State Street Research
Capital Appreciation Fund
Equity Investment Fund
Equity Income Fund
Prospectus--November 1, 1996
STATE STREET RESEARCH CAPITAL APPRECIATION FUND (the "Capital Appreciation
Fund" or the "Fund") seeks to achieve maximum capital appreciation by
investing primarily in common stocks of emerging growth companies and of
companies considered to be undervalued special situations. Current income is
not a consideration in the selection of investments for the Fund. The Fund
may engage in short-term trading of portfolio securities. See page 12.
STATE STREET RESEARCH EQUITY INVESTMENT FUND (the "Equity Investment Fund"
or the "Fund") seeks to achieve long-term growth of capital and, secondarily,
long-term growth of income by investing primarily in common stocks of
established companies with above-average prospects for growth. See page 12.
STATE STREET RESEARCH EQUITY INCOME FUND (the "Equity Income Fund" or the
"Fund") seeks to provide a high level of current income and, secondarily,
long-term growth of capital by investing primarily in common stocks offering
above-average dividend yields and in securities convertible into common
stocks. The Fund has authority to invest from time to time in lower rated
fixed income securities. See page 12.
State Street Research & Management Company serves as investment adviser
for the Funds (the "Investment Manager"). As of August 31, 1996, the
Investment Manager had assets of approximately $39.3 billion under
management. State Street Research Investment Services, Inc. serves as
distributor (the "Distributor") for the Funds.
Shareholders may have their shares redeemed directly by the Funds at net
asset value plus the applicable contingent deferred sales charge, if any;
redemptions processed through securities dealers may be subject to processing
charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that a Fund will
achieve its investment objective. The net asset value of a share of a Fund
will fluctuate as market conditions change.
This Prospectus sets forth concisely the information a prospective
investor ought to know about the Funds before investing. It should be
retained for future reference. A Statement of Additional Information about
the Funds dated November 1, 1996 has been filed with the Securities and
Exchange Commission and is incorporated by reference in this Prospectus. It
is available, at no charge, upon request to the Funds at the address
indicated on the back cover or by calling 1-800-562-0032.
Each Fund is a diversified series of State Street Research Equity Trust
(the "Trust"), an open-end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY,
AND INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
1
<PAGE>
Table of Contents Page
Table of Expenses ................................. 2
Financial Highlights .............................. 6
The Funds' Investments ............................12
Limiting Investment Risk ..........................16
Purchase of Shares ................................16
Redemption of Shares ..............................25
Shareholder Services ..............................27
The Funds and Their Shares ........................31
Management of the Funds ...........................32
Dividends and Distributions; Taxes ................33
Calculation of Performance Data ...................34
Appendix--Description of Debt/Bond Ratings ........36
The Funds offer four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5% and
(ii) an annual service fee of 0.25% of the average daily net asset value of
the Class A shares.
Class B shares are subject to (i) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees
of 1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1% if
redeemed within one year following purchase and (ii) annual distribution and
service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
Class A Class B Class C Class D
Shareholder Transaction
Expenses (1)
Maximum Sales Charge
Imposed on Purchases (as
a percentage of offering
price) 4.5% None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends (as a
percentage of offering
price) None None None None
Maximum Deferred Sales
Charge (as a percentage
of original purchase
price or redemption
proceeds, as applicable) None(2) 5% None 1%
Redemption Fees (as a
percentage of amount
redeemed,
if applicable) None None None None
Exchange Fee None None None None
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
thereafter and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the
sale. Long-term investors in a class of shares with a distribution fee
may, over a period of years, pay more than the economic equivalent of the
maximum sales charge permissible under applicable rules. See "Purchase of
Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
2
<PAGE>
Capital Appreciation Fund
Class A Class B Class C Class D
----------------------- --------- --------- --------- ----------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.75% 0.75% 0.75% 0.75%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.40% 0.40% 0.40% 0.40%
--------- --------- --------- ----------
Total Fund Operating
Expenses 1.40% 2.15% 1.15% 2.15%
========= ========= ========= ==========
Equity Investment Fund
Class A Class B Class C Class D
----------------------- --------- --------- --------- ----------
Annual Fund Operating
Expenses
(as a percentage of
average net assets)
Management Fees 0.65% 0.65% 0.65% 0.65%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.77% 0.77% 0.77% 0.77%
Less Voluntary
Reduction (0.42%) (0.42%) (0.42%) (0.42%)
--------- --------- --------- ----------
Total Fund Operating
Expenses
(after voluntary
reduction) 1.25% 2.00% 1.00% 2.00%
========= ========= ========= ==========
Equity Income Fund
Class A Class B Class C Class D
----------------------- --------- --------- --------- ----------
Annual Fund Operating
Expenses
(as a percentage of
average net assets)
Management Fees 0.65% 0.65% 0.65% 0.65%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.62% 0.62% 0.62% 0.62%
Less Voluntary
Reduction (0.27%) (0.27%) (0.27%) (0.27%)
--------- --------- --------- ----------
Total Fund Operating
Expenses
(after voluntary
reduction) 1.25% 2.00% 1.00% 2.00%
========= ========= ========= ==========
3
<PAGE>
Example:
You would pay the following expenses on a $1,000 investment including, for
Class A shares, the maximum applicable initial sales charge and assuming (1)
5% annual return and (2) redemption of the entire investment at the end of
each time period:
Capital Appreciation Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------- -------- --------- --------- -----------
Class A shares $59 $87 $118 $205
Class B shares (1) $72 $97 $135 $229
Class C shares $12 $37 $ 63 $140
Class D shares $32 $67 $115 $248
Equity Investment Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------- -------- --------- --------- -----------
Class A shares $57 $83 $111 $189
Class B shares (1) $70 $93 $128 $213
Class C shares $10 $32 $ 55 $122
Class D shares $30 $63 $108 $233
Equity Income Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------- -------- --------- --------- -----------
Class A shares $57 $83 $111 $189
Class B shares (1) $70 $93 $128 $213
Class C shares $10 $32 $ 55 $122
Class D shares $30 $63 $108 $233
You would pay the following expenses on the same investment, assuming no
redemption:
Capital Appreciation Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------- -------- --------- --------- -----------
Class B shares (1) $22 $67 $115 $229
Class D shares $22 $67 $115 $248
Equity Investment Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------- -------- --------- --------- -----------
Class B shares (1) $20 $63 $108 $213
Class D shares $20 $63 $108 $233
Equity Income Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------- -------- --------- --------- -----------
Class B shares (1) $20 $63 $108 $213
Class D shares $20 $63 $108 $233
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense levels shown in the table above are based
on experiences with expenses during the fiscal year ended June 30, 1996;
actual expense levels for the current fiscal year and future years may vary
from the amounts shown. The table does not reflect charges for optional
services elected by certain shareholders, such as the $7.50 fee for
remittance of redemption proceeds by wire. For further information on sales
charges, see "Purchase of Shares--Alternative Purchase Program"; for further
information on management fees, see "Management
4
<PAGE>
of the Funds"; and for further information on 12b-1 fees, see "Purchase of
Shares--Distribution Plan."
The Equity Investment Fund and the Equity Income Fund have been advised
that the Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to such
Funds. For the fiscal year ended June 30, 1996, Total Fund Operating Expenses
as a percentage of average net assets of Class A, Class B, Class C and Class
D shares, respectively, would have been 1.67%, 2.42%, 1.42% and 2.42% of the
Equity Investment Fund, and 1.52%, 2.27%, 1.27% and 2.27% of the Equity
Income Fund, in the absence of the voluntary assumption of fees or expenses
by the Distributor and its affiliates. Such assumption of fees or expenses,
as a percentage of average net assets, amounted to 0.42% and 0.27% for each
class of shares of the Equity Investment Fund and the Equity Income Fund,
respectively. The Equity Investment Fund and the Equity Income Fund expect
the subsidization of fees or expenses to continue in the current year,
although they cannot give complete assurance that such assistance will be
received.
5
<PAGE>
Financial Highlights
The data set forth below has been audited by Price Waterhouse LLP,
independent accountants, and their reports thereon for the latest five years
are included in the Statement of Additional Information. For further
information about the performance of the Funds, see "Financial Statements" in
the Statement of Additional Information.
Capital Appreciation Fund
Class A
----------------------------------------------
Year ended June 30
----------------------------------------------
1996** 1995** 1994 1993
----------- ----------- ----------------------
Net asset value,
beginning of year $ 11.52 $ 9.11 $ 10.42 $ 8.33
Net investment income
(loss)* (.10) (.09) (.04) (.05)
Net realized and
unrealized gain
(loss) on
investments 2.63 2.95 .09 2.81
Dividends from net
investment income -- -- -- --
Dividends in excess of
net investment
income -- -- -- --
Distributions from net
realized gains (1.29) (.45) (1.36) (.67)
----------- ----------- ----------------------
Net asset value, end
of year $ 12.76 $ 11.52 $ 9.11 $ 10.42
=========== =========== ======================
Total return 23.87%+ 32.56%+ (0.28%)+ 35.78%+
Net assets at end of
year (000s) $395,050 $296,471 $231,356 $183,886
Ratio of operating
expenses to average
net assets* 1.40% 1.55% 1.50% 1.50%
Ratio of net
investment income
(loss) to average
net assets* (0.79)% (0.87)% (0.81)% (0.63)%
Portfolio turnover
rate 279.55% 217.28% 147.73% 135.17%
*Reflects voluntary
assumption of fees or
expenses per share in
each year -- $ 0.03 $ 0.02 $ 0.01
<TABLE>
<CAPTION>
August 25, 1986
(Commencement of
Operations)
to
1992 1991 1990 1989 1988 June 30, 1987
----------- ----------- --------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 6.55 $ 6.70 $ 6.46 $ 5.49 $ 5.93 $ 4.66
Net investment income
(loss)* (.05) (.01) .02 .02 .04 .01
Net realized and
unrealized gain
(loss) on
investments 1.83 (.12) 1.04 .96 (.23) 1.27
Dividends from net
investment income -- (.01) (.02) (.01) (.04) (.01)
Dividends in excess of
net investment
income -- (.01) -- -- -- --
Distributions from net
realized gains -- -- (.80) -- (.21) --
----------- ----------- --------- --------- ----------- ----------------
Net asset value, end
of year $ 8.33 $ 6.55 $ 6.70 $ 6.46 $ 5.49 $ 5.93
=========== =========== ========= ========= =========== ================
Total return 27.03%+ (1.69)%+ 17.25%+ 18.08%+ (3.43)%+ 27.70%++
Net assets at end of
year (000s) $116,687 $62,898 $59,093 $33,872 $29,757 $23,672
Ratio of operating
expenses to average
net assets* 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%++
Ratio of net
investment income
(loss) to average
net assets* (0.71)% (0.13)% 0.39% 0.29% 0.77% 0.31%++
Portfolio turnover
rate 128.10% 245.55% 238.94% 223.19% 330.50% 200.56%
*Reflects voluntary
assumption of fees or
expenses per share in
each year $ 0.01 $ 0.03 $ 0.02 $ 0.04 $ 0.04 $ 0.04
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower for each of the years in the
nine year period ended June 30, 1995 if the Distributor and its affiliates
had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
6
<PAGE>
Capital Appreciation Fund
<TABLE>
<CAPTION>
Class B June 1, 1993
--------------------------------- (Commencement)
of Share Class
Year ended June 30 (Designations)
--------------------------------- to
1996** 1995** 1994 June 30, 1993
----------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.38 $ 9.05 $ 10.41 $ 10.44
Net investment income (loss)* (.22) (.15) (.06) (.00)
Net realized and unrealized gain (loss)
on investments 2.62 2.93 .06 (.03)
Dividends from net investment income -- -- -- --
Dividends in excess of net investment
income -- -- -- --
Distributions from net realized gains (1.29) (.45) (1.36) --
----------- --------- ----------- -----------
Net asset value, end of year $ 12.49 $ 11.38 $ 9.05 $ 10.41
=========== ========= =========== ===========
Total return 22.97%+ 31.86%+ (0.83)%+ (0.29)%+++
Net assets at end of year (000s) $172,213 $93,088 $49,236 $2,790
Ratio of operating expenses to average
net assets* 2.15% 2.15% 2.00% 2.00%++
Ratio of net investment income (loss) to
average net assets* (1.53)% (1.47%) (1.29)% (0.95)%++
Portfolio turnover rate 279.55% 217.28% 147.73% 135.17%
*Reflects voluntary assumption of fees
or expenses per share in each year -- $ 0.02 $ 0.02 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class C
---------------------------------
June 1, 1993
Year ended June 30 (Commencement
of Share Class
--------------------------------- Designations)
to
1996** 1995** 1994 June 30, 1993
-------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.64 $ 9.16 $ 10.42 $ 10.44
Net investment income (loss)* (.08) (.05) (.02) .00
Net realized and unrealized gain (loss)
on investments 2.67 2.98 .12 (.02)
Dividends from net investment income -- -- -- --
Dividends in excess of net investment
income -- -- -- --
Distributions from net realized gains (1.29) (.45) (1.36) --
----------- ----------- --------- ---------------
Net asset value, end of year $ 12.94 $ 11.64 $ 9.16 $ 10.42
=========== =========== ========= ===============
Total return 24.28%+ 33.06%+ 0.25%+ (0.19)%+++
Net assets at end of year (000s) $167,624 $106,675 $62,662 $37,826
Ratio of operating expenses to average
net assets* 1.15% 1.15% 1.00% 1.00%++
Ratio of net investment income (loss) to
average net assets* (0.54)% (0.46)% (0.30)% 0.50%++
Portfolio turnover rate 279.55% 217.28% 147.73% 135.17%
*Reflects voluntary assumption of fees
or expenses per share in each year -- $ 0.02 $ 0.02 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class D
-------------------------------------------------
June 1, 1993
Year ended June 30 (Commencement
of Share Class
-------------------------------- Designations)
to
1996** 1995** 1994 June 30, 1993
-------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.41 $ 9.07 $ 10.41 $ 10.44
Net investment income (loss)* (.21) (.15) (.07) (.01)
Net realized and unrealized gain
(loss) on investments 2.61 2.94 .09 (.02)
Dividends from net investment income -- -- -- --
Dividends in excess of net
investment income -- -- -- --
Distributions from net realized
gains (1.29) (.45) (1.36) --
--------- --------- ----------- ---------------
Net asset value, end of year $ 12.52 $11.41 $ 9.07 $ 10.41
========= ========= =========== ===============
Total return 23.03%+ 31.79%+ (0.61)%+ (0.29)%+++
Net assets at end of year (000s) $7,120 $4,061 $2,201 $623
Ratio of operating expenses to
average net assets* 2.15% 2.15% 2.00% 2.00%++
Ratio of net investment income
(loss) to average net assets* (1.54)% (1.47)% (1.29)% (1.10)%++
Portfolio turnover rate 279.55% 217.28% 147.73% 135.17%
*Reflects voluntary assumption of
fees or expenses per share in
each year -- $ 0.02 $ 0.02 $ 0.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower for each of the years in the
nine year period ended June 30, 1995 if the Distributor and its affiliates
had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
7
<PAGE>
Equity Investment Fund
<TABLE>
<CAPTION>
Class A
------------------------------------------
Year ended June 30
------------------------------------------
1996** 1995** 1994 1993
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $14.28 $12.44 $14.52 $13.16
Net investment income .12 .08 .01 .04
Net realized and unrealized
gain (loss) on investments 3.38 2.14 .18 2.48
Dividends from net investment
income (.11) (.05) -- (.04)
Distributions from net realized
gains (.63) (.33) (2.27) (1.12)
--------- --------- --------- ----------
Net asset value, end of year $17.04 $14.28 $12.44 $14.52
========= ========= ========= ==========
Total return 25.33%+ 18.34%+ 0.93%+ 20.37%+
Net assets at end of year
(000s) $39,300 $31,174 $29,821 $26,933
Ratio of operating expenses to
average net assets* 1.25% 1.42% 1.50% 1.50%
Ratio of net investment income
(loss) to average net assets* 0.79% 0.64% 0.08% 0.23%
Portfolio turnover rate 44.44% 47.93% 62.93% 92.35%
*Reflects voluntary assumption
of fees or expenses per share
in each year $ 0.03 $ 0.06 $ 0.04 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
August 25,
1986
(Commencement
of
Operations)
to
1992 1991 1990 1989 1988 June 30, 1987
---------- ----------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.19 $12.15 $10.83 $ 9.70 $ 11.33 $ 9.31
Net investment income .05 .14 .22 .33 .28 .20
Net realized and
unrealized gain (loss)
on investments 1.99 (.89) 1.54 1.16 (.99) 1.94
Dividends from net
investment income (.07) (.19) (.29) (.31) (.22) (.12)
Distributions from net
realized gains -- (.02) (.15) (.05) (.70) --
---------- ----------- --------- --------- ----------- ---------------
Net asset value, end of
year $13.16 $11.19 $12.15 $10.83 $ 9.70 $ 11.33
========== =========== ========= ========= =========== ===============
Total return 18.27%+ (6.10)%+ 16.54%+ 15.87%+ (6.87)%+ 23.14%+++
Net assets at end of
year (000s) $48,473 $35,733 $35,647 $24,066 $25,197 $22,210
Ratio of operating
expenses to average
net assets* 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%++
Ratio of net investment
income (loss) to
average net assets* 0.43% 1.29% 1.99% 3.17% 2.92% 2.57%++
Portfolio turnover rate 81.89% 72.03% 43.22% 98.70% 175.30% 118.70%
*Reflects voluntary
assumption of fees or
expenses per share in
each year $ 0.02 $ 0.03 $ 0.04 $ 0.05 $ 0.05 $ 0.05
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
8
<PAGE>
Equity Investment Fund
<TABLE>
<CAPTION>
Class B June 1, 1993
------------------------------- (Commencement)
of Share Class
Year ended June 30 Designations)
------------------------------- to
1996** 1995** 1994 June 30, 1993
--------- --------- ---------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $14.16 $12.36 $14.51 $14.78
Net investment income (loss)* .01 .01 (.02) .00
Net realized and unrealized gain (loss) on
investments 3.34 2.12 .14 (.26)
Dividends from net investment income -- -- -- (.01)
Distributions from net realized gains (.63) (.33) (2.27) --
--------- --------- ---------- -----------
Net asset value, end of year $16.88 $14.16 $12.36 $14.51
========= ========= ========== ===========
Total return 24.39%+ 17.70%+ 0.37%+ (1.77)%+++
Net assets at end of year (000s) $13,129 $5,933 $4,029 $663
Ratio of operating expenses to average net
assets* 2.00% 2.00% 2.00% 2.00%++
Ratio of net investment income (loss) to
average net assets* 0.05% 0.08% (0.39)% 0.03%++
Portfolio turnover rate 44.44% 47.93% 62.93% 92.35%
*Reflects voluntary assumption of fees or
expenses per share in each year $ 0.03 $ 0.06 $ 0.04 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class C
--------------------------------
June 1, 1993
Year ended June 30 (Commencement
of Share Class
------------------------------- Designations)
to
1996** 1995** 1994 June 30, 1993
-------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $14.27 $12.48 $14.51 $14.78
Net investment income (loss)* .17 .14 .07 (.00)
Net realized and unrealized gain (loss) on
investments 3.37 2.15 .17 (.25)
Dividends from net investment income (.15) (.17) -- (.02)
Distributions from net realized gains (.63) (.33) (2.27) --
--------- --------- --------- ---------------
Net asset value, end of year $17.03 $14.27 $12.48 $14.51
========= ========= ========= ===============
Total return 25.66%+ 18.83%+ 1.41%+ (1.69)%+++
Net assets at end of year (000s) $70,177 $50,503 $32,991 $18,796
Ratio of operating expenses to average net
assets* 1.00% 1.00% 1.00% 1.00%++
Ratio of net investment income (loss) to
average net assets* 1.06% 1.09% 0.59% (0.39)%++
Portfolio turnover rate 44.44% 47.93% 62.93% 92.35%
*Reflects voluntary assumption of fees or
expenses per share in each year $ 0.03 $ 0.06 $ 0.06 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class D
-----------------------------------------------
June 1, 1993
(Commencement
Year ended June 30 of Share Class
Designations)
------------------------------- to
1996** 1995** 1994 June 30, 1993
-----------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $14.15 $12.36 $14.51 $14.78
Net investment income (loss)* .01 .01 (.05) .00
Net realized and unrealized gain
(loss) on investments 3.34 2.11 .17 (.26)
Dividends from net investment income -- -- -- (.01)
Distributions from net realized
gains (.63) (.33) (2.27) --
--------- --------- --------- ---------------
Net asset value, end of year $16.87 $14.15 $12.36 $14.51
========= ========= ========= ===============
Total return 24.40%+ 17.53%+ 0.45%+ (1.77)%+++
Net assets at end of year (000s) $931 $699 $551 $491
Ratio of operating expenses to
average net assets* 2.00% 2.00% 2.00% 2.00%++
Ratio of net investment income
(loss) to average net assets* 0.04% 0.08% (0.41)% 0.12%++
Portfolio turnover rate 44.44% 47.93% 62.93% 92.35%
*Reflects voluntary assumption of
fees or expenses per share in
each year $ 0.03 $ 0.06 $ 0.06 $ 0.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
9
<PAGE>
Equity Income Fund
Class A
------------------------------------------
Year ended June 30
------------------------------------------
1996** 1995** 1994 1993
--------- --------- --------- ----------
Net asset value, beginning of
year $11.70 $10.87 $10.79 $ 9.19
Net investment income* .23 .28 .24 .44
Net realized and unrealized gain
(loss) on investments 2.36 1.37 .25 1.52
Dividends from net investment
income (.28) (.28) (.26) (.36)
Distributions from net realized
gains (.16) (.54) (.15) --
--------- --------- --------- ----------
Net asset value, end of year $13.85 $11.70 $10.87 $10.79
========= ========= ========= ==========
Total return 22.41%+ 16.12%+ 4.30%+ 21.64%+
Net assets at end of year (000s) $44,464 $37,327 $40,484 $28,995
Ratio of operating expenses to
average net assets* 1.25% 1.42% 1.50% 1.50%
Ratio of net investment income
(loss) to average
net assets* 1.78% 2.55% 2.42% 3.76%
Portfolio turnover rate 111.13% 67.50% 73.96% 80.42%
*Reflects voluntary assumption of
fees or expenses per share in
each year $0.03 $0.05 $0.05 $0.01
<TABLE>
<CAPTION>
August
25, 1986
(Commencement
of
Operations)
to
1992 1991 1990 1989 1988 June 30, 1987
--------- ----------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 8.33 $ 9.83 $ 9.87 $ 8.93 $ 10.35 $ 9.31
Net investment income* .39 .45 .55 .47 .53 .38
Net realized and unrealized gain
(loss) on investments .83 (1.08) .54 .99 (.82) .86
Dividends from net investment
income (.36) (.48) (.52) (.51) (.66) (.20)
Distributions from net realized
gains -- (.39) (.61) (.01) (.47) --
--------- ----------- --------- --------- ----------- ---------------
Net asset value, end of year $ 9.19 $ 8.33 $ 9.83 $ 9.87 $ 8.93 $ 10.35
========= =========== ========= ========= =========== ===============
Total return 14.81%+ (6.51)%+ 11.33%+ 17.01%+ (2.35)%+ 13.42%+++
Net assets at end of year (000s) $51,585 $45,233 $49,842 $40,411 $30,315 $31,277
Ratio of operating expenses to
average net assets* 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%++
Ratio of net investment income
(loss) to average
net assets* 4.27% 5.30% 5.43% 5.20% 5.91% 5.59%++
Portfolio turnover rate 102.39% 131.43% 106.40% 87.43% 163.00% 74.24%
*Reflects voluntary assumption
of fees or expenses per share
in each year $ 0.01 $ 0.01 $ 0.02 $ 0.02 $ 0.03 $ 0.02
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
10
<PAGE>
Equity Income Fund
<TABLE>
<CAPTION>
June 1, 1993
Class B (Commencement
------------------------------- of Share Class
Year ended June 30 Designations)
------------------------------- to
1996** 1995** 1994 June 30, 1993
--------- --------- ---------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.68 $10.86 $10.79 $10.81
Net investment income* .13 .21 .21 .02
Net realized and unrealized gain (loss) on
investments 2.36 1.38 .21 (.02)
Dividends from net investment income (.19) (.23) (.20) (.02)
Distributions from net realized gains (.16) (.54) (.15) --
--------- --------- ---------- -------------
Net asset value, end of year $ 13.82 $11.68 $10.86 $10.79
========= ========= ========== =============
Total return 21.60%+ 15.43%+ 3.79%+ 0.05%+++
Net assets at end of year (000s) $25,543 $16,130 $10,752 $1,060
Ratio of operating expenses to average net
assets* 2.00% 2.00% 2.00% 2.00%++
Ratio of net investment income to average
net assets* 1.05% 1.95% 1.80% 1.53%++
Portfolio turnover rate 111.13% 67.50% 73.96% 80.42%
*Reflects voluntary assumption of fees or
expenses per share in each year $ 0.03 $ 0.05 $ 0.07 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class C
-------------------------------
June 1, 1993
Year ended June 30 (Commencement
of Share Class
------------------------------- Designations)
to
1996** 1995** 1994 June 30, 1993
------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.70 $10.86 $10.79 $10.81
Net investment income* .26 .32 .33 .03
Net realized and unrealized gain (loss) on
investments 2.36 1.39 .21 (.02)
Dividends from net investment income (.31) (.33) (.32) (.03)
Distributions from net realized gains (.16) (.54) (.15) --
--------- --------- --------- ---------------
Net asset value, end of year $ 13.85 $11.70 $10.86 $10.79
========= ========= ========= ===============
Total return 22.82%+ 16.64%+ 4.84%+ 0.14%+++
Net assets at end of year (000s) $39,298 $34,827 $20,266 $15,988
Ratio of operating expenses to average net
assets* 1.00% 1.00% 1.00% 1.00%++
Ratio of net investment income to average
net assets* 2.03% 2.93% 2.92% 1.65%++
Portfolio turnover rate 111.13% 67.50% 73.96% 80.42%
*Reflects voluntary assumption of fees or
expenses per share in each year $ 0.03 $ 0.05 $ 0.06 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class D
----------------------------------------------
June 1, 1993
(Commencement
Year ended June 30 of Share Class
Designations)
------------------------------ to
1996** 1995** 1994 June 30, 1993
----------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.67 $10.86 $10.79 $10.81
Net investment income* .13 .22 .21 .02
Net realized and unrealized gain
(loss) on investments 2.37 1.36 .21 (.02)
Dividends from net investment income (.19) (.23) (.20) (.02)
Distributions from net realized
gains (.16) (.54) (.15) --
--------- --------- -------- ---------------
Net asset value, end of year $ 13.82 $11.67 $10.86 $10.79
========= ========= ======== ===============
Total return 21.68%+ 15.33%+ 3.78%+ 0.04%+++
Net assets at end of year (000s) $1,386 $1,366 $1,280 $628
Ratio of operating expenses to
average net assets* 2.00% 2.00% 2.00% 2.00%++
Ratio of net investment income to
average net assets* 1.03% 1.96% 1.88% 1.49%++
Portfolio turnover rate 111.13% 67.50% 73.96% 80.42%
*Reflects voluntary assumption of
fees or expenses per share in
each year $ 0.03 $ 0.05 $ 0.06 $ 0.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
11
<PAGE>
The Funds' Investments
Each of the Capital Appreciation Fund, the Equity Investment Fund and the
Equity Income Fund has its own investment objective and policies, as
described below. Each Fund's investment objective is a fundamental policy of
that Fund and may not be changed without approval of the shareholders of that
Fund.
State Street Research
Capital Appreciation Fund
The investment objective of the Capital Appreciation Fund is to achieve
maximum capital appreciation by investing primarily in common stocks (and
equity and debt securities convertible into or carrying the right to acquire
common stocks) of emerging growth companies and of companies considered to be
undervalued special situations. Current income is not a consideration in the
selection of investments for the Fund.
The Capital Appreciation Fund considers emerging growth companies to be
less mature companies that are growing substantially faster than the U.S.
economy. The Fund will invest in those emerging growth companies believed by
the Investment Manager to offer appreciation potential greater than the stock
market as a whole. The Fund considers undervalued special situations to
include common stocks of companies, such as larger, more mature companies,
which trade at prices believed by the Investment Manager to be below the
companies' intrinsic values and which therefore offer the potential for
above-average investment returns. In selecting investments, the Investment
Manager may also consider a variety of other factors. These include a
company's expected growth in earnings, relative financial condition and cash
flow, competitive position, management and business strategy, overall
potential as an enterprise, entrepreneurial character, and/or new or
innovative products, services or processes. The capitalization of the
companies in which the Fund invests can range across the full spectrum from
small to large capitalization, with varying or high proportions from time to
time in different capitalization segments. Investing in stocks of companies
which offer high appreciation potential carries greater than average risks.
The length of time that the Fund may hold a particular security is generally
not a consideration in making investment decisions.
State Street Research
Equity Investment Fund
The investment objective of the Equity Investment Fund is to achieve
long-term growth of capital and, secondarily, long-term growth of income by
investing primarily in common stocks (and equity and debt securities
convertible into or carrying the right to acquire common stocks) of
established companies with above-average prospects for growth. It is a
fundamental policy of the Fund under normal market conditions to invest at
least 65% of its assets in equity securities and securities convertible into
equity securities.
The Equity Investment Fund invests primarily in a diversified portfolio of
companies in a broad range of industries whose earnings and/or assets are
expected to grow at a rate above the average for the Standard & Poor's 500
Stock Index (the "S&P 500") over the long term. Consequently, the Investment
Manager seeks to identify those industries which offer the greatest
possibilities for profitable expansion and, within such industries, those
companies which appear most capable of sustained growth. Investments will
also be made in securities of companies believed by the Investment Manager to
be selling below their intrinsic values or in securities of cyclical
companies believed by the Investment Manager to be at a low point in their
cycles. Although the Fund's investments are not limited to companies of any
particular size, it is anticipated that a majority of the securities in which
the Fund invests will be listed on a national securities exchange.
The Equity Investment Fund will not ordinarily trade in securities for
short-term profits. However, when circumstances warrant, securities may be
sold without regard to the length of time held.
State Street Research
Equity Income Fund
The investment objective of the Equity Income Fund is to provide a high level
of current income and, secondarily, long-term growth of capital by investing
12
<PAGE>
primarily in common stocks offering above-average dividend yields and in
equity and debt securities convertible into or carrying the right to acquire
common stocks. The Fund seeks to provide a higher income yield than that of
the S&P 500. It is a fundamental policy of the Fund under normal market
conditions to invest at least 65% of its assets in equity securities and
securities convertible into equity securities.
In seeking high current income, the Equity Income Fund will invest
primarily in companies with established operating histories, potential for
dividend growth, low price to earnings and/or price to book ratios relative
to the S&P 500, and/or whose securities are trading at prices believed by the
Investment Manager to be below the true value of such securities, i.e., value
stocks. It is anticipated that a majority of the equity securities in which
the Fund invests will be listed on a national securities exchange.
In order to further enhance its income, the Equity Income Fund may invest
up to 35% of its total assets in nonconvertible debt securities (corporate
and government bonds of various maturities) and warrants when the Investment
Manager believes such investments will help to achieve the Fund's investment
objective of high current income.
The Fund may invest up to 15% of its total assets in lower quality,
nonconvertible debt securities rated at the time of purchase BB or B by
Standard & Poor's Corporation ("S&P") or Ba or B by Moody's Investors
Service, Inc. ("Moody's") or securities that are not rated but considered by
the Investment Manager to be of equivalent investment quality to comparable
rated securities. The Fund is not subject to any rating limitations with
respect to its investments in convertible securities. The mix of convertible
and nonconvertible securities in different rating categories varies over time
depending on, among other factors, changes in investment strategy.
Lower quality convertible or nonconvertible debt securities generally
involve more credit risk than higher rated securities and are considered by
S&P and Moody's to be speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. Further,
such securities may be subject to greater market fluctuations and risk of
loss of income and principal than lower yielding, higher rated debt
securities. Risks of lower quality debt securities, commonly known as "junk
bonds," include (i) limited liquidity and secondary market support; (ii)
substantial market price volatility resulting from changes in prevailing
interest rates and/or investor perceptions; (iii) subordination to the prior
claims of banks and other senior lenders; (iv) the operation of mandatory
sinking fund or call/redemption provisions during periods of declining
interest rates when the Fund may be required to reinvest premature redemption
proceeds in lower yielding portfolio securities; (v) the possibility that
earnings of the issuer may be insufficient to meet its debt service; and (vi)
the issuer's low creditworthiness and potential for insolvency during periods
of rising interest rates and economic downturn. For further information
concerning the ratings of debt securities, see the Appendix to this
Prospectus.
For the fiscal year ended June 30, 1996, the percentage of the Equity
Income Fund's total investments on an average annual basis invested in
nonconvertible debt and convertible securities of any particular rating
category or its equivalent, as determined by the Investment Manager, was as
follows: 8.7% B, 3.6% CCC and 1.2% D, as determined on a dollar weighted
basis, comprising 13.5% of total investments. Of these securities, 77.3% were
rated by a nationally recognized statistical rating organization and 22.7%
were unrated but considered to be equivalent, as determined by the Investment
Manager, to comparable rated securities. The above percentages reflect
ratings, as of the time of purchase and subsequent changes, if any, including
downgrades, for the period the securities were held.
In the event the rating of a security is downgraded, the Investment
Manager will determine whether the security should be retained or sold
depending on an assessment of all facts and circumstances at that time.
The Equity Income Fund will not ordinarily trade in securities for
short-term profits. However, when circumstances warrant, securities may be
sold without regard to the length of time held.
13
<PAGE>
Investment Practices
Foreign Investments
Each Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Under current
policy, however, each Fund limits such investments, including ADRs and EDRs,
to a maximum of 35% of its total assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign corporation
or other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs in registered form are designed for
use in U.S. securities markets and EDRs are designed for use in European
securities markets. The underlying securities are not always denominated in
the same currency as the ADRs or EDRs. Although investment in the form of
ADRs or EDRs facilitates trading in foreign securities, it does not mitigate
all the risks associated with investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the
foreign issuer is not involved, and the ADR holders pay the fees of the
depository. Sponsored ADRs are generally more advantageous to the ADR holders
and the issuer than are unsponsored ADRs. More and higher fees are generally
charged in an unsponsored program compared to a sponsored facility. Only
sponsored ADRs may be listed on the New York or American Stock Exchanges.
Unsponsored ADRs may prove to be more risky due to (a) the additional costs
involved to a Fund; (b) the relative illiquidity of the issue in U.S.
markets; and (c) the possibility of higher trading costs in the
over-the-counter market as opposed to exchange based tradings. Each Fund will
take these and other risk considerations into account before making an
investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks
of nationalization or expropriation, the possible imposition of currency
exchange blockages, higher operating expenses, foreign withholding and other
taxes which may reduce investment return, reduced availability of public
information concerning issuers, the difficulties in obtaining and enforcing a
judgment against a foreign issuer and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to
those applicable to domestic issuers. Moreover, securities of many foreign
issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers.
It is anticipated that a majority of the foreign investments by each Fund
will consist of securities of issuers in countries with developed economies.
However, each Fund may also invest in the securities of issuers in countries
with less developed economies as deemed appropriate by the Investment
Manager, although no Fund presently expects to invest more than 5% of its
total assets in issuers in such less developed countries. Such countries
include countries that have an emerging stock market that trades a small
number of securities; countries with low- to middle-income economies; and/or
countries with economies that are based on only a few industries. Eastern
European countries are considered to have less developed capital markets.
For further information regarding foreign investments, see the Statement
of Additional Information.
Currency Transactions
In order to protect against the effect of uncertain future exchange rates
on securities denominated in foreign currencies, each Fund may engage in
currency exchange transactions either on a spot (i.e., cash) basis at the
rate prevailing in the currency exchange market or by entering into forward
contracts to purchase or sell currencies. Although such contracts tend to
minimize the risk of loss resulting from a correctly predicted decline in
value of hedged currency, they tend to limit any potential gain that
14
<PAGE>
might result should the value of such currency increase. In entering a
forward currency transaction, the Funds are dependent upon the
creditworthiness and good faith of the counterparty. The Funds will attempt
to reduce the risks of nonperformance by a counterparty by dealing only with
established, large institutions with which the Investment Manager has done
substantial business in the past. For further information, see the Statement
of Additional Information.
Other Investment Policies
Each Fund may lend portfolio securities with a value of up to 33-1/3% of
its total assets. A Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of
the current market value of the loaned securities plus accrued interest.
Collateral received by a Fund will generally be held in the form tendered,
although cash may be invested in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, irrevocable stand-by letters
of credit issued by a bank, or any combination thereof. The investing of cash
collateral received from loaning portfolio securities involves leverage which
magnifies the potential for gain or loss on monies invested and, therefore,
results in an increase in the volatility of a Fund's outstanding securities.
Such loans may be terminated at any time.
A Fund will retain most rights of ownership including rights to dividends,
interest or other distributions on the loaned securities. Voting rights pass
with the lending, although a Fund may call loans to vote proxies if desired.
Should the borrower of the securities fail financially, there is a risk of
delay in recovery of the securities or loss of rights in the collateral.
Loans are made only to borrowers which are deemed by the Investment Manager
to be of good financial standing.
Each Fund may, subject to certain limitations, buy and sell options,
futures contracts and options on futures contracts on securities and
securities indices, enter into repurchase agreements and purchase securities
on a "when issued" basis. A Fund may not establish a position in a commodity
futures contract or purchase or sell a commodity option contract for other
than bona fide hedging purposes if immediately thereafter the sum of the
amount of initial margin deposits and premiums required to establish such
positions for such nonhedging purposes would exceed 5% of the market value of
a Fund's net assets; similar policies apply to options which are not
commodities. Each Fund may enter various forms of swap arrangements, which
have simultaneously the characteristics of a security and a futures contract,
although none of the Funds presently expect to invest more than 5% of its
total assets in such items. These swap arrangements include interest rate
swaps, currency swaps and index swaps. See the Statement of Additional
Information.
The Funds may invest in restricted securities in accordance with Rule 144A
under the Securities Act of 1933, which allows for the resale of such
securities among certain qualified institutional buyers. Because the market
for such securities is still developing, such securities could possibly
become illiquid in particular circumstances. See the Statement of Additional
Information.
As detailed above, each Fund seeks to attain a particular investment
objective. From time to time, however, the Funds, in seeking to achieve their
different investment objectives, may hold securities which are issued by
similar companies and traded in the same markets. It is also possible that a
particular security may be held by more than one Fund when the Investment
Manager determines that holding such security is in the best interests of
each such Fund and the security meets the criteria set forth above. For
example, a stock which is deemed by the Investment Manager to have
above-average potential for long-term earnings growth, to be undervalued
relative to other stocks with similar earnings potential and to have an
above-average dividend yield could be held simultaneously by all three Funds.
In all cases, securities will be selected for each Fund by the Investment
Manager with a view to realizing that Fund's investment objective.
During periods when the Investment Manager deems it advisable, the Funds
may engage in active trading of portfolio securities. This could result in a
high rate of portfolio turnover and correspondingly greater transaction costs
to the Funds, including brokerage commissions.
15
<PAGE>
Limiting Investment Risk
In seeking to lessen investment risk, each Fund operates under certain
fundamental and nonfundamental investment restrictions. Under the fundamental
investment restrictions, no Fund may (a) purchase a security of any one
issuer (other than securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities), if such purchase would cause more than 5%
of the Fund's total assets to be invested in the securities of such issuer;
(b) purchase for its portfolio a security of any one issuer if such purchase
would cause more than 10% of the outstanding voting securities of such issuer
to be held by the Fund; or (c) invest more than 25% of the Fund's total
assets in securities of issuers principally engaged in any one industry. Each
Fund is subject to a nonfundamental investment restriction under which it may
not invest more than 15% of its net assets in illiquid securities.
Fundamental investment restrictions may not be changed except by vote of
the holders of a majority of the outstanding voting securities of each Fund.
Nonfundamental investment restrictions may be changed without a shareholder
vote. For further information on the above and other fundamental and
nonfundamental investment restrictions, see the Statement of Additional
Information.
A Fund may not lend money; however, a Fund may lend portfolio securities
and purchase bonds, debentures, notes and similar obligations (and enter into
repurchase agreements with respect thereto).
Each Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. A Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against adverse market
conditions than adherence to the Fund's other investment policies. The types
of short-term instruments in which the Funds may invest for such purposes
include short-term money market securities such as repurchase agreements and
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits and bankers'
acceptances of certain qualified financial institutions and corporate
commercial paper rated at the time of purchase at least "A" by S&P or "Prime"
by Moody's (or, if not rated, issued by companies having an outstanding
long-term unsecured debt issue rated at least "A" by S&P or Moody's). See the
Statement of Additional Information.
-----------------------------------------------------------------------------
Information on the Purchase of Shares, Redemption of Shares and
Shareholder Services is set forth on pages 16 to 27 below.
-----------------------------------------------------------------------------
A Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers,
Individual Retirement Accounts ("IRAs"), trusts, corporations,
individuals, etc. The applicability of the general information and
administrative procedures set forth below accordingly will vary depending
on the investor and the recordkeeping system established for a
shareholder's investment in a Fund. Participants in 401(k) and other plans
should first consult with the appropriate person at their employer or
refer to the plan materials before following any of the procedures below.
For more information or assistance, anyone may call 1-800-562-0032.
-----------------------------------------------------------------------------
Purchase of Shares
Methods of Purchase
Through Dealers and Others
Shares of the Funds are continuously offered through securities dealers,
financial institutions and others (collectively referred to herein as
securities dealers or dealers) who have entered into sales agreements with
the Distributor. Purchases through dealers are confirmed at the offering
price, which is the net asset value plus the applicable sales charge, next
determined after the order is duly received by State Street Research
Shareholder Services ("Shareholder Services"), a division of State Street
Research Investment Services, Inc., from
16
<PAGE>
the dealer. ("Duly received" for purposes herein means in accordance with the
conditions of the applicable method of purchase as described below.) The
dealer is responsible for transmitting the order promptly to Shareholder
Services in order to permit the investor to obtain the current price. See
"Purchase of Shares--Net Asset Value" herein.
By Mail
Initial investments in a Fund may be made by mailing or delivering to the
investor's dealer a completed Application (accompanying this Prospectus),
together with a check for the total purchase price payable to the Fund. The
dealer must forward the Application and check in accordance with the
instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a
check payable to the Fund in the amount of the total purchase price together
with any one of the following: (i) an Application; (ii) the stub from a
shareholder's account statement; or (iii) a letter setting forth the name of
the Fund, the class of shares and the shareholder's account name and number.
Shareholder Services will deliver the purchase order to the transfer agent
and dividend paying agent, State Street Bank and Trust Company (the "Transfer
Agent").
If a check is not honored for its full amount, the purchaser could be
subject to additional charges to cover collection costs and any investment
loss, and the purchase may be cancelled.
