merrill Lynch 20.8
Donaldson Lufkin 5.6 Bear Stearns 14.3
</TABLE>
The full name and address of the above institutions are:
Metropolitan Life Insurance Company (a)
One Madison Avenue
New York, New York 10010
United States Trust Company (b)(c)
770 Broadway
New York, New York 10003
Merrill Lynch, Pierce, Fenner & Smith, Inc. (c)
One Liberty Plaza, 165 Broadway
New York, New York 10080
Donaldson Lufkin Jenrette (c)
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, New Jersey 07303
Bear Stearns Securities Corp. (c)
1 Metrotech Center North
Brooklyn, NY 11201
Bank of New York (c)
52 William Street
New York, NY 10005
21
<PAGE>
- ---------------------------------
(a) Metropolitan Life Insurance Company ("Metropolitan"), a New York
corporation, was the record and/or beneficial owner, directly or
indirectly through its subsidiaries or affiliates, of such shares.
(b) United States Trust Company holds such shares as trustee under certain
employee benefit plans serviced by Metropolitan.
(c) The respective Funds believe that each named recordholder does not have
beneficial ownership of such shares.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
As of July 31, 1995, the Trustees and officers of the Trust as a group
owned the approximate amounts of the outstanding shares of each Fund as set
forth below:
Class A Class B Class C Class D
Capital Appreciation less than 1% None None None
Equity Investment None None None None
Equity Income 1.7% None None None
22
<PAGE>
During the fiscal year ended June 30, 1995, the Trustees were compensated as
follows:
Total
Compensation
Aggregate From Trust and
Compensation Complex Paid
Name of Trustee From Trust(a) to Trustees(b)
Edward M. Lamont $10,300 $58,446
Robert A. Lawrence $10,300 $86,110
Dean O. Morton $11,500 $95,360
Thomas L. Phillips $10,500 $65,560
Toby Rosenblatt $10,300 $58,446
Michael S. Scott Morton $12,300 $96,510
Ralph F.Verni $ 0 $ 0
Jeptha H. Wade $10,500 $65,860
(a) Includes compensation from multiple Series of the Trust. See
"Distribution of Shares" for a listing of series.
(b) Includes compensation from Metropolitan Series Fund, Inc., for
which the Investment Manager serves as sub-investment adviser,
State Street Research Portfolios, Inc., for which State Street
Research Investment Services, Inc. serves as distributor, and
all investment companies for which the Investment Manager
serves as primary investment adviser, comprising a total of 29
series. The Trust does not provide any pension or retirement
benefits for the Trustees.
INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to each Fund. The Advisory
Agreement provides that the Investment Manager shall furnish each Fund with an
investment program, office facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of the
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly-owned subsidiary of Metropolitan.
The advisory fee payable monthly by each Fund to the Investment Manager
is computed as a percentage of the average of the value of the net assets of
such Fund as determined at the close of the New York Stock Exchange (the "NYSE")
on each day the NYSE is open for trading, at the annual rate of 0.65% of the net
assets of the Equity Investment Fund and the Equity Income Fund and 0.75% of the
net assets of the Capital Appreciation Fund. The Funds
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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 each Fund.
The advisory fees paid by each Fund to the Investment Manager for the
last three fiscal years, prior to the assumption of fees or expenses, were as
follows:
Year ended June 30
1995 1994 1993
---- ---- ----
Capital Appreciation Fund $3,124,753 $2,338,561 $1,233,514
Equity Investment Fund $486,807 $385,472 $313,934
Equity Income Fund $521,730 $415,128 $317,738
The voluntary reduction of fees or assumption of expenses for the same
periods were as follows:
Year ended June 30
1995 1994 1993
---- ---- ----
Capital Appreciation Fund $1,056,327* $985,266 $271,934
Equity Investment Fund $362,010 $303,297 $50,640
Equity Income Fund $333,725 $328,184 $56,836
- ------------------
* For the period of July 1, 1994 through March 9, 1995; on March 10, 1995, the
Distributor eliminated the voluntary assumption of fees or expenses incurred by
the Capital Appreciation Fund.
Further, to the extent required under applicable state regulatory
requirements, the Investment Manager will reduce its management fee for a Fund
up to the amount of any expenses (excluding permissible items, such as Rule
12b-1 Distribution Plan payments, brokerage commissions, interest, taxes and
litigation expenses) paid or incurred by such Fund in any fiscal year which
exceed specified percentages of the average daily net assets of such Fund for
such fiscal year. The most restrictive of such percentage limitations is
currently 2.5% of the first $30 million of average net assets, 2.0% of the next
$70 million of average net assets and 1.5% of the remaining average net assets.
These commitments may be amended or rescinded in response to changes in the
requirements of the various states by the Trustees without shareholder approval.
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The Advisory Agreement provides that it shall continue in effect from
year to year with respect to each Fund as long as it is approved at least
annually both (i) by a vote of a majority of the outstanding voting securities
of such Fund (as defined in the 1940 Act) or by the Trustees of the Trust, and
(ii) in either event by a vote of a majority of the Trustees who are not parties
to the Advisory Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated on 60 days' written notice by either party
and will terminate automatically in the event of its assignment, as defined
under the 1940 Act and regulations thereunder. Such regulations provide that a
transaction which does not result in a change of actual control or management of
an adviser is not deemed an assignment.
Under a Funds Administration Agreement between the Investment Manager
and the Distributor, the Distributor provides assistance to the Investment
Manager in performing certain fund administration services for the Trust, such
as assistance in determining the daily net asset value of shares of series of
the Trust and in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the
Trust and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Funds, and is entitled
to reimbursements of its costs for providing such services. Under certain
arrangements for Metropolitan to provide subadministration services,
Metropolitan may receive a fee for the maintenance of certain share ownership
records for participants in sponsored arrangements, such as employee benefit
plans, through or under which a Fund's shares may be purchased.
Under the Code of Ethics of the Investment Manager, its employees in
Boston, where investment management operations are conducted, are only permitted
to engage in personal securities transactions in accordance with certain
conditions relating to an employee's position, the identity of the security, the
timing of the transaction, and similar factors. Such employees must report their
personal securities transactions quarterly and supply broker confirmations of
such transactions to the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Funds are distributed by the Distributor. 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). General information on how to buy shares of the Funds, as well as
sales charges involved, are set forth under "Purchase of Shares" in the
Prospectus. The following supplements that information.
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Public Offering Price. The public offering price for each class of
shares is based on their net asset value determined as of the close of the NYSE
on the day the purchase order is received by State Street Research Shareholder
Services provided that the order is received prior to the close of the NYSE on
that day; otherwise the net asset value used is that determined as of the close
of the NYSE on the next day it is open for unrestricted trading. When a purchase
order is placed through a dealer, that dealer is responsible for transmitting
the order promptly to State Street Research Shareholder Services in order to
permit the investor to obtain the current price. Any loss suffered by an
investor which results from a dealer's failure to transmit an order promptly is
a matter for settlement between the investor and the dealer.
Reduced Sales Charges - For purposes of determining whether a purchase
of Class A shares qualifies for reduced sales charges, the term "person"
includes: (i) an individual, or an individual combining with his or her spouse
and their children and purchasing for his, her or their own account; (ii) a
"company" as defined in Section 2(a)(8) of the 1940 Act; (iii) a trustee or
other fiduciary purchasing for a single trust estate or single fiduciary account
(including a pension, profit sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code);
(iv) a tax-exempt organization under Section 501(c)(3) or (13) of the Internal
Revenue Code; and (v) an employee benefit plan of a single employer or of
affiliated employers.
Investors may purchase Class A shares of the Funds at reduced sales
charges by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of a Fund or any combination of Class A shares of "Eligible Funds" as
designated by the Distributor within a 13-month period. The sales charge
applicable to each purchase made pursuant to a Letter of Intent will be that
which would apply if the total dollar amount set forth in the Letter of Intent
were being bought in a single transaction. Purchases made within a 90-day period
prior to the execution of a Letter of Intent may be included therein; in such
case the date of the earliest of such purchases marks the commencement of the
13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Funds and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class D shares may also be included in the
combination under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted
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<PAGE>
by the investor. All dividends and capital gains distributions with respect to
the escrowed shares will be credited to the investor's account.
Investors may purchase Class A shares of the Funds or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
Class C Shares - Class C shares are currently available to certain
benefit plans such as qualified retirement plans, other than individual
retirement accounts and self-employed retirement plans, which meet criteria
relating to level of assets, number of participants, service agreements, or
similar factors; banks and insurance companies; endowment funds of nonprofit
organizations with substantial minimum assets; and other similar institutional
investors.
Reorganizations - In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined in the 1940 Act, as amended, a Fund may issue its shares at net asset
value (or more) to such entities or to their security holders.
Redemptions. The Funds reserve the right to pay redemptions in kind
with portfolio securities in lieu of cash. In accordance with its election
pursuant to Rule 18f-1 under the 1940 Act, a Fund may limit the amount of
redemption proceeds paid in cash. Although it has no present intention to do so,
a Fund may, under unusual circumstances, limit redemptions in cash with respect
to each shareholder during any ninety-day period to the lesser of (i) $250,000
or (ii) 1% of the net asset value of such Fund at the beginning of such period.
In connection with any redemptions paid in kind with portfolio securities,
brokerage and other costs may be incurred by the redeeming shareholder in the
sale of the securities received.
NET ASSET VALUE
The net asset value of the shares of each Fund is determined once daily
as of the close of the NYSE, ordinarily 4 P.M. New York City time, Monday
through Friday, on each day during which the NYSE is open for unrestricted
trading. The NYSE is currently closed on New Year's Day, Presidents Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
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The net asset value per share of a Fund is computed by dividing the sum
of the value of the securities held by the Fund plus any cash or other assets
minus all liabilities by the total number of outstanding shares of the Fund at
such time. Any expenses, except for extraordinary or nonrecurring expenses,
borne by a Fund, including the investment management fee payable to the
Investment Manager, are accrued daily.
In determining the values of portfolio assets as provided below, the
Trustees utilize one or more pricing services in lieu of market quotations for
certain securities which are not readily available on a daily basis. Such
services may provide prices determined as of times prior to the close of the
NYSE.
In general, securities are valued as follows. Securities which are
listed or traded on the New York or American Stock Exchange are valued at the
price of the last quoted sale on the respective exchange for that day.
Securities which are listed or traded on a national securities exchange or
exchanges, but not on the New York or American Stock Exchange, are valued at the
price of the last quoted sale on the exchange for that day prior to the close of
the NYSE. Securities not listed on any national securities exchange which are
traded "over the counter" and for which quotations are available on the National
Association of Securities Dealers' NASDAQ System are valued at the closing price
supplied through such system for that day at the close of the NYSE. Other
securities are, in general, valued at the mean of the bid and asked quotations
last quoted prior to the close of the NYSE if there are market quotations
readily available, or in the absence of such market quotations, then at the fair
value thereof as determined by or under authority of the Trustees of the Trust
utilizing such pricing services as may be deemed appropriate. Securities deemed
restricted as to resale are valued at the fair value thereof as determined by or
in accordance with methods adopted by the Trustees of the Trust.
Short-term debt instruments issued with a maturity of one year or less
which have a remaining maturity of 60 days or less are valued using the
amortized cost method, provided that during any period in which more than 25% of
a Fund's total assets is invested in short-term debt securities the current
market value of such securities will be used in calculating net asset value per
share in lieu of the amortized cost method. The amortized cost method is used
when the value obtained is fair value. Under the amortized cost method of
valuation, the security is initially valued at cost on the date of purchase (or
in the case of short-term debt instruments purchased with more than 60 days
remaining to maturity, the market value on the 61st day prior to maturity), and
thereafter a constant amortization to maturity of any discount or premium is
assumed regardless of the impact of fluctuating interest rates on the market
value of the security.
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PORTFOLIO TRANSACTIONS
Portfolio Turnover
A Fund's portfolio turnover rate is determined by dividing the lesser
of securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The Funds' portfolio turnover rates for the fiscal years ended
June 30, 1994 and 1995, respectively, were as follows: Capital Appreciation
Fund, 147.73% and 217.28%, Equity Investment Fund, 62.93% and 47.93%, and Equity
Income Fund, 73.96% and 67.50%.
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended June 30, 1995, for the Capital Appreciation Fund was
significantly higher than that for the previous fiscal year because the unusual
market volatility during the period stimulated increased selling of portfolio
securities where it appeared that gains should be taken in a high market and
conversely, where it appeared that losses could be minimized in a down market.
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended June 30, 1995, for the Equity Investment Fund was
significantly lower than that for the previous fiscal year because the Fund's
portfolio was relatively better positioned for the then market than in prior
years.
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended June 30, 1994 for the Equity Investment Fund was significantly
lower than that for the previous fiscal year because during the year the Fund's
assets grew through net sales of new shares, thus allowing the Fund to
reposition its portfolio without selling portfolio securities.
Brokerage Allocation
The Funds and the Investment Manager seek the best overall execution of
purchase or sale orders and the most favorable net price in securities
transactions consistent with their judgment as to the business qualifications of
the various broker or dealer firms with which the Funds may do business.
Decisions with respect to the market where the transaction is to be completed,
and to the allocation of orders among brokers or dealers, are made in accordance
with this policy. In selecting brokers or dealers to effect portfolio
transactions, consideration is given to the performance, integrity and financial
responsibility of the various firms as well as to their demonstrated execution
experience and capability generally and in regard to particular markets or
securities and, in agency transactions, to the competitiveness of the commission
rates (or in principal transactions of the net prices) they charge. The
Investment Manager keeps current as to the range of rates or prices charged by
various firms and against this background evaluates the reasonableness of a
commission or price charged with respect to a particular transaction by
considering such factors as difficulty of execution or security positioning by
the executing firm.
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<PAGE>
When it appears that a number of firms can satisfy the required
standards in respect of a particular transaction, consideration may also be
given to services other than execution services which such firms have provided
in the past or may provide in the future. Among such other services are the
supplying of supplemental investment research, general economic and political
information, analytical and statistical data, relevant market information and
daily market quotations for computation of net asset value. In this connection
it should be noted that a substantial portion of brokerage commissions paid, or
principal transactions entered, by the Funds may be with brokers and investment
banking firms which, in the normal course of business, publish statistical,
research and other material which is received by the Investment Manager and
which may or may not prove useful to the Investment Manager, the Funds or other
clients of the Investment Manager.
Neither the Funds nor the Investment Manager has any definite
agreements with any firm as to the amount of business which that firm may expect
to receive for services supplied or otherwise. There may be, however,
understandings with certain firms that in order for such firms to be able to
continuously supply certain services, they need to receive allocation of a
specified amount of business. These understandings are honored to the extent
possible in accordance with the policy set forth above. Neither the Funds nor
the Investment Manager intends to pay a firm in excess of that which another
would charge for handling the same transaction in recognition of services (other
than execution services) provided. However, the Funds and the Investment Manager
are aware that this is an area where differences of opinion as to fact and
circumstances may exist, and in such circumstances, if any, rely on the
provisions of Section 28(e) of the Securities Exchange Act of 1934, to the
extent applicable. Brokerage commissions paid by the Funds for the last three
fiscal years were as follows:
Year ended June 30
1995 1994 1993
---- ---- ----
Capital Appreciation Fund $2,090,474 $1,119,166 $487,888
Equity Investment Fund $90,811 $95,640 $108,343
Equity Income Fund $175,736 $192,943 $115,242
During and at the end of its most recent fiscal year, no Fund held in
its portfolio securities of any entity that might be deemed to be a regular
broker-dealer of such Fund as defined under the 1940 Act.
Occasions may arise when the Investment Manager determines that an
investment in a particular security, or the disposition of a particular
security, is simultaneously a proper investment decision for one or more of the
Funds as well as for the portfolio of one or more of its other clients. In this
event, a purchase or sale, as the case may be, of any such security on any given
day will be normally averaged as to price and allocated as to amount among the
several clients in a manner deemed equitable to each client.
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<PAGE>
On occasions when the Investment Manager deems the purchase or sale of
a security to be in the best interests of a Fund, as well as other clients of
the Investment Manager, the Investment Manager, to the extent permitted by
applicable laws and regulations, may aggregate such securities to be sold or
purchased for the Fund with those to be sold or purchased for other customers in
order to obtain best execution and lower brokerage commissions, if any. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Investment Manager in
the manner it considers to be most equitable and consistent with its fiduciary
obligations to all such customers, including the Funds. In some instances, this
procedure may affect the price and size of the positions obtainable for the
Funds.
CERTAIN TAX MATTERS
Federal Income Taxation of the Funds -- in General
Each Fund intends to qualify and elect to be treated each taxable year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), although they cannot give complete
assurance that they will do so. Accordingly, a Fund must, among other things,
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities, (ii) options, futures, or forward contracts (other than options,
futures or forward contracts on foreign currencies), or (iii) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies (or options, futures, or forward contracts) are not directly
related to the Fund's principal business of investing in stocks or securities
(or options and futures with respect to stocks or securities); (c) satisfy
certain diversification requirements; and (d) in order to be entitled to utilize
the dividends paid deduction, distribute annually at least 90% of its investment
company taxable income (determined without regard to the deduction for dividends
paid).
The 30% test will limit the extent to which a Fund may sell securities
held for less than three months; write options which expire in less than three
months; and effect closing transactions with respect to call or put options that
have been written or purchased within the preceding three months. (If a Fund
purchases a put option for the purpose of hedging an underlying portfolio
security, the acquisition of the option is treated as a short sale of the
underlying security unless, for purposes only of the 30% test, the option and
the security are acquired on the same date.) Finally, as discussed below, this
requirement may also limit investments by a Fund in options on stock indices,
listed options on nonconvertible debt
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securities, futures contracts, options on interest rate futures contracts and
certain foreign currency contracts.
If a Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of such Fund's current or
accumulated earnings and profits. Also, the shareholders, if they received a
distribution in excess of current or accumulated earnings and profits, would
receive a return of capital that would reduce the basis of their shares of such
Fund to the extent thereof. Any distribution in excess of a shareholder's basis
in the shareholder's shares would be taxable as gain realized from the sale of
such shares.
A Fund will be liable for a nondeductible 4% excise tax on amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement. To avoid the tax, during each calendar year a Fund must distribute
an amount equal to at least 98% of the sum of its ordinary income (not taking
into account any capital gains or losses) for the calendar year, and its capital
gain net income for the 12-month period ending on October 31, in addition to any
undistributed portion of the respective balances from the prior year. Each Fund
intends to make sufficient distributions to avoid this 4% excise tax.
Federal Income Taxation of the Funds' Investments
Original Issue Discount. For federal income tax purposes, debt
securities purchased by a Fund may be treated as having original issue discount.
Original issue discount represents interest for federal income tax purposes and
can generally be defined as the excess of the stated redemption price at
maturity of a debt obligation over the issue price. Original issue discount is
treated for federal income tax purposes as income earned by a Fund, whether or
not any income is actually received, and therefore is subject to the
distribution requirements of the Code. Generally, the amount of original issue
discount is determined on the basis of a constant yield to maturity which takes
into account the compounding of accrued interest. Under section 1286 of the
Code, an investment in a stripped bond or stripped coupon may result in original
issue discount.
Debt securities may be purchased by a Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time a Fund purchases the
securities. This additional discount represents market discount for federal
income tax purposes. In the case of any debt security issued after July 18,
1984, having a fixed maturity date of more than one year from the date of issue
and having market discount, the gain realized on disposition will be treated as
interest to the extent it does not exceed the accrued market discount on the
security (unless a Fund elects to include such accrued market discount in income
in the tax year to which it is attributable). Generally, market discount is
accrued on a daily basis. A Fund may be required to capitalize, rather than
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deduct currently, part or all of any direct interest expense incurred or
continued to purchase or carry any debt security having market discount, unless
a Fund makes the election to include market discount currently. Because each
Fund must include original issue discount in income, it will be more difficult
for such Fund to make the distributions required for such Fund to maintain its
status as a regulated investment company under Subchapter M of the Code or to
avoid the 4% excise tax described above.
Options and Futures Transactions. Certain of a Fund's investments may
be subject to provisions of the Code that (i) require inclusion of unrealized
gains or losses in a Fund's income for purposes of the 90% test, the 30% test,
the excise tax and the distribution requirements applicable to regulated
investment companies; (ii) defer recognition of realized losses; and (iii)
characterize both realized and unrealized gain or loss as short-term or
long-term gain or loss. Such provisions generally apply to, among other
investments, options on debt securities, indices on securities and futures
contracts.
Federal Income Taxation of Shareholders
Dividends paid by a Fund 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.
Any dividend declared in October, November or December and made payable to
shareholders of record in any such month is treated as received by such
shareholder on December 31, provided that such Fund pays the dividend during
January of the following calendar year.
Distributions by a Fund can result in a reduction in the fair market
value of such Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless may be taxable
to the shareholder as ordinary income or long-term capital gain, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a taxable distribution will then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
DISTRIBUTION OF SHARES OF THE FUNDS
State Street Research Equity Trust (formerly, MetLife - State Street
Equity Trust) is currently comprised of the following series: State Street
Research Capital Appreciation Fund, State Street Research Equity Investment
Fund, State Street Research Equity Income Fund, and State Street Research Global
Resources Fund (formerly, MetLife - State Street Research Capital Appreciation
Fund, MetLife - State Street Research Equity Investment Fund, MetLife - State
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Street Research Equity Income Fund and State Street Research Global Energy Fund,
respectively). 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 Trustees of the
Trust have authority to issue an unlimited number of shares of beneficial
interest of separate series, $.001 par value per share. A "series" is a separate
pool of assets of the Trust which is separately managed and has a different
investment objective and different investment policies from those of another
series. The Trustees have authority, without the necessity of a shareholder
vote, to create any number of new series or classes or to commence the public
offering of shares of any previously established series or class.
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Funds. Shares of the Funds are
sold through dealers who have entered into sales agreements with the
Distributor. The Distributor distributes shares of the Funds on a continuous
basis at an offering price which is based on the net asset value per share of
the applicable Fund plus (subject to certain exceptions) a sales charge which,
at the election of the investor, may be imposed (i) at the time of purchase (the
Class A shares) or (ii) on a deferred basis (Class B and Class D shares). The
Distributor may reallow all or portions of such sales charges as concessions to
dealers.
Total sales charges on Class A shares paid to the Distributor for the
last three fiscal years were as follows:
Year ended June 30
1995 1994 1993
---- ---- ----
Capital Appreciation Fund $1,130,659 $1,714,899 $1,929,032
Equity Investment Fund $76,485 $89,774 $218,460
Equity Income Fund $97,853 $239,481 $315,990
For the same periods, the Distributor retained the following amounts
after reallowance of concessions to dealers:
Year ended June 30
1995 1994 1993
---- ---- ----
Capital Appreciation Fund $129,102 $195,517 $237,099
Equity Investment Fund $9,124 $10,445 $26,507
Equity Income Fund $11,212 $28,320 $39,133
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The differences in the price at which the Funds' Class A shares are
offered due to scheduled variations in sales charges, as described in the Funds'
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Funds or associated entities.
Where shares of the Funds are offered at a reduced sales charge or without a
sales charge pursuant to sponsored arrangements and managed fee-based programs,
the amount of the sales charge reduction will similarly reflect the anticipated
reduction in sales expenses associated with such arrangements. The reductions in
sales expenses, and therefore the reduction in sales charge, will vary depending
on factors such as the size and other characteristics of the organization or
program, and the nature of its membership or the participants. The Funds reserve
the right to make variations in, or eliminate, sales charges at any time or to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
arrangements at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission on the shares sold. Such commission also is
payable to authorized securities dealers upon sales of Class A shares made
pursuant to a Letter of Intent to purchase shares having a net asset value of
$1,000,000 or more. Shares sold with such commissions payable are subject to a
one-year contingent deferred sales charge of 1.00% on any portion of such shares
redeemed within one year following their sale. After a particular purchase of
Class A shares is made under the Letter of Intent, the commission will be paid
only in respect of that particular purchase of shares. If the Letter of Intent
is not completed, the commission paid will be deducted from any discounts or
commissions otherwise payable to such dealer in respect of shares actually sold.
If an investor is eligible to purchase shares at net asset value on account of
the Right of Accumulation, the commission will be paid only in respect of the
incremental purchase at net asset value.
For the periods shown below, the Distributor received contingent
deferred sales charges upon redemption of Class A, Class B and Class D shares of
the Funds and paid initial commissions to securities dealers for sales of such
Class A, Class B and Class D shares as follows:
35
<PAGE>
<TABLE>
<CAPTION>
June 1, 1993
(Commencement of
Fiscal Year Ended Fiscal Year Ended share class designations
June 30, 1995 June 30, 1994 to June 30, 1993
Contingent Contingent Contingent
Deferred Commissions Deferred Commissions Deferred Commissions
Sales Charges Paid to Dealers Sales Charges Paid to Dealers Sales Charges Paid to Dealers
------------- --------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Capital Appreciation Fund
Class A $ 2,653 $ 0 $ 0 $ 0 $0 $ 0
Class B $394,360 $1,033,301 $62,521 $1,424,770 $0 $80,570
Class D $ 305 $ 0 $ 148 $ 19,784 $0 $ 0
Equity Investment Fund
Class A $ 0 $ 0 $ 0 $ 0 $0 $ 0
Class B $ 18,766 $ 57,654 $ 3,372 $ 74,304 $0 $ 1,931
Class D $ 260 $ 0 $ 0 $ 586 $0 $ 0
Equity Income Fund
Class A $ 265 $ 0 $ 0 $ 0 $0 $ 0
Class B $ 50,949 $ 130,203 $ 7,538 $ 286,536 $0 $17,779
Class C $ 632 $ 0 $ 0 $ 7,655 $0 $ 0
</TABLE>
36
<PAGE>
Each Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1"
(the "Distribution Plan") under which the Funds may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of Class A, Class B and Class D shares, including, but not limited to, (1) the
payment of commissions and/or reimbursement to underwriters, securities dealers
and others engaged in the sale of shares, including payments to the Distributor
to be used to pay commissions and/or reimbursement to securities dealers (which
securities dealers may be affiliates of the Distributor) engaged in the
distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the servicing of investor accounts including expenses relating to the
formulation and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, the preparation, printing and
distribution of Prospectuses of the Funds and reports for recipients other than
existing shareholders of the Funds, and obtaining such information, analyses and
reports with respect to marketing and promotional activities and investor
accounts as the Funds may, from time to time, deem advisable, and (3)
reimbursement of expenses incurred by the Distributor in connection with the
servicing of shareholder accounts including payments to securities dealers and
others in consideration of the provision of personal service to investors and/or
the maintenance of shareholder accounts and expenses associated with the
provision of personal service by the Distributor directly to investors. In
addition, the Distribution Plan is deemed to authorize the Distributor and the
Investment Manager to make payments out of general profits, revenues or other
sources to underwriters, securities dealers and others in connection with sales
of shares, to the extent, if any, that such payments may be deemed to be within
the scope of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class D shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class D
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class D shares (as the case may be) to make payments for personal
services and/or the maintenance of shareholder accounts. Proceeds from the
service fee will be used by the Distributor to compensate securities dealers and
others selling shares of the Funds for rendering service to shareholders on an
ongoing basis. Such amounts are based on the net asset value of shares of the
Funds held by such dealers as nominee for their customers or which are owned
directly by such customers for so long as such shares are outstanding and the
Distribution Plan remains in effect with respect to the Funds. Any amounts
received by the Distributor and not so allocated may be applied by the
Distributor as reimbursement for expenses incurred in connection with the
servicing of investor accounts. The distribution and servicing expenses of a
particular class will be borne solely by that class.
