As filed with the Securities and Exchange Commission on October 30, 1997
Securities Act of 1933 Registration No. 33-4296
Investment Company Act of 1940 File No. 811-4624
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 20 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 21 [X]
----------------------------
STATE STREET RESEARCH EQUITY TRUST
-------------------------------------
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 357-1200
Francis J. McNamara, III
Executive Vice President, Secretary & General Counsel
State Street Research & Management Company
One Financial Center
Boston, Massachusetts 02111
(Name and Address of Agent for Service)
Copy to:
Geoffrey R.T. Kenyon, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place, Boston, Massachusetts 02109
It is proposed that this filing will become effective under Rule 485:
[ ] Immediately upon filing [ ] 75 days after filing pursuant
pursuant to paragraph (b). to paragraph (c)(2).
[X] On November 1, 1997 pursuant [ ] On _____________ pursuant to
to paragraph (b). paragraph (a)(2).
[ ] 60 days after filing pursuant If appropriate, check the
to paragraph (a)(1). following box:
[ ] On ______________ pursuant to
paragraph (a)(1).
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
--------------------------------------
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Part A
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN CAPTION OR LOCATION CAPTION OR LOCATION
PROSPECTUS FOR IN PROSPECTUS IN PROSPECTUS
STATE STREET RESEARCH FOR STATE STREET FOR STATE STREET
EQUITY INVESTMENT RESEARCH EQUITY RESEARCH GLOBAL
FORM N-1A ITEM NO. FUND INCOME FUND RESOURCES FUND
- ------------------------- ------------------ -------------- --------------
<S> <C> <C> <C>
1. Cover Page........... Same Same Same
2. Synopsis ............ Table of Expenses Investor Expenses Table of Expenses
3. Condensed Financial Financial Highlights; Financial Highlights; Financial Highlights;
Information.......... Calculation of Performance Performance and Calculation of Performance
Data Volatility Data
4. General Description The Fund's Investments; Goal and Strategy; The Fund's Investments;
of Registrant........ Limiting Investment Risk; Other Securities Limiting Investment Risk;
The Fund and Its and Risks; The Fund and its Shares
Shares Your Account;
Fund Details
5. Management of the Management of the Fund; Fund Details Management of the Fund;
Fund................. Purchase of Shares Purchase of Shares
5A. Management's
Discussion of [To be included in [To be included in [To be included in
Fund Performance .... Financial Statements] Financial Statements] Financial Statements]
6. Capital Stock and Shareholder Services; The Your Account; Shareholder Services; The
Other Securities..... Fund and Its Shares; Fund Details Fund and its Shares;
Management of the Management of the
Fund; Dividends Fund; Dividends and
and Distributions; Taxes Distributions; Taxes
7. Purchase of
Securities Being Purchase of Shares; Your Account Purchase of Shares;
Offered............. Shareholder Services Shareholder Services
8. Redemption or Redemption of Shares; Your Account Redemption of Shares;
Repurchase.......... Shareholder Services Shareholder Services
9. Legal Proceedings... Not Applicable Not Applicable Not Applicable
</TABLE>
<PAGE>
Part B
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN
STATEMENT OF ADDITIONAL CAPTION OR LOCATION CAPTION OR LOCATION
INFORMATION FOR IN STATEMENT OF ADDITIONAL IN STATEMENT OF ADDITIONAL
STATE STREET RESEARCH INFORMATION FOR STATE INFORMATION FOR STATE
EQUITY INVESTMENT STREET RESEARCH EQUITY STREET RESEARCH GLOBAL
FORM N-1A ITEM NO. FUND INCOME FUND RESOURCES FUND
- ------------------ ------------------ -------------- --------------
<S> <C> <C> <C>
10. Cover Page.......... Same Same Same
11. Table of Contents... Same Same Same
12. General Information
and History......... Not Applicable Not Applicable Not Applicable
13. Investment Additional Investment Investment Objective; Additional Investment
Objectives Policies and Restrictions; Additional Investment Policies and Restrictions;
and Policies........ Additional Information Policies and Restrictions; Additional Information
Concerning Certain Additional Information Concerning Certain
Investment Techniques; Concerning Certain Investment Techniques;
Debt Instruments and Investment Techniques; Additional Information
Permitted Cash Investments; Debt Instruments and Concerning Debt
Rating Categories Permitted Cash Instruments and Permitted
of Debt Securities; Investments; Cash Investments;
Portfolio Transactions Portfolio Transactions Rating Categories of
Debt Securities;
Portfolio Transactions
14. Management of the
Registrant.......... Trustees and Officers Trustees and Officers Trustees and Officers
15. Control Persons and
Principal Holders of
Securities.......... Trustees and Officers Trustees and Officers Trustees and Officers
16. Investment Investment Advisory Investment Advisory Investment Advisory
Advisory and Services; Custodian; Services; Custodian; Services; Custodian;
Other Services...... Independent Accountants; Independent Accountants; Independent Accountants;
Distribution of Shares Distribution of Shares Distribution of Shares
of the Fund of the Fund of the Fund
17. Brokerage
Allocation.......... Portfolio Transactions Portfolio Transactions Portfolio Transactions
18. Capital Stock and Not Applicable The Trust, the Fund Not Applicable
Other Securities.....(Description in Prospectus) and its Shares (Description in Prospectus)
19. Purchase, Redemption
and Pricing of
Securities Being Purchase and Redemption Purchase and Redemption Purchase and Redemption
Offered............. of Shares; Net Asset Value of Shares; Shareholder of Shares; Net Asset Value
Accounts; Net Asset Value
20. Tax Status.......... Certain Tax Matters Certain Tax Matters Certain Tax Matters
21. Underwriters........ Distribution of Shares Distribution of Shares of Distribution of Shares of
of the Fund the Fund the Fund
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN
STATEMENT OF ADDITIONAL CAPTION OR LOCATION CAPTION OR LOCATION
INFORMATION FOR IN STATEMENT OF ADDITIONAL IN STATEMENT OF ADDITIONAL
STATE STREET RESEARCH INFORMATION FOR STATE INFORMATION FOR STATE
EQUITY INVESTMENT STREET RESEARCH EQUITY STREET RESEARCH GLOBAL
FORM N-1A ITEM NO. FUND INCOME FUND RESOURCES FUND
- ------------------ ------------------ -------------- --------------
<S> <C> <C> <C>
22. Calculation of
Performance
Data............... Calculation of Calculation of Calculation of
Performance Data Performance Data Performance Data
23. Financial
Statements......... Financial Statements Financial Statements Financial Statements
</TABLE>
<PAGE>
The Prospectus and Statement of Additional Information of the State Street
Research Equity Investment Fund series and the State Street Research Global
Resources Fund Series (the "Funds") of the State Street Research Equity Trust
(the "Registrant") are included herein.
The Prospectus and Statement of Additional Information of the State Street
Research Equity Income Fund was included in Post-Effective Amendment No. 19 to
the Registrant's Registration Statement on Form N-1A (File No. 33-4296) filed
with the Securities and Exchange Commission on August 22, 1997.
The State Street Research Capital Appreciation Fund series of the Registrant
ceased operations effective August 15, 1997. Accordingly, references to this
fund have been deleted from this amendment where appropriate.
The Registrant anticipates that the class designations of each Fund's Class C
and Class D shares will be redesignated effective on or about November 1, 1997.
At that time, such Fund's classes currently designated as Class C and Class D
will be redesignated to Class S and Class C, respectively. Accordingly, all
references to Class C and Class S in the Prospectus and Statement of Additional
Information of the Funds herein reflect the new class designations.
<PAGE>
STATE STREET RESEARCH
EQUITY INVESTMENT FUND
Prospectus--November 1, 1997
State Street Research Equity Investment 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.
State Street Research & Management Company serves as investment adviser
for the Fund (the "Investment Manager"). As of August 31, 1997, the Investment
Manager had assets of approximately $45.6 billion under management. State
Street Research Investment Services, Inc. serves as distributor (the
"Distributor") for the Fund.
Shareholders may have their shares redeemed directly by the Fund at net
asset value plus the applicable contingent deferred sales charge, if any;
redemptions processed through securities dealers may be subject to processing
charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Fund will
achieve its investment objective. The net asset value of 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, 1997 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 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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
Table of Contents Page
- -----------------------------------------------------------------------------
Table of Expenses ...................................................... 2
Financial Highlights ................................................... 4
The Fund's Investments ................................................ 6
Limiting Investment Risk ................................................ 8
Purchase of Shares ..................................................... 9
Redemption of Shares ................................................... 17
Shareholder Services ................................................... 19
The Fund and Its Shares ................................................ 23
Management of the Fund ................................................ 24
Dividends and Distributions; Taxes .................................... 25
Calculation of Performance Data ....................................... 26
- -----------------------------------------------------------------------------
<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 S 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 C 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 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. Prior
to November 1, 1997, this class of shares was designated as Class D shares.
Class S shares are available through certain employee benefit plans, and
special programs with financial intermediaries, among other arrangements. No
sales charge is imposed at the time of purchase or redemption of Class S
shares. Class S shares do not pay any distribution or service fees. Prior to
November 1, 1997, this class of shares was designated as Class C shares.
<TABLE>
<CAPTION>
Table of Expenses Class A Class B Class C Class S
- -------------------------------------------------------------------------------------------------------------------
<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 Deferred Sales Charge (as a percentage of net asset
value at time of purchase or redemption, whichever is
lower) .................................................... None(2) 5% 1% None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) ............................. None None None None
Redemption Fees (as a percentage of amount redeemed,
if applicable) ............................................ None None None None
Exchange 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 C shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the
sale. Long-term investors in Class A, Class B or Class C shares may, over a
period of years, pay more than the economic equivalent of the maximum sales
charge permissible under applicable rules. See "Purchase of Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class S
---------------------------------------------------------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees ........................ 0.65% 0.65% 0.65% 0.65%
12b-1 Fees ............................. 0.25% 1.00% 1.00% None
Other Expenses ......................... 0.50% 0.50% 0.50% 0.50%
Less Voluntary Reduction .............. (0.15%) (0.15%) (0.15%) (0.15%)
------ ----- ----- -----
Total Fund Operating Expenses
(after voluntary reduction) ........ 1.25% 2.00% 2.00% 1.00%
====== ===== ==== ====
</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 ............ $57 $83 $111 $189
Class B shares (1) ........ $70 $93 $128 $213
Class C shares ............ $30 $63 $108 $233
Class S shares ............ $10 $32 $ 55 $122
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
--------------------------------------------
<S> <C> <C> <C> <C>
Class B shares (1) ........ $20 $63 $108 $213
Class C shares ............ $20 $63 $108 $233
</TABLE>
- ------------
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense levels shown in the table above are based on
experiences with expenses during the fiscal year ended June 30, 1997; 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, 1997, Total
Fund Operating Expenses as a percentage of average net assets of Class A, Class
B, Class C and Class S shares, respectively, would have been 1.40%, 2.15%,
2.15% and 1.15%, 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 0.15% for each class of shares
of the Fund. 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.