By Wire
An investor may purchase shares by wiring Federal Funds of not less than
$5,000 to State Street Bank and Trust Company, which also serves as the
Trust's custodian (the "Custodian"), as set forth below. Prior to making an
investment by wire, an investor must notify Shareholder Services at
1-800-521-6548 and obtain a control number and instructions. Following such
notification, Federal Funds should be wired through the Federal Reserve
System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = Name of Fund and class of shares
(A, B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street
Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make
such investment by 12 noon Boston time on the day of his or her investment;
and (ii) the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete
the Application accompanying this Prospectus and deliver it to his or her
dealer, who should forward it as required. No redemptions will be effected
until the Application has been duly processed.
A Fund may in its discretion discontinue, suspend or change the practice
of accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by a Fund. Each Fund reserves
the right to suspend the sale of shares, or to reject any purchase order,
including orders in connection with exchanges, for any reason.
17
<PAGE>
Minimum Investment
Class of Shares
-----------------------------------
A B C D
-------- -------- --------------
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $ 50 $ 50 (a) $ 50
By Investamatic $ 50 $ 50 (a) $ 50
All other $ 50 $ 50 (a) $ 50
(a) Special conditions apply; contact the Distributor.
The Funds reserve the right to vary the minimums for initial or subsequent
investments as in the case of, for example, exchanges and investments under
various retirement and employee benefit plans, sponsored arrangements
involving group solicitations of the members of an organization, or other
investment plans for reinvestment of dividends and distributions or for
periodic investments (e.g., Investamatic Check Program).
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding Fund shares, or
the flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in a Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, dealers are paid differing amounts
of commission and other compensation depending on which class of shares they
sell.
18
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------------------------ ---------------------------- ------------ --------------------------
<S> <C> <C> <C> <C>
Sales Charges Initial sales charge Contingent deferred None Contingent deferred
at time of sales charge of 5% to sales charge of 1%
investment of up 2% applies to any applies to any shares
to 4.5% depending shares redeemed redeemed within one
on amount of investment within first five years year following their
following their purchase
On investments of $1 purchase; no
million or more, no contingent deferred
initial sales charge; sales charge
but contingent deferred after five years
sales charge of 1%
applies to any shares
redeemed within
one year following
their purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years;
Class B shares
convert auto-
matically to
Class A shares
after eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Commission Above described 4% None 1%
Received by Selling initial sales charge
Dealer less 0.25% to 0.50%
retained by Distributor
On investments of $1
million or more,
0.25% to 1% paid
to dealer by Distributor
</TABLE>
19
<PAGE>
In deciding which class of shares to purchase, the investor should
consider the amount of the investment, the length of time the investment is
expected to be held, and the ongoing service fee and distribution fee, among
other factors.
Class A shares are sold at net asset value plus an initial sales charge of
up to 4.5% of the public offering price. Because of the sales charge, not all
of an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class D shareholders also pay no
initial sales charge, but a contingent deferred sales charge of 1% generally
applies to redemptions made within one year of purchase. For Class B and
Class D shareholders, therefore, the entire purchase amount is immediately
invested in a Fund.
An investor who qualifies for a significantly reduced initial sales
charge, or a complete waiver of the sales charge on investments of $1,000,000
or more, on the purchase of Class A shares might elect that option to take
advantage of the lower ongoing service and distribution fees that
characterize Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual
distribution fee of 0.75% of daily net assets for an eight-year period
following the date of purchase and are then automatically converted to Class
A shares. Class D shares are assessed an annual distribution fee of 0.75% of
daily net assets for as long as the shares are held. The prospective investor
should consider these fees plus the initial or contingent deferred sales
charges in estimating the costs of investing in the various classes of a
Fund's shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its
expense, provide additional cash and noncash incentives to dealers that sell
shares. Such incentives may be extended only to those dealers that have sold
or may sell significant amounts of shares and/or meet other conditions
established by the Distributor; for example, the Distributor may sponsor
special promotions to develop particular distribution channels or to reach
certain investor groups. The Distributor may also compensate those dealers
with clients who maintain their investments in a Fund over a period of years.
The incentives may include merchandise and trips to and attendance at sales
seminars at resorts.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of a Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar
amount of the shares purchased as set forth in the table below. A major
portion of this sales charge is reallowed by the Distributor to the dealer
responsible for the sale.
Sales Sales
Charge Charge
Paid by Paid by Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
--------------------------------------------------------------------
Less than $100,000 4.50% 4.71% 4.00%
--------------------------------------------------------------------
$100,000 or above but
less than $250,000 3.50% 3.63% 3.00%
--------------------------------------------------------------------
$250,000 or above but
less than $500,000 2.50% 2.56% 2.00%
--------------------------------------------------------------------
$500,000 or above but
less than
$1 million 2.00% 2.04% 1.75%
--------------------------------------------------------------------
$1 million and above 0% 0% See
following
discussion
--------------------------------------------------------------------
20
<PAGE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized dealer a
commission based on the aggregate of such sales as follows:
Amount of Sale Commission
------------------------------- -------------
(a) $1 million to $3 million 1.00%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
On such sales of $1,000,000 or more, unless the above commission is waived
by the dealer, the investor is subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the sale.
However, such redeemed shares will not be subject to the contingent deferred
sales charge to the extent that their value represents (1) capital
appreciation or (2) reinvestment of dividends or capital gains distributions.
In addition, the contingent deferred sales charge will be waived for certain
other redemptions as described under "Contingent Deferred Sales Charge
Waivers" below (as otherwise applicable to Class B shares).
Class A shares of a Fund that are purchased without a sales charge may be
exchanged for Class A shares of certain other Eligible Funds, as described
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption
within one year of the Class A shares which are acquired through such
exchange. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption. The amount of any contingent
deferred sales charge will be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement
of Additional Information, of $100,000 or more of Class A shares of a Fund or
a combination of "Eligible Funds." "Eligible Funds" include the Funds and
other funds so designated by the Distributor from time to time. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Dealers should call Shareholder Services for details
concerning the other Eligible Funds and any persons who may qualify for
reduced sales charges and related information. See the Statement of
Additional Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Funds and any other Eligible Funds within a 13-month period.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of a Fund or a combination of shares of
the Funds and other Eligible Funds at reduced sales charges pursuant to a
Right of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call
Shareholder Services for details concerning the Right of Accumulation.
Other Programs
Class A shares of the Funds may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored
arrangements, which include programs under which a company, employee benefit
plan or other organization makes recommendations to, or permits group
solicitation of, its employees, members or participants, except any
organization created primarily for the purpose of obtaining shares of the
Funds at a reduced sales charge or without a sales charge. Sales without a
sales charge, or with a reduced sales charge, may also be made through
brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs)
21
<PAGE>
which meet certain requirements established from time to time by the
Distributor. Information on such arrangements and further conditions and
limitations is available from the Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of a Fund to the following entities and persons: (A) the
Investment Manager, Distributor, or any affiliated entities, including any
direct or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated
Companies, any relatives of any such individuals whose relationship is
directly verified by such individuals to the Distributor, or any beneficial
account for such relatives or individuals; and (C) employees, officers, sales
representatives or directors of dealers and other entities with a selling
agreement with the Distributor to sell shares of any aforementioned
investment company, any spouse or child of such person, or any beneficial
account for any of them. The purchase must be made for investment and the
shares purchased may not be resold except through redemption. This purchase
program is subject to such administrative policies, regarding the
qualification of purchasers and any other matters, as may be adopted by the
Distributor from time to time.
Class B Shares--Contingent Deferred
Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Funds. However, a
contingent deferred sales charge may be imposed upon redemptions of Class B
shares as described below.
The Distributor will pay dealers at the time of sale a 4% commission for
selling Class B shares. The proceeds of the contingent deferred sales charge
and the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class B shares without an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets or (2) reinvestment of dividends or capital gains distributions.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
Contingent Deferred
Sales Charge
As A Percentage Of
Net Asset Value
Redemption During At Redemption
--------------------------------- ------------------------
1st Year Since Purchase 5%
2nd Year Since Purchase 4
3rd Year Since Purchase 3
4th Year Since Purchase 3
5th Year Since Purchase 2
6th Year Since Purchase and
Thereafter None
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first
of those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of a Fund acquired through an exchange from another
Eligible Fund will be measured from the date that such shares were initially
acquired in the other Eligible Fund, and Class B shares being redeemed will
be considered to represent, as applicable, capital appreciation or dividend
and capital gains distribution reinvestments in such other Eligible Fund.
These determinations will result in any contingent deferred sales charge
being imposed at the lowest possible rate. For federal income tax purposes,
the amount of the contingent deferred sales charge will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The amount of any contingent deferred sales charge will be paid to the
Distributor.
22
<PAGE>
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain
conditions. In addition, the contingent deferred sales charge will be waived
for: (i) redemptions made within one year of the death or total disability,
as defined by the Social Security Administration, of all shareholders of an
account; (ii) redemptions made after attainment of a specific age in an
amount which represents the minimum distribution required at such age under
Section 401(a)(9) of the Internal Revenue Code for retirement accounts or
plans (e.g., age 70-1/2 for IRAs and Section 403(b) plans), calculated solely
on the basis of assets invested in a Fund or other Eligible Funds; and (iii)
a redemption resulting from a tax-free return of an excess contribution to an
IRA. (The foregoing waivers do not apply to a tax-free rollover or transfer
of assets out of a Fund.) Each Fund may modify or terminate the waivers at
any time; for example, a Fund may limit the application of multiple waivers
and establish other conditions for employee benefit plans.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to
Class A shares of a Fund at the end of eight years following the issuance of
such Class B shares; consequently, they will no longer be subject to the
higher expenses borne by Class B shares. The conversion rate will be
determined on the basis of the relative per share net asset values of the two
classes and may result in a shareholder receiving either a greater or fewer
number of Class A shares than the Class B shares so converted. As noted
above, holding periods for Class B shares received in exchange for Class B
shares of other Eligible Funds will be counted toward the eight-year period.
Class C Shares--Institutional; No Sales Charge
The purchase price of a Class C share of a Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Funds will receive the full amount of the investor's purchase
payment.
In general, Class C shares are only available for new investments by
certain large institutions, and employee benefit plans which acquire shares
through programs or products sponsored by Metropolitan Life Insurance Company
("Metropolitan") and/or its affiliates, for which Class C shares have been
designated. Information on the availability of Class C shares and further
conditions and limitations is available from the Distributor.
Class C shares may have also been issued directly or through exchanges to
those shareholders of the Funds or other Eligible Funds who previously held
shares not subject to any future sales charge or service fees or distribution
fees.
Class D Shares--Spread Sales Charges
The purchase price of a Class D share of a Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Funds.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays dealers a 1% commission for selling Class D shares at the time of
purchase. The proceeds of the contingent deferred sales charge and the
distribution fee are used to offset distribution expenses and thereby permit
the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not
be subject to the contingent deferred sales charge to the extent that the
value of such shares represents (1) capital appreciation of Fund assets or
(2) reinvestment of dividends or capital gains distributions. In addition,
the contingent deferred sales charge will be waived for certain other
redemptions as described under "Contingent Deferred Sales Charge Waivers"
above (as otherwise applicable to Class B shares). For federal income tax
purposes, the amount of the contingent deferred sales charge will reduce the
gain or increase the loss, as the case may be, on the amount realized on
redemp-
23
<PAGE>
tion. The amount of any contingent deferred sales charge will be paid to the
Distributor.
Net Asset Value
Each Fund's per share net asset values are determined Monday through Friday
as of the close of the New York Stock Exchange (the "NYSE") exclusive of days
on which the NYSE is closed. The NYSE ordinarily closes at 4 P.M. New York
City time. Assets held by a Fund are valued on the basis of the last reported
sale price or quotations as of the close of business on the valuation date,
except that securities and assets for which market quotations are not readily
available are valued as determined in good faith by or under the authority of
the Trustees of the Trust. In determining the value of certain assets for
which market quotations are not readily available, the Funds may use one or
more pricing services. The pricing services utilize information with respect
to market transactions, quotations from dealers and various relationships
among securities in determining value and may provide prices determined as of
times prior to the close of the NYSE. The Trustees have authorized the use of
the amortized cost method to value short-term debt instruments issued with a
maturity of one year or less and having a remaining maturity of 60 days or
less when the value obtained is fair value. Further information with respect
to the valuation of the Funds' assets is included in the Statement of
Additional Information.
Distribution Plan
The Funds have adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, each Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class
of shares as follows:
Class Service Fee Distribution Fee
- ---------- ---------------- ----------------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance of shareholder accounts. A portion
of any initial commission paid to dealers for the sale of shares of a Fund
represents payment for personal services and/or the maintenance or servicing
of shareholder accounts by such dealers. Dealers who have sold Class A shares
are eligible for further reimbursement commencing as of the time of such
sale. Dealers who have sold Class B and Class D shares are eligible for
further reimbursement after the first year during which such shares have been
held of record by such dealer as nominee for its clients (or by such clients
directly). Any service fees received by the Distributor and not allocated to
dealers may be applied by the Distributor in reduction of expenses incurred
by it directly for personal services and the maintenance or servicing of
shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by
the Distributor in connection with sales or marketing efforts, including
special promotional fees and cash and noncash incentives based upon sales by
dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources
of the Distributor (including the advisory fees paid by the Funds), have also
been authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which a Fund may incur under the Distribution
24
<PAGE>
Plan to 1%, of which 0.75% may be used to pay distribution expenses and 0.25%
may be used to pay shareholder service fees. The NASD rule also limits the
aggregate amount which a Fund may pay for such distribution costs to 6.25% of
gross share sales of a class since the inception of any asset-based sales
charge plus interest at the prime rate plus 1% on unpaid amounts thereof
(less any contingent deferred sales charges). Such limitation does not apply
to shareholder service fees. Payments to the Distributor or to dealers funded
under the Distribution Plan may be discontinued at any time by the Trustees
of the Trust.
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the
NYSE is open for business. Redemptions will be effective at the net asset
value per share next determined (see "Purchase of Shares--Net Asset Value"
herein) after receipt of the redemption request, in accordance with the
requirements described below, by Shareholder Services and delivery of the
request by Shareholder Services to the Transfer Agent. To allow time for the
clearance of checks used for the purchase of any shares which are tendered
for redemption shortly after purchase, the remittance of the redemption
proceeds for such shares could be delayed for 15 days or more after the
purchase. Shareholders who anticipate a potential need for immediate access
to their investments should, therefore, purchase shares by wire. Except as
noted, redemption proceeds from a Fund are normally remitted within seven
days after receipt of the redemption request by the Fund and any necessary
documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed
for transfer or accompanied by an endorsed stock power; (3) any required
signature guarantees (see "Redemption of Shares--Signature Guarantees"
below); and (4) any additional documents which may be required for redemption
in the case of corporations, trustees, etc., such as certified copies of
corporate resolutions, governing instruments, powers of attorney, and the
like. The Transfer Agent will not process requests for redemption until it
has received all necessary documents in good order. A shareholder will be
notified promptly if a redemption request cannot be accepted. Shareholders
having any questions about the requirements for redemption should call
Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Funds
may revoke or suspend the telephone redemption privilege at any time and
without notice. See "Shareholder Services--Telephone Services" for a
discussion of the conditions and risks associated with Telephone Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800-521-6548 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge
is
25
<PAGE>
subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, each Fund has authorized the Distributor
as its agent to accept orders from dealers by wire or telephone for the
repurchase of shares by the Distributor from the dealer. The Funds may revoke
or suspend this authorization at any time. The repurchase price is the net
asset value for the applicable shares next determined following the time at
which the shares are offered for repurchase by the dealer to the Distributor.
The dealer is responsible for promptly transmitting a shareholder's order to
the Distributor. Payment of the repurchase proceeds is made to the dealer who
placed the order promptly upon delivery of certificates for shares in proper
form for transfer or, for Open Accounts, upon the receipt of a stock power
with signatures guaranteed as described below, and, if required, any
supporting documents. Neither the Funds nor the Distributor imposes any
charge upon such a repurchase. However, a dealer may impose a charge as agent
for a shareholder in the repurchase of his or her shares.
The Funds have reserved the right to change, modify or terminate the
services described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder
accounts, each Fund reserves the right to involuntarily redeem at its option
any shareholder account which remains below $1,500 for a period of 60 days
after notice is mailed to the applicable shareholder, or to impose a
maintenance fee on such account after 60 days' notice. Such involuntary
redemptions will be subject to applicable sales charges, if any. A Fund may
increase such minimum account value above such amount in the future after
notice to affected shareholders. Involuntarily redeemed shares will be priced
at the net asset value on the date fixed for redemption by a Fund, and the
proceeds of the redemption will be mailed to the affected shareholder at the
address of record. Currently, the maintenance fee is $18 annually, which is
paid to the Transfer Agent. The fee does not apply to certain retirement
accounts or if the shareholder has more than an aggregate $50,000 invested in
a Fund and other Eligible Funds combined. Imposition of a maintenance fee on
a small account could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
A Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment
of redemption proceeds: (1) during any period that the NYSE is closed (other
than customary weekend and holiday closings) or trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the Fund's net asset values;
or (3) during such other periods as the Securities and Exchange Commission
may by order permit for the protection of investors; and (b) the payment of
redemption proceeds may be postponed as otherwise provided under "Redemption
of Shares" herein.
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Funds, the
Investment Manager and the Distributor from possible fraud, signature
guarantees are required for certain redemptions. Signature guarantees help
the Transfer Agent to determine that the person who has authorized a
redemption from the account is, in fact, the shareholder. Signature
guarantees are required for, among other things: (1) written requests for
redemptions for more than $50,000; (2) written requests for redemptions for
any amount if the proceeds are transmitted to other than the current address
of record (unchanged in the past 30 days); (3) written requests for
redemptions for any amount submitted
26
<PAGE>
by corporations and certain fiduciaries and other intermediaries; and (4)
requests to transfer the registration of shares to another owner. Signatures
must be guaranteed by a bank, a member firm of a national stock exchange, or
other eligible guarantor institution. The Transfer Agent will not accept
guarantees (or notarizations) from notaries public. The above requirements
may be waived in certain instances. Please contact Shareholder Services at
1-800-562-0032 for specific requirements relating to your account.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of each Fund owned
by shareholders are credited to their accounts by the Transfer Agent, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing Class B or Class D shares will not be
issued, while certificates representing Class A or Class C shares will only
be issued if specifically requested in writing and, in any case, will only be
issued for full shares, with any fractional shares to be carried on the
shareholder's account. Shareholders will receive periodic statements of
transactions in their accounts.
The Funds' Open Account System provides the following options:
1. Additional purchases of shares of any Fund may be made through dealers,
by wire or by mailing a check payable to the applicable Fund to
Shareholder Services under the terms set forth above under "Purchase of
Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the applicable Fund.
(b) All income dividends in cash; all capital gains distributions
reinvested in additional shares of the applicable Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in
any one available Eligible Fund designated by the shareholder as
described below. See "Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the
applicable Fund. Selections may be changed at any time by telephone or
written notice to Shareholder Services. Dividends and distributions are
reinvested at net asset value without a sales charge.
Exchange Privilege
Shareholders of a Fund may exchange their shares for available shares with
corresponding characteristics of any of the other Eligible Funds at any time
on the basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws.
Shareholders of any other Eligible Fund may similarly exchange their shares
for Fund shares with corresponding characteristics. Prior to making an
exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from a
Fund into other Eligible Funds. To effect an exchange, Class A, Class B and
Class D shares may be redeemed without the payment of any contingent deferred
sales charge that might otherwise be due upon an ordinary redemption of such
shares. The State Street Research Money Market Fund issues Class E shares
which are sold without any sales charge. Exchanges of State Street Research
Money Market Fund Class E shares into Class A shares of the Funds or any
other Eligible Fund are subject to the initial sales charge or contingent
deferred sales charge applicable to an initial investment in such Class A
shares, unless a prior Class A sales charge has been paid directly or
indirectly with respect to the shares redeemed. For purposes of computing the
contingent deferred sales charge that may be payable upon disposition of any
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acquired Class A, Class B and Class D shares, the holding period of the
redeemed shares is "tacked" to the holding period of the acquired shares. The
period any Class E shares are held is not tacked to the holding period of any
acquired shares. No exchange transaction fee is currently imposed on any
exchange.
Shares of the Funds may also be acquired or redeemed in exchange for
shares of the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers
of Merrill Lynch, Pierce, Fenner & Smith Incorporated (subject to completion
of steps necessary to implement the program). The Funds and Summit Cash
Reserves are related mutual funds for purposes of investment and investor
services. Upon the acquisition of shares of Summit Cash Reserves by exchange
for redeemed shares of a Fund, (a) no sales charge is imposed by Summit Cash
Reserves, (b) no contingent deferred sales charge is imposed by a Fund on the
Fund shares redeemed, and (c) any applicable holding period of the Fund
shares redeemed is "tolled," that is, the holding period clock stops running
pending further transactions. Upon the acquisition of shares of a Fund by
exchange for redeemed shares of Summit Cash Reserves, (a) the acquisition of
Class A shares shall be subject to the initial sales charges or contingent
deferred sales charges applicable to an initial investment in such Class A
shares, unless a prior Class A sales charge has been paid indirectly, and (b)
the acquisition of Class B or Class D shares of a Fund shall restart any
holding period previously tolled, or shall be subject to the contingent
deferred sales charge applicable to an initial investment in such shares.
For the convenience of the shareholders who have Telephone Privileges, the
Funds permit exchanges by telephone request from either the shareholder or
his or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-521-6548. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes,
each exchange actually represents the sale of shares of one fund and the
purchase of shares of another. Accordingly, exchanges may produce a capital
gain or loss for tax purposes. The exchange privilege may be terminated or
suspended or its terms changed at any time, subject, if required under
applicable regulations, to 60 days' prior notice. New accounts established
for investments upon exchange from an existing account in another fund will
have the same Telephone Privileges as the existing account, unless
Shareholder Services is instructed otherwise. Related administrative policies
and procedures may also be adopted with regard to a series of exchanges,
street name accounts, sponsored arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, each Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into such Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, may be aggregated for purposes of the six exchange
limit. Notwithstanding the six exchange limit, each Fund reserves the right
to refuse exchanges by any person or group if, in the Investment Manager's
judgment, the Fund would be unable to invest effectively in accordance with
its investment objective and policies, or would otherwise potentially be
adversely affected. Exchanges may be restricted or refused if a Fund receives
or anticipates simultaneous orders affecting significant portions of the
Fund's assets. In particular, a pattern of exchanges that coincides with a
"market timing" strategy may be disruptive to a Fund. Each Fund may impose
these restrictions at any time. The exchange limit may be modified for
accounts in certain institutional retirement plans because of plan exchange
limits, Department of Labor regulations or administrative and other
considerations. Subject to the foregoing, if an exchange request in good
order is received by Shareholder Services and delivered by Shareholder
Services to the Transfer Agent by 12 noon Boston time on any business day,
the exchange usually will occur that day. For further information regarding
the exchange privilege, shareholders should contact Shareholder Services.
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Reinvestment Privilege
A shareholder of a Fund who has redeemed shares or had shares repurchased at
his or her request may reinvest all or any portion of the proceeds (plus that
amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of a Fund or any other Eligible Fund at net asset value and without
subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 120 calendar days after a redemption or
repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal income tax
purposes, a sale on which the shareholder may realize a gain or loss. If a
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once per 12-month period with
respect to his or her shares of a Fund. No charge is imposed by the Funds for
such reinvestments; however, dealers may charge fees in connection with the
reinvestment privilege. The reinvestment privilege may be exercised with
respect to an Eligible Fund only in those states where shares of the relevant
other Eligible Fund may legally be sold.
Investment Plans
The Investamatic Check Program is available to Class A, Class B and Class D
shareholders. Under this Program, shareholders may make regular investments
by authorizing withdrawals from their bank accounts each month or quarter on
the Application available from Shareholder Services.
The Distributor also offers IRAs and retirement plans, including prototype
and other employee benefit plans for employees, sole proprietors,
partnerships and corporations. Details of these investment plans and their
availability may be obtained from securities dealers or from Shareholder
Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Funds' Systematic Withdrawal Plan,
to have periodic checks issued for specified amounts. These amounts may not
be less than certain minimums, depending on the class of shares held. The
Plan provides that all income dividends and capital gains distributions of
the designated Fund shall be credited to participating shareholders in
additional shares of that Fund. Thus, the withdrawal amounts paid can only be
realized by redeeming shares of the Fund under the Plan. To the extent such
amounts paid exceed dividends and distributions from the relevant Fund or
Funds, a shareholder's investment will decrease and may eventually be
exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually
of either (a) the value, at the time the Plan is initiated, of the shares
then in the account or (b) the value, at the time of a withdrawal, of the
same number of shares as in the account when the Plan was initiated,
whichever is higher.
Expenses of the Plan are borne by the Funds. A participating shareholder
may withdraw from the Plan, and a Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is
receiving payments under a Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate
in the Investamatic Check Program and the Systematic Withdrawal Plan at the
same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all their
dividends and any other distributions from a Fund or any Eligible Fund
automati-
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cally invested at net asset value in one other such Eligible Fund designated
by the shareholder, provided the account into which the dividends and
distributions are directed is initially funded with the requisite minimum
amount. The number of shares purchased will be determined as of the dividend
payment date. The Dividend Allocation Plan is subject to state securities law
requirements, to suspension at any time, and to such policies, limitations
and restrictions, such as may be applicable to street name or master
accounts, that may be adopted from time to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Funds' Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for each Fund will be sent to shareholders of record of that Fund at
least semiannually. These reports will include a list of the securities owned
by the applicable Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions
for amounts up to $50,000 to be mailed to the shareholder's address of
record is available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically;
(3) the privilege allowing the shareholder to make telephone redemptions
for amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the
Application accompanying this Prospectus. A current shareholder who
did not previously request such telephone wire privilege on his or her
original Application may request the privilege by completing a
Telephone Redemption-by-Wire Form which may be obtained by calling
1-800-562-0032. The Telephone Redemption-by-Wire Form requires a
signature guarantee; and
(4) the privilege allowing the shareholder to make telephone purchases or
redemptions, transmitted via the Automated Clearing House system, into
or from the shareholder's predesignated bank account, is available
upon completion of the requisite initial documentation. For details
and forms, call 1-800-562-0032. The documentation requires a signature
guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in
(1) and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by
advising Shareholder Services that the shareholder wishes to discontinue the
use of such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account; and (2) honor any written instructions for
a change of address regardless of whether such request is accompanied by a
signature guarantee. All telephone calls will be recorded. None of the Funds,
the other Eligible Funds, the Transfer Agent, the Investment Manager or the
Distributor will be liable for any loss, expense or cost arising out of any
request, including any fraudulent or unauthorized requests. Shareholders
assume the risk to the full extent of their accounts that telephone requests
may be unauthorized. Reasonable procedures will be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not
be liable for any losses arising from unauthorized or fraudulent instructions
if such procedures are not followed.
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Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is unlikely, during periods of extraordinary
market conditions, a shareholder may have difficulty in reaching Shareholder
Services at such telephone number. In that event, the shareholder should
contact Shareholder Services at 1-800-562-0032, 1-617-357-7805 or otherwise
at its main office at One Financial Center, Boston, Massachusetts 02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your
account, including account balance, available shareholder services, statement
information and performance of the Funds. Account inquiries may also be made
in writing to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408. A fee of up to $10 will be charged against
an account for providing additional account transcripts or photocopies of
paid redemption checks or for researching records in response to special
requests.
Shareholder Telephone Transactions:
Please call 1-800-521-6548
Call this number for assistance in purchasing shares by wire and for
telephone redemptions or telephone exchange transactions. Shareholder
Services will require some form of personal identification prior to acting
upon instructions received by telephone. Written confirmation of each
transaction will be provided.
The Funds and Their Shares
The Funds were organized in 1986 as series of State Street Research Equity
Trust, a Massachusetts business trust. The Trustees have authorized shares of
the Funds to be issued in four classes: Class A, Class B, Class C and Class D
shares. The Trust is registered with the Securities and Exchange Commission
as an open-end management investment company. The fiscal year end of the
Funds is June 30.
Except for those differences between the classes of shares described below
and elsewhere in the Prospectus, each share of a Fund has equal dividend,
redemption and liquidation rights with other shares of the Fund and when
issued is fully paid and nonassessable. In the future, certain classes may be
redesignated, for administrative purposes only, to conform to standard class
designations and common usage of terms which may develop in the mutual fund
industry. For example, Class C shares may be redesignated as Class Y shares
and Class D shares may be redesignated as Class C shares. Any redesignation
would not affect any substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of a Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class D shares
bear the expenses of the deferred sales arrangement and any expenses
(including the higher service and distribution fees) resulting from such
sales arrangement, and certain other incremental expenses related to a class.
Each class will have exclusive voting rights with respect to provisions of
the Rule 12b-1 distribution plan pursuant to which the service and
distribution fees, if any, are paid. Although the legal rights of holders of
each class of shares are identical, it is likely that the different expenses
borne by each class will result in different net asset values and dividends.
The different classes of shares of the Funds also have different exchange
privileges.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material, adverse effect on
the rights of any shareholder. Under the Master Trust Agreement the Trustees
may reorganize, merge or liquidate a Fund without prior shareholder approval.
On any matter submitted to the shareholders, the holder of each Fund share is
entitled to one vote per share (with proportionate voting for fractional
shares) regardless of the relative net asset value thereof.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder
meetings unless required by the 1940 Act. Except as otherwise provided under
said Act, the Board of Trustees will be a self-perpetuating body until fewer
than two
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thirds of the Trustees serving as such are Trustees who were elected by
shareholders of the Trust. In the event less than a majority of the Trustees
serving as such were elected by shareholders of the Trust, a meeting of
shareholders will be called to elect Trustees. Under the Master Trust
Agreement, any Trustee may be removed by vote of two thirds of the
outstanding Trust shares; holders of 10% or more of the outstanding shares of
the Trust can require that the Trustees call a meeting of shareholders for
purposes of voting on the removal of one or more Trustees. In connection with
such meetings called by shareholders, shareholders will be assisted in
shareholder communications to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for
indemnification for all losses and expenses of any shareholder of a Fund held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund would be unable to meet its
obligations. The Investment Manager believes that, in view of the above, the
risk of personal liability to shareholders is remote.
As of September 30, 1996, Metropolitan Life Insurance Company
("Metropolitan") was the record and/or beneficial owner, directly or
indirectly through its subsidiaries or affiliates, of approximately 76.7% of
the outstanding Class D shares of the Equity Investment Fund, and may be
deemed to be in control of such Class D shares of the Fund. Ownership of 25%
or more of a voting security is deemed "control" as defined in the 1940 Act.
So long as 25% of a class of shares is so owned, such owners will be presumed
to be in control of such class of shares for purposes of voting on certain
matters, such as any Distribution Plan for a given class.
Management of the Funds
Under the provisions of the Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Funds
rests with the Trustees.
The Funds' investment manager is State Street Research & Management
Company. The Investment Manager is charged with the overall responsibility
for managing the investments and business affairs of the Funds, subject to
the authority of the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first
mutual funds, presently known as State Street Research Investment Trust,
which they had formed in 1924. Their investment management philosophy
emphasized comprehensive fundamental research and analysis, including
meetings with the management of companies under consideration for investment.
The Investment Manager's portfolio management group has extensive investment
industry experience managing equity and debt securities. In managing debt
securities, if any, for a portfolio, the Investment Manager may consider
yield curve positioning, sector rotation and duration, among other factors.
The Investment Manager and the Distributor are indirect wholly owned
subsidiaries of Metropolitan, and are located at One Financial Center,
Boston, Massachusetts 02111-2690.
The Investment Manager has entered into an Advisory Agreement with the
Trust pursuant to which investment research and management, administrative
services, office facilities and personnel are provided for each Fund in
consideration of a fee from each Fund.
Under its Advisory Agreement with the Trust, the Investment Manager
receives a monthly investment advisory fee equal to 0.65% (on an annual
basis) of the average daily value of the net assets of each of the Equity
Investment Fund and the Equity Income Fund and 0.75% (on an annual basis) of
the average
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daily value of the net assets of the Capital Appreciation Fund. The advisory
fee payable by the Capital Appreciation Fund is higher than advisory fees
paid by many other investment companies. Each Fund bears all costs of its
operation other than those incurred by the Investment Manager under the
Advisory Agreement. In particular, the Funds pay, among other expenses,
investment advisory fees, certain distribution expenses under the Funds'
Distribution Plan and the compensation and expenses of the Trustees who are
not otherwise currently affiliated with the Investment Manager or any of its
affiliates. The Investment Manager will reduce its management fee payable by
each Fund up to the amount of any expenses (excluding permissible items, such
as brokerage commissions, Rule 12b-1 payments, interest, taxes and litigation
expenses) paid or incurred in any year in excess of the most restrictive
expense limitation imposed by any state in which the Funds sell shares, if
any. The Investment Manager compensates Trustees of the Trust if such persons
are employees or affiliates of the Investment Manager or its affiliates.
The Capital Appreciation Fund is managed by Frederick R. Kobrick. Mr.
Kobrick has managed the Fund since its inception in August 1986. Mr.
Kobrick's principal occupation currently is, and during the past five years
has been, Senior Vice President of State Street Research & Management
Company.
The Equity Investment Fund is managed by John T. Wilson. Mr. Wilson has
managed the Fund since July 1996. His principal occupation currently is Vice
President of State Street Research & Management Company. During the past five
years he has also served as an analyst and portfolio manager at Phoenix Home
Life Mutual Insurance Company and, from 1995 to 1996, as a Vice President of
Phoenix Investment Counsel, Inc.
The Equity Income Fund is managed by Bartlett R. Geer. Mr. Geer has
managed the Fund since January 1992. Mr. Geer's principal occupation
currently is Senior Vice President of State Street Research & Management
Company. During the past five years he has also served as Vice President of
State Street Research & Management Company.
Subject to the policy of seeking best overall price and execution, sales
of shares of a Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for a Fund's portfolio transactions.
The Investment Manager has a Code of Ethics governing personal securities
transactions of certain of its employees; see the Statement of Additional
Information.
Dividends and Distributions; Taxes
Each Fund is treated as a separate entity for federal tax purposes. Each Fund
has qualified and elected to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code for its most recent fiscal
year and intends to qualify as such in future fiscal years, although it
cannot give complete assurance that it will do so. As long as a Fund so
qualifies and satisfies certain distribution requirements, it will not be
subject to federal income tax on its taxable income (including capital gains,
if any) distributed to its shareholders. Consequently, each Fund intends to
distribute annually to its shareholders substantially all of its net
investment income and any capital gain net income (capital gains net of
capital losses).
Dividends from net investment income, if any, normally will be paid twice
each year for the Capital Appreciation Fund, and four times each year for the
Equity Investment Fund and the Equity Income Fund. Distributions of capital
gain net income, if any, will generally be made after the end of the fiscal
year or as otherwise required for compliance with applicable tax regulations.
Both dividends from net investment income and distributions of capital gain
net income will be declared and paid to shareholders in additional shares of
the relevant Fund at net asset value (except in the case of shareholders who
elect a different available distribution method).
Each Fund will provide its shareholders of record with annual information
on a timely basis concerning the federal tax status of dividends and
distributions during the preceding calendar year.
Dividends paid by a Fund from taxable net investment income and
distributions of net short-term capital gains, whether paid in cash or
reinvested in additional
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<PAGE>
shares, will be taxable for federal income tax purposes to shareholders as
ordinary income, and a portion may be eligible for the 70% dividends-received
deduction for corporations. The percentage of a Fund's dividends eligible for
such tax treatment may be less than 100% to the extent that less than 100% of
a Fund's gross income may be from qualifying dividends of domestic
corporations. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) which are designated as
capital gains distributions, whether paid in cash or reinvested in additional
shares, will be taxable for federal income tax purposes to shareholders as
long-term capital gains, regardless of how long shareholders have held their
shares, and are not eligible for the dividends-received deduction. If shares
of a Fund which are sold at a loss have been held six months or less, the
loss will be considered as a long-term capital loss to the extent of any
capital gains distributions received.
Dividends and other distributions and the proceeds of redemption of Fund
shares paid to individuals and other nonexempt payees will be subject to a
31% federal backup withholding tax if the Transfer Agent is not provided with
the shareholder's correct taxpayer identification number and certification
that the shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisers
regarding tax matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, a Fund may compare the performance of its Class A,
Class B, Class C or Class D shares to that of other mutual funds with similar
investment objectives, to certificates of deposit and/or to other financial
alternatives. A Fund may also compare its performance to appropriate indices,
such as Standard & Poor's 500 Index, Consumer Price Index and Dow Jones
Industrial Average and/or to appropriate rankings and averages such as those
compiled by Lipper Analytical Services, Inc., Morningstar, Inc., Money
Magazine, Business Week, Forbes Magazine, The Wall Street Journal and
Investor's Daily. For example, the performance of the Capital Appreciation
Fund might be compared to the Lipper Capital Appreciation Funds Group, the
Russell 2000 Index and the Small Stock Index. The performance of the Equity
Investment and Equity Income Funds might be compared to the Lipper Growth and
Income Funds Group and the Lipper Equity Income Funds Group, respectively.
Total return is computed separately for each class of shares of the Funds.
The average annual total return ("standard total return") for shares of a
Fund is computed by determining the average annual compounded rate of return
for a designated historical period as applied to a hypothetical $1,000
initial investment, which is redeemed in total at the end of such period. In
making the calculation, all dividends and distributions are assumed to be
reinvested, and all recurring expenses, including management and distribution
fees, are recognized. The calculation also reflects the maximum initial or
contingent deferred sales charge, determined as of the assumed date of
initial investment or the assumed date of redemption, as the case may be.
Standard total return may be accompanied with nonstandard total return
information computed in the same manner, but for differing periods and with
or without annualizing the total return or taking sales charges into account.
A Fund's yield is computed separately for each class of shares by dividing
the net investment income, after recognition of all recurring charges, per
share earned during the most recent month or other specified 30-day period by
the applicable maximum offering price per share on the last day of such
period and annualizing the result.
The standard total return and yield results take sales charges into
account, if applicable, but do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders
elect and which involve nominal fees, such as the $7.50 fee for remittance of
redemption proceeds by wire. Where sales charges are not applicable and
therefore not taken into account in the calculation of
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standard total return and yield, the results will be increased. Any voluntary
waiver of fees or assumption of expenses by the Funds' affiliates will also
increase performance results.
A Fund's distribution rate is calculated separately for each class of
shares by annualizing the latest distribution and dividing the result by the
maximum offering price per share as of the end of the period to which the
distribution relates. The distribution rate is not computed in the same
manner as the above described yield, and therefore, can be significantly
different from it. In its supplemental sales literature, a Fund may quote its
distribution rate together with the above described standard total return and
yield information. The use of such distribution rates would be subject to an
appropriate explanation of how the components of the distribution rate differ
from the above described yield.
Performance information may be useful in evaluating a Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of a Fund changes in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
performance quotation should be considered a representation as to a Fund's
performance for any future period. In addition, the net asset value of shares
of a Fund will fluctuate, with the result that shares of a Fund, when
redeemed, may be worth more or less than their original cost. Neither an
investment in a Fund nor its performance is insured or guaranteed; such lack
of insurance or guarantees should accordingly be given appropriate
consideration when comparing a Fund to financial alternatives which have such
features.
Shares of the Funds had no class designations until June 1, 1993, when
designations were assigned based on the pricing and Rule 12b-1 fees
applicable to shares sold thereafter. Performance data for a specified class
includes periods prior to the adoption of class designations.
Performance data for periods prior to June 1, 1993 do not reflect
additional Rule 12b-1 Distribution Plan fees, if any, of up to 1% per year
depending on the class of shares, which will adversely affect performance
results for periods after such date. Performance data or rankings for a given
class of shares should be interpreted carefully by investors who hold or may
invest in a different class of shares.
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APPENDIX
Description of Debt/Bond Ratings
Standard & Poor's Corporation
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having speculative
characteristics with respect to capacity to pay interest and repay principal.
BB indicates the least degree of speculation and C the highest. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the due date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high
variability in expected returns due to noncredit risks created by the terms
of the obligation, such as securities whose principal or interest return is
indexed to equi-
36
<PAGE>
ties, commodities, or currencies, certain swaps and options, and interest
only (IO) and principal only (PO) mortgage securities.
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the addition
of a numeral indicating a bond's rank within its rating category.
37
<PAGE>
38
<PAGE>
39
<PAGE>
[Back Cover]
STATE STREET RESEARCH
CAPITAL APPRECIATION FUND
EQUITY INVESTMENT FUND
EQUITY INCOME FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
ET-610D-1196IBS CONTROL NUMBER: 3440-961028(1197)SSR-LD
[Front Cover]
[State Street Research logo]
State Street Research
Capital Appreciation Fund
Equity Investment Fund
Equity Income Fund
November 1, 1996
P R O S P E C T U S
<PAGE>
State Street Research
Global Resources Fund
Prospectus
November 1, 1996
The investment objective of State Street Research Global Resources Fund (the
"Fund") is to provide long-term growth of capital. In seeking to achieve its
investment objective, the Fund invests primarily in equity securities of
domestic and foreign companies in the energy and natural resources
industries. See page 7.
State Street Research & Management Company serves as investment adviser
for the Fund (the "Investment Manager"). As of August 31, 1996, the
Investment Manager had assets of approximately $39.3 billion under
management. State Street Research Investment Services, Inc. serves as
distributor (the "Distributor") for the Fund.
Shareholders may have their shares redeemed directly by the Fund at net
asset value plus the applicable contingent deferred sales charge, if any;
redemptions processed through securities dealers may be subject to processing
charges.
There are risks in any investment program, including the risk of changing
conditions in the securities markets generally and in the energy, natural
resources and related industries in particular, and there is no assurance
that the Fund will achieve its investment objective. The net asset value of a
share of the Fund will fluctuate as market conditions change.
This Prospectus sets forth concisely the information a prospective
investor ought to know about the Fund before investing. It should be retained
for future reference. A Statement of Additional Information about the Fund
dated November 1, 1996 has been filed with the Securities and Exchange
Commission and is incorporated by reference in this Prospectus. It is
available, at no charge, upon request to the Fund at the address indicated on
the back cover or by calling 1-800-562-0032.
The Fund is a nondiversified series of State Street Research Equity Trust
(the "Trust"), an open-end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY,
AND INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
Table of Contents Page
Table of Expenses 2
Financial Highlights 4
The Fund's Investments 7
Limiting Investment Risk 11
Purchase of Shares 12
Redemption of Shares 20
Shareholder Services 21
The Fund and its Shares 26
Management of the Fund 27
Dividends and Distributions; Taxes 27
Calculation of Performance Data 28
<PAGE>
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5%
and (ii) an annual service fee of 0.25% of the average daily net asset value
of the Class A shares.