37
<PAGE>
During the fiscal year ended June 30, 1995, the Funds paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Funds as follows:
Capital Appreciation Fund
<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Advertising $ 0 $ 0 $ 1,748
Printing and mailing
of prospectuses to
other than current
shareholders 0 0 558
Compensation to dealers 1,092,589 693,983 18,400
Compensation to sales
personnel 0 0 5,163
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing; general 0 0 4,064
---------- -------- -------
Total fees $1,092,589 $693,983 $29,933
========== ======== =======
</TABLE>
38
<PAGE>
Equity Investment Fund
<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Advertising $ 0 $ 0 $ 826
Printing and mailing
of prospectuses to
other than current
shareholders 0 0 264
Compensation to dealers 124,247 49,256 777
Compensation to sales
personnel 0 0 2,462
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing; general 0 0 1,919
-------- ------- ------
Total fees $124,247 $49,256 $6,248
======== ======= ======
</TABLE>
Equity Income Fund
<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Advertising $ 0 $ 0 $ 1,564
Printing and mailing
of prospectuses to
other than current
shareholders 0 0 499
Compensation to dealers 169,569 134,121 3,331
Compensation to sales
personnel 0 0 4,663
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing; general 0 0 3,635
-------- -------- -------
Total fees $169,569 $134,121 $13,692
======== ======== =======
</TABLE>
39
<PAGE>
The Distributor may have also used additional resources of its own for
further expenses on behalf of the Funds.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Funds will make alternative
arrangements for such services for shareholders who acquired shares through such
institutions.
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") and yield of
the Class A, Class B, Class C and Class D shares of the Funds will be calculated
as set forth below. Total return and yield are computed separately for each
class of shares of the Funds. Performance data for a specified class includes
periods prior to the adoption of class designations. 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.
The performance data below reflects Rule 12b-1 fees and, where
applicable, sales charges as follows:
<TABLE>
<CAPTION>
Rule 12b-1 Fees Sales Charges
Class Amount Period
<S> <C> <C> <C>
A 0.25% 0.50% until March 10, 1995; Maximum 4.5% sales charge reflected
0.25 thereafter
B 1.00% 0.50% until June 1, 1993; 1.00% 1- and 5-year periods reflect a 5% and
June 1, 1993 to present; fee will reduce a 2% contingent deferred sales charge,
performance for periods after June 1, respectively
1993
C None 0.50% until June 1, 1993; None
0% thereafter
D 1.00% 0.50% until June 1, 1993; 1.00% 1-year period reflects a 1% contingent
June 1, 1993 to present; fee will reduce deferred sales charge
performance for periods after June 1,
1993
</TABLE>
All calculations of performance data in this section reflect the
voluntary measures by the Funds' affiliates to reduce fees or expenses relating
to the Funds; see "Accrued Expenses" later in this section.
40
<PAGE>
Total Return
The Funds' average annual total returns ("standard total return") of
each class of shares were as follows:
<TABLE>
<CAPTION>
Commencement of
Operations Five Years One Year
(August 25, 1986) Ended Ended
Fund to June 30, 1995 June 30, 1995 June 30, 1995
- ---- ----------------- ------------- -------------
with subsidy without subsidy with subsidy without subsidy with subsidy without subsidy
------------ --------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Capital Appreciation
Class A 15.76% 15.28% 16.44% 16.18% 26.59% 26.34%
Class B 16.21% 15.72% 17.03% 16.17% 26.86% 26.59%
Class C 16.48% 16.00% 17.73% 17.47% 33.06% 32.79%
Class D 16.23% 15.75% 17.28% 17.02% 30.79% 30.52%
Equity Investment
Class A 10.19% N/A 8.80% N/A 13.01% N/A
Class B 10.62% N/A 9.27% N/A 12.70% N/A
Class C 10.87% N/A 10.00% N/A 18.83% N/A
Class D 10.61% N/A 9.54% N/A 16.53% N/A
Equity Income
Class A 9.23% N/A 8.63% N/A 10.90% N/A
Class B 9.63% N/A 9.08% N/A 10.43% N/A
Class C 9.89% N/A 9.83% N/A 16.64% N/A
Class D 9.62% N/A 9.34% N/A 14.33% N/A
</TABLE>
Standard total return is computed separately for each class of shares
by determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
41
<PAGE>
ERV = ending redeemable value at the end of the
designated period assuming a hypothetical
$1,000 payment made at the beginning of the
designated period
The calculation is based on the further assumptions that the maximum
initial or contingent deferred sales charge applicable to the investment is
deducted, and that all dividends and distributions by a Fund are reinvested at
net asset value on the reinvestment dates during the periods. All accrued
expenses and recurring charges are also taken into account as described later
herein.
Yield
The annualized yield of each class of shares of the Equity Income Fund
based on the month of June 1995 was as follows:
Class A 2.43%
Class B 1.76%
Class C 2.81%
Class D 1.76%
Yield for the Equity Income Fund's Class A, Class B, Class C and Class
D shares is computed by dividing the net investment income per share earned
during a recent month or other specified 30-day period by the maximum offering
price per share on the last day of the period and annualizing the result in
accordance with the following formula:
YIELD = 2[(a-b + 1)6 -1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
voluntary expense reductions by the Investment
Manager)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the
last day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, the Equity Income Fund computes the yield to maturity of each
obligation held by such Fund based on the market value of the obligation
(including actual accrued interest) at the close of the last business day of the
preceding period, or, with respect to obligations purchased during the period,
the purchase price (plus actual accrued interest). The yield to maturity is then
divided
42
<PAGE>
by 360 and the quotient is multiplied by the market value of the obligation
(including actual accrued interest) to determine the interest income on the
obligation for each day of the period that the obligation is in the portfolio.
Dividend income is recognized daily based on published rates.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("paydowns"), the Fund accounts for gain or
loss attributable to actual monthly paydowns as realized capital gain or loss
during the period. The Fund has elected not to amortize discount or premium on
such securities.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be declared as a dividend shortly thereafter. The maximum offering
price includes, as applicable, a maximum sales charge of 4.5%.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing the Equity Income Fund's
performance, but because yields fluctuate, such information cannot necessarily
be used to compare an investment in the Fund's shares with bank deposits,
savings accounts and similar investment alternatives which often are insured
and/or provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that yield is a function of the kind and quality of
the instruments in the Fund's portfolio, portfolio maturity and operating
expenses and market conditions.
Accrued Expenses
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return and yield results take sales charges, if applicable, into
account, although the results do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Funds would have been lower.
Nonstandardized Total Return
A Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class D shares for periods which end no
earlier than the most recent
43
<PAGE>
calendar quarter end and which begin twelve months before, five years before and
at the time of commencement of such Fund's operations. In addition, a Fund may
provide nonstandardized total return results for differing periods, such as for
the most recent six months, and/or without taking sales charges into account.
Such nonstandardized total return is computed as otherwise described under
"Total Return" except the result may or may not be annualized, and as noted any
applicable sales charge may not be taken into account and therefore not deducted
from the hypothetical initial payment of $1,000. For example, the Funds'
nonstandardized total returns for the six months ended June 30, 1995, without
taking sales charges into account, were as follows:
with subsidy without subsidy
------------ ---------------
Capital Appreciation Fund
Class A 20.63% 20.51%
Class B 20.30% 20.18%
Class C 20.77% 20.65%
Class D 20.13% 20.01%
Equity Investment Fund
Class A 17.85% N/A
Class B 17.51% N/A
Class C 18.08% N/A
Class D 17.52% N/A
Equity Income Fund
Class A 15.32% N/A
Class B 14.81% N/A
Class C 15.43% N/A
Class D 14.82% N/A
Distribution Rates
A Fund may also quote its distribution rate for each class of shares.
The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the maximum
offering price per share as of the end of the period to which the distribution
relates. A distribution can include gross investment income from debt
obligations purchased at a premium and in effect include a portion of the
premium paid. A distribution can also include nonrecurring, gross short-term
capital gains without recognition of any unrealized capital losses. Further, a
distribution can include income from the sale of options by a Fund even though
such option income is not considered investment income under generally accepted
accounting principles.
Because a distribution can include such premiums, capital gains and
option income, the amount of the distribution may be susceptible to control by
the Investment Manager through
44
<PAGE>
transactions designed to increase the amount of such items. Also, because the
distribution rate is calculated in part by dividing the latest distribution by
the offering price, which is based on net asset value plus any applicable sales
charge, the distribution rate will increase as the net asset value declines. A
distribution rate can be greater than the yield rate calculated as described
above.
The distribution rate of each class of the Equity Income Fund, based on
the quarter ended June 30, 1995, was as follows:
Class A 2.28%
Class B 2.05%
Class C 2.63%
Class D 2.09%
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Funds' cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Funds' investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing professional services
including (1) audits of the Funds' annual financial statements, (2) assistance
and consultation in connection with Securities and Exchange Commission filings
and (3) review of the annual income tax returns filed on behalf of the Funds.
45
<PAGE>
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a semiannual
basis, other supplementary financial reports may be made available from time to
time and holders of record may request a copy of a current supplementary report,
if any, by calling State Street Research Shareholder Services.
The following financial statements are for the Funds' fiscal year ended
June 30, 1995. On November 1, 1995, MetLife - State Street Research Capital
Appreciation Fund, MetLife - State Street Research Equity Investment Fund and
MetLife - State Street Research Equity Income Fund changed their names to "State
Street Research Capital Appreciation Fund," "State Street Research Equity
Investment Fund" and "State Street Research Equity Income Fund," respectively.
46
<PAGE>
METLIFE-STATE STREET RESEARCH CAPITAL APPRECIATION FUND
INVESTMENT PORTFOLIO
June 30, 1995
Value
Shares (Note 1)
---------- -------------
COMMON STOCKS 98.0%
Basic Industries 2.7%
Chemical 0.5%
Potash Corp. of Saskatchewan, Inc. 43,100 $ 2,408,212
-------------
Diversified 0.4%
Thermedics, Inc.* 102,750 2,003,625
-------------
Electrical Equipment 0.8%
Trimble Navigation Ltd.* 138,000 3,915,750
-------------
Machinery 1.0%
AGCO Corp.* 134,600 5,047,500
-------------
Total Basic Industries 13,375,087
-------------
Consumer Cyclical 33.7%
Airline 9.8%
AMR Corp.* 232,400 17,342,850
Delta Air Lines, Inc. 104,000 7,670,000
Northwest Airlines Corp. Cl. A* 232,000 8,207,000
Southwest Airlines Co. 235,000 5,610,625
UAL Corp.* 74,800 10,490,700
-------------
49,321,175
-------------
Automotive 2.2%
Danaher Corp. 71,200 2,153,800
Exide Corp. 190,300 8,182,900
Team Rental Group, Inc. Cl. A* 87,500 634,375
-------------
10,971,075
-------------
Hotel & Restaurant 2.2%
Doubletree Corp.* 75,400 1,625,813
Hospitality Franchise System, Inc.* 109,700 3,798,363
La Quinta Inns, Inc. 166,887 4,505,949
Station Casinos, Inc.* 64,300 1,109,175
-------------
11,039,300
-------------
Recreation 2.3%
American Radio Systems Corp.* 30,600 696,150
Anthony Industries, Inc. 74,500 1,368,938
Time Warner, Inc. 136,900 5,630,013
Trump Hotels & Casino Resorts, Inc.* 303,100 4,053,963
-------------
11,749,064
-------------
Retail Trade 12.1%
Bed Bath & Beyond, Inc.* 45,100 1,068,329
Circuit City Stores, Inc. 330,900 10,464,713
Corporate Express, Inc.* 105,000 2,244,375
General Nutrition Centers, Inc.* 68,100 2,392,013
Home Depot Inc. 113,600 4,615,000
Industrie Natuzzi SPA ADR 97,000 3,213,125
Just For Feet, Inc.* 134,700 5,371,163
Kohl's Corp.* 73,100 3,335,188
Retail Trade (cont'd)
Nine West Group, Inc.* 152,600 $ 5,569,900
Petsmart, Inc.* 74,800 2,150,500
Pier 1 Imports, Inc. 233,730 2,162,003
Sunglass Hut International, Inc.* 354,000 12,390,000
Toys 'R Us, Inc.* 85,300 2,495,025
Viking Office Products, Inc.* 78,200 2,864,075
-------------
60,335,409
-------------
Textile & Apparel 5.1%
Fila Holdings SPA ADR* 131,000 3,258,625
Men's Wearhouse, Inc.* 216,100 5,942,750
Nautica Enterprises, Inc.* 96,000 3,480,000
Tommy Hilfiger Corp.* 314,100 8,794,800
Wolverine World Wide, Inc. 186,450 3,868,838
-------------
25,345,013
-------------
Total Consumer Cyclical 168,761,036
-------------
Consumer Staple 8.5%
Business Service 3.5%
Fritz Companies, Inc.* 42,500 2,494,219
HBO & Co. 53,100 2,893,950
Medaphis Corp.* 284,900 6,196,575
Tellabs, Inc.* 121,400 5,842,375
-------------
17,427,119
-------------
Drug 1.0%
Amerisource Health Corp.* 40,500 923,906
Cephalon, Inc.* 113,400 2,097,900
Vertex Pharmaceuticals, Inc.* 119,700 1,960,088
-------------
4,981,894
-------------
Food & Beverage 0.3%
Starbucks Corp.* 50,300 1,791,938
-------------
Hospital Supply 1.8%
Coram Healthcare Corp.* 130,400 1,841,900
Health Management Associates, Inc.* 160,350 4,690,238
Horizon Healthcare Corp.* 6,700 119,763
Patterson Dental Co.* 71,700 1,702,875
Theratx, Inc.* 43,000 575,125
-------------
8,929,901
-------------
Personal Care 1.0%
Colgate-Palmolive Co. 65,700 4,804,313
-------------
Printing & Publishing 0.9%
British Sky Broadcasting Group ADR* 29,600 773,300
News Corp. Ltd. ADR 106,700 2,414,088
Scholastic Corp.* 21,800 1,182,650
-------------
4,370,038
-------------
Total Consumer Staple 42,305,203
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
METLIFE-STATE STREET RESEARCH CAPITAL APPRECIATION FUND
Value
Shares (Note 1)
---------- -------------
Finance 2.6%
Financial Service 2.6%
Countrywide Credit Industries, Inc. 120,000 $ 2,520,000
First USA, Inc. 132,800 5,893,000
Franklin Resources, Inc. 57,700 2,567,650
Charles Schwab Corp. 48,500 2,103,687
-------------
13,084,337
-------------
Total Finance 13,084,337
-------------
Science & Technology 44.9%
Aerospace 0.6%
Boeing Co. 45,800 2,868,225
-------------
Computer Software & Service 9.1%
ADFlex Solutions, Inc.* 41,000 1,004,500
Arcsys, Inc.* 23,200 788,800
Baan Co. NV* 49,000 1,512,875
Broderbund Software, Inc.* 95,700 6,100,875
CBT Group TLC ADR* 24,700 1,046,663
Cisco Systems, Inc.* 51,000 2,578,687
Computer Associates International, Inc. 62,600 4,241,150
Firefox Communications Inc. 11,400 293,550
General Motors Corp. Cl. E 106,000 4,611,000
Intuit, Inc.* 36,100 2,743,600
Maxis, Inc.* 14,600 388,725
Oracle Systems Corp.* 142,800 5,515,650
Plaintree Systems, Inc.* 63,300 664,650
SAP AG ADR*+ 90,600 3,793,875
3 Com Corp.* 36,800 2,465,600
Xilinx, Inc.* 83,300 7,830,200
-------------
45,580,400
-------------
Electronic 26.5%
Analog Devices, Inc.* 164,050 5,577,700
Applied Materials, Inc.* 101,300 8,775,113
ASM Lithography Holdings NV* 151,100 5,420,713
Brooks Automation, Inc.* 56,300 999,325
Cypress Semiconductor Corp.* 140,600 5,694,300
DSC Communications Corp.* 173,400 8,063,100
L.M. Ericsson Telephone Co. ADR Cl. B* 690,400 13,808,000
Exide Electronics Group, Inc.* 15,000 345,000
Intel Corp. 236,500 14,973,406
KLA Instruments Corp.* 68,400 5,283,900
LSI Logic Corp.* 270,600 10,587,225
Lam Research Corp.* 92,500 5,920,000
Micron Technology, Inc. 107,400 5,893,575
Novellus Systems, Inc.* 70,600 4,783,150
Oak Technology, Inc.* 76,300 2,804,025
S3, Inc.* 70,600 2,541,600
Sanmina Holdings, Inc.* 168,400 6,399,200
Electronic (cont'd)
Silicon Valley Group, Inc.* 145,100 $ 5,259,875
Teradyne, Inc.* 88,200 5,766,075
Texas Instruments, Inc. 100,600 13,467,825
-------------
132,363,107
-------------
Office Equipment 8.7%
Digital Equipment Corp.* 131,500 5,358,625
Hewlett-Packard Co. 163,200 12,158,400
International Business Machines Corp. 50,200 4,819,200
Silicon Graphics, Inc.* 157,300 6,272,338
Sun Microsystems, Inc.* 112,700 5,465,950
Telxon Corp. 238,900 5,196,075
U.S. Robotics Corp.* 40,000 4,360,000
-------------
43,630,588
-------------
Total Science & Technology 224,442,320
-------------
Utility 5.6%
Telephone 5.6%
ADC Telecommunications, Inc.* 65,600 2,345,200
Nera AS ADR* 22,500 632,813
Nokia Corp. ADR 330,100 19,682,212
Vodafone Group PLC ADR 144,800 5,484,300
-------------
28,144,525
-------------
Total Utility 28,144,525
-------------
Total Common Stocks (Cost $380,642,349) 490,112,508
-------------
Principal Maturity
Amount Date
- ---------------------------- --------- ------ ------------
COMMERCIAL PAPER 3.4%
Associates Corp. of North
America, 6.00% $3,873,000 7/7/95 3,873,000
Commercial Credit Co., 5.92% 2,130,000 7/5/95 2,130,000
Commercial Credit Co., 5.85% 2,900,000 7/3/95 2,900,000
Ford Motor Credit Co., 5.92% 8,232,000 7/5/95 8,232,000
------------
Total Commercial Paper (Cost $17,135,000) 17,135,000
------------
Total Investments (Cost $397,777,349)--101.4% 507,247,508
Cash and Other Assets, Less Liabilities--(1.4%) (6,952,674)
------------
Net Assets--100.0% $500,294,834
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
METLIFE-STATE STREET RESEARCH CAPITAL APPRECIATION FUND
INVESTMENT PORTFOLIO (cont'd)
Federal Income Tax Information:
At June 30, 1995, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $397,795,126 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost $112,598,992
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value (3,146,610)
-------------
$109,452,382
=============
* Nonincome-producing securities.
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
+ Security restricted in accordance with Rule 144A under the Securities Act
of 1933, which allows for the resale of such securities among certain
qualified institutional buyers. The total cost and market value of Rule 144A
securities owned at June 30, 1995 were $3,318,675 and $3,793,875 (0.76% of
net assets), respectively.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995
Assets
Investments, at value (Cost $397,777,349) (Note 1) $507,247,508
Cash 886
Receivable for securities sold 7,958,250
Receivable for fund shares sold 682,906
Dividends and interest receivable 294,497
Other assets 31,089
-------------
516,215,136
Liabilities
Payable for securities purchased 14,342,379
Accrued transfer agent and shareholder services
(Note 2) 510,576
Payable for fund shares redeemed 438,300
Accrued management fee (Note 2) 319,334
Accrued distribution fee (Note 5) 149,621
Accrued trustees' fees (Note 2) 21,745
Other accrued expenses 138,347
-------------
15,920,302
-------------
Net Assets $500,294,834
=============
Net Assets consist of:
Unrealized appreciation of investments $109,470,159
Accumulated net realized gain 8,649,836
Shares of beneficial interest 382,174,839
-------------
$500,294,834
=============
Net Asset Value and redemption price per share of
Class A shares ($296,471,044 / 25,734,098 shares
of beneficial interest) $11.52
=============
Maximum Offering Price per share of Class A shares
($11.52 / .955) $12.06
=============
Net Asset Value and offering price per share of
Class B shares ($93,087,833 / 8,180,895 shares of
beneficial interest) $11.38
=============
Net Asset Value, offering price and redemption
price per share of Class C shares ($106,675,237 /
9,167,910 shares of beneficial interest) $11.64
=============
Net Asset Value and offering price per share of
Class D shares ($4,060,720 / 356,027 shares of
beneficial interest)* $11.41
=============
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
<PAGE>
METLIFE-STATE STREET RESEARCH CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
For the year ended June 30, 1995
Investment Income
Dividends, net of foreign taxes of $64,531 $ 2,434,824
Interest 401,245
------------
2,836,069
Expenses
Management fee (Note 2) 3,124,753
Transfer agent and shareholder services (Note 2) 2,154,152
Custodian fee 175,009
Reports to shareholders 171,924
Registration fees 88,245
Audit fee 35,029
Trustees' fees (Note 2) 33,919
Distribution fee--Class A (Note 5) 1,092,589
Distribution fee--Class B (Note 5) 693,983
Distribution fee--Class D (Note 5) 29,933
Miscellaneous 12,920
------------
7,612,456
Expenses borne by the Distributor (Note 3) (1,056,327)
------------
6,556,129
------------
Net investment loss (3,720,060)
------------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) 12,149,840
Net unrealized appreciation of investments 111,117,329
------------
Net gain on investments 123,267,169
------------
Net increase in net assets resulting from operations $119,547,109
============
STATEMENT OF CHANGES IN NET ASSETS
Year ended June 30
----------------------------
1995 1994
---------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $ (3,720,060) $ (2,387,241)
Net realized gain on investments* 12,149,840 28,477,884
Net unrealized appreciation
(depreciation) of investments 111,117,329 (37,837,902)
----------- -------------
Net increase (decrease) resulting from
operations 119,547,109 (11,747,259)
----------- -------------
Distributions from net realized gains:
Class A (11,280,742) (25,834,464)
Class B (2,571,808) (1,417,369)
Class C (3,080,510) (5,480,030)
Class D (112,508) (103,706)
----------- -------------
(17,045,568) (32,835,569)
----------- -------------
Net increase from fund share
transactions (Note 6) 52,338,022 164,913,020
----------- -------------
Total increase in net assets 154,839,563 120,330,192
Net Assets
Beginning of year 345,455,271 225,125,079
----------- -------------
End of year $500,294,834 $345,455,271
=========== =============
* Net realized gain for Federal income
tax purposes (Note 1) $ 12,055,176 $ 28,580,457
=========== =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
METLIFE-STATE STREET RESEARCH CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1995
Note 1
MetLife-State Street Research Capital Appreciation Fund, formerly
MetLife-State Street Capital Appreciation Fund (the "Fund"), is a series of
MetLife-State Street Equity Trust (the "Trust"), which was organized as a
Massachusetts business trust in March, 1986 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Trust commenced operations in August, 1986. The Trust
consists presently of four separate funds: MetLife-State Street Research
Capital Appreciation Fund, MetLife-State Street Research Equity Investment
Fund, MetLife-State Street Research Equity Income Fund and State Street
Research Global Resources Fund.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Prior to March 10, 1995, Class A shares paid annual
distribution and service fees of 0.50% of average daily net assets.
Investments of $1 million or more in Class A shares, which are not subject to
any initial sales charge, are subject to a 1.00% contingent deferred sales
charge if redeemed within one year of purchase. Class B shares are subject to
a contingent deferred sales charge on certain redemptions made within five
years of purchase and pay annual distribution and service fees of 1.00%.
Class B shares automatically convert into Class A shares (which pay lower
ongoing expenses) at the end of eight years after the issuance of the Class B
shares. Class C shares are only offered 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 a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Values for listed securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at closing prices
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are
at the mean of the closing bid and asked quotations. Short- term securities
maturing within sixty days are valued at amortized cost. Other securities, if
any, are valued at their fair value as determined in accordance with
established methods consistently applied.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
C. Net Investment Income
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to
it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested quarterly. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly-owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.75% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended June 30, 1995, the fees pursuant to such
agreement amounted to $3,124,753.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly-owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance
of the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through
or under which shares of the Fund may be purchased. During the year ended
June 30, 1995, the amount of such shareholder servicing and account
maintenance expenses was $592,370.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $33,919 during the year ended June 30, 1995.
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the period July 1, 1994 through March 9, 1995, the amount of
such expenses assumed by the Distributor and its affiliates was $1,056,327.
On March 10, 1995, the Distributor eliminated the voluntary assumption of
fees or expenses incurred by the Fund.