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
Year ended June 30
----------------------------------------------------------------
1997** 1996** 1995** 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year ........................ $17.04 $14.28 $12.44 $14.52 $13.16
------ ------ ------ ------ ------
Net investment income* ....... .09 .12 .08 .01 .04
Net realized and unrealized
gain (loss) on investments 4.63 3.38 2.14 .18 2.48
------ ------ ------ ------ ------
Total from investment
operations ................. 4.72 3.50 2.22 .19 2.52
------ ------ ------ ------ ------
Dividends from net
investment income ........... (.09) (.11) (.05) -- (.04)
Distributions from net
realized gains .............. (1.99) (.63) (.33) (2.27) (1.12)
------ ------ ------ ------ ------
Total distributions ......... (2.08) (.74) (.38) (2.27) (1.16)
------ ------ ------ ------ ------
Net asset value, end of year $19.68 $17.04 $14.28 $12.44 $14.52
====== ====== ====== ====== ======
Total return ................. 30.91%+ 25.33%+ 18.34%+ 0.93%+ 20.37%+
Net assets at end of year
(000s) ...................... $55,239 $39,300 $31,174 $29,821 $26,933
Ratio of operating expenses
to average net assets* ...... 1.25% 1.25% 1.42% 1.50% 1.50%
Ratio of net investment
income to average net
assets* ..................... 0.54% 0.79% 0.64% 0.08% 0.23%
Portfolio turnover rate ...... 88.07% 44.44% 47.93% 62.93% 92.35%
Average commission rate @ .... $0.0583 $0.0331 -- -- --
- ------------
*Reflects voluntary
assumption of fees or
expenses per share in each
year ..................... $0.03 $0.03 $0.06 $0.04 $0.02
<CAPTION>
1992 1991 1990 1989 1988
------------ --------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year ........................ $11.19 $12.15 $10.83 $9.70 $11.33
------ ------ ------ ----- ------
Net investment income* ....... .05 .14 .22 .33 .28
Net realized and unrealized
gain (loss) on investments 1.99 (.89) 1.54 1.16 (.99)
------ ------ ------ ----- ------
Total from investment
operations ................. 2.04 (.75) 1.76 1.49 (.71)
------ ------ ------ ----- ------
Dividends from net
investment income ........... (.07) (.19) (.29) (.31) (.22)
Distributions from net
realized gains .............. -- (.02) (.15) (.05) (.70)
------ ------ ------ ----- ------
Total distributions ......... (.07) (.21) (.44) (.36) (.92)
------ ------ ------ ----- ------
Net asset value, end of year $13.16 $11.19 $12.15 $10.83 $9.70
====== ====== ====== ====== =====
Total return ................. 18.27%+ (6.10)%+ 16.54%+ 15.87%+ (6.87)%+
Net assets at end of year
(000s) ...................... $48,473 $35,733 $35,647 $24,066 $25,197
Ratio of operating expenses
to average net assets* ...... 1.50% 1.50% 1.50% 1.50% 1.50%
Ratio of net investment
income to average net
assets* ..................... 0.43% 1.29% 1.99% 3.17% 2.92%
Portfolio turnover rate ...... 81.89% 72.03% 43.22% 98.70% 175.30%
Average commission rate @ -- -- -- -- --
- ------------
*Reflects voluntary
assumption of fees or
expenses per share in each
year ........................ $0.02 $0.03 $0.04 $0.05 $0.05
</TABLE>
** Per-share figures have been calculated using the average shares method.
+ 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.
@ Average commission rate per share paid for security trades for fiscal years
beginning on or after July 1, 1995.
4
<PAGE>
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------------------
June 1, 1993
(Commencement
Year ended June 30 of Share Class
-------------------------------------- Designations) to
1997** 1996** 1995** 1994 June 30, 1993
------------------------- ------------ ------------ ---------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $16.88 $14.16 $12.36 $14.51 $14.78
------ ------ ------ ------ ------
Net investment income (loss)* ........ (.03) .01 .01 (.02) .00
Net realized and unrealized gain
(loss) on investments ............... 4.56 3.34 2.12 .14 (.26)
------ ------ ------ ------ ------
Total from investment
operations ......................... 4.53 3.35 2.13 .12 (.26)
------ ------ ------ ------ ------
Dividends from net investment
income .............................. -- -- -- -- (.01)
Distributions from net realized gains (1.99) (.63) (.33) (2.27) --
------ ------ ------ ------ ------
Total distributions ................. (1.99) (.63) (.33) (2.27) (.01)
------ ------ ------ ------ ------
Net asset value, end of year ......... $19.42 $16.88 $14.16 $12.36 $14.51
====== ====== ====== ====== ======
Total return ........................ 29.91%+ 24.39%+ 17.70%+ 0.37%+ (1.77)%++
Net assets at end of year (000s) ..... $25,478 $13,129 $5,933 $4,029 $663
Ratio of operating expenses to
average net assets* ................. 2.00% 2.00% 2.00% 2.00% 2.00%[dbldag]
Ratio of net investment income
(loss) to average net assets* ....... (0.20)% 0.05% 0.08% (0.39)% 0.03%[dbldag]
Portfolio turnover rate .............. 88.07% 44.44% 47.93% 62.93% 92.35%
Average commission rate@ ............. $0.0583 $0.0331 -- -- --
*Reflects voluntary assumption of
fees or expenses per share in
each year ........................... $0.03 $0.03 $0.06 $0.04 $0.00
<CAPTION>
Class C***
-------------------------------------------------------------------------------
June 1, 1993
(Commencement
Year ended June 30 of Share Class
--------------------------------------------------- Designations) to
1997** 1996** 1995** 1994 June 30, 1993
------------ ------------ ------------ ------------ ---------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $16.87 $14.15 $12.36 $14.51 $14.78
------ ------ ------ ------ ------
Net investment income (loss)* ........ (.03) .01 .01 (.05) .00
Net realized and unrealized gain
(loss) on investments ............... 4.56 3.34 2.11 .17 (.26)
------ ------ ------ ------ ------
Total from investment
operations ......................... 4.53 3.35 2.12 .12 (.26)
------ ------ ------ ------ ------
Dividends from net investment
income .............................. -- -- -- -- (.01)
Distributions from net realized gains (1.99) (.63) (.33) (2.27) --
------ ------ ------ ------ ------
Total distributions ................. (1.99) (.63) (.33) (2.27) (.01)
------ ------ ------ ------ ------
Net asset value, end of year ......... $19.41 $16.87 $14.15 $12.36 $14.51
====== ====== ====== ====== =======
Total return ........................ 29.93%+ 24.40%+ 17.53%+ 0.45%+ (1.77)%++
Net assets at end of year (000s) ..... $1,642 $931 $699 $551 $491
Ratio of operating expenses to
average net assets* ................. 2.00% 2.00% 2.00% 2.00% 2.00%[dbldag]
Ratio of net investment income
(loss) to average net assets* ....... (0.19)% 0.04% 0.08% (0.41)% 0.12%[dbldag]
Portfolio turnover rate .............. 88.07% 44.44% 47.93% 62.93% 92.35%
Average commission rate@ ............. $0.0583 $0.0331 -- -- --
*Reflects voluntary assumption of
fees or expenses per share in
each year ........................... $0.03 $0.03 $0.06 $0.06 $0.00
</TABLE>
<TABLE>
<CAPTION>
Class S***
-------------------------------------------
Year ended June 30
-------------------------------------------
1997** 1996** 1995** 1994
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of year .......................................... $17.03 $14.27 $12.48 $14.51
------ ------ ------ ------
Net investment income (loss)* ............................................... .13 .17 .14 .07
Net realized and unrealized gain (loss) on investments ...................... 4.62 3.37 2.15 .17
------ ------ ------ ------
Total from investment operations ........................................... 4.75 3.54 2.29 .24
------ ------ ------ ------
Dividends from net investment income ........................................ (.13) (.15) (.17) --
Distributions from net realized gains ....................................... (1.99) (.63) (.33) (2.27)
------ ------ ------ ------
Total distributions ........................................................ (2.12) (.78) (.50) (2.27)
------ ------ ------ ------
Net asset value, end of year ................................................ $19.66 $17.03 $14.27 $12.48
====== ====== ====== ======
Total return ................................................................ 31.19%+ 25.66%+ 18.83%+ 1.41%+
Net assets at end of year (000s) ............................................ $83,999 $70,177 $50,503 $32,991
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* ................ 0.77% 1.06% 1.09% 0.59%
Portfolio turnover rate ..................................................... 88.07% 44.44% 47.93% 62.93%
Average commission rate@ ................................................... $0.0583 $0.0331 -- --
*Reflects voluntary assumption of fees or expenses per share in each year ... $0.03 $0.03 $0.06 $0.06
<CAPTION>
June 1, 1993
(Commencement
of Share Class
Designations) to
June 30, 1993
---------------
<S> <C>
Net asset value, beginning of year .......................................... $14.78
-------
Net investment income (loss)* ............................................... (.00)
Net realized and unrealized gain (loss) on investments ...................... (.25)
------
Total from investment operations ........................................... (.25)
------
Dividends from net investment income ........................................ (.02)
Distributions from net realized gains ....................................... --
------
Total distributions ........................................................ (.02)
------
Net asset value, end of year ................................................ $14.51
======
Total return ................................................................ (1.69)%++
Net assets at end of year (000s) ............................................ $18,796
Ratio of operating expenses to average net assets* .......................... 1.00%[dbldag]
Ratio of net investment income (loss) to average net assets* ................ (0.39)%[dbldag]
Portfolio turnover rate ..................................................... 92.35%
Average commission rate@ .................................................... --
*Reflects voluntary assumption of fees or expenses per share in each year ... $0.00
</TABLE>
- ----------
** Per-share figures have been calculated using the average shares method.
*** Prior to November 1, 1997, Class C shares were designated as Class D shares
and Class S shares were designated as Class C shares.
[dbldag] 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.
@ Average commission rate per share paid for security trades for fiscal years
beginning on or after July 1, 1995.
5
<PAGE>
The Fund's Investments
The Fund's investment objective 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. The Fund's investment objective is a fundamental policy and may not be
changed without approval of the shareholders of the Fund. 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 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 Fund will not ordinarily trade in securities for short-term profits.
However, when circumstances warrant, securities may be sold without regard to
the length of time held.