Class B shares are subject to (i) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees
of 1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain employee benefit plans and
large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution
and service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
<TABLE>
<CAPTION>
Class A Class B Class C Class D
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.5% None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable) None(2) 5% None 1%
Redemption Fees (as a percentage of amount
redeemed, if applicable) None None None None
Exchange Fee None None None None
</TABLE>
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
thereafter and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the
sale. Long-term investors in a class of shares with a distribution fee
may, over a period of years, pay more than the economic equivalent of the
maximum sales charge permissible under applicable rules. See "Purchase of
Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class D
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.75% 0.75% 0.75% 0.75%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 1.09% 1.09% 1.09% 1.09%
Less Voluntary Reduction (0.34%) (0.34%) (0.34%) (0.34%)
--------- --------- --------- ----------
Total Fund Operating Expenses
(after voluntary reduction) 1.75% 2.50% 1.50% 2.50%
========= ========= ========= ==========
</TABLE>
Example:
You would pay the following expenses on a $1,000
investment including, for Class A shares, the maximum
applicable initial sales charge and assuming (1) 5% annual
return and (2) redemption of the entire investment at the end
of each time period:
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- -----------
Class A shares $62 $ 98 $136 $242
Class B shares (1) $75 $108 $153 $265
Class C shares $15 $ 47 $ 82 $179
Class D shares $35 $ 78 $133 $284
You would pay the following expenses on the same
investment, assuming no redemption:
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- -----------
Class B shares (1) $25 $ 78 $133 $265
Class D shares $25 $ 78 $133 $284
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense levels shown in the table above are based
on experience with expenses during the fiscal year ended June 30, 1996;
actual expense levels for the current fiscal year and future years may vary
from the amounts shown. The table does not reflect charges for optional
services elected by certain shareholders, such as the $7.50 fee for
remittance of redemption proceeds by wire. For further information on sales
charges, see "Purchase of Shares--Alternative Purchase Program"; for further
information on management fees, see "Management of the Fund"; and for further
information on 12b-1 fees, see "Purchase of Shares--Distribution Plan."
The Fund has been advised that the Distributor and its affiliates may from
time to time and in varying amounts voluntarily assume some portion of fees
or expenses relating to the Fund. For the fiscal year ended June 30, 1996,
Total Fund Operating Expenses as a percentage of average net assets of Class
A, Class B, Class C and Class D shares of the Fund would have been 2.09%,
2.83%, 1.83% and 2.84%, respectively, in the absence of the voluntary
assumption of fees or expenses by the Distributor and its affiliates, which
amounted to 0.34%, 0.33%, 0.33% and 0.34% of average net assets of each of
the Class A, Class B, Class C and Class D shares of the Fund, respectively.
The amount of fees or expenses assumed during the fiscal year ended June 30,
1996 differed among classes because of fluctuations during the year in the
relative levels of assets in each class and in expenses before reimbursement.
The Fund expects the subsidization of fees or expenses to continue in the
current year, although it cannot give complete assurance that such assistance
will be received.
3
<PAGE>
Financial Highlights
The data set forth below has been audited by Price Waterhouse LLP,
independent accountants, and their report thereon for the latest five years
is included in the Statement of Additional Information. For further
information about the performance of the Fund, see "Financial Statements" in
the Statement of Additional Information. Past performance may not be
indicative of future performance because of, among other things, changes in
the Fund's investment strategy in July 1995; see "Calculation of Performance
Data."
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------------------------
March 2, 1990
Year ended June 30 (Commencement
---------------------------------------------------------------------- of Operations) to
1996** 1995** 1994** 1993 1992 1991 June 30, 1990
--------- --------------------- --------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.16 $ 11.84 $ 13.51 $ 8.02 $ 9.12 $ 11.23 $ 11.94
Net investment income (loss)* (.20) (.16) (.17) (.13) (.12) .03 .03
Net realized and unrealized gain (loss)
on investments 5.48 .48 (1.50) 5.62 (.98) (2.07) (.74)
Distribution from net realized gains -- -- -- -- -- (.06) --
Dividend from net investment income -- -- -- -- -- (.01) --
------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 17.44 $ 12.16 $ 11.84 $ 13.51 $ 8.02 $ 9.12 $ 11.23
======= ======= ======= ======= ======= ======= =======
Total return 43.42%+ 2.70%+ (12.36)%+ 68.45%+ (12.06)%+ (18.28)%+ (5.95)%+++
Net assets at end of year (000s) $30,943 $25,692 $30,679 $33,513 $19,227 $29,760 $35,321
Ratio of operating expenses to average
net assets* 1.75% 1.75% 1.75% 1.75% 1.75% 1.75% 1.75%++
Ratio of net investment income (loss)
to average net assets* (1.47)% (1.41)% (1.46)% (1.44)% (1.16)% 0.25% 0.81%++
Portfolio turnover rate 92.33% 62.94% 30.98% 61.00% 47.09% 108.18% 17.09%
*Reflects voluntary assumption of fees
or expenses per share in each year $ 0.05 $ 0.09 $ 0.11 $ 0.03 $ 0.05 $ 0.03 $ 0.01
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
4
<PAGE>
<TABLE>
<CAPTION>
Class B June 1, 1993
--------------------------------- (Commencement
Year ended June 30 of Share Class
--------------------------------- Designations) to
1996** 1995** 1994** June 30, 1993
--------- --------- ------------ -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.03 $11.78 $ 13.51 $12.99
Net investment income (loss)* (.30) (.23) (.23) (.02)
Net realized and unrealized gain (loss) on
investments 5.39 .48 (1.50) .54
Distribution from net realized gains -- -- -- --
Dividend from net investment income -- -- -- --
------- ------ ------- ------
Net asset value, end of year $ 17.12 $12.03 $ 11.78 $13.51
======= ====== ======= ======
Total return 42.31%+ 2.12%+ (12.81)%+ 4.00%+++
Net assets at end of year (000s) $12,828 $7,030 $ 6,333 $1,048
Ratio of operating expenses to average net
assets* 2.50% 2.33% 2.25% 2.25%++
Ratio of net investment income (loss) to
average net assets* (2.20)% (1.98)% (1.93)% (1.98)%++
Portfolio turnover rate 92.33% 62.94% 30.98% 61.00%
*Reflects voluntary assumption of fees or
expenses per share in each year $ 0.04 $ 0.09 $ 0.14 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class C
--------------------------------
June 1, 1993
(Commencement
of Share Class
Year ended June 30 Designations)
--------------------------------- to
1996** 1995** 1994** June 30, 1993
--------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $12.27 $11.90 $ 13.52 $12.99
Net investment income (loss)* (.17) (.11) (.15) (.00)
Net realized and unrealized gain (loss) on
investments 5.54 .48 (1.47) .53
Distribution from net realized gains -- -- -- --
Dividend from net investment income -- -- -- --
------ ------ ------- ------
Net asset value, end of year $17.64 $12.27 $ 11.90 $13.52
====== ====== ======= ======
Total return 43.77%+ 3.11%+ (11.98)%+ 4.08%+++
Net assets at end of year (000s) $5,632 $3,288 $ 960 $ 146
Ratio of operating expenses to average net
assets* 1.50% 1.33% 1.25% 1.25%++
Ratio of net investment income (loss) to
average net assets* (1.20)% (1.01)% (0.95)% (1.05)%++
Portfolio turnover rate 92.33% 62.94% 30.98% 61.00%
*Reflects voluntary assumption of fees or
expenses per share in each year $ 0.05 $ 0.08 $ 0.16 $ 0.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
5
<PAGE>
<TABLE>
<CAPTION>
Class D
---------------------------------------------------
June 1, 1993
(Commencement
Year ended June 30 of Share Class
--------------------------------- Designations) to
1996** 1995** 1994** June 30, 1993
--------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $12.02 $11.77 $ 13.51 $12.99
Net investment income (loss)* (.30) (.23) (.23) (.02)
Net realized and unrealized gain (loss) on
investments 5.38 .48 (1.51) .54
Distribution from net realized gains -- -- -- --
Dividend from net investment income -- -- -- --
Net asset value, end of year $17.10 $12.02 $ 11.77 $13.51
Total return 42.26%+ 2.12%+ (12.88)%+ 4.00%+++
Net assets at end of year (000s) $5,154 $2,350 $ 1,931 $ 588
Ratio of operating expenses to average net
assets* 2.50% 2.33% 2.25% 2.25%++
Ratio of net investment income (loss) to
average net assets* (2.20)% (1.99)% (1.94)% (2.00)%++
Portfolio turnover rate 92.33% 62.94% 30.98% 61.00%
*Reflects voluntary assumption of fees or
expenses per share in each year $ 0.05 $ 0.09 $ 0.13 $ 0.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
6
<PAGE>
The Fund's Investments
The Fund's investment objective is to provide long-term growth of capital.
The Fund's investment objective is a fundamental policy that may not be
changed without approval of the holders of a majority of the outstanding
voting securities of the Fund.
In seeking to achieve its investment objective, the Fund invests not less
than 65% of its total assets under normal market conditions in equity
securities of domestic and foreign companies in the energy and natural
resources industries. Such investments can provide long-term growth of
capital and a measure of protection during inflationary periods. The noted
industries include companies engaged in the exploration, development and
production of energy, energy sources, metals and other resources; the
extraction, refining, processing, distribution, marketing, transportation and
transmission of energy and natural resource products; research,
experimentation, and development respecting such resources and products;
ownership or control of leases, rights or royalty interests in such products;
and manufacturing and supplying equipment, components, parts or services
related to such products.
Energy and energy sources include oil, oil shale, methane gas, propane,
coal, nuclear, solar, biomass, geothermal and similar conventional or new
forms of energy. Other natural resources include ferrous metals such as iron
and steel, aluminum and copper; non-ferrous metals; precious metals such as
gold, silver and platinum; timberland; and similar resources. The kind of
issuers in which the Fund may invest include, for example, gas and oil
exploration companies, oil and oil service companies, utilities, steel mills,
gold and other mining companies. The Investment Manager deems a particular
company to be in an energy or natural resource industry if at the time of
investment at least 50% of the company's assets or gross revenues is directly
connected with or derived from the relevant industry. Under ordinary
conditions, the Fund will invest in the securities markets of at least three
countries, including the United States.
The Fund may also invest up to 35% of its total assets under normal market
conditions in the securities of issuers in industries that are not related to
the energy or natural resources industries. Such securities include domestic
or foreign equity securities, bonds, debentures and notes of varying
maturities.
Equity securities are defined as domestic and foreign common stocks,
preferred stocks, warrants (limited to 5% of the Fund's net assets) to
acquire common stock, depositary receipts in respect of foreign equity
securities and debt securities convertible into or carrying the right to
acquire common stock. The capitalization of the companies in which the Fund
invests can range across the full spectrum from small to large
capitalization, with varying or high proportions from time to time in
different capitalization segments; small capitalization companies include
those whose outstanding publicly traded equity securities have a market value
of less than $1 billion at the time of the investment. These may include
equity securities of companies with above-average prospects for long-term
growth, more cyclical or lesser growing companies when the securities thereof
are considered by the Investment Manager to be undervalued, and companies
which may be attractive because of assets they own or other circumstances.
The Fund anticipates that a majority of the total value of the equity
securities in which it will invest will be listed on a major domestic or
foreign securities exchange or included on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system. The Fund does not
presently expect over-the-counter securities which are not included on NASDAQ
to comprise a substantial portion of the total value of its portfolio.
The debt securities in which the Fund may invest include investment grade
securities as well as lower quality securities; however, the Fund will not
invest more than 10% of its total assets in lower quality debt securities.
Investment grade securities are securities rated at the time of purchase AAA,
AA, A or BBB by Standard & Poor's Corporation ("S&P") or Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. ("Moody's"), or debt securities that are not
rated but considered by the Investment Manager to be of equivalent investment
quality to comparable rated securities. Bonds rated Baa by Moody's lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Lower quality debt securities include securities
rated, at the time of purchase, BB or lower by S&P or Ba or lower by Moody's,
or debt securities that are not rated but
7
<PAGE>
considered by the Investment Manager to be of equivalent investment quality
to comparable rated securities.
Owing principally to the volatility of price levels of securities of
issuers in the energy and natural resources industries, the Fund may trade
portfolio securities without regard to the length of time held and will
engage in short-term trading whenever the Investment Manager determines
market conditions warrant. For example, if portfolio holdings of an issuer
experienced significant short-term appreciation as a result of changes in its
industry or in circumstances unique to the particular issuer, the Investment
Manager might deem it appropriate to realize such appreciation on behalf of
shareholders. Conversely, the Investment Manager might seek to avoid losses
by disposing of securities held for a relatively short time if significant,
unanticipated decreases in value occurred or appeared imminent. The Fund
might also invest in bonds and other debt securities to preserve capital if
conditions warranted. As part of its investment strategy, the Investment
Manager may employ a portfolio rotation approach, which involves a
reallocation, from time to time, among the best performing areas of the
relevant industries.
As indicated above, the Fund reserves full freedom with respect to
portfolio turnover. In periods when there are rapid changes in economic
conditions or security price levels or when investment strategy is changed
significantly, portfolio turnover may be significantly higher than during
times of economic and market price stability or when investment strategy
remains relatively constant.
A significant level of short-term trading activities will result in higher
brokerage, transaction and administrative costs. In addition, such short-term
trading may increase the amount of capital gains realized by the Fund in a
given year, and thus the amount of taxable distributions to shareholders.
Risk Factors and Special Considerations
Value of Shares and Assets
The value of the Fund's investments (and accordingly the net asset value of
its shares) will be subject to fluctuation in response to a variety of
economic, political and other factors, especially recessionary or
inflationary economies or expectations in the United States and other
countries. Historically, increases in the prices of energy and other natural
resources have often corresponded to periods of high inflation. Under some
circumstances, the securities of companies in the energy and natural
resources industries may increase in response to appreciation in the price of
the underlying energy and other natural resources products relevant to such
companies. To the extent the value of the Fund's portfolio participates in
this appreciation, such investments can provide a measure of inflation
protection during inflationary periods. There can be no assurance that any
such rise in energy or natural resources price levels will correspond to
increases in general price levels, or that the value of the securities held
by the Fund will appreciate during inflationary periods. Because the Fund's
investments are concentrated in the energy and natural resources industries,
the value of its shares is especially affected by factors peculiar to those
industries and may fluctuate more widely than the value of shares of a
portfolio that invests in a broader range of industries. The securities of
companies in the energy and natural resources industries are affected by
changes in the supply and demand of oil, natural gas and other energy fuels,
as well as ferrous, non-ferrous and precious metals. Supply and demand can
fluctuate significantly over a short period of time due to changes in, for
example, weather, international politics (including particularly developments
in the former Soviet Union and in the Middle East), policies of the
Organization of Petroleum Exporting Countries ("OPEC"), relationships between
OPEC nations, conservation, the regulatory environment, governmental tax
policies and the economic growth and stability of countries which consume or
produce large amounts of energy and other natural resources.
Issuers of securities in which the Fund invests, particularly those whose
securities are traded over-the-counter, may be limited in product lines,
markets and financial resources and may be dependent on entrepreneurial
management. The securities of such companies may have limited marketability
and may be subject to more abrupt or erratic market movements over time than
securities of larger, more sea-
8
<PAGE>
soned companies or the market as a whole. Such companies also typically
reinvest most of their net income in the enterprise and typically do not pay
dividends.
The Fund may invest from time to time in equity securities of public
utilities. Such issuers are subject to regulation by local governmental
authorities which may inhibit the potential for capital appreciation of their
securities.
The Fund is a nondiversified fund, which is defined under the Investment
Company Act of 1940 as amended (the "1940 Act"), as any fund other than a
diversified fund. Among other things, a diversified fund must, with respect to
75% of its total assets, not invest more than 5% of its total assets in any one
issuer. As a nondiversified fund, the Fund will not be subject to this limit.
The Fund, therefore, could invest in fewer issuers, which could increase the
relative adverse effect on the portfolio that one or a few poor performing
investments could potentially have. However, under the federal tax law, with
respect to 50% of its total assets, the Fund may not invest more than 5% of its
total assets in any single issuer.
As noted above, the Fund may invest up to 10% of its total assets in debt
securities rated BB or lower by S&P or Ba or lower by Moody's or debt
securities that are unrated but considered by the Investment Manager to be of
equivalent investment quality to comparable rated securities. Such securities
generally involve more credit risk than higher rated securities and are
considered by S&P and Moody's to be predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of
the obligation. Further, such securities may be subject to greater market
fluctuations and risk of loss of income and principal than lower yielding,
higher rated debt securities. Risks of lower quality debt securities include
(i) limited liquidity and secondary market support; (ii) substantial market
price volatility resulting from changes in prevailing interest rates and/or
investor perceptions; (iii) subordination to the prior claims of banks and
other senior lenders; (iv) the operation of mandatory sinking fund or
call/redemption provisions during periods of declining interest rates when
the Fund may be required to reinvest premature redemption proceeds in lower
yielding portfolio securities; (v) the possibility that earnings of the
issuer may be insufficient to meet its debt service; and (vi) the issuer's
low creditworthiness and potential for insolvency during periods of rising
interest rates and economic downturn. For further information concerning the
ratings of debt securities, see the Statement of Additional Information. In
the event the rating of a security is downgraded, the Investment Manager will
determine whether the security should be retained or sold depending on an
assessment of all facts and circumstances at that time.
Foreign Investments
Under normal conditions, the Fund will invest in the underlying securities of
issuers organized under the laws of at least three different countries,
including the United States. The Fund will invest in securities of non-U.S.
issuers directly, or indirectly in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") or similar securities
representing interests in the securities of foreign issuers. ADRs are
receipts, typically issued by a U.S. bank or trust company, which evidence
ownership of underlying securities issued by a foreign corporation or other
entity. EDRs are receipts issued in Europe which evidence a similar ownership
arrangement. Generally, ADRs, in registered form, are designed for use in
U.S. securities markets, and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of ADRs or EDRs
facilitates trading in foreign securities, it does not mitigate the risks
associated with investing in foreign securities. It is anticipated that most
of the foreign investments of the Fund will consist of securities of issuers
in countries with developed economies. However, the Fund may also invest in
the securities of issuers in countries with less developed economies as
deemed appropriate by the Investment Manager. Such countries include
countries that have an emerging stock market that trades a small number of
securities; countries with low- to middle-income economies; and/or countries
with economies that are based on only a few industries. Eastern European
countries are considered to have less developed capital markets.
9
<PAGE>
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the
foreign issuer is not involved, and the ADR holders pay the fees of the
depository. Sponsored ADRs are generally more advantageous to the ADR holders
and the issuer than are unsponsored ADRs. More and higher fees are generally
charged in an unsponsored program compared to a sponsored facility. Only
sponsored ADRs may be listed on the New York or American Stock Exchanges.
Unsponsored ADRs may prove to be more risky due to (a) the additional costs
involved to a Fund; (b) the relative illiquidity of the issue in U.S.
markets; and (c) the possibility of higher trading costs in the
over-the-counter market as opposed to exchange based tradings. The Fund will
take these and other risk considerations into account before making an
investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks
of nationalization or expropriation, the possible imposition of currency
exchange blockages, higher operating expenses, foreign withholding and other
taxes which may reduce investment return, reduced availability of public
information concerning issuers, the difficulties in obtaining and enforcing a
judgment against a foreign issuer and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to
those applicable to domestic issuers. Moreover, securities of many foreign
issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers. Investments in foreign securities
also involve the additional cost of converting the foreign currency into U.S.
dollars.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars.
As a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities
in the various local markets and currencies. Thus, an increase in the value
of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in the local markets.
Currency Transactions
In order to protect against the effects of uncertain future exchange rates on
securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, or by entering into forward
contracts to purchase or sell currencies. Although such contracts tend to
minimize the risk of loss resulting from a correctly predicted decline in
value of hedged currency, they tend to limit any potential gain that might
result should the value of such currency increase. In entering a forward
currency contract, the Fund is dependent upon the creditworthiness and good
faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by the counterparty by dealing only with established, large
institutions with which the Investment Manager has done substantial business
in the past. See the Statement of Additional Information.
Other Investment Policies
The Fund may, subject to certain limitations, buy and sell options, futures
contracts and options on futures contracts on securities, securities indices
and currencies. The Fund may not establish a position in a commodity futures
contract or purchase or sell a commodity option contract for other than bona
fide hedging purposes if immediately thereafter the sum of the amount of
initial margin deposits and premiums required to establish such positions for
such nonhedging purposes would exceed 5% of the market value of the Fund's
net assets; similar policies apply to options which are not commodities. The
Fund may enter various forms of swap arrangements, which have simultaneously
the characteristics of a security and a futures contract, although the
10
<PAGE>
Fund does not presently expect to invest more than 5% of its total assets in
such items. These swap arrangements include interest rate swaps, currency
swaps and index swaps. See the Statement of Additional Information.
The Fund may invest in restricted securities in accordance with Rule 144A
under the Securities Act of 1933, which allows for the resale of such
securities among certain qualified institutional buyers. Because the market
for such securities is still developing, such securities could possibly
become illiquid in particular circumstances. See the Statement of Additional
Information. The Fund may enter into repurchase agreements and purchase
when-issued securities.
The Fund may lend portfolio securities with a value of up to 33-1/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of
the current market value of the loaned securities plus accrued interest.
Collateral received by the Fund will generally be held in the form tendered,
although cash may be invested in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, irrevocable stand-by letters
of credit issued by a bank, or any combination thereof. The investing of cash
collateral received from loaning portfolio securities involves leverage which
magnifies the potential for gain or loss on monies invested and, therefore,
results in an increase in the volatility of the Fund's outstanding
securities. Such loans may be terminated at any time.
The Fund will retain most rights of ownership including rights to
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending, although the Fund may call loans to vote
proxies if desired. Should the borrower of the securities fail financially,
there is a risk of delay in recovery of the securities or loss of rights in
the collateral. Loans are made only to borrowers which are deemed by the
Investment Manager to be of good financial standing.
Limiting Investment Risk
In seeking to lessen investment risk, the Fund operates under certain
fundamental investment restrictions. Under these restrictions the Fund may
not invest in a security if the transaction would result in: (i) the Fund
owning more than 10% of any class of voting securities of an issuer; or (ii)
more than 25% of the Fund's assets being invested in securities of issuers in
any one industry other than any energy industry (provided that the foregoing
restrictions do not apply to investments in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities or backed by the
U.S. Government). The fundamental investment restrictions set forth in this
paragraph may not be changed except by vote of the holders of a majority of
the outstanding voting securities of the Fund.
The Fund may not purchase any security or enter into a repurchase
agreement if as a result more than 15% of its total assets would be invested
in securities that are illiquid, including repurchase agreements extending
for more than seven days.
For further information on these and other investment restrictions,
including other nonfundamental investment restrictions which may be changed
without a shareholder vote, see the Statement of Additional Information. The
investment restrictions and limitations set forth apply as of the time of the
relevant investment.
The Fund may hold up to 100% of its assets in cash or short-term
securities for temporary defensive purposes when in the opinion of the
Investment Manager market conditions warrant. To the extent the Fund's assets
are invested for temporary defensive purposes, such assets will not be
invested in a manner designed to achieve the Fund's investment objective. The
types of short-term instruments in which the Fund may invest for temporary
defensive purposes are described in the Statement of Additional Information
and include short-term money market securities such as securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances of certain
qualified financial institutions and corporate commercial paper rated at
least "A" by S&P or "Prime" by Moody's (or, if not rated, issued by companies
having an outstanding long-term unsecured debt issue rated at least "A" by
S&P or Moody's). For further information, see the Statement of Additional
Information.
11
<PAGE>
The Investment Manager also manages the assets of other clients that, in
seeking to achieve their investment objectives, may hold investments that are
similar to those held by the Fund and that trade in the same markets as the
Fund. It is also possible that a particular investment may be held by more
than one client when the Investment Manager determines that holding such
investment is in the best interests of each and the investment meets the
differing investment objectives of each.
Information on the Purchase of Shares, Redemption of Shares and
Shareholder Services is set forth on pages 12 to 26 below.
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers,
Individual Retirement Accounts ("IRAs"), trusts, corporations,
individuals, etc. The applicability of the general information and
administrative procedures set forth below accordingly will vary depending
on the investor and the recordkeeping system established for a
shareholder's investment in a Fund. Participants in 401(k) and other plans
should first consult with the appropriate person at their employer or
refer to the plan materials before following any of the procedures below.
For more information or assistance, anyone may call 1-800-562-0032.
Purchase of Shares
Methods of Purchase
Through Dealers and Others
Shares of the Fund are continuously offered through securities dealers,
financial institutions and others (collectively referred to herein as
securities dealers or dealers) who have entered into sales agreements with
the Distributor. Purchases through dealers are confirmed at the offering
price, which is the net asset value plus the applicable sales charge, next
determined after the order is duly received by State Street Research
Shareholder Services ("Shareholder Services"), a division of State Street
Research Investment Services, Inc., from the dealer. ("Duly received" for
purposes herein means in accordance with the conditions of the applicable
method of purchase as described below.) The dealer is responsible for
transmitting the order promptly to Shareholder Services in order to permit
the investor to obtain the current price. See "Purchase of Shares--Net Asset
Value" herein.
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's dealer a completed Application (accompanying this Prospectus),
together with a check for the total purchase price payable to the Fund. The
dealer must forward the Application and check in accordance with the
instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a
check payable to the Fund in the amount of the total purchase price together
with any one of the following: (i) an Application; (ii) the stub from a
shareholder's account statement; or (iii) a letter setting forth the name of
the Fund, the class of shares and the shareholder's account name and number.
Shareholder Services will deliver the purchase order to the transfer agent
and dividend paying agent, State Street Bank and Trust Company (the "Transfer
Agent").
If a check is not honored for its full amount, the purchaser could be
subject to additional charges to cover collection costs and any investment
loss, and the purchase may be cancelled.
By Wire
An investor may purchase shares by wiring Federal Funds of not less than
$5,000 to State Street Bank and Trust Company, which also serves as the
Trust's custodian (the "Custodian"), as set forth below. Prior to making an
investment by wire, an investor must notify Shareholder Services at
1-800-521-6548 and obtain a control number and instructions. Following such
notification, Federal Funds should be wired through the Federal Reserve
System to:
12
<PAGE>
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research Global Resources Fund and class of shares (A, B,
C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make
such investment by 12 noon Boston time on the day of his or her investment;
and (ii) the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete
the Application accompanying this Prospectus and deliver it to his or her
dealer, who should forward it as required. No redemptions will be effected
until the Application has been duly processed.
The Fund may in its discretion discontinue, suspend or change the practice
of accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by the Fund. The Fund reserves
the right to suspend the sale of shares or to reject any purchase order,
including orders in connection with exchanges, for any reason.
Minimum Investment
Class of Shares
-----------------------------------
A B C D
-------- -------- ----- -------
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All Other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $ 50 $ 50 (a) $ 50
By Investamatic $ 50 $ 50 (a) $ 50
All Other $ 50 $ 50 (a) $ 50
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments as in the case of, for example, exchanges and investments under
various retirement and employee benefit plans, sponsored arrangements
involving group solicitations of the members of an organization, or other
investment plans for reinvestment of dividends and distributions or for
periodic investments (e.g., Investamatic Check Program).
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding Fund shares, or
the flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in the Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, dealers are paid differing amounts
of commission and other compensation depending on which class of shares they
sell.
13
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
---------------------------- ------------------------------- ------------ --------------------------
<S> <C> <C> <C> <C>
Sales Charges Initial sales Contingent deferred None Contingent deferred
charge at time of sales charge of 5% sales charge of 1%
investment of up to 2% applies to any applies to any shares
to 4.5% depending shares redeemed within redeemed within one
on amount of first five years following year following
investment their purchase; no their purchase
contingent deferred
sales charge after
five years
On investments of $1
million or more, no
initial sales charge;
but contingent deferred
sales charge of 1%
applies to any shares
redeemed within one
year following their
purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years;
Class B shares
convert auto-
matically to
Class A shares
after eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Above described 4% None 1%
Commission initial sales charge
Received less 0.25% to 0.50%
by Selling retained by
Dealer Distributor
On investments of $1
million or more,
0.25% to 1% paid
to dealer by
Distributor
</TABLE>
14
<PAGE>
In deciding which class of shares to purchase, the investor should
consider the amount of the investment, the length of time the investment is
expected to be held, and the ongoing service fee and distribution fee, among
other factors.
Class A shares are sold at net asset value plus an initial sales charge of
up to 4.5% of the public offering price. Because of the sales charge, not all
of an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class D shareholders also pay no
initial sales charge, but a contingent deferred sales charge of 1% generally
applies to redemptions made within one year of purchase. For Class B and
Class D shareholders, therefore, the entire purchase amount is immediately
invested in the Fund.
An investor who qualifies for a significantly reduced initial sales
charge, or a complete waiver of the sales charge on investments of $1,000,000
or more, on the purchase of Class A shares might elect that option to take
advantage of the lower ongoing service and distribution fees that
characterize Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. In addition, Class B shares are assessed
an annual distribution fee of 0.75% of daily net assets for an eight-year
period following the date of purchase and are then automatically converted to
Class A shares. Class D shares are assessed an annual distribution fee of
0.75% of daily net assets for as long as the shares are held. The prospective
investor should consider these fees plus the initial or contingent deferred
sales charges in estimating the costs of investing in the various classes of
the Fund's shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its
expense, provide additional cash and noncash incentives to dealers that sell
shares. Such incentives may be extended only to those dealers that have sold
or may sell significant amounts of shares and/or meet other conditions
established by the Distributor; for example, the Distributor may sponsor
special promotions to develop particular distribution channels or to reach
certain investor groups. The Distributor may also compensate those dealers
with clients who maintain their investments in the Fund over a period of
years. The incentives may include merchandise and trips to and attendance at
sales seminars at resorts.
Class A Shares - Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar
amount of the shares purchased as set forth in the table below. A major
portion of this sales charge is reallowed by the Distributor to the dealer
responsible for the sale.
Sales Sales
Charge Charge
Paid by Paid by Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
Less than $100,000 4.50% 4.71% 4.00%
$100,000 or above but
less than $250,000 3.50% 3.63% 3.00%
$250,000 or above but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or above but
less than
$1 million 2.00% 2.04% 1.75%
See
following
$1 million and above 0% 0% discussion
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized dealer a
commission based on the aggregate of such sales as follows:
15
<PAGE>
Amount of Sale Commission
------------------------------- -------------
(a) $1 million to $3 million 1.00%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
On such sales of $1,000,000 or more, unless the above commission is waived
by the dealer, the investor is subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the sale.
However, such redeemed shares will not be subject to the contingent deferred
sales charge to the extent that their value represents (1) capital
appreciation or (2) reinvestment of dividends or capital gains distributions.
In addition, the contingent deferred sales charge will be waived for certain
other redemptions as described under "Contingent Deferred Sales Charge
Waivers" below (as otherwise applicable to Class B shares).
Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of certain other Eligible Funds, as described
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption
within one year of the Class A shares which are acquired through such
exchange. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption. The amount of any contingent
deferred sales charge will be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement
of Additional Information, of $100,000 or more of Class A shares of the Fund
or a combination of "Eligible Funds." "Eligible Funds" include the Fund and
other funds so designated by the Distributor from time to time. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Dealers should call Shareholder Services for details
concerning the other Eligible Funds and any persons who may qualify for
reduced sales charges and related information. See the Statement of
Additional Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Fund and any other Eligible Funds within a 13-month period.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of shares
of the Fund and other Eligible Funds at reduced sales charges pursuant to a
Right of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call
Shareholder Services for details concerning the Right of Accumulation.
Other Programs
Class A shares of the Fund may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored
arrangements, which include programs under which a company, employee benefit
plan or other organization makes recommendations to, or permits group
solicitation of, its employees, members or participants, except any
organization created primarily for the purpose of obtaining shares of the
Fund at a reduced sales charge or without a sales charge. Sales without a
sales charge, or with a reduced sales charge, may also be made through
brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor. Information on
such arrangements and further conditions and limitations is available from
the Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Man-
16
<PAGE>
ager, the Distributor, or any affiliated entities, including any direct or
indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated
Companies, any relatives of any such individuals whose relationship is
directly verified by such individuals to the Distributor, or any beneficial
account for such relatives or individuals; and (C) employees, officers, sales
representatives or directors of dealers and other entities with a selling
agreement with the Distributor to sell shares of any aforementioned
investment company, any spouse or child of such person, or any beneficial
account for any of them. The purchase must be made for investment and the
shares purchased may not be resold except through redemption. This purchase
program is subject to such administrative policies, regarding the
qualification of purchasers and any other matters, as may be adopted by the
Distributor from time to time.
Class B Shares - Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Fund. However, a
contingent deferred sales charge may be imposed upon redemptions of Class B
shares as described below.
The Distributor will pay dealers at the time of sale a 4% commission for
selling Class B shares. The proceeds of the contingent deferred sales charge
and the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class B shares without an initial sales charge.
Class B shares that are redeemed within a five-year period after their
purchase will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets or (2) reinvestment of dividends or capital gains distributions.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
Contingent Deferred
Sales Charge
As A Percentage Of
Net Asset Value
Redemption During At Redemption
---------------------------------------------- ------------------------
1st Year Since Purchase 5%
2nd Year Since Purchase 4
3rd Year Since Purchase 3
4th Year Since Purchase 3
5th Year Since Purchase 2
6th Year Since Purchase and Thereafter None
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B shares is made first
of those shares having the greatest capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions and
finally of remaining shares held by the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of the Fund acquired through an exchange from
another Eligible Fund will be measured from the date that such shares were
initially acquired in the other Eligible Fund, and Class B shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gains distribution reinvestments in such other
Eligible Fund. These determinations will result in any contingent deferred
sales charge being imposed at the lowest possible rate. For federal income
tax purposes, the amount of the contingent deferred sales charge will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid
to the Distributor.
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain
conditions. In addition, the contingent deferred sales charge will be waived
for: (i) redemptions made within one year of the death or total disability,
as defined by the Social Security Administration, of all shareholders of an
account; (ii) redemptions made after attainment of a
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<PAGE>
specific age in an amount which represents the minimum distribution required
at such age under Section 401(a)(9) of the Internal Revenue Code for
retirement accounts or plans (e.g., age 70-1/2 for IRAs and Section 403(b)
plans), calculated solely on the basis of assets invested in the Fund or
other Eligible Funds; and (iii) a redemption resulting from a tax-free return
of an excess contribution to an IRA. (The foregoing waivers do not apply to a
tax-free rollover or transfer of assets out of the Fund.) The Fund may modify
or terminate the waivers at any time; for example, the Fund may limit the
application of multiple waivers and establish other conditions for employee
benefit plans.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to
Class A shares of the Fund at the end of eight years following the issuance
of the Class B shares; consequently, they will no longer be subject to the
higher expenses borne by Class B shares. The conversion rate will be
determined on the basis of the relative per share net asset values of the two
classes and may result in a shareholder receiving either a greater or fewer
number of Class A shares than the Class B shares so converted. As noted
above, holding periods for Class B shares received in exchange for Class B
shares of other Eligible Funds will be counted toward the eight-year period.
Class C Shares - Institutional; No Sales Charge
The purchase price of a Class C share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
In general, Class C shares are only available for new investments by
certain large institutions, and employee benefit plans which acquire shares
through programs or products sponsored by Metropolitan Life Insurance Company
("Metropolitan") and/or its affiliates, for which Class C shares have been
designated. Information on the availability of Class C shares and further
conditions and limitations is available from the Distributor.
Class C shares may have also been issued directly or through exchanges to
those shareholders of the Fund or other Eligible Funds who previously held
shares not subject to any future sales charge or service fees or distribution
fees.
Class D Shares - Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays dealers a 1% commission for selling Class D shares at the time of
purchase. The proceeds of the contingent deferred sales charge and the
distribution fee are used to offset distribution expenses and thereby permit
the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not
be subject to the contingent deferred sales charge to the extent that the
value of such shares represents (1) capital appreciation of Fund assets or
(2) reinvestment of dividends or capital gains distributions. In addition,
the contingent deferred sales charge will be waived for certain other
redemptions as described under "Contingent Deferred Sales Charge Waivers"
above (as otherwise applicable to Class B shares). For federal income tax
purposes, the amount of the contingent deferred sales charge will reduce the
gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid
to the Distributor.
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of the New York Stock Exchange (the "NYSE") exclusive of days on
which the NYSE is closed. The NYSE ordi-
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narily closes at 4 P.M. New York City time. Assets held by the Fund are
valued on the basis of the last reported sale price or quotations as of the
close of business on the valuation date, except that securities and assets
for which market quotations are not readily available are valued as
determined in good faith by or under the authority of the Trustees of the
Trust. In determining the value of certain assets for which market quotations
are not readily available, the Fund may use one or more pricing services. The
pricing services utilize information with respect to market transactions,
quotations from dealers and various relationships among securities in
determining value and may provide prices determined as of times prior to the
close of the NYSE. The Trustees have authorized the use of the amortized cost
method to value short-term debt instruments issued with a maturity of one
year or less and having a remaining maturity of 60 days or less when the
value obtained is fair value. Further information with respect to the
valuation of the Fund's assets is included in the Statement of Additional
Information.
Distribution Plan
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the 1940 Act.
Under the provisions of the Distribution Plan, the Fund makes payments to the
Distributor based on an annual percentage of the average daily value of the
net assets of each class of shares as follows:
Class Service Fee Distribution Fee
- ---------- ---------------- ----------------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance or servicing of shareholder
accounts. A portion of any initial commission paid to dealers for the sale of
shares of the Fund represents payment for personal services and/or the
maintenance of shareholder accounts by such dealers. Dealers who have sold
Class A shares are eligible for further reimbursement commencing as of the
time of such sale. Dealers who have sold Class B and Class D shares are
eligible for further reimbursement after the first year during which such
shares have been held of record by such dealer as nominee for its clients (or
by such clients directly). Any service fees received by the Distributor and
not allocated to dealers may be applied by the Distributor in reduction of
expenses incurred by it directly for personal services and the maintenance or
servicing of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by
the Distributor in connection with sales or marketing efforts, including
special promotional fees and cash and noncash incentives based upon sales by
dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs
similar expenses on behalf of, such other funds. When expenses of the
Distributor cannot be identified as relating to a specific fund, the
Distributor allocates expenses among the funds in a manner deemed fair and
equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources
of the Distributor (including the advisory fees paid by the Fund), have also
been authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the
Distribution Plan to 1%, of which 0.75% may be used to pay distribution
expenses and 0.25% may be used to pay shareholder service fees. The NASD rule
also limits the aggregate amount which the Fund may pay for such distribution
costs to 6.25% of gross share sales of a class since the inception of any
asset-based sales charge plus interest at the prime rate plus 1% on unpaid
amounts thereof (less any contingent deferred sales charges). Such limitation
does not apply to shareholder service fees. Payments to the Distributor or to
dealers funded under the Distribution Plan may be discontinued at any time by
the Trustees of the Trust.
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<PAGE>
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the
NYSE is open for business. Redemptions will be effective at the net asset
value per share next determined (see "Purchase of Shares--Net Asset Value"
herein) after receipt of the redemption request, in accordance with the
requirements described below, by Shareholder Services and delivery of the
request by Shareholder Services to the Transfer Agent. To allow time for the
clearance of checks used for the purchase of any shares which are tendered
for redemption shortly after purchase, the remittance of the redemption
proceeds for such shares could be delayed for 15 days or more after the
purchase. Shareholders who anticipate a potential need for immediate access
to their investments should, therefore, purchase shares by wire. Except as
noted, redemption proceeds from the Fund are normally remitted within seven
days after receipt of the redemption request by the Fund and any necessary
documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below) by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed
for transfer or accompanied by an endorsed stock power; (3) any required
signature guarantees (see "Redemption of Shares--Signature Guarantees"
below); and (4) any additional documents which may be required for redemption
in the case of corporations, trustees, etc., such as certified copies of
corporate resolutions, governing instruments, powers of attorney, and the
like. The Transfer Agent will not process requests for redemption until it
has received all necessary documents in good order. A shareholder will be
notified promptly if a redemption request cannot be accepted. Shareholders
having any questions about the requirements for redemption should call
Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Fund
may revoke or suspend the telephone redemption privilege at any time and
without notice. See "Shareholder Services--Telephone Services" for a
discussion of the conditions and risks associated with Telephone Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800-521-6548 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge
is subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor
as its agent to accept orders from dealers by wire or telephone for the
repurchase of shares by the Distributor from the dealer. The Fund may revoke
or suspend this authorization at any time. The repurchase price is the net
asset value for the applicable shares next determined following the time at
which the shares are offered for repurchase by the dealer to the Distributor.
The dealer is responsible for promptly transmitting a shareholder's order to
the Distributor. Payment of the repurchase proceeds is made to the dealer who
placed the order promptly upon delivery
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<PAGE>
of certificates for shares in proper form for transfer or, for Open Accounts,
upon the receipt of a stock power with signatures guaranteed as described
below, and, if required, any supporting documents. Neither the Fund nor the
Distributor imposes any charge upon such a repurchase. However, a dealer may
impose a charge as agent for a shareholder in the repurchase of his or her
shares.
The Fund has reserved the right to change, modify or terminate the
services described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder
accounts, the Fund reserves the right to involuntarily redeem at its option
any shareholder account which remains below $1,500 for a period of 60 days
after notice is mailed to the applicable shareholder, or to impose a
maintenance fee on such account after 60 days' notice. Such involuntary
redemptions will be subject to applicable sales charges, if any. The Fund may
increase such minimum account value above such amount in the future after
notice to affected shareholders. Involuntarily redeemed shares will be priced
at the net asset value on the date fixed for redemption by the Fund, and the
proceeds of the redemption will be mailed to the affected shareholder at the
address of record. Currently, the maintenance fee is $18 annually, which is
paid to the Transfer Agent. The fee does not apply to certain retirement
accounts or if the shareholder has more than an aggregate $50,000 invested in
the Fund and other Eligible Funds combined. Imposition of a maintenance fee
on a small account could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment
of redemption proceeds: (1) during any period that the NYSE is closed (other
than customary weekend and holiday closings) or trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the Fund's net asset value; or
(3) during such other periods as the Securities and Exchange Commission may
by order permit for the protection of investors; and (b) the payment of
redemption proceeds may be postponed as otherwise provided under "Redemption
of Shares" herein.