<PAGE>
METLIFE-STATE STREET RESEARCH CAPITAL APPRECIATION FUND
Note 4
For the year ended June 30, 1995, purchases and sales of securities,
exclusive of short-term obligations, aggregated $918,161,732 and
$882,753,961, respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940, as amended. Under the Plan,
the Fund pays annual service fees to the Distributor at a rate of 0.25% of
average daily net assets for Class A, Class B and Class D shares. In
addition, the Fund pays annual distribution fees of 0.75% of average daily
net assets for Class B and Class D shares. Prior to March 10, 1995, the Fund
paid an annual distribution fee of 0.25% of average daily net assets for
Class A shares. The Distributor uses such payments for personal services
and/or the maintenance of shareholder accounts, to reimburse securities
dealers for distribution and marketing services, to furnish ongoing
assistance to investors and to defray a portion of its distribution and
marketing expenses. For the year ended June 30, 1995, fees pursuant to such
plan amounted to $1,092,589, $693,983 and $29,933 for Class A, Class B and
Class D, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly-owned subsidiary of Metropolitan, earned initial sales charges
aggregating $129,102 and $900,446, respectively on sales of Class A shares of
the Fund during the year ended June 30, 1995, and that MetLife Securities,
Inc. earned commissions aggregating $1,033,301 on sales of Class B shares,
and that the Distributor collected contingent deferred sales charges of
$2,653, $394,360 and $305 on redemptions of Class A, Class B and Class D
shares, respectively, during the same period.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At June 30, 1995, Metropolitan owned 57,284 Class D shares of the Fund and
the Distributor owned 7,172 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended June 30
---------------------------------------------------------------------
1995 1994
-------------------------------- ---------------------------------
Class A Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,331,406 $ 61,983,784 18,207,897 $ 185,867,255
Issued upon reinvestment of distributions from
net realized gains 1,183,334 10,907,541 2,511,269 24,821,744
Shares repurchased (7,177,882) (70,964,079) (12,975,472) (132,950,619)
-------------- -------------- -------------- ----------------
Net increase 336,858 $ 1,927,246 7,743,694 $ 77,738,380
============== ============== ============== ================
Class B Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
Shares sold 4,108,923 $ 40,145,257 5,820,801 $ 59,137,667
Issued upon reinvestment of distributions from
net realized gains 276,437 2,529,368 141,643 1,396,720
Shares repurchased (1,642,379) (16,155,301) (792,597) (8,043,910)
-------------- -------------- -------------- ----------------
Net increase 2,742,981 $ 26,519,324 5,169,847 $ 52,490,477
============== ============== ============== ================
Class C Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
Shares sold 4,381,871 $ 43,450,467 3,959,768 $ 40,501,621
Issued upon reinvestment of distributions from
net realized gains 324,761 3,010,459 553,304 5,477,791
Shares repurchased (2,379,730) (23,674,364) (1,302,865) (13,173,546)
-------------- -------------- -------------- ----------------
Net increase 2,326,902 $ 22,786,562 3,210,207 $ 32,805,866
============== ============== ============== ================
Class D Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
Shares sold 228,040 $ 2,226,133 210,497 $ 2,146,246
Issued upon reinvestment of distributions from
net realized gains 11,168 102,407 10,395 102,683
Shares repurchased (125,783) (1,223,650) (38,173) (370,632)
-------------- -------------- -------------- ----------------
Net increase 113,425 $ 1,104,890 182,719 $ 1,878,297
============== ============== ============== ================
</TABLE>
<PAGE>
METLIFE-STATE STREET RESEARCH CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each year.
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------------------- ----------------------------------
June 1, 1993
(Commencement of
Year ended June 30 Year ended June 30 of Share Class
-------------------------------------------------------- -------------------- Designations) to
1995** 1994 1993 1992 1991 1995** 1994 June 30, 1993
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 9.11 $10.42 $ 8.33 $6.55 $6.70 $ 9.05 $10.41 $10.44
Net investment loss* (.09) (.04) (.05) (.05) (.01) (.15) (.06) (.00)
Net realized and unrealized
gain (loss) on investments 2.95 .09 2.81 1.83 (.12) 2.93 .06 (.03)
Dividends from net investment
income -- -- -- -- (.01) -- -- --
Dividends in excess of net
investment income -- -- -- -- (.01) -- -- --
Distributions from net
realized gains (.45) (1.36) (.67) -- -- (.45) (1.36) --
-------- -------- -------- -------- -------- -------- -------- ----------
Net asset value, end of year $11.52 $ 9.11 $10.42 $8.33 $6.55 $11.38 $ 9.05 $10.41
======== ======== ======== ======== ======== ======== ======== ==========
Total return 32.56%+ (0.28)%+ 35.78%+ 27.03%+ (1.69)%+ 31.86%+ (0.83)%+ (0.29)%+
Net assets at end of year
(000s) $296,471 $231,356 $183,886 $116,687 $62,898 $93,088 $49,236 $2,790
Ratio of operating expenses to
average net assets* 1.55% 1.50% 1.50% 1.50% 1.50% 2.15% 2.00% 2.00%++
Ratio of net investment loss
to average net assets* (0.87)% (0.81)% (0.63)% (0.71)% (0.13)% (1.47)% (1.29)% (0.95)%++
Portfolio turnover rate 217.28% 147.73% 135.17% 128.10% 245.55% 217.28% 147.73% 135.17%
*Reflects voluntary assumption
of fees or expenses per share
in each year (Note 3). $.03 $.02 $.01 $.01 $.03 $.02 $.02 $.00
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
-------------------------------------- ---------------------------------------
June 1, 1993 June 1, 1993
(Commencement (Commencement
Year ended June 30 of Share Class Year ended June 30 of Share Class
-------------------- Designations) to ------------------- Designations) to
1995** 1994 June 30, 1993 1995** 1994 June 30, 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.16 $10.42 $10.44 $ 9.07 $10.41 $10.44
Net investment income (loss)* (.05) (.02) .00 (.15) (.07) (.01)
Net realized and unrealized gain (loss)
on investments 2.98 .12 (.02) 2.94 .09 (.02)
Distributions from net realized gains (.45) (1.36) -- (.45) (1.36) --
---------- ---------- ---------- ---------- ---------- ------------
Net asset value, end of year $11.64 $ 9.16 $10.42 $11.41 $ 9.07 $10.41
========== ========== ========== ========== ========== ============
Total return 33.06%+ 0.25%+ (0.19)%+++ 31.79%+ (0.61)%+ (0.29)%+++
Net assets at end of year (000s) $106,675 $62,662 $37,826 $4,061 $2,201 $623
Ratio of operating expenses to average
net assets* 1.15% 1.00% 1.00%++ 2.15% 2.00% 2.00%++
Ratio of net investment income (loss) to
average net assets* (0.46)% (0.30)% 0.50%++ (1.47)% (1.29)% (1.10)%++
Portfolio turnover rate 217.28% 147.73% 135.17% 217.28% 147.73% 135.17%
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $.02 $.02 $.00 $.02 $.02 $.00
</TABLE>
** Per-share figures have been calculated using the average shares method.
++ Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of MetLife-State Street
Equity Trust and the Shareholders of
MetLife-State Street Research Capital Appreciation Fund
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of MetLife-State Street
Research Capital Appreciation Fund (formerly MetLife-State Street Capital
Appreciation Fund) (a series of MetLife-State Street Equity Trust, hereafter
referred to as the "Trust") at June 30, 1995, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at June 30, 1995 by correspondence
with the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
August 4, 1995
<PAGE>
METLIFE-STATE STREET RESEARCH CAPITAL APPRECIATION FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Capital Appreciation Fund outperformed the average return for Lipper
Analytical Services' capital appreciation fund category for the 12 months
ended June 30, 1995 (does not reflect sales charge).
The Fund's strongest commitment was to technology stocks, with nearly 45% of
the portfolio divided among computer software, electronics and office
equipment stocks. Technology stocks benefited from strong earnings and
worldwide demand from consumers and industry.
The Fund added to its retail holdings late in 1994, after such stocks had
declined. Our focus is on retailers that specialize in particular market
segments.
We also sold many of our automotive holdings and built up the Fund's position
in airline stocks. We are value conscious in our stock selection, and
airlines offered excellent value after disappointing performance in 1994.
The Standard & Poor's Composite Index (S&P 500) includes 500 widely traded
common stocks and is a commonly used measure of U.S. stock market
performance. The index is unmanaged and does not take sales charges into
consideration. Direct investment in the index is not possible; results are
for illustrative purposes only. All returns represent past performance, which
is no guarantee of future results. The investment return and principal value
of an investment made in the Fund will fluctuate and shares, when redeemed,
may be worth more or less than their original cost. All returns assume
reinvestment of capital gain distributions and income dividends. Performance
for a class includes periods prior to the adoption of class designations in
1993. Performance reflects up to a maximum 4.5% front-end sales charge or 5%
contingent deferred sales charge. "C" shares, offered without a sales charge,
are available only to certain employee benefit plans and institutions.
Performance for "B" and "D" shares prior to class designations in 1993
reflects annual 12b-1 fees of .50% and subsequent performance reflects annual
12b-1 fees of 1%. Performance results for the fund are increased by the
Distributor's voluntary reduction of Fund fees and expenses. The first figure
reflects expense reduction; the second shows what results would have been
without subsidization.
Comparison Of Change In Value Of
A $10,000 Investment In Capital
Appreciation Fund and The S&P 500
[line chart] Class A Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+26.59%/+26.34% +16.44%/+16.18% +15.76%/+15.28%
Capital
Appreciation S&P
8/86 $ 9,550 $10,000
6/87 12,195 12,606
6/88 11,777 11,730
6/89 13,896 14,135
6/90 16,305 16,463
6/91 16,029 17,679
6/92 20,362 20,048
6/93 27,647 22,780
6/94 27,569 23,100
6/95 36,544 29,112
[line chart] Class B Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+26.86%/+26.59% +17.03%/+16.77% +16.21%/+15.72%
Capital
Appreciation S&P
8/86 $10,000 $10,000
6/87 12,770 12,606
6/88 12,332 11,730
6/89 14,562 14,135
6/90 17,073 16,463
6/91 16,784 17,679
6/92 21,321 20,048
6/93 28,922 22,780
6/94 28,683 23,100
6/95 37,822 29,112
[line chart] Class C Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+33.06%/+32.79% +17.73%/+17.47% +16.48%/+16.00%
Capital
Appreciation S&P
8/86 $10,000 $10,000
6/87 12,770 12,606
6/88 12,332 11,730
6/89 14,562 14,135
6/90 17,073 16,463
6/91 16,784 17,679
6/92 21,321 20,048
6/93 28,949 22,780
6/94 29,021 23,100
6/95 38,615 29,112
[line chart] Class D Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+30.79%/+30.52% +17.28%/+17.02% +16.23%/+15.75%
Capital
Appreciation S&P
8/86 $10,000 $10,000
6/87 12,770 12,606
6/88 12,332 11,730
6/89 14,562 14,135
6/90 17,073 16,463
6/91 16,784 17,679
6/92 21,321 20,048
6/93 28,922 22,780
6/94 28,745 23,100
6/95 37,883 29,112
<PAGE>
MetLife-State Street Research Equity Investment Fund
Investment Portfolio
June 30, 1995
Value
Shares (Note 1)
- --------------------------------------------- ------- ------------
COMMON STOCKS 89.8%
Basic Industries 14.8%
Chemical 5.0%
E.I. du Pont de Nemours & Co. 27,000 $ 1,856,250
Monsanto Co. 19,800 1,784,475
Rohm & Haas Co. 14,300 784,713
------------
4,425,438
------------
Diversified 1.4%
Corning Inc. 39,200 1,283,800
------------
Electrical Equipment 2.4%
General Electric Co. 37,600 2,119,700
------------
Forest Product 0.7%
Champion International Corp. 9,600 500,400
Westvaco Corp. 3,000 132,750
------------
633,150
------------
Machinery 3.5%
Caterpillar, Inc. 14,400 925,200
Fluor Corp. 19,300 1,003,600
Pall Corp. 50,900 1,132,525
------------
3,061,325
------------
Metal & Mining 0.9%
Nucor Corp. 14,800 791,800
------------
Railroad 0.9%
CSX Corp. 10,400 781,300
------------
Total Basic Industries 13,096,513
------------
Consumer Cyclical 15.2%
Automotive 1.1%
Chrysler Corp. 10,000 478,750
Magna International, Inc. Cl. A 11,000 485,375
------------
964,125
------------
Hotel & Restaurant 3.1%
Circus Circus Enterprises, Inc.* 14,300 504,075
Mirage Resorts, Inc.* 41,800 1,280,125
Promus Companies, Inc.* 23,050 898,950
------------
2,683,150
------------
Recreation 3.9%
Comcast Corp. Cl. A 10,600 192,788
Comcast Corp. Cl. A Sp. 36,900 684,956
Walt Disney Co. 22,800 1,268,250
Mattel, Inc. 28,531 741,806
Tele-Communications, Inc. Cl. A* 23,900 560,156
------------
3,447,956
------------
Retail Trade 7.1%
Home Depot, Inc. 40,800 $ 1,657,500
J.C. Penney Company, Inc. 24,400 1,171,200
Office Depot, Inc.* 15,900 447,187
Tandy Corp. 8,800 456,500
Toys "R" Us, Inc.* 24,000 702,000
Wal-Mart Stores, Inc. 67,500 1,805,625
------------
6,240,012
------------
Total Consumer Cyclical 13,335,243
------------
Consumer Staple 19.5%
Business Service 1.5%
First Data Corp. 22,900 1,302,438
------------
Drug 5.1%
American Home Products Corp. 10,800 835,650
Eli Lilly & Co. 10,900 855,650
Merck & Co. 29,800 1,460,200
Pfizer, Inc. 14,600 1,348,675
------------
4,500,175
------------
Food & Beverage 2.3%
Coca-Cola Co. 11,500 733,125
Darden Restaurants, Inc.* 39,000 424,125
PepsiCo., Inc. 19,100 871,437
------------
2,028,687
------------
Hospital Supply 6.0%
Abbott Laboratories 50,000 2,025,000
Columbia/HCA Healthcare Corp.* 18,000 778,500
Healthsource, Inc.* 8,900 311,500
Johnson & Johnson 13,000 879,125
Medtronic, Inc. 4,200 323,925
United Healthcare Corp. 24,500 1,013,688
------------
5,331,738
------------
Personal Care 2.5%
Gillette Co. 10,800 481,950
Procter & Gamble Co. 24,500 1,760,937
------------
2,242,887
------------
Tobacco 2.1%
Philip Morris Companies, Inc. 24,600 1,829,625
------------
Total Consumer Staple 17,235,550
------------
Energy 6.6%
Oil 6.0%
Exxon Corp. 23,300 1,645,562
Louisiana Land & Exploration Co. 18,800 749,650
Phillips Petroleum Co. 30,000 1,001,250
The accompanying notes are an integral part of the financial statements.
<PAGE>
Oil (cont'd)
Royal Dutch Petroleum Co. 10,600 $ 1,291,875
Total S.A. Cl. B ADR 21,800 659,450
------------
5,347,787
------------
Oil Service 0.6%
Rowan Companies, Inc.* 61,500 499,688
------------
Total Energy 5,847,475
------------
Finance 9.8%
Bank 3.4%
BankAmerica Corp. 18,200 957,775
Citicorp* 35,200 2,037,200
------------
2,994,975
------------
Financial Service 3.0%
Federal Home Loan Mortgage Corp. 17,200 1,182,500
Federal National Mortgage Association 15,400 1,453,375
------------
2,635,875
------------
Insurance 3.4%
Ace Ltd. 19,100 553,900
AMBAC Inc. 6,900 276,863
American International Group, Inc. 7,500 855,000
American Re Corp.* 20,100 748,725
Chubb Corp. 2,800 224,350
General Re Corp. 2,700 361,462
------------
3,020,300
------------
Total Finance 8,651,150
------------
Science & Technology 16.9%
Aerospace 2.8%
Boeing Co. 18,900 1,183,612
Raytheon Co. 16,500 1,280,813
------------
2,464,425
------------
Computer Software & Service 3.2%
General Motors Corp. Cl. E 20,300 883,050
Informix Corp.* 19,000 482,125
Microsoft Corp.* 11,400 1,030,275
Parametric Technology Corp.* 9,000 447,750
------------
2,843,200
------------
Electronic 4.9%
L.M. Ericsson Telephone Co. Cl. B ADR* 66,400 1,328,000
General Motors Corp. Cl. H 7,000 276,500
Intel Corp. 17,200 1,088,975
Motorola, Inc. 10,300 691,387
Perkin-Elmer Corp. 26,800 951,400
------------
4,336,262
------------
Office Equipment 6.0%
Diebold, Inc. 21,100 $ 917,850
Hewlett-Packard Co. 20,700 1,542,150
International Business Machines Corp. 12,800 1,228,800
Xerox Corp. 13,900 1,629,775
------------
5,318,575
------------
Total Science & Technology 14,962,462
------------
Utility 7.0%
Electric 1.0%
FPL Group, Inc. 21,800 842,025
------------
Telephone 6.0%
AirTouch Communications, Inc.* 42,800 1,219,800
AT&T Corp. 37,200 1,976,250
SBC Communications, Inc. 36,800 1,752,600
Tele Danmark Cl. B ADR* 12,700 355,600
------------
5,304,250
------------
Total Utility 6,146,275
------------
Total Common Stocks (Cost $64,671,426) 79,274,668
------------
Principal Maturity
Amount Date
- ------------------------------- --------- --------- -----------
CONVERTIBLE BONDS 2.6%
Equitable Company, Inc. Cv.
Sub. Deb., 6.125% $1,191,000 12/15/2024 1,256,505
Price Co. Cv. Sub. Deb., 5.50% 80,000 2/28/2012 75,000
Time Warner, Inc. Cv. Sub.
Deb., 8.75% 910,000 1/10/2015 947,538
-----------
Total Convertible Bonds (Cost $2,213,060) 2,279,043
-----------
COMMERCIAL PAPER 7.0%
Associates Corp. of North
America, 6.00% 2,517,000 7/03/1995 2,517,000
Commercial Credit Co., 5.92% 3,142,000 7/05/1995 3,142,000
Ford Motor Credit Co., 5.92% 109,000 7/03/1995 109,000
Ford Motor Credit Co., 5.90% 305,000 7/03/1995 305,000
Norwest Financial Inc., 5.90% 160,000 7/03/1995 160,000
-----------
Total Commercial Paper (Cost $6,233,000) 6,233,000
-----------
Total Investments (Cost $73,117,486)--99.4% 87,786,711
Cash and Other Assets, Less Liabilities--0.6% 522,293
-----------
Net Assets--100.0% $88,309,004
===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
MetLife-State Street Research Equity Investment Fund
Investment Portfolio (cont'd)
Federal Income Tax Information:
At June 30, 1995, the net unrealized
appreciation of investments based on cost for
Federal income tax purposes of $73,187,612 was
as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of
value over tax cost. $14,808,573
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value. (209,474)
-------------
$14,599,099
=============
* Nonincome-producing securities.
ADR stands for American Depositary Receipt, representing ownership of
foreign securities.
Statement of Assets and Liabilities
June 30, 1995
Assets
Investments, at value (Cost $73,117,486) (Note 1) $87,786,711
Cash 305
Receivable for fund shares sold 1,230,535
Dividends and interest receivable 178,010
Receivable for securities sold 92,648
Receivable from Distributor (Note 3) 33,210
Other assets 22,640
------------
89,344,059
Liabilities
Payable for securities purchased 773,909
Accrued transfer agent and shareholder services
(Note 2) 74,433
Accrued management fee (Note 2) 48,825
Payable for fund shares redeemed 43,559
Accrued distribution fee (Note 5) 12,000
Accrued trustees' fees (Note 2) 6,872
Dividends payable 2,290
Other accrued expenses 73,167
------------
1,035,055
------------
Net Assets $88,309,004
============
Net Assets consist of:
Undistributed net investment income $ 135,113
Unrealized appreciation of investments 14,669,225
Accumulated net realized gain 1,517,874
Shares of beneficial interest 71,986,792
------------
$88,309,004
============
Net Asset Value and redemption price per share of
Class A shares ($31,173,724 / 2,183,290 shares
of beneficial interest) $14.28
==========
Maximum Offering Price per share of Class A shares
($14.28 / .955) $14.95
==========
Net Asset Value and offering price per share of
Class B shares ($5,932,890 / 419,101 shares of
beneficial interest)* $14.16
==========
Net Asset Value, offering price and redemption
price per share of Class C shares ($50,503,260 /
3,540,302 shares of beneficial interest) $14.27
==========
Net Asset Value and offering price per share of
Class D shares ($699,130 / 49,409 shares of
beneficial interest)* $14.15
==========
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MetLife-State Street Research Equity Investment Fund
Statement of Operations
For the year ended June 30, 1995
Investment Income
Dividends, net of foreign taxes of $15,277 $ 1,278,500
Interest 277,147
-----------
1,555,647
Expenses
Management fee (Note 2) 486,807
Transfer agent and shareholder services (Note 2) 350,453
Custodian fee 108,497
Registration fees 62,925
Reports to shareholders 38,916
Audit fee 32,622
Trustees' fees (Note 2) 16,992
Distribution fee--Class A (Note 5) 124,247
Distribution fee--Class B (Note 5) 49,256
Distribution fee--Class D (Note 5) 6,248
Legal fees 3,935
Miscellaneous 10,251
-----------
1,291,149
Expenses borne by the Distributor (Note 3) (362,010)
-----------
929,139
-----------
Net investment income 626,508
-----------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) 1,524,460
Net unrealized appreciation of investments 11,229,657
-----------
Net gain on investments 12,754,117
-----------
Net increase in net assets resulting from operations $13,380,625
===========
Statement of Changes in Net Assets
Year ended June 30
-----------------------------
1995 1994
---------------------------------------- ------------- -------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 626,508 $ 166,051
Net realized gain on investments* 1,524,460 2,585,284
Net unrealized appreciation
(depreciation) of investments 11,229,657 (3,189,634)
------------- -------------
Net increase (decrease) resulting from
operations 13,380,625 (438,299)
------------- -------------
Dividend from net
investment income:
Class A (111,024) --
Class C (535,596) --
------------- -------------
(646,620) --
------------- -------------
Distributions from net realized gains:
Class A (778,560) (4,304,262)
Class B (112,505) (134,949)
Class C (859,567) (3,132,084)
Class D (15,072) (78,088)
------------- -------------
(1,765,704) (7,649,383)
------------- -------------
Net increase from fund share
transactions (Note 6) 9,948,321 28,597,010
------------- -------------
Total increase in net assets 20,916,622 20,509,328
Net Assets
Beginning of year 67,392,382 46,883,054
------------- -------------
End of year (including undistributed net
investment income of $135,113 and
$155,225, respectively) $ 88,309,004 $ 67,392,382
============= =============
* Net realized gain for Federal income
tax purposes (Note 1) $ 1,567,315 $ 2,585,405
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
MetLife-State Street Research Equity Investment Fund
Notes to Financial Statements
June 30, 1995
Note 1
MetLife-State Street Research Equity Investment Fund, formerly MetLife-State
Street Equity Investment Fund (the "Fund") is a series of MetLife-State
Street Equity Trust (the "Trust"), which was organized as a Massachusetts
business trust in March, 1986 and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
Trust commenced operations in August, 1986. The Trust consists presently of
four separate funds: MetLife-State Street Research Equity Investment Fund,
MetLife-State Street Research Capital Appreciation Fund, MetLife-State Street
Research Equity Income Fund and State Street Research Global Resources Fund.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Prior to March 10, 1995, Class A shares paid annual
distribution and service fees of 0.50% of average daily net assets. Class B
shares are subject to a contingent deferred sales charge on certain
redemptions made within five years of purchase and pay annual distribution
and service fees of 1.00%. Class B shares automatically convert into Class A
shares (which pay lower ongoing expenses) at the end of eight years after the
issuance of the Class B shares. Class C shares are only offered 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 a
contingent deferred sales charge of 1.00% on any shares redeemed within one
year of their purchase. Class D shares also pay annual distribution and
service fees of 1.00%. The Fund's expenses are borne pro-rata by each class,
except that each class bears expenses, and has exclusive voting rights with
respect to provisions of the Plan of Distribution, related specifically to
that class. The Trustees declare separate dividends on each class of shares.
The following significant policies are consistently followed by the Fund in
preparing its financial statements, and such policies are in conformity with
generally accepted accounting principles for investment companies.
A. Investment Valuation
Values for listed securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at closing prices
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are
at the mean of the closing bid and asked quotations. Short-term securities
maturing within sixty days are valued at amortized cost. Other securities, if
any, are valued at their fair value as determined in accordance with
established methods consistently applied.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
C. Net Investment Income
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to
it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested quarterly. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly-owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.65% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended June 30, 1995, the fees pursuant to such
agreement amounted to $486,807.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly-owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance
of the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through
or under which shares of the Fund may be purchased. During the year ended
June 30, 1995, the amount of such shareholder servicing and account
maintenance expenses was $154,664.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $16,992 during the year ended June 30, 1995.
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended June 30, 1995, the amount of such expenses
assumed by the Distributor and its affiliates was $362,010.