Investment Practices
Foreign Investments
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Under current
policy, however, the Fund limits such investments, including ADRs and EDRs, to
a maximum of 35% of its total assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign corporation or
other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs in registered form are designed for use
in U.S. securities markets and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of ADRs or EDRs
facilitates trading in foreign securities, it does not mitigate all the risks
associated with investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the
issuer than are unsponsored ADRs. More and higher fees are generally charged in
an unsponsored program compared to a sponsored facility. Only sponsored ADRs
may be listed on the New York or American Stock Exchanges. Unsponsored ADRs may
prove to be more risky due to (a) the additional costs involved to 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,
6
<PAGE>
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 the Fund
will consist of securities of issuers in countries with developed economies.
However, the Fund may also invest in the securities of issuers in countries
with less developed economies as deemed appropriate by the Investment Manager,
although the Fund does not presently expect to invest more than 5% of its total
assets in issuers in such less developed countries. Such countries include
countries that have an emerging stock market that trades a small number of
securities; countries with low- to middle-income economies; and/or countries
with economies that are based on only a few industries. Eastern European
countries are considered to have less developed capital markets.
For further information regarding foreign investments, see the Statement
of Additional Information.
Currency Transactions
In order to protect against the effect of uncertain future exchange rates
on securities denominated in foreign currencies, the Fund may engage in
currency exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market or by entering into forward
contracts to purchase or sell currencies. Although such contracts tend to
minimize the risk of loss resulting from a correctly predicted decline in value
of hedged currency, they tend to limit any potential gain that might result
should the value of such currency increase. In entering a forward currency
transaction, the Fund is dependent upon the creditworthiness and good faith of
the counterparty. The Fund attempts to reduce the risks of nonperformance by 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
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 securities plus accrued interest.
Collateral received by the Fund will generally be invested in unaffiliated
mutual funds with quality short-term portfolios, 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 repurchase
agreements or other similar investments. 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 rights to dividends, interest or other distributions.
Voting rights pass with the lending, although the Fund may call loans to vote
proxies if desired. Should the borrower of the securities fail financially,
there is a risk of delay in recovery of the securities or loss of rights in the
collateral. Loans are made only to borrowers which are deemed by the Investment
Manager to be of good financial standing.
The Fund may, subject to certain 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. 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 its 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,
7
<PAGE>
although the Fund does not presently expect to invest more than 5% of its total
assets in such items. These swap arrangements include credit protection swaps,
interest rate swaps, currency swaps and index swaps. See the Statement of
Additional Information.
The Fund may invest in securities restricted as to resale. Restricted
securities may be subject to the risks of illiquidity and subjective valuations
because generally, there is a limited resale market for them. Some restricted
securities in which the Fund may invest may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended, which allows the Fund more
flexibility to resell such securities, specifically to certain qualified
institutional buyers. The market for Rule 144A securities, however, still is
developing, and thus, even securities sold pursuant to the rule may be illiquid
or their current market value difficult to determine.
Limiting Investment Risk
In seeking to lessen investment risk, the Fund operates under certain
fundamental and nonfundamental investment restrictions. Under the fundamental
investment restrictions, the Fund may not (a) purchase a security of any one
issuer (other than securities issued or guaranteed 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. The 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 the 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.
The Fund may not lend money; however, the Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar obligations (and
enter into repurchase agreements with respect thereto).
The Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against adverse market conditions
than adherence to the Fund's other investment policies. The types of short-term
instruments in which the Fund 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 within the "A" rating category by Standard & Poor's
Corporation ("S&P") or within the "Prime" category by Moody's Investor's
Service, Inc. ("Moody's") (or, if not rated, issued by companies having an
outstanding long-term unsecured debt issue rated at least within the "A" rating
category by S&P or within the "Prime" category by Moody's). See the Statement
of Additional Information.
8
<PAGE>
- -----------------------------------------------------------------------------
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 9 to 23 below.
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers,
Individual Retirement Accounts ("IRAs"), trusts, corporations, individuals,
etc. The applicability of the general information and administrative
procedures set forth below accordingly will vary depending on the investor
and the recordkeeping system established for a shareholder's investment in
the Fund. Participants in 401(k) and other plans should first consult with
the appropriate person at their employer or refer to the plan materials
before following any of the procedures below. For more information or
assistance, anyone may call 1-800-562-0032.
- -----------------------------------------------------------------------------
Purchase of Shares
Methods of Purchase
Through Dealers and Others
Shares of the Fund are continuously offered through securities dealers,
financial institutions and others (collectively referred to herein as
securities dealers or dealers) who have entered into sales agreements with the
Distributor. Purchases through dealers are confirmed at the offering price,
which is the net asset value plus the applicable sales charge, next determined
after the order is duly received by State Street Research Shareholder Services
("Shareholder Services"), a division of State Street Research Investment
Services, Inc., from the dealer. ("Duly received" for purposes herein means in
accordance with the conditions of the applicable method of purchase as
described below.) The dealer is responsible for transmitting the order promptly
to Shareholder Services in order to permit the investor to obtain the current
price. See "Purchase of Shares--Net Asset Value" herein.
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's dealer a completed Application (accompanying this Prospectus),
together with a check for the total purchase price payable to the Fund. The
dealer must forward the Application and check in accordance with the
instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a
check payable to the Fund in the amount of the total purchase price together
with any one of the following: (i) an Application; (ii) the stub from 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 1-800-562-0032 and
obtain a control number and instructions. Following such notification, Federal
Funds should be wired through the Federal Reserve System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research Equity Investment Fund and class of shares
(A, B, C or S)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street Research Shareholder
Services)
9
<PAGE>
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 S
-------- -------- -------- ----
Minimum Initial Investment
By Wire ................. $5,000 $5,000 $5,000 (a)
IRAs .................... $2,000 $2,000 $2,000 (a)
By Investamatic ......... $1,000 $1,000 $1,000 (a)
All other ............... $2,500 $2,500 $2,500 (a)
Minimum Subsequent Investment
By Wire ................. $5,000 $5,000 $5,000 (a)
IRAs .................... $ 50 $ 50 $ 50 (a)
By Investamatic ......... $ 50 $ 50 $ 50 (a)
All other ............... $ 50 $ 50 $ 50 (a)
(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 employee benefit plans, sponsored arrangements involving group
solicitations of the members of an organization, or other investment plans for
reinvestment of dividends and distributions or for periodic investments (e.g.,
Investamatic Program).
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount of
their purchase, the length of time they anticipate holding Fund shares, or the
flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject to
certain ongoing charges or to have their entire initial purchase price invested
in the Fund with the investment being subject thereafter to ongoing service
fees and distribution fees.
As described in greater detail below, dealers are paid differing amounts
of commission and other compensation depending on which class of shares they
sell.
10
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS S
-------------------------- ------------------------- ---------------------- --------
<S> <C> <C> <C> <C>
Sales Charges Initial sales charge Contingent deferred Contingent deferred None
at time of sales charge of 5% to sales charge of 1%
investment of up 2% applies to any applies to any shares
to 4.5% depending shares redeemed redeemed within one
on amount of investment within first five years year following their
following their purchase
purchase; no
contingent deferred
sales charge
after five years
On investments of $1
million or more, no
initial sales charge;
but contingent deferred
sales charge of 1%
applies to any shares
redeemed within
one year following
their purchase
Distribution Fee None 0.75% for first 0.75% each year None
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 0.25% each year None
Initial Commission Above described 4% 1% None
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>
11
<PAGE>
In deciding which class of shares to purchase, the investor should
consider the amount of the investment, the length of time the investment is
expected to be held, and the ongoing service fee and distribution fee, among
other factors.
Class A shares are sold at net asset value plus an initial sales charge of
up to 4.5% of the public offering price. Because of the sales charge, not all
of an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class C 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
C 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 C shares.
Class A, Class B and Class C 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 C 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.
Class S shares are available through certain employee benefit plans, and
special programs with financial intermediaries, among other arrangements.
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.
The Distributor may also pay its affiliate, MetLife Securities, Inc.,
additional compensation of up to 0.25% of certain sales.
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%
$1 million and See
above 0% 0% following
discussion
12
<PAGE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor may 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 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 a 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 S 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 S 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 S 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,
registered investment advisers, financial planners, institutions, and others,
under managed fee-based programs (e.g., "wrap fee"
13
<PAGE>
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 Manager, Distributor, or any affiliated entities, including any
direct or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated Companies,
any relatives of any such individuals whose relationship is directly verified
by such individuals to the Distributor, or any beneficial account for such
relatives or individuals; and (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any spouse
or child of such person, or any beneficial account for any of them. The
purchase must be made for investment and the shares purchased may not be resold
except through redemption. This purchase program is subject to such
administrative policies, regarding the qualification of purchasers, minimum
investments by various groups of eligible persons and any other matters, as may
be adopted by the Distributor from time to time.
Class B Shares--Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of the
investor's purchase payment will be invested in the Fund. However, a contingent
deferred sales charge may be imposed upon redemptions of Class B shares as
described below.
The Distributor will pay dealers at the time of sale a 4% commission for
selling Class B shares. In certain cases, a dealer may elect to waive the 4%
commission on Class B shares and receive in lieu thereof a 1% annual fee with
respect to such shares until the shares convert to Class A 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
Redemption During Net Asset Value
- -------------------------------- --------------------
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
14
<PAGE>
tax purposes, the amount of the contingent deferred sales charge will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid to
the Distributor.
Contingent Deferred Sales Charge Waivers
The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain conditions.
In addition, the contingent deferred sales charge will be waived for: (i)
redemptions made within one year of the death or total disability, as defined
by the Social Security Administration, of all shareholders of an account; (ii)
redemptions made after attainment of a specific age in an amount which
represents the minimum distribution required at such age under Section
401(a)(9) of the Internal Revenue Code for retirement accounts or plans (e.g.,
age 701/2 for IRAs and Section 403(b) plans), calculated solely on the basis of
assets invested in the Fund or other Eligible Funds; and (iii) a redemption
resulting from a tax-free return of an excess contribution to an IRA. (The
foregoing waivers do not apply to a tax-free rollover or transfer of assets out
of the Fund.) The Fund may modify or terminate the waivers at any time; for
example, the Fund may limit the application of multiple waivers and establish
other conditions for employee benefit plans.
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to Class
A shares of the Fund at the end of eight years following the issuance of such
Class B shares; consequently, they will no longer be subject to the higher
expenses borne by Class B shares. The conversion rate will be determined on the
basis of the relative per share net asset values of the two classes and may
result in a shareholder receiving either a greater or fewer number of Class A
shares than the Class B shares so converted. As noted above, holding periods
for Class B shares received in exchange for Class B shares of other Eligible
Funds will be counted toward the eight-year period.
Class C Shares--Spread Sales Charges
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; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class C 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 C 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 C shares without an initial sales charge.
Class C 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.