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees help the Transfer
Agent to determine that the person who has authorized a redemption from the
account is, in fact, the shareholder. Signature guarantees are required for,
among other things: (1) written requests for redemptions for more than
$50,000; (2) written requests for redemptions for any amount if the proceeds
are transmitted to other than the current address of record (unchanged in the
past 30 days); (3) written requests for redemptions for any amount submitted
by corporations and certain fiduciaries and other intermediaries; and (4)
requests to transfer the registration of shares to another owner. Signatures
must be guaranteed by a bank, a member firm of a national stock exchange, or
other eligible guarantor institution. The Transfer Agent will not accept
guarantees (or notarizations) from notaries public. The above requirements
may be waived in certain instances. Please contact Shareholder Services at
1-800-562-0032 for specific requirements relating to your account.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of the Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing Class B or Class D shares will not be
issued, while certificates representing Class A or Class C shares will only
be issued if specifically requested in writing and, in any case, will only be
issued for full shares, with any fractional shares to be carried on the
shareholder's account. Shareholders will receive periodic statements of
transactions in their accounts.
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<PAGE>
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through dealers,
by wire or by mailing a check payable to the Fund to Shareholder
Services under the terms set forth above under "Purchase of Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
(b) All income dividends in cash; all capital gains distributions
reinvested in additional shares of the Fund.
(c) All income dividends and capital gains distributions in cash.
(d) All income dividends and capital gains distributions invested in any
one available Eligible Fund designated by the shareholder as
described below. See "Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the
Fund. Selections may be changed at any time by telephone or written notice to
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for available shares with
corresponding characteristics of any of the other Eligible Funds at any time
on the basis of the relative net asset values of the respective shares to be
exchanged, subject to compliance with applicable securities laws.
Shareholders of any other Eligible Fund may similarly exchange their shares
for Fund shares with corresponding characteristics. Prior to making an
exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class A, Class B and
Class D shares may be redeemed without the payment of any contingent deferred
sales charge that might otherwise be due upon an ordinary redemption of such
shares. The State Street Research Money Market Fund issues Class E shares
which are sold without any sales charge. Exchanges of State Street Research
Money Market Fund Class E shares into Class A shares of the Fund or any other
Eligible Fund are subject to the initial sales charge or contingent deferred
sales charge applicable to an initial investment in such Class A shares,
unless a prior Class A sales charge has been paid directly or indirectly with
respect to the shares redeemed. For purposes of computing the contingent
deferred sales charge that may be payable upon disposition of any acquired
Class A, Class B and Class D shares, the holding period of the redeemed
shares is "tacked" to the holding period of the acquired shares. The period
any Class E shares are held is not tacked to the holding period of any
acquired shares. No exchange transaction fee is currently imposed on any
exchange.
Shares of the Fund may also be acquired or redeemed in exchange for shares
of the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers of
Merrill Lynch, Pierce, Fenner & Smith Incorporated (subject to completion of
steps necessary to implement the program). The Fund and Summit Cash Reserves
are related mutual funds for purposes of investment and investor services.
Upon the acquisition of shares of Summit Cash Reserves by exchange for
redeemed shares of the Fund, (a) no sales charge is imposed by Summit Cash
Reserves, (b) no contingent deferred sales charge is imposed by the Fund on
the Fund shares redeemed, and (c) any applicable holding period of the Fund
shares redeemed is "tolled," that is, the holding period clock stops running
pending further transactions. Upon the acquisition of shares of the Fund by
exchange for redeemed shares of Summit Cash Reserves, (a) the acquisition of
Class A shares shall be subject to the
22
<PAGE>
initial sales charges or contingent deferred sales charges applicable to an
initial investment in such Class A shares, unless a prior Class A sales
charge has been paid indirectly, and (b) the acquisition of Class B or Class
D shares of the Fund shall restart any holding period previously tolled, or
shall be subject to the contingent deferred sales charge applicable to an
initial investment in such shares.
For the convenience of the shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or
his or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-521-6548. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes,
each exchange actually represents the sale of shares of one fund and the
purchase of shares of another. Accordingly, exchanges may produce a capital
gain or loss for tax purposes. The exchange privilege may be terminated or
suspended or its terms changed at any time, subject, if required under
applicable regulations, to 60 days' prior notice. New accounts established
for investments upon exchange from an existing account in another fund will
have the same Telephone Privileges as the existing account, unless
Shareholder Services is instructed otherwise. Related administrative policies
and procedures may also be adopted with regard to a series of exchanges,
street name accounts, sponsored arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of the Fund per calendar year. Accounts under common ownership
or control, including accounts with the same taxpayer identification number,
may be aggregated for purposes of the six exchange limit. Notwithstanding the
six exchange limit, the Fund reserves the right to refuse exchanges by any
person or group if, in the Investment Manager's judgment, the Fund would be
unable to invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected. Exchanges may
be restricted or refused if the Fund receives or anticipates simultaneous
orders affecting significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincides with a "market timing" strategy may be
disruptive to the Fund. The Fund may impose these restrictions at any time.
The exchange limit may be modified for accounts in certain institutional
retirement plans to conform to plan exchange limits and Department of Labor
regulations. Subject to the foregoing, if an exchange request in good order
is received by Shareholder Services and delivered by Shareholder Services to
the Transfer Agent by 12 noon Boston time on any business day, the exchange
usually will occur that day. Consult Shareholder Services before requesting
an exchange or for further information.
Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares repurchased
at his or her request may reinvest all or any portion of the proceeds (plus
that amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and
without subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 120 calendar days after a redemption or
repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the
amount reinvested. The redemption of shares is, for federal income tax
purposes, a sale on which the shareholder may realize a gain or loss. If a
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for
federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvest-
23
<PAGE>
ment is made. Shares are sold to a reinvesting shareholder at the net asset
value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once per 12-month period with
respect to his or her shares of the Fund. No charge is imposed by the Fund
for such reinvestments; however, dealers may charge fees in connection with
the reinvestment privilege. The reinvestment privilege may be exercised with
respect to an Eligible Fund only in those states where shares of the relevant
other Eligible Fund may legally be sold.
Investment Plans
The Investamatic Check Program is available to Class A, Class B and Class D
shareholders. Under this Program, shareholders may make regular investments
by authorizing withdrawals from their bank accounts each month or quarter on
the Application available from Shareholder Services.
The Distributor also offers IRAs and retirement plans, including prototype
and other employee benefit plans for employees, sole proprietors,
partnerships and corporations. Details of these investment plans and their
availability may be obtained from securities dealers or from Shareholder
Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Fund's Systematic Withdrawal Plan,
to have periodic checks issued for specified amounts. These amounts may not
be less than certain minimums, depending on the class of shares held. The
Plan provides that all income dividends and capital gains distributions of
the Fund shall be credited to participating shareholders in additional shares
of the Fund. Thus, the withdrawal amounts paid can only be realized by
redeeming shares of the Fund under the Plan. To the extent such amounts paid
exceed dividends and distributions from the Fund, a shareholder's investment
will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually
of either (a) the value, at the time the Plan is initiated, of the shares
then in the account or (b) the value, at the time of a withdrawal, of the
same number of shares as in the account when the Plan was initiated,
whichever is higher.
Expenses of the Plan are borne by the Fund. A participating shareholder
may withdraw from the Plan, and the Fund may terminate the Plan at any time
on written notice. Purchase of additional shares while a shareholder is
receiving payments under a Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate
in the Investamatic Check Program and the Systematic Withdrawal Plan at the
same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all their
dividends and any other distributions from the Fund or any Eligible Fund
automatically invested at net asset value in one other such Eligible Fund
designated by the shareholder, provided the account into which the dividends
and distributions are directed is initially funded with the requisite minimum
amount. The number of shares purchased will be determined as of the dividend
payment date. The Dividend Allocation Plan is subject to state securities law
requirements, to suspension at any time, and to such policies, limitations
and restrictions, such as may be applicable to street name or master
accounts, that may be adopted from time to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will
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<PAGE>
include a list of the securities owned by the Fund as well as the Fund's
financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions for
amounts up to $50,000 to be mailed to the shareholder's address of record
is available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically;
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not
previously request such telephone wire privilege on his or her original
Application may request the privilege by completing a Telephone
Redemption-by-Wire Form which may be obtained by calling 1-800-562-0032.
The Telephone Redemption-by-Wire Form requires a signature guarantee; and
(4) the privilege allowing the shareholder to make telephone purchases or
redemptions, transmitted via the Automated Clearing House system, into or
from the shareholder's predesignated bank account, is available upon
completion of the requisite initial documentation. For details and forms,
call 1-800-562-0032. The documentation requires a signature guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in
(1) and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by
advising Shareholder Services that the shareholder wishes to discontinue the
use of such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account; and (2) honor any written instructions for
a change of address regardless of whether such request is accompanied by a
signature guarantee. All telephone calls will be recorded. None of the Fund,
the other Eligible Funds, the Transfer Agent, the Investment Manager or the
Distributor will be liable for any loss, expense or cost arising out of any
request, including any fraudulent or unauthorized requests. Shareholders
assume the risk to the full extent of their accounts that telephone requests
may be unauthorized. Reasonable procedures will be followed to confirm that
instructions communicated by telephone are genuine. The shareholder will not
be liable for any losses arising from unauthorized or fraudulent instructions
if such procedures are not followed.
Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is unlikely, during periods of extraordinary
market conditions, a shareholder may have difficulty in reaching Shareholder
Services at such telephone number. In that event, the shareholder should
contact Shareholder Services at 1-800-562-0032, 1-617-357-7805 or otherwise
at its main office at One Financial Center, Boston, Massachusetts 02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your
account, including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made
in writing to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408. A fee of up to $10 will be charged against
an account for providing additional account transcripts or photocopies of
paid redemption checks or for researching records in response to special
requests.
Shareholder Telephone Transactions:
Please call 1-800-521-6548
Call this number for assistance in purchasing shares by wire and for
telephone redemptions or telephone
25
<PAGE>
exchange transactions. Shareholder Services will require some form of
personal identification prior to acting upon instructions received by
telephone. Written confirmation of each transaction will be provided.
The Fund and its Shares
The Fund was organized in 1990 as an additional series of State Street
Research Equity Trust, a Massachusetts business trust. The Trustees have
authorized shares of the Fund to be issued in four classes: Class A, Class B,
Class C and Class D shares. The Trust is registered with the Securities and
Exchange Commission as an open-end management investment company. The fiscal
year end of the Fund is June 30.
Except for those differences between the classes of shares described below
and elsewhere in the Prospectus, each share of the Fund has equal dividend,
redemption and liquidation rights with other shares of the Fund and when
issued is fully paid and nonassessable. In the future, certain classes may be
redesignated, for administrative purposes only, to conform to standard class
designations and common usage of terms which may develop in the mutual fund
industry. For example, Class C shares may be redesignated as Class Y shares
and Class D shares may be redesignated as Class C shares. Any redesignations
would not affect any substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class D shares
bear the expenses of the deferred sales arrangement and any expenses
(including the higher service and distribution fees) resulting from such
sales arrangement, and certain other incremental expenses related to a class.
Each class will have exclusive voting rights with respect to provisions of
the Rule 12b-1 distribution plan pursuant to which the service and
distribution fees, if any, are paid. Although the legal rights of holders of
each class of shares are identical, it is likely that the different expenses
borne by each class will result in different net asset values and dividends.
The different classes of shares of the Fund also have different exchange
privileges.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material, adverse effect on
the rights of any shareholder. Under the Master Trust Agreement, the Trustees
may reorganize, merge or liquidate the Fund without prior shareholder
approval. On any matter submitted to the shareholders, the holder of shares
of the Fund is entitled to one vote per share (with proportionate voting for
fractional shares) regardless of the relative net asset value thereof.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder
meetings unless required by the 1940 Act. Except as otherwise provided under
said Act, the Board of Trustees will be a self-perpetuating body until fewer
than two thirds of the Trustees serving as such are Trustees who were elected
by shareholders of the Trust. In the event less than a majority of the
Trustees serving as such were elected by shareholders of the Trust, a meeting
of shareholders will be called to elect Trustees. Under the Master Trust
Agreement, any Trustee may be removed by vote of two thirds of the
outstanding Trust shares; holders of 10% or more of the outstanding shares of
the Trust can require that the Trustees call a meeting of shareholders for
purposes of voting on the removal of one or more Trustees. In connection with
such meetings called by shareholders, shareholders will be assisted in
shareholder communications to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for
indemnification for all losses and expenses of any shareholder of the Fund
held personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations. The Investment Manager believes that, in view of the above, the
risk of personal liability to shareholders is remote.
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Management of the Fund
Under the provisions of the Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
The Fund's investment manager is State Street Research & Management
Company. The Investment Manager is charged with the overall responsibility
for managing the investments and business affairs of the Fund, subject to the
authority of the Board of Trustees.
The Investment Manager was founded by Paul Cabot, Richard Saltonstall and
Richard Paine to serve as investment adviser to one of the nation's first
mutual funds, presently known as State Street Research Investment Trust,
which they had formed in 1924. Their investment management philosophy
emphasized comprehensive fundamental research and analysis, including
meetings with the management of companies under consideration for investment.
The Investment Manager's portfolio management group has extensive investment
industry experience managing equity and debt securities. In managing debt
securities, if any, for a portfolio, the Investment Manager may consider
yield curve, sector rotation and duration, among other factors.
The Investment Manager and the Distributor are indirect wholly owned
subsidiaries of Metropolitan Life Insurance Company and are located at One
Financial Center, Boston, Massachusetts 02111-2690.
The Investment Manager has entered into an Advisory Agreement with the
Trust pursuant to which investment research and management, administrative
services, office facilities and personnel are provided for the Fund in
consideration of a fee from the Fund.
Under its Advisory Agreement with the Trust, the Investment Manager
receives a monthly investment advisory fee equal to 0.75% (on an annual
basis) of the average daily value of the net assets of the Fund. The Fund
bears all costs of its operation other than those incurred by the Investment
Manager under the Advisory Agreement. In particular, the Fund pays, among
other expenses, investment advisory fees, certain distribution expenses under
the Fund's Distribution Plan and the compensation and expenses of the
Trustees who are not otherwise currently affiliated with the Investment
Manager or any of its affiliates. The Investment Manager will reduce its
management fee payable by the Fund up to the amount of any expenses
(excluding permissible items, such as brokerage commissions, Rule 12b-1
payments, interest, taxes and litigation expenses) paid or incurred in any
year in excess of the most restrictive expense limitation imposed by any
state in which the Fund sells shares, if any. The Investment Manager
compensates Trustees of the Trust if such persons are employees or affiliates
of the Investment Manager or its affiliates.
The Fund is managed by Daniel J. Rice III. Mr. Rice has managed the Fund
since its inception in March 1990. Mr. Rice's principal occupation currently
is Senior Vice President of State Street Research & Management Company.
During the past five years he has also served as Vice President of State
Street Research & Management Company.
Subject to the policy of seeking best overall price and execution, sales
of shares of the Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for the Fund's portfolio transactions.
The Investment Manager has a Code of Ethics governing personal securities
transactions of certain of its employees; see the Statement of Additional
Information.
Dividends and Distributions; Taxes
The Fund has qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code for its most recent
fiscal year and it intends to qualify as such in future fiscal years,
although it cannot give complete assurance that it will do so. As long as it
so qualifies and satisfies certain distribution requirements, it will not be
subject to federal income taxes on its taxable income (including capital
gains, if any) distributed to its shareholders. Consequently, the Fund
intends to distribute annually to its shareholders substantially all of its
net investment income and any capital gain net income (capital gains net of
capital losses).
The Fund declares dividends from net investment income semiannually and
pays such dividends, if any,
27
<PAGE>
twice each year; distributions of long-term and short-term capital gain net
income will generally be made on an annual basis, shortly after the end of
the fiscal year in which such gains are realized (or as otherwise required
for compliance with applicable tax regulations). Both dividends from net
investment income and distributions of capital gain net income will be
declared and paid in additional shares of the Fund at net asset value (except
in the case of shareholders who elect a different available distribution
method). The Fund will provide its shareholders of record with annual
information on a timely basis concerning the federal tax status of dividends
and distributions during the preceding calendar year.
Dividends paid by the Fund from taxable net investment income and
distributions of net short-term capital gains, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax
purposes to shareholders as ordinary income, and a portion may be eligible
for the 70% dividends-received deduction for corporations. The percentage of
the Fund's dividends eligible for such tax treatment may be less than 100% to
the extent that less than 100% of the Fund's gross income may be from
qualifying dividends of domestic corporations. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) which are designated as capital gains distributions, whether paid in
cash or reinvested in additional shares, will be taxable for federal income
tax purposes to shareholders as long-term capital gains, regardless of how
long shareholders have held their shares, and are not eligible for the
dividends-received deduction. If shares of the Fund which are sold at a loss
have been held six months or less, the loss will be considered as a long-term
capital loss to the extent of any capital gains distributions received.
Dividends and other distributions and proceeds of redemption of Fund
shares paid to individuals and other nonexempt payees will be subject to a
31% federal backup withholding tax if the Transfer Agent is not provided with
the shareholder's correct taxpayer identification number and certification
that the shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisers
regarding tax matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, the Fund may compare the performance of its Class A,
Class B, Class C or Class D shares to that of other mutual funds with similar
investment objectives, to certificates of deposit and/or to other financial
alternatives. The Fund may also compare its performance to appropriate
indices such as the Natural Resource Funds Index compiled by Lipper
Analytical Services, Inc., Standard & Poor's 500 Index, Consumer Price Index
and Dow Jones Industrial Average and/or to appropriate rankings and averages
such as those compiled by Morningstar, Inc., Money Magazine, Business Week,
Forbes Magazine, The Wall Street Journal and Investor's Daily.
Total return is computed separately for each class of shares of the Fund.
The average annual total return ("standard total return") for shares of the
Fund is computed by determining the average annual compounded rate of return
for a designated historical period as applied to a hypothetical $1,000
initial investment, which is redeemed in total at the end of such period. In
making the calculation, all dividends and distributions are assumed to be
reinvested, and all recurring expenses, including management and distribution
fees, are recognized. The calculation also reflects the maximum initial or
contingent deferred sales charge, determined as of the assumed date of
initial investment or the assumed date of redemption, as the case may be.
Standard total return may be accompanied with nonstandard total return
information computed in the same manner, but for differing periods and with
or without annualizing the total return or taking sales charges into account.
The standard total return results take sales charges into account, if
applicable, but do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders
28
<PAGE>
elect and which involve nominal fees, such as the $7.50 fee for remittance of
redemption proceeds by wire. Where sales charges are not applicable and
therefore not taken into account in the calculation of standard total return,
the results will be increased. Any voluntary waiver of fees or assumption of
expenses by the Fund's affiliates will also increase performance results.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of the Fund changes in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
performance quotation should be considered a representation as to the Fund's
performance for any future period. In evaluating the Fund's performance,
consideration should be given to changes in the Fund's investment strategy in
July 1995. The investment strategy of the Fund was changed to include more
investments in the natural resources industries. Prior to the change, the
Fund invested at least 65% of its total assets in the equity securities of
companies in the energy industries. Under its current investment strategy,
the Fund invests at least 65% of its total assets in the equity securities of
companies in the energy and natural resources industries.
In addition, the net asset values of shares of the Fund will fluctuate,
with the result that shares of the Fund, when redeemed, may be worth more or
less than their original cost. Neither an investment in the Fund nor its
performance is insured or guaranteed; such lack of insurance or guarantees
should accordingly be given appropriate consideration when comparing the Fund
to financial alternatives which have such features.
Shares of the Fund had no class designations until June 1, 1993, when
designations were assigned based on the pricing and Rule 12b-1 fees
applicable to shares sold thereafter. Performance data for a specified class
includes periods prior to the adoption of class designations. Performance
data for periods prior to June 1, 1993 do not reflect additional Rule 12b-1
Distribution Plan fees, if any, of up to 1% per year depending on the class
of shares, which will adversely affect performance results for periods after
such date. Performance data or rankings for a given class of shares should be
interpreted carefully by investors who hold or may invest in a different
class of shares.
29
<PAGE>
[Back cover]
STATE STREET RESEARCH
GLOBAL RESOURCES FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
EG-611D-1196IBS CONTROL NUMBER: 3417-961029(1197)SSR-LD
[Front Cover]
[State Street Research logo]
State Street Research
Global Resources Fund
November 1, 1996
P R O S P E C T U S
<PAGE>
State Street Research Capital Appreciation Fund
State Street Research Equity Investment Fund
State Street Research Equity Income Fund
Series of
State Street Research Equity Trust
STATEMENT OF ADDITIONAL INFORMATION
November 1, 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................................................17
INVESTMENT ADVISORY SERVICES.........................................22
PURCHASE AND REDEMPTION OF SHARES....................................24
NET ASSET VALUE......................................................27
PORTFOLIO TRANSACTIONS...............................................28
CERTAIN TAX MATTERS..................................................31
DISTRIBUTION OF SHARES OF THE FUNDS..................................34
CALCULATION OF PERFORMANCE DATA......................................40
CUSTODIAN............................................................46
INDEPENDENT ACCOUNTANTS..............................................46
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, 1996, which may be
obtained without charge from the offices of State Street Research Equity Trust
(the "Trust") or State Street Research Investment Services, Inc. (the
"Distributor"), One Financial Center, Boston, Massachusetts 02111-2690.
CONTROL NUMBER: 1285B-96102996(1197)SSR-LD ET-879D-1196
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<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Funds' Investments" and "Limiting Investment
Risk" in the Funds' Prospectus, State Street Research Capital Appreciation Fund
(the "Capital Appreciation Fund" or the "Fund"), State Street Research Equity
Investment Fund (the "Equity Investment Fund" or the "Fund") and State Street
Research Equity Income Fund (the "Equity Income Fund" or the "Fund") have
adopted certain investment restrictions.
All of the Funds' fundamental investment restrictions are set forth
below. These fundamental restrictions may not be changed by a Fund except by the
affirmative vote of a majority of the outstanding voting securities of that Fund
as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(Under the 1940 Act, a "vote of the majority of the outstanding voting
securities" means the vote, at the annual or a special meeting of security
holders duly called, (i) of 67% or more of the voting securities present at the
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy or (ii) of more than 50% of the outstanding
voting securities, whichever is less.) Under these restrictions, it is each
Fund's policy:
(1) Equity Investment Fund and Equity Income Fund only: to invest
at least 65% of its assets in equity securities and equity
convertibles into equity securities;
(2) 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;
(3) 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;
(4) not to issue senior securities;
(5) not to underwrite or participate in the marketing of
securities of other issuers, although a Fund may, acting alone
or in syndicates or groups, if determined by the Trust's Board
of Trustees, purchase or otherwise acquire securities of other
issuers for investment, either from the issuers or from
persons in a control relationship with the issuers or from
underwriters of such securities [as a matter of
interpretation, which is not part of the fundamental policy,
this restriction does not apply to the extent that, in
connection with the disposition of the Fund's securities, the
Fund may be deemed to be an underwriter under certain federal
securities laws];
(6) not to purchase or sell real estate in fee simple or real
estate mortgage loans;
2
<PAGE>
(7) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Fund's total
assets, except that investments in essentially financial items
or arrangements such as, but not limited to, swap
arrangements, hybrids, currencies, currency and other forward
contracts, futures contracts and options on futures contracts
on securities, securities indices, interest rates and
currencies shall not be deemed investments in commodities or
commodities contracts;
(8) 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);
(9) not to conduct arbitrage transactions (provided that
investments in futures and options for hedging purposes shall
not be deemed arbitrage transactions);
(10) 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);
(11) 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
(12) not to borrow money (through reverse repurchase agreements or
otherwise) except for extraordinary and emergency purposes,
such as permitting redemption requests to be honored, and then
not in an amount in excess of 10% of the value of its total
assets, provided that additional investments will be suspended
during any period when borrowings exceed 5% of a Fund's total
assets, and provided further that reverse repurchase
agreements shall not exceed 5% of a Fund's total assets.
Reverse repurchase agreements occur when a Fund sells money
market securities and agrees to repurchase such securities at
an agreed-upon price, date and interest payment. A Fund would
use the proceeds from the transaction to buy other money
market securities, which are either maturing or under the
terms of a resale agreement, on the same day as (or day prior
to) the expiration of the reverse repurchase agreement, and
would employ a reverse repurchase agreement when interest
income from investing the proceeds of the transaction is
greater than the interest expense of the reverse repurchase
transaction.
3
<PAGE>
The following investment restrictions may be changed with respect to
any Fund by a vote of a majority of the Trustees. Under these restrictions, it
is each Fund's policy:
(1) not to purchase any security or enter into a repurchase
agreement if as a result more than 15% of its net assets would
be invested in securities that are illiquid (including
repurchase agreements not entitling the holder to payment of
principal and interest within seven days);
(2) not to invest more than 15% of its net assets in restricted
securities of all types (including not more than 5% of its net
assets in restricted securities which are not eligible for
resale pursuant to Rule 144A, Regulation S or other exemptive
provisions under the Securities Act of 1933);
(3) not to invest more than 5% of its total assets in securities
of private companies including predecessors with less than
three years' continuous operations except (a) securities
guaranteed or backed by an affiliate of the issuer with three
years of continuous operations, (b) securities issued or
guaranteed as to principal or interest by the U.S. Government,
or its agencies or instrumentalities, or a mixed-ownership
Government corporation, (c) securities of issuers with debt
securities rated at least "BBB" by Standard & Poor's
Corporation or "Baa" by Moody's Investor's Service, Inc. (or
their equivalent by any other nationally recognized
statistical rating organization) or securities of issuers
considered by the Investment Manager to be equivalent, (d)
securities issued by a holding company with at least 50% of
its assets invested in companies with three years of
continuous operations including predecessors, and (e)
securities which generate income which is exempt from local,
state or federal taxes; provided that the Fund may invest up
to 15% in such issuers so long as such investments plus
investments in restricted securities (other than those which
are eligible for resale under Rule 144A, Regulation S or other
exemptive provisions) do not exceed 15% of the Fund's total
assets;
(4) not to purchase securities on margin, make a short sale of any
securities or purchase or deal in puts, calls, straddles or
spreads with respect to any security, except in connection
with the purchase or writing of options, including options on
financial futures, and futures contracts to the extent set
forth in the Trust's Prospectus and Statement of Additional
Information;
(5) not to hypothecate, mortgage or pledge any of its assets
except as may be necessary in connection with permitted
borrowings and then not in excess of 15% of such Fund's total
assets, taken at cost (for the purpose of this restriction
financial futures, options on financial futures and forward
currency exchange contracts are not deemed to involve a pledge
of assets);
4
<PAGE>
(6) not to acquire any security issued by any other investment
company (the "acquired company") if immediately after such
acquisition the Fund and all companies controlled by the Fund,
if any, would own in the aggregate (i) more than 3% of the
outstanding voting stock of the acquired company, (ii)
securities issued by the acquired company having an aggregate
value in excess of 5% of the Fund's total assets or (iii)
securities issued by the acquired company and all other
investment companies (other than treasury stock of the Fund)
having an aggregate value in excess of 10% of the Fund's total
assets, except to complete a merger, consolidation or other
acquisition of assets;
(7) not to purchase or retain any security of an issuer if, to the
knowledge of the Trust, those of its officers and Trustees and
officers and directors of its investment advisers who
individually own more than 1/2 of 1% of the securities of such
issuer, when combined, own more than 5% of the securities of
such issuer taken at market;
(8) not to invest in warrants more than 5% of the value of its
total assets, taken at the lower of cost or market value
(warrants initially attached to securities and acquired by the
Fund upon original issuance thereof shall be deemed to be
without value); and
(9) not to invest in companies for the purpose of exercising
control over their management, although the Trust may from
time to time present its views on various matters to the
management of issuers in which it holds investments.
At the present time, notwithstanding clause (8) above, the Capital Appreciation
Fund and the Equity Investment Fund may not invest in any warrants. 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
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.
5
<PAGE>
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell
underlying assets, such as certain securities, currencies, or an index of
securities, at a future time at a specified price. A contract to buy establishes
a "long" position while a contract to sell establishes a "short" position.
The purchase of a futures contract on 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 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
6
<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security 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 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
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<PAGE>
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 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 months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate
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<PAGE>
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. Securities
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by the Fund.
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 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
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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 are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing will be classified according to
the industries of their parent companies or industries that otherwise most
affect such financing companies. Issuers of asset-backed pools will be
classified as separate industries based on the nature of the underlying assets,
such as mortgages and credit card receivables. "Asset-backed-Mortgages" includes
private pools of nongovernment backed mortgages.
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Basic Industries Consumer Staple Science & Technology
- ---------------- --------------- --------------------
Chemical Business Service Aerospace
Diversified Container Computer Software
Electrical Equipment Drug & Service
Forest Products Food & Beverage Electronic Components
Machinery Hospital Supply Electronic Equipment
Metal & Mining Personal Care Office Equipment
Railroad Printing & Publishing
Truckers Tobacco
Utility Energy Consumer Cyclical
- ------- ------ -----------------
Electric Oil Refining & Marketing Airline
Gas Oil Production Automotive
Gas Transmission Oil Service Building
Telephone Hotel & Restaurant
Photography
Other Finance Recreation
- ----- ------- Retail Trade
Trust Certificates- Bank Textile & Apparel
Government Related Lending Financial Service
Asset-backed--Mortgages Insurance
Asset-backed--Credit
Card Receivables
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.
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
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as described herein. The U.S. Government securities in which the Fund invests
include, among others:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
o 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
o 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, 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
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<PAGE>
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 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.
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<PAGE>
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.
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.
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<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal 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 58. 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 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 41. 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 53. 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 69. 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 70. 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 45. His principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer 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, One Financial Center, Boston, MA 02111
serves as Secretary and General Counsel of the Trust. He is 41. His principal
occupation is Executive Vice President, General Counsel and Secretary of State
Street Research & Management Company. During the past five years he has also
served as Senior Vice President of State Street Research & Management Company
and as Senior Vice President, General Counsel and
- -------------------------
* or +, see footnotes on page 19.
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<PAGE>
Assistant Secretary of The Boston Company, Inc., 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 58. His principal occupation currently,
and during the past five years has been, Senior 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 64. 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 72. 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 44. 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 58. 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
59. 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 53. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and as Chief Investment
Officer and Director of New England Mutual Life Insurance Company. Mr. Verni's
other principal business affiliations include Chairman of the Board and Director
of State Street Research Investment Services, Inc.
- -------------------------
* or +, see footnotes on page 19.
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<PAGE>
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 71. 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.
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 50. His principal occupation is President and
Chief Investment Officer of State Street Research & Management Company. During
the past five years he has also served as President and Chief Investment
Officer of IDS Advisory Group, Inc. and as Senior Vice President of Stein,
Roe & Farnham.
*+John T. Wilson, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 33. His principal occupation is Vice
President of State Street Research & Management Company. During the past five
years he has also served as an analyst and portfolio manager at Phoenix Home
Life Mutual Insurance Company and, from 1995 to 1996, as a Vice President of
Phoenix Investment Counsel, Inc.
- -------------------------
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations
with the 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, State Street Research Financial Trust,
State Street Research Income Trust, State Street Research Money Market
Trust, State Street Research Tax-Exempt Trust, State Street Research
Capital Trust, State Street Research Exchange Trust, State Street
Research Growth Trust, State Street Research Master Investment Trust,
State Street Research Securities Trust, State Street Research
Portfolios, Inc. and Metropolitan Series Fund, Inc.
19
<PAGE>
Record ownership of shares of the Funds as of September 30, 1996 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>
B Merrill Lynch 8.4
C Chase Manhattan 96.9 Chase Manhattan 84.4 Chase Manhattan 93.7
Bank, N.A. Bank, N.A. Bank, N.A.
Bank of New York 7.1
D PaineWebber 8.7 Metropolitan Life 76.7
Merrill Lynch 42.1 Merrill Lynch 11.6 Merrill Lynch 46.5
Donaldson Lufkin 6.1 Bear Stearns 12.9
</TABLE>
The full name and address of the above institutions are:
Metropolitan Life Insurance Company (a)
One Madison Avenue
New York, New York 10010
Chase Manhattan Bank, N.A.(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
Securities Corporation, Inc. (c)
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
PaineWebber
P.O. Box 3321
Weehawken, NJ 07087
20
<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) Chase Manhattan Bank, N.A. 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 September 30, 1996, the Trustees and principal 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 1.8% None None None
21
<PAGE>
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 $ 9,700 $59,375
Robert A. Lawrence $ 9,700 $88,875
Dean O. Morton $10,100 $92,875
Thomas L. Phillips $ 9,700 $59,375
Toby Rosenblatt $ 9,700 $59,375
Michael S. Scott Morton $10,900 $96,875
Ralph F.Verni $ 0 $ 0
Jeptha H. Wade $ 9,500 $63,375
(a) For the Funds' fiscal year ended June 30, 1996. Includes compensation
from multiple Series of the Trust. See "Distribution of Shares" for a
listing of series.
(b) Includes compensation from 31 series, including series of 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. "Total Compensation from
Trust and Complex" is estimated for the 12 months ended December 31,
1996. 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
22
<PAGE>
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 Distributor and its affiliates may from time to
time and in varying amounts voluntarily assumed 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
1996 1995 1994
---- ---- ----
Capital Appreciation Fund $4,634,817 $3,124,753 $2,338,561
Equity Investment Fund $676,177 $486,807 $385,472
Equity Income Fund $649,578 $521,730 $415,128
The voluntary reduction of fees or assumption of expenses for the same
periods were as follows:
Year ended June 30
1996 1995 1994
---- ---- ----
Capital Appreciation Fund $ 0 $1,056,327* $985,266
Equity Investment Fund $220,240 $362,010 $303,297
Equity Income Fund $267,958 $333,725 $328,184
- ------------------
* 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
23
<PAGE>
and 1.5% of the remaining average net assets. These commitments may be amended
or rescinded in response to changes in the requirements of the various states by
the Trustees without shareholder approval.
The Advisory Agreement provides that it shall continue in effect 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,
24
<PAGE>
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.
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.
25
<PAGE>
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the 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
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants (currently a minimum of 100 eligible
employees), service arrangements, or similar factors; insurance companies;
investment companies; endowment funds of nonprofit organizations with
substantial minimum assets (currently a minimum of $10,000,000); 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.
26
<PAGE>
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.
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
with the use of such pricing services as may be deemed appropriate or
methodologies approved by the Trustees.
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
27
<PAGE>
premium is assumed regardless of the impact of fluctuating interest rates on the
market value of the security.
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, 1995 and 1996, respectively, were as follows: Capital Appreciation
Fund, 217.28% and 279.55%, Equity Investment Fund, 47.93% and 44.44%, and Equity
Income Fund, 67.50% and 111.13%.
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended June 30, 1996, for the Capital Appreciation Fund was
significantly higher than that for the previous fiscal year because of
volalility in the markets for aggressive securities and the resultant
transactions to protect the Fund as well as to take profits and take advantage
of buying opportunities.
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended June 30, 1996 for the Equity Income Fund was significantly
higher than that for the previous fiscal year because of transactions to
reposition the Fund to be more defensive in light of economic expectations as
compared to its more cyclical positioning before.
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including
the Funds, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), 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 their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
28
<PAGE>
transactions for the Funds occur. Against this background, the Investment
Manager evaluates the reasonableness of a commission or a net price with respect
to a particular transaction by considering such factors as difficulty of
execution or security positioning by the executing firm. The Investment Manager
may or may not solicit competitive bids based on its judgment of the expected
benefit or harm to the execution process for that transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given to services other than execution services which certain of such firms have
provided in the past or may provide in the future. Negotiated commission rates
and prices, however, are based upon the Investment Manager's judgment of the
rate which reflects the execution requirements of the transaction without regard
to whether the broker provides services in addition to execution. Among such
other services are the supplying of supplemental investment research; general
economic, political and business information; analytical and statistical data;
relevant market information, quotation equipment and services; reports and
information about specific companies, industries and securities; purchase and
sale recommendations for stocks and bonds; portfolio strategy services;
historical statistical information; market data services providing information
on specific issues and prices; financial publications; proxy voting data and
analysis services; technical analysis of various aspects of the securities
markets, including technical charts; computer hardware used for brokerage and
research purposes; computer software and databases, including those used for
portfolio analysis and modeling; and portfolio evaluation services and relative
performance of accounts.
Certain nonexecution services provided by broker-dealers may in turn be
obtained by the broker-dealers from third parties who are paid for such services
by the broker-dealers. The Investment Manager has an investment of less than ten
percent of the outstanding equity of one such third party which provides
portfolio analysis and modeling and other research and investment
decision-making services integrated into a trading system developed and licensed
by the third party to others. The Investment Manager could be said to benefit
indirectly if in the future it allocates brokerage to a broker-dealer who in
turn pays this third party for services to be provided to the Investment
Manager.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Some services may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and is
therefore paid directly by the Investment Manager. Some research and execution
services may benefit the Investment Manager's clients as a whole, while others
may benefit a specific segment of clients. Not all such services will
necessarily be used exclusively in connection with the accounts which pay the
commissions to the broker-dealer producing the services.
29
<PAGE>
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which the firm may
expect to receive for services supplied to the Investment Manager 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 brokerage business. These understandings are
honored to the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, relies on the provisions of Section 28(e) of the
Securities Exchange Act of 1934, to the extent applicable. Brokerage commissions
paid by the Funds in secondary trading during the last three fiscal years were
as follows:
Fiscal Year ended June 30
1996 1995 1994
---- ---- ----
Capital Appreciation Fund $2,271,335 $2,090,474 $1,119,166
Equity Investment Fund $107,458 $90,811 $95,640
Equity Income Fund $296,364 $175,736 $192,943
The Investment Manager believes the amount of brokerage commissions paid by the
Equity Income Fund during the fiscal year ended June 30, 1996, was significantly
higher than during the previous year because of transactions to reposition the
Fund to be more defensive in light of economic expectations as compared to its
more cyclical positioning before.
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.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling commissions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Investment Manager may make such allocations
to broker-dealers which have provided the Investment Manager with research and
brokerage services.
30
<PAGE>
When more than one client of the Investment Manager is seeking to buy
or sell the same security, the sale or purchase is carried out in a manner which
is considered fair and equitable to all accounts. In allocating investments
among various clients (including in what sequence orders for trades are placed),
the Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the amount already committed for each client
to a specific investment and the relative risks of the investments, all in order
to provide on balance a fair and equitable result to each client over time.
Although sharing in large transactions may sometimes affect price or volume of
shares acquired or sold, overall it is believed there may be an advantage in
execution. The Investment Manager may follow the practice of grouping orders of
various clients for execution to get the benefit of lower prices or commission
rates. In certain cases where the aggregate order may be executed in a series of
transactions at various prices, the transactions are allocated as to amount and
price in a manner considered equitable to each so that each receives, to the
extent practicable, the average price of such transactions. Exceptions may be
made based on such factors as the size of the account and the size of the trade.
For example, the Investment Manager may not aggregate trades where it believes
that it is in the best interests of clients not to do so, including situations
where aggregation might result in a large number of small transactions with
consequent increased custodial and other transactional costs which may
disproportionately impact smaller accounts. Such disaggregation, depending on
the circumstances, may or may not result in such accounts receiving more or less
favorable execution relative to other clients.
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
31
<PAGE>
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 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
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<PAGE>
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
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
33
<PAGE>
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 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. 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
1996 1995 1994
---- ---- ----
Capital Appreciation Fund $1,756,768 $1,130,659 $1,714,899
Equity Investment Fund $142,027 $76,485 $89,774
Equity Income Fund $161,679 $97,853 $239,481
For the same periods, the Distributor retained the following amounts
after reallowance of concessions to dealers:
34
<PAGE>
Year ended June 30
1996 1995 1994
---- ---- ----
Capital Appreciation Fund $206,221 $129,102 $195,517
Equity Investment Fund $17,387 $9,124 $10,445
Equity Income Fund $20,463 $11,212 $28,320
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 based on the aggregate of such sales. 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
35
<PAGE>
commissions to securities dealers for sales of such Class A, Class B and Class D
shares as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 1996 June 30, 1995 June 30, 1994
----------------------------- ------------------------------ ------------------------------
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 $ 0 $1,550,547 $ 2,653 $1,001,557 $ 0 $1,519,382
Class B $378,749 $2,284,643 $394,360 $1,033,301 $62,521 $1,424,770
Class D $ 1,900 $ 26,860 $ 305 $ 0 $ 148 $ 19,784
Equity Investment Fund
Class A $ 0 $ 124,640 $ 0 $ 67,361 $ 0 $ 79,329
Class B $ 40,509 $ 220,242 $ 18,766 $ 57,654 $ 3,372 $ 74,304
Class D $ 39 $ 876 $ 260 $ 0 $ 0 $ 586
Equity Income Fund
Class A $ 0 $ 141,216 $ 265 $ 86,641 $ 0 $ 211,161
Class B $ 65,434 $ 271,051 $ 50,949 $ 130,203 $ 7,538 $ 286,536
Class C $ 39 $ 3,592 $ 632 $ 0 $ 0 $ 7,655
</TABLE>
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 or servicing 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.
36
<PAGE>
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 or servicing 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, 1996, 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
Class A Class B Class D
-------- ---------- -------
Advertising $ 1,511 $ 29,930 $ 0
Printing and mailing
of prospectuses to
other than current
shareholders 586 11,616 0
Compensation to dealers 852,361 1,063,736 52,599
Compensation to sales 6,393 126,652 0
personnel
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing; general 3,599 71,298 0
-------- ---------- -------
Total fees $864,450 $1,303,232 $52,599
======== ========== =======
38
<PAGE>
Equity Investment Fund
Class A Class B Class D
-------- -------- --------
Advertising $ 107 $ 1,357 $ 775
Printing and mailing
of prospectuses to
other than current
shareholders 42 528 302
Compensation to dealers 87,245 78,524 1,694
Compensation to sales
personnel 481 6,102 3,485
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing; general 258 3,268 1,867
-------- -------- --------
Total fees $ 88,133 $ 89,779 $ 8,123
======== ======== ========
Equity Income Fund
Class A Class B Class D
-------- -------- --------
Advertising $ 598 $ 2,002 $ 420
Printing and mailing
of prospectuses to
other than current
shareholders 233 779 164
Compensation to dealers 96,023 185,106 8,683
Compensation to sales
personnel 2,700 9,030 1,896
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing; general 1,443 4,822 1,013
-------- -------- --------
Total fees $100,997 $201,739 $ 12,176
======== ======== ========
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 Sales Charges
---------------------------------------------------- ---------------------------------
Class Amount Period
----- ------ ------
<S> <C> <C> <C>
A 0.25% 0.50% until March 10, 1995; Maximum 4.5% sales charge
0.25 thereafter reflected
B 1.00% 0.50% until June 1, 1993; 1.00% 1- and 5-year periods reflect
June 1, 1993 to present; fee will reduce a 5% and a 2% contingent
performance for periods after June 1, 1993 deferred sales charge,
respectively
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%
June 1, 1993 to present; fee will reduce contingent deferred sales charge
performance for periods after June 1, 1993
</TABLE>
40
<PAGE>
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.