<PAGE>
Note 4
For the year ended June 30, 1995, purchases and sales of securities,
exclusive of short-term obligations, aggregated $40,614,076 and $33,532,680,
respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940, as amended. Under the Plan,
the Fund pays annual service fees to the Distributor at a rate of 0.25% of
average daily net assets for Class A, Class B and Class D shares. In
addition, the Fund pays annual distribution fees of 0.75% of average daily
net assets for Class B and Class D shares. Prior to March 10, 1995, the Fund
paid an annual distribution fee of 0.25% of average daily net assets for
Class A shares. The Distributor uses such payments for personal services
and/or the maintenance of shareholder accounts, to reimburse securities
dealers for distribution and marketing services, to furnish ongoing
assistance to investors and to defray a portion of its distribution and
marketing expenses. For the year ended June 30, 1995, fees pursuant to such
plan amounted to $124,247, $49,256 and $6,248 for Class A, Class B and Class
D, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly-owned subsidiary of Metropolitan, earned initial sales charges
aggregating $9,124 and $61,338, respectively on sales of Class A shares of
the Fund during the year ended June 30, 1995, and that MetLife Securities,
Inc. earned commissions aggregating $57,654 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges of $18,766
and $260 on redemptions of Class B and Class D shares, respectively during
the same period.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At June 30, 1995,
Metropolitan owned 40,952 Class D shares of the Fund and the Distributor
owned 3,603 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended June 30
---------------------------------------------------
1995 1994
----------------------- ------------------------
<S> <C> <C> <C> <C>
Class A Shares Amount Shares Amount
- -------------------------------------- -------- ----------- -------- ------------
Shares sold 348,182 $ 4,474,313 701,787 $ 9,391,518
Issued upon reinvestment of:
Distributions from net realized gains 60,210 746,003 326,568 4,203,916
Dividend from net investment income 7,369 105,228 -- --
Shares repurchased (630,567) (8,019,412) (485,491) (6,490,962)
-------- ----------- -------- ------------
Net increase (decrease) (214,806) $ (2,693,868) 542,864 $ 7,104,472
======== =========== ======== ============
Class B Shares Amount Shares Amount
- -------------------------------------- -------- ----------- -------- ------------
Shares sold 147,104 $ 1,868,350 331,579 $ 4,391,724
Issued upon reinvestment of
distributions from net realized gains 9,061 111,547 10,458 134,629
Shares repurchased (63,119) (791,085) (61,636) (856,953)
-------- ----------- -------- ------------
Net increase 93,046 $ 1,188,812 280,401 $ 3,669,400
======== =========== ======== ============
Class C Shares Amount Shares Amount
- -------------------------------------- -------- ----------- -------- ------------
Shares sold 1,589,454 $ 20,294,474 1,535,586 $20,225,914
Issued upon reinvestment of:
Distributions from net realized gains 69,042 859,569 243,304 3,132,093
Dividend from net investment income 24,036 342,993 -- --
Shares repurchased (784,881) (10,102,310) (431,626) (5,675,170)
-------- ----------- -------- ------------
Net increase (decrease) 897,651 $ 11,394,726 1,347,264 $17,682,837
======== =========== ======== ============
Class D Shares Amount Shares Amount
- -------------------------------------- -------- ----------- -------- ------------
Shares sold 5,152 $ 64,522 4,702 $ 62,348
Issued upon reinvestment of
distributions from net realized gains 1,172 14,429 6,065 77,953
Shares repurchased (1,525) (20,300) -- --
-------- ----------- -------- ------------
Net increase 4,799 $ 58,651 10,767 $ 140,301
======== =========== ======== ============
</TABLE>
<PAGE>
Financial Highlights
For a share outstanding throughout each year.
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------------- ---------------------------------
June 1, 1993
(Commencement
Year ended June 30 Year ended June 30 of Share Class
----------------------------------------------- ---------------- Designations) to
1995** 1994 1993 1992 1991 1995** 1994 June 30, 1993
- ---------------------------------------- ------ ------ ------ ------ ------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.44 $ 14.52 $ 13.16 $ 11.19 $ 12.15 $12.36 $14.51 $14.78
Net investment income (loss)* .08 .01 .04 .05 .14 .01 (.02) .00
Net realized and unrealized gain (loss)
on investments 2.14 .18 2.48 1.99 (.89) 2.12 .14 (.26)
Distributions from net investment income (.05) -- (.04) (.07) (.19) -- -- (.01)
Distributions from net realized gains (.33) (2.27) (1.12) -- (.02) (.33) (2.27) --
------ ------ ------ ------ ------- ------ ------ -------------
Net asset value, end of year $14.28 $12.44 $14.52 $13.16 $11.19 $14.16 $12.36 $14.51
====== ====== ====== ====== ======= ====== ====== =============
Total return 18.34%+ 0.93%+ 20.37%+ 18.27%+ (6.10)%+ 17.70%+ 0.37%+ (1.77)%+++
Net assets at end of year (000s) $31,174 $29,821 $26,933 $48,473 $35,733 $5,933 $4,029 $663
Ratio of operating expenses to average
net assets* 1.42% 1.50% 1.50% 1.50% 1.50% 2.00% 2.00% 2.00%++
Ratio of net investment income (loss) to
average net assets* 0.64% 0.08% 0.23% 0.43% 1.29% 0.08% (0.39)% 0.03%++
Portfolio turnover rate 47.93% 62.93% 92.35% 81.89% 72.03% 47.93% 62.93% 92.35%
*Reflects voluntary assumption of fees
or expenses per share in each year
(Note 3). $.06 $.04 $.02 $.02 $.03 $.06 $.04 $.00
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
--------------------------------------- ----------------------------------------
June 1, 1993 June 1, 1993
(Commencement (Commencement
Year ended June 30 of Share Class Year ended June 30 of Share Class
------------------ Designations) to ------------------ Designations) to
1995** 1994 June 30, 1993 1995** 1994 June 30, 1993
- ----------------------------------------- ------- ------- ----------------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.48 $14.51 $14.78 $12.36 $14.51 $14.78
Net investment income (loss)* .14 .07 (.00) .01 (.05) .00
Net realized and unrealized gain (loss)
on investments 2.15 .17 (.25) 2.11 .17 (.26)
Dividends from net investment income (.17) -- (.02) -- -- (.01)
Distributions from net realized gains (.33) (2.27) -- (.33) (2.27) --
------- ------- ----------------- ------- ------- ------------------
Net asset value, end of year $14.27 $12.48 $14.51 $14.15 $12.36 $14.51
======= ======= ================= ======= ======= ==================
Total return 18.83%+ 1.41%+ (1.69)%+++ 17.53%+ 0.45%+ (1.77)%+++
Net assets at end of year (000s) $50,503 $32,991 $18,796 $699 $551 $491
Ratio of operating expenses to
average net assets* 1.00% 1.00% 1.00%++ 2.00% 2.00% 2.00%++
Ratio of net investment income (loss) to
average net assets* 1.09% 0.59% (0.39)%++ 0.08% (0.41)% 0.12%++
Portfolio turnover rate 47.93% 62.93% 92.35% 47.93% 62.93% 92.35%
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $.06 $.06 $.00 $.06 $.06 $.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
<PAGE>
Report of Independent Accountants
To the Trustees of MetLife-State Street
Equity Trust and the Shareholders of
MetLife-State Street Research Equity Investment Fund
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of MetLife-State Street
Research Equity Investment Fund (formerly MetLife-State Street Equity
Investment Fund) (a series of MetLife-State Street Equity Trust, hereafter
referred to as the "Trust") at June 30, 1995, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at June 30, 1995 by correspondence
with the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
August 4, 1995
<PAGE>
MetLife-State Street Research Equity Investment Fund
Management's Discussion of Fund Performance
Equity Investment Fund trailed the average total return for Lipper Analytical
Services' growth and income fund category for the 12 months ended June 30,
1995 (does not reflect sales charge).
We have worked to improve the quality and consistency of the Fund's portfolio
over time. In many industries, we sold smaller or more volatile stocks and
replaced them with larger-company stocks. We also added more income to the
portfolio by adding larger, dividend-paying stocks and by investing in
convertible bonds.
In response to the slowing economy, we reduced the Fund's holdings in
cyclical stocks, particularly in automotive, recreation (TV and broadcasting)
and retail stocks. However, because of their attractive prospects, we added
to holdings in gaming and forest products stocks. We also targeted stocks we
believe offer potential even if the economy slows, such as drug stocks.
The decline in interest rates in 1995 benefited most finance stocks and we
sold some of our holdings. Bank stocks performed particularly well. Insurance
stocks did not perform as well.
The Standard & Poor's 500 Composite Index (S&P 500) includes 500
widely-traded common stocks and is a commonly used measure of U.S. stock
market performance. The index is unmanaged and does not take sales charges
into consideration. Direct investment in the index is not possible; results
are for illustrative purposes only.
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends.
Performance for a class includes periods prior to the adoption of class
designations in 1993. Performance reflects up to a maximum 4.5% front-end
sales charge or 5% contingent deferred sales charge. "C" shares, offered
without a sales charge, are available only to certain employee benefit plans
and institutions. Performance for "B" and "D" shares prior to class
designations in 1993 reflects annual 12b-1 fees of .50% and subsequent
performance reflects annual 12b-1 fees of 1%.
Comparison Of Change In Value Of
A $10,000 Investment In Equity
Investment Fund and The S&P 500
Class A Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+13.01% +8.80% +10.19%
8/86 9550 10000
6/87 11760.1 12605.6
6/88 10952.5 11730.2
6/89 12690.4 14135.1
6/90 14789 16462.6
6/91 13887.3 17678.8
6/92 16423.8 20048.4
6/93 19769.4 22779.9
6/94 19953.5 23099.6
6/95 23612.3 29112.4
Class B
Average Annual Total Return
1 Year 5 Years Life of Fund
+12.70% +9.27% +10.62%
8/86 10000 10000
6/87 12314.2 12605.6
6/88 11468.5 11730.2
6/89 13288.4 14135.1
6/90 15485.9 16462.6
6/91 14541.7 17678.8
6/92 17197.7 20048.4
6/93 20685.3 22779.9
6/94 20761.2 23099.6
6/95 24436.3 29112.4
Class C
Average Annual Total Return
1 Year 5 Years Life of Fund
+18.83% +10.00% +10.87%
8/86 10000 10000
6/87 12314.2 12605.6
6/88 11468.5 11730.2
6/89 13288.4 14135.1
6/90 15485.9 16462.6
6/91 14541.7 17678.8
6/92 17197.7 20048.4
6/93 20700.9 22779.9
6/94 20991.8 23099.6
6/95 24945.1 29112.4
Class D
Average Annual Total Return
1 Year 5 Years Life of Fund
+16.53% +9.54% +10.61%
8/86 10000 10000
6/87 12314.2 12605.6
6/88 11468.5 11730.2
6/89 13288.4 14135.1
6/90 15485.9 16462.6
6/91 14541.7 17678.8
6/92 17197.7 20048.4
6/93 20683.8 22779.9
6/94 20776.6 23099.6
6/95 24417.9 29112.4
[Key to charts:
solid line = Equity Investment Fund
dashed line = S&P 500]
<PAGE>
MetLife-State Street Research Equity Income Fund
Investment Portfolio
June 30, 1995
Value
Shares (Note 1)
- ---------------------------------------------- --------- ----------
Common Stocks 70.6%
Basic Industries 21.2%
Chemical 8.6%
Atlantic Richfield Co. 87,600 $ 2,277,600
E.I. du Pont de Nemours and Co. 3,500 240,625
FMC Corp.* 24,000 1,614,000
Monsanto Co. 8,400 757,050
Potash Corp. of Saskatchewan, Inc. 29,000 1,620,375
PPG Industries, Inc. 13,000 559,000
Rohm & Haas Co. 11,100 609,113
----------
7,677,763
----------
Diversified 2.6%
Coltec Industries, Inc.* 49,000 845,250
Corning, Inc. 25,000 818,750
Johnson Controls, Inc. 12,000 678,000
----------
2,342,000
----------
Forest Product 2.3%
Bowater, Inc. 11,200 502,600
Champion International Corp. 13,300 693,262
James River Corp. 10,000 276,250
Westvaco Corp. 14,000 619,500
----------
2,091,612
----------
Machinery 3.7%
CBI Industries, Inc. 63,100 1,585,388
Cincinnati Milacron, Inc. 9,000 243,000
Cooper Industries, Inc. 4,000 158,000
Harsco Corp. 4,000 211,000
Sundstrand Corp. 19,000 1,135,250
----------
3,332,638
----------
Metal & Mining 3.9%
Alumax, Inc.* 20,000 622,500
Cyprus Amax Minerals Co. 53,000 1,510,500
Quanex Corp.* 40,000 990,000
Timken Co. 9,000 415,125
----------
3,538,125
----------
Railroad 0.1%
Southern Pacific Rail Corp.* 3,000 47,250
----------
Total Basic Industries 19,029,388
----------
Consumer Cyclical 11.5%
Automotive 2.5%
Exide Corp. 20,000 860,000
Lear Seating Corp.* 60,000 1,372,500
----------
2,232,500
----------
Building 0.5%
Fleetwood Enterprises Inc. 23,000 454,250
----------
Hotel & Restaurant 0.1%
Motels of America, Inc.+* 500 $ 35,000
----------
Recreation 0.0%
Pyramid Communications, Inc. Cl. B+* 525 23,550
----------
Retail Trade 8.4%
Federated Department Stores 14,100 363,075
Finlay Enterprises, Inc. Cl. A* 667 9,421
May Department Stores Co. 10,000 416,250
Penn Traffic Co.* 23,800 841,925
J.C. Penney, Inc. 29,800 1,430,400
Stop & Shop Cos., Inc.* 39,600 1,014,750
Tandy Corp. 28,000 1,452,500
Vons Companies, Inc.* 2,500 50,313
Woolworth Corp. 130,800 1,978,350
----------
7,556,984
----------
Total Consumer Cyclical 10,302,284
----------
Consumer Staple 4.0%
Business Service 0.1%
Vestar/LPA Investment Corp.+* 3,125 46,875
----------
Container 0.7%
Ball Corp. 18,300 638,213
----------
Drug 0.5%
Merck & Company, Inc. 9,200 450,800
----------
Food & Beverage 1.6%
Coca-Cola Enterprises, Inc. 60,000 1,312,500
Darden Restaurants, Inc.* 7,000 76,125
----------
1,388,625
----------
Printing & Publishing 1.1%
American Greetings Corp. Cl. A 15,500 455,313
Deluxe Corp. 15,000 496,875
Dimac Corp.* 4,756 71,340
----------
1,023,528
----------
Total Consumer Staple 3,548,041
----------
Energy 5.8%
Oil 5.8%
Crystal Oil Corp.* 4,200 129,150
Louisiana Land & Exploration Co. 46,600 1,858,175
Mitchell Energy & Development Corp. Cl. B 18,000 321,750
Oryx Energy Co.* 9,100 125,125
Phillips Petroleum Co. 38,200 1,274,925
Tosco Corp. 45,000 1,434,375
Ultramar Corp. 3,600 90,900
----------
5,234,400
----------
Total Energy 5,234,400
----------
The accompanying notes are an integral part of the financial statements.
<PAGE>
MetLife-State Street Research Equity Income Fund
Value
Shares (Note 1)
- ---------------------------------------------- --------- ----------
Finance 9.6%
Bank 0.6%
Chase Manhattan Corp. 5,000 $ 235,000
Mellon Bank Corp. 6,600 274,725
West One Bancorp 1,000 33,375
----------
543,100
----------
Financial Service 2.6%
Federal Home Loan Mortgage Corp. 25,000 1,718,750
Federal National Mortgage Association 7,000 660,625
----------
2,379,375
----------
Insurance 6.4%
Ace, Ltd. 38,100 1,104,900
AMBAC Industries, Inc. 21,900 878,738
American Re Corp.* 39,600 1,475,100
Mid Ocean Ltd.* 30,000 948,750
Progressive Corp. 7,000 268,625
Safeco Corp. 18,000 1,033,875
----------
5,709,988
----------
Total Finance 8,632,463
----------
Science & Technology 13.4%
Aerospace 3.9%
Boeing Co. 30,000 1,878,750
Honeywell, Inc. 18,100 780,563
Sequa Corp. Cl. A 30,000 877,500
----------
3,536,813
----------
Computer Software & Service 3.0%
Computervision Corp. 400,000 2,650,000
----------
Electronic 6.3%
AMP, Inc. 24,600 1,039,350
Perkin-Elmer Corp. 50,000 1,775,000
Tektronix, Inc. 42,000 2,068,500
Thomas & Betts Corp. 10,900 745,288
----------
5,628,138
----------
Office Equipment 0.2%
Diebold, Inc. 4,300 187,050
----------
Total Science & Technology 12,002,001
----------
Utility 5.1%
Natural Gas 3.6%
Coastal Corp. 13,000 394,875
ENSERCH Corp. 120,400 2,061,850
Trans Texas Gas Corp.* 49,100 742,638
----------
3,199,363
----------
Telephone 1.5%
Sprint Corp. 38,000 $ 1,320,500
----------
Total Utility 4,519,863
----------
Total Common Stocks (Cost $53,854,476) 63,268,440
----------
PREFERRED STOCKS & OTHER 13.4%
Anacomp, Inc. Wts.* 908,099 340,537
Ashland Oil Inc. Cum. Cv. Pfd. 18,000 1,037,250
Boomtown, Inc. Wts.* 250 125
Color Tile, Inc. Pfd.* 10,000 30,000
Crown Packaging Holdings Ltd. Wts.*+ 2,000 42,500
Food 4 Less Supermarkets, Inc. Wts.*++ 1,344 50,064
Ford Motor Co. Cum. Cv. Pfd. A 15,000 1,456,875
Lewis Galoob Toys, Inc. Cv. Exch. Pfd.* 62,000 1,085,000
Geneva Steel Co. Series B Exch. Pfd.* 4,000 368,000
Granite Broadcasting Corp. Cum. Cv. Exch. Pfd.* 68,000 2,890,000
Kaiser Aluminum Corp. Cv. Pfd. 37,500 506,250
Kaiser Aluminum Corp. Series A Pfd. 58,300 561,138
La Petite Holdings Co. Cum. Exch. Pfd.* 45,000 832,500
PageMart, Inc. Wts.*+ 3,450 13,800
Pyramid Communications, Inc. Pfd.+ 16,434 410,856
SDW Holdings Corp. Wts.*+ 27,000 162,000
S.D. Warren Co. Series B Sr. Exch. Pfd.[diamond] 27,000 756,000
Sheffield Steel Corp. Wts.* 2,500 7,500
Supermarkets General Holding Corp. Exch.
Pfd.[diamond] 55,000 1,485,000
----------
Total Preferred Stocks (Cost $11,604,478) 12,035,395
----------
Principal Maturity
Amount Date
- ---------------------------------- --------- --------- ----------
CONVERTIBLE BONDS 3.0%
Anacomp International N.V. Cv.
Sub. Deb., 9.00% $650,000 1/15/1996 331,500
Rohr, Inc. Cv. Sub. Note, 7.75% 650,000 5/15/2004 949,000
West One Bancorp. Cv. Sub. Deb.,
7.75% 840,000 6/30/2006 1,428,000
----------
Total Convertible Bonds (Cost $2,122,649) 2,708,500
----------
NON-CONVERTIBLE BONDS 12.6%
Anacomp Inc. Sr. Sub. Note, 15.00% 250,000 11/01/2000 192,500
Bayou Steel Corp. First Mortgage
Note, 10.25% 150,000 3/01/2001 139,500
Belle Casinos, Inc. First Mortgage
Notes, 12.00%+[open box] 175,000 10/15/2000 52,500
Boomtown, Inc. First Mortgage
Note, 11.50% 250,000 11/01/2003 220,000
Celcaribe S.A. Units, 0.00% to
3/14/98, 13.50% from 3/15/98 to
maturity+ 43,000 3/15/2004 365,500
The accompanying notes are an integral part of the financial statements.
<PAGE>
MetLife-State Street Research Equity Income Fund
Investment Portfolio (cont'd)
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------- --------- --------- ----------
Non-Convertible Bonds (cont'd)
Computervision Corp. Sr. Sub.
Notes, 11.375% $ 250,000 8/15/1999 $ 230,000
Crown Packaging Holdings Ltd. Sr.
Sub. Notes, 0.00% to 10/31/2000,
12.25% from 11/1/2000 to maturity 2,000,000 11/01/2003 915,000
Dual Drilling Co. Sr. Sub. Notes,
9.875% 400,000 1/15/2004 374,500
Finlay Enterprises, Inc. Sr.
Disc. Deb., 0.00% to 4/30/98,
12.00% from 5/1/98 to maturity 250,000 5/01/2005 165,000
Granite Broadcasting Corp. Sr.
Sub. Deb., 12.75% 500,000 9/01/2002 537,500
Haynes International, Inc. Sr.
Sec. Notes, 11.25% 800,000 6/15/1998 759,200
Heartland Wireless
Communications, Inc. Units,
13.00%+ 250,000 4/15/2003 264,375
Horsehead Industries Sub. Note,
14.00% 250,000 6/01/1999 255,625
Marcus Cable Capital Co. Sr.
Disc. Note, 0.00% to 7/31/99,
13.50% from 8/1/99 to maturity 100,000 8/01/2004 63,250
Motels of America, Inc. Sr. Sub.
Notes, 12.00% 500,000 4/15/2004 502,500
PageMart, Inc. Sr. Disc. Notes,
0.00% to 10/31/98, 12.25% from
11/1/98 to maturity 750,000 11/01/2003 474,375
PageMart Nationwide, Inc. Units,
0.00% to 1/31/2000, 15.00% from
2/1/2000 to maturity+ 500,000 2/01/2005 301,250
Presidio Oil Co. Sr. Sub. Indexed
Notes, 14.05%[open box] 400,000 7/15/2002 360,000
Presidio Oil Co. Sr. Sec. Notes,
11.50%[open box] 650,000 9/15/2000 617,500
Ralphs Grocery Co. Sr. Note,
10.45% 1,000,000 6/15/2004 1,000,000
Seven-Up/RC Bottling Co. of
Southern California, Inc., 11.50% 250,000 8/01/1999 220,000
Sheffield Steel Corp. First
Mortgage Note, 12.00% 500,000 11/01/2001 470,000
Sullivan Graphics, Inc., 15.00% 650,000 2/01/2001 689,000
U.S.A. Mobile Communications,
Inc. Sr. Notes, 14.00% $ 750,000 11/01/2004 $ 832,500
Viatel, Inc. Sr. Disc. Units,
0.00% to 1/14/2000, 15.00% from
1/15/2000 to maturity+ 75,000 1/15/2005 487,500
Wilrig A.S. Sr. Sec. Notes,
11.25% 750,000 3/15/2004 772,500
----------
Total Non-Convertible Bonds (Cost $11,496,505) 11,261,575
----------
COMMERCIAL PAPER 1.1%
American Express Credit Corp.,
5.85% 458,000 7/05/1995 458,000
American Express Credit Corp.,
5.80% 440,000 7/06/1995 440,000
Household Finance Corp., 5.95% 102,000 7/10/1995 102,000
----------
Total Commercial Paper (Cost $1,000,000) 1,000,000
----------
Total Investments (Cost $80,078,108)--100.7% 90,273,910
Cash and Other Assets, Less Liabilities--(0.7)% (623,896)
----------
Net Assets--100.0% $89,650,014
==========
Federal Income Tax Information:
At June 30, 1995, the net unrealized appreciation of
investments based on cost for Federal income tax purposes
of $80,130,888 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over tax
cost $13,543,345
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost over
value (3,400,323)
----------
$10,143,022
==========
* Nonincome-producing securities.
[diamond] Payments of income may be made in cash or in the form of additional
securities.
++ Security valued under consistently applied procedures established by the
Trustees. Security restricted as to public resale. At June 30, 1995, there
were no outstanding unrestricted securities of the same class as those held.
The total cost and market value of restricted securities owned at June 30,
1995 was $0 and $50,064 (0.1% of net assets), respectively.
+ Security restricted in accordance with Rule 144A under the Securities Act
of 1933, which allows for the resale of such securities among certain
qualified institutional buyers. The total cost and market value of Rule 144A
securities owned at June 30, 1995 was $2,124,525 and $2,205,706 (2.5% of net
assets), respectively.
[open box] Security is in default.
The accompanying note are an integral part of the financial statements.
<PAGE>
MetLife-State Street Research Equity Income Fund
Statement of Assets and Liabilities
June 30, 1995
Assets
Investments, at value (Cost $80,078,108) (Note 1) $90,273,910
Cash 3,367
Receivable for securities sold 1,786,405
Dividends and interest receivable 407,754
Receivable for fund shares sold 43,467
Receivable from Distributor (Note 3) 38,622
Other assets 943
------------
92,554,468
Liabilities
Payable for securities purchased 2,548,321
Accrued transfer agent and shareholder services
(Note 2) 86,325
Payable for fund shares redeemed 59,723
Accrued management fee (Note 2) 50,234
Dividends payable 34,823
Accrued distribution fee (Note 5) 24,012
Accrued trustees' fees (Note 2) 6,730
Other accrued expenses 94,286
------------
2,904,454
------------
Net Assets $89,650,014
============
Net Assets consist of:
Undistributed net investment income $ 322,548
Unrealized appreciation of investments 10,195,802
Accumulated net realized gain 1,165,002
Shares of beneficial interest 77,966,662
------------
$89,650,014
============
Net Asset Value and redemption price per share of
Class A shares ($37,327,119 / 3,189,399 shares of
beneficial interest) $11.70
============
Maximum Offering Price per share of Class A shares
($11.70 / .955) $12.25
============
Net Asset Value and offering price per share of
Class B shares ($16,130,232 / 1,381,341 shares of
beneficial interest)* $11.68
============
Net Asset Value, offering price and redemption
price per share of Class C shares ($34,827,097 /
2,977,684 shares of beneficial interest) $11.70
============
Net Asset Value and offering price per share of
Class D shares ($1,365,566 / 116,997 shares of
beneficial interest)* $11.67
============
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
Statement of Operations
For the year ended June 30, 1995
Investment Income
Dividends, net of foreign taxes of $13,689 $ 1,446,184
Interest 1,731,840
------------
3,178,024
Expenses
Management fee (Note 2) 521,730
Transfer agent and shareholder services (Note 2) 347,078
Custodian fee 120,859
Registration fees 48,026
Reports to shareholders 39,974
Audit fee 32,294
Trustees' fees (Note 2) 15,303
Distribution fee--Class A (Note 5) 169,569
Distribution fee--Class B (Note 5) 134,121
Distribution fee--Class D (Note 5) 13,692
Legal fees 4,299
Miscellaneous 9,867
------------
1,456,812
Expenses borne by the Distributor (Note 3) (333,725)
------------
1,123,087
------------
Net investment income 2,054,937
------------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) 1,155,735
Net unrealized appreciation of investments 9,032,370
------------
Net gain on investments 10,188,105
------------
Net increase in net assets resulting from operations $12,243,042
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
MetLife-State Street Research Equity Income Fund
Statement of Changes in Net Assets
Year ended June 30
---------------------------
1995 1994
- ------------------------------------- ----------- ------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 2,054,937 $ 1,597,466
Net realized gain on investments* 1,155,735 4,575,566
Net unrealized appreciation
(depreciation) of investments 9,032,370 (4,848,144)
----------- ------------
Net increase resulting from
operations 12,243,042 1,324,888
----------- ------------
Dividend from net investment income:
Class A (984,856) (879,098)
Class B (285,324) (103,663)
Class C (808,655) (513,407)
Class D (28,201) (16,964)
----------- ------------
(2,107,036) (1,513,132)
----------- ------------
Distributions from net realized gains:
Class A (2,006,103) (508,404)
Class B (563,723) (61,922)
Class C (1,043,962) (225,556)
Class D (63,626) (11,728)
----------- ------------
(3,677,414) (807,610)
----------- ------------
Net increase from fund share
transactions (Note 6) 10,409,654 27,105,811
----------- ------------
Total increase in net assets 16,868,246 26,109,957
Net Assets
Beginning of year 72,781,768 46,671,811
----------- ------------
End of year (including undistributed
net investment income of $322,548
and $374,647, respectively) $ 89,650,014 $ 72,781,768
=========== ============
* Net realized gain for Federal
income tax purposes (Note 1) $ 1,208,383 $ 4,553,748
=========== ============
The accompanying notes are an integral part of the financial statements.