Class S Shares--Special Programs; No Sales Charge
The purchase price of a Class S 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 S shares are available for new investments by certain
large institutions, other advisory accounts of the Investment Manager, and
employee
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benefit plans which acquire shares through programs or products sponsored by
Metropolitan Life Insurance Company ("Metropolitan") and/or its affiliates, for
which Class S shares have been designated. In addition, Class S shares are
available through programs under which, for example, investors pay an
asset-based fee and/or a transaction fee to intermediaries. Class S share
availability is determined by the Distributor and intermediaries based on
overall direct and indirect costs of a particular program, expected assets,
account sizes and similar considerations. Information on the availability of
Class S shares and further conditions and limitations is available from the
Distributor.
Class S 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.
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of the New York Stock Exchange (the "NYSE") exclusive of days on
which the NYSE is closed. The NYSE ordinarily closes at 4 P.M. New York City
time. Assets held by the Fund are valued 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 Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, the Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class of
shares as follows:
Class Service Fee Distribution Fee
- ------- ------------- -----------------
A 0.25% None
B 0.25% 0.75%
C 0.25% 0.75%
S None None
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 the Fund
represents payment for personal services and/or the maintenance or servicing of
shareholder accounts by such dealers. Dealers who have sold Class A shares are
eligible for further reimbursement commencing as of the time of such sale.
Dealers who have sold Class B and Class C 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
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<PAGE>
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.
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
17
<PAGE>
redemption privilege at any time and without notice. See "Shareholder
Services--Telephone Services" for a discussion of the conditions and risks
associated with Telephone Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800-562-0032 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge is
subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor as
its agent to accept orders from dealers by wire or telephone for the repurchase
of shares by the Distributor from the dealer. The Fund may revoke or suspend
this authorization at any time. The repurchase price is the net asset value for
the applicable shares next determined following the time at which the shares
are offered for repurchase by the dealer to the Distributor. The dealer is
responsible for promptly transmitting a shareholder's order to the Distributor.
Payment of the repurchase proceeds is made to the dealer who placed the order
promptly upon delivery of certificates for shares in proper form for transfer
or, for Open Accounts, upon the receipt of a stock power with signatures
guaranteed as described below, and, if required, any supporting documents.
Neither the Fund nor the Distributor imposes any charge upon such a repurchase.
However, a dealer may impose a charge as agent for a shareholder in the
repurchase of his or her shares.
The Fund has reserved the right to change, modify or terminate the
services described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable sales charges, if any. The Fund may increase such minimum
account value above such amount in the future after notice to affected
shareholders. Involuntarily redeemed shares will be priced at the net asset
value on the date fixed for redemption by the Fund, and the proceeds of the
redemption will be mailed 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 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.
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<PAGE>
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 C shares will not be issued, while
certificates representing Class A or Class S 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 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
19
<PAGE>
B and Class C 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 C 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 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 C 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 1-800-562-0032. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes, each
exchange actually represents the sale of shares of one fund and the purchase of
shares of another. Accordingly, exchanges may produce a capital gain or loss
for tax purposes. The exchange privilege may be terminated or suspended or its
terms changed at any time, subject, if required under applicable regulations,
to 60 days' prior notice. New accounts established for investments upon
exchange from an existing account in another fund will have the same Telephone
Privileges as the existing account, unless Shareholder Services is instructed
otherwise. Related administrative policies and procedures may also be adopted
with regard to a series of exchanges, street name accounts, sponsored
arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer identification
number, may be aggregated for purposes of the six exchange limit.
Notwithstanding the six exchange limit, the Fund reserves the right to refuse
exchanges by any person or group if, in the Investment Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Exchanges may be restricted or refused if the Fund receives or anticipates
simultaneous
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<PAGE>
orders affecting significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincides with a "market timing" strategy may be
disruptive to the Fund. The Fund may impose these restrictions at any time. The
exchange limit may be modified for accounts in certain institutional retirement
plans because of plan exchange limits, Department of Labor regulations or
administrative and other considerations. Subject to the foregoing, if an
exchange request in good order is received by Shareholder Services and
delivered by Shareholder Services to the Transfer Agent by 12 noon Boston time
on any business day, the exchange usually will occur that day. For further
information regarding the exchange privilege, shareholders should contact
Shareholder Services.
Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares repurchased at
his or her request may reinvest all or any portion of the proceeds (plus that
amount necessary to acquire a fractional share to round off his or her
reinvestment to full shares) in shares, of the same class as the shares
redeemed, of the Fund or any other Eligible Fund at net asset value and without
subjecting the reinvestment to an initial sales charge, provided such
reinvestment is made within 120 calendar days after a redemption or repurchase.
Upon such reinvestment, the shareholder will be credited with any contingent
deferred sales charge previously charged with respect to the amount reinvested.
The redemption of shares is, for federal 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 Fund for such
reinvestments; however, dealers may charge fees in connection with the
reinvestment privilege. The reinvestment privilege may be exercised with
respect to an Eligible Fund only in those states where shares of the relevant
other Eligible Fund may legally be sold.
Investment Plans
The Investamatic Program is available to Class A, Class B and Class C
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 dealers or from Shareholder Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class S shares with a value
of $5,000 or more, or Class B or Class C 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
21
<PAGE>
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 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 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 suspension at any
time, and to such policies, limitations and restrictions, such as may be
applicable to street name or master accounts, that may be adopted from time to
time.
Automatic Bank Connection
A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by the
Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions
for amounts up to $50,000 to be mailed to the shareholder's address of
record is available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically;
(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
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<PAGE>
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
1-800-562-0032. Although it is unlikely, during periods of extraordinary market
conditions, a shareholder may have difficulty in reaching Shareholder Services
at such telephone number. In that event, the shareholder should contact
Shareholder Services at 1-617-357-7800 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 1-800-562-0032
Call this number for assistance in purchasing shares by wire and for telephone
redemptions or telephone exchange transactions. Shareholder Services will
require some form of personal identification prior to acting upon instructions
received by telephone. Written confirmation of each transaction will be
provided.
The Fund and Its Shares
The Fund was 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 S
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. Any redesignation would not affect any substantive rights respecting
the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class C 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 modifi-
23
<PAGE>
cations do not have a material, adverse effect on the rights of any
shareholder. On any matter submitted to the shareholders, the holder of each
Fund share is entitled to one vote per share (with proportionate voting for
fractional shares) regardless of the relative net asset value thereof.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder
meetings unless required by the 1940 Act. Except as otherwise provided under
said Act, the Board of Trustees will be a self-perpetuating body until fewer
than two thirds of the Trustees serving as such are Trustees who were elected
by shareholders of the Trust. In the event less than a majority of the Trustees
serving as such were elected by shareholders of the Trust, a meeting of
shareholders will be called to elect Trustees. Under the Master Trust
Agreement, any Trustee may be removed by vote of two thirds of the outstanding
Trust shares; holders of 10% or more of the outstanding 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.
As of September 30, 1997, Metropolitan was the record and/or beneficial
owner, directly or indirectly through its subsidiaries or affiliates, of
approximately 52.3% of the outstanding Class C shares of the Fund, and may be
deemed to be in control of such Class C 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 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
positioning, sector rotation and duration, among other factors.
The Investment Manager and the Distributor are indirect wholly owned
subsidiaries of Metropolitan, and both are located at One Financial Center,
Boston, Massachusetts 02111-2690.
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.
24
<PAGE>
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 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 compensates Trustees of the Trust if
such persons are employees or affiliates of the Investment Manager or its
affiliates.
The 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.
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 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
The Fund has qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code for its most recent
fiscal year and intends to qualify as such in future fiscal years, although it
cannot give complete assurance that it will do so. As long as the 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, 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).
Dividends from net investment income, if any, normally will be paid four
times each year. 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 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 designated as capital gains
distributions, other than 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 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 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 identifica-
25
<PAGE>
tion 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 S 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 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 Fund might be compared to
the Lipper Growth and Income Funds Group.
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 accrued expenses and recurring charges, including management and
distribution fees, are recognized. The calculation also reflects the highest
applicable initial or contingent deferred sales charge, determined as of the
assumed date of initial investment or the assumed date of redemption, as the
case may be. Standard total return is calculated for the periods specified in
applicable regulations and may be accompanied by nonstandard total return
information for differing periods computed in the same manner with or without
annualizing the total return or taking sales charges into account.
The standard total return results take sales charges into account, if
applicable, but do not take into account recurring and nonrecurring charges for
optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for remittance of redemption proceeds by
wire. Where sales charges are not applicable and therefore not taken into
account in the calculation of standard total return and yield, 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 addition, the net asset value of shares
of the Fund will fluctuate, with the result that shares of the Fund, when
redeemed, may be worth more or less than their original cost. Neither an
investment in the Fund nor 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.
26
<PAGE>
[back cover]
STATE STREET RESEARCH
EQUITY INVESTMENT 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
[front cover]
[State Street Research Logo] State Street Research
State Street Research
Equity Investment Fund
November 1, 1997
P R O S P E C T U S
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
Prospectus
November 1, 1997
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, 1997, the Investment
Manager had assets of approximately $45.6 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, 1997 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
Table of Contents Page
- ------------------------------------------------------------------------------
Table of Expenses ........................................................ 2
Financial Highlights ..................................................... 4
The Fund's Investments ................................................... 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 S 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 C 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 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. Prior
to November 1, 1997, this class of shares was designated as Class D shares.
Class S shares are available through certain employee benefit plans, and
special programs with financial intermediaries, among other arrangements. No
sales charge is imposed at the time of purchase or redemption of Class S
shares. Class S shares do not pay any distribution or service fees. Prior to
November 1, 1997, this class of shares was designated as Class C shares.
Table of Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C Class S
--------- --------- --------- --------
<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 Deferred Sales Charge (as a
percentage of net asset value at time of purchase
or redemption, whichever is lower) .................. None(2) 5% 1% None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) ........ None None None None
Redemption Fees (as a percentage of amount
redeemed, if applicable) ............................. None None None None
Exchange 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 C shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the
sale. Long-term investors in Class A, Class B or Class C shares may, over
a period of years, pay more than the economic equivalent of the maximum
sales charge permissible under applicable rules. See "Purchase of Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class S
--------- --------- --------- ---------
<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% 1.00% None
Other Expenses ......................... 0.42% 0.42% 0.42% 0.42%
----- ----- ----- -----
Total Fund Operating Expenses ........ 1.42% 2.17% 2.17% 1.17%
===== ===== ===== =====
</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 ......... $59 $88 $119 $208
Class B shares (1) ...... $72 $98 $136 $231
Class C shares ............ $32 $68 $116 $250
Class S shares ............ $12 $37 $ 64 $142
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) ...... $22 $68 $116 $231
Class C shares ......... $22 $68 $116 $250
- ------------
(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, 1997; 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."