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, 1996 June 30, 1996 June 30, 1996
- ---- ---------------- ------------- -------------
with without with without with without
subsidy subsidy subsidy subsidy subsidy subsidy
------- ------- ------- ------- ------- -------
Capital Appreciation
<S> <C> <C> <C> <C> <C> <C>
Class A N/A* 16.55% N/A 21.95% N/A 18.30%
Class B N/A 16.87% N/A 22.43% N/A 17.97%
Class C N/A 17.25% N/A 23.38% N/A 24.28%
Class D N/A 16.90% N/A 22.66% N/A 22.03%
Equity Investment
Class A 11.64% 11.23% 15.27% 14.94% 19.69% 19.24%
Class B 11.94% 11.53% 15.67% 15.33% 19.39% 18.91%
Class C 12.29% 11.86% 16.60% 16.23% 25.66% 25.18%
Class D 11.93% 11.51% 15.87% 15.50% 23.40% 22.93%
Equity Income
Class A 10.44% N/A 14.64% N/A 16.90% N/A
Class B 10.78% N/A 15.04% N/A 16.60% N/A
Class C 11.14% N/A 15.99% N/A 22.82% N/A
Class D 10.78% N/A 15.26% N/A 20.68% N/A
</TABLE>
* The Fund's returns may have been increased by the voluntary reduction of fees
and/or expenses by the Distributor and/or its affiliates. In the above table
and below, where two figures are given, the first reflects expense reduction;
the second shows what results would have been without subsidization. Where
only one figure is shown, the reduction of fees and expenses was not material
or a fund was not subsidized.
41
<PAGE>
Standard total return is computed separately for each class of shares
by determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated
period assuming a hypothetical $1,000 payment made at
the beginning of the designated period
The calculation is based on the further assumptions that the maximum
initial or contingent deferred sales charge applicable to the investment is
deducted, and that all dividends and distributions by 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 1996 was as follows:
Class A 1.85%
Class B 1.23%
Class C 2.17%
Class D 1.25%
42
<PAGE>
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:
a-b 6
YIELD = 2[(--- + 1) -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 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
43
<PAGE>
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 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, 1996, without taking sales charges into account, were as follows:
44
<PAGE>
with subsidy without subsidy
------------ ---------------
Capital Appreciation Fund
Class A N/A 13.93%
Class B N/A 13.55%
Class C N/A 14.11%
Class D N/A 13.61%
Equity Investment Fund
Class A 10.27% 10.07%
Class B 9.82% 9.62%
Class C 10.41% 10.21%
Class D 9.83% 9.63%
Equity Income Fund
Class A 9.66% N/A
Class B 9.31% N/A
Class C 9.79% N/A
Class D 9.31% 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 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.
45
<PAGE>
The distribution rate of each class of the Equity Income Fund, based on
the quarter ended June 30, 1996, was as follows:
Class A 1.93%
Class B 1.33%
Class C 2.25%
Class D 1.36%
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.
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, 1996.
314791.c3
10/11/96
46
<PAGE>
STATE STREET RESEARCH CAPITAL APPRECIATION FUND
INVESTMENT PORTFOLIO
June 30, 1996
Value
Shares (Note 1)
------------------------------------------- ------- -------------
COMMON STOCKS 95.4%
Basic Industries 2.1%
Machinery 1.6%
Cincinnati Milacron, Inc. 131,000 $ 3,144,000
UCAR International, Inc.* 204,800 8,524,800
------------
11,668,800
------------
Metal & Mining 0.5%
SGL Carbon AG ADR* 108,000 4,131,000
------------
Total Basic Industries 15,799,800
------------
Consumer Cyclical 53.1%
Airline 5.7%
AMR Corp.* 78,300 7,125,300
Continental Airlines, Inc. Cl. B* 260,400 16,079,700
Delta Air Lines, Inc. 50,700 4,208,100
TransWorld Airlines, Inc. Cv. Pfd.*+ 73,400 3,624,125
UAL Corp.* 214,300 11,518,625
------------
42,555,850
------------
Automotive 1.5%
Autozone, Inc.* 217,700 7,565,075
Danaher Corp. 71,200 3,097,200
Penske Motorsports, Inc.* 15,500 410,750
------------
11,073,025
------------
Hotel & Restaurant 12.5%
Extended Stay America, Inc.* 406,600 12,807,900
HFS, Inc.* 550,700 38,549,000
ITT Corp. 55,900 3,703,375
Lone Star Steakhouse & Saloon, Inc.* 47,100 1,778,025
MGM Grand, Inc.* 79,500 3,170,063
Mirage Resorts, Inc.* 138,400 7,473,600
Planet Hollywood International, Inc. Cl. A* 18,100 488,700
Rainforest Cafe, Inc.* 54,500 2,725,000
Renaissance Hotel Group NV* 63,500 1,365,250
Sun International Hotels Ltd.* 111,100 5,388,350
Trump Hotels & Casino Resorts, Inc.* 540,800 15,412,800
------------
92,862,063
------------
Recreation 7.6%
American Radio Systems Corp.* 172,200 7,404,600
Ascent Entertainment Group, Inc.* 75,700 1,911,425
Chancellor Corp. Cl. A* 43,200 1,350,000
Clear Channel Communications, Inc.* 120,400 9,917,950
Emmis Broadcasting Corp. Cl. A* 39,000 1,950,000
Evergreen Media Corp. Cl. A 281,000 12,012,750
Gemstar International Group Ltd.* 73,600 2,208,000
GTech Holdings Corp.* 92,900 2,752,162
Heftel Broadcasting Corp. Cl. A* 40,200 1,190,925
News Corp. Ltd. ADR 222,000 5,217,000
Recreation (cont'd)
Oakley, Inc.* 214,200 $ 9,746,100
Silver King Communications, Inc.* 24,300 729,000
------------
56,389,912
------------
Retail Trade 19.8%
Ann Taylor Stores Corp.* 337,600 6,836,400
Borders Group, Inc.* 206,000 6,643,500
BT Office Products International, Inc.* 231,900 4,145,213
Corporate Express, Inc.* 356,500 14,260,000
Gucci Group NV* 585,600 37,771,200
Home Depot, Inc.* 140,900 7,608,600
Industrie Natuzzi SPA ADR 97,000 4,971,250
Just For Feet, Inc.* 233,850 12,364,819
Loehmann's, Inc.* 12,700 292,100
Melville Corp. 226,100 9,157,050
Micro Warehouse, Inc.* 77,100 1,542,000
Office Depot, Inc.* 491,700 10,018,387
Price-Costco, Inc.* 226,000 4,887,250
Staples, Inc.* 174,000 3,393,000
Sunglass Hut International, Inc.* 884,100 21,549,937
Western Wireless Corp. Cl. A* 74,300 1,588,163
------------
147,028,869
------------
Textile & Apparel 6.0%
Authentic Fitness Corp. 45,000 838,125
Designer Holdings Ltd.* 20,000 532,500
Fila Holdings SPA ADR* 190,200 16,404,750
Men's Wearhouse, Inc.* 372,950 12,027,637
Nautica Enterprises, Inc.* 130,000 3,737,500
Tommy Hilfiger Corp.* 197,300 10,580,213
------------
44,120,725
------------
Total Consumer Cyclical 394,030,444
------------
Consumer Staple 19.3%
Business Service 7.7%
Apache Medical Systems, Inc.* 55,900 698,750
Fritz Companies, Inc.* 85,000 2,741,250
HBO & Co. 247,000 16,734,250
MetroMail Corp.* 32,600 729,425
Republic Waste Industries, Inc.*++ 420,800 11,782,737
Republic Waste Industries, Inc.* 760,400 22,146,650
U.S. Office Products Co.* 45,500 1,911,000
Xeikon NV ADR* 22,400 254,800
------------
56,998,862
------------
Drug 5.9%
Centocor Corp.* 121,200 3,620,850
Cephalon, Inc.* 147,000 2,903,250
Eli Lilly & Co. 164,300 10,679,500
Entremed, Inc.* 106,600 1,599,000
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH CAPITAL APPRECIATION FUND
Value
Shares (Note 1)
------------------------------------------- ------- -------------
Drug (cont'd)
Express Scripts, Inc. Cl. A* 42,100 $ 1,936,600
Liposome Company, Inc.* 305,100 5,720,625
Magainin Pharmaceuticals, Inc.* 112,400 1,180,200
Matrix Pharmaceuticals, Inc.* 55,000 990,000
Myriad Genetics, Inc.* 20,300 507,500
Pfizer, Inc. 202,500 14,453,438
------------
43,590,963
------------
Food & Beverage 2.6%
Boston Beer Company, Inc. Cl. A* 5,600 134,400
Boston Chicken, Inc.* 305,900 9,941,750
Pete's Brewing Co.* 11,900 178,500
Starbucks Corp.* 331,800 9,373,350
------------
19,628,000
------------
Hospital Supply 2.2%
Caremark International, Inc.* 94,400 2,383,600
Cardiothoracic Systems, Inc.* 21,400 283,550
Guidant Corp. 73,700 3,629,725
MedPartners/Mullikin, Inc.* 181,800 3,795,075
Medtronic, Inc. 57,700 3,231,200
Neopath, Inc.* 127,500 3,219,375
------------
16,542,525
------------
Personal Care 0.3%
Polymer Group, Inc.* 117,100 2,049,250
------------
Printing & Publishing 0.6%
CKS Group, Inc.* 5,700 183,825
Hollinger International, Inc.* 176,300 2,005,413
The Providence Journal Co. Cl. A* 58,200 894,825
World Color Press, Inc.* 60,400 1,532,650
------------
4,616,713
------------
Total Consumer Staple 143,426,313
------------
Energy 0.4%
Oil 0.2%
Chesapeake Energy Corp.* 16,200 1,455,975
------------
Oil Service 0.2%
Varco International, Inc.* 67,500 1,223,438
------------
Total Energy 2,679,413
------------
Finance 0.8%
Financial Service 0.1%
First USA Paymentech, Inc.* 8,600 344,000
------------
Insurance 0.7%
W.R. Berkley Corp. 34,500 1,440,375
Everest Reinsurance Holdings, Inc. 152,200 3,938,175
------------
5,378,550
------------
Total Finance 5,722,550
------------
Science & Technology 15.2%
Computer Software & Service 12.1%
ADFlex Solutions, Inc.* 41,000 $ 451,000
Ascend Communications, Inc.* 252,500 14,203,125
Cascade Communications Corp.* 293,600 19,964,800
Checkfree Corp.* 20,500 407,438
Checkpoint Software Technologies Ltd.* 36,700 880,800
CompuServe Corp.* 35,400 747,825
Dassault Systemes S.A. ADR* 22,500 697,500
Datastream Systems, Inc.* 86,700 3,056,175
Fore Systems, Inc.* 176,400 6,372,450
Geoworks* 166,200 5,900,100
Madge Networks NV* 20,500 297,250
Microsoft Corp.* 98,000 11,772,250
Open Market, Inc.* 10,600 258,375
Open Text Corp.* 134,600 1,396,475
OpenVision Technologies, Inc.* 27,800 340,550
Parametric Technology Corp.* 168,300 7,300,012
SS&C Technologies, Inc.* 8,600 131,150
Triple P N.V.* 145,600 891,800
Westell Technologies, Inc.* 182,500 7,163,125
Western Digital Corp.* 274,400 7,168,700
Yahoo, Inc.* 7,300 153,300
------------
89,554,200
------------
Electronic Components 1.4%
Affymetrix, Inc.* 6,100 93,025
CHS Electronics, Inc.* 49,700 670,950
Sanmina Holdings, Inc.* 360,300 9,728,100
------------
10,492,075
------------
Electronic Equipment 0.7%
Lucent Technologies, Inc.* 47,000 1,780,125
Octel Communications Corp.* 159,800 3,156,050
Thermo Optek Corp.* 42,200 548,600
------------
5,484,775
------------
Office Equipment 1.0%
Dell Computer Corp.* 80,200 4,080,175
3Com Corp.* 74,000 3,385,500
------------
7,465,675
------------
Total Science & Technology 112,996,725
------------
Utility 4.5%
Telephone 4.5%
ADC Telecommunications, Inc.* 194,100 8,734,500
Brooks Fiber Properties, Inc.* 24,000 792,000
Excel Communications, Inc.* 19,500 526,500
McLeod, Inc.* 47,200 1,132,800
Newbridge Networks Corp.* 270,800 17,737,400
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH CAPITAL APPRECIATION FUND
Value
Shares (Note 1)
----------------------------------------- ------ -----------
Telephone (cont'd)
Omnipoint Corp.* 88,300 $ 2,301,319
Teleport Communications Group Inc. Cl. A* 93,900 1,796,307
----------
33,020,826
----------
Total Utility 33,020,826
----------
Total Common Stocks (Cost $536,597,165) 707,676,071
----------
Principal Maturity
Amount Date
------------------------------------- ---------- -------- -------------
Commercial Paper 6.2%
American Express Credit Corp., 5.39% 5,043,000 7/3/1996 5,043,000
American General Finance Corp., 5.37% 10,000,000 7/2/1996 10,000,000
Chevron Oil Finance Co., 5.35% 10,000,000 7/3/1996 10,000,000
Ford Motor Credit Co., 5.32% 3,845,000 7/1/1996 3,845,000
General Electric Capital Corp., 5.37% 4,226,000 7/8/1996 4,226,000
Philip Morris Cos., Inc., 5.40% 7,991,600 7/8/1996 7,991,600
Wal-Mart Stores, Inc., 5.30% 4,800,000 7/1/1996 4,800,000
------------
Total Commercial Paper
(Cost $45,905,600) 45,905,600
------------
Total Investments (Cost
$582,502,765)--101.6% 753,581,671
Cash and Other Assets, Less
Liabilities--(1.6%) (11,574,323)
------------
Net Assets--100.0% $742,007,348
============
Federal Income Tax Information:
At June 30, 1996, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $582,643,711 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost $187,263,790
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost over
value (16,325,830)
------------
$170,937,960
============
*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, 1996 were $3,670,000 and $3,624,125
(0.49% of net assets), respectively.
++Security valued under consistently applied procedures established by the
Trustees. Security restricted as to public resale. At June 30, 1996 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, 1996 were $8,051,200 and $11,782,737 (1.59% of net assets),
respectively.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
Assets
Investments, at value (Cost $582,502,765) (Note 1) $ 753,581,671
Cash 2,744
Receivable for fund shares sold 784,827
Dividends and interest receivable 134,897
Receivable for securities sold 3,638
Other assets 10,662
------------
754,518,439
Liabilities
Payable for securities purchased 10,869,382
Accrued transfer agent and shareholder services (Note
2) 460,713
Accrued management fee (Note 2) 439,389
Payable for fund shares redeemed 384,775
Accrued distribution and service fees (Note 4) 222,853
Accrued trustees' fees (Note 2) 9,194
Other accrued expenses 124,785
------------
12,511,091
------------
Net Assets $ 742,007,348
============
Net Assets consist of:
Unrealized appreciation of investments $171,078,906
Accumulated net realized gain 15,502,627
Shares of beneficial interest 555,425,815
------------
$ 742,007,348
============
Net Asset Value and redemption price per share of Class
A shares ($395,050,410 / 30,956,126 shares of
beneficial interest) $12.76
============
Maximum Offering Price per share of Class A shares
($12.76 / .955) $13.36
============
Net Asset Value and offering price per share of
Class B shares ($172,213,335 / 13,791,209 shares of
beneficial interest)* $12.49
============
Net Asset Value, offering price and redemption price
per share of Class C shares ($167,623,763 / 12,954,795
shares of beneficial interest) $12.94
============
Net Asset Value and offering price per share of
Class D shares ($7,119,840 / 568,664 shares
of beneficial interest)* $12.52
============
* 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.
5
<PAGE>
STATE STREET RESEARCH CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
For the year ended June 30, 1996
Investment Income
Dividends, net of foreign taxes of $37,170 $ 2,490,531
Interest 1,253,968
-----------
3,744,499
Expenses
Management fee (Note 2) 4,634,817
Transfer agent and shareholder services (Note 2) 1,920,686
Custodian fee 182,610
Reports to shareholders 159,558
Registration fees 95,313
Service fee--Class A (Note 4) 864,450
Distribution and service fees--Class B (Note 4) 1,303,232
Distribution and service fees--Class D (Note 4) 52,599
Trustees' fees (Note 2) 32,189
Audit fee 26,970
Legal fees 5,763
Miscellaneous 26,497
-----------
9,304,684
-----------
Net investment loss (5,560,185)
-----------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments (Notes 1 and 3) 73,266,361
Net unrealized appreciation of investments 61,608,747
-----------
Net gain on investments 134,875,108
-----------
Net increase in net assets resulting from
operations $129,314,923
===========
STATEMENT OF CHANGES IN NET ASSETS
Year ended June 30
----------------------------
1996 1995
----------------------------- ------------ -------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $ (5,560,185) $ (3,720,060)
Net realized gain on
investments* 73,266,361 12,149,840
Net unrealized appreciation
of investments and foreign
currency 61,608,747 111,117,329
----------- ------------
Net increase resulting from
operations 129,314,923 119,547,109
----------- ------------
Distributions from net realized gains:
Class A (34,354,819) (11,280,742)
Class B (12,773,915) (2,571,808)
Class C (13,218,452) (3,080,510)
Class D (510,505) (112,508)
----------- ------------
(60,857,691) (17,045,568)
----------- ------------
Net increase from fund share
transactions (Note 5) 173,255,282 52,338,022
----------- ------------
Total increase in net assets 241,712,514 154,839,563
Net Assets
Beginning of year 500,294,834 345,455,271
----------- ------------
End of year $ 742,007,348 $500,294,834
=========== ============
* Net realized gain for
Federal income tax purposes
(Note 1) $ 73,389,253 $ 12,055,176
=========== ============
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
Note 1
State Street Research Capital Appreciation Fund, formerly MetLife-State
Street Research Capital Appreciation Fund (the "Fund"), is a series of State
Street Research Equity Trust, formerly 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: 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.
The Fund seeks to achieve maximum capital appreciation by investing primarily
in common stocks of emerging growth companies and of companies considered to
be undervalued special situations. Current income is not a consideration in
the selection of investments for the Fund.
The Fund 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. 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. For the year ended June 30, 1996, the Fund has
designated as long-term 68% of the distributions from net realized gains.
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.
F. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the report period. Actual
results could differ from those estimates.
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, 1996, the fees pursuant to such
agreement amounted to $4,634,817.
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
7
<PAGE>
STATE STREET RESEARCH CAPITAL APPRECIATION FUND
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, 1996, the amount of such
shareholder servicing and account maintenance expenses was $664,771.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $32,189 during the year ended June 30, 1996.
Note 3
For the year ended June 30, 1996, purchases and sales of securities,
exclusive of short-term obligations, aggregated $1,542,111,417 and
$1,459,422,684, respectively.
Note 4
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. The Distributor uses such payments
for personal services and/or the maintenance or servicing 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, 1996,
fees pursuant to such plan amounted to $864,450, $1,303,232 and $52,599 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 $206,221 and $1,397,367, respectively, on sales of Class A shares
of the Fund during the year ended June 30, 1996, and that MetLife Securities,
Inc. earned commissions aggregating $1,991,783 on sales of Class B shares,
and that the Distributor collected contingent deferred sales charges of
$378,749 and $1,900 on redemptions of Class B and Class D shares,
respectively, during the same period.
Note 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At June 30, 1996, the Distributor owned 7,172 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended June 30
--------------------------------------------------------
1996 1995
-------------------------- ---------------------------
Class A Shares Amount Shares Amount
--------------------------------------------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 8,509,488 $ 103,271,609 6,331,406 $ 61,983,784
Issued upon reinvestment of distributions
from net realized gains 3,045,717 33,519,586 1,183,334 10,907,541
Shares repurchased (6,333,177) (77,140,136) (7,177,882) (70,964,079)
---------- ----------- ---------- ------------
Net increase 5,222,028 $ 59,651,059 336,858 $ 1,927,246
========== =========== ========== ============
Class B Shares Amount Shares Amount
--------------------------------------------- ---------- ----------- ---------- ------------
Shares sold 6,634,276 $ 79,295,183 4,108,923 $ 40,145,257
Issued upon reinvestment of distributions
from net realized gains 1,158,748 12,504,495 276,437 2,529,368
Shares repurchased (2,182,710) (26,185,464) (1,642,379) (16,155,301)
---------- ----------- ---------- ------------
Net increase 5,610,314 $ 65,614,214 2,742,981 $ 26,519,324
========== =========== ========== ============
Class C Shares Amount Shares Amount
--------------------------------------------- ---------- ----------- ---------- ------------
Shares sold 6,363,633 $ 78,353,974 4,381,871 $ 43,450,467
Issued upon reinvestment of distributions
from net realized gains 1,187,191 13,211,134 324,761 3,010,459
Shares repurchased (3,763,939) (45,981,872) (2,379,730) (23,674,364)
---------- ----------- ---------- ------------
Net increase 3,786,885 $ 45,583,236 2,326,902 $ 22,786,562
========== =========== ========== ============
Class D Shares Amount Shares Amount
--------------------------------------------- ---------- ----------- ---------- ------------
Shares sold 1,631,034 $ 19,873,515 228,040 $ 2,226,133
Issued upon reinvestment of distributions
from net realized gains 42,662 461,756 11,168 102,407
Shares repurchased (1,461,059) (17,928,498) (125,783) (1,223,650)
---------- ----------- ---------- ------------
Net increase 212,637 $ 2,406,773 113,425 $ 1,104,890
========== =========== ========== ============
</TABLE>
8
<PAGE>
STATE STREET RESEARCH CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------
Year ended June 30
-----------------------------------------------------
1996** 1995** 1994 1993 1992
------------------------------------ -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.52 $ 9.11 $ 10.42 $ 8.33 $ 6.55
Net investment loss* (.10) (.09) (.04) (.05) (.05)
Net realized and unrealized gain
(loss) on investments 2.63 2.95 .09 2.81 1.83
Distributions from net realized
gains (1.29) (.45) (1.36) (.67) --
------- ------- ------- ------- --------
Net asset value, end of year $ 12.76 $ 11.52 $ 9.11 $ 10.42 $ 8.33
======= ======= ======= ======= ========
Total return 23.87%+ 32.56%+ (0.28)%+ 35.78%+ 27.03%+
Net assets at end of year (000s) $395,050 $296,471 $231,356 $183,886 $116,687
Ratio of operating expenses to
average net assets* 1.40% 1.55% 1.50% 1.50% 1.50%
Ratio of net investment loss to
average net assets* (0.79)% (0.87)% (0.81)% (0.63)% (0.71)%
Portfolio turnover rate 279.55% 217.28% 147.73% 135.17% 128.10%
Average commission rate@ $ .0266 -- -- -- --
*Reflects voluntary assumption of
fees or expenses per share in each
year -- $ .03 $ .02 $ .01 $ .01
</TABLE>
<TABLE>
<CAPTION>
Class B
-------------------------------------------------
June 1, 1993
(Commencement
of
Share Class
Year Ended June 30 Designations)
--------------------------------- to
1996** 1995** 1994 June 30, 1993
------------------------------------ ------ ------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.38 $ 9.05 $ 10.41 $ 10.44
Net investment loss* (.22) (.15) (.06) (.00)
Net realized and unrealized gain
(loss) on investments 2.62 2.93 .06 (.03)
Distributions from net realized
gains (1.29) (.45) (1.36) --
------ ------- ----------- -----------
Net asset value, end of year $ 12.49 $ 11.38 $ 9.05 $ 10.41
====== ======= =========== ============
Total return 22.97%+ 31.86%+ (0.83)%+ (0.29)%+++
Net assets at end of year (000s) $172,213 $93,088 $49,236 $2,790
Ratio of operating expenses to
average net assets* 2.15% 2.15% 2.00% 2.00%++
Ratio of net investment loss to
average net assets* (1.53)% (1.47)% (1.29)% (0.95)%++
Portfolio turnover rate 279.55% 217.28% 147.73% 135.17%
Average commission rate@ $ .0266 -- -- --
*Reflects voluntary assumption of
fees or expenses per share in each
year -- $ .02 $ .02 $ .00
</TABLE>
<TABLE>
<CAPTION>
Class C
---------------------------------------------------
Year ended June 30
-----------------------------
June 1, 1993
(Commencement of
Share Class
Designations) to
1996** 1995** 1994 June 30, 1993
--------------------------------- -------- -------- ------- -------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $ 11.64 $ 9.16 $ 10.42 $ 10.44
Net investment income (loss)* (.08) (.05) (.02) .00
Net realized and unrealized gain
(loss) on investments 2.67 2.98 .12 (.02)
Distributions from net realized
gains (1.29) (.45) (1.36) --
------- ------- ------ -------
Net asset value, end of year $ 12.94 $ 11.64 $ 9.16 $ 10.42
======= ======= ====== =======
Total return 24.28%+ 33.06%+ 0.25%+ (0.19)%+++
Net assets at end of year (000s) $167,624 $106,675 $62,662 $37,826
Ratio of operating expenses to
average net assets* 1.15% 1.15% 1.00% 1.00%++
Ratio of net investment income
(loss) to average net assets* (0.54)% (0.46)% (0.30)% 0.50%++
Portfolio turnover rate 279.55% 217.28% 147.73% 135.17%
Average commission rate@ $ .0266 -- -- --
*Reflects voluntary assumption of
fees or expenses per share in
each year -- $ .02 $ .02 $ .00
</TABLE>
<TABLE>
<CAPTION>
Class D
---------------------------------------------------
June 1, 1993
(Commencement
of
Share Class
Year Ended June 30 Designations)
--------------------------------- to
1996** 1995** 1994 June 30, 1993
--------------------------------- ------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $ 11.41 $ 9.07 $ 10.41 $ 10.44
Net investment income (loss)* (.21) (.15) (.07) (.01)
Net realized and unrealized gain
(loss) on investments 2.61 2.94 .09 (.02)
Distributions from net realized
gains (1.29) (.45) (1.36) --
------ ------- --------- -------
Net asset value, end of year $ 12.52 $ 11.41 $ 9.07 $ 10.41
====== ======= ========= =======
Total return 23.03%+ 31.79%+ (0.61)%+ (0.29)%+++
Net assets at end of year (000s) $ 7,120 $ 4,061 $ 2,201 $ 623
Ratio of operating expenses to
average net assets* 2.15% 2.15% 2.00% 2.00%++
Ratio of net investment income
(loss) to average net assets* (1.54)% (1.47)% (1.29)% (1.10)%++
Portfolio turnover rate 279.55% 217.28% 147.73% 135.17%
Average commission rate@ $ .0266 -- -- --
*Reflects voluntary assumption of
fees or expenses per share in
each year -- $ .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 for each of the years in the
four year period ended June 30, 1995 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.
@ For the year ended June 30, 1996, the Fund has elected to disclose its
average commission rate per share paid for security trades.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of State Street Research
Equity Trust and the Shareholders of
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 State Street Research
Capital Appreciation Fund (formerly MetLife-State Street Research Capital
Appreciation Fund) (a series of State Street Research Equity Trust, hereafter
referred to as the "Trust") at June 30, 1996, 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, 1996 by correspondence
with the custodian and brokers and the application of alternative 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 9, 1996
10
<PAGE>
STATE STREET RESEARCH CAPITAL APPRECIATION FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Capital Appreciation Fund's performance was driven by a stock-investing
environment that featured low inflation, strong corporate profits and
economic growth. The Fund benefited from holdings in a number of industry
sectors, most notably, retail and textile/apparel, computer software and
service, hotel and restaurant and recreation, and airline stocks. Returns
were good from a historical standpoint, but the Fund underperformed its peer
group over the past year. Capital Appreciation Fund proved to be a stronger
performer in the second half of the period, beating the average total return
for its Lipper category.
Fund management made a number of changes to the Fund, including reducing its
position in technology stocks but concentrating holdings in the area of
computer software and service. As of June 30, 1996, software and service
stocks represented 12.1% of the portfolio.
Capital Appreciation Fund's management added to the Fund's position in retail
stocks. Retail, as of June 30, 1996, made up 19.8% of the portfolio.
Textile/apparel stocks accounted for another 6% of the portfolio.
Fund management also added to the portfolio's hotel and restaurant stocks,
which represented 12.5% of the portfolio as of this writing.
June 30, 1996
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. "C" shares, offered
without a sales charge, are available only to certain employee benefit plans
and large institutions. Performance for "B" and "D" shares prior to class
designations in 1993 reflects annual 12b-1 fees of .50% and performance
thereafter reflects annual 12b-1 fees of 1%, which will reduce subsequent
performance. Performance reflects the maximum 4.5% "A" share front-end, or
5% "B" share or 1% "D" share contingent deferred sales charges. 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.
Change In Value Of $10,000 Based On
The S&P 500 Compared To Change In Value Of $10,000
Invested In Capital Appreciation Fund
Class A Shares
***********[LINE CHARTS]************
Class A Shares
--------------
Average Annual Total Return
--------------------------------
1 Year 5 Years Life of Fund
------- ------- ------------
+18.30% +21.95% +16.55%
-------------------------------
Capital
Appreciation S&P
Fund 500
---- ---
8/86 9550 10000
6/87 12195 12606
6/88 11777 11730
6/89 13896 14135
6/90 16305 16463
6/91 16029 17679
6/92 20362 20048
6/93 27647 22780
6/94 27569 23100
6/95 36544 29112
6/96 45269 36676
======================================
Class B Shares
--------------
Average Annual Total Return
-------------------------------
1 Year 5 Years Life of Fund
------- ------- ------------
+17.97% +22.43% +16.87%
------- ------- ------------
Capital
Appreciation S&P
Fund 500
---- ---
8/86 10000 10000
6/87 12770 12606
6/88 12332 11730
6/89 14562 14135
6/90 17073 16463
6/91 16784 17679
6/92 21321 20048
6/93 28922 22780
6/94 28683 23100
6/95 37822 29112
6/96 46511 36676
======================================
Class C Shares
--------------
Average Annual Total Return
-------------------------------
1 Year 5 Years Life of Fund
------ ------- ------------
+24.28% +23.38% +17.25%
-------------------------------
Capital
Appreciation S&P
Fund 500
---- ---
8/86 10000 10000
6/87 12770 12606
6/88 12332 11730
6/89 14562 14135
6/90 17073 16463
6/91 16784 17679
6/92 21321 20048
6/93 28949 22780
6/94 29021 23100
6/95 38615 29112
6/96 47990 36676
=====================================
Class D Shares
--------------
Average Annual Total Return
-------------------------------
1 Year 5 Years Life of Fund
------ ------- ------------
22.03% +22.66% 16.90%
-------------------------------
Capital
Appreciation S&P
Fund 500
---- ---
8/86 10000 10000
6/87 12770 12606
6/88 12332 11730
6/89 14562 14135
6/90 17073 16463
6/91 16784 17679
6/92 21321 20048
6/93 28922 22780
6/94 28745 23100
6/95 37883 29112
6/96 46606 36676
=====================================
*************************************
11
<PAGE>
STATE STREET RESEARCH CAPITAL APPRECIATION FUND
REPORT ON SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders of the State Street Research Capital
Appreciation Fund ("Fund"), along with shareholders of other series of State
Street Research Equity Trust ("Meeting"), was convened on October 20, 1995,
and continued thereafter. The results of the Meeting are set forth below.
Votes (millions
of shares)
----------------
For Withheld
---- ---------
1. The following persons were elected as
Trustees:
Edward M. Lamont 29.4 1.9
Robert A. Lawrence 29.4 1.9
Dean O. Morton 29.4 1.9
Thomas L. Phillips 29.4 1.9
Toby Rosenblatt 29.4 1.9
Michael S. Scott Morton 29.4 1.9
Ralph F. Verni 29.4 1.9
Jeptha H. Wade 29.4 1.9
Votes (millions of
shares)
-------------------
For Against Abstain
--- ----- ------
2. The Fund's following investment policies were
reclassified from fundamental to
nonfundamental:
a. The policy regarding investments in
securities of companies with less than three
(3) years' continuous operation; 17.4 2.1 2.8
b. The policy regarding investments in illiquid
securities; 16.7 2.4 3.3
3. The Fund's fundamental policy regarding
investing in commodities and commodity
contracts was amended. 16.9 2.2 3.3
4. The Fund's fundamental policy on lending was
amended to clarify the permissibility of
securities lending. 17.3 1.9 3.2
5. The Master Trust Agreement was amended to
permit the Trustees to recognize, merge or
liquidate a fund without prior shareholder
approval. 21.1 6.4 3.8
6. The Master Trust Agreement was amended to
eliminate specified time permitted between the
record date and any shareholders meeting. 22.8 4.5 4.1
12
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
INVESTMENT PORTFOLIO
June 30, 1996
Value
Shares (Note 1)
- -------------------------------------- ------ -------------
COMMON STOCKS 95.1%
Basic Industries 16.3%
Chemical 8.8%
Ciba-Geigy AG ADR 38,500 $ 2,343,495
E.I. du Pont de Nemours & Co. 31,200 2,468,700
Monsanto Co. 114,000 3,705,000
Rohm & Haas Co. 38,100 2,390,775
-----------
10,907,970
-----------
Electrical Equipment 2.9%
General Electric Co. 42,000 3,633,000
-----------
Machinery 1.9%
Case Corp. 28,100 1,348,800
Pall Corp. 39,400 950,525
-----------
2,299,325
-----------
Metal & Mining 2.7%
Aluminum Company of America 36,100 2,071,237
Nucor Corp. 25,100 1,270,688
-----------
3,341,925
-----------
Total Basic Industries 20,182,220
-----------
Consumer Cyclical 17.6%
Automotive 4.2%
Ford Motor Co. 68,000 2,201,500
General Motors Corp. 41,900 2,194,513
Magna International, Inc. Cl. A 16,900 777,400
-----------
5,173,413
-----------
Building 1.0%
Owens-Corning Fiberglas Corp.* 29,400 1,264,200
-----------
Hotel & Restaurant 2.0%
Mirage Resorts, Inc.* 46,600 2,516,400
-----------
Recreation 3.2%
Comcast Corp. Cl. A 10,600 194,775
Comcast Corp. Cl. A Special 32,100 593,850
Walt Disney Co. 26,043 1,637,454
Mattel, Inc. 54,288 1,553,994
-----------
3,980,073
-----------
Retail Trade 7.1%
Home Depot, Inc. 57,400 3,099,600
Gucci Group N.V.* 26,900 1,735,050
J.C. Penney Company, Inc. 24,400 1,281,000
Kroger Co.* 35,100 1,386,450
Wal-Mart Stores, Inc. 50,600 1,283,975
-----------
8,786,075
-----------
Total Consumer Cyclical 21,720,161
-----------
Consumer Staple 22.0%
Business Service 2.0%
Interpublic Group of Companies, Inc. 53,800 $ 2,521,875
-----------
Drug 4.5%
American Home Products Corp. 31,600 1,899,950
Eli Lilly & Co. 25,272 1,642,680
Pfizer, Inc. 29,200 2,084,150
-----------
5,626,780
-----------
Food & Beverage 4.6%
Anheuser-Busch, Inc. 33,000 2,475,000
PepsiCo, Inc. 89,200 3,155,450
-----------
5,630,450
-----------
Hospital Supply 5.3%
Baxter International, Inc. 48,000 2,268,000
Columbia/HCA Healthcare Corp.* 26,300 1,403,763
Johnson & Johnson 26,000 1,287,000
United Healthcare Corp. 30,800 1,555,400
-----------
6,514,163
-----------
Personal Care 2.8%
Gillette Co. 20,800 1,297,400
Procter & Gamble Co. 23,400 2,120,625
-----------
3,418,025
-----------
Tobacco 2.8%
Philip Morris Companies, Inc. 33,600 3,494,400
-----------
Total Consumer Staple 27,205,693
-----------
Energy 8.8%
Oil 5.7%
Exxon Corp. 14,300 1,242,313
Royal Dutch Petroleum Co. 24,600 3,782,250
Total S.A. Cl. B ADR 55,129 2,046,664
-----------
7,071,227
-----------
Oil Service 3.1%
Halliburton Co. 16,400 910,200
Schlumberger Ltd. 34,000 2,864,500
-----------
3,774,700
-----------
Total Energy 10,845,927
-----------
Finance 8.1%
Bank 4.4%
BankAmerica Corp. 34,100 2,583,075
Citicorp 35,300 2,916,662
-----------
5,499,737
-----------
The accompanying notes are an integral part of the financial
statements.
3
<PAGE>
Value
Shares (Note 1)
- -------------------------------------- ---- -----------
Financial Service 1.6%
Federal National Mortgage Association 57,900 $ 1,939,650
-----------
Insurance 2.1%
Ace Ltd. 19,100 897,700
American International Group, Inc. 5,650 557,231
Travelers, Inc. 25,050 1,142,906
-----------
2,597,837
-----------
Total Finance 10,037,224
-----------
Science & Technology 18.5%
Aerospace 2.9%
Boeing Co. 21,700 1,890,612
Raytheon Co. 33,000 1,703,625
-----------
3,594,237
-----------
Computer Software & Service 7.4%
Cisco Systems, Inc.* 50,000 2,831,250
Electronic Data Systems Corp. 39,600 2,128,500
First Data Corp. 22,900 1,823,412
Microsoft Corp.* 19,400 2,330,425
-----------
9,113,587
-----------
Electronic Equipment 3.8%
L.M. Ericsson Telephone Co. Cl. B ADR* 96,640 2,077,760
Lucent Technologies, Inc.* 35,300 1,336,987
Perkin-Elmer Corp. 26,800 1,293,100
-----------
4,707,847
-----------
Office Equipment 4.4%
Diebold, Inc. 34,650 1,671,863
Hewlett-Packard Co. 21,700 2,161,862
International Business Machines Corp. 15,800 1,564,200
-----------
5,397,925
-----------
Total Science & Technology 22,813,596
-----------
Utility 3.8%
Electric 0.8%
FPL Group, Inc. 21,800 1,002,800
-----------
Telephone 3.0%
AT&T Corp. 31,700 1,965,400
AirTouch Communications, Inc.* 61,600 1,740,200
-----------
3,705,600
-----------
Total Utility 4,708,400
-----------
Total Common Stocks (Cost $91,187,776) 117,513,221
-----------
Principal Maturity Value
Amount Date (Note 1)
- ------------------------------- --------- --------- ------------
CONVERTIBLE BONDS 1.5%
Equitable Company, Inc. Cv.
Sub. Deb., 6.125% $1,191,000 12/15/2024 $ 1,360,718
Price Co. Cv. Sub. Deb., 5.50% 440,000 2/28/2012 457,600
----------
Total Convertible Bonds (Cost $1,648,785) 1,818,318
----------
COMMERCIAL PAPER 4.0%
American Express Credit Corp.,
5.39% 4,433,000 7/01/1996 4,433,000
Associates Corp. of North
America, 5.36% 568,000 7/03/1996 568,000
----------
Total Commercial Paper (Cost $5,001,000) 5,001,000
----------
Total Investments (Cost $97,837,561)--100.6% 124,332,539
Cash and Other Assets, Less Liabilities--(0.6)% (796,002)
----------
Net Assets--100.0% $123,536,537
==========
Federal Income Tax Information:
At June 30, 1996, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $97,899,747 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost $27,210,854
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value (778,062)
-----------
$26,432,792
===========
* Nonincome-producing securities.
ADR stands for American Depositary Receipt, representing ownership of
foreign securities.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Statement of Assets and Liabilities
June 30, 1996
Assets
Investments, at value (Cost $97,837,561) (Note 1) $124,332,539
Cash 6,590
Dividends and interest receivable 162,471
Receivable for securities sold 143,785
Receivable for fund shares sold 53,821
Receivable from Distributor (Note 3) 53,534
Other assets 5,949
-----------
124,758,689
Liabilities
Payable for securities purchased 904,641
Accrued transfer agent and shareholder services (Note
2) 74,434
Payable for fund shares redeemed 73,086
Accrued management fee (Note 2) 62,922
Accrued distribution and service fees (Note 5) 18,129
Accrued trustees' fees (Note 2) 6,027
Dividends payable 2,310
Other accrued expenses 80,603
-----------
1,222,152
-----------
Net Assets $123,536,537
===========
Net Assets consist of:
Undistributed net investment income $ 671,546
Unrealized appreciation of investments 26,494,978
Accumulated net realized gain 7,707,953
Shares of beneficial interest 88,662,060
-----------
$123,536,537
===========
Net Asset Value and redemption price per share of
Class A shares ($39,300,231 / 2,306,216 shares of
beneficial interest) $17.04
======
Maximum Offering Price per share of Class A shares
($17.04 / .955) $17.84
======
Net Asset Value and offering price per share of
Class B shares ($13,128,567 / 777,751 shares of
beneficial interest)* $16.88
======
Net Asset Value, offering price and redemption price
per share of Class C shares ($70,176,849 / 4,121,645
shares of beneficial interest) $17.03
======
Net Asset Value and offering price per share of
Class D shares ($930,890 / 55,166 shares of
beneficial interest)* $16.87
======
* 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, 1996
Investment Income
Dividends, net of foreign taxes of $31,052 $ 1,706,929
Interest 426,882
---------
2,133,811
Expenses
Management fee (Note 2) 676,177
Transfer agent and shareholder services (Note 2) 327,103
Custodian fee 95,721
Reports to shareholders 50,968
Registration fees 47,281
Audit fee 28,954
Trustees' fees (Note 2) 15,680
Service fee--Class A (Note 5) 88,133
Distribution and service fees--Class B (Note 5) 89,779
Distribution and service fees--Class D (Note 5) 8,123
Legal fees 4,694
Miscellaneous 13,934
---------
1,446,547
Expenses borne by the Distributor (Note 3) (220,240)
---------
1,226,307
---------
Net investment income 907,504
---------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) 10,187,786
Net unrealized appreciation of investments 11,825,753
---------
Net gain on investments 22,013,539
---------
Net increase in net assets resulting from
operations $22,921,043
=========
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Statement of Changes in Net Assets
Year ended June 30
---------------------------
1996 1995
- ------------------------------ ----------- ------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 907,504 $ 626,508
Net realized gain on
investments* 10,187,786 1,524,460
Net unrealized appreciation of
investments 11,825,753 11,229,657
--------- ----------
Net increase resulting from
operations 22,921,043 13,380,625
--------- ----------
Dividends from net investment income:
Class A (248,210) (111,024)
Class C (571,956) (535,596)
--------- ----------
(820,166) (646,620)
--------- ----------
Distributions from net realized gains:
Class A (1,371,017) (778,560)
Class B (315,045) (112,505)
Class C (2,286,228) (859,567)
Class D (31,975) (15,072)
--------- ----------
(4,004,265) (1,765,704)
--------- ----------
Net increase from fund share
transactions (Note 6) 17,130,921 9,948,321
--------- ----------
Total increase in net assets 35,227,533 20,916,622
Net Assets
Beginning of year 88,309,004 67,392,382
--------- ----------
End of year (including
undistributed net investment
income of $671,546 and
$135,113, respectively) $123,536,537 $88,309,004
========= ==========
* Net realized gain for
Federal income tax purposes
(Note 1) $ 10,179,814 $ 1,567,315
========= ==========
Notes to Financial Statements
June 30, 1996
Note 1
State Street Research Equity Investment Fund, formerly MetLife-State Street
Research Equity Investment Fund (the "Fund") is a series of State Street
Research Equity Trust, formerly 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: State
Street Research Equity Investment Fund, State Street Research Capital
Appreciation Fund, State Street Research Equity Income Fund and State Street
Research Global Resources Fund.