Notes to Financial Statements
June 30, 1995
Note 1
MetLife-State Street Research Equity Income Fund, formerly MetLife-State
Street Equity Income Fund (the "Fund") is a series of MetLife-State Street
Equity Trust (the "Trust"), which was organized as a Massachusetts business
trust in March, 1986 and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The Trust
commenced operations in August, 1986. The Trust consists presently of four
separate funds: MetLife-State Street Research Equity Income Fund,
MetLife-State Street Research Capital Appreciation Fund, MetLife-State Street
Research Equity Investment Fund and State Street Research Global Resources
Fund.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Prior to March 10, 1995, Class A shares paid annual
distribution and service fees of 0.50% of average daily net assets.
Investments of $1 million or more in Class A shares, which are not subject to
any initial sales charge, are subject to a 1.00% contingent deferred sales
charge if redeemed within one year of purchase. Class B shares are subject to
a contingent deferred sales charge on certain redemptions made within five
years of purchase and pay annual distribution and service fees of 1.00%.
Class B shares automatically convert into Class A shares (which pay lower
ongoing expenses) at the end of eight years after the issuance of the Class B
shares. Class C shares are only offered 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 a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Values for listed securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at closing prices
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are
at the mean of the closing bid and asked quotations. Fixed income securities
are valued by a pricing service, approved by the Trustees, which utilizes
market transactions, quotations from dealers, and various relationships among
securities in determining value. Short-term securities maturing within sixty
days are valued at amortized cost. Other securities, if any, are valued at
their fair value as determined in accordance with established methods
consistently applied.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MetLife-State Street Research Equity Income Fund
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
C. Net Investment Income
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. Discount on debt obligations is amortized under the effective
yield method. Certain preferred securities held by the Fund pay dividends in the
form of additional securities (payment-in-kind securities). Dividend income on
payment-in-kind preferred securities is recorded at the market value of
securities received. Differences between the market value of securities received
and the corresponding amounts of income accrued are recorded as adjustments to
income. The Fund is charged for expenses directly attributable to it, while
indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually,
unless additional distributions are required for compliance with applicable
tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly-owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.65% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended June 30, 1995, the fees pursuant to such
agreement amounted to $521,730.
State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly-owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the year ended June 30,
1995, the amount of such shareholder servicing and account maintenance expenses
was $152,719.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $15,303 during the year ended June 30, 1995.
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended June 30, 1995, the amount of such expenses
assumed by the Distributor and its affiliates was $333,725.
Note 4
For the year ended June 30, 1995, purchases and sales of securities,
exclusive of short-term obligations, aggregated $60,348,734 and $52,696,221,
respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940, as amended. Under the Plan,
the Fund pays annual service fees to the Distributor at a rate of 0.25% of
average daily net assets for Class A, Class B and Class D shares. In
addition, the Fund pays annual distribution fees of 0.75% of average daily
net assets for Class B and Class D shares. Prior to March 10, 1995, the Fund
paid an annual distribution fee of 0.25% of average daily net assets for
Class A shares. The Distributor uses such payments for personal services
and/or the maintenance of shareholder accounts, to reimburse securities
dealers for distribution and marketing services, to furnish ongoing
assistance to investors and to defray a portion of its distribution and
marketing expenses. For the year ended June 30, 1995, fees pursuant to such
plan amounted to $169,569, $134,121 and $13,692 for Class A, Class B and
Class D, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly-owned subsidiary of Metropolitan, earned initial sales charges
aggregating $11,212 and $72,165, respectively, on sales of shares of Class A
shares of the Fund during the year ended June 30, 1995, and that MetLife
Securities, Inc. earned commissions aggregating $130,203 on sales of Class B
shares, and that the Distributor collected contingent deferred sales charges
of $265, $50,949 and $632 on redemptions of Class A, Class B and Class D
shares, respectively during the same period.
<PAGE>
MetLife-State Street Research Equity Income Fund
Notes (cont'd)
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At June 30, 1995,
Metropolitan owned 49,237 Class D shares of the Fund and the Distributor
owned 3,614 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended June 30
---------------------------------------------------------------
1995 1994
----------------------------- ------------------------------
Class A Shares Amount Shares Amount
- -------------------------------------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 398,649 $ 4,285,947 1,584,700 $18,024,978
Issued upon reinvestment of:
Distributions from net realized gains 179,249 1,907,857 40,997 476,381
Dividends from net investment income 82,151 897,184 71,938 812,948
Shares repurchased (1,195,595) (12,867,093) (659,533) (7,545,419)
------------ ------------ ------------ --------------
Net increase (decrease) (535,546) $ (5,776,105) 1,038,102 $11,768,888
============ ============ ============ ==============
Class B Shares Amount Shares Amount
- -------------------------------------------- ------------ ------------ ------------ --------------
Shares sold 532,548 $ 5,717,454 988,855 $11,262,723
Issued upon reinvestment of:
Distributions from net realized gains 48,954 520,771 5,001 58,066
Dividends from net investment income 23,498 257,756 8,247 91,949
Shares repurchased (213,874) (2,294,678) (110,124) (1,236,154)
------------ ------------ ------------ --------------
Net increase 391,126 $ 4,201,303 891,979 $10,176,584
============ ============ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Class C Shares Amount Shares Amount
- -------------------------------------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 1,452,407 $15,677,247 817,270 $ 9,352,116
Issued upon reinvestment of:
Distributions from net realized gains 98,117 1,043,974 19,415 225,406
Dividends from net investment income 73,413 806,458 45,182 509,180
Shares repurchased (512,040) (5,526,511) (498,017) (5,610,959)
------------ ------------ ------------ --------------
Net increase 1,111,897 $12,001,168 383,850 $ 4,475,743
============ ============ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Class D Shares Amount Shares Amount
- -------------------------------------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 24,855 $ 265,512 71,712 $ 819,093
Issued upon reinvestment of:
Distributions from net realized gains 5,541 58,959 857 9,945
Dividends from net investment income 1,154 12,472 540 6,076
Shares repurchased (32,405) (353,655) (13,472) (150,518)
------------ ------------ ------------ --------------
Net increase (decrease) (855) $ (16,712) 59,637 $ 684,596
============ ============ ============ ==============
</TABLE>
<PAGE>
Financial Highlights
For a share outstanding throughout each year.
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------------- ---------------------------------
June 1, 1993
(Commencement of
Year ended June 30 Year ended June 30 Share Class
----------------------------------------------- ---------------- Designations) to
1995** 1994 1993 1992 1991 1995** 1994 June 30, 1993
- ---------------------------------------- ------ ------ ------ ------ ------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.87 $10.79 $9.19 $8.33 $9.83 $10.86 $10.79 $10.81
Net investment income* .28 .24 .44 .39 .45 .21 .21 .02
Net realized and unrealized gain
(loss) on investments 1.37 .25 1.52 .83 (1.08) 1.38 .21 (.02)
Dividends from net investment income (.28) (.26) (.36) (.36) (.48) (.23) (.20) (.02)
Distributions from net realized gains (.54) (.15) -- -- (.39) (.54) (.15) --
------ ------ ------ ------ ------- ------ ------ -------------
Net asset value, end of year $11.70 $10.87 $10.79 $9.19 $8.33 $11.68 $10.86 $10.79
====== ====== ====== ====== ======= ====== ====== =============
Total return 16.12%+ 4.30%+ 21.64%+ 14.81%+ (6.51)%+ 15.43%+ 3.79%+ 0.05%+++
Net assets at end of year (000s) $37,327 $40,484 $28,995 $51,585 $45,233 $16,130 $10,752 $1,060
Ratio of operating expenses to average
net assets* 1.42% 1.50% 1.50% 1.50% 1.50% 2.00% 2.00% 2.00%++
Ratio of net investment income to
average net assets* 2.55% 2.42% 3.76% 4.27% 5.30% 1.95% 1.80% 1.53%++
Portfolio turnover rate 67.50% 73.96% 80.42% 102.39% 131.43% 67.50% 73.96% 80.42%
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $.05 $.05 $.01 $.01 $.01 $.05 $.07 $.00
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
------------------------------- --------------------------------
June 1, 1993 June 1, 1993
(Commencement of (Commencement of
Year ended June 30 Share Class Year ended June 30 Share Class
---------------- Designations) to ------------------ Designations) to
1995** 1994 1993 1995** 1994 June 30, 1993
- -------------------------------------------- ------ ------ ----------- ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.86 $10.79 $10.81 $10.86 $10.79 $10.81
Net investment income* .32 .33 .03 .22 .21 .02
Net realized and unrealized gain (loss) on
investments 1.39 .21 (.02) 1.36 .21 (.02)
Dividends from net investment income (.33) (.32) (.03) (.23) (.20) (.02)
Distributions from net realized gains (.54) (.15) -- (.54) (.15) --
------ ------ ----------- ------ ----- -------------
Net asset value, end of year $11.70 $10.86 $10.79 $11.67 $10.86 $10.79
====== ====== =========== ====== ===== =============
Total return 16.64%+ 4.84%+ 0.14%+++ 15.33%+ 3.78%+ 0.04%+++
Net assets at end of year (000s) $34,827 $20,266 $15,988 $1,366 $1,280 $628
Ratio of operating expenses to average net
assets* 1.00% 1.00% 1.00%++ 2.00% 2.00% 2.00%++
Ratio of net investment income to average
net assets* 2.93% 2.92% 1.65%++ 1.96% 1.88% 1.49%++
Portfolio turnover rate 67.50% 73.96% 80.42% 67.50% 73.96% 80.42%
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $.05 $.06 $.00 $.05 $.06 $.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
<PAGE>
Report of Independent Accountants
To the Trustees of MetLife-State Street
Equity Trust and the Shareholders of
MetLife-State Street Research Equity Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of MetLife-State Street
Research Equity Income Fund, (formerly MetLife-State Street Equity Income
Fund) (a series of MetLife-State Street Equity Trust, hereafter referred to
as the "Trust") at June 30, 1995, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
August 4, 1995
<PAGE>
Management's Discussion of Fund Performance
Equity Income Fund outperformed the average for Lipper Analytical Services'
equity income fund category for the 12 months ended June 30, 1995 (does not
reflect sales charge).
The Fund's portfolio is diversified into corporate and convertible bonds,
which provide more income and tend to offer less price fluctuation than
stocks. Stocks are selected on a value basis.
One of our largest industry positions was in retail stocks, which we began to
emphasize late in 1994 after retail stocks declined sharply. Even though the
economy appears to be slowing down, the Fund has targeted certain cyclical
stocks that could benefit from rising chemical and paper prices.
Equity Income Fund also participated in the two strongest sectors of the
market: technology and finance. In technology, our focus was on aerospace and
electronics stocks. Financial stocks performed poorly last year when interest
rates rose, but recovered in 1995 as rates declined. Our financial holdings
were concentrated in insurance stocks.
The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
traded common stocks and is a commonly used measure of U.S. stock market
performance. The index is unmanaged and does not take sales charges into
consideration. Direct investment in the index is not possible; results are
for illustrative purposes only. All returns represent past performance, which
is no guarantee of future results. The investment return and principal value
of an investment made in the Fund will fluctuate and shares, when redeemed,
may be worth more or less than their original cost. All returns assume
reinvestment of capital gain distributions and income dividends. Performance
for a class includes periods prior to the adoption of class designations in
1993. Performance reflects up to a maximum 4.5% front-end sales charge or 5%
contingent deferred sales charge. "C" shares, offered without a sales charge,
are available only to certain employee benefit plans and institutions.
Performance for "B" and "D" shares prior to class designations in 1993
reflects annual 12b-1 fees of .50% and subsequent performance reflects annual
12b-1 fees of 1%.
Comparison Of Change In Value Of
A $10,000 Investment In Equity
Income Fund and The S&P 500
Class A Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
+10.90% +8.63% +9.23%
"86" 9550 10000
"87" 10832 12605
"88" 10569 11730
"89" 12351 14135
"90" 13768 16462
"91" 12903 17678
"92" 14814 20048
"93" 18037 22779
"94" 18815 23099
"95" 21850 29112
Class B Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
+10.43% +9.08% +9.63%
"86" 10000 10000
"87" 11342 12605.6
"88" 11074 11730.2
"89" 12954 14135.1
"90" 14443 16462
"91" 13528 17678
"92" 15533 20048
"93" 18896 22779
"94" 19611 23099
"95" 22637 29112
Class C Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
+16.64% +9.83% +9.89%
"86" 10000 10000
"87" 11342 12605.6
"88" 11074 11730.2
"89" 12954 14135.1
"90" 14443 16462
"91" 13528 17678
"92" 15533 20048
"93" 18913 22779
"94" 19827 23099
"95" 23126 29112
Class D Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
+14.33% +9.34% +9.62%
"86" 10000 10000
"87" 11342 12605.6
"88" 11074 11730.2
"89" 12954 14135.1
"90" 14443 16462
"91" 13528 17678
"92" 15533 20048
"93" 18895 22779
"94" 19609 23099
"95" 22615 29112
<PAGE>
Supplement No. 1 dated November 1, 1995
to
Statement of Additional Information dated November 1, 1995
for
STATE STREET RESEARCH GLOBAL RESOURCES FUND
a Series of State Street Research Equity Trust
The section captioned "Additional Investment Policies and Restrictions"
at pages 2 through 5 in the attached Statement of Additional Information
reflects policy changes which have not been finalized. Until such finalization,
the section reads in its entirety as follows:
"ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Fund's Investments" and "Limiting Investment
Risk" in the Fund's Prospectus, the Fund has adopted certain investment
restrictions.
All of the Fund's fundamental investment restrictions are set forth
below. These fundamental restrictions may not be changed except by the
affirmative vote of a majority of the Fund's outstanding voting securities as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(Under the 1940 Act a "vote of the majority of the outstanding voting
securities" means the vote, at the annual or a special meeting of security
holders duly called, (i) of 67% or more of the voting securities present at a
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy or (ii) of more than 50% of the outstanding
voting securities, whichever is less.) Under these restrictions, it is the
Fund's policy:
(1) not to invest in a security if the transaction would result in the
Fund owning more than 10% of any class of voting securities of an
issuer, except that this restriction does not apply to investments
in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities or backed by the U.S. Government;
(2) not to invest in a security if the transaction would result in 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 that this restriction does not apply
to investments in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities or backed by the
U.S. Government;
(3) not to issue senior securities;
(4) not to underwrite or participate in the marketing of securities of
other issuers, except (a) the Fund may purchase or otherwise
acquire securities of other issuers for investment, either from the
issuers or from persons in a control relationship with the issuers
or from underwriters of such securities; and (b) to the extent
that, in connection with the disposition of the Fund's securities,
the Fund may be deemed to be an underwriter under certain federal
securities laws;
(5) not to purchase or sell fee simple interests in real estate or
illiquid interests in limited partnerships that invest in real
estate, although the Fund may purchase and sell other interests in
real estate including readily marketable interests in real estate
investment trusts or companies which own or invest or deal in real
estate;
(6) not to invest in commodities or commodity contracts in excess of
10% of the Fund's total assets, except that investments in futures
contracts and options on futures contracts on securities,
securities indices or currencies shall not be deemed an investment
in commodities or commodities contracts;
(7) not to make loans, except that the Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (including repurchase agreements with respect thereto);
(8) not to conduct arbitrage transactions (provided that investments in
futures and options shall not be deemed arbitrage transactions);
(9) not to invest directly as a joint venturer or general partner in
oil, gas or other mineral exploration or development joint ventures
or general partnerships (provided that the Fund may invest in
securities issued by companies which invest in or sponsor such
programs and in securities indexed to the price of oil, gas or
other minerals);
(10) not to borrow money except for borrowings from banks for
extraordinary and emergency purposes, such as permitting redemption
requests to be honored, and then not in an amount in excess of 25%
of the value of its total assets, and except insofar as reverse
repurchase agreements may be regarded as borrowing. The Fund will
not purchase additional portfolio securities at any time when it
has outstanding money borrowings in excess of 5% of the Fund's
total assets (taken at current value); and
(11) not to make any investment which would cause more than 25% of the
value of the Fund's total assets to be invested in securities of
issuers principally engaged in any one industry other than any
energy industry [for purposes of this restriction, (a) energy and
nonenergy industries will be divided according to their services,
so that, for example, in the case of (i) utilities, gas, gas
<PAGE>
transmission, electric and telephone companies each will be deemed
to be in a separate industry, and (ii) oil and oil related
companies will be divided by types, with oil production companies,
oil service companies and marketing companies each deemed to be in
a separate industry, (b) finance companies will be classified
according to the industries of their parent companies and (c)
securities issued or guaranteed by the U.S. Government, or its
agencies or instrumentalities (including repurchase agreements
involving such U.S. Government securities to the extent excludable
under relevant regulatory interpretations) shall be excluded].
The following investment restrictions may be changed by a vote of a
majority of the Trustees. Under these restrictions, it is the Fund's policy:
(1) not to engage in transactions in options except in connection with
options on securities, securities indices and currencies, and
options on futures contracts on securities, securities indices and
currencies;
(2) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (the Fund will not make short sales or maintain a
short position unless not more than 5% of the Fund's net assets
(taken at current value) is held as collateral for such sales at
any time);
(3) not hypothecate, mortgage or pledge any of its assets except as may
be necessary in connection with permitted borrowings (for the
purpose of this restriction, futures and options, and related
escrow or custodian receipts or letters, margin or safekeeping
accounts, or similar arrangements used in the industry in
connection with the trading of futures and options, are not deemed
to involve a hypothecation, mortgage or pledge of assets);
(4) not to purchase a security issued by another investment company if,
immediately after such purchase, the Fund would own, in the
aggregate, (i) more than 3% of the total outstanding voting stock
of such other investment company; (ii) securities issued by such
other investment company having an aggregate value in excess of 5%
of the value of the Fund's total assets; or (iii) securities issued
by such other investment company and all other investment companies
(other than treasury stock of the Fund) having an aggregate value
in excess of 10% of the value of the Fund's total assets; provided,
however, that the Fund may purchase investment company securities
without limit for the purpose of completing a merger, consolidation
or other acquisition of assets;
(5) not to purchase or retain any security of an issuer if, to the
knowledge of the Trust, those of its officers and Trustees and
officers and directors of its investment advisers who individually
own more than 1/2 of 1% of the
<PAGE>
securities of such issuer, when combined, own more than 5% of the
securities of such issuer taken at market;
(6) not to invest in warrants more than 5% of the value of its total
assets and not to invest in warrants that are not listed on the New
York or American Stock Exchange more than 2% of its total assets,
in each case taken at the lower of cost or market value (warrants
initially attached to securities and acquired by the Fund upon
original issuance thereof shall be deemed to be without value);
(7) not to invest in companies for the purpose of exercising control
over their management, although the Fund may from time to time
present its views on various matters to the management of issuers
in which it holds investments; and
(8) not to purchase any security or enter into a repurchase agreement
if as a result more than 15% of its total assets would be invested
in (a) securities that are illiquid because of the absence of a
readily available market or because such securities are restricted
securities (i.e., subject to legal or contractual restrictions on
resale), provided that such restricted securities, excluding
restricted securities eligible for resale pursuant to exemptive
rules or regulations under the Securities Act of 1933, shall be
limited to 5% of total assets, and (b) repurchase agreements not
entitling the holder to payment of principal and interest within
seven days.
The Fund has undertaken with a state securities authority that, pursuant
to clause (6) above, for so long as the Fund's shares are required to be
registered in that state, the Fund's investment in warrants, valued at the lower
of cost or market, may not exceed 5% of its net assets and included within that
amount, but not to exceed 2% of the value of its net assets, may be warrants
which are not listed on the New York or American Stock Exchange."
CONTROL NUMBER: 2771-951101(1296)SSR-LD EG-366E-1195
<PAGE>
State Street Research Global Resources Fund
a series of
State Street Research Equity Trust
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1995
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS ........................... 2
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES ............................................. 5
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS ........................... 15
RATING CATEGORIES OF DEBT SECURITIES ...................................... 18
TRUSTEES AND OFFICERS ..................................................... 21
INVESTMENT ADVISORY SERVICES .............................................. 27
PURCHASE AND REDEMPTION OF SHARES ......................................... 28
NET ASSET VALUE ........................................................... 30
PORTFOLIO TRANSACTIONS .................................................... 31
CERTAIN TAX MATTERS ....................................................... 33
DISTRIBUTION OF SHARES OF THE FUND ........................................ 35
CALCULATION OF PERFORMANCE DATA ........................................... 39
CUSTODIAN ................................................................. 42
INDEPENDENT ACCOUNTANTS ................................................... 42
FINANCIAL STATEMENTS ...................................................... 42
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
Global Resources Fund (the "Fund") dated November 1, 1995, which may be obtained
without charge from the offices of State Street Research Equity Trust (the
"Trust") or State Street Research Investment Services, Inc. (the "Distributor"),
One Financial Center, Boston, Massachusetts 02111-2690.
CONTROL NUMBER: 1285S-951101(1296) SSR-LD EG-879D-1195
<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Fund's Investments" and "Limiting Investment
Risk" in the Fund's Prospectus, the Fund has adopted certain investment
restrictions.
All of the Fund's fundamental investment restrictions are set forth
below. These fundamental restrictions may not be changed except by the
affirmative vote of a majority of the Fund's outstanding voting securities as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(Under the 1940 Act, a "vote of the majority of the outstanding voting
securities" means the vote, at the annual or a special meeting of security
holders duly called, (i) of 67% or more of the voting securities present at a
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy or (ii) of more than 50% of the outstanding
voting securities, whichever is less.) Under these restrictions, it is the
Fund's policy:
(1) not to invest in a security if the transaction would result in
the Fund owning more than 10% of any class of voting
securities of an issuer, except that this restriction does not
apply to investments in securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities or backed
by the U.S. Government;
(2) not to issue senior securities;
(3) not to underwrite or participate in the marketing of
securities of other issuers, except (a) the Fund may purchase
or otherwise acquire securities of other issuers for
investment, either from the issuers or from persons in a
control relationship with the issuers or from underwriters of
such securities; and (b) to the extent that, in connection
with the disposition of the Fund's securities, the Fund may be
deemed to be an underwriter under certain federal securities
laws;
(4) not to purchase or sell fee simple interests in real estate or
illiquid interests in limited partnerships that invest in real
estate, although the Fund may purchase and sell other
interests in real estate including readily marketable
interests in real estate investment trusts or companies which
own or invest or deal in real estate;
(5) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Fund's total
assets, except that investments in essentially financial items
or arrangements such as, but not limited to, swap
arrangements, hybrids, currencies, currency and other forward
contracts, futures contracts and options on futures contracts
on securities, securities indices, interest rates and
currencies shall not be deemed investments in commodities or
commodities contracts;
2
<PAGE>
(6) not to make loans, except that the Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (including repurchase agreements with respect
thereto);
(7) not to conduct arbitrage transactions (provided that
investments in futures and options shall not be deemed
arbitrage transactions);
(8) not to invest directly as a joint venturer or general partner
in oil, gas or other mineral exploration or development joint
ventures or general partnerships (provided that the Fund may
invest in securities issued by companies which invest in or
sponsor such programs and in securities indexed to the price
of oil, gas or other minerals);
(9) not to borrow money except for borrowings from banks for
extraordinary and emergency purposes, such as permitting
redemption requests to be honored, and then not in an amount
in excess of 25% of the value of its total assets, and except
insofar as reverse repurchase agreements may be regarded as
borrowing. The Fund will not purchase additional portfolio
securities at any time when it has outstanding money
borrowings in excess of 5% of the Fund's total assets (taken
at current value); and
(10) not to make any investment which would cause more than 25% of
the value of the Fund's total assets to be invested in
securities of issuers principally engaged in any one industry
other than any energy industry [for purposes of this
restriction, (a) energy and nonenergy industries will be
divided according to their services, so that, for example, in
the case of (i) utilities, gas, gas transmission, electric and
telephone companies each will be deemed to be in a separate
industry, and (ii) oil and oil related companies will be
divided by types, with oil production companies, oil service
companies and marketing companies each deemed to be in a
separate industry, (b) finance companies will be classified
according to the industries of their parent companies and (c)
securities issued or guaranteed by the U.S. Government, or its
agencies or instrumentalities (including repurchase agreements
involving such U.S. Government securities to the extent
excludable under relevant regulatory interpretations) shall be
excluded].