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
-----------------------------------------------------
Year ended June 30
-----------------------------------------------------
1997** 1996** 1995** 1994**
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ........ $17.44 $12.16 $11.84 $13.51
------ ------ ------ ------
Net investment income (loss)* ............. (0.15) (.20) (.16) (.17)
Net realized and unrealized gain
(loss) on investments .................... 5.86 5.48 .48 (1.50)
------ ------ ------ ------
Total from investment operations ......... 5.71 5.28 .32 (1.67)
------ ------ ------ ------
Distributions from net realized gains ..... (.76) -- -- --
Dividend from net investment income ....... -- -- -- --
------ ------ ------ ------
Total distributions ...................... (.76) -- -- --
------ ------ ------ ------
Net asset value, end of year .............. $22.39 $17.44 $12.16 $11.84
====== ====== ====== =====
Total return .............................. 32.96%+ 43.42%+ 2.70%+ (12.36)%+
Net assets at end of year (000s) .......... $80,029 $30,943 $25,692 $30,679
Ratio of operating expenses to
average net assets* ...................... 1.42% 1.75% 1.75% 1.75%
Ratio of net investment income (loss)
to average net assets* ................... (0.73)% (1.47)% (1.41)% (1.46)%
Portfolio turnover rate ................... 51.67% 92.33% 62.94% 30.98%
Average commission rate @ ................. $0.0233 $0.0237 -- --
- ------------
*Reflects voluntary assumption of
fees or expenses per share in each
year ..................................... $0.00 $0.05 $0.09 $0.11
<CAPTION>
March 2, 1990
(Commencement
of Operations) to
1993 1992 1991 June 30, 1990
------ ------- ------ ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ........ $8.02 $9.12 $11.23 $11.94
----- ------- ----- ------
Net investment income (loss)* ............. (.13) (.12) .03 .03
Net realized and unrealized gain
(loss) on investments .................. 5.62 (.98) (2.07) (.74)
----- ------- ----- ------
Total from investment operations ......... 5.49 (1.10) (2.04) (.71)
----- ------- ----- ------
Distributions from net realized gains ..... -- -- (.06) --
Dividend from net investment income -- -- (.01) --
----- ------- ----- ------
Total distributions ...................... -- -- (.07) --
----- ------- ----- ------
Net asset value, end of year .............. $3.51 $8.02 $9.12 $11.23
===== ===== ===== ======
Total return .............................. 68.45%+ (12.06)%+ (18.28)%+ (5.95)%++
Net assets at end of year (000s) .......... $33,513 $19,227 $29,760 $35,321
Ratio of operating expenses to
average net assets* ...................... 1.75% 1.75% 1.75% 1.75%[dbldag]
Ratio of net investment income (loss)
to average net assets* ................... (1.44)% (1.16)% 0.25% 0.81%[dbldag]
Portfolio turnover rate ................... 61.00% 47.09% 108.18% 17.09%
Average commission rate @ ................. -- -- -- --
- ------------
*Reflects voluntary assumption of
fees or expenses per share in each
year .................................... $0.03 $0.05 $0.03 $0.01
</TABLE>
** Per-share figures have been calculated using the average shares method.
[dbldag]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.
@ Average commission rate per share paid for security trades for fiscal years
beginning on or after July 1, 1995.
4
<PAGE>
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------------------
June 1, 1993
Year ended June 30 (Commencement
------------------------------------------------------ of Share Class
Designations) to
1997** 1996** 1995** 1994** June 30, 1993
------ ------ ------ ------ -----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year ................... $17.12 $12.03 $11.78 $13.51 $12.99
------ ------ ------ ------ ------
Net investment income
(loss)* ................... (0.30) (.30) (.23) (.23) (.02)
Net realized and
unrealized gain (loss)
on investments ............ 5.74 5.39 .48 (1.50) .54
------ ------ ------ ------ ------
Total from investment
operations ............... 5.44 5.09 0.25 (1.73) 0.52
------ ------ ------ ------ ------
Distribution from net
realized gains ............ (.76) -- -- -- --
Dividend from net
investment income ......... -- -- -- -- --
------ ------ ------ ------ ------
Total distributions ....... (.76) -- -- -- --
------ ------ ------ ------ ------
Net asset value, end of
year ..................... $21.80 $17.12 $12.03 $11.78 $13.51
====== ====== ====== ====== ======
Total return ............... 31.98%+ 42.31%+ 2.12%+ (12.81)%+ 4.00%++
Net assets at end of year
(000s) .................... $78,701 $12,828 $7,030 $6,333 $1,048
Ratio of operating expenses
to average net assets* .... 2.17% 2.50% 2.33% 2.25% 2.25%[dbldag]
Ratio of net investment
income (loss) to
average net assets* ....... (1.47)% (2.20)% (1.98)% (1.93)% (1.98)%[dbldag]
Portfolio turnover rate .... 51.67% 92.33% 62.94% 30.98% 61.00%
Average commission
rate @ ................... . $0.0233 $0.0237 -- -- --
- ------------
*Reflects voluntary
assumption of fees or
expenses per share in
each year ................ $0.00 $0.04 $0.09 $0.14 $0.00
<CAPTION>
Class C***
----------------------------------------------------------------------------------
June 1, 1993
Year ended June 30 (Commencement
------------------------------------------------------ of Share Class
Designations) to
1997** 1996** 1995** 1994** June 30, 1993
------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year ................... $17.10 $12.02 $11.77 $13.51 $12.99
------ ------ ------ ------ ------
Net investment income
(loss)* ................... (.30) (.30) (.23) (.23) (.02)
Net realized and
unrealized gain (loss)
on investments ............ 5.72 5.38 .48 (1.51) .54
------ ------ ------ ------ ------
Total from investment
operations ............... 5.42 5.08 0.25 (1.74) 0.52
------ ------ ------ ------ ------
Distribution from net
realized gains ............ (.76) -- -- -- --
Dividend from net
investment income ......... -- -- -- -- --
------ ------ ------ ------ ------
Total distributions ....... (.76) -- -- -- --
------ ------ ------ ------ ------
Net asset value, end of
year ...................... $21.76 $17.10 $12.02 $11.77 $13.51
====== ====== ====== ====== ======
Total return ............... 31.90%+ 42.26%+ 2.12%+ (12.88)%+ 4.00%++
Net assets at end of year
(000s) .................... $27,528 $5,154 $2,350 $1,931 $588
Ratio of operating expenses
to average net assets* .... 2.17% 2.50% 2.33% 2.25% 2.25%[dbldag]
Ratio of net investment
income (loss) to
average net assets* ....... (1.45)% (2.20)% (1.99)% (1.94)% (2.00)%[dbldag]
Portfolio turnover rate .... 51.67% 92.33% 62.94% 30.98% 61.00%
Average commission
rate @ .................... $0.0233 $0.0237 -- -- --
- ------------
*Reflects voluntary
assumption of fees or
expenses per share in
each year ................ $0.00 $0.05 $0.09 $0.13 $0.00
</TABLE>
** Per-share figures have been calculated using the average shares method.
*** Prior to November 1, 1997, Class C shares were designated as Class D shares.
[dbldag] 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.
@ Average commission rate per share paid for security trades for fiscal years
beginning on or after July 1, 1995.
5
<PAGE>
<TABLE>
<CAPTION>
Class S***
----------------------------------------------------------------------------
June 1, 1993
(Commencement
Year ended June 30 of Share Class
---------------------------------------------------- Designations) to
1997** 1996** 1995** 1994** June 30, 1993
------ ------ ------ ------ --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year ............................... $7.64 $12.27 $11.90 $13.52 $12.99
----- ------ ------ ------ ------
Net investment income (loss)* . (.10) (.17) (.11) (.15) (.00)
Net realized and unrealized gain
(loss) on investments .............. 5.94 5.54 .48 (1.47) .53
----- ------ ------ ------ ------
Total from investment
operations ........................ 5.84 5.37 .37 (1.62) .53
----- ------ ------ ------ ------
Distribution from net realized
gains ............................. (.76) -- -- -- --
Dividend from net investment
income ............................. -- -- -- -- --
----- ------ ------ ------ ------
Total distributions ................ (.76) -- -- -- --
----- ------ ------ ------ ------
Net asset value, end of year ........ $22.72 $17.64 $12.27 $11.90 $13.52
====== ====== ====== ====== ======
Total return ....................... 33.33%+ 43.77%+ 3.11%+ (11.98)%+ 4.08%++
Net assets at end of year (000s) $10,747 $5,632 $3,288 $960 $146
Ratio of operating expenses to
average net assets* ................ 1.17% 1.50% 1.33% 1.25% 1.25%[dbldag]
Ratio of net investment income
(loss) to average net assets* . (0.48)% (1.20)% (1.01)% (0.95)%
(1.05)%[dbldag]
Portfolio turnover rate ............. 51.67% 92.33% 62.94% 30.98% 61.00%
Average commission rate @ ........... $0.0233 $0.0237 -- -- --
- ------------
*Reflects voluntary
assumption of fees or
expenses per share in each
year ........................... $0.00 $0.05 $0.08 $0.16 $0.00
</TABLE>
**Per-share figures have been calculated using the average shares method.
***Prior to November 1, 1997, Class S shares were designated as Class C shares.
[dbldag]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.
@ Average commission rate per share paid for security trades for fiscal years
beginning on or after July 1, 1995.
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 within
the AAA, AA, A or BBB categories by Standard & Poor's Corporation ("S&P") or
within the Aaa, Aa, A or Baa categories 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 within the Baa category 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, within the BB category or lower by S&P or
7
<PAGE>
within the Ba category or lower by 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.
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 seasoned companies or
8
<PAGE>
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 within the BB category or lower by S&P or within the Ba
category 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 and securities
indices, enter into repurchase agreements and purchase securities on a
"when-issued" basis. 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 its net assets;
similar policies apply to options which are not commodities. The Fund may enter
various forms of swap arrangements, which have simultaneously the
10
<PAGE>
characteristics of a security and a futures contract, although the Fund does
not presently expect to invest more than 5% of its total assets in such items.
These swap arrangements include credit protection swaps, interest rate swaps,
currency swaps and index swaps. See the Statement of Additional Information.
The Fund may invest in securities restricted as to resale. Restricted
securities may be subject to the risks of illiquidity and subjective valuations
because generally, there is a limited resale market for them. Some restricted
securities in which the Fund may invest may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "1933 Act"), which allows the
Fund more flexibility to resell such securities, specifically to certain
qualified institutional buyers. The market for Rule 144A securities, however,
still is developing, and thus, even securities sold pursuant to the rule may be
illiquid or their current market value difficult to determine. 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 invested in unaffiliated mutual funds
with quality short-term portfolios, 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 repurchase agreements, or other similar investments.