The Fund seeks to achieve long-term growth of capital and, secondarily,
long-term growth of income by investing primarily in common stocks of
established companies with above-average prospects for growth.
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. 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.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
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.
F. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
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, 1996, the fees pursuant to such
agreement amounted to $676,177.
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, 1996, the amount of such shareholder servicing and account
maintenance expenses was $191,370.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $15,680 during the year ended June 30, 1996.
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, 1996, the amount of such expenses
assumed by the Distributor and its affiliates was $220,240.
Note 4
For the year ended June 30, 1996, purchases and sales of securities,
exclusive of short-term obligations, aggregated $60,227,860 and $44,463,543,
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. The Distributor uses such payments
for personal services and/or the maintenance or servicing 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, 1996,
fees pursuant to such plan amounted to $88,133, $89,779 and $8,123 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 $17,387 and $116,451, respectively on sales of Class A shares of
the Fund during the year ended June 30, 1996, and that MetLife Securities,
Inc. earned commissions aggregating $212,434 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges of $40,509
and $39 on redemptions of Class B and Class D shares, respectively, during
the same period.
7
<PAGE>
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, 1996,
Metropolitan owned 42,732 Class D shares of the Fund and the Distributor
owned 3,603 Class A shares of the Fund.
Share transactions were as follows:
Year ended June 30
------------------------------------------------------
1996 1995
------------------------- -------------------------
Class A Shares Amount Shares Amount
------------------ ---------- ----------- -------- -------------
Shares sold 405,624 $ 6,395,709 348,182 $ 4,474,313
Issued upon
reinvestment of:
Distributions
from net realized
gains 89,924 1,331,731 60,210 746,003
Dividends from
net investment
income 14,813 236,859 7,369 105,228
Shares repurchased (387,435) (6,071,101) (630,567) (8,019,412)
-------- --------- ------ -----------
Net increase
(decrease) 122,926 $ 1,893,198 (214,806) $ (2,693,868)
======== ========= ====== ===========
Class B Shares Amount Shares Amount
------------------ -------- --------- ------ -----------
Shares sold 440,639 $ 6,927,207 147,104 $ 1,868,350
Issued upon
reinvestment of
distributions
from net realized
gains 20,913 307,750 9,061 111,547
Shares repurchased (102,902) (1,616,965) (63,119) (791,085)
-------- --------- ------ -----------
Net increase 358,650 $ 5,617,992 93,046 $ 1,188,812
======== ========= ====== ===========
Class C Shares Amount Shares Amount
------------------ -------- --------- ------ -----------
Shares sold 1,692,679 $ 26,954,407 1,589,454 $ 20,294,474
Issued upon
reinvestment of:
Distributions
from net realized
gains 154,432 2,286,228 69,042 859,569
Dividends from
net investment
income 36,260 571,723 24,036 342,993
Shares repurchased (1,302,028) (20,281,019) (784,881) (10,102,310)
-------- --------- ------ -----------
Net increase 581,343 $ 9,531,339 897,651 $ 11,394,726
======== ========= ====== ===========
Class D Shares Amount Shares Amount
------------------ -------- --------- ------ -----------
Shares sold 5,582 $ 87,865 5,152 $ 64,522
Issued upon
reinvestment of
distributions
from net realized
gains 2,081 30,561 1,172 14,429
Shares repurchased (1,906) (30,034) (1,525) (20,300)
-------- --------- ------ -----------
Net increase 5,757 $ 88,392 4,799 $ 58,651
======== ========= ====== ===========
8
<PAGE>
Financial Highlights
For a share outstanding throughout each year:
Class A
------------------------------------------------
Year ended June 30
------------------------------------------------
1996** 1995** 1994 1993 1992
-------------------- ------ ------ ------ ------ --------
Net asset value,
beginning of year $14.28 $12.44 $14.52 $13.16 $11.19
Net investment
income (loss)* .12 .08 .01 .04 .05
Net realized and
unrealized gain
(loss) on
investments 3.38 2.14 .18 2.48 1.99
Distributions from
net investment
income (.11) (.05) -- (.04) (.07)
Distributions from
net realized gains (.63) (.33) (2.27) (1.12) --
---- ---- ---- ---- ------
Net asset value, end
of year $17.04 $14.28 $12.44 $14.52 $13.16
==== ==== ==== ==== ======
Total return 25.33%+ 18.34%+ 0.93%+ 20.37%+ 18.27%+
Net assets at end of
year (000s) $39,300 $31,174 $29,821 $26,933 $48,473
Ratio of operating
expenses to
average net
assets* 1.25% 1.42% 1.50% 1.50% 1.50%
Ratio of net
investment income
(loss) to average
net assets* 0.79% 0.64% 0.08% 0.23% 0.43%
Portfolio turnover
rate 44.44% 47.93% 62.93% 92.35% 81.89%
Average commission
rate@ $.0331 -- -- -- --
*Reflects voluntary
assumption of fees
or expenses per
share in each year
(Note 3). $.03 $.06 $.04 $.02 $.02
Class B
-------------------------------------------
June 1, 1993
(Commencement
of Share
Class
Designations)
Year ended June 30 to
--------------------------
1996** 1995** 1994 June 30, 1993
--------------------------- ------ ------ ------ -------------
Net asset value, beginning
of year $14.16 $12.36 $14.51 $14.78
Net investment income
(loss)* .01 .01 (.02) .00
Net realized and unrealized
gain (loss) on investments 3.34 2.12 .14 (.26)
Distributions from net
investment income -- -- -- (.01)
Distributions from net
realized gains (.63) (.33) (2.27) --
---- ---- ---- -----------
Net asset value, end of
year $16.88 $14.16 $12.36 $14.51
==== ==== ==== ===========
Total return 24.39%+ 17.70%+ 0.37%+ (1.77)%+++
Net assets at end of year
(000s) $13,129 $5,933 $4,029 $663
Ratio of operating expenses
to average net assets* 2.00% 2.00% 2.00% 2.00%++
Ratio of net investment
income (loss) to average
net assets* 0.05% 0.08% (0.39)% 0.03%++
Portfolio turnover rate 44.44% 47.93% 62.93% 92.35%
Average commission rate@ $.0331 -- -- --
*Reflects voluntary
assumption of fees or
expenses per share in each
year (Note 3). $.03 $.06 $.04 $.00
Class C
-------------------------------------------
June 1, 1993
(Commencement
of Share
Class
Designations)
Year ended June 30 to
--------------------------
1996** 1995** 1994 June 30, 1993
--------------------------- ------ ------ ------ -------------
Net asset value, beginning
of year $14.27 $12.48 $14.51 $14.78
Net investment income
(loss)* .17 .14 .07 (.00)
Net realized and unrealized
gain (loss) on investments 3.37 2.15 .17 (.25)
Dividends from net
investment income (.15) (.17) -- (.02)
Distributions from net
realized gains (.63) (.33) (2.27) --
---- ---- ---- -----------
Net asset value, end of
year $17.03 $14.27 $12.48 $14.51
==== ==== ==== ===========
Total return 25.66%+ 18.83%+ 1.41%+ (1.69)%+++
Net assets at end of year
(000s) $70,177 $50,503 $32,991 $18,796
Ratio of operating expenses
to
average net assets* 1.00% 1.00% 1.00% 1.00%++
Ratio of net investment
income (loss) to average
net assets* 1.06% 1.09% 0.59% (0.39)%++
Portfolio turnover rate 44.44% 47.93% 62.93% 92.35%
Average commission rate@ $.0331 -- -- --
*Reflects voluntary
assumption of fees or
expenses per share in each
year (Note 3). $.03 $.06 $.06 $.00
<TABLE>
<CAPTION>
Class D
-------------------------------------------
June 1, 1993
(Commencement
of Share
Class
Designations)
Year ended June 30 to
--------------------------
1996** 1995** 1994 June 30, 1993
- ----------------------------------------- ------ ------ ------ -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $14.15 $12.36 $14.51 $14.78
Net investment income (loss)* .01 .01 (.05) .00
Net realized and unrealized gain (loss)
on investments 3.34 2.11 .17 (.26)
Dividends from net investment income -- -- -- (.01)
Distributions from net realized gains (.63) (.33) (2.27) --
---- ---- ---- -----------
Net asset value, end of year $16.87 $14.15 $12.36 $14.51
==== ==== ==== ===========
Total return 24.40%+ 17.53%+ 0.45%+ (1.77)%+++
Net assets at end of year (000s) $931 $699 $551 $491
Ratio of operating expenses to
average net assets* 2.00% 2.00% 2.00% 2.00%++
Ratio of net investment income (loss) to
average net assets* 0.04% 0.08% (0.41)% 0.12%++
Portfolio turnover rate 44.44% 47.93% 62.93% 92.35%
Average commission rate@ $.0331 -- -- --
* Reflects voluntary assumption of
fees or expenses per share in each
year (Note 3). $.03 $.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.
@ For the year ended June 30, 1996, the Fund has elected to disclose its
average commission rate per share paid for security trades.
9
<PAGE>
Report of Independent Accountants
To the Trustees of State Street Research
Equity Trust and the Shareholders of
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 State Street Research Equity
Investment Fund (formerly MetLife-State Street Research Equity Investment
Fund) (a series of State Street Research Equity Trust, hereafter referred to
as the "Trust") at June 30, 1996, 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, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
August 9, 1996
10
<PAGE>
Management's Discussion of Fund Performance
It was a good year for Equity Investment Fund. In 1995, the Fund experienced
it's second best year ever. The first half of 1996 has also brought in strong
performance due to moderate economic growth, low interest rates, and low
inflation. As of June 30, 1996, Class A shares of the Fund were up +25.33%
for the past 12 months (does not reflect sales charge). The Lipper Analytical
Services' Growth and Income category finished up +22.13% for the same time
period.
Technology stocks, which were already overweighted in the portfolio, were
added to over the course of the past year. The Fund's good performance can be
attributed to the earnings growth in this area attributed to the push in U.S.
corporations to increase productivity.
The Fund has also been focused on retail stocks in the consumer cyclical
area. These holdings are coming back after a prolonged stagnant sales period.
We've added to our holdings in this area.
The utilities sector in the portfolio has been underweighted due to
uncertainty resulting from mergers
and regulatory approvals among telephone and electric
companies.
In addition, John Wilson joined State Street Research in July as the new
portfolio manager for Equity Investment Fund.
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 maximum 4.5% "A" share front-end sales charge or
5% "B" share or 1% "D" share contingent deferred sales charge. "C" shares,
offered without a sales charge, are available only to certain employee
benefit plans and large institutions. Performance for "B" and "D" shares
prior to class designations in 1993 reflects annual 12b-1 fees of .50% and
performance thereafter reflects annual 12b-1 fees of 1%, which will reduce
subsequent performance.
*************************[LINE CHARTS]***********************
Change in Value of
$10,000 Based on the S&P 500
Compared to Change in Value of $10,000
Invested in the Fund
=============================================================
Class A Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+19.69%/+19.24% +15.27%/+14.94% +11.64%/+11.23%
- -------------------------------------------------------------
Equity
Investment
Fund S&P 500
---- -------
8/25/86 9550 10000
6/30/87 12195 12606
6/30/88 11777 11730
6/30/89 13896 14135
6/30/90 16305 16463
6/30/91 16029 17679
6/30/92 20362 20048
6/30/93 27647 22780
6/30/94 27569 23100
6/30/95 36544 29112
6/30/96 45269 36676
=============================================================
Class B Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+19.39%/+18.91% +15.67%/+15.33% +11.94%/+11.53%
- -------------------------------------------------------------
Equity
Investment
Fund S&P 500
---- -------
8/25/86 10000 10000
6/30/87 12314 12606
6/30/88 11469 11730
6/30/89 13288 14135
6/30/90 15486 16463
6/30/91 14542 17679
6/30/92 17198 20048
6/30/93 20685 22780
6/30/94 20761 23100
6/30/95 24436 29112
6/30/96 30396 36676
=============================================================
Class C Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+25.66%/+25.18% +16.60%/+16.23% +12.29%/+11.86%
- -------------------------------------------------------------
Equity
Investment
Fund S&P 500
---- -------
8/25/86 10000 10000
6/30/87 12314 12606
6/30/88 11469 11730
6/30/89 13288 14135
6/30/90 15486 16463
6/30/91 14542 17679
6/30/92 17198 20048
6/30/93 20701 22780
6/30/94 20992 23100
6/30/95 24945 29112
6/30/96 31345 36676
=============================================================
Class D Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+23.40%/+22.93% +15.87%/+15.50% +11.93%/+11.51%
- -------------------------------------------------------------
Equity
Investment
Fund S&P 500
---- -------
8/25/86 10000 10000
6/30/87 12314 12606
6/30/88 11469 11730
6/30/89 13288 14135
6/30/90 15486 16463
6/30/91 14542 17679
6/30/92 17198 20048
6/30/93 20684 22780
6/30/94 20777 23100
6/30/95 24418 29112
6/30/96 30377 36676
************************************************************
11
<PAGE>
Report on Special Meeting of Shareholders
A Special Meeting of Shareholders of the State Street Research Equity
Investment Fund ("Fund"), along with shareholders of other series of State
Street Research Equity Trust ("Meeting"), was convened on October 20, 1995,
and continued thereafter. The results on the proposals are set forth below.
Votes (millions
of shares)
----------------
For Withheld
--- ---------
1. The following persons were elected as
Trustees:
Edward M. Lamont 29.4 1.9
Robert A. Lawrence 29.4 1.9
Dean O. Morton 29.4 1.9
Thomas L. Phillips 29.4 1.9
Toby Rosenblatt 29.4 1.9
Michael S. Scott Morton 29.4 1.9
Ralph F. Verni 29.4 1.9
Jeptha H. Wade 29.4 1.9
Votes (millions of
shares)
-------------------
For Against Abstain
--- ------- ------
2. The Fund's following investment policies were
reclassified from fundamental to nonfundamental:
a. The policy regarding investments in securities
of companies with less than three (3) years'
continuous operation; 2.5 0.6 0.3
b. The policy regarding investments in illiquid
securities. 2.5 0.6 0.3
3. The Fund's fundamental policy regarding investing
in commodities and commodity contracts was
amended. 2.4 0.6 0.4
4. The Fund's fundamental policy on lending was
amended to clarify the permissibility of
securities lending. 2.3 0.3 0.5
5. The Master Trust Agreement was amended to permit
the Trustees to reorganize, merge or liquidate a
fund without prior shareholder approval. 21.1 6.4 3.8
6. The Master Trust Agreement was amended to
eliminate specified time permitted between the
record date and any shareholders meeting. 22.8 4.5 4.1
12
<PAGE>
STATE STREET RESEARCH EQUITY INCOME FUND
Investment Portfolio
The Investment Portfolio is a detailed list of the securities owned by the
Fund. The Portfolio lists the number of shares and the market value of each
security issue and the percentage invested in each classification. Common
stocks are listed first, and broken down by industry, then sub-industry; then
preferred stocks, bonds and commercial paper follow.
Value
Shares (Note 1)
COMMON STOCKS 69.1%
Basic Industries 10.7%
CHEMICAL 4.0%
IMC Global, Inc. 16,700 $ 628,338
Mallinckrodt Group, Inc. 16,100 625,887
Mississippi Chemical Corp.* 45,000 900,000
Potash Corp. of Saskatchewan, Inc. 8,000 530,000
Rohm & Haas Co. 27,100 1,700,525
------------
4,384,750
------------
DIVERSIFIED 1.7%
Johnson Controls, Inc. 8,700 604,650
Mark IV Industries, Inc. 21,000 475,125
Teledyne, Inc. 23,000 830,875
------------
1,910,650
------------
MACHINERY 3.6%
Briggs & Stratton Corp. 17,000 699,125
Cooper Industries, Inc. 127,000 2,127,250
Sundstrand Corp. 32,000 1,172,000
------------
3,998,375
------------
METAL & MINING 1.4%
Alumax, Inc.* 50,000 1,518,750
------------
Total Basic Industries 11,812,525
------------
Consumer Cyclical 12.9%
AUTOMOTIVE 3.2%
Exide Corp. 50,000 1,212,500
Federal Mogul Corp. 47,600 874,650
Ford Motor Co. 29,200 945,350
General Motors Corp. 9,000 471,375
------------
3,503,875
------------
BUILDING 1.6%
LaFarge Corp. 90,000 1,822,500
------------
HOTEL & RESTAURANT 0.0%
Motels of America, Inc.+* 500 40,000
------------
RETAIL TRADE 8.1%
Federated Department Stores, Inc.* 24,000 819,000
Home Shopping Network, Inc.* 144,200 1,730,400
Intimate Brands, Inc. Cl. A 81,000 1,852,875
Kroger Co.* 25,000 987,500
Thrifty Payless Holdings, Inc. Cl. B* 120,000 2,070,000
Vons Companies, Inc.* 40,000 1,495,000
------------
8,954,775
------------
Total Consumer Cyclical 14,321,150
------------
Consumer Staple 10.8%
BUSINESS SERVICE 3.3%
ADT Ltd.* 130,000 $ 2,453,750
Anacomp, Inc.* 10,282 108,604
Moore Corp. Ltd. 46,900 885,238
PageMart Nationwide, Inc.+* 1,750 18,375
Vestar/LPA Investment Corp.+* 3,125 37,500
Viatel, Inc.+* 27,075 108,300
------------
3,611,767
------------
FOOD & BEVERAGE 5.5%
Coca-Cola Enterprises, Inc. 114,000 3,947,250
Whitman Corp. 86,000 2,074,750
------------
6,022,000
------------
HOSPITAL SUPPLY 1.1%
Baxter International, Inc. 26,000 1,228,500
------------
PRINTING & PUBLISHING 0.9%
Hollinger International, Inc. Cl. A* 93,000 1,057,875
------------
Total Consumer Staple 11,920,142
------------
Energy 8.9%
OIL 7.5%
Amerada Hess Corp. 8,300 445,088
Atlantic Richfield Co. 9,200 1,090,200
Oryx Energy Co. 78,400 1,274,000
Repsol S.A. ADR 39,300 1,365,675
Total S.A. ADR 48,900 1,815,413
Tosco Corp. 46,000 2,311,500
------------
8,301,876
------------
OIL SERVICE 1.4%
Baker Hughes, Inc. 13,000 427,375
Mapco, Inc. 20,000 1,127,500
------------
1,554,875
------------
Total Energy 9,856,751
------------
Finance 11.3%
BANK 4.0%
Bank of New York, Inc. 25,000 1,281,250
Chase Manhattan Corp.* 4,160 293,800
Fleet Financial Group, Inc. 49,100 2,135,850
Mellon Bank Corp. 11,000 627,000
South Trust Corp. 4,000 112,500
------------
4,450,400
------------
6 June 1996
<PAGE>
INVESTMENT PORTFOLIO (cont'd)
Value
Shares (Note 1)
FINANCIAL SERVICE 1.2%
Federal National Mortgage Association 40,800 $ 1,366,800
------------
INSURANCE 6.1%
Ace, Ltd. 38,100 1,790,700
AMBAC, Inc. 15,000 781,875
Mid Ocean Ltd. 74,700 3,062,700
PMI Group, Inc. 25,000 1,062,500
------------
6,697,775
------------
Total Finance 12,514,975
------------
Science & Technology 7.4%
AEROSPACE 2.1%
Boeing Co. 19,500 1,698,938
Sequa Corp. Cl. A* 15,000 646,875
------------
2,345,813
------------
COMPUTER SOFTWARE & SERVICE 3.1%
Computervision Corp.* 140,700 1,407,000
Western Digital Corp.* 78,600 2,053,425
------------
3,460,425
------------
ELECTRONIC COMPONENTS 1.1%
AMP, Inc. 15,000 601,875
Thomas & Betts Corp. 16,000 600,000
------------
1,201,875
------------
OFFICE EQUIPMENT 1.1%
Digital Equipment Corp.* 10,000 450,000
Quantum Corp.* 50,000 725,000
------------
1,175,000
------------
Total Science & Technology 8,183,113
------------
Utility 7.1%
ELECTRIC 2.3%
Allegheny Power Systems, Inc. 30,000 926,250
American Electric Power, Inc. 38,000 1,619,750
------------
2,546,000
------------
NATURAL GAS 2.9%
ENSERCH Corp. 125,000 2,718,750
TransTexas Gas Corp.* 48,000 456,000
------------
3,174,750
------------
TELEPHONE 1.9%
Southern New England Telecom Corp. 50,000 2,100,000
------------
Total Utility 7,820,750
------------
Total Common Stocks (Cost $65,562,135) 76,429,406
------------
PREFERRED STOCKS & OTHER 8.4%
Atlantic Richfield Co. Exch. Notes 110,000 $ 2,681,250
Boomtown, Inc. Wts.* 250 13
Crown Packaging Holdings Ltd. Wts.*+ 2,000 250
Gentra, Inc. Series G. Pfd.* 65,000 785,542
Gentra, Inc. Series Q Pfd.* 45,000 395,518
Heartland Wireless Communications, Inc. Wts.* 1,500 11,250
Intelcom Group, Inc. Pfd.#+ 500 517,500
K-III Communications Corp. Series B Exch.
Pfd.# 5,448 539,352
K-III Communications Corp.
Series C Pfd.+* 5,000 495,000
La Petite Holdings Co. Cum. Exch. Pfd.* 45,000 1,417,500
PageMart, Inc. Wts.*+ 3,450 20,700
SDW Holdings Corp. Wts.*+ 27,000 81,000
S.D. Warren Co. Series B Sr. Exch. Pfd.# 27,000 945,000
Sheffield Steel Corp. Wts.* 2,500 3,750
Supermarkets General Holding Corp. Exch.
Pfd.# 55,000 1,416,250
Wireless One, Inc. Wts.* 1,500 12,000
------------
Total Preferred Stocks & Other (Cost $8,836,046) 9,321,875
------------
CONVERTIBLE PREFERRED STOCKS 5.7%
Granite Broadcasting Corp. Cum. Cv. Exch.
Pfd.# 25,000 1,671,484
Salomon, Inc. Cv. Pfd.* 45,000 1,248,750
Station Casinos, Inc. Cv. Pfd.* 30,000 1,725,000
Tyco Toys, Inc. Series C Cv. Pfd.* 300,000 1,687,500
------------
Total Convertible Preferred Stocks
(Cost $4,955,625) 6,332,734
------------
Principal Maturity
Amount Date
CONVERTIBLE BONDS 1.7%
Crown Resources Corp. Cv. Sub.
Deb., 5.75% $600,000 8/27/2001 483,000
Rohr, Inc. Cv. Sub. Note, 7.75% 500,000 5/15/2004 1,000,000
Winstar Communications, Inc.,
Sr. Sub. Cv. Note, 14.00% 650,000 10/15/2005 442,000
-----------
Total Convertible Bonds (Cost $1,373,459) 1,925,000
-----------
7 June 1996
<PAGE>
INVESTMENT PORTFOLIO (cont'd)
Principal Maturity Value
Amount Date (Note 1)
NON-CONVERTIBLE BONDS 14.0%
Anacomp, Inc. Sr. Sub.
Note, 13.00% $ 177,000 6/04/2002 $169,920
Argosy Gaming Co. First
Mortgage Note, 13.25%+ 500,000 6/01/2004 506,250
Bayou Steel Corp. First
Mortgage Note, 10.25% 150,000 3/01/2001 138,000
Belle Casinos, Inc.
First Mortgage Notes,
12.00%+@ 175,000 10/15/2000 66,500
Carrols Merger Corp. Sr.
Notes, 11.50% 250,000 8/15/2003 252,500
Celcaribe S.A. Units,
0.00% to
3/14/98, 13.50% from
3/15/98 to maturity+ 43,000 3/15/2004 442,900
CHC Helicopter Corp. Sr.
Sub. Notes, 11.50% 442,000 7/15/2002 417,690
Clearnet Communications,
Inc. Units, 0.00% to
12/14/2000, 14.75% from
12/15/2000 to maturity 10,000 12/15/2005 613,750
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 760,000
Dial Call
Communications, Inc.
Sr. Disc. Notes, 0.00%
to 4/14/99, 12.25% from
4/15/99 to maturity 1,000,000 4/15/2004 640,000
Echostar Communications
Satellite Broadcast Co.
Sr. Sec. Disc. Note,
0.00% to 3/14/2000,
13.125% from 3/15/2000
to maturity+ 500,000 3/15/2004 312,500
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 200,313
Haynes International,
Inc. Sr. Sec. Notes,
11.25% 800,000 6/15/1998 808,000
Heartland Wireless
Communications, Inc.
Units, 13.00% $ 250,000 4/15/2003 $273,125
Jitney-Jungle Stores of
America, Inc. Sr. Note,
12.00% 250,000 3/01/2006 254,375
La Petite Holdings Co.
Sr. Sec. Notes, 9.625% 500,000 8/01/2001 460,000
Motels of America, Inc.
Sr. Sub. Notes, 12.00% 500,000 4/15/2004 485,000
NS Group, Inc. Units,
13.50% 250,000 7/15/2003 242,500
Norcal Waste Systems,
Inc. Sr. Sub. Note,
12.75% to 11/14/96,
13.00% from 11/15/96 to
5/14/97, 13.25% from
5/15/97 to 11/14/97,
13.50% from 11/15/97 to
maturity+ 250,000 11/15/2005 260,000
Packaging Resources,
Inc. Sr. Note, 11.625%+ 250,000 5/01/2003 253,750
PageMart, Inc. Sr. Disc.
Notes, 0.00% to
10/31/98, 12.25% from
11/1/98 to maturity 750,000 11/01/2003 570,000
PageMart Nationwide,
Inc. Sr. Disc. Exch.
Notes, 0.00% to
1/31/2000, 15.00% from
2/1/2000 to maturity 500,000 2/01/2005 331,250
Park Newspapers, Inc.
Sr. Note, 11.875%+ 750,000 5/15/2004 757,500
Penn Traffic Co. Sr.
Notes, 8.625% 250,000 12/15/2003 208,750
J.M. Peters, Inc. Sr.
Notes, 12.75% 250,000 5/01/2002 232,500
Plastic Specialties and
Technologies, Inc. Sr.
Note, 11.25% 500,000 12/01/2003 480,000
Presidio Oil Co. Sr.
Sub. Gas Indexed Notes,
13.30%@ 400,000 7/15/2002 297,000
Presidio Oil Co. Sr.
Sec. Notes, 11.50%@ 650,000 9/15/2000 653,250
Ralphs Grocery Co. Sr.
Note, 10.45% 500,000 6/15/2004 490,000
Renco Metals, Inc. Sr.
Note, 11.50% 500,000 7/01/2003 500,000
8 June 1996
<PAGE>
INVESTMENT PORTFOLIO (cont'd)
Seven-Up/RC Bottling Co.
of Southern California,
Inc., 11.50%@ $ 250,000 8/01/1999 $ 168,750
Sheffield Steel Corp.
First Mortgage Note,
12.00% 500,000 11/01/2001 435,000
Spanish Broadcasting
Systems, Inc. Sr. Note,
7.50% 500,000 6/15/2002 500,312
Star Markets Co. Sr.
Sub. Note, 13.00% 250,000 11/01/2004 260,000
TransTexas Gas Corp. Sr.
Notes, 11.50% 500,000 6/15/2002 497,500
U.S.A. Mobile
Communications, Inc.
Sr. Notes, 14.00% 250,000 11/01/2004 285,000
Viatel, Inc. Sr. Disc.
Note, 0.00% to
1/14/2000, 15.00% from
1/15/2000 to maturity 750,000 1/15/2005 420,000
Winstar Communications,
Inc. Units, 0.00% to
10/14/2000, 14.00% from
10/15/2000 to maturity 550,000 10/15/2005 302,500
Wireless One, Inc. Sr.
Disc. Note, 13.00% 500,000 10/15/2003 521,250
---------------
Total Non-Convertible Bonds (Cost $15,612,552) 15,467,635
---------------
COMMERCIAL PAPER 1.9%
American Express Credit
Corp., 5.32% 465,000 7/01/1996 465,000
American Express Credit
Corp., 5.39% 1,445,000 7/03/1996 1,445,000
Household Finance Corp.,
5.25% 146,000 7/01/1996 146,000
---------------
Total Commercial Paper (Cost $2,056,000) 2,056,000
---------------
Total Investments (Cost $98,395,817)--100.8% 111,532,650
Cash and Other Assets, Less Liabilities--(0.8)% (841,758)
---------------
Net Assets--100.0% $110,690,892
===============
Federal Income Tax Information:
At June 30, 1996, the net unrealized
appreciation of investments based on cost for
Federal income tax purposes of $98,469,592
was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost $15,519,830
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value (2,456,772)
-----------
$13,063,058
===========
* Nonincome-producing securities.
ADR stands for American Depositary Receipt, representing ownership of
foreign securities.
# Payments of income may be made in cash or in the form of additional
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, 1996 was $3,894,287 and $3,918,025 (3.54%
of net assets), respectively.
@ Security is in default.
9 June 1996
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
The Statement of Assets and Liabilities is the Fund's balance sheet. Assets
are anything of value owned by the Fund; liabilities are claims against the
assets of the Fund. The Net Asset Value is the market value of each Fund
share.
ASSETS
Investments, at value (Cost $98,395,817) (Note 1) $111,532,650
Cash 278
Dividends and interest receivable 385,595
Receivable for securities sold 332,500
Receivable for fund shares sold 216,558
Receivable from Distributor (Note 3) 61,743
Other assets 6,491
------------
112,535,815
LIABILITIES
Payable for securities purchased 1,468,875
Accrued transfer agent and shareholder services
(Note 2) 83,831
Payable for fund shares redeemed 76,187
Accrued management fee (Note 2) 56,011
Dividends payable 36,200
Accrued distribution and service fees (Note 5) 30,251
Accrued trustees' fees (Note 2) 5,713
Other accrued expenses 87,855
------------
1,844,923
------------
NET ASSETS $110,690,892
============
Net Assets consist of:
Distribution in excess of net investment income $ (73,770)
Unrealized appreciation of investments 13,136,833
Accumulated net realized gain 15,197,104
Shares of beneficial interest 82,430,725
------------
$110,690,892
============
Net Asset Value and redemption price per share of
Class A shares ($44,463,886 / 3,209,801 shares of
beneficial interest) $13.85
=====
Maximum Offering Price per share of Class A shares
($13.85 / .955) $14.50
=====
Net Asset Value and offering price per share of
Class B shares ($25,543,231 / 1,848,643 shares of
beneficial interest)* $13.82
=====
Net Asset Value, offering price and redemption
price per share of Class C shares ($39,297,798 /
2,838,175 shares of beneficial interest) $13.85
=====
Net Asset Value and offering price per share of
Class D shares ($1,385,977 / 100,310 shares of
beneficial interest)* $13.82
=====
* 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, 1996
The Statement of Operations is the Fund's income statement and shows the
income earned from its investments and its operating costs. It concludes with
the net gains (losses are shown in parentheses) for the period stated.
INVESTMENT INCOME
Dividends, net of foreign taxes of $2,910 $ 1,760,884
Interest, net of foreign taxes of $2,344 1,273,213
----------
3,034,097
EXPENSES
Management fee (Note 2) 649,578
Transfer agent and shareholder services (Note 2) 333,433
Custodian fee 133,408
Reports to shareholders 51,906
Audit fee 28,752
Registration fees 28,005
Trustees' fees (Note 2) 17,085
Service fee--Class A (Note 5) 100,997
Distribution and service fees--Class B (Note 5) 201,739
Distribution and service fees--Class D (Note 5) 12,176
Legal fees 7,508
Miscellaneous 17,634
----------
1,582,221
Expenses borne by the Distributor (Note 3) (267,958)
----------
1,314,263
----------
Net investment income 1,719,834
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments (Notes 1 and 4) 15,234,292
Net unrealized appreciation of investments 2,941,031
----------
Net gain on investments 18,175,323
----------
Net increase in net assets resulting from
operations $19,895,157
==========
The accompanying notes are an integral part of the financial statements.
10 June 1996
<PAGE>
Financial Statements
Statement Of Changes In Net Assets
The Statement of Changes in Net Assets summarizes on a comparative basis
changes in net assets resulting from operations, distributions to
shareholders, and capital share transactions.
Year ended June 30
----------------------------
1996 1995
------------------------------ ------------ -------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 1,719,834 $ 2,054,937
Net realized gain on
investments* 15,234,292 1,155,735
Net unrealized appreciation of
investments 2,941,031 9,032,370
----------- ------------
Net increase resulting from
operations 19,895,157 12,243,042
----------- ------------
Dividends from net investment income:
Class A (882,400) (984,856)
Class B (304,585) (285,324)
Class C (914,329) (808,655)
Class D (17,808) (28,201)
----------- ------------
(2,119,122) (2,107,036)
----------- ------------
Distributions from net realized gains:
Class A (492,304) (2,006,103)
Class B (223,972) (563,723)
Class C (472,914) (1,043,962)
Class D (18,976) (63,626)
----------- ------------
(1,208,166) (3,677,414)
----------- ------------
Net increase from fund share
transactions (Note 6) 4,473,009 10,409,654
----------- ------------
Total increase in net assets 21,040,878 16,868,246
NET ASSETS
Beginning of year 89,650,014 72,781,768
----------- ------------
End of year (including
(overdistributed)
undistributed net investment
income of ($73,770) and
$322,548, respectively) $110,690,892 $ 89,650,014
=========== ============
* Net realized gain for
Federal income tax purposes
(Note 1) $ 15,256,123 $ 1,208,383
=========== ============
Notes to Financial Statements
June 30, 1996
NOTE 1
State Street Research Equity Income Fund, formerly MetLife-State Street
Research Equity Income Fund (the "Fund") is a series of State Street Research
Equity Trust, formerly 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: State
Street Research Equity Income Fund, State Street Research Capital
Appreciation Fund, State Street Research Equity Investment Fund and State
Street Research Global Resources Fund.
The Fund seeks to provide a high level of current income and, secondarily,
long-term growth of capital by investing primarily in common stocks offering
above-average dividend yields and in securities convertible into common
stocks. The Fund seeks to provide a higher income yield than that of the
Standard & Poor's 500 Stock Index. The Fund has authority to invest from time
to time in lower rated fixed income securities.
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. 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.
The accompanying notes are an integral part of the financial statements.
11 June 1996
<PAGE>
FINANCIAL STATEMENTS
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.
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. For the year ended June 30, 1996, the Fund has designated as
long-term 100% of the distributions from net realized gains.
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.
F. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
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, 1996, the fees pursuant to such
agreement amounted to $649,578.
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, 1996, the amount of such shareholder servicing and account
maintenance expenses was $174,457.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $17,085 during the year ended June 30, 1996.
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, 1996, the amount of such expenses
assumed by the Distributor and its affiliates was $267,958.
NOTE 4
For the year ended June 30, 1996, purchases and sales of securities,
exclusive of short-term obligations, aggregated $111,585,734 and
$109,813,058, respectively.
12 June 1996
<PAGE>
FINANCIAL STATEMENTS
Notes (cont'd)
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. The Distributor uses such payments
for personal services and/or the maintenance or servicing 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, 1996,
fees pursuant to such plan amounted to $100,997, $201,739 and $12,176 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 $20,463 and $106,688, respectively, on sales of Class A shares of
the Fund during the year ended June 30, 1996, and that MetLife Securities,
Inc. earned commissions aggregating $174,802 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges of $65,434
and $39 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, 1996, the
Distributor owned 3,614 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended June 30
----------------------------------------------------
1996 1995
---------------------- ---------------------------
Class A Shares Amount Shares Amount
- ------------------------------------------ ------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 499,172 $ 6,447,619 398,649 $ 4,285,947
Issued upon reinvestment of:
Distributions from net realized gains 37,754 461,359 179,249 1,907,857
Dividends from net investment income 61,647 800,177 82,151 897,184
Shares repurchased (578,171) (7,338,450) (1,195,595) (12,867,093)
----- ----------- ---------- ------------
Net increase (decrease) 20,402 $ 370,705 (535,546) $ (5,776,105)
===== =========== ========== ============
Class B Shares Amount Shares Amount
- ------------------------------------------ ----- ----------- ---------- ------------
Shares sold
670,304 $ 8,719,427 532,548 $ 5,717,454
Issued upon reinvestment of:
Distributions from net realized gains 17,255 210,166 48,954 520,771
Dividends from net investment income 20,749 269,362 23,498 257,756
Shares repurchased
(241,006) (3,101,383) (213,874) (2,294,678)
----- ----------- ---------- ------------
Net increase 467,302 $ 6,097,572 391,126 $ 4,201,303
===== =========== ========== ============
Class C Shares Amount Shares Amount
- ------------------------------------------ ----- ----------- ---------- ------------
Shares sold 887,078 $ 11,446,658 1,452,407 $ 15,677,247
Issued upon reinvestment of:
Distributions from net realized gains 38,732 472,914 98,117 1,043,974
Dividends from net investment income 70,662 914,329 73,413 806,458
Shares repurchased (1,135,981) (14,666,301) (512,040) (5,526,511)
----- ----------- ---------- ------------
Net increase (decrease) (139,509) $ (1,832,400) 1,111,897 $ 12,001,168
===== =========== ========== ============
Class D Shares Amount Shares Amount
- ------------------------------------------ ----- ----------- ---------- ------------
Shares sold 46,515 $ 607,680 24,855 $ 265,512
Issued upon reinvestment of:
Distributions from net realized gains 1,480 18,010 5,541 58,959
Dividends from net investment income 861 11,171 1,154 12,472
Shares repurchased
(65,543) (799,729) (32,405) (353,655)
----- ----------- ---------- ------------
Net decrease $
(16,687) $ (162,868) (855) (16,712)
===== =========== ========== ============
</TABLE>
13 June 1996
<PAGE>
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
Financial Highlights presents selected per share data, ratios and
supplemental data. The per share data demonstrates on a comparative basis how
the net asset value per share was affected by several factors during each
period.
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
------------------------------------------------
Year ended June 30
------------------------------------------------
1996** 1995** 1994 1993 1992
------------------------------------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.70 $ 10.87 $ 10.79 $ 9.19 $ 8.33
Net investment income* .23 .28 .24 .44 .39
Net realized and unrealized gain
(loss) on investments 2.36 1.37 .25 1.52 .83
Dividends from net investment income (.28) (.28) (.26) (.36) (.36)
Distributions from net realized
gains (.16) (.54) (.15) -- --
------ ------ ------ ------ -------
Net asset value, end of year $ 13.85 $ 11.70 $ 10.87 $ 10.79 $ 9.19
====== ====== ====== ====== =======
Total return 22.41%+ 16.12%+ 4.30%+ 21.64%+ 14.81%+
Net assets at end of year (000s) $44,464 $37,327 $40,484 $28,995 $51,585
Ratio of operating expenses to
average net assets* 1.25% 1.42% 1.50% 1.50% 1.50%
Ratio of net investment income to
average net assets* 1.78% 2.55% 2.42% 3.76% 4.27%
Portfolio turnover rate 111.13% 67.50% 73.96% 80.42% 102.39%
Average commission rate@ $ .0140 -- -- -- --
*Reflects voluntary assumption of
fees or expenses per share in each
year (Note 3). $ .03 $ .05 $ .05 $ .01 $ .01
</TABLE>
<TABLE>
<CAPTION>
Class B
--------------------------------------
Year ended June 30
--------------------------------------
1996** 1995** 1994 1993***
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.68 $ 10.86 $ 10.79 $ 10.81
Net investment income* .13 .21 .21 .02
Net realized and unrealized gain
(loss) on investments 2.36 1.38 .21 (.02)
Dividends from net investment income (.19) (.23) (.20) (.02)
Distributions from net realized
gains (.16) (.54) (.15) --
------ ------ ------ -------
Net asset value, end of year $13.82 $11.68 $10.86 $ 10.79
====== ====== ====== =======
Total return + 21.60%+ 15.43%+ 3.79%+ 0.05%+++
Net assets at end of year (000s) $25,543 $16,130 $10,752 $ 1,060
Ratio of operating expenses to
average net assets* 2.00% 2.00% 2.00% 2.00%++
Ratio of net investment income to
average net assets* 1.05% 1.95% 1.80% 1.53%++
Portfolio turnover rate 111.13% 67.50% 73.96% 80.42%
Average commission rate@ $ .0140 -- -- --
*Reflects voluntary assumption of
fees or expenses per share in each
year (Note 3). $ .03 $ .05 $ .07 $ .00
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
------------------------------------- -------------------------------------
Year ended June 30 Year ended June 30
------------------------------------- -------------------------------------
1996** 1995** 1994 1993*** 1996** 1995** 1994 1993***
------------------------------------ ------- ------- ------- ------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.70 $10.86 $10.79 $10.81 $ 11.67 $10.86 $ 10.79 $ 10.81
Net investment income* .26 .32 .33 .03 .13 .22 .21 .02
Net realized and unrealized gain
(loss) on investments 2.36 1.39 .21 (.02) 2.37 1.36 .21 (.02)
Dividends from net investment income (.31) (.33) (.32) (.03) (.19) (.23) (.20) (.02)
Distributions from net realized
gains (.16) (.54) (.15) -- (.16) (.54) (.15) --
------ ------ ------ ------ ------ ------ ----- -------
Net asset value, end of year $13.85 $11.70 $10.86 $10.79 $ 13.82 $11.67 $10.86 $10.79
====== ====== ====== ====== ====== ====== ===== =======
Total return 22.82%+ 16.64%+ 4.84%+ 0.14%+++ 21.68%+ 15.33%+ 3.78%+ 0.04%+++
Net assets at end of year (000s) $39,298 $34,827 $20,266 $15,988 $1,386 $1,366 $1,280 $628
Ratio of operating expenses to
average net assets* 1.00% 1.00% 1.00% 1.00%++ 2.00% 2.00% 2.00% 2.00%++
Ratio of net investment income to
average net assets* 2.03% 2.93% 2.92% 1.65%++ 1.03% 1.96% 1.88% 1.49%++
Portfolio turnover rate 111.13% 67.50% 73.96% 80.42% 111.13% 67.50% 73.96% 80.42%
Average commission rate@ $ .0140 -- -- -- $ .0140 -- -- --
*Reflects voluntary assumption of
fees or expenses per share in each
year (Note 3). $ .03 $ .05 $ .06 $ .00 $ .03 $ .05 $ .06 $ .00
</TABLE>
** Per-share figures have been calculated using the average shares method.
*** June 1, 1993 (commencement of share class designations) to June 30, 1993.
++ 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.
@ For the year ended June 30, 1996, the Fund has elected to disclose its
average commission rate per share paid for security trades.