The following investment restrictions may be changed by a vote of a
majority of the Trustees. Under these restrictions, it is the Fund's policy:
(1) not to invest more than 5% of its total assets in securities
of private companies including predecessors with less than
three years' continuous operations except (a) securities
guaranteed or backed by an affiliate of the issuer with three
years of continuous operations, (b) securities issued or
guaranteed as to principal or interest by the U.S. Government,
or its agencies or instrumentalities, or a
3
<PAGE>
mixed-ownership Government corporation, (c) securities of
issuers with debt securities rated at least "BBB" by Standard
& Poor's Corporation or "Baa" by Moody's Investor's Service,
Inc. (or their equivalent by any other nationally recognized
statistical rating organization) or securities of issuers
considered by the Investment Manager to be equivalent, (d)
securities issued by a holding company with at least 50% of
its assets invested in companies with three years of
continuous operations including predecessors, and (e)
securities which generate income which is exempt from local,
state or federal taxes; provided that the Fund may invest up
to 15% in such issuers so long as such investments plus
investments in restricted securities (other than those which
are eligible for resale under Rule 144A, Regulation S or other
exemptive provisions) do not exceed 15% of the Fund's total
assets;
(2) not to engage in transactions in options except in connection
with options on securities, securities indices and currencies,
and options on futures contracts on securities, securities
indices and currencies;
(3) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (the Fund will not make short sales or
maintain a short position unless not more than 5% of the
Fund's net assets (taken at current value) is held as
collateral for such sales at any time);
(4) not to hypothecate, mortgage or pledge any of its assets
except as may be necessary in connection with permitted
borrowings (for the purpose of this restriction, futures and
options, and related escrow or custodian receipts or letters,
margin or safekeeping accounts, or similar arrangements used
in the industry in connection with the trading of futures and
options, are not deemed to involve a hypothecation, mortgage
or pledge of assets);
(5) not to purchase a security issued by another investment
company if, immediately after such purchase, the Fund would
own, in the aggregate, (i) more than 3% of the total
outstanding voting stock of such other investment company;
(ii) securities issued by such other investment company having
an aggregate value in excess of 5% of the value of the Fund's
total assets; or (iii) securities issued by such other
investment company and all other investment companies (other
than treasury stock of the Fund) having an aggregate value in
excess of 10% of the value of the Fund's total assets;
provided, however, that the Fund may purchase investment
company securities without limit for the purpose of completing
a merger, consolidation or other acquisition of assets;
(6) not to purchase or retain any security of an issuer if, to the
knowledge of the Trust, those of its officers and Trustees and
officers and directors of its investment advisers who
individually own more than 1/2 of 1% of the securities
4
<PAGE>
of such issuer, when combined, own more than 5% of the
securities of such issuer taken at market;
(7) not to invest in warrants more than 5% of the value of its
total assets and not to invest in warrants that are not listed
on the New York or American Stock Exchange more than 2% of its
total assets, in each case taken at the lower of cost or
market value (warrants initially attached to securities and
acquired by the Fund upon original issuance thereof shall be
deemed to be without value);
(8) not to invest in companies for the purpose of exercising
control over their management, although the Fund may from time
to time present its views on various matters to the management
of issuers in which it holds investments; and
(9) not to purchase any security or enter into a repurchase
agreement if as a result more than 15% of its total assets
would be invested in (a) securities that are illiquid because
of the absence of a readily available market or because such
securities are restricted securities (i.e., subject to legal
or contractual restrictions on resale), provided that such
restricted securities, excluding restricted securities
eligible for resale pursuant to exemptive rules or regulations
under the Securities Act of 1933, shall be limited to 5% of
total assets, and (b) repurchase agreements not entitling the
holder to payment of principal and interest within seven days.
The Fund has undertaken with a state securities authority that,
pursuant to clause (7) above, for so long as the Fund's shares are required to
be registered in that state, the Fund's investment in warrants, valued at the
lower of cost or market, may not exceed 5% of its net assets and included within
that amount, but not to exceed 2% of the value of its net assets, may be
warrants which are not listed on the New York or American Stock Exchange.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Among other investments described below, the Fund may buy and sell
options, futures contracts and options on futures contracts with respect to
securities, securities indices, and currencies, and may enter into closing
transactions with respect to each of the foregoing under circumstances in which
such instruments and techniques are expected by State Street Research &
Management Company (the "Investment Manager") to aid in achieving the investment
objective of the Fund. The Fund on occasion may also purchase instruments with
characteristics of both futures and securities (e.g., debt instruments with
interest and principal payments determined by reference to the value of a
commodity or currency at a future time) and which, therefore, possess the risks
of both futures and securities investments.
5
<PAGE>
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell
underlying assets, such as certain securities, currencies, or an index of
securities, at a future time at a specified price. A contract to buy establishes
a "long" position while a contract to sell establishes a "short" position.
The purchase of a futures contract on securities or an index of
securities normally enables a buyer to participate in the market movement of the
underlying asset or index after paying a transaction charge and posting margin
in an amount equal to a small percentage of the value of the underlying asset or
index. The Fund will initially be required to deposit with the Trust's custodian
or the broker effecting the futures transaction an amount of "initial margin" in
cash or U.S. Treasury obligations.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when the Fund has taken a long
position in a futures contract and the value of the underlying asset has risen,
that position will have increased in value and the Fund will receive from the
broker a maintenance margin payment equal to the increase in value of the
underlying asset. Conversely, when the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position would be less valuable, and the Fund would be required to make a
maintenance margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will terminate
its position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of securities,
such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus protect the Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and thus to participate
in an expected rise in market value of securities which the Fund intends to
purchase. In transactions establishing a long position in a futures contract,
money market instruments equal to the face value of the futures contract will be
identified by the Fund to the Trust's custodian for maintenance in a separate
account to insure that the use of such futures contracts is unleveraged.
Similarly, a representative portfolio of securities having a value equal to the
aggregate face value of the futures contract will be identified with respect to
each
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<PAGE>
short position. The Fund will employ any other appropriate method of cover which
is consistent with applicable regulatory and exchange requirements.
Options on Securities
The Fund may use options on securities to implement its investment
strategy. A call option on a security, for example, gives the purchaser of the
option the right to buy, and the writer the obligation to sell, the underlying
asset at the exercise price during the option period. Conversely, a put option
on a security gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying asset at the exercise price during the option
period.
Purchased options have defined risk, i.e., the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset.
Written options have varying degrees of risk. An uncovered written call
option theoretically carries unlimited risk, as the market price of the
underlying asset could rise far above the exercise price before its expiration.
This risk is tempered when the call option is covered, i.e., when the option
writer owns the underlying asset. In this case, the writer runs the risk of the
lost opportunity to participate in the appreciation in value of the asset rather
than the risk of an out-of-pocket loss. A written put option has defined risk,
i.e., the difference between the agreed-upon price that the Fund must pay to the
buyer upon exercise of the put and the value, which could be zero of the asset
at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
his obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Options on Securities Indices
The Fund may engage in transactions in call and put options on
securities indices. For example, the Fund may purchase put options on indices of
fixed income securities in anticipation of or during a market decline to attempt
to offset the decrease in market value of its securities that might otherwise
result.
Put options on indices of securities are similar to put options on the
securities themselves except that the delivery requirements are different.
Instead of giving the right to make delivery of a security at a specified price,
a put option on an index of securities gives the holder the right to receive an
amount of cash upon exercise of the option if the value of the underlying index
has fallen below the exercise price. The amount of cash received will be equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple. As with options
on equity or fixed
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<PAGE>
income securities, futures contracts or commodities, the Fund may offset its
position in index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
A securities index assigns relative values to the securities included
in the index and the index options are based on a broad market index. Although
there are at present few available options on indices of fixed income
securities, other than tax-exempt securities, or futures and related options
based on such indices, such instruments may become available in the future. In
connection with the use of such options, the Fund may cover its position by
identifying a representative portfolio of securities having a value equal to the
aggregate face value of the option position taken. However, the Fund may employ
any appropriate method to cover its positions that is consistent with applicable
regulatory and exchange requirements.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Options Strategy
A basic option strategy for protecting the Fund against a decline in
securities prices could involve (a) the purchase of a put -- thus "locking in"
the selling price of the underlying securities or securities indices -- or (b)
the writing of a call on securities or securities indices held by the Fund --
thereby generating income (the premium paid by the buyer) by giving the holder
of such call the option to buy the underlying asset at a fixed price. The
premium will offset, in whole or in part, a decline in portfolio value; however,
if prices of the relevant securities or securities indices rose instead of
falling, the call might be exercised, thereby resulting in a potential loss of
appreciation in the underlying securities or securities indices.
A basic option strategy when a rise in securities prices is anticipated
is the purchase of a call -- thus "locking in" the purchase price of the
underlying security or other asset. In transactions involving the purchase of
call options by the Fund, money market instruments equal to the aggregate
exercise price of the options will be identified by the Fund to the Trust's
custodian to insure that the use of such investments is unleveraged.
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security and concurrently write a
call option against that security or other asset. If the call option is
exercised in such a transaction, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upward or downward by the
difference between the Fund's purchase price of the security and the exercise
price of the option. If the option is not exercised and the price of the
underlying security declines, the amount of such decline will be offset in part,
or entirely, by the premium received.
8
<PAGE>
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security or other asset rises or otherwise is above the exercise
price, the put option will expire worthless and the Fund's gain will be limited
to the premium received. If the market price of the underlying security declines
or otherwise is below the exercise price, the Fund's return will be the premium
received from writing the put option minus the amount by which the market price
of the security is below the exercise price.
Limitations and Risks of Options and Futures Activity
The Fund will engage in transactions in futures contracts or options
only as a hedge against changes resulting from market conditions which produce
changes in the values of its investments or the investments which it intends to
purchase (e.g., to replace portfolio securities which will mature in the near
future) and, subject to the limitations described below, to enhance return. The
Fund will not purchase any futures contract or purchase any call option if,
immediately thereafter, more than one third of the Fund's net assets would be
represented by long futures contracts or call options. The Fund will not write a
covered call or put option if, immediately thereafter, the aggregate value of
the assets (securities in the case of written calls and cash or cash equivalents
in the case of written puts) underlying all such options, determined as of the
dates such options were written, would exceed 25% of the Fund's net assets. In
addition, the Fund may not establish a position in a commodity futures contract
or purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of the Fund's net assets.
Although effective hedging can generally capture the bulk of a desired
risk adjustment, no hedge is completely effective. The Fund's ability to hedge
effectively through transactions in futures and options depends on the degree to
which price movements in its holdings correlate with price movements of the
futures and options.
Some positions in futures and options may be closed out only on an
exchange which provides a secondary market therefor. There can be no assurance
that a liquid secondary market will exist for any particular futures contract or
option at any specific time. Thus, it may not be possible to close such an
option or futures position prior to maturity. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
effectively hedge its securities and might, in some cases, require the Fund to
deposit cash to meet applicable margin requirements. The Fund will enter into an
option or futures position only if it appears to be a liquid investment.
Repurchase Agreements
The Fund may enter into repurchase agreements. Repurchase agreements
occur when the Fund acquires a security and the seller, which may be either (i)
a primary dealer in U.S.
9
<PAGE>
Government securities or (ii) an FDIC-insured bank having gross assets in excess
of $500 million, simultaneously commits to repurchase it at an agreed-upon price
on an agreed-upon date within a specified number of days (usually not more than
seven) from the date of purchase. The repurchase price reflects the purchase
price plus an agreed-upon market rate of interest which is unrelated to the
coupon rate or maturity of the acquired security. The Fund will only enter into
repurchase agreements involving U.S. Government securities. Repurchase
agreements could involve certain risks in the event of default or insolvency of
the other party, including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities. Repurchase agreements will be
limited to 30% of the Fund's total assets, except that repurchase agreements
extending for more than seven days when combined with any other illiquid
securities held by the Fund will be limited to 10% of the Fund's total assets.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. In a reverse
repurchase agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker or dealer, in return for
a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed-upon rate.
The ability to use reverse repurchase agreements may enable, but does not ensure
the ability of, the Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous.
When effecting reverse repurchase agreements, assets of the Fund in a
dollar amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
When-Issued Securities
The Fund may purchase "when-issued" securities, which are traded on a
price or yield basis prior to actual issuance. Such purchases will be made only
to achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to up to a month or more; during
this period dividends or interest on the securities are not payable. A frequent
form of when-issued trading occurs when corporate securities to be created by a
merger of companies are traded prior to the actual consummation of the merger.
Such transactions may involve a risk of loss if the value of the securities
falls below the price committed to prior to actual issuance. The Trust's
custodian will establish a segregated account when the Fund purchases securities
on a when-issued basis consisting of cash or liquid securities equal to the
amount of the when-issued commitments.
Securities Lending
The Fund may lend portfolio securities with a value of up to 33-1/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as
10
<PAGE>
collateral in an amount equal to at least 100% of the current market value of
the loaned security plus accrued interest. Collateral received by the Fund will
generally be held in the form tendered, although cash may be invested in
securities in which the Fund is authorized to invest. The collateral will be
reflected as an asset, with an offsetting liability to the counterparty, on the
records of the Fund. Such loans may be terminated at any time. The Fund will
retain most rights of ownership including rights to dividends, interest or other
distributions on the loaned securities. Voting rights pass with the lending,
although the Fund may call loans to vote proxies if desired. Should the borrower
of securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. Loans are made only to borrowers
which are deemed by the Investment Manager to be of good financial standing.
Short Sales Against the Box
The Fund may effect short sales, but only if such transactions are
short sale transactions known as short sales "against the box." A short sale is
a transaction in which the Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where the Fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversion, exercise or exchange of
options with respect to securities held in its portfolio. The effect of selling
a security short against the box is to insulate that security against any future
gain or loss.
Rule 144A Securities
The Fund may buy or sell restricted securities in accordance with Rule
144A under the Securities Act of 1933 ("Rule 144A Securities"). Securities may
be resold pursuant to Rule 144A under certain circumstances only to qualified
institutional buyers as defined in the rule, and the markets and trading
practices for such securities are relatively new and still developing; depending
on the development of such markets, Rule 144A Securities may be deemed to be
liquid as determined by or in accordance with methods adopted by the Trustees.
Under such methods the following factors are considered, among others: the
frequency of trades and quotes for the security, the number of dealers and
potential purchasers in the market, marketmaking activity, and the nature of the
security and marketplace trades. Investments in Rule 144A Securities could have
the effect of increasing the level of the Fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. Also, the Fund may be adversely impacted by the possible
illiquidity and subjective valuation of such securities in the absence of a
market for them.
Swap Arrangements
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap, the Fund could agree for a specified
11
<PAGE>
period to pay a bank or investment banker the floating rate of interest on a
so-called notional principal amount (i.e., an assumed figure selected by the
parties for this purpose) in exchange for agreement by the bank or investment
banker to pay the Fund a fixed rate of interest on the notional principal
amount. In a currency swap, the Fund would agree with the other party to
exchange cash flows based on the relative differences in values of a notional
amount of two (or more) currencies; in an index swap, the Fund would agree to
exchange cash flows on a notional amount based on changes in the values of the
selected indices. Purchase of a cap entitles the purchaser to receive payments
from the seller on a notional amount to the extent that the selected index
exceeds an agreed upon interest rate or amount whereas purchase of a floor
entitles the purchaser to receive such payments to the extent the selected index
falls below an agreed-upon interest rate or amount. A collar combines a cap and
a floor.
Most swaps entered into by the Fund will be on a net basis; for
example, in an interest rate swap, amounts generated by application of the fixed
rate and the floating rate to the notional principal amount would first offset
one another, with the Fund either receiving or paying the difference between
such amounts. In order to be in a position to meet any obligations resulting
from swaps, the Fund will set up a segregated custodial account to hold
appropriate liquid assets, including cash; for swaps entered into on a net
basis, assets will be segregated having a daily net asset value equal to any
excess of the Fund's accrued obligations over the accrued obligations of the
other party, while for swaps on other than a net basis assets will be segregated
having a value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to
preserve the return on an investment or on a part of the Fund's portfolio.
However, the Fund may enter into such arrangements for income purposes to the
extent permitted by the CFTC for entities which are not commodity pool
operators, such as the Fund. In entering a swap arrangement, the Fund is
dependent upon the creditworthiness and good faith of the counterparty. The Fund
attempts to reduce the risks of nonperformance by the counterparty by dealing
only with established, reputable institutions. The swap market is still
relatively new and emerging; positions in swap arrangements may become illiquid
to the extent that nonstandard arrangements with one counterparty are not
readily transferable to another counterparty or if a market for the transfer of
swap positions does not develop. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
Investment Manager is incorrect in its forecasts of market values, interest
rates and other applicable factors, the investment performance of the Fund would
diminish compared with what it would have been if these investment techniques
were not used. Moreover, even if the Investment Manager is correct in its
forecasts, there is a risk that the swap position may correlate imperfectly with
the price of the asset or liability being hedged.
Currency Transactions
The Fund may engage in currency exchange transactions in order to
protect against the effect of uncertain future exchange rates on securities
denominated in foreign currencies. The
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<PAGE>
Fund will conduct its currency exchange transactions either on a spot (i.e.,
cash) basis at the rate prevailing in the currency exchange market, or by
entering into forward contracts to purchase or sell currencies. The Fund's
dealings in forward currency exchange contracts will be limited to hedging
involving either specific transactions or aggregate portfolio positions. A
forward currency contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are not commodities and are entered into in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. In entering a forward currency contract,
the Fund is dependent upon the creditworthiness and good faith of the
counterparty. The Fund attempts to reduce the risks of nonperformance by the
counterparty by dealing only with established, reputable institutions. Although
spot and forward contracts will be used primarily to protect the Fund from
adverse currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted, which may result in losses to the
Fund. This method of protecting the value of the Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some future point in time. Although such
contracts tend to minimize the risk of loss due to a decline in the value of
hedged currency, they tend to limit any potential gain that might result should
the value of such currency increase.
Industry Classifications
In determining how much of the Fund's portfolio is invested in a given
industry, the following industry classifications, grouped by sectors, are
currently used:
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<PAGE>
<TABLE>
<CAPTION>
Basic Industries Consumer Staple Science & Technology
- ---------------- --------------- --------------------
<S> <C> <C>
Chemical Business Service Aerospace
Diversified Container Computer Software & Service
Electrical Equipment Drug Electronic Equipment
Forest Products Food & Beverage Office Equipment
Machinery Hospital Supply
Metal & Mining Personal Care
Railroad Printing & Publishing
Truckers Tobacco
Utility Energy Consumer Cyclical
- ------- ------ -----------------
Electric Oil Airline
Natural Gas Oil Service Automotive
Telephone Building
Hotel & Restaurant
Photography
Recreation
Retail Trade
Textile & Apparel
Miscellaneous Finance
- ------------- -------
Bank
Financial Service
Insurance
</TABLE>
Other Investment Limitations
The Fund may invest up to 10% of its total assets in shares of other
investment companies as described herein under "Additional Investment Policies
and Restrictions." Such investments may involve the payment of duplicative
management or other fees. To mitigate such duplication, however, the Investment
Manager has agreed to waive up to the full amount of its investment advisory fee
with respect to investments, if any, in other open-end investment companies; the
amount of such waived fee will be deemed to be a reduction in management fees or
an assumption of expenses relating to the Fund as described under "Table of
Expenses" in the Prospectus.
The Fund has undertaken with a state securities authority that, for so
long as the Fund's shares are required to be registered for sale in such state,
the Fund will not purchase real estate limited partnerships or make investments
in oil, gas or mineral leases.
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<PAGE>
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
Debt securities and short term investments acquired by the Fund may
include the following:
U.S. Government and Related Securities. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
(bullet) direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
(bullet) obligations of U.S. Government agencies or instrumentalities such as
the Federal Home Loan Banks, the Federal Farm Credit Banks, the
Federal National Mortgage Association, the Government National
Mortgage Association and the Federal Home Loan Mortgage Corporation;
and
(bullet) obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a
variety of ways by the U.S. Government, its agencies or instrumentalities. Some
of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full faith and credit of the U.S.
Treasury. Other obligations, such as those of the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase certain obligations of agencies or instrumentalities, although the U.S.
Government has no legal obligation to do so. Obligations such as those of the
Federal Home Loan Banks, the Federal Farm Credit Bank, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation are backed
by the credit of the agency or instrumentality issuing the obligations. Certain
obligations of Resolution Funding Corporation, a mixed-ownership Government
corporation, are backed with respect to interest payments by the U.S. Treasury,
and with respect to principal payments by U.S. Treasury obligations held in a
segregated account with a Federal Reserve Bank. Except for certain mortgage-
related securities, the Fund will only invest in obligations issued by mixed-
ownership Government corporations where such securities are guaranteed as to
payment of principal or interest by the U.S. Government or a U.S. Government
agency or instrumentality, and any unguaranteed principal or interest is
otherwise supported by U.S. Government obligations held in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded
15
<PAGE>
independently under the Separate Trading of Registered Interest and Principal of
Securities ("STRIPS") program. Under the STRIPS program, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently. Obligations of Resolution Funding Corporation
are similarly divided into principal and interest components and maintained as
such on the book entry records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and may
not be deemed U.S. Government securities.
The Fund may also invest from time to time in collective investment
vehicles, the assets of which consist principally of U.S. Government securities
or other assets substantially collateralized or supported by such securities,
such as Government trust certificates.
Bank Money Investments. Bank money investments include but are not
limited to certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are generally short-term (i.e., less than one year),
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). A banker's acceptance may be
obtained from a domestic or foreign bank, including a U.S. branch or agency of a
foreign bank. The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. Time deposits are nonnegotiable deposits
for a fixed period of time at a stated interest rate. The Fund will not invest
in any such bank money investment unless the investment is issued by a U.S. bank
that is a member of the Federal Deposit Insurance Corporation ("FDIC"),
including any foreign branch thereof, a U.S. branch or agency of a foreign bank,
a foreign branch of a foreign bank, or a savings bank or savings and loan
association that is a member of the FDIC and which at the date of investment has
capital, surplus and undivided profits (as of the date of its most recently
published financial statements) in excess of $50 million. The Fund will not
invest in time deposits maturing in more than seven days and will not invest
more than 10% of its total assets in time deposits maturing in two to seven
days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches
16
<PAGE>
of foreign banks may accept deposits and thus are eligible for FDIC insurance;
however, not all such branches elect FDIC insurance. Unlike U.S. branches of
foreign banks, U.S. agencies of foreign banks may not accept deposits and thus
are not eligible for FDIC insurance. Both branches and agencies can maintain
credit balances, which are funds received by the office incidental to or arising
out of the exercise of their banking powers and can exercise other commercial
functions, such as lending activities.
Short-Term Corporate Debt Instruments. Short-term corporate debt
instruments include commercial paper (i.e., short-term, unsecured promissory
notes) to finance short-term credit needs issued by corporations including but
not limited to (a) domestic or foreign bank holding companies or (b) their
subsidiaries or affiliates where the debt instrument is guaranteed by the bank
holding company or an affiliated bank or where the bank holding company or the
affiliated bank is unconditionally liable for the debt instrument. Commercial
paper is usually sold on a discounted basis and has a maturity at the time of
issuance not exceeding nine months.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated 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 Prime by Moody's. The money market investments in corporate bonds and
debentures (which must have maturities at the date of settlement of one year or
less) must be rated at the time of purchase at least A by S&P or by Moody's.
Commercial paper rated A (highest quality) by S&P is issued by entities
which have liquidity ratios which are adequate to meet cash requirements.
Long-term senior debt is rated A or better, although in some cases BBB credits
may be allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1, A-2
or A-3. (Those A-1 issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
In the event the lowering of ratings of debt instruments held by the
Fund by applicable rating agencies results in a material decline in the overall
quality of such Fund's
17
<PAGE>
portfolio, the Trustees of the Trust will review the situation and take such
action as they deem in the best interests of such Fund's shareholders,
including, if necessary, changing the composition of the portfolio.
RATING CATEGORIES OF DEBT SECURITIES
Set forth below is a description of corporate bond and debenture
ratings of Standard & Poor's Corporation ("S&P"):
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 BB
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
18
<PAGE>
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 date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition 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
equities, commodities, or currencies, certain swaps and options, and interest
only (IO) and principal only (PO) mortgage securities.
Set forth below is a description of corporate bond and debenture
ratings of Moody's Investors Service, Inc. ("Moody's"):
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.
19
<PAGE>
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.
20
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their addresses, and their
principal occupations and positions with certain affiliates of the Investment
Manager are set forth below.
*+Peter C. Bennett, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 57. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President and Vice
President of State Street Research & Management Company. Mr. Bennett's other
principal business affiliation is Director, State Street Research Investment
Services, Inc.
*+Bartlett R. Geer, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 40. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
*+Frederick R. Kobrick, One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. He is 52. His principal occupation is currently,
and during the past five years has been, Senior Vice President of State Street
Research & Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 68. He is engaged principally in private
investments and civic affairs, and is an author of business history. Previously,
he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Trustee of the Trust. He is 69. His principal occupation during
the past five years has been Partner, Saltonstall & Co., a private investment
firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 44. His principal occupation is Executive Vice
President, Treasurer and Director of State Street Research & Management Company.
During the past five years he has also served as Executive Vice President and
Chief Financial Officer of New England Investment Companies and as Senior Vice
President and Vice President of New England Mutual Life Insurance Company. Mr.
Maus's other principal business affiliations include Executive Vice President,
Treasurer, Chief Financial Officer and Director of State Street Research
Investment Services, Inc.
*+Francis J. McNamara, III has served as Secretary and General Counsel
of the Trust since May, 1995. He is 40. His principal occupation is Senior Vice
President, Secretary and General Counsel of the Investment Manager. During the
past five years he has also served as Senior Vice President, General Counsel and
Assistant Secretary of The Boston Company, Inc., Boston Safe Deposit and Trust
Company and The Boston Company
- ------------------
* or + see footnotes on page 23
21
<PAGE>
Advisors, Inc. Mr. McNamara's other principal business affiliations include
Senior Vice President, Clerk and General Counsel of State Street Research
Investment Services, Inc.