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 transactions are generally structured so that the Fund will retain
rights to dividends, interest or other distributions. 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
11
<PAGE>
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 within the "A" category by S&P or within the
"Prime" category by Moody's (or, if not rated, issued by companies having an
outstanding long-term unsecured debt issue rated at least within the "A"
category by S&P or Moody's). For further information, see the Statement of
Additional Information.
The Investment Manager also manages the assets of other clients that, in
seeking to achieve their investment objectives, may hold investments that are
similar to those held by the Fund and that trade in the same markets as the
Fund. It is also possible that a particular investment may be held by more than
one client when the Investment Manager determines that holding such investment
is in the best interests of each and the investment meets the differing
investment objectives of each.
- ------------------------------------------------------------------------------
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 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.
12
<PAGE>
By Wire
An investor may purchase shares by wiring Federal Funds of not less than $5,000
to State Street Bank and Trust Company, which also serves as the Trust's
custodian (the "Custodian"), as set forth below. Prior to making an investment
by wire, an investor must notify Shareholder Services at 1-800-562-0032 and
obtain a control number and instructions. Following such notification, Federal
Funds should be wired through the Federal Reserve System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = State Street Research Global Resources Fund and class
of shares (A, B, C or S)
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 S
-------- -------- -------- ----
Minimum Initial Investment
By Wire $5,000 $5,000 $5,000 (a)
IRAs $2,000 $2,000 $2,000 (a)
By Investamatic $1,000 $1,000 $1,000 (a)
All Other $2,500 $2,500 $2,500 (a)
Minimum Subsequent Investment
By Wire $5,000 $5,000 $5,000 (a)
IRAs $ 50 $ 50 $ 50 (a)
By Investamatic $ 50 $ 50 $ 50 (a)
All Other $ 50 $ 50 $ 50 (a)
(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 employee benefit plans, sponsored arrangements involving group
solicitations of the members of an organization, or other investment plans for
reinvestment of dividends and distributions or for periodic investments (e.g.,
Investamatic Program).
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount of
their purchase, the length of time they anticipate holding Fund shares, or the
flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject to
certain ongoing charges or to have their entire initial purchase price invested
in the Fund with the investment being subject thereafter to ongoing service
fees and distribution fees.
As described in greater detail below, dealers are paid differing amounts
of 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 S
------------------------ ---------------------------- ---------------------- --------
<S> <C> <C> <C> <C>
Sales Charges Initial sales Contingent deferred Contingent deferred None
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 0.75% each year None
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 0.25% each year None
Initial Above described 4% 1% None
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 1.00% paid
to dealer by
Distributor
</TABLE>
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<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 C 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
C 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 C shares.
Class A, Class B and Class C 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 C 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.
Class S shares are available through certain employee benefit plans, and
special programs with financial intermediaries, among other arrangements.
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.
The Distributor may also pay its affiliate, MetLife Securities, Inc.,
additional compensation of up to 0.25% of certain sales.
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
$1 million and following
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
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<PAGE>
may 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 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 S 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 S 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 S 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,
registered investment advisers, 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.
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<PAGE>
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, 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, minimum
investments by various groups of eligible persons and any other matters, as may
be adopted by the Distributor from time to time.
Class B Shares - Contingent Deferred Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of the
investor's purchase payment will be invested in the Fund. However, a contingent
deferred sales charge may be imposed upon redemptions of Class B shares as
described below.
The Distributor will pay dealers at the time of sale a 4% commission for
selling Class B shares. In certain cases, a dealer may elect to waive the 4%
commission on Class B shares and receive in lieu thereof a 1% annual fee with
respect to such shares until the shares convert to Class A 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
Redemption During Net Asset Value
- -------------------------------------------- --------------------
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
17
<PAGE>
withdrawal plan which meets certain conditions. In addition, the contingent
deferred sales charge will be waived for: (i) redemptions made within one year
of the death or total disability, as defined by the Social Security
Administration, of all shareholders of an account; (ii) redemptions made after
attainment of a specific age in an amount which represents the minimum
distribution required at such age under Section 401(a)(9) of the Internal
Revenue Code for retirement accounts or plans (e.g., age 701/2 for IRAs and
Section 403(b) plans), calculated solely on the basis of assets invested in the
Fund or other Eligible Funds; and (iii) a redemption resulting from a tax-free
return of an excess contribution to an IRA. (The foregoing waivers do not apply
to a tax-free rollover or transfer of assets out of the Fund.) The Fund may
modify or terminate the waivers 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 - Spread Sales Charges
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; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class C 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 C 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 C shares without an initial sales charge.
Class C 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.
Class S Shares - Special Programs; No Sales Charge
The purchase price of a Class S 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 S shares are available for new investments by certain
large institutions, other advisory accounts of the Investment Manager, 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 S shares have been designated. In addition, Class S
shares are available through programs under which, for example, investors pay
an asset-based fee and/or a transaction fee to intermediaries. Class S share
availability is determined by the Distributor and intermediaries based on
overall direct and indirect costs of a particular program, expected assets,
account sizes and similar considerations. Information on the availability of
Class S shares and further conditions and limitations is available from the
Distributor.
18
<PAGE>
Class S 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.
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of the New York Stock Exchange (the "NYSE") exclusive of days on
which the NYSE is closed. The NYSE ordinarily closes at 4 P.M. New York City
time. Assets held by the Fund are valued 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 0.25% 0.75%
S None None
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 C 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
19
<PAGE>
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.
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
1-800-562-0032 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge is
subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, the Fund has authorized the Distributor as
its agent to accept orders from dealers by wire or telephone for the repurchase
of
20
<PAGE>
shares by the Distributor from the dealer. The Fund may revoke or suspend this
authorization at any time. The repurchase price is the net asset value for the
applicable shares next determined following the time at which the shares are
offered for repurchase by the dealer to the Distributor. The dealer is
responsible for promptly transmitting a shareholder's order to the Distributor.
Payment of the repurchase proceeds is made to the dealer who placed the order
promptly upon delivery of certificates for shares in proper form for transfer
or, for Open Accounts, upon the receipt of a stock power with signatures
guaranteed as described below, and, if required, any supporting documents.
Neither the Fund nor the Distributor imposes any charge upon such a repurchase.
However, a dealer may impose a charge as agent for a shareholder in the
repurchase of his or her shares.
The Fund has reserved the right to change, modify or terminate the
services described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily redeem at its option any
shareholder account which remains below $1,500 for a period of 60 days after
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Such involuntary redemptions will be
subject to applicable sales charges, if any. The Fund may increase such minimum
account value above such amount in the future after notice to affected
shareholders. Involuntarily redeemed shares will be priced at the net asset
value on the date fixed for redemption by the Fund, and the proceeds of the
redemption will be mailed 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
21
<PAGE>
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing Class B or Class C shares will not be issued,
while certificates representing Class A or Class S 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 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 C
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
C 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
22
<PAGE>
sales charge is imposed by Summit Cash Reserves, (b) no contingent deferred
sales charge is imposed by the Fund on the Fund shares redeemed, and (c) any
applicable holding period of the Fund shares redeemed is "tolled," that is, the
holding period clock stops running pending further transactions. Upon the
acquisition of shares of the Fund by exchange for redeemed shares of Summit
Cash Reserves, (a) the acquisition of Class A shares shall be subject to the
initial sales charges or contingent deferred sales charges applicable to an
initial investment in such Class A shares, unless a prior Class A sales charge
has been paid indirectly, and (b) the acquisition of Class B or Class C 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 1-800-562-0032. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes, each
exchange actually represents the sale of shares of one fund and the purchase of
shares of another. Accordingly, exchanges may produce a capital gain or loss
for tax purposes. The exchange privilege may be terminated or suspended or its
terms changed at any time, subject, if required under applicable regulations,
to 60 days' prior notice. New accounts established for investments upon
exchange from an existing account in another fund will have the same Telephone
Privileges as the existing account, unless Shareholder Services is instructed
otherwise. Related administrative policies and procedures may also be adopted
with regard to a series of exchanges, street name accounts, sponsored
arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of 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
23
<PAGE>
redemption at a loss is followed by a reinvestment within 30 days, the
transaction may be a "wash sale" resulting in a denial of the loss for federal
income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once per 12-month period with respect
to his or her shares of the Fund. No charge is imposed by the Fund for such
reinvestments; however, dealers may charge fees in connection with the
reinvestment privilege. The reinvestment privilege may be exercised with
respect to an Eligible Fund only in those states where shares of the relevant
other Eligible Fund may legally be sold.
Investment Plans
The Investamatic Program is available to Class A, Class B and Class C
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 S shares with a value
of $5,000 or more, or Class B or Class C shares with a value of $10,000 or
more, may elect, by participating in the Fund's Systematic Withdrawal Plan, to
have periodic checks issued for specified amounts. These amounts may not be
less than certain minimums, depending on the class of shares held. The Plan
provides that all income dividends and capital gains distributions of the Fund
shall be credited to participating shareholders in additional shares of the
Fund. Thus, the withdrawal amounts paid can only be realized by redeeming
shares of the Fund under the Plan. To the extent such amounts paid exceed
dividends and distributions from the Fund, a shareholder's investment will
decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually of
either (a) the value, at the time the Plan is initiated, of the shares then in
the account or (b) the value, at the time of a withdrawal, of the same number
of shares as in the account when the Plan was initiated, whichever is higher.
Expenses of the Plan are borne by the Fund. A participating shareholder
may withdraw from the Plan, and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is receiving
payments under a Plan is ordinarily disadvantageous because of duplicative
sales charges. For this reason, a shareholder may not participate in the
Investamatic Program and the Systematic Withdrawal Plan at the same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all 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 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
24
<PAGE>
Withdrawal Plan payments, automatically deposited in the shareholder's bank
account by electronic funds transfer. Some contingent deferred sales charges
may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by the
Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions for
amounts up to $50,000 to be mailed to the shareholder's address of record
is available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically;
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not previously
request such telephone wire privilege on his or her original Application
may request the privilege by completing a Telephone Redemption-by-Wire Form
which may be obtained by calling 1-800-562-0032. The Telephone
Redemption-by-Wire Form requires a signature guarantee; and
(4) the privilege allowing the shareholder to make telephone purchases or
redemptions, transmitted via the Automated Clearing House system, into or
from the shareholder's predesignated bank account, is available upon
completion of the requisite initial documentation. For details and forms,
call 1-800-562-0032. The documentation requires a signature guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in
(1) and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by
advising Shareholder Services that the shareholder wishes to discontinue the
use of such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account; and (2) honor any written instructions for a
change of address regardless of whether such request is accompanied by a
signature guarantee. All telephone calls will be recorded. None of the Fund,
the other Eligible Funds, the Transfer Agent, the Investment Manager or the
Distributor will be liable for any loss, expense or cost arising out of any
request, including any fraudulent or unauthorized requests. Shareholders assume
the risk to the full extent of their accounts that telephone requests may be
unauthorized. Reasonable procedures 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
1-800-562-0032. Although it is unlikely, during periods of extraordinary market
conditions, a shareholder may have difficulty in reaching Shareholder Services
at such telephone number. In that event, the shareholder should contact
Shareholder Services at 1-800-357-7800 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 Share-
25
<PAGE>
holder Services, P.O. Box 8408, Boston, Massachusetts 02266-8408. A fee of up
to $10 will be charged against an account for providing additional account
transcripts or photocopies of paid redemption checks or for researching records
in response to special requests.