14 June 1996
<PAGE>
Report Of Independent Accountants
To the Trustees of State Street Research Equity Trust
and the Shareholders of
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 State Street Research Equity
Income Fund (formerly MetLife-State Street Research Equity Income Fund) (a
series of State Street Research Equity Trust, hereafter referred to as the
"Trust"), at June 30, 1996, 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, 1996 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 9, 1996
15 June 1996
<PAGE>
MANAGEMENT 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, 1996 (does not
reflect sales charge).
The Fund's portfolio is diversified into dividend-paying common stocks, and
corporate and convertible bonds, which can also provide more income. Stocks,
which represented 69% of the portfolio, are selected on a value basis.
The Fund began to take a defensive position in early 1996 in preparation for
a weakening economy. Cyclical stocks were downweighted along with chemical
and retail holdings. Financial and consumer non-durable stocks experienced
heightened exposure in the portfolio.
Overall, Equity Income Fund was able to participate in the upside of the
market without experiencing too much of the downside. This was largely due to
the stabilizing effect of the bonds in the portfolio.
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 maximum 4.5% "A" share front-end sales charge or
5% "B" share or 1% "D" share contingent deferred sales charge. "C" shares,
offered without a sales charge, are available only to certain employee
benefit plans and large institutions. Performance for "B" and "D" shares
prior to class designations in 1993 reflects annual 12b-1 fees of .50% and
performance thereafter reflects annual 12b-1 fees of 1%, which will reduce
future performance.
*********************************[Line Charts]*********************************
Change in Value of $10,000
Based on the S&P 500 Compared
to Change in Value of $10,000
Invested in the Fund
=============================================================
Class A Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+16.90% +14.64% +10.44%
- -------------------------------------------------------------
Equity
Income
Fund S&P 500
---- -------
1986 10000 10000
1987 10832 12605
1988 10569 11730
1989 12351 14135
1990 13768 16462
1991 12903 17678
1992 14814 20048
1993 18037 22779
1994 18815 23099
1995 21850 29112
1996 26748 36676
=============================================================
Class B Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+16.60% +15.04% +10.78%
- -------------------------------------------------------------
Equity
Income
Fund S&P 500
---- -------
1986 10000 10000
1987 11342 12605
1988 11074 11730
1989 12954 14135
1990 14443 16462
1991 13528 17678
1992 15533 20048
1993 18896 22779
1994 19611 23099
1995 22637 29112
1996 27526 36676
=============================================================
Class C Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+22.82% +15.99% +11.14%
- -------------------------------------------------------------
Equity
Income
Fund S&P 500
---- -------
1986 10000 10000
1987 11342 12605
1988 11074 11730
1989 12954 14135
1990 14443 16462
1991 13528 17678
1992 15533 20048
1993 18913 22779
1994 19827 23099
1995 23126 29112
1996 28404 36676
=============================================================
Class D Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+20.68% +15.26% +10.78%
- -------------------------------------------------------------
Equity
Income
Fund S&P 500
---- -------
1986 10000 10000
1987 11342 12605
1988 11074 11730
1989 12954 14135
1990 14443 16462
1991 13528 17678
1992 15533 20048
1993 18895 22779
1994 19609 23099
1995 22615 29112
1996 27520 36676
******************************************************************************
16 June 1996
<PAGE>
REPORT ON SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders of the State Street Research Equity
Income Fund ("Fund"), along with shareholders of other series of State Street
Research Equity Trust ("Meeting"), was convened on October 20, 1995, and
continued thereafter. The results on the proposals are set forth below.
Votes (millions
of shares)
----------------
For Withheld
---- ---------
1. The following persons were elected as
Trustees:
Edward M. Lamont 29.4 1.9
Robert A. Lawrence 29.4 1.9
Dean O. Morton 29.4 1.9
Thomas L. Phillips 29.4 1.9
Toby Rosenblatt 29.4 1.9
Michael S. Scott Morton 29.4 1.9
Ralph F. Verni 29.4 1.9
Jeptha H. Wade 29.4 1.9
Votes (millions of
shares)
-------------------------
For Against Abstain
---- ------- --------
2. The Fund's following investment
policies were reclassified from
fundamental to nonfundamental:
a. The policy regarding investments
in securities of companies with
less than three (3) years'
continuous operation; 2.8 0.9 0.5
b. The policy regarding investments
in illiquid securities. 3.2 1.0 0.3
3. The Fund's fundamental policy
regarding investing in commodities
and commodity contracts was amended. 3.2 1.0 0.3
4. The Fund's fundamental policy on
lending was amended to clarify the
permissibility of securities lending. 3.3 0.4 0.5
5. The Master Trust Agreement was
amended to permit the Trustees to
reorganize, merge or liquidate a fund
without prior shareholder approval. 21.1 6.4 3.8
6. The Master Trust Agreement was
amended to eliminate specified time
permitted between the record date and
any shareholders meeting. 22.8 4.5 4.1
17 June 1996
<PAGE>
State Street Research Global Resources Fund
a series of
State Street Research Equity Trust
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1996
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS........................2
ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT TECHNIQUES........5
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS.......................15
RATING CATEGORIES OF DEBT SECURITIES..................................18
TRUSTEES AND OFFICERS.................................................21
INVESTMENT ADVISORY SERVICES..........................................27
PURCHASE AND REDEMPTION OF SHARES.....................................28
NET ASSET VALUE.......................................................30
PORTFOLIO TRANSACTIONS................................................31
CERTAIN TAX MATTERS...................................................34
DISTRIBUTION OF SHARES OF THE FUND....................................37
CALCULATION OF PERFORMANCE DATA.......................................41
CUSTODIAN.............................................................43
INDEPENDENT ACCOUNTANTS...............................................43
FINANCIAL STATEMENTS..................................................44
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
Global Resources Fund (the "Fund") dated November 1, 1996, which may be obtained
without charge from the offices of State Street Research Equity Trust (the
"Trust") or State Street Research Investment Services, Inc. (the "Distributor"),
One Financial Center, Boston, Massachusetts 02111-2690.
CONTROL NUMBER: 1285S-961029(1197) SSR-LD GR-879D-1196
1
<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Fund's Investments" and "Limiting Investment
Risk" in the Fund's Prospectus, the Fund has adopted certain investment
restrictions.
All of the Fund's fundamental investment restrictions are set forth
below. These fundamental restrictions may not be changed except by the
affirmative vote of a majority of the Fund's outstanding voting securities as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(Under the 1940 Act, a "vote of the majority of the outstanding voting
securities" means the vote, at the annual or a special meeting of security
holders duly called, (i) of 67% or more of the voting securities present at a
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy or (ii) of more than 50% of the outstanding
voting securities, whichever is less.) Under these restrictions, it is the
Fund's policy:
(1) not to invest in a security if the transaction would result in
the Fund owning more than 10% of any class of voting
securities of an issuer, except that this restriction does not
apply to investments in securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities or backed
by the U.S.
Government;
(2) not to issue senior securities;
(3) not to underwrite or participate in the marketing of
securities of other issuers, except (a) the Fund may purchase
or otherwise acquire securities of other issuers for
investment, either from the issuers or from persons in a
control relationship with the issuers or from underwriters of
such securities; and (b) to the extent that, in connection
with the disposition of the Fund's securities, the Fund may be
deemed to be an underwriter under certain federal securities
laws;
(4) not to purchase or sell fee simple interests in real estate or
illiquid interests in limited partnerships that invest in real
estate, although the Fund may purchase and sell other
interests in real estate including readily marketable
interests in real estate investment trusts or companies which
own or invest or deal in real estate;
(5) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Fund's total
assets, except that investments in essentially financial items
or arrangements such as, but not limited to, swap
arrangements, hybrids, currencies, currency and other forward
contracts, futures contracts and options on futures contracts
on securities, securities indices, interest rates and
currencies shall not be deemed investments in commodities or
commodities contracts;
2
<PAGE>
(6) not to make loans, except that the Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (including repurchase agreements with respect
thereto);
(7) not to conduct arbitrage transactions (provided that
investments in futures and options shall not be deemed
arbitrage transactions);
(8) not to invest directly as a joint venturer or general partner
in oil, gas or other mineral exploration or development joint
ventures or general partnerships (provided that the Fund may
invest in securities issued by companies which invest in or
sponsor such programs and in securities indexed to the price
of oil, gas or other minerals);
(9) not to borrow money except for borrowings from banks for
extraordinary and emergency purposes, such as permitting
redemption requests to be honored, and then not in an amount
in excess of 25% of the value of its total assets, and except
insofar as reverse repurchase agreements may be regarded as
borrowing. The Fund will not purchase additional portfolio
securities at any time when it has outstanding money
borrowings in excess of 5% of the Fund's total assets (taken
at current value); and
(10) not to make any investment which would cause more than 25% of
the value of the Fund's total assets to be invested in
securities of issuers principally engaged in any one industry
other than any energy industry [for purposes of this
restriction, (a) energy and nonenergy industries will be
divided according to their services, so that, for example, in
the case of (i) utilities, gas, gas transmission, electric and
telephone companies each will be deemed to be in a separate
industry, and (ii) oil and oil related companies will be
divided by types, with oil production companies, oil service
companies and marketing companies each deemed to be in a
separate industry, (b) finance companies will be classified
according to the industries of their parent companies and (c)
securities issued or guaranteed by the U.S. Government, or its
agencies or instrumentalities (including repurchase agreements
involving such U.S. Government securities to the extent
excludable under relevant regulatory interpretations) shall be
excluded].
The following investment restrictions may be changed by a vote of a
majority of the Trustees. Under these restrictions, it is the Fund's policy:
(1) not to invest more than 5% of its total assets in securities
of private companies including predecessors with less than
three years' continuous operations except (a) securities
guaranteed or backed by an affiliate of the issuer with three
years of continuous operations, (b) securities issued or
guaranteed as to principal or interest by the U.S. Government,
or its agencies or instrumentalities, or a
3
<PAGE>
mixed-ownership Government corporation, (c) securities of
issuers with debt securities rated at least "BBB" by Standard
& Poor's Corporation or "Baa" by Moody's Investor's Service,
Inc. (or their equivalent by any other nationally recognized
statistical rating organization) or securities of issuers
considered by the Investment Manager to be equivalent, (d)
securities issued by a holding company with at least 50% of
its assets invested in companies with three years of
continuous operations including predecessors, and (e)
securities which generate income which is exempt from local,
state or federal taxes; provided that the Fund may invest up
to 15% in such issuers so long as such investments plus
investments in restricted securities (other than those which
are eligible for resale under Rule 144A, Regulation S or other
exemptive provisions) do not exceed 15% of the Fund's total
assets;
(2) not to engage in transactions in options except in connection
with options on securities, securities indices and currencies,
and options on futures contracts on securities, securities
indices and currencies;
(3) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (the Fund will not make short sales or
maintain a short position unless not more than 5% of the
Fund's net assets (taken at current value) is held as
collateral for such sales at any time);
(4) not to hypothecate, mortgage or pledge any of its assets
except as may be necessary in connection with permitted
borrowings (for the purpose of this restriction, futures and
options, and related escrow or custodian receipts or letters,
margin or safekeeping accounts, or similar arrangements used
in the industry in connection with the trading of futures and
options, are not deemed to involve a hypothecation, mortgage
or pledge of assets);
(5) not to purchase a security issued by another investment
company if, immediately after such purchase, the Fund would
own, in the aggregate, (i) more than 3% of the total
outstanding voting stock of such other investment company;
(ii) securities issued by such other investment company having
an aggregate value in excess of 5% of the value of the Fund's
total assets; or (iii) securities issued by such other
investment company and all other investment companies (other
than treasury stock of the Fund) having an aggregate value in
excess of 10% of the value of the Fund's total assets;
provided, however, that the Fund may purchase investment
company securities without limit for the purpose of completing
a merger, consolidation or other acquisition of assets;
(6) not to purchase or retain any security of an issuer if, to the
knowledge of the Trust, those of its officers and Trustees and
officers and directors of its investment advisers who
individually own more than 1/2 of 1% of the securities
4
<PAGE>
of such issuer, when combined, own more than 5% of the
securities of such issuer taken at market;
(7) not to invest in warrants more than 5% of the value of its
total assets and not to invest in warrants that are not listed
on the New York or American Stock Exchange more than 2% of its
total assets, in each case taken at the lower of cost or
market value (warrants initially attached to securities and
acquired by the Fund upon original issuance thereof shall be
deemed to be without value);
(8) not to invest in companies for the purpose of exercising
control over their management, although the Fund may from time
to time present its views on various matters to the management
of issuers in which it holds investments; and
(9) not to purchase any security or enter into a repurchase
agreement if as a result more than 15% of its total assets
would be invested in (a) securities that are illiquid because
of the absence of a readily available market or because such
securities are restricted securities (i.e., subject to legal
or contractual restrictions on resale), provided that such
restricted securities, excluding restricted securities
eligible for resale pursuant to exemptive rules or regulations
under the Securities Act of 1933, shall be limited to 5% of
total assets, and (b) repurchase agreements not entitling the
holder to payment of principal and interest within seven days.
The Fund has undertaken with a state securities authority that,
pursuant to clause (7) above, for so long as the Fund's shares are required to
be registered in that state, the Fund's investment in warrants, valued at the
lower of cost or market, may not exceed 5% of its net assets and included within
that amount, but not to exceed 2% of the value of its net assets, may be
warrants which are not listed on the New York or American Stock Exchange.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Among other investments described below, the Fund may buy and sell
options, futures contracts and options on futures contracts with respect to
securities, securities indices, and currencies, and may enter into closing
transactions with respect to each of the foregoing under circumstances in which
such instruments and techniques are expected by State Street Research &
Management Company (the "Investment Manager") to aid in achieving the investment
objective of the Fund. The Fund on occasion may also purchase instruments with
characteristics of both futures and securities (e.g., debt instruments with
interest and principal payments determined by reference to the value of a
commodity or currency at a future time) and which, therefore, possess the risks
of both futures and securities investments.
5
<PAGE>
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell
underlying assets, such as certain securities, currencies, or an index of
securities, at a future time at a specified price. A contract to buy establishes
a "long" position while a contract to sell establishes a "short" position.
The purchase of a futures contract on securities or an index of
securities normally enables a buyer to participate in the market movement of the
underlying asset or index after paying a transaction charge and posting margin
in an amount equal to a small percentage of the value of the underlying asset or
index. The Fund will initially be required to deposit with the Trust's custodian
or the broker effecting the futures transaction an amount of "initial margin" in
cash or U.S. Treasury obligations.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when the Fund has taken a long
position in a futures contract and the value of the underlying asset has risen,
that position will have increased in value and the Fund will receive from the
broker a maintenance margin payment equal to the increase in value of the
underlying asset. Conversely, when the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position would be less valuable, and the Fund would be required to make a
maintenance margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will terminate
its position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of securities,
such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus protect the Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and thus to participate
in an expected rise in market value of securities which the Fund intends to
purchase. In transactions establishing a long position in a futures contract,
money market instruments equal to the face value of the futures contract will be
identified by the Fund to the Trust's custodian for maintenance in a separate
account to insure that the use of such futures contracts is unleveraged.
Similarly, a representative portfolio of securities having a value equal to the
aggregate face value of the futures contract will be identified with respect to
each
6
<PAGE>
short position. The Fund will employ any other appropriate method of cover which
is consistent with applicable regulatory and exchange requirements.
Options on Securities
The Fund may use options on securities to implement its investment
strategy. A call option on a security, for example, gives the purchaser of the
option the right to buy, and the writer the obligation to sell, the underlying
asset at the exercise price during the option period. Conversely, a put option
on a security gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying asset at the exercise price during the option
period.
Purchased options have defined risk, i.e., the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset.
Written options have varying degrees of risk. An uncovered written call
option theoretically carries unlimited risk, as the market price of the
underlying asset could rise far above the exercise price before its expiration.
This risk is tempered when the call option is covered, i.e., when the option
writer owns the underlying asset. In this case, the writer runs the risk of the
lost opportunity to participate in the appreciation in value of the asset rather
than the risk of an out-of-pocket loss. A written put option has defined risk,
i.e., the difference between the agreed-upon price that the Fund must pay to the
buyer upon exercise of the put and the value, which could be zero of the asset
at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
his obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Options on Securities Indices
The Fund may engage in transactions in call and put options on
securities indices. For example, the Fund may purchase put options on indices of
fixed income securities in anticipation of or during a market decline to attempt
to offset the decrease in market value of its securities that might otherwise
result.
Put options on indices of securities are similar to put options on the
securities themselves except that the delivery requirements are different.
Instead of giving the right to make delivery of a security at a specified price,
a put option on an index of securities gives the holder the right to receive an
amount of cash upon exercise of the option if the value of the underlying index
has fallen below the exercise price. The amount of cash received will be equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple. As with options
on equity or fixed
7
<PAGE>
income securities, futures contracts or commodities, the Fund may offset its
position in index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
A securities index assigns relative values to the securities included
in the index and the index options are based on a broad market index. Although
there are at present few available options on indices of fixed income
securities, other than tax-exempt securities, or futures and related options
based on such indices, such instruments may become available in the future. In
connection with the use of such options, the Fund may cover its position by
identifying a representative portfolio of securities having a value equal to the
aggregate face value of the option position taken. However, the Fund may employ
any appropriate method to cover its positions that is consistent with applicable
regulatory and exchange requirements.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Options Strategy
A basic option strategy for protecting the Fund against a decline in
securities prices could involve (a) the purchase of a put -- thus "locking in"
the selling price of the underlying securities or securities indices -- or (b)
the writing of a call on securities or securities indices held by the Fund --
thereby generating income (the premium paid by the buyer) by giving the holder
of such call the option to buy the underlying asset at a fixed price. The
premium will offset, in whole or in part, a decline in portfolio value; however,
if prices of the relevant securities or securities indices rose instead of
falling, the call might be exercised, thereby resulting in a potential loss of
appreciation in the underlying securities or securities indices.
A basic option strategy when a rise in securities prices is anticipated
is the purchase of a call -- thus "locking in" the purchase price of the
underlying security or other asset. In transactions involving the purchase of
call options by the Fund, money market instruments equal to the aggregate
exercise price of the options will be identified by the Fund to the Trust's
custodian to insure that the use of such investments is unleveraged.
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security and concurrently write a
call option against that security or other asset. If the call option is
exercised in such a transaction, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upward or downward by the
difference between the Fund's purchase price of the security and the exercise
price of the option. If the option is not exercised and the price of the
underlying security declines, the amount of such decline will be offset in part,
or entirely, by the premium received.
8
<PAGE>
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security or other asset rises or otherwise is above the exercise
price, the put option will expire worthless and the Fund's gain will be limited
to the premium received. If the market price of the underlying security declines
or otherwise is below the exercise price, the Fund's return will be the premium
received from writing the put option minus the amount by which the market price
of the security is below the exercise price.
Limitations and Risks of Options and Futures Activity
The Fund will engage in transactions in futures contracts or options
only as a hedge against changes resulting from market conditions which produce
changes in the values of its investments or the investments which it intends to
purchase (e.g., to replace portfolio securities which will mature in the near
future) and, subject to the limitations described below, to enhance return. The
Fund will not purchase any futures contract or purchase any call option if,
immediately thereafter, more than one third of the Fund's net assets would be
represented by long futures contracts or call options. The Fund will not write a
covered call or put option if, immediately thereafter, the aggregate value of
the assets (securities in the case of written calls and cash or cash equivalents
in the case of written puts) underlying all such options, determined as of the
dates such options were written, would exceed 25% of the Fund's net assets. In
addition, the Fund may not establish a position in a commodity futures contract
or purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of the Fund's net assets.
Although effective hedging can generally capture the bulk of a desired
risk adjustment, no hedge is completely effective. The Fund's ability to hedge
effectively through transactions in futures and options depends on the degree to
which price movements in its holdings correlate with price movements of the
futures and options.
Some positions in futures and options may be closed out only on an
exchange which provides a secondary market therefor. There can be no assurance
that a liquid secondary market will exist for any particular futures contract or
option at any specific time. Thus, it may not be possible to close such an
option or futures position prior to maturity. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
effectively hedge its securities and might, in some cases, require the Fund to
deposit cash to meet applicable margin requirements. The Fund will enter into an
option or futures position only if it appears to be a liquid investment.
Repurchase Agreements
The Fund may enter into repurchase agreements. Repurchase agreements
occur when the Fund acquires a security and the seller, which may be either (i)
a primary dealer in U.S.
9
<PAGE>
Government securities or (ii) an FDIC-insured bank having gross assets in excess
of $500 million, simultaneously commits to repurchase it at an agreed-upon price
on an agreed-upon date within a specified number of days (usually not more than
seven) from the date of purchase. The repurchase price reflects the purchase
price plus an agreed-upon market rate of interest which is unrelated to the
coupon rate or maturity of the acquired security. The Fund will only enter into
repurchase agreements involving U.S. Government securities. Repurchase
agreements could involve certain risks in the event of default or insolvency of
the other party, including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities. Repurchase agreements will be
limited to 30% of the Fund's total assets, except that repurchase agreements
extending for more than seven days when combined with any other illiquid
securities held by the Fund will be limited to 15% of the Fund's total assets.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. In a reverse
repurchase agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker or dealer, in return for
a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed-upon rate.
The ability to use reverse repurchase agreements may enable, but does not ensure
the ability of, the Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous.
When effecting reverse repurchase agreements, assets of the Fund in a
dollar amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
When-Issued Securities
The Fund may purchase "when-issued" securities, which are traded on a
price or yield basis prior to actual issuance. Such purchases will be made only
to achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The Trust's custodian will establish a segregated account when the
Fund purchases securities on a when-issued basis consisting of cash or liquid
securities equal to the amount of the when-issued commitments. Securities
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by the Fund.
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Securities Lending
The Fund may lend portfolio securities with a value of up to 331/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of the loaned security plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in securities in which the Fund is authorized to invest. The
collateral will be reflected as an asset, with an offsetting liability to the
counterparty, on the records of the Fund. Such loans may be terminated at any
time. The Fund will retain most rights of ownership including rights to
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending, although the Fund may call loans to vote proxies
if desired. Should the borrower of securities fail financially, there is a risk
of delay in recovery of the securities or loss of rights in the collateral.
Loans are made only to borrowers which are deemed by the Investment Manager to
be of good financial standing.
Short Sales Against the Box
The Fund may effect short sales, but only if such transactions are
short sale transactions known as short sales "against the box." A short sale is
a transaction in which the Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where the Fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversion, exercise or exchange of
options with respect to securities held in its portfolio. The effect of selling
a security short against the box is to insulate that security against any future
gain or loss.
Rule 144A Securities
The Fund may buy or sell restricted securities in accordance with Rule
144A under the Securities Act of 1933 ("Rule 144A Securities"). Securities may
be resold pursuant to Rule 144A under certain circumstances only to qualified
institutional buyers as defined in the rule, and the markets and trading
practices for such securities are relatively new and still developing; depending
on the development of such markets, Rule 144A Securities may be deemed to be
liquid as determined by or in accordance with methods adopted by the Trustees.
Under such methods the following factors are considered, among others: the
frequency of trades and quotes for the security, the number of dealers and
potential purchasers in the market, marketmaking activity, and the nature of the
security and marketplace trades. Investments in Rule 144A Securities could have
the effect of increasing the level of the Fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. Also, the Fund may be adversely impacted by the possible
illiquidity and subjective valuation of such securities in the absence of a
market for them.
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Swap Arrangements
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap, the Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap, the Fund would agree with the other party to exchange cash flows based on
the relative differences in values of a notional amount of two (or more)
currencies; in an index swap, the Fund would agree to exchange cash flows on a
notional amount based on changes in the values of the selected indices. Purchase
of a cap entitles the purchaser to receive payments from the seller on a
notional amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an
agreed-upon interest rate or amount. A collar combines a cap and a floor.
Most swaps entered into by the Fund will be on a net basis; for
example, in an interest rate swap, amounts generated by application of the fixed
rate and the floating rate to the notional principal amount would first offset
one another, with the Fund either receiving or paying the difference between
such amounts. In order to be in a position to meet any obligations resulting
from swaps, the Fund will set up a segregated custodial account to hold
appropriate liquid assets, including cash; for swaps entered into on a net
basis, assets will be segregated having a daily net asset value equal to any
excess of the Fund's accrued obligations over the accrued obligations of the
other party, while for swaps on other than a net basis assets will be segregated
having a value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to
preserve the return on an investment or on a part of the Fund's portfolio.
However, the Fund may enter into such arrangements for income purposes to the
extent permitted by the CFTC for entities which are not commodity pool
operators, such as the Fund. In entering a swap arrangement, the Fund is
dependent upon the creditworthiness and good faith of the counterparty. The Fund
attempts to reduce the risks of nonperformance by the counterparty by dealing
only with established, reputable institutions. The swap market is still
relatively new and emerging; positions in swap arrangements may become illiquid
to the extent that nonstandard arrangements with one counterparty are not
readily transferable to another counterparty or if a market for the transfer of
swap positions does not develop. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
Investment Manager is incorrect in its forecasts of market values, interest
rates and other applicable factors, the investment performance of the Fund would
diminish compared with what it would have been if these investment techniques
were not used. Moreover, even if the Investment Manager is correct in its
forecasts, there is a risk that the swap position may correlate imperfectly with
the price of the asset or liability being hedged.
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Currency Transactions
The Fund may engage in currency exchange transactions in order to
protect against the effect of uncertain future exchange rates on securities
denominated in foreign currencies. The Fund will conduct its currency exchange
transactions either on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, or by entering into forward contracts to purchase or
sell currencies. The Fund's dealings in forward currency exchange contracts will
be limited to hedging involving either specific transactions or aggregate
portfolio positions. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are not commodities and
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. In entering a
forward currency contract, the Fund is dependent upon the creditworthiness and
good faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by the counterparty by dealing only with established, reputable
institutions. Although spot and forward contracts will be used primarily to
protect the Fund from adverse currency movements, they also involve the risk
that anticipated currency movements will not be accurately predicted, which may
result in losses to the Fund. This method of protecting the value of the Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange that can be achieved at some future point in
time. Although such contracts tend to minimize the risk of loss due to a decline
in the value of hedged currency, they tend to limit any potential gain that
might result should the value of such currency increase.
Industry Classifications
In determining how much of the portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing will be classified according to
the industries of their parent companies or industries that otherwise most
affect such financing companies. Issuers of asset-backed pools will be
classified as separate industries based on the nature of the underlying assets,
such as mortgages and credit card receivables. "Asset-backed--Mortgages"
includes private pools of nongovernment backed mortgages.
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Basic Industries Consumer Staple Science & Technology
- ---------------- --------------- --------------------
Chemical Business Service Aerospace
Diversified Container Computer Software
Electrical Equipment Drug & Service
Forest Products Food & Beverage Electronic Components
Machinery Hospital Supply Electronic Equipment
Metal & Mining Personal Care Office Equipment
Railroad Printing & Publishing
Truckers Tobacco Consumer Cyclical
-----------------
Utility Energy Airline
- ------- ------ Automotive
Electric Oil Refining & Building
Gas Marketing Hotel & Restaurant
Gas Transmission Oil Production Photography
Telephone Oil Service Recreation
Retail Trade
Other Finance Textile & Apparel
- ----- -------
Trust Certificates-- Bank
Government Related Lending Financial Service
Asset-backed--Mortgages Insurance
Asset-backed--Credit Card
Receivables
Other Investment Limitations
The Fund may invest up to 10% of its total assets in shares of other
investment companies as described herein under "Additional Investment Policies
and Restrictions." Such investments may involve the payment of duplicative
management or other fees. To mitigate such duplication, however, the Investment
Manager has agreed to waive up to the full amount of its investment advisory fee
with respect to investments, if any, in other open-end investment companies; the
amount of such waived fee will be deemed to be a reduction in management fees or
an assumption of expenses relating to the Fund as described under "Table of
Expenses" in the Prospectus.
The Fund has undertaken with a state securities authority that, for so
long as the Fund's shares are required to be registered for sale in such state,
the Fund will not purchase real estate limited partnerships or make investments
in oil, gas or mineral leases.
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DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
Debt securities and short term investments acquired by the Fund may
include the following:
U.S. Government and Related Securities. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
o 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
o obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a
variety of ways by the U.S. Government, its agencies or instrumentalities. Some
of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full faith and credit of the U.S.
Treasury. Other obligations, such as those of the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase certain obligations of agencies or instrumentalities, although the U.S.
Government has no legal obligation to do so. Obligations such as those of the
Federal Home Loan Banks, the Federal Farm Credit Bank, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation are backed
by the credit of the agency or instrumentality issuing the obligations. Certain
obligations of Resolution Funding Corporation, a mixed-ownership Government
corporation, are backed with respect to interest payments by the U.S. Treasury,
and with respect to principal payments by U.S. Treasury obligations held in a
segregated account with a Federal Reserve Bank. Except for certain
mortgage-related securities, the Fund will only invest in obligations issued by
mixed-ownership Government corporations where such securities are guaranteed as
to payment of principal or interest by the U.S. Government or a U.S. Government
agency or instrumentality, and any unguaranteed principal or interest is
otherwise supported by U.S. Government obligations held in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded
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<PAGE>
independently under the Separate Trading of Registered Interest and Principal of
Securities ("STRIPS") program. Under the STRIPS program, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently. Obligations of Resolution Funding Corporation
are similarly divided into principal and interest components and maintained as
such on the book entry records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and may
not be deemed U.S. Government securities.
The Fund may also invest from time to time in collective investment
vehicles, the assets of which consist principally of U.S. Government securities
or other assets substantially collateralized or supported by such securities,
such as Government trust certificates.
Bank Money Investments. Bank money investments include but are not
limited to certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are generally short-term (i.e., less than one year),
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). A banker's acceptance may be
obtained from a domestic or foreign bank, including a U.S. branch or agency of a
foreign bank. The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. Time deposits are nonnegotiable deposits
for a fixed period of time at a stated interest rate. The Fund will not invest
in any such bank money investment unless the investment is issued by a U.S. bank
that is a member of the Federal Deposit Insurance Corporation ("FDIC"),
including any foreign branch thereof, a U.S. branch or agency of a foreign bank,
a foreign branch of a foreign bank, or a savings bank or savings and loan
association that is a member of the FDIC and which at the date of investment has
capital, surplus and undivided profits (as of the date of its most recently
published financial statements) in excess of $50 million. The Fund will not
invest in time deposits maturing in more than seven days and will not invest
more than 10% of its total assets in time deposits maturing in two to seven
days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated
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<PAGE>
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 branches elect FDIC insurance. Unlike U.S.
branches of foreign banks, U.S. agencies of foreign banks may not accept
deposits and thus are not eligible for FDIC insurance. Both branches and
agencies can maintain credit balances, which are funds received by the office
incidental to or arising out of the exercise of their banking powers and can
exercise other commercial functions, such as lending activities.
Short-Term Corporate Debt Instruments. Short-term corporate debt
instruments include commercial paper (i.e., short-term, unsecured promissory
notes) to finance short-term credit needs issued by corporations including but
not limited to (a) domestic or foreign bank holding companies or (b) their
subsidiaries or affiliates where the debt instrument is guaranteed by the bank
holding company or an affiliated bank or where the bank holding company or the
affiliated bank is unconditionally liable for the debt instrument. Commercial
paper is usually sold on a discounted basis and has a maturity at the time of
issuance not exceeding nine months.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated A by S&P or Prime by Moody's, or, if not rated, issued by
companies having an outstanding long-term unsecured debt issue rated at least A
by S&P or Prime by Moody's. The money market investments in corporate bonds and
debentures (which must have maturities at the date of settlement of one year or
less) must be rated at the time of purchase at least A by S&P or by Moody's.
Commercial paper rated A (highest quality) by S&P is issued by entities
which have liquidity ratios which are adequate to meet cash requirements.
Long-term senior debt is rated A or better, although in some cases BBB credits
may be allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1, A-2
or A-3. (Those A-1 issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
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<PAGE>
In the event the lowering of ratings of debt instruments held by the
Fund by applicable rating agencies results in a material decline in the overall
quality of such Fund's portfolio, the Trustees of the Trust will review the
situation and take such action as they deem in the best interests of such Fund's
shareholders, including, if necessary, changing the composition of the
portfolio.
RATING CATEGORIES OF DEBT SECURITIES
Set forth below is a description of corporate bond and debenture
ratings of Standard & Poor's Corporation ("S&P"):
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B: Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
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<PAGE>
CCC: Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to noncredit risks created by the terms of the
obligation, such as securities whose principal or interest return is indexed to
equities, commodities, or currencies, certain swaps and options, and interest
only (IO) and principal only (PO) mortgage securities.
Set forth below is a description of corporate bond and debenture
ratings of Moody's Investors Service, Inc. ("Moody's"):
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there
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<PAGE>
may be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the
addition of a numeral indicating a bond's rank within its rating category.
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TRUSTEES AND OFFICERS
The Trustees and principal 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 58. 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 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 41. 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 53. 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 69. 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 70. 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 45. His principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer 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, One Financial Center, Boston, MA 02111,
serves as Secretary and General Counsel of the Trust. He is 41. His principal
occupation is Executive Vice President, General Counsel and Secretary of State
Street Research & Management Company. During the past five years he has also
served as Senior Vice President of State Street Research & Management Company
and as Senior Vice President, General Counsel and
- ------------------
* or + see footnotes on page 23
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Assistant Secretary of The Boston Company, Inc., 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 58. His principal occupation is currently,
and during the past five years has been, Senior 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 64. 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 72. 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 44. 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 58. 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
59. 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 53. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and as Chief Investment
Officer and Director of New England Mutual Life Insurance Company. Mr. Verni's
other principal business affiliations include Chairman of the Board and Director
of State Street Research Investment Services, Inc.
- ------------------
* or + see footnotes on page 23
22
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+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 71. 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.
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 50. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as President and Chief Investment Officer of IDS
Advisory Group, Inc. and as Senior Vice President of Stein, Roe & Farnham.
*+John T. Wilson, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 33. His principal occupation is Vice
President of State Street Research & Management Company. During the past five
years he has also served as an analyst and portfolio manager at Phoenix Home
Life Mutual Insurance Company and, from 1995 to 1996, as a Vice President of
Phoenix Investment Counsel, Inc.
- ------------------
*These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations with the
Fund's investment adviser.
+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, State Street Research Financial Trust, State Street Research Income
Trust, State Street Research Money Market Trust, State Street Research
Tax-Exempt Trust, State Street Research Capital Trust, State Street Research
Exchange Trust, State Street Research Growth Trust, State Street Research Master
Investment Trust, State Street Research Securities Trust, State Street Research
Portfolios, Inc. and Metropolitan Series Fund, Inc.
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As of September 30, 1996, the Trustees and principal officers of the
Trust as a group owned approximately 1.1% of the Fund's outstanding Class A
shares and owned no shares of the Fund's outstanding Class B, Class C or Class D
shares.
Also as of September 30, 1996, the following persons or entities were
the record and/or beneficial owners of the approximate amounts of each class of
shares of the Fund as set forth beside their names:
Shareholder %
Class A Merrill Lynch 18.5
Class B Merrill Lynch 28.9
Wexford Clearing Services Corp. 5.3
Class C Chase Manhattan Bank, N.A. 83.8
Metropolitan Life 9.9
Class D Merrill Lynch 34.5
PaineWebber 18.0
The full name and address of each of the above persons or entities are
as follows:
Merrill Lynch, Pierce, Fenner & Smith, Inc. (a)
One Liberty Plaza
165 Broadway
New York, New York 10080
Chase Manhattan Bank, N.A.
770 Broadway
New York, New York 10003
Metropolitan Life Insurance Company (c)
One Madison Avenue
New York, New York 10010
Wexford Clearing Services Corp.
c/o State Street Research Shareholder Services
One Financial Center
Boston, Massachusetts 02111
PaineWebber, Incorporated (a)
1285 Avenue of the Americas
New York, New York 10019
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Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
- ------------------
(a) The Fund believes that such entity does not have beneficial ownership
of such shares.
(b) Chase Manhattan Bank, N.A. holds such shares as a trustee under certain
employee benefit plans serviced by Metropolitan Life Insurance Company.
(c) Metropolitan Life Insurance Company ("Metropolitan"), a New York
corporation, was the record and/or beneficial owner, directly or
indirectly through its subsidiaries or affiliates, of such shares.
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The Trustees were compensated as follows:
- -----------------------------------------------------------
Total
Compensation
Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Trust(a) to Trustees(b)
- -----------------------------------------------------------
Edward M. Lamont $ 9,700 $59,375
Robert A. Lawrence $ 9,700 $88,875
Dean O. Morton $10,100 $92,875
Thomas L. Phillips $ 9,700 $59,375
Toby Rosenblatt $ 9,700 $59,375
Michael S. Scott Morton $10,900 $96,875
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $ 9,500 $63,375
(a) For the Fund's fiscal year ended June 30, 1996. Includes compensation
from multiple series of the Trust. See "Distribution of Shares" for a
listing of series.
(b) Includes compensation from 31 series, including series of 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. "Total Compensation from
Trust and Complex" is estimated for the 12 months ended December 31,
1996. The Trust does not provide any pension or retirement benefits for
the Trustees.
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INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Advisory
Agreement provides that the Investment Manager shall furnish the Fund with an
investment program, office facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of the
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly owned subsidiary of Metropolitan.
The advisory fee payable monthly by the Fund to the Investment Manager
is computed as a percentage of the average of the value of the net assets of the
Fund as determined at the close of the New York Stock Exchange (the "NYSE") on
each day the NYSE is open for trading, at the annual rate of 0.75% of the net
assets of the Fund. The Distributor and its affiliates have from time to time
and in varying amounts voluntarily assumed some portion of fees or expenses
relating to the Fund. For the fiscal years ended June 30, 1994, 1995 and 1996,
the Fund's investment advisory fee prior to the assumption of fees or expenses
was $281,318, $284,926 and $307,977, respectively. For the same periods, the
voluntary reduction of fees or assumption of expenses amounted to $360,878,
$307,559 and $137,050, respectively.
Further, to the extent required under applicable state regulatory
requirements, the Investment Manager will reduce its management fee up to the
amount of any expenses (excluding permissible items, such as Rule 12b-1
Distribution Plan payments, brokerage commissions, interest, taxes and
litigation expenses) paid or incurred by the Fund in any fiscal year which
exceed specified percentages of the average daily net assets of the Fund for
such fiscal year. The most restrictive of such percentage limitations is
currently 2.5% of the first $30 million of average net assets, 2.0% of the next
$70 million of average net assets and 1.5% of the remaining average net assets.
These commitments may be amended or rescinded in response to changes in the
requirements of the various states by the Trustees without shareholder approval.
The Advisory Agreement provides that it shall continue in effect with
respect to the Fund for a period of two years after its initial effectiveness
and will continue from year to year thereafter as long as it is approved at
least annually both (i) by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by the Trustees of the
Trust, and (ii) in either event by a vote of a majority of the Trustees who are
not parties to the Advisory Agreement or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated on 60 days' written notice by
either party and will terminate automatically in the event of its assignment, as
defined under the 1940 Act and regulations thereunder. Such regulations provide
that a transaction which does not result in a change of actual control or
management of an adviser is not deemed an assignment.
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<PAGE>
Under a Funds Administration Agreement between the Investment Manager
and the Distributor, the Distributor provides assistance to the Investment
Manager in performing certain fund administration services for the Trust, such
as assistance in determining the daily net asset value of shares of series of
the Trust and in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the
Trust and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Fund, and is entitled to
reimbursements of its costs for providing such services. Under certain
arrangements for Metropolitan to provide subadministration services,
Metropolitan may receive a fee for the maintenance of certain share ownership
records for participants in sponsored arrangements, such as employee benefit
plans, through or under which Fund shares may be purchased.
Under the Code of Ethics of the Investment Manager, its employees in
Boston, where investment management operations are conducted, are only permitted
to engage in personal securities transactions in accordance with certain
conditions relating to an employee's position, the identity of the security, the
timing of the transaction, and similar factors. Such employees must report their
personal securities transactions quarterly and supply broker confirmations of
such transactions to the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by the Distributor. The Fund offers
four classes of shares which may be purchased at the next determined net asset
value per share plus, in the case of all classes except Class C shares, a sales
charge which, at the election of the investor, may be imposed (i) at the time of
purchase (the Class A shares) or (ii) on a deferred basis (the Class B and Class
D shares). General information on how to buy shares of the Fund, as well as
sales charges involved, is set forth under "Purchase of Shares" in the
Prospectus. The following supplements that information.
Public Offering Price - The public offering price for each class of
shares of the Fund is based on their net asset value determined as of the close
of the NYSE on the day the purchase order is received by State Street Research
Shareholder Services provided that the order is received prior to the close of
the NYSE on that day; otherwise the net asset value used is that determined as
of the close of the NYSE on the next day it is open for unrestricted trading.
When a purchase order is placed through a dealer, that dealer is responsible for
transmitting the order promptly to State Street Research Shareholder Services in
order to permit the investor to obtain the current price. Any loss suffered by
an investor which results from a dealer's failure to transmit an order promptly
is a matter for settlement between the investor and the dealer.
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<PAGE>
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 Fund at reduced sales
charges by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds" as
designated by the Distributor within a 13-month period. The sales charge
applicable to each purchase made pursuant to a Letter of Intent will be that
which would apply if the total dollar amount set forth in the Letter of Intent
were being bought in a single transaction. Purchases made within a 90-day period
prior to the execution of a Letter of Intent may be included therein; in such
case the date of the earliest of such purchases marks the commencement of the
13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Fund and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class D shares may also be included in the
combination under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Investors must
29
<PAGE>
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
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants (currently a minimum of 100 eligible
employees), service arrangements, or similar factors; insurance companies;
investment companies; endowment funds of nonprofit organizations with
substantial minimum assets (currently a minimum of $10,000,000); and other
similar institutional investors.
Reorganizations - In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined 1940 Act, as amended, the Fund may issue its shares at net asset
value (or more) to such entities or to their security holders.
Redemptions - The Fund reserves the right to pay redemptions in kind
with portfolio securities in lieu of cash. In accordance with its election
pursuant to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of
redemption proceeds paid in cash. Although it has no present intention to do so,
the Fund may, under unusual circumstances, limit redemptions in cash with
respect to each shareholder during any ninety-day period to the lesser of (i)
$250,000, or (ii) 1% of the net asset value of the Fund at the beginning of such
period. In connection with any redemptions paid in kind with portfolio
securities, brokerage and other costs may be incurred by the redeeming
shareholder in the sale of the securities received.
NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily
as of the close of the NYSE, ordinarily 4 P.M. New York City time, Monday
through Friday, on each day during which the NYSE is open for unrestricted
trading. The NYSE is currently closed on New Year's Day, Presidents Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The net asset value per share of the Fund is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets minus all liabilities by the total number of outstanding shares of the
Fund at such time. Any expenses, except for extraordinary or nonrecurring
expenses, borne by the Fund, including the investment management fee payable to
the Investment Manager, are accrued daily.