*+Thomas P. Moore, Jr., One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. He is 57. His principal occupation is Senior
Vice President of State Street Research & Management Company. During the past
five years he has also served as Vice President of State Street Research &
Management Company.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 63. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173 serves as
Trustee of the Trust. He is 71. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
*Daniel J. Rice III, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 43. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 57. His principal occupations during the past
five years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
58. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. He is 52. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and as Chief Investment
Officer and Director of New England Mutual Life Insurance Company. Mr. Verni's
other principal business affiliations include Chairman of the Board,
- ------------------
* or + see footnotes on page 23
22
<PAGE>
President, Chief Executive Officer and Director of State Street Research
Investment Services, Inc.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 70. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
- ------------------
+Serves as a Trustee and/or officer of one or more of the following
investment companies, each of which has an advisory or distribution relationship
with the Investment Manager or its affiliates: State Street Research Equity
Trust, MetLife - State Street Research Financial Trust, State Street Research
Income Trust, State Street Research Money Market Trust, State Street
Research Tax-Exempt Trust, State Street Research Capital Trust, State Street
Research Exchange Trust, State Street Research Growth Trust, State Street
Research Master Investment Trust, State Street Research Securities Trust, State
Street Research Portfolios, Inc. and Metropolitan Series Fund, Inc.
*These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations with the
Fund's investment adviser.
23
<PAGE>
As of July 31, 1995, the Trustees and officers of the Trust as a group
owned approximately 1.2% of the Fund's outstanding Class A shares and owned no
shares of the Fund's outstanding Class B, Class C or Class D shares.
Also as of July 31, 1995, the following persons or entities were the
record and/or beneficial owners of the approximate amounts of each class of
shares of the Fund as set forth beside their names:
Shareholder %
----------- ---
Class A Merrill Lynch 22.6
Class B Merrill Lynch 11.5
Class C United States Trust Company 86.0
Class D Metropolitan Life 19.7
Merrill Lynch 7.4
P.A. Spitalieri 5.5
PaineWebber 13.8
The full name and address of each of the above persons or entities are
as follows:
Merrill Lynch, Pierce, Fenner & Smith, Inc. (a)
One Liberty Plaza
165 Broadway
New York, New York 10080
United States Trust Company (a)(b)
770 Broadway
New York, New York 10003
Metropolitan Life Insurance Company (c)
One Madison Avenue
New York, New York 10010
P.A. Spitalieri
c/o State Street Research Shareholder Services
One Financial Center
Boston, Massachusetts 02111
PaineWebber, Incorporated (a)
1285 Avenue of the Americas
New York, New York 10019
24
<PAGE>
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
- ------------------
(a) The Fund believes that such entity does not have beneficial ownership of
such shares.
(b) United States Trust Company holds such shares as a trustee under certain
employee benefit plans serviced by Metropolitan Life Insurance Company.
(c) Metropolitan Life Insurance Company ("Metropolitan"), a New York
corporation, was the record and/or beneficial owner, directly or indirectly
through its subsidiaries or affiliates, of such shares.
25
<PAGE>
During the fiscal year ended June 30, 1995, the Trustees were
compensated as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Total
Compensation
Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Trust(a) to Trustees(b)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Edward M. Lamont $ 10,300 $ 58,446
Robert A. Lawrence $ 10,300 $ 86,110
Dean O. Morton $ 11,500 $ 95,360
Thomas L. Phillips $ 10,500 $ 65,560
Toby Rosenblatt $ 10,300 $ 58,446
Michael S. Scott Morton $ 12,300 $ 96,510
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $ 10,500 $ 65,860
</TABLE>
(a) Includes compensation from multiple series of the Trust. See
"Distribution of Shares" for a listing of series.
(b) Includes compensation from Metropolitan Series Fund, Inc., for which
the Investment Manager serves as sub-investment adviser, State Street
Research Portfolios, Inc., for which State Street Research Investment
Services, Inc. serves as distributor, and all investment companies for
which the Investment Manager serves as primary investment adviser,
comprising a total of 29 series. The Trust does not provide any pension
or retirement benefits for the Trustees.
26
<PAGE>
INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Advisory
Agreement provides that the Investment Manager shall furnish the Fund with an
investment program, office facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of the
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly-owned subsidiary of Metropolitan.
The advisory fee payable monthly by the Fund to the Investment Manager
is computed as a percentage of the average of the value of the net assets of the
Fund as determined at the close of the New York Stock Exchange (the "NYSE") on
each day the NYSE is open for trading, at the annual rate of 0.75% of the net
assets of the Fund. The Fund has been advised that the Distributor and its
affiliates may from time to time and in varying amounts voluntarily assume some
portion of fees or expenses relating to the Fund. For the fiscal years ended
June 30, 1993, 1994 and 1995, the Fund's investment advisory fee prior to the
assumption of fees or expenses was $177,220, $281,318 and $284,926,
respectively. For the same periods, the voluntary reduction of fees or
assumption of expenses amounted to $80,236, $360,878 and $307,559, respectively.
Further, to the extent required under applicable state regulatory
requirements, the Investment Manager will reduce its management fee up to the
amount of any expenses (excluding permissible items, such as Rule 12b-1
Distribution Plan payments, brokerage commissions, interest, taxes and
litigation expenses) paid or incurred by the Fund in any fiscal year which
exceed specified percentages of the average daily net assets of the Fund for
such fiscal year. The most restrictive of such percentage limitations is
currently 2.5% of the first $30 million of average net assets, 2.0% of the next
$70 million of average net assets and 1.5% of the remaining average net assets.
These commitments may be amended or rescinded in response to changes in the
requirements of the various states by the Trustees without shareholder approval.
The Advisory Agreement provides that it shall continue in effect with
respect to the Fund for a period of two years after its initial effectiveness
and will continue from year to year thereafter as long as it is approved at
least annually both (i) by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by the Trustees of the
Trust, and (ii) in either event by a vote of a majority of the Trustees who are
not parties to the Advisory Agreement or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated on 60 days' written notice by
either party and will terminate automatically in the event of its assignment, as
defined under the 1940 Act and regulations thereunder. Such regulations provide
that a transaction which does not result in a change of actual control or
management of an adviser is not deemed an assignment.
27
<PAGE>
Under a Funds Administration Agreement between the Investment Manager
and the Distributor, the Distributor provides assistance to the Investment
Manager in performing certain fund administration services for the Trust, such
as assistance in determining the daily net asset value of shares of series of
the Trust and in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the
Trust and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Fund, and is entitled to
reimbursements of its costs for providing such services. Under certain
arrangements for Metropolitan to provide subadministration services,
Metropolitan may receive a fee for the maintenance of certain share ownership
records for participants in sponsored arrangements, such as employee benefit
plans, through or under which Fund shares may be purchased.
Under the Code of Ethics of the Investment Manager, its employees in
Boston, where investment management operations are conducted, are only permitted
to engage in personal securities transactions in accordance with certain
conditions relating to an employee's position, the identity of the security, the
timing of the transaction, and similar factors. Such employees must report their
personal securities transactions quarterly and supply broker confirmations of
such transactions to the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by the Distributor. The Fund offers
four classes of shares which may be purchased at the next determined net asset
value per share plus, in the case of all classes except Class C shares, a sales
charge which, at the election of the investor, may be imposed (i) at the time of
purchase (the Class A shares) or (ii) on a deferred basis (the Class B and Class
D shares). General information on how to buy shares of the Fund, as well as
sales charges involved, is set forth under "Purchase of Shares" in the
Prospectus. The following supplements that information.
Public Offering Price - The public offering price for each class of
shares of the Fund is based on their net asset value determined as of the close
of the NYSE on the day the purchase order is received by State Street Research
Shareholder Services provided that the order is received prior to the close of
the NYSE on that day; otherwise the net asset value used is that determined as
of the close of the NYSE on the next day it is open for unrestricted trading.
When a purchase order is placed through a dealer, that dealer is responsible for
transmitting the order promptly to State Street Research Shareholder Services in
order to permit the investor to obtain the current price. Any loss suffered by
an investor which results from a dealer's failure to transmit an order promptly
is a matter for settlement between the investor and the dealer.
Reduced Sales Charges - For purposes of determining whether a purchase
of Class A shares qualifies for reduced sales charges, the term "person"
includes: (i) an individual, or
28
<PAGE>
an individual combining with his or her spouse and their children and purchasing
for his, her or their own account; (ii) a "company" as defined in Section
2(a)(8) of the 1940 Act; (iii) a trustee or other fiduciary purchasing for a
single trust estate or single fiduciary account (including a pension, profit
sharing or other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Internal Revenue Code); (iv) a tax-exempt organization
under Section 501(c)(3) or (13) of the Internal Revenue Code; and (v) an
employee benefit plan of a single employer or of affiliated employers.
Investors may purchase Class A shares of the Fund at reduced sales
charges by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds" as
designated by the Distributor within a 13-month period. The sales charge
applicable to each purchase made pursuant to a Letter of Intent will be that
which would apply if the total dollar amount set forth in the Letter of Intent
were being bought in a single transaction. Purchases made within a 90-day period
prior to the execution of a Letter of Intent may be included therein; in such
case the date of the earliest of such purchases marks the commencement of the
13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Fund and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class D shares may also be included in the
combination under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
29
<PAGE>
Class C Shares - Class C shares are currently available to certain
benefit plans such as qualified retirement plans, other than individual
retirement accounts and self-employed retirement plans, which meet criteria
relating to level of assets, number of participants, service agreements, or
similar factors; banks and insurance companies; endowment funds of nonprofit
organizations with substantial minimum assets; and other similar institutional
investors.
Reorganizations - In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined 1940 Act, as amended, the Fund may issue its shares at net asset
value (or more) to such entities or to their security holders.
Redemptions - The Fund reserves the right to pay redemptions in kind
with portfolio securities in lieu of cash. In accordance with its election
pursuant to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of
redemption proceeds paid in cash. Although it has no present intention to do so,
the Fund may, under unusual circumstances, limit redemptions in cash with
respect to each shareholder during any ninety-day period to the lesser of (i)
$250,000, or (ii) 1% of the net asset value of the Fund at the beginning of such
period. In connection with any redemptions paid in kind with portfolio
securities, brokerage and other costs may be incurred by the redeeming
shareholder in the sale of the securities received.
NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily
as of the close of the NYSE, ordinarily 4 P.M. New York City time, Monday
through Friday, on each day during which the NYSE is open for unrestricted
trading. The NYSE is currently closed on New Year's Day, Presidents Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The net asset value per share of the Fund is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets minus all liabilities by the total number of outstanding shares of the
Fund at such time. Any expenses, except for extraordinary or nonrecurring
expenses, borne by the Fund, including the investment management fee payable to
the Investment Manager, are accrued daily.
In determining the values of portfolio assets as provided below, the
Trustees may utilize one or more pricing services in lieu of market quotations
for certain securities which are not readily available on a daily basis. Such
services may provide prices determined as of times prior to the close of the
NYSE.
In general, securities are valued as follows. Securities which are
listed or traded on the New York or American Stock Exchange are valued at the
price of the last quoted sale on the respective exchange for that day.
Securities which are listed or traded on a national securities exchange or
exchanges, but not on the New York or American Stock Exchange,
30
<PAGE>
are valued at the price of the last quoted sale on the exchange for that day
prior to the close of the NYSE. Securities not listed on any national securities
exchange which are traded "over the counter" and for which quotations are
available on the National Association of Securities Dealers' NASDAQ System, or
other system, are valued at the closing price supplied through such system for
that day at the close of the NYSE. Other securities are, in general, valued at
the mean of the bid and asked quotations last quoted prior to the close of the
NYSE if there are market quotations readily available, or in the absence of such
market quotations, then at the fair value thereof as determined by or under
authority of the Trustees of the Trust utilizing such pricing services as may be
deemed appropriate as described above. Securities deemed restricted as to resale
are valued at the fair value thereof as determined by or in accordance with
methods adopted by the Trustees of the Trust.
Short-term debt instruments issued with a maturity of one year or less
which have a remaining maturity of 60 days or less are valued using the
amortized cost method, provided that during any period in which more than 25% of
the Fund's total assets is invested in short-term debt securities the current
market value of such securities will be used in calculating net asset value per
share in lieu of the amortized cost method. The amortized cost method is used
when the value obtained is fair value. Under the amortized cost method of
valuation, the security is initially valued at cost on the date of purchase (or
in the case of short-term debt instruments purchased with more than 60 days
remaining to maturity, the market value on the 61st day prior to maturity), and
thereafter a constant amortization to maturity of any discount or premium is
assumed regardless of the impact of fluctuating interest rates on the market
value of the security.
PORTFOLIO TRANSACTIONS
Portfolio Turnover
The Fund's portfolio turnover rate is determined by dividing the lesser
of securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The portfolio turnover rates for the fiscal years ended June 30,
1994 and 1995 were 30.98% and 62.94%, respectively.
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended June 30, 1994 was significantly lower than that for the
previous fiscal year because there was less volatility in the natural gas
markets, thereby leading to fewer changes in portfolio strategy; and also
because there were fewer redemptions of Fund shares which allowed the Investment
Manager to hold portfolio securities longer, as additional cash was not needed
to meet redemption requests.
Conversely, the Investment Manager believes the portfolio turnover rate
for the fiscal year ended June 30, 1995 was significantly higher than that for
the previous fiscal year because of opposite forces, namely, more volatility in
the natural gas markets, thereby leading to more changes in portfolio strategy,
and more redemptions of Fund shares which required the Investment Manager to
liquidate portfolio securities.
31
<PAGE>
Brokerage Allocation
The Fund and the Investment Manager seek the best overall execution of
purchase or sale orders and the most favorable net price in securities
transactions consistent with their judgment as to the business qualifications of
the various broker or dealer firms with which the Fund may do business.
Decisions with respect to the market in which the transaction is to be
completed, and to the allocation of orders among brokers or dealers, are made in
accordance with this policy. In selecting brokers or dealers to effect portfolio
transactions, consideration is given to the performance, integrity and financial
responsibility of the various firms as well as to their demonstrated execution
experience and capability generally and in regard to particular markets or
securities and, in agency transactions, to the competitiveness of the commission
rates (or in principal transactions of the net prices) they charge. The
Investment Manager keeps current as to the range of rates or prices charged by
various firms and against this background evaluates the reasonableness of a
commission or price charged with respect to a particular transaction by
considering such factors as difficulty of execution or security positioning by
the executing firm.
When it appears that a number of firms can satisfy the required
standards in respect of a particular transaction, consideration may also be
given to services other than execution services which such firms have provided
in the past or may provide in the future. Among such other services are the
supplying of supplemental investment research, general economic and political
information, analytical and statistical data, relevant market information and
daily market quotations for computation of net asset value. In this connection
it should be noted that a substantial portion of brokerage commissions paid, or
principal transactions entered, by the Fund may be with brokers and investment
banking firms which, in the normal course of business, publish statistical,
research and other material which is received by the Investment Manager and
which may or may not prove useful to the Investment Manager, the Fund or other
clients of the Investment Manager.
Neither the Fund nor the Investment Manager has any definite agreements
with any firm as to the amount of business which that firm may expect to receive
for services supplied or otherwise. There may be, however, understandings with
certain firms that in order for such firms to be able to continuously supply
certain services, they need to receive allocation of a specified amount of
business. These understandings are honored to the extent possible in accordance
with the policy set forth above. Neither the Fund nor the Investment Manager
intends to pay a firm in excess of that which another would charge for handling
the same transaction in recognition of services (other than execution services)
provided. However, the Fund and the Investment Manager are aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, rely on the provisions of Section 28(e) of the
Securities Exchange Act of 1934, to the extent applicable. During the fiscal
years ended June 30, 1993, 1994 and 1995, the Fund paid $73,056, $99,253 and
$149,770, respectively, in brokerage commissions. During and at the end of its
most recent fiscal year, the Fund held in its portfolio no securities of any
entity that might be deemed to be a regular broker-dealer of the Fund as defined
under the 1940 Act.
32
<PAGE>
Occasions may arise when the Investment Manager determines that an
investment in a particular security, or the disposition of a particular
security, is simultaneously a proper investment decision for the Fund as well as
for the portfolio of one or more of its other clients. In this event, a purchase
or sale, as the case may be, of any such security on any given day will be
normally averaged as to price and allocated as to amount among the several
clients in a manner deemed equitable to each client.
On occasions when the Investment Manager deems the purchase or sale of
a security to be in the best interests of the Fund, as well as other clients of
the Investment Manager, the Investment Manager, to the extent permitted by
applicable laws and regulations, may aggregate such securities to be sold or
purchased for the Fund with those to be sold or purchased for other customers in
order to obtain best execution and lower brokerage commissions, if any. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Investment Manager in
the manner it considers to be most equitable and consistent with its fiduciary
obligations to all such customers, including the Fund. In some instances, this
procedure may affect the price and size of the positions obtainable for the
Fund.
CERTAIN TAX MATTERS
Federal Income Taxation of the Fund -- In General
The Fund intends to qualify and elect to be treated each taxable year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), although it cannot give complete
assurance that it will do so. Accordingly, the Fund must, among other things,
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities; (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies); or (iii) foreign currencies
(or options, futures or forward contracts on foreign currencies) but only if
such currencies (or options, futures or forward contracts) are not directly
related to the Fund's principal business of investing in stocks or securities
(or options and futures with respect to stocks or securities); (c) satisfy
certain diversification requirements; and (d) in order to be entitled to utilize
the dividends paid deduction, distribute annually at least 90% of its investment
company taxable income (determined without regard to the deduction for dividends
paid).
The 30% test will limit the extent to which the Fund may sell
securities held for less than three months, write options which expire in less
than three months, and effect closing transactions with respect to call or put
options that have been written or purchased within the preceding three months.
(If the Fund purchases a put option for the purpose of hedging an
33
<PAGE>
underlying portfolio security, the acquisition of the option is treated as a
short sale of the underlying security unless, for purposes only of the 30% test,
the option and the security are acquired on the same date.) Finally, as
discussed below, this requirement may also limit investments by the Fund in
options on stock indices, listed options on nonconvertible debt securities,
futures contracts, options on interest rate futures contracts and certain
foreign currency contracts.
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income or accumulated earnings and profits. Also, the
shareholders, if they received a distribution in excess of current or
accumulated earnings and profits, would receive a return of capital that would
reduce the basis of their shares of the Fund to the extent thereof. Any
distribution in excess of a shareholder's basis in the shareholder's shares of
the Fund would be taxable as gain realized from the sale of such shares.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any undistributed portion of the respective balances from the
prior year. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
Federal Income Taxation of the Fund's Investments
Original Issue Discount. For federal income tax purposes, debt
securities purchased by the Fund may be treated as having original issue
discount. Original issue discount represents interest for federal income tax
purposes and can generally be defined as the excess of the stated redemption
price at maturity of a debt obligation over the issue price. Original issue
discount is treated for federal income tax purposes as income earned by the
Fund, whether or not any income is actually received, and therefore is subject
to the distribution requirements of the Code. Generally, the amount of original
issue discount is determined on the basis of a constant yield to maturity which
takes into account the compounding of accrued interest. Under section 1286 of
the Code, an investment in a stripped bond or stripped coupon may result in
original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for federal
income tax purposes. In the case of any debt security issued after July 18,
1984, having a fixed maturity date of more than one year from the date of issue
and having market discount, the gain realized on disposition will be treated as
interest to the extent it does not exceed the accrued market discount on the
security (unless the Fund
34
<PAGE>
elects to include such accrued market discount in income in the tax year to
which it is attributable). Generally, market discount is accrued on a daily
basis. The Fund may be required to capitalize, rather than deduct currently,
part or all of any direct interest expense incurred or continued to purchase or
carry any debt security having market discount, unless the Fund makes the
election to include market discount currently. Because the Fund must include
original issue discount in income, it will be more difficult for the Fund to
make the distributions required for the Fund to maintain its status as a
regulated investment company under Subchapter M of the Code or to avoid the 4%
excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments may
be subject to provisions of the Code that (i) require inclusion of unrealized
gains or losses in the Fund's income for purposes of the 90% test, the 30% test,
the excise tax and the distribution requirements applicable to regulated
investment companies; (ii) defer recognition of realized losses; and (iii)
characterize both realized and unrealized gain or loss as short-term or
long-term gain or loss. Such provisions generally apply to, among other
investments, options on debt securities, indices on securities and futures
contracts.
Federal Income Taxation of Shareholders
Dividends paid by the Fund may be eligible for the 70%
dividends-received deduction for corporations. The percentage of the Fund's
dividends eligible for such tax treatment may be less than 100% to the extent
that less than 100% of the Fund's gross income may be from qualifying dividends
of domestic corporations. Any dividend declared in October, November or December
and made payable to shareholders of record in any such month is treated as
received by such shareholders on December 31, provided that the Fund pays the
dividend during January of the following calendar year.
Distributions by the Fund can result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless may be taxable
to the shareholder as ordinary income or long-term capital gain, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a taxable distribution will then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
DISTRIBUTION OF SHARES OF THE FUND
State Street Research Equity Trust (formerly, MetLife - State Street
Equity Trust) is currently comprised of the following series: State Street
Research Capital Appreciation Fund, State Street Research Equity Investment
Fund, State Street Research Equity Income Fund and State Street Research Global
Resources Fund (formerly, MetLife - State Street Research Capital Appreciation
Fund, MetLife - State Street Research Equity Investment Fund, MetLife - State
Street Research Equity Income Fund and State Street Research Global
35
<PAGE>
Energy Fund, respectively). The Trustees have authorized the Fund to issue four
classes of shares: Class A, Class B, Class C and Class D shares. The Trustees of
the Trust have authority to issue an unlimited number of shares of beneficial
interest of separate series, $.001 par value per share. A "series" is a separate
pool of assets of the Trust which is separately managed and has a different
investment objective and different investment policies from those of another
series. The Trustees have authority, without the necessity of a shareholder
vote, to create any number of new series or classes or to commence the public
offering of shares of any previously established series or classes.
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B and Class D shares). The Distributor may reallow all or
portions of such sales charges as concessions to dealers. For the fiscal years
ended June 30, 1993, 1994 and 1995, total sales charges on Class A shares paid
to the Distributor amounted to approximately $223,639, $218,494 and $93,586,
respectively. For the same periods, the Distributor retained $33,002, $25,672
and $10,670, respectively, after reallowance of concessions to dealers.
The differences in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements and managed fee-based programs, the
amount of the sales charge reduction will similarly reflect the anticipated
reduction in sales expenses associated with such arrangements. The reduction in
sales expenses, and therefore the reduction in sales charge, will vary depending
on factors such as the size and other characteristics of the organization or
program, and the nature of its membership or the participants. The Fund reserves
the right to make variations in, or eliminate, sales charges at any time or to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
arrangements at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission on the shares sold. Such commission also is
payable to authorized securities dealers upon sales of Class A shares made
pursuant to a Letter of Intent to purchase shares having a net asset value of
$1,000,000 or more. Shares sold with such commissions payable are subject
36
<PAGE>
to a one-year contingent deferred sales charge of 1.00% on any portion of such
shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
For the periods shown below, the Distributor received contingent
deferred sales charges upon redemption of Class A, Class B and Class D shares
and paid initial commissions to securities dealers for sales of such Class A,
Class B and Class D shares as follows:
<TABLE>
<CAPTION>
June 1, 1993
(commencement
of share class
Fiscal Year Fiscal Year designations) to
Ended June 30, 1995 Ended June 30, 1994 June 30, 1993
------------------------------- ------------------------------- -----------------------
Contingent Commissions Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers Sales Charges Dealers
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Class A $21,450 $0 $0 $0 $0 $0
Class B $36,122 $29,957 $8,308 $163,664 $0 $15,233
Class D $1,185 $0 $310 $ 15,955 $0 $502
</TABLE>
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1"
(the "Distribution Plan") under which the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of Class A, Class B and Class D shares, including, but not limited to, (1) the
payment of commissions and/or reimbursement to underwriters, securities dealers
and others engaged in the sale of shares, including payments to the Distributor
to be used to pay commissions and/or reimbursement to securities dealers (which
securities dealers may be affiliates of the Distributor) engaged in the
distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the servicing of investor accounts including special promotional fees and cash
and noncash incentives based upon sales by securities dealers, expenses relating
to the formulation and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, the preparation, printing and
distribution of Prospectuses of the Fund and reports for recipients other than
existing shareholders of the Fund, and obtaining such information, analyses and
reports with respect to marketing and promotional activities and investor
accounts as the Fund may, from time to time, deem advisable, and (3)
reimbursement of expenses incurred by the Distributor in connection with the
servicing of shareholder accounts including payments to securities dealers and
others in
37
<PAGE>
consideration of the provision of personal services to investors and/or the
maintenance of shareholder accounts and expenses associated with the provision
of personal services by the Distributor directly to investors. In addition, the
Distribution Plan is deemed to authorize the Distributor and the Investment
Manager to make payments out of general profits, revenues or other sources to
underwriters, securities dealers and others in connection with sales of shares,
to the extent, if any, that such payments may be deemed to be within the scope
of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class D shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class D
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class D shares (as the case may be) to make payments for personal
services and/or the maintenance of shareholder accounts. Proceeds from the
service fee will be used by the Distributor to compensate securities dealers and
others selling shares of the Fund for rendering service to shareholders on an
ongoing basis. Such amounts are based on the net asset value of shares of the
Fund held by such dealers as nominee for their customers or which are owned
directly by such customers for so long as such shares are outstanding and the
Distribution Plan remains in effect with respect to the Fund. Any amounts
received by the Distributor and not so allocated may be applied by the
Distributor as reimbursement for expenses incurred in connection with the
servicing of investor accounts. The distribution and servicing expenses of a
particular class will be borne solely by that class.
38
<PAGE>
During the fiscal year ended June 30, 1995, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
<TABLE>
<CAPTION>
Class A Class B Class D
------- ------- -------
<S> <C> <C> <C>
Advertising $ 5,671 $ 0 $ 1,338
Printing and mailing
of prospectuses to
other than current
shareholders 1,810 0 427
Compensation to dealers 82,408 64,359 11,751
Compensation to sales
personnel 16,914 0 3,990
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses; marketing; general 13,185 0 3,110
---------- ---------- ----------
Total fees $119,988 $64,359 $20,616
========== ========= =========
</TABLE>
The Distributor may have also used additional resources of its own for further
expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect
financial interest in the operation of the Distribution Plan or any related
agreements thereunder. The Distributor's interest in the Distribution Plan is
described above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Fund will attempt to make
alternative arrangements for such services for shareholders who acquired shares
through such institutions.
