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
(As Supplemented April 11, 1996)
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
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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
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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.
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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);
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(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
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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
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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
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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
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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
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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
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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
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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:
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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
23
<PAGE>
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.
24
<PAGE>
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.
25
<PAGE>
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
26
<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.
27
<PAGE>
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.
28
<PAGE>
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.
29
<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.
30
<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
31
<PAGE>
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
32
<PAGE>
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
33
<PAGE>
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
34
<PAGE>
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