In determining the values of portfolio assets as provided below, the
Trustees may utilize one or more pricing services in lieu of market quotations
for certain securities which are not readily available on a daily basis. Such
services may provide prices determined as of times prior to the close of the
NYSE.
30
<PAGE>
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, or other system, are valued at
the closing price supplied through such system for that day at the close of the
NYSE. Other securities are, in general, valued at the mean of the bid and asked
quotations last quoted prior to the close of the NYSE if there are market
quotations readily available, or in the absence of such market quotations, then
at the fair value thereof as determined by or under authority of the Trustees of
the Trust with the use of such pricing services as may be deemed appropriate or
methodologies approved by the Trustees.
Short-term debt instruments issued with a maturity of one year or less
which have a remaining maturity of 60 days or less are valued using the
amortized cost method, provided that during any period in which more than 25% of
the Fund's total assets is invested in short-term debt securities the current
market value of such securities will be used in calculating net asset value per
share in lieu of the amortized cost method. The amortized cost method is used
when the value obtained is fair value. Under the amortized cost method of
valuation, the security is initially valued at cost on the date of purchase (or
in the case of short-term debt instruments purchased with more than 60 days
remaining to maturity, the market value on the 61st day prior to maturity), and
thereafter a constant amortization to maturity of any discount or premium is
assumed regardless of the impact of fluctuating interest rates on the market
value of the security.
PORTFOLIO TRANSACTIONS
Portfolio Turnover
The Fund's portfolio turnover rate is determined by dividing the lesser
of securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The portfolio turnover rates for the fiscal years ended June 30,
1995 and 1996 were 62.94% and 92.33%, respectively.
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended June 30, 1996 was significantly higher than that for the
previous fiscal year because of the Fund's strategy to reallocate energy-related
investments into the securities of issuers in other nonenergy, natural
resources industries.
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<PAGE>
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), 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 their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Fund occur. Against this background, the Investment Manager
evaluates the reasonableness of a commission or a net price with respect to a
particular transaction by considering such factors as difficulty of execution or
security positioning by the executing firm. The Investment Manager may or may
not solicit competitive bids based on its judgment of the expected benefit or
harm to the execution process for that transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given to services other than execution services which certain of such firms have
provided in the past or may provide in the future. Negotiated commission rates
and prices, however, are based upon the Investment Manager's judgment of the
rate which reflects the execution requirements of the transaction without regard
to whether the broker provides services in addition to execution. Among such
other services are the supplying of supplemental investment research; general
economic, political and business information; analytical and statistical data;
relevant market information, quotation equipment and services; reports and
information about specific companies, industries and securities; purchase and
sale recommendations for stocks and bonds; portfolio strategy services;
historical statistical information; market data services providing information
on specific issues and prices; financial publications; proxy voting data and
analysis services; technical analysis of various aspects of the securities
markets, including technical charts; computer hardware used for brokerage and
research purposes; computer software and databases, including those used for
portfolio analysis and modeling; and portfolio evaluation services and relative
performance of accounts.
Certain nonexecution services provided by broker-dealers may in turn be
obtained by the broker-dealers from third parties who are paid for such services
by the broker-dealers. The Investment Manager has an investment of less than ten
percent of the outstanding equity of one such third party which provides
portfolio analysis and modeling and other research and
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<PAGE>
investment decision-making services integrated into a trading system developed
and licensed by the third party to others. The Investment Manager could be said
to benefit indirectly if in the future it allocates brokerage to a broker-dealer
who in turn pays this third party for services to be provided to the Investment
Manager.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Some services may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and is
therefore paid directly by the Investment Manager. Some research and execution
services may benefit the Investment Manager's clients as a whole, while others
may benefit a specific segment of clients. Not all such services will
necessarily be used exclusively in connection with the accounts which pay the
commissions to the broker-dealer producing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which that firm may
expect to receive for services supplied to the Investment Manager 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 brokerage business. These understandings are
honored to the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, relies on the provisions of Section 28(e) of the
Securities Exchange Act of 1934, to the extent applicable. Brokerage commissions
paid by the Fund during the fiscal years ended June 30, 1994, 1995 and 1996,
amounted to $99,253, $149,770, and $207,690, respectively. The Investment
Manager believes the amount of brokerage commissions paid by the Fund during the
fiscal year ended June 30, 1996, was significantly higher than during the
previous year because of the Fund's strategy to reallocate energy-related
investments into the securities of issuers in other nonenergy, natural resources
industries. During and at the end of its most recent fiscal year, the Fund held
in its portfolio no securities of any entity that might be deemed to be a
regular broker-dealer of the Fund as defined under the 1940 Act.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling concessions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Investment Manager may make such allocations
to
33
<PAGE>
broker-dealers which have provided the Investment Manager with research and
brokerage services.
When more than one client of the Investment Manager is seeking to buy
or sell the same security, the sale or purchase is carried out in a manner which
is considered fair and equitable to all accounts. In allocating investments
among various clients (including in what sequence orders for trades are placed),
the Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the amount already committed for each client
to a specific investment and the relative risks of the investments, all in order
to provide on balance a fair and equitable result to each client over time.
Although sharing in large transactions may sometimes affect price or volume of
shares acquired or sold, overall it is believed there may be an advantage in
execution. The Investment Manager may follow the practice of grouping orders of
various clients for execution to get the benefit of lower prices or commission
rates. In certain cases where the aggregate order may be executed in a series of
transactions at various prices, the transactions are allocated as to amount and
price in a manner considered equitable to each so that each receives, to the
extent practicable, the average price of such transactions. Exceptions may be
made based on such factors as the size of the account and the size of the trade.
For example, the Investment Manager may not aggregate trades where it believes
that it is in the best interests of clients not to do so, including situations
where aggregation might result in a large number of small transactions with
consequent increased custodial and other transactional costs which may
disproportionately impact smaller accounts. Such disaggregation, depending on
the circumstances, may or may not result in such accounts receiving more or less
favorable execution relative to other clients.
CERTAIN TAX MATTERS
Federal Income Taxation of the Fund -- In General
The Fund intends to qualify and elect to be treated each taxable year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), although it cannot give complete
assurance that it will do so. Accordingly, the Fund must, among other things,
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities; (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies); or (iii) foreign currencies
(or options, futures or forward contracts on foreign currencies) but only if
such currencies (or options, futures or forward contracts) are not directly
related to the Fund's principal business of investing in stocks or securities
(or
34
<PAGE>
options and futures with respect to stocks or securities); (c) satisfy certain
diversification requirements; and (d) in order to be entitled to utilize the
dividends paid deduction, distribute annually at least 90% of its investment
company taxable income (determined without regard to the deduction for dividends
paid).
The 30% test will limit the extent to which the Fund may sell
securities held for less than three months, write options which expire in less
than three months, and effect closing transactions with respect to call or put
options that have been written or purchased within the preceding three months.
(If the Fund purchases a put option for the purpose of hedging an underlying
portfolio security, the acquisition of the option is treated as a short sale of
the underlying security unless, for purposes only of the 30% test, the option
and the security are acquired on the same date.) Finally, as discussed below,
this requirement may also limit investments by the Fund in options on stock
indices, listed options on nonconvertible debt securities, futures contracts,
options on interest rate futures contracts and certain foreign currency
contracts.
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income or accumulated earnings and profits. Also, the
shareholders, if they received a distribution in excess of current or
accumulated earnings and profits, would receive a return of capital that would
reduce the basis of their shares of the Fund to the extent thereof. Any
distribution in excess of a shareholder's basis in the shareholder's shares of
the Fund would be taxable as gain realized from the sale of such shares.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year the Fund
must distribute an amount equal to at least 98% of the sum of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, and its capital gain net income for the 12-month period ending on October
31, in addition to any undistributed portion of the respective balances from the
prior year. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
Federal Income Taxation of the Fund's Investments
Original Issue Discount. For federal income tax purposes, debt
securities purchased by the Fund may be treated as having original issue
discount. Original issue discount represents interest for federal income tax
purposes and can generally be defined as the excess of the stated redemption
price at maturity of a debt obligation over the issue price. Original issue
discount is treated for federal income tax purposes as income earned by the
Fund, whether or not any income is actually received, and therefore is subject
to the distribution requirements of the Code. Generally, the amount of original
issue discount is determined on the basis of a
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<PAGE>
constant yield to maturity which takes into account the compounding of accrued
interest. Under section 1286 of the Code, an investment in a stripped bond or
stripped coupon may result in original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for federal
income tax purposes. In the case of any debt security issued after July 18,
1984, having a fixed maturity date of more than one year from the date of issue
and having market discount, the gain realized on disposition will be treated as
interest to the extent it does not exceed the accrued market discount on the
security (unless the Fund elects to include such accrued market discount in
income in the tax year to which it is attributable). Generally, market discount
is accrued on a daily basis. The Fund may be required to capitalize, rather than
deduct currently, part or all of any direct interest expense incurred or
continued to purchase or carry any debt security having market discount, unless
the Fund makes the election to include market discount currently. Because the
Fund must include original issue discount in income, it will be more difficult
for the Fund to make the distributions required for the Fund to maintain its
status as a regulated investment company under Subchapter M of the Code or to
avoid the 4% excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments may
be subject to provisions of the Code that (i) require inclusion of unrealized
gains or losses in the Fund's income for purposes of the 90% test, the 30% test,
the excise tax and the distribution requirements applicable to regulated
investment companies; (ii) defer recognition of realized losses; and (iii)
characterize both realized and unrealized gain or loss as short-term or
long-term gain or loss. Such provisions generally apply to, among other
investments, options on debt securities, indices on securities and futures
contracts.
Federal Income Taxation of Shareholders
Dividends paid by the Fund may be eligible for the 70%
dividends-received deduction for corporations. The percentage of the Fund's
dividends eligible for such tax treatment may be less than 100% to the extent
that less than 100% of the Fund's gross income may be from qualifying dividends
of domestic corporations. Any dividend declared in October, November or December
and made payable to shareholders of record in any such month is treated as
received by such shareholders on December 31, provided that the Fund pays the
dividend during January of the following calendar year.
Distributions by the Fund can result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless may be taxable
to the shareholder as ordinary income or long-term capital gain, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time
36
<PAGE>
includes the amount of any forthcoming distribution. Those investors purchasing
shares just prior to a taxable distribution will then receive a return of
investment upon distribution which will nevertheless be taxable to them.
DISTRIBUTION OF SHARES OF THE FUND
State Street Research Equity Trust 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. The Trustees have authorized the
Fund to issue four classes of shares: Class A, Class B, Class C and Class D
shares. The Trustees of the Trust have authority to issue an unlimited number of
shares of beneficial interest of separate series, $.001 par value per share. A
"series" is a separate pool of assets of the Trust which is separately managed
and has a different investment objective and different investment policies from
those of another series. The Trustees have authority, without the necessity of a
shareholder vote, to create any number of new series or classes or to commence
the public offering of shares of any previously established series or classes.
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B and Class D shares). The Distributor may reallow all or
portions of such sales charges as concessions to dealers. For the fiscal years
ended June 30, 1994, 1995 and 1996, total sales charges on Class A shares paid
to the Distributor amounted to approximately $218,494, $93,586 and $169,918,
respectively. For the same periods, the Distributor retained $25,672, $10,670
and $20,357, respectively, after reallowance of concessions to dealers.
The differences in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements and managed fee-based programs, the
amount of the sales charge reduction will similarly reflect the anticipated
reduction in sales expenses associated with such arrangements. The reduction in
sales expenses, and therefore
37
<PAGE>
the reduction in sales charge, will vary depending on factors such as the size
and other characteristics of the organization or program, and the nature of its
membership or the participants. The Fund reserves the right to make variations
in, or eliminate, sales charges at any time or to revise the terms of or to
suspend or discontinue sales pursuant to sponsored arrangements at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. 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
and paid initial commissions to securities dealers for sales of such shares as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 1996 June 30, 1995 June 30, 1994
------------------------------------------------------------------------------------------------------
Contingent Commissions Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers Sales Charges Dealers
<S> <C> <C> <C> <C> <C> <C>
Class A $0 $149,561 $21,450 $82,916 $0 $192,822
Class B $45,288 $207,595 $36,122 $29,957 $8,308 $163,664
Class D $100 $17,788 $1,185 $0 $310 $ 15,955
</TABLE>
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1"
(the "Distribution Plan") under which the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of Class A, Class B and Class D shares, including, but not limited to, (1) the
payment of commissions and/or reimbursement to underwriters, securities dealers
and others engaged in the sale of shares, including payments to the Distributor
to be used to pay commissions and/or reimbursement to securities dealers (which
securities dealers may be affiliates of the Distributor) engaged in the
distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the servicing of investor accounts including special
38
<PAGE>
promotional fees and cash and noncash incentives based upon sales by securities
dealers, expenses relating to the formulation and implementation of marketing
strategies and promotional activities such as direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising, the
preparation, printing and distribution of Prospectuses of the Fund and reports
for recipients other than existing shareholders of the Fund, and obtaining such
information, analyses and reports with respect to marketing and promotional
activities and investor accounts as the Fund may, from time to time, deem
advisable, and (3) reimbursement of expenses incurred by the Distributor in
connection with the servicing of shareholder accounts including payments to
securities dealers and others in consideration of the provision of personal
services to investors and/or the maintenance or servicing of shareholder
accounts and expenses associated with the provision of personal services by the
Distributor directly to investors. In addition, the Distribution Plan is deemed
to authorize the Distributor and the Investment Manager to make payments out of
general profits, revenues or other sources to underwriters, securities dealers
and others in connection with sales of shares, to the extent, if any, that such
payments may be deemed to be within the scope of Rule 12b-1 under the 1940 Act.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class D shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class D
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class D shares (as the case may be) to make payments for personal
services and/or the maintenance or servicing of shareholder accounts. Proceeds
from the service fee will be used by the Distributor to compensate securities
dealers and others selling shares of the Fund for rendering service to
shareholders on an ongoing basis. Such amounts are based on the net asset value
of shares of the Fund held by such dealers as nominee for their customers or
which are owned directly by such customers for so long as such shares are
outstanding and the Distribution Plan remains in effect with respect to the
Fund. Any amounts received by the Distributor and not so allocated may be
applied by the Distributor as reimbursement for expenses incurred in connection
with the servicing of investor accounts. The distribution and servicing expenses
of a particular class will be borne solely by that class.
39
<PAGE>
During the fiscal year ended June 30, 1996, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
Class A Class B Class D
Advertising $ 227 $ 0 $ 359
Printing and mailing
of prospectuses to
other than current
shareholders 88 0 140
Compensation to dealers 61,759 84,275 31,333
Compensation to sales
personnel 1,042 0 1,649
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing;
general 548 0 869
------- ------- -------
Total fees $63,664 $84,275 $34,350
======= ======= =======
The Distributor may have also used additional resources of its own for further
expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Fund will attempt to make
alternative arrangements for such services for shareholders who acquired shares
through such institutions.
40
<PAGE>
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") of the Class
A, Class B, Class C and Class D shares of the Fund will be calculated as set
forth below. Total return is computed separately for each class of shares of the
Fund. Performance data for a specified class includes periods prior to the
adoption of class designations. Shares of the Fund had no class designations
until June 1, 1993, when designations were assigned based on the pricing and
Rule 12b-1 fees applicable to shares sold thereafter.
The performance data below reflects Rule 12b-1 fees and sales charges,
where applicable, as follows:
<TABLE>
<CAPTION>
Rule 12b-1 Fees Sales Charges
--------------- -------------
Current
Class Amount Period
- ----- ------ ------
<S> <C> <C> <C>
A 0.25% 0.50% until March 10, 1995; Maximum 4.5% sales charge reflected
0.25% thereafter
B 1.00% 0.50% until June 1, 1993; 1.00% 1- and 5-year periods reflect a 5% and
June 1, 1993 to present; fee will reduce a 2% contingent deferred sales charge,
performance for periods after June 1, respectively
1993
C None 0.50% until June 1, 1993; None
0% thereafter
D 1.00% 0.50% until June 1, 1993; 1.00% 1-year period reflects a 1% contingent
June 1, 1993 to present; fee will reduce deferred sales charge
performance for periods after June 1,
1993
</TABLE>
All calculations of performance data in this section reflect the
voluntary measures by the Fund's affiliates to reduce fees or expenses relating
to the Fund; see "Accrued Expenses" later in this section.
41
<PAGE>
Total Return
The average annual total return ("standard total return") of each class
of shares of the Fund was as follows:
Commencement of
Operations Five Years One Year
(March 2, 1990) Ended Ended
to June 30, 1996 June 30, 1996 June 30, 1996
---------------- ----------------- -------------------
With Without With Without With Without
Subsidy Subsidy Subsidy Subsidy Subsidy Subsidy
Class A 5.50% 4.89% 12.80% 12.07% 36.97% 36.08%
Class B 5.95% 5.31% 13.18% 12.38% 37.31% 36.37%
Class C 6.46% 5.81% 14.10% 13.31% 43.77% 42.94%
Class D 5.94% 5.30% 13.40% 12.62% 41.26% 40.32%
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:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated period
assuming a hypothetical $1,000 payment made at the beginning
of the designated period
The calculation is based on the further assumptions that the maximum
initial or contingent deferred sales charge applicable to the investment is
deducted, and that all dividends and distributions by the Fund are reinvested at
net asset value on the reinvestment dates during the periods. All accrued
expenses and recurring charges are also taken into account as described later
herein.
Accrued Expenses
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return results take sales charges, if applicable, into account,
although the results do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for wire orders.
42
<PAGE>
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class D shares for periods which end no
earlier than the most recent calendar quarter end and which begin twelve months
before, five years before and at the time of commencement of the Fund's
operations. In addition, the Fund may provide nonstandardized total return
results for differing periods, such as for the most recent six months, and/or
without taking sales charges into account. Such nonstandardized total return is
computed as otherwise described under "Total Return" except the result may or
may not be annualized, and as noted any applicable sales charge, if any, may not
be taken into account and therefore not deducted from the hypothetical initial
payment of $1,000. For example, the Fund's nonstandardized total returns for the
six months ended June 30, 1996 without taking sales charges into account, were
as follows:
With Without
Subsidy Subsidy
------- -------
Class A 32.42% 32.04%
Class B 31.90% 31.51%
Class C 32.53% 32.19%
Class D 31.94% 31.56%
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing professional services
including (1) audit of the Fund's annual financial statements, (2) assistance
and consultation in connection with Securities and Exchange Commission filings
and (3) review of the annual income tax returns filed on behalf of the Fund.
43
<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 Fund's fiscal year ended
June 30, 1996:
321783.c3
10/11/96
44
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
Investment Portfolio
June 30, 1996
Value
Shares (Note 1)
- ----------------------------------------- ------ ------------
EQUITY SECURITIES 99.2%
Basic Industries 15.9%
Metal & Mining 14.4%
Aber Resources, Ltd.* 30,000 $395,625
Aluminum Company of America 10,000 573,750
AUR Resources, Inc.* 50,000 357,064
Bema Gold Corp.* 120,000 465,000
Campbell Resources, Inc.* 250,000 312,500
Crown Resources Corp.* 120,000 630,000
DeBeers Consolidated Mines Ltd. ADR 5,000 168,750
Dia Met Minerals Ltd. CI. A* 5,000 77,089
Dia Met Minerals Ltd. CI. B* 20,000 325,936
Homestake Mining Co. 30,000 513,750
Lihir Gold Ltd. ADR* 20,000 640,000
Newmont Mining Corp. 5,000 246,875
Pegasus Gold, Inc.* 25,000 306,250
RMI Titanium Co.* 25,000 587,500
Royal Oak Mines Ltd.* 130,000 479,375
Santa Fe Pacific Gold Corp.* 50,000 706,250
South Pacific Resources, Inc.* 50,000 228,887
Southernera Resources Ltd.* 55,500 284,553
TVX Gold, Inc.* 30,000 217,500
Vaal Reefs Exploration & Mining Ltd. ADR 40,000 320,000
----------
7,836,654
----------
Railroad 1.5%
OMI Corp. 93,800 809,025
----------
Total Basic Industries 8,645,679
----------
Energy 78.7%
Oil 52.5%
Abacan Resource Corp.* 232,400 969,544
Apache Corp. 75,025 2,466,447
Arakis Energy Corp.* 65,000 304,687
Barrett Resources Corp.* 15,700 467,075
Barrington Petroleum Ltd.* 89,400 281,565
Basin Exploration, Inc.* 100,000 650,000
Benton Oil & Gas Co.* 13,000 286,000
Tom Brown, Inc.* 98,000 1,678,250
CS Resources Ltd.* 75,000 598,770
Cabot Oil & Gas Corp. 16,500 286,687
Callon Petroleum Co.* 10,000 125,000
Canadian Conquest Exploration, Inc.* 165,000 157,113
Canadian 88 Energy Corp.* 72,200 169,752
COHO Resources, Inc.* 200,000 1,375,000
Crystal Oil Corp.* 41,600 1,388,400
Flores & Rucks, Inc.* 30,000 1,035,000
Oil (cont'd)
Forcenergy Gas Explorations, Inc.* 16,700 $315,213
Garnet Resources Corp.* 34,500 21,563
Global Natural Resources, Inc.* 160,000 2,620,000
Intensity Resources, Ltd.* 200,000 380,869
Mercantile International Petroleum, Inc.* 90,000 117,000
Morgan Hydrocarbons, Inc.* 250,000 741,595
New Cache Petroleum Ltd.* 80,000 392,588
Nuevo Energy Co.* 69,100 2,228,475
Oil Search Ltd.* 795,500 793,937
Optima Petroleum Corp.* 46,700 163,450
Plains Resources, Inc.* 103,700 1,348,100
Ranger Oil Ltd.* 357,300 2,635,087
Rutherford-Moran Oil Corp.* 15,300 372,937
Southwestern Energy Co. 53,700 758,513
Stampeder Exploration Ltd.* 115,400 435,296
Swift Energy Co.* 44,200 795,600
Tarragon Oil & Gas Ltd.* 65,652 639,546
Triton Energy Ltd. CI. A 2,700 131,287
Ulster Petroleum Ltd.* 137,500 946,678
Clayton Williams Energy, Inc.* 55,330 546,384
----------
28,623,408
----------
Oil Service 26.2%
Atwood Oceanics, Inc.* 50,000 2,237,500
Cliffs Drilling Co.* 6,200 210,800
Dawson Production Services, Inc.* 20,000 230,000
Dreco Energy Services Ltd.* 16,000 440,000
Energy Ventures, Inc.* 41,800 1,358,500
Ensco International, Inc.* 44,975 1,461,688
Falcon Drilling, Inc.* 6,700 181,737
GeoScience Corp.* 21,700 303,800
Global Industries, Ltd.* 30,000 892,500
Grant Geophysical, Inc.* 55,400 200,825
Landmark Graphics Corp.* 35,500 683,375
Marine Drilling Companies, Inc.* 75,000 759,375
J. Ray McDermott S.A.* 11,100 277,500
Noble Drilling Corp.* 81,300 1,128,037
Oceaneering International, Inc.* 66,600 1,007,325
Patterson Energy, Inc.* 50,000 775,000
Rowan Companies, Inc.* 59,900 883,525
Solid State Geophysical, Inc. 50,000 61,891
TMBR/Sharp Drilling, Inc.* 55,900 436,719
Tucker Drilling, Inc.* 10,700 123,050
Unit Corp.* 100,000 662,500
----------
14,315,647
----------
Total Energy 42,939,055
----------
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Value
Shares (Note 1)
- ----------------------------------------- ------ ------------
Utility 4.6%
Natural Gas 4.6%
KCS Energy, Inc. 27,400 $787,750
TransTexas Gas Corp.* 183,100 1,739,450
----------
2,527,200
----------
Total Utility 2,527,200
----------
Total Equity Securities (Cost $40,008,671) 54,111,934
----------
Principal Maturity
Amount Date
- ----------------------------- ------- ------ -----------
SHORT-TERM OBLIGATIONS 1.7%
American Express Credit
Corp., 5.39% $258,000 7/2/96 258,000
Ford Motor Credit Co., 5.32% 688,000 7/1/96 688,000
---------
Total Short-Term Obligations (Cost $946,000) 946,000
----------
Total Investments (Cost $40,954,671)--100.9% 55,057,934
Cash and Other Assets, Less Liabilities--(0.9%) (499,958)
---------
Net Assets--100.0% $54,557,976
=========
Federal Income Tax Information:
At June 30, 1996, the net unrealized
appreciation of investments based on
cost for Federal income tax purposes
of $41,059,795 was as follows:
Aggregate gross unrealized appreciation
for all investments in which there is
an excess of value over tax cost $15,951,902
Aggregate gross unrealized depreciation
for all investments in which there is
an excess of tax cost over value (1,953,763)
----------
$13,998,139
==========
*Nonincome-producing securities
ADR stands for American Depositary Receipt, representing ownership of
foreign securities.
Diversification of Equity Securities at June 30, 1996 (as a percentage of
net assets) was United States 69.5%, Canada 27.0%, Australia 2.6%, and South
Africa 0.9%.
Statement of Assets and Liabilities
Assets
Investments, at value (Cost $40,954,671) (Note 1) $55,057,934
Cash 361
Receivable for fund shares sold 94,542
Receivable from Distributor (Note 3) 14,315
Dividends and interest receivable 5,877
Other assets 13,132
----------
55,186,161
Liabilities
Payable for securities purchased 305,513
Payable for fund shares redeemed 103,947
Accrued transfer agent and shareholder services
(Note 2) 70,605
Accrued management fee (Note 2) 31,294
Accrued distribution and service fees (Note 5) 19,689
Accrued trustees' fees (Note 2) 5,401
Other accrued expenses 91,736
----------
628,185
----------
Net Assets $54,557,976
==========
Net Assets consist of:
Unrealized appreciation of investments $14,103,263
Accumulated net realized loss (45,924)
Shares of beneficial interest 40,500,637
----------
$54,557,976
==========
Net Asset Value and redemption price per share of
Class A shares ($30,943,486 / 1,774,718 shares of
beneficial interest) $17.44
=====
Maximum Offering Price per share of Class A shares
($17.44 / .955) $18.26
=====
Net Asset Value and offering price per share of
Class B shares ($12,828,020 / 749,379 shares of
beneficial interest)* $17.12
=====
Net Asset Value, offering price and redemption price
per share of Class C shares ($5,632,072 / 319,218
shares of beneficial interest) $17.64
=====
Net Asset Value and offering price per share of
Class D shares ($5,154,398 / 301,437 shares
of beneficial interest)* $17.10
=====
* 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.
4
<PAGE>
Statement of Operations
For the year ended June 30, 1996
Investment Income
Dividends, net of foreign taxes of $5,638 $73,874
Interest 44,605
---------
118,479
Expenses
Management fee (Note 2) 307,977
Transfer agent and shareholder services (Note 2) 195,177
Custodian fee 93,275
Reports to shareholders 63,580
Service fee--Class A (Note 5) 63,664
Distribution and service fees--Class B (Note 5) 84,275
Distribution and service fees--Class D (Note 5) 34,350
Audit fee 31,172
Trustees' fees (Note 2) 17,419
Legal fees 17,130
Registration fees 14,410
Miscellaneous 12,847
---------
935,276
Expenses borne by the Distributor (Note 3) (137,050)
---------
798,226
---------
Net investment loss (679,747)
---------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) 4,871,429
Net unrealized appreciation of investments 11,106,956
---------
Net gain on investments 15,978,385
---------
Net increase in net assets resulting from
operations $15,298,638
=========
Statement of Changes in Net Assets
Year ended June 30
--------------------------
1996 1995
- ----------------------------- ---------- ------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $(679,747) $(579,458)
Net realized gain (loss) on
investments* 4,871,429 (1,268,036)
Net unrealized appreciation
of investments 11,106,956 2,488,313
-------- ----------
Net increase resulting from
operations 15,298,638 640,819
-------- ----------
Net increase (decrease) from
fund share transactions
(Note 7) 900,350 (2,185,277)
-------- ----------
Total increase (decrease) in
net assets 16,198,988 (1,544,458)
Net Assets
Beginning of year 38,358,988 39,903,446
-------- ----------
End of year $54,557,976 $38,358,988
======== ==========
* Net realized gain (loss)
for Federal income tax
purposes (Note 1) $4,268,846 $(1,203,874)
======== ==========
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Notes to Financial Statements
June 30, 1996
Note 1
State Street Research Global Resources Fund (the "Fund"), is a series of
State Street Research Equity Trust, formerly MetLife-State Street Equity
Trust (the "Trust"), which was organized as a Massachusetts business trust in
March, 1986 and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund commenced
operations in March, 1990. The Trust presently consists of four separate
funds: State Street Research Global Resources Fund, State Street Research
Capital Appreciation Fund, State Street Research Equity Income Fund and State
Street Research Equity Investment Fund.
The investment objective of the Fund is to provide long-term growth of
capital. In seeking to achieve its investment objective, the Fund invests
primarily in equity securities of domestic and foreign companies in the
energy and natural resources industries.
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. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and
pay annual distribution and service fees of 1.00%. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after the issuance of the Class B shares. Class C
shares are only offered to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, relating specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Values for listed securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at closing prices
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the
NASDAQ system, valuations are at the mean of the closing bid and asked
quotations. Securities quoted in foreign currencies are translated into U.S.
dollars at the current exchange rate. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments. Short-term securities maturing
within sixty days are valued at amortized cost. Other securities, if any, are
valued at their fair value as determined in accordance with established
methods consistently applied.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
C. Net Investment Income
Investment income is accrued daily as earned. Dividend income is accrued on
the ex-dividend date. The Fund is charged for expenses directly attributable
to it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested semiannually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gains distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1994
through June 30, 1995, the Fund incurred net capital losses of $629,914 and
has deferred and treated such losses as arising in the fiscal year ending
June 30, 1996.
F. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
6
<PAGE>
Notes (cont'd)
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.75% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended June 30, 1996, the fees pursuant to such
agreement amounted to $307,977.
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, 1996, the amount of such shareholder servicing and account
maintenance expenses was $57,801.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $17,419 during the year ended June 30, 1996.
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, 1996, the amount of such expenses
assumed by the Distributor and its affiliates was $137,050.
Note 4
For the year ended June 30, 1996, purchases and sales of securities,
exclusive of short-term obligations, aggregated $38,367,138 and $38,055,500,
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. The Distributor uses such payments
for personal services and/or the maintenance or servicing 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, 1996,
fees pursuant to such plan amounted to $63,664, $84,275 and $34,350 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 $20,357 and $24,162, respectively, on sales of Class A shares of
the Fund during the year ended June 30, 1996, and that MetLife Securities,
Inc. earned commissions aggregating $35,318 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges of $45,288
and $100 on redemptions of Class B and Class D shares, respectively, during
the same period.
Note 6
Under normal market conditions the Fund invests not less than 65% of its
total assets in equity securities of domestic and foreign companies in the
energy and natural resources industries. Also, the Fund may invest up to 35%
of its total assets in the securities of issuers in industries that are not
related to the energy or natural resources industries. Accordingly, the
Fund's investments will fluctuate in response to a variety of economic,
political and other factors peculiar to the energy industries and may
fluctuate more widely than a portfolio that invests in a broader range of
industries.
7
<PAGE>
Note 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At June 30, 1996,
Metropolitan owned 37,442 Class C shares and the Distributor owned one Class
A share of the Fund.
Share transactions were as follows:
Year ended June 30
--------------------------------------------------------
1996 1995
------------------------- ---------------------------
Class A Shares Amount Shares Amount
- ------------------ -------- --------- -------- -----------
Shares sold 723,940 $10,571,034 2,514,296 $28,346,425
Shares repurchased (1,062,091) (14,571,296) (2,992,842) (33,679,131)
-------- --------- -------- -----------
Net decrease (338,151) $(4,000,262) (478,546) $(5,332,706)
======== ========= ======== ===========
Class B Shares Amount Shares Amount
- ------------------ -------- --------- -------- -----------
Shares sold 438,451 $6,509,210 314,583 $3,497,941
Shares repurchased (273,265) (3,881,920) (267,978) (3,006,916)
-------- --------- -------- -----------
Net increase 165,186 $2,627,290 46,605 $491,025
======== ========= ======== ===========
Class C Shares Amount Shares Amount
- ------------------ -------- --------- -------- -----------
Shares sold 354,475 $5,359,929 280,275 $3,409,713
Shares repurchased (303,110) (4,509,482) (93,086) (1,092,177)
-------- --------- -------- -----------
Net increase 51,365 $850,447 187,189 $2,317,536
======== ========= ======== ===========
Class D Shares Amount Shares Amount
- ------------------ -------- --------- -------- -----------
Shares sold 210,219 $2,813,802 108,958 $1,239,952
Shares repurchased (104,262) (1,390,927) (77,489) (901,084)
-------- --------- -------- -----------
Net increase 105,957 $1,422,875 31,469 $338,868
======== ========= ======== ===========
8
<PAGE>
Financial Highlights
For a share outstanding throughout each year.
Class A
----------------------------------------------------
Year ended June 30
----------------------------------------------------
1996** 1995** 1994** 1993 1992
------ ------ -------- ------ ----------
Net asset value,
beginning
of year $ 12.16 $ 11.84 $ 13.51 $ 8.02 $9.12
Net investment loss* (.20) (.16) (.17) (.13) (.12)
Net realized and
unrealized gain
(loss) on
investments 5.48 .48 (1.50) 5.62 (.98)
------ ------ -------- ------ ----------
Net asset value, end
of year $ 17.44 $ 12.16 $ 11.84 $ 13.51 $8.02
====== ====== ======== ====== ==========
Total return 43.42%+ 2.70%+ (12.36)%+ 68.45%+ (12.06)%+
Net assets at end of
year (000s) $30,943 $25,692 $30,679 $33,513 $19,227
Ratio of operating
expenses to
average net
assets* 1.75% 1.75% 1.75% 1.75% 1.75%
Ratio of net
investment loss to
average net assets (1.47)% (1.41)% (1.46)% (1.44)% (1.16)%
Portfolio turnover
rate 92.33% 62.94% 30.98% 61.00% 47.09%
Average commission
rate@ $.0237 -- -- -- --
*Reflects voluntary
assumption of fees
or expenses per
share in each year
(Note 3). $.05 $.09 $.11 $.03 $.05
Class B
---------------------------------------------
June 1, 1993
(Commencement
of Share
Year ended June 30 Class
Designations)
to
---------------------------- June 30, 1993
1996** 1995** 1994**
------ ------ -------- -------------
Net asset value,
beginning
of year $ 12.03 $11.78 $13.51 $12.99
Net investment loss* (.30) (.23) (.23) (.02)
Net realized and
unrealized gain
(loss) on
investments 5.39 .48 (1.50) .54
---- ---- ------ -----------
Net asset value, end
of year $ 17.12 $12.03 $11.78 $13.51
==== ==== ====== ===========
Total return 42.31%+ 2.12%+ (12.81)%+ 4.00%+++
Net assets at end of
year (000s) $12,828 $7,030 $6,333 $1,048
Ratio of operating
expenses to
average net
assets* 2.50% 2.33% 2.25% 2.25%++
Ratio of net
investment loss to
average net assets (2.20)% (1.98)% (1.93)% (1.98)%++
Portfolio turnover
rate 92.33% 62.94% 30.98% 61.00%
Average commission
rate@ $ .0237 -- -- --
*Reflects voluntary
assumption of fees
or expenses per
share in each year
(Note 3). $.04 $.09 $.14 $.00
Class C
---------------------------------------------
June 1, 1993
(Commencement
of Share
Year ended June 30 Class
Designations)
to
---------------------------- June 30, 1993
1996** 1995** 1994**
-------------------- ------ ------ -------- -------------
Net asset value,
beginning of year $12.27 $11.90 $13.52 $12.99
Net investment loss* (.17) (.11) (.15) (.00)
Net realized and
unrealized gain
(loss) on
investments 5.54 .48 (1.47) .53
------ ------ -------- -------------
Net asset value, end
of year $17.64 $12.27 $11.90 $13.52
====== ====== ======== =============
Total return 43.77%+ 3.11%+ (11.98)%+ 4.08%+++
Net assets at end of
year (000s) $5,632 $3,288 $960 $146
Ratio of operating
expenses to
average net
assets* 1.50% 1.33% 1.25% 1.25%++
Ratio of net
investment loss to
average net
assets* (1.20)% (1.01)% (0.95)% (1.05)%++
Portfolio turnover
rate 92.33% 62.94% 30.98% 61.00%
Average commission
rate@ $.0237 -- -- --
*Reflects voluntary
assumption of fees
or expenses per
share in each year
(Note 3). $.05 $.08 $.16 $.00
Class D
---------------------------------------------
June 1, 1993
(Commencement
of Share
Year ended June 30 Class
Designations)
to
---------------------------- June 30, 1993
1996** 1995** 1994**
-------------------- ------ ------ -------- -------------
Net asset value,
beginning of year $12.02 $11.77 $13.51 $12.99
Net investment loss* (.30) (.23) (.23) (.02)
Net realized and
unrealized gain
(loss) on
investments 5.38 .48 (1.51) .54
---- ---- ------ -----------
Net asset value, end
of year $17.10 $12.02 $11.77 $13.51
==== ==== ====== ===========
Total return 42.26%+ 2.12%+ (12.88)%+ 4.00%+++
Net assets at end of
year (000s) $5,154 $2,350 $1,931 $588
Ratio of operating
expenses to
average net
assets* 2.50% 2.33% 2.25% 2.25%++
Ratio of net
investment loss to
average net
assets* (2.20)% (1.99)% (1.94)% (2.00)%++
Portfolio turnover
rate 92.33% 62.94% 30.98% 61.00%
Average commission
rate@ $.0237 -- -- --
*Reflects voluntary
assumption of fees
or expenses per
share in each year
(Note 3). $.05 $.09 $.13 $.00
** 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.
@ For the year ended June 30, 1996, the Fund has elected to disclose its
average commission rate per share paid for security trades.
9
<PAGE>
Report of Independent Accountants
To the Trustees of State Street Research
Equity Trust and the Shareholders of
State Street Research Global Resources Fund
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research Global
Resources Fund (a series of State Street Research Equity Trust, hereafter
referred to as the "Trust") at June 30, 1996, 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, 1996 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 9, 1996
10
<PAGE>
Management's Discussion of Fund Performance
Global Resources Fund performed well in 1995 due to improvement in both oil
and natural gas prices. As of June 30, 1996, Class A shares of the Fund were
up +43.42% for the past 12 months (does not reflect sales charge). The Lipper
Natural Resources Fund category was up +25.26%.
Rising oil and gas prices were the main source of the Fund's above-average
performance. Exploration and production companies, and oil service stocks,
which account for approximately 80% of the portfolio, benefited from an
increase in profits.
The natural gas sector started 1995 off weak. The harsh winter of '95-'96
used up existing gas inventories as well as much of the gas in storage,
causing price increases. Production of gas this summer has stepped up in
preparation for the upcoming winter. However, the likelihood of the gas being
delivered on time is low, leaving gas vulnerable to continued higher prices.
The Fund has increased holdings in this area.
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 maximum 4.5% "A" share front-end sales charge or
5% "B" share or 1% "D" share contingent deferred sales charges. "C" shares,
offered without a sales charge, are available only to certain employee
benefit plans and large institutions. Performance for "B" and "D" shares
prior to class designations in 1993 reflects annual 12b-1 fees of .50% and
performance thereafter reflects annual 12b-1 fees of 1%, which will reduce
subsequent performance. 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.
*************************[LINE CHARTS]***********************
Change in Value of $10,000 Based on
the S&P 500 Compared to Change in Value
of $10,000 Invested in the Fund
=============================================================
Class A Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+36.97%/+36.08% +12.80%/+12.07% +5.50%/+4.89%
- -------------------------------------------------------------
Global
Resources
Fund S&P 500
---------- -------
3/02/90 9550 10000
6/30/90 8982 10913
6/30/91 7339 11720
6/30/92 6454 13290
6/30/93 10872 15101
6/30/94 9528 15313
6/30/95 9786 19299
6/30/96 14036 24313
=============================================================
Class B Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+37.31%/+36.37% +13.18%/+12.38% +5.95%/+5.31%
- -------------------------------------------------------------
Global
Resources
Fund S&P 500
---------- -------
3/02/90 10000 10000
6/30/90 9405 10913
6/30/91 7685 11720
6/30/92 6758 13290
6/30/93 11385 15101
6/30/94 9927 15313
6/30/95 10137 19299
6/30/96 14866 24313
=============================================================
Class C Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+43.77%/+42.94% +14.10%/+13.31% +6.46%/+5.81%
- -------------------------------------------------------------
Global
Resources
Fund S&P 500
---------- -------
3/02/90 10000 10000
6/30/90 9405 10913
6/30/91 7685 11720
6/30/92 6758 13290
6/30/93 11393 15101
6/30/94 10028 15313
6/30/95 10340 19299
6/30/96 14866 24313
=============================================================
Class D Shares
- -------------------------------------------------------------
Average Annual Total Return
1 Year 5 Years Life of Fund
+41.26%/+40.32% +13.40%/+12.62% +5.94%/+5.30%
- -------------------------------------------------------------
Global
Resources
Fund S&P 500
---------- -------
3/02/90 10000 10000
6/30/90 9405 10913
6/30/91 7685 11720
6/30/92 6758 13290
6/30/93 11385 15101
6/30/94 9918 15313
6/30/95 10129 19299
6/30/96 14411 24313
************************************************************
11
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
Report on Special Meeting of Shareholders
A Special Meeting of Shareholders of the State Street Research Global
Resources Fund ("Fund"), along with shareholders of other series of State
Street Research Equity Trust ("Meeting"), was convened on October 20, 1995,
and continued thereafter. The results of the Meeting are set forth below.
Votes (millions
of shares)
----------------
For Withheld
--- ---------
1. The following persons were elected as
Trustees:
Edward M. Lamont 29.4 1.9
Robert A. Lawrence 29.4 1.9
Dean O. Morton 29.4 1.9
Thomas L. Phillips 29.4 1.9
Toby Rosenblatt 29.4 1.9
Michael S. Scott Morton 29.4 1.9
Ralph F. Verni 29.4 1.9
Jeptha H. Wade 29.4 1.9
Votes (millions of
shares)
-------------------
For Against Abstain
--- ------ ------
2. The Fund's policy regarding investments in
securities of companies with less than three (3)
years' continuous operation was reclassified from
fundamental to nonfundamental 1.3 0.2 0.1
3. The Fund's fundamental policy regarding investing
in commodities and commodity contracts was
amended. 1.3 0.1 0.1
4. The Master Trust Agreement was amended to permit
the Trustees to reorganize, merge or liquidate a
fund without prior shareholder approval. 21.1 6.4 3.8
5. The Master Trust Agreement was amended to
eliminate specified time permitted between the
record date and any shareholder meeting. 22.8 4.5 4.1
12