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") of
the Class A, Class B, Class C and Class D shares of the Fund will be
calculated as set forth below. Total
39
<PAGE>
return is computed separately for each class of shares of the Fund. Performance
data for a specified class includes periods prior to the adoption of class
designations. Shares of the Fund 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.
The performance data below reflects Rule 12b-1 fees and, where
applicable, sales charges as follows:
<TABLE>
<CAPTION>
Rule 12b-1 Fees Sales Charges
--------------------------------------------------- ---------------------------------
Current
Class Amount Period
<S> <C> <C> <C>
A 0.25% 0.50% until March 10, 1995; Maximum 4.5% sales charge reflected
0.25% thereafter
B 1.00% 0.50% until June 1, 1993; 1.00% 1- and 5-year periods reflect a 5% and
June 1, 1993 to present; fee will reduce a 2% contingent deferred sales charge,
performance for periods after June 1, respectively
1993
C None 0.50% until June 1, 1993; None
0% thereafter
D 1.00% 0.50% until June 1, 1993; 1.00% 1-year period reflects a 1% contingent
June 1, 1993 to present; fee will reduce deferred sales charge
performance for periods after June 1,
1993
</TABLE>
All calculations of performance data in this section reflect the
voluntary measures by the Fund's affiliates to reduce fees or expenses relating
to the Fund; see "Accrued Expenses" later in this section.
Total Return
The Fund's average annual total return ("standard total return") of
each class of shares was as follows:
<TABLE>
<CAPTION>
Commencement of
Operations Five Years One Year
(March 2, 1990) Ended Ended
to June 30, 1995 June 30, 1995 June 30, 1995
---------------- ------------- -------------
With Without With Without With Without
Subsidy Subsidy Subsidy Subsidy Subsidy Subsidy
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Class A -0.40% -1.01% 0.80% 0.16% -1.92% -2.95%
Class B 0.26% -0.40% 1.13% 0.43% -2.88% -3.96%
Class C 0.63% -0.06% 1.91% 1.19% 3.11% 2.03%
Class D 0.24% -0.40% 1.49% 0.82% 1.12% 0.04%
</TABLE>
40
<PAGE>
Standard total return is computed separately for each class of shares
by determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value, in accordance with the following formula:
P(1+T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated
period assuming a hypothetical $1,000 payment made at
the beginning of the designated period
The calculation is based on the further assumptions that the maximum
initial or contingent deferred sales charge applicable to the investment is
deducted, and that all dividends and distributions by the Fund are reinvested at
net asset value on the reinvestment dates during the periods. All accrued
expenses and recurring charges are also taken into account as described later
herein.
Accrued Expenses
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return results take sales charges, if applicable, into account,
although the results do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class D shares for periods which end no
earlier than the most recent calendar quarter end and which begin twelve months
before, five years before and at the time of commencement of the Fund's
operations. In addition, the Fund may provide nonstandardized total return
results for differing periods, such as for the most recent six months, and/or
without taking sales charges into account. Such nonstandardized total return is
computed as otherwise described under "Total Return" except the result may or
may not be annualized,
41
<PAGE>
and as noted any applicable sales charge, if any, may not be taken into account
and therefore not deducted from the hypothetical initial payment of $1,000. For
example, the Fund's nonstandardized total returns for the six months ended
June 30, 1995 without taking sales charges into account, were as follows:
With Without
Subsidy Subsidy
------ ------
Class A 13.22% 12.62%
Class B 12.85% 12.25%
Class C 13.40% 12.80%
Class D 12.86% 12.26%
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing professional services
including (1) audit of the Fund's annual financial statements, (2) assistance
and consultation in connection with Securities and Exchange Commission filings
and (3) review of the annual income tax returns filed on behalf of the Fund.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a
semiannual basis, other supplementary financial reports may be made available
from time to time and holders of record may request a copy of a current
supplementary report, if any, by calling State Street Research Shareholder
Services.
The following financial statements are for the Fund's fiscal year ended
June 30, 1995:
42
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
INVESTMENT PORTFOLIO
June 30, 1995
Value
Shares (Note 1)
-------------- ----------------
EQUITY SECURITIES 98.6%
Basic Industries 5.3%
Metal & Mining 5.3%
Aber Resources, Ltd.* 40,000 $ 287,500
Crown Resources Corp.* 100,000 462,500
Cyprus Amax Minerals Co. 5,000 142,500
DeBeers Consolidated Mines Ltd. ADR 1,000 25,875
Dia Met Minerals Ltd. Cl. A* 5,000 47,324
Dia Met Minerals Ltd. Cl. B* 20,000 196,578
Gibraltar Mines Ltd.* 30,000 144,703
Magma Copper Co. Cl. B* 15,000 243,750
Southernera Resources Ltd.* 80,000 267,929
TVX Gold, Inc.* 30,000 217,500
----------------
2,036,159
----------------
Total Basic Industries 2,036,159
----------------
Energy 84.6%
Oil 60.8%
Abacan Resource Corp.* 129,900 392,490
Ballistic Energy Corp.* 80,000 458,682
Basin Exploration, Inc.* 55,200 327,750
Belden & Blake Corp.* 30,000 487,500
Tom Brown, Inc.* 100,000 1,487,500
CS Resources Ltd.* 200,000 1,201,311
Coda Energy, Inc.* 75,000 515,625
Crystal Oil Corp.* 41,600 1,279,200
Discovery West Corp.* 70,000 203,859
Edisto Resources Corp.* 25,000 181,250
Forest Oil Corp.* 150,000 243,750
Fortune Petroleum Corp.* 75,000 173,438
Garnet Resources Corp.* 60,000 135,000
Gerrity Oil & Gas Co.* 110,000 371,250
Global Natural Resources Inc.* 165,500 1,779,125
Intensity Resources, Ltd.* 270,400 600,451
Inverness Petroleum Ltd.* 98,967 531,403
Louisiana Land & Exploration Co. 5,000 199,375
Morgan Hydrocarbons, Inc.* 300,000 873,680
Nuevo Energy Co.* 70,000 1,408,750
Optima Petroleum Corp.* 46,700 113,831
Oryx Energy Co.* 39,700 545,875
Phoenix Resource Cos., Inc. 95,900 3,044,825
Plains Resources, Inc.* 120,000 1,050,000
Ranchmens Resources Ltd.* 60,000 196,578
Ranger Oil Ltd.* 250,000 1,562,500
Oil (cont'd)
Richland Petroleum Corp.* 40,000 $ 269,385
Summit Resources Ltd. 60,600 716,964
Swift Energy Co.* 53,110 484,629
Tatham Offshore, Inc.* 100,000 350,000
Tipperary Corp.* 20,700 120,319
Ulster Petroleum Ltd.* 275,000 1,001,092
United Meridian Corp.* 22,800 353,400
Wascana Energy, Inc.* 50,000 432,290
Clayton Williams Energy, Inc.* 40,000 120,000
XCL Ltd.* 117,200 95,225
----------------
23,308,302
----------------
Oil Service 23.8%
Atwood Oceanics, Inc.* 4,100 65,856
BJ Services Co.* 38,000 864,500
Dawson Geophysical Co.* 20,000 235,000
Dreco Energy Services Ltd.* 30,000 435,000
Energy Ventures, Inc.* 57,600 1,036,800
Ensco International, Inc.* 40,000 635,000
Grant Geophysical, Inc.* 70,000 148,750
Landmark Graphics Corp.* 15,000 382,500
J. Ray McDermott S.A.* 6,800 150,450
Nabors Industries, Inc.* 67,200 554,400
Noble Drilling Corp.* 175,000 1,290,625
Nowsco Well Service Ltd. 100,000 975,000
Oceaneering International, Inc.* 25,600 227,200
Pool Energy Services Co.* 70,000 577,500
Rowan Companies, Inc.* 50,000 406,250
Solid State Geophysical, Inc.* 9,500 40,635
TMBR/Sharp Drilling, Inc.* 50,000 346,875
Tesco Corp.* 50,000 107,390
Tuboscope Vetco International Corp.* 75,000 478,125
Unit Corp.* 50,000 181,250
----------------
9,139,106
----------------
Total Energy 32,447,408
----------------
Utility 8.7%
Natural Gas 8.7%
ENSERCH Corp. 80,000 1,370,000
TransTexas Gas Corp.* 129,500 1,958,687
----------------
3,328,687
----------------
Total Utility 3,328,687
----------------
Total Equity Securities (Cost
$34,815,947) 37,812,254
----------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
Principal Maturity Value
Amount Date (Note 1)
------------ ------------ -------------
SHORT-TERM OBLIGATIONS 2.9%
American Express Credit
Corp., 5.85% $398,000 7/5/1995 $ 398,000
American Express Credit
Corp., 5.80% 152,000 7/6/1995 152,000
Ford Motor Credit Co., 5.92% 566,000 7/3/1995 566,000
-------------
Total Short-Term Obligations (Cost $1,116,000) 1,116,000
-------------
Total Investments (Cost $35,931,947)--101.5% 38,928,254
Cash and Other Assets, Less Liabilities--(1.5)% (569,266)
-------------
Net Assets--100.0% $38,358,988
=============
Federal Income Tax Information:
At June 30, 1995, the net unrealized appreciation of
investments based on cost for Federal income tax purposes of
$36,019,398 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost $ 8,104,767
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value (5,195,911)
-------------
$ 2,908,856
=============
* Nonincome-producing securities
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
Diversification of Equity Securities and Short-Term Obligations at June 30,
1995 (as a percentage of net assets) was United States 80.2%, Canada 19.7%
and South Africa 0.1%.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995
Assets
Investments, at value (Cost $35,931,947) (Note 1) $38,928,254
Cash 1,884
Receivable for fund shares sold 74,499
Receivable from Distributor (Note 3) 10,907
Dividends and interest receivable 4,470
Other assets 1,630
------------
39,021,644
Liabilities
Payable for securities purchased 310,240
Payable for fund shares redeemed 149,085
Accrued transfer agent and shareholder services
(Note 2) 89,605
Accrued management fee (Note 2) 25,738
Accrued distribution fee (Note 5) 14,402
Accrued trustees' fees (Note 2) 4,507
Other accrued expenses 69,079
------------
662,656
------------
Net Assets $38,358,988
============
Net Assets consist of:
Unrealized appreciation of investments $ 2,996,307
Accumulated net realized loss (4,928,307)
Shares of beneficial interest 40,290,988
------------
$38,358,988
============
Net Asset Value and redemption price per share of
Class A shares ($25,691,662 / 2,112,869 shares of
beneficial interest) $12.16
============
Maximum Offering Price per share of Class A shares
($12.16 / .955) $12.73
============
Net Asset Value and offering price per share of
Class B shares ($7,029,514 / 584,193 shares of
beneficial interest)* $12.03
============
Net Asset Value, offering price and redemption
price per share of Class C shares ($3,287,790 /
267,853 shares of beneficial interest) $12.27
============
Net Asset Value and offering price per share of
Class D shares ($2,350,022 / 195,480 shares of
beneficial interest)* $12.02
============
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
STATEMENT OF OPERATIONS
For the year ended June 30, 1995
Investment Income
Dividends, net of foreign taxes of $7,810 $ 94,420
Interest 36,910
------------
131,330
Expenses
Transfer agent and shareholder services (Note 2) 303,332
Management fee (Note 2) 284,926
Custodian fee 71,781
Registration fees 48,427
Reports to shareholders 33,122
Audit fee 30,449
Distribution fee--Class A (Note 5) 119,988
Distribution fee--Class B (Note 5) 64,359
Distribution fee--Class D (Note 5) 20,616
Amortization of organization costs (Note 1) 15,762
Trustees' fees (Note 2) 14,971
Legal fees 3,579
Miscellaneous 7,035
------------
1,018,347
Expenses borne by the Distributor (Note 3) (307,559)
------------
710,788
------------
Net investment loss (579,458)
------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized loss on investments (Notes 1 and 4) (1,268,036)
Net unrealized appreciation of investments 2,488,313
------------
Net gain on investments 1,220,277
------------
Net increase in net assets resulting from operations $ 640,819
============
STATEMENT OF CHANGES IN NET ASSETS
Year ended June 30
1995 1994
------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $ (579,458) $ (566,197)
Net realized loss on
investments and foreign
currency* (1,268,036) (93,001)
Net unrealized appreciation
(depreciation) of investments 2,488,313 (3,484,508)
----------- ------------
Net increase (decrease)
resulting from operations 640,819 (4,143,706)
----------- ------------
Net increase (decrease) from
fund share transactions
(Note 7) (2,185,277) 8,751,694
----------- ------------
Total increase (decrease) in
net assets (1,544,458) 4,607,988
Net Assets
Beginning of year 39,903,446 35,295,458
----------- ------------
End of year $38,358,988 $39,903,446
=========== ============
* Net realized loss for
Federal income tax purposes
(Note 1) $(1,203,874) $ (760,656)
=========== ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1995
Note 1
State Street Research Global Resources Fund, formerly State Street Research
Global Energy Fund (the "Fund"), is a series of MetLife-State Street Equity
Trust (the "Trust"), which was organized as a Massachusetts business trust in
March, 1986 and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund commenced
operations in March, 1990. The Trust presently consists of four separate
funds: State Street Research Global Resources Fund, MetLife-State Street
Research Capital Appreciation Fund, MetLife-State Street Research Equity
Income Fund and MetLife-State Street Research Equity Investment Fund.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Prior to March 10, 1995, Class A shares paid annual
distribution and service fees of 0.50% of average daily net assets.
Investments of $1 million or more in Class A shares, which are not subject to
any initial sales charge, are subject to a 1.00% contingent deferred sales
charge if redeemed within one year of purchase. Class B shares are subject to
a contingent deferred sales charge on certain redemptions made within five
years of purchase and pay annual distribution and service fees of 1.00%.
Class B shares automatically convert into Class A shares (which pay lower
ongoing expenses) at the end of eight years after the issuance of the Class B
shares. Class C shares are only offered 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 a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, relating specifically to that class.
The Trustees declare separate dividends on each class of shares
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Values for listed securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at closing prices
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are
at the mean of the closing bid and asked quotations. Securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate. Gains and losses that arise from changes in exchange rates are not
segregated from gains and losses that arise from changes in market prices of
investments. Short-term securities maturing within sixty days are valued at
amortized cost. Other securities, if any, are valued at their fair value as
determined in accordance with established methods consistently applied.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
C. Net Investment Income
Investment income is accrued daily as earned. Dividend income is accrued on
the ex-dividend date. The Fund is charged for expenses directly attributable
to it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested semiannually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gains distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods. At June 30, 1995, the Fund
had a capital loss carryforward of $4,210,961 available, to the extent
provided in regulations, to offset future capital gains, if any, of which
$278,720, $1,767,752, $199,959, $760,656 and $1,203,874 expire on June 30,
1999, 2000, 2001, 2002 and 2003, respectively.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1993
through June 30, 1994, the Fund incurred net capital losses of $649,003 and
it has deferred and treated such losses as arising in the fiscal year ending
June 30, 1995. From November 1, 1994 through June 30, 1995, the Fund incurred
net capital losses of approximately $630,000 and it intends to defer and
treat such losses as arising in the fiscal year ending June 30, 1996.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and amortized under the straight-line method over a period of
five years.
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
NOTES (cont'd)
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly-owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.75% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended June 30, 1995, the fees pursuant to such
agreement amounted to $284,926.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly-owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance
of the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through
or under which shares of the Fund may be purchased. During the year ended
June 30, 1995, the amount of such shareholder servicing and account
maintenance expenses was $72,518.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $14,971 during the year ended June 30, 1995.
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended June 30, 1995, the amount of such expenses
assumed by the Distributor and its affiliates was $307,559.
Note 4
For the year ended June 30, 1995, purchases and sales of securities,
exclusive of short-term obligations, aggregated $23,450,521 and $26,659,165,
respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940, as amended. Under the Plan,
the Fund pays annual service fees to the Distributor at a rate of 0.25% of
average daily net assets for Class A, Class B and Class D shares. In
addition, the Fund pays annual distribution fees of 0.75% of average daily
net assets for Class B and Class D shares. Prior to March 10, 1995, the Fund
paid annual distribution fees of 0.25% of average daily net assets for Class
A shares. The Distributor uses such payments for personal services and/or the
maintenance of shareholder accounts, to reimburse securities dealers for
distribution and marketing services, to furnish ongoing assistance to
investors and to defray a portion of its distribution and marketing expenses.
For the year ended June 30, 1995, fees pursuant to such plan amounted to
$119,988, $64,359 and $20,616 for Class A, Class B and Class D, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly-owned subsidiary of Metropolitan, earned initial sales charges
aggregating $10,670 and $24,466, respectively, on sales of Class A shares of
the Fund during the year ended June 30, 1995, and that MetLife Securities,
Inc. earned commissions aggregating $29,957 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges of $21,450,
$36,122 and $1,185 on redemptions of Class A, Class B and Class D shares,
respectively, during the same period.
Note 6
Under normal market conditions the Fund invests not less than 65% of its
total assets in equity securities of domestic and foreign companies in the
energy and natural resources industries. Also, the Fund may invest up to 35%
of its total assets in the securities of issuers in industries that are not
related to the energy or natural resources industries. Accordingly, the
Fund's investments will fluctuate in response to a variety of economic,
political and other factors peculiar to the energy industries and may
fluctuate more widely than a portfolio that invests in a broader range of
industries.
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
Note 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At June 30, 1995,
Metropolitan owned 38,491 Class D shares and the Distributor owned one Class
A share of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended June 30
-------------------------------------------------------
1995 1994
------------------------- ---------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,514,296 $ 28,346,425 2,293,708 $ 27,669,872
Shares repurchased (2,992,842) (33,679,131) (2,182,001) (26,635,350)
---------- ----------- ---------- -------------
Net increase
(decrease) (478,546) $ (5,332,706) 111,707 $ 1,034,522
========== =========== ========== =============
Class B Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
Shares sold 314,583 $ 3,497,941 652,256 $ 7,742,089
Shares repurchased (267,978) (3,006,916) (192,274) (2,299,142)
---------- ----------- ---------- -------------
Net increase 46,605 $ 491,025 459,982 $ 5,442,947
========== =========== ========== =============
Class C Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
Shares sold 280,275 $ 3,409,713 137,750 $ 1,700,753
Shares repurchased (93,086) (1,092,177) (67,902) (824,239)
---------- ----------- ---------- -------------
Net increase 187,189 $ 2,317,536 69,848 $ 876,514
========== =========== ========== =============
Class D Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
Shares sold 108,958 $ 1,239,952 176,812 $ 2,112,870
Shares repurchased (77,489) (901,084) (56,352) (715,159)
---------- ----------- ---------- -------------
Net increase 31,469 $ 338,868 120,460 $ 1,397,711
========== =========== ========== =============
</TABLE>
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each year.
<TABLE>
<CAPTION>
Class A Class B
---------------------------------------------------- ---------------------------------
June 1,
1993
(Commencement
of Share
Class
Designations)
Year ended June 30 Year ended June 30 to
---------------------------------------------------- ------------------ June 30,
1995** 1994** 1993 1992 1991 1995** 1994** 1993
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.84 $13.51 $8.02 $9.12 $11.23 $11.78 $13.51 $12.99
Net investment income (loss)* (.16) (.17) (.13) (.12) .03 (.23) (.23) (.02)
Net realized and unrealized gain
(loss) on investments .48 (1.50) 5.62 (.98) (2.07) .48 (1.50) .54
Distribution from net realized
gains -- -- -- -- (.06) -- -- --
Dividends from net investment
income -- -- -- -- (.01) -- -- --
------- ------- ------- ------- ------- ------- ------- -----------
Net asset value, end of year $12.16 $11.84 $13.51 $8.02 $9.12 $12.03 $11.78 $13.51
======= ======= ======= ======= ======= ======= ======= ===========
Total return 2.70%+ (12.36)%+ 68.45%+ (12.06)%+ (18.28)%+ 2.12%+ (12.81)%+ 4.00%++
Net assets at end of year (000s) $25,692 $30,679 $33,513 $19,227 $29,760 $7,030 $6,333 $1,048
Ratio of operating expenses to
average net assets* 1.75% 1.75% 1.75% 1.75% 1.75% 2.33% 2.25% 2.25%+++
Ratio of net investment income
(loss) to average net assets (1.41)% (1.46)% (1.44)% (1.16%) 0.25% (1.98)% (1.93)% (1.98)%+++
Portfolio turnover rate 62.94% 30.98% 61.00% 47.09% 108.18% 62.94% 30.98% 61.00%
*Reflects voluntary assumption of
fees or expenses per share in each
year (Note 3). $ .09 $ .11 $ .03 $ .05 $ .03 $ .09 $ .14 $ .00
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
--------------------------------------- -----------------------------------------
June 1,
1993 June 1, 1993
(Commencement (Commencement
of of
Share Class Share Class
Designations) Designations)
Year ended June 30 to Year ended June 30 to
------------------- June 30, ------------------ June 30,
1995** 1994** 1993 1995** 1994** 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.90 $13.52 $12.99 $11.77 $13.51 $12.99
Net investment loss* (.11) (.15) (.00) (.23) (.23) (.02)
Net realized and unrealized gain (loss)
on investments .48 (1.47) .53 .48 (1.51) .54
----------- ----------- ----------- ----------- ----------- ------------
Net asset value, end of year $12.27 $11.90 $13.52 $12.02 $11.77 $13.51
=========== =========== =========== =========== =========== ============
Total return 3.11%+ (11.98)%+ 4.08%++ 2.12%+ (12.88)%+ 4.00%++
Net assets at end of year (000s) $3,288 $960 $146 $2,350 $1,931 $588
Ratio of operating expenses to average
net assets* 1.33% 1.25% 1.25%++ 2.33% 2.25% 2.25%+++
Ratio of net investment loss to average
net assets* (1.01)% (0.95)% (1.05)%++ (1.99)% (1.94)% (2.00)%+++
Portfolio turnover rate 62.94% 30.98% 61.00% 62.94% 30.98% 61.00%
*Reflects voluntary assumption of fees
or expenses per share in each year
(Note 3). $ .08 $ .16 $ .00 $ .09 $ .13 $ .00
</TABLE>
**Per share figures have been calculated using the average shares method.
+++Annualized
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of MetLife-State Street
Equity Trust and the Shareholders of
State Street Research Global Resources Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research Global
Resources Fund (formerly State Street Research Global Energy Fund) (a series
of MetLife-State Street Equity Trust, hereafter referred to as the "Trust")
at June 30, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trust's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
August 4, 1995
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Global Resources Fund (formerly Global Energy Fund) underperformed the
average for Lipper Analytical Services' natural resources fund category for
the 12 months ended June 30, 1995 (does not reflect sales charge). The sharp
drop in natural gas prices caused Fund performance to decline. Historically,
the Fund's performance has been closely linked to natural gas and oil prices.
Currently, the Fund has substantial holdings in small-capitalization stocks,
which typically experience greater price fluctuation than larger stocks.
Generally, we target stocks that offer long-term growth, low debt levels, and
attractive valuations.
Our oil holdings focus on small exploration companies. Oil service stocks
represent nearly 25% of the portfolio. This percentage is lower than in the
past because of mergers and acquisitions among the many small oil service
companies. We took advantage of sharp price declines and added to our natural
gas holdings late in 1994.
The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
traded common stocks and is a commonly used measure of U.S. stock market
performance. The index is unmanaged and does not take sales charges into
consideration. Direct investment in the index is not possible; results are
for illustrative purposes only. All returns represent past performance, which
is no guarantee of future results. The investment return and principal value
of an investment made in the Fund will fluctuate and shares, when redeemed,
may be worth more or less than their original cost. All returns assume
reinvestment of capital gain distributions and income dividends. Performance
for a class includes periods prior to the adoption of class designations in
1993. Performance reflects up to a maximum 4.5% front-end sales charge or 5%
contingent deferred sales charge. "C" shares, offered without a sales charge,
are available only to certain employee benefit plans and institutions.
Performance for "B" and "D" shares prior to class designations in 1993
reflects annual 12b-1 fees of .50% and subsequent performance reflects annual
12b-1 fees of 1%. Performance results for the Fund are increased by the
Distributor's voluntary reduction of Fund fees and expenses. The first figure
reflects expense reduction; the second shows what results would have been
without subsidization.
Comparison Of Change In Value Of A $10,000
Investment In State Street Research
Global Resources Fund and The S&P 500
[line chart] Class A Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
- -1.92%/-2.95% +0.80%/+0.16% -0.40%/-1.01%
Global S&P
3/90 $ 9,550 $10,000
6/90 8,982 10,913
6/91 7,339 11,720
6/92 6,454 13,290
6/93 10,872 15,101
6/94 9,528 15,313
6/95 9,786 19,299
[line chart] Class B Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
- -2.88%/-3.96% +1.13%/+0.43% +0.26%/-0.40%
Global S&P
3/90 $10,000 $10,000
6/90 9,405 10,913
6/91 7,685 11,720
6/92 6,758 13,290
6/93 11,385 15,101
6/94 9,927 15,313
6/95 10,137 19,299
[line chart] Class C Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+3.11%/+2.03% +1.91%/+1.19% +0.63%/-0.06%
Global S&P
3/90 $10,000 $10,000
6/90 9,405 10,913
6/91 7,685 11,720
6/92 6,758 13,290
6/93 11,393 15,101
6/94 10,028 15,313
6/95 10,340 19,299
[line chart] Class D Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+1.12%/+0.04% +1.49%/+0.82% +0.24%/-0.40%
Global S&P
3/90 $10,000 $10,000
6/90 9,405 10,913
6/91 7,685 11,720
6/92 6,758 13,290
6/93 11,385 15,101
6/94 9,918 15,313
6/95 10,129 19,299
[legend for line charts]
solid line = Global Resources Fund
broken rule = S&P 500