Shareholder Telephone Transactions:
Please call 1-800-562-0032
Call this number for assistance in purchasing shares by wire and for telephone
redemptions or telephone exchange transactions. Shareholder Services will
require some form of personal identification prior to acting upon instructions
received by telephone. Written confirmation of each transaction will be
provided.
The Fund and its Shares
The Fund 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 S 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. 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 C shares bear
the expenses of the deferred sales arrangement and any expenses (including the
higher service and distribution fees) resulting from such sales arrangement,
and certain other incremental expenses related to a class. Each class will have
exclusive voting rights with respect to provisions of the Rule 12b-1
distribution plan pursuant to which the service and distribution fees, if any,
are paid. Although the legal rights of holders of each class of shares are
identical, it is likely that the different expenses borne by each class will
result in different net asset values and dividends. The different classes of
shares of the Fund also have different exchange privileges.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material, adverse effect on
the rights of any shareholder. On any matter submitted to the shareholders, the
holder of 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
26
<PAGE>
to meet its obligations. The Investment Manager believes that, in view of the
above, the risk of personal liability to shareholders is remote.
Management of the Fund
Under the provisions of the 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 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, twice each year; distributions of long-term and
short-term capital gain net income will generally be made
27
<PAGE>
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 designated as capital gains
distributions, other than 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 capital gains, regardless of how long shareholders
have held their shares, and are not eligible for the dividends-received
deduction.
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 S 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 accrued expenses and recurring charges, including management and
distribution fees, are recognized. The calculation also reflects the highest
applicable initial or contingent deferred sales charge, determined as of the
assumed date of initial investment or the assumed date of redemption, as the
case may be. Standard total return is calculated for the periods specified in
applicable regulations and may be accompanied by nonstandard total return
information for differing periods computed in the same manner, and with or
without annualizing the total return or taking sales charges into account.
The standard total return results take sales charges into account, if
applicable, but do not take into account recurring and nonrecurring charges for
optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for remittance of redemption proceeds by
wire. Where sales charges are not applicable and therefore not taken into
account in the calculation of standard total return, the results will be
increased.
28
<PAGE>
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
[front cover]
[State Street Research Logo] State Street Research
State Street Research
Global Resources Fund
November 1, 1997
P R O S P E C T U S
<PAGE>
State Street Research Equity Investment Fund
a series of
State Street Research Equity Trust
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1997
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS.....................2
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES.....................................5
DEBT INSTRUMENTS AND
PERMITTED CASH INVESTMENTS.......................................13
RATING CATEGORIES OF DEBT SECURITIES...............................16
TRUSTEES AND OFFICERS............................................. 18
INVESTMENT ADVISORY SERVICES...................................... 23
PURCHASE AND REDEMPTION OF SHARES..................................24
NET ASSET VALUE................................................... 26
PORTFOLIO TRANSACTIONS............................................ 27
CERTAIN TAX MATTERS................................................31
DISTRIBUTION OF SHARES OF THE FUND................................33
CALCULATION OF PERFORMANCE DATA................................... 37
CUSTODIAN......................................................... 39
INDEPENDENT ACCOUNTANTS........................................... 40
FINANCIAL STATEMENTS.............................................. 40
The following Statement of Additional Information is not a Prospectus. It
should be read in conjunction with the Prospectus of State Street Research
Equity Investment Fund (the "Fund") dated November 1, 1997, 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(1198)SSR-LD ET-879D-1197
<PAGE>
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth in part 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 by the Fund except by the
affirmative vote of a majority of the outstanding voting securities of the 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 the
Fund's policy:
(1) 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 the 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
the Fund 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 the 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;
(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
2
<PAGE>
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, the 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 the 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 the 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 the Fund's
total assets, and provided further that reverse repurchase
agreements shall not exceed 5% of the Fund's total assets.
Reverse repurchase agreements occur when the Fund sells money
market securities and agrees to repurchase such securities at
an agreed-upon price, date and interest payment. The Fund
would use the proceeds from the transaction to buy other money
market securities, which are either maturing or under the
terms of a resale agreement, on the same day as (or day prior
to) the expiration of the reverse repurchase agreement, and
would employ a reverse repurchase agreement when interest
income from investing the proceeds of the transaction is
greater than the interest expense of the reverse repurchase
transaction.
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The following investment restrictions may be changed by a vote of a
majority of the Trustees. Under these restrictions, it is the 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 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;
(3) 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;
(4) 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 the 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);
(5) 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
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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;
(6) 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
(7) 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.
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
objectives 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 a currency at a future time) and which, therefore, possess the
risks of both futures and securities investments.
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell
underlying assets, such as certain securities, currencies, or an index of
securities, at a future time at a specified price. A contract to buy establishes
a "long" position while a contract to sell establishes a "short" position.
The purchase of a futures contract on an equity security or an index of
equity securities normally enables a buyer to participate in the market movement
of the underlying asset or index after paying a transaction charge and posting
margin in an amount equal to a small percentage of the value of the underlying
asset or index. 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
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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
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 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,
permissible assets equal to the face value of the futures contract will be
identified by the Fund to the Trust's custodian for maintenance in a separate
account to insure that the use of such futures contracts is unleveraged.
Similarly, a representative portfolio of securities having a value equal to the
aggregate face value of the futures contract will be identified with respect to
each short position. 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 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
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<PAGE>
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
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 futures contracts, 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.
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<PAGE>
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. 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.
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 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 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. 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. 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
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<PAGE>
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 their 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.
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.
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<PAGE>
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. Government securities or (ii) an FDIC-insured bank
having gross assets in excess of $500 million, simultaneously commits to
repurchase it at an agreed-upon price on an agreed-upon date within a specified
number of days (usually not more than seven) from the date of purchase. The
repurchase price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the acquired
security. The Fund will only enter into repurchase agreements involving U.S.
Government securities. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
Repurchase agreements will be limited to 30% of the Fund's total assets, except
that repurchase agreements extending for more than seven days when combined with
any other illiquid securities held by the Fund will be limited to 10% of its
total assets.
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.
Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including restricted securities sold in accordance with Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities") if, as a result, more
than 35% of the Fund's total assets are invested in restricted securities,
provided not more than 10% of the Fund's total assets are invested in restricted
securities other than 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
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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 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 subjective valuation of such securities in the absence
of a market for them. Restricted securities that are not resalable under Rule
144A may be subject to risks of illiquidity and subjective valuations to a
greater degree than Rule 144A Securities.
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 such
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.
The Fund may enter credit protection swap arrangements involving the
sale by the Fund of a put option on a debt security which is exercisable by the
buyer upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
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 portion of the Fund's portfolio.
However, the Fund may enter, as noted above, into such arrangements for income
purposes to the extent permitted by the
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Commodities Futures Trading Commission 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.
Industry Classifications
In determining how much of the 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 may be classified according to
the industries of their parent or sponsor 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, etc.
"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 Airline
Gas & Marketing Automotive
Gas Transmission Oil Production Building
Telephone Oil Service 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
DEBT INSTRUMENTS AND
PERMITTED CASH INVESTMENTS
Debt securities and short-term investments acquired by the Fund may
include the following:
U.S. Government and Related Securities. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
[bullet] direct obligations of the U.S. Treasury, i.e., U.S. Treasury
bills, notes, certificates and bonds;
[bullet] obligations of U.S. Government agencies or instrumentalities
such as the Federal Home Loan Banks, the Federal Farm Credit
Banks, the Federal National Mortgage Association, the
Government National Mortgage Association and the Federal Home
Loan Mortgage Corporation; and
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[bullet] obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a
variety of ways by the U.S. Government, its agencies or instrumentalities. Some
of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full faith and credit of the U.S.
Treasury. Other obligations, such as those of the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase certain obligations of agencies or instrumentalities, although the U.S.
Government has no legal obligation to do so. Obligations such as those of the
Federal Home Loan Banks, the Federal Farm Credit 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, 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 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.
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<PAGE>
Bank Money Investments. Bank money investments include but are not
limited to certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are generally short-term (i.e., less than one year),
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). A banker's acceptance may be
obtained from a domestic or foreign bank, including a U.S. branch or agency of a
foreign bank. The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. Time deposits are nonnegotiable deposits
for a fixed period of time at a stated interest rate. The Fund will not invest
in any such bank money investment unless the investment is issued by a U.S. bank
that is a member of the Federal Deposit Insurance Corporation ("FDIC"),
including any foreign branch thereof, a U.S. branch or agency of a foreign bank,
a foreign branch of a foreign bank, or a savings bank or savings and loan
association that is a member of the FDIC and which at the date of investment has
capital, surplus and undivided profits (as of the date of its most recently
published financial statements) in excess of $50 million. The Fund will not
invest in time deposits maturing in more than seven days and will not invest
more than 10% of its total assets in time deposits maturing in two to seven
days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches 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 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 within the "A" major rating category by Standard & Poor's
Corporation (S&P) or within the "Prime" major rating category by Moody's,
Investor's Service Inc. ("Moody's"), or,
15
<PAGE>
if not rated, issued by companies having an outstanding long-term unsecured debt
issue rated at least within the "A" category 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 within the "A" category by S&P or within the "Prime" category
by Moody's.
Commercial paper rated within the "A" category (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 within "A" category or better,
although in some cases credits within the "BBB" category 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 category
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.
RATING CATEGORIES OF DEBT SECURITIES
Set forth below is a description of S&P corporate bond and debenture
rating categories for securities which are deemed to investment grade:
AAA: An obligation rated with the AAA category has the highest rating
assigned by S&P. Capacity to meet the financial commitment on the obligation is
extremely strong.
AA: An obligation rated within the AA category differs from AAA issues
only in small degree. Capacity to meet the financial commitment on the
obligation is very strong.
A: An obligation rated within the A category is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories. However, capacity to
meet the financial commitment on the obligation is still strong.
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<PAGE>
BBB: An obligation rated within the BBB category normally exhibits
adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to meet the
financial commitment on the obligation.
Plus (+) or Minus (-): The ratings from AA to BBB 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 the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risks, such as interest only (IO) and
principal only (PO) mortgage securities; and obligations with unusually risky
terms, such as inverse floaters.
Set forth below is a description of Moody's corporate bond and
debenture ratings for securities which are deemed to be investment grade:
Aaa: Bonds which are rated within the Aaa category are judged to be of
the best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." 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 within the Aa category are judged to be of
high quality by all standards. Together with the Aaa group they comprise what
are generally know 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 greater
than in Aaa securities.
A: Bonds which are rated within the A category 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 within the Baa category 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.
1,2 or 3: The ratings from Aa through Baa may be modified by the
addition of a numeral indicating a bond's rank within its rating category.
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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 59. 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.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 60. He is
retired and was formerly Senior Vice President for Finance and Operations and
Treasurer of The Pennsylvania State University.
*+Bartlett R. Geer, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 42. 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.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville, NC
28803, serves as Trustee of the Trust. He is 69. He is engaged principally in
private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 70. 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 71. 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 46. 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.
- ---------------------
* or +, see footnotes on page 20.
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<PAGE>
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111
serves as Secretary and General Counsel of the Trust. He is 42. 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 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 59. 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 65. 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 73. 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 45. 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 59. 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
60. 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.
- -------------------------
* or +, see footnotes on page 20.
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<PAGE>
*+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 54. 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., and until February, 1996,
prior positions as President and Chief Executive Officer of that company.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 72. 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 51. 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 34. 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/Director and/or officer of one or more of the following
investment companies, each of which has a direct or indirect advisory
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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<PAGE>
Record ownership of shares of the Fund as of September 30, 1997 was as
follows:
Class Holder % of Class
- ----- ------------------------- ----------
C Metropolitan Life 52.3
Merrill Lynch 19.1
S The Chase Manhattan Bank 83.9
(National Association)
Banco de Ponce 5.8
The full name and address of the above institutions are:
Metropolitan Life Insurance Company (a)
One Madison Avenue
New York, New York 10010
The Chase Manhattan Bank (National Association)(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
State Street Bank and Trust Company (c)
225 Franklin Street
Boston, MA 02111
Banco de Ponce (b)(c)
P.O. Box G3100
San Juan, PR 00936
- ---------------------------------
(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) The Chase Manhattan Bank (National Association) and Banco de Ponce hold
such shares as trustee under certain employee benefit plans serviced
by Metropolitan.
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<PAGE>
(c) The Fund believes that such entity 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, 1997, the Trustees and principal officers of the
Trust as a group owned none of the Fund's outstanding Class A, Class B, Class C
or Class S shares.
The Trustees were compensated as follows:
Total
Compensation
Aggregate From Trust and
Compensation Complex Paid
Name of Trustee From Trust(a) to Trustees(b)
- --------------------------------------------------------------------------
Steve A. Garban $ 4,443 $ 34,750
Malcolm T. Hopkins $ 5,043 $ 34,750
Edward M. Lamont $11,325 $ 59,375
Robert A. Lawrence $11,725 $ 92,125
Dean O. Morton $12,525 $ 96,125
Thomas L. Phillips $11,725 $ 59,375
Toby Rosenblatt $11,325 $ 59,375
Michael S. Scott Morton $13,725 $100,325
Ralph F.Verni $ 0 $ 0
Jeptha H. Wade $12,925 $ 63,375
(a) For the Fund's fiscal year ended June 30, 1997. Includes compensation from
multiple series of the Trust. See "Distribution of Shares" for a listing of
series.
(b) Includes compensation on behalf of all series of 12 investment companies
for which the Investment Manager served directly or indirectly as
investment adviser or for which the Investment Manager served as
sub-investment adviser, and series of State Street Research Portfolios,
Inc. for which State Street Research Investment Services, Inc. serves as
distributor. "Total Compensation from Trust and Complex Paid to Trustees"
is 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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<PAGE>
INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Advisory
Agreement provides that the Investment Manager shall furnish the Fund with an
investment program, office facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of the
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly owned subsidiary of Metropolitan.
The advisory fee payable monthly by the Fund to the Investment Manager
is computed as a percentage of the average of the value of the net assets of the
Fund as determined at the close of the New York Stock Exchange (the "NYSE") on
each day the NYSE is open for trading, at the annual rate of 0.65% of the net
assets of the 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 the Fund. For the fiscal years ended June 30, 1995, 1996 and 1997, the Fund's
investment advisory fees prior to the assumption of fees or expenses were
$486,807, $676,177 and $869,656, respectively. For the same periods, the
voluntary reduction of fees or assumption of expenses amounted to $362,010,
$220,240 and $202,837, respectively.
The Advisory Agreement provides that it shall continue in effect from
year to year with respect to the Fund 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.
Under the 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
23
<PAGE>
sponsored arrangements, such as employee benefit plans, through or under which
the Fund's shares may be purchased.
Under the Code of Ethics of the Investment Manager, its employees in
Boston and selected other persons elsewhere involved in investment management
operations, are only permitted to engage in personal securities transactions in
accordance with certain conditions relating to such person's position, the
identity of the security, the timing of the transaction, and similar factors.
Such persons 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 S 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
C shares). General information on how to buy shares of the Fund, 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 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
24
<PAGE>
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 S 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 S 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 B Shares - In certain cases, a dealer may elect to waive the 4%
commission on Class B shares and receive in lieu thereof a 1% annual fee with
respect to such outstanding shares until the shares convert to Class A shares.
Class S Shares - Class S 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
25
<PAGE>
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, 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, Martin Luther King, Jr.
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 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"
26
<PAGE>
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
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 Fund's portfolio turnover rate for the fiscal years ended
June 30, 1996 and 1997 was 44.44% and 88.07%, respectively.
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended June 30, 1997 was significantly higher than that for the
previous fiscal year because of increased market volatility and the Investment
Manager's efforts to take advantage of the resulting opportunities to purchase
certain securities at attractive prices and to sell certain securities in order
to realize gain.
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
27
<PAGE>
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 including software providing investment
personnel with efficient access to current and historical data from a variety of
internal and external sources); and portfolio evaluation services and relative
performance of accounts.
In the case of the Fund and other registered investment companies
advised by the Investment Manager or its affiliates, the above services may
include data relating to performance, expenses and fees of those investment
companies and other investment companies; this information is used by the
Trustees or Directors of the investment companies to fulfill their
responsibility to oversee the quality of the Investment Manager's advisory
contracts between the investment companies and the Investment Manager. The
Investment Manager considers these investment company services only in
connection with the execution of transactions on behalf of its investment
company clients and not its other clients.
28
<PAGE>
Certain of the 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 in less
than ten percent of the outstanding equity of one such third party which is
engaged in the development and licensing of trading systems which include
portfolio analysis and modeling and other research and investment
decision-making capabilities. The Investment Manager may allocate brokerage to
broker-dealers who in turn pay this third party for the portion of the third
party's trading system provided to the Investment Manager, which is estimated by
the Investment Manager to provide appropriate assistance in the investment
decision-making process. Because of its minority interest in the third party,
the Investment Manager could be said to benefit indirectly from such brokerage
allocation.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Among other measures, the Investment Manager's
investment management personnel seek to evaluate the quality of research and
other services received, and the results of this effort are made available to
the equity trading department, which sometimes uses this information as
consideration in the selection of brokers to execute portfolio transactions.
Some services furnished by broker-dealers 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 the
Investment Manager pays for that portion directly from its own funds. 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 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, the Investment Manager relies on the provisions of
Section 28(e) of the Securities Exchange Act of 1934, to the extent applicable.
Brokerage
29
<PAGE>
commissions paid by the Fund in secondary trading during fiscal years ended June
30, 1995, 1996 and 1997 amounted to $90,811, $107,458 and $259,735,
respectively.
The Investment Manager believes the amount of brokerage commissions
paid by the Fund during the fiscal year ended June 30, 1997 was significantly
higher than during the previous years because of increased market volatility
and the Investment Manager's efforts to take advantage of the resulting
opportunities to purchase certain securities at attractive prices and to
sell certain securities in order to realize gains.
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 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.
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.
30
<PAGE>
CERTAIN TAX MATTERS
Federal Income Taxation of the Funds -- 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 they cannot give complete
assurance that they will do so. Accordingly, for each of the Fund's tax years
that has begun on or prior to August 5, 1997, the Fund must, among other things,
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities, (ii) options, futures, or forward contracts (other than options,
futures or forward contracts on foreign currencies), or (iii) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies (or options, futures, or forward contracts) are not directly
related to the Fund's principal business of investing in stocks or securities
(or options and futures with respect to stocks or securities); (c) satisfy
certain diversification requirements; and (d) in order to be entitled to utilize
the dividends paid deduction, distribute annually at least 90% of its investment
company taxable income (determined without regard to the deduction for dividends
paid). For each taxable year of the Fund beginning after August 5, 1997, the
Fund will have to comply with each of the requirements listed above except the
30% test in order to qualify to be treated as a regulated investment company
under Subchapter M.
Beginning July 1, 1998 (the start of the Fund's first taxable year that
begins after August 5, 1997), when the Fund no longer will have to comply with
the 30% test in order to qualify under Subchapter M, the Fund will have greater
flexibility in buying and selling securities and in the use of futures and
options in managing risk. The 30% test has the effect of limiting 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.) The
30% test 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
31
<PAGE>
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 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 (or deemed to be 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, or be deemed to have distributed, 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. For this
purpose, any income or gain retained by the Fund that is subject to corporate
tax will be considered to have been distributed by year-end. The Fund intends to
make sufficient distributions to avoid this 4% excise tax.
Federal Income Taxation of the Fund's Investments
Original Issue Discount. For federal income tax purposes, debt
securities purchased by the Fund may be treated as having original issue
discount. Original issue discount represents interest for federal income tax
purposes and can generally be defined as the excess of the stated redemption
price at maturity of a debt obligation over the issue price. Original issue
discount is treated for federal income tax purposes as income earned by the
Fund, whether or not any income is actually received, and therefore is subject
to the distribution requirements of the Code. Generally, the amount of original
issue discount is determined on the basis of a constant yield to maturity which
takes into account the compounding of accrued interest. Under section 1286 of
the Code, an investment in a stripped bond or stripped coupon may result in
original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for federal
income tax purposes. In the case of any debt security issued after July 18,
1984, having a fixed maturity date of more than one year from the date of issue
and having market discount, the gain realized on disposition will be treated as
interest to the extent it does not exceed the accrued market discount on the
security (unless the Fund 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
32
<PAGE>
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
(until July 1, 1998), 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 shareholder on December 31, provided that the Fund pays the
dividend during January of the following calendar year.
Distributions by the Fund can result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless may be taxable
to the shareholder as ordinary income or long-term capital gain, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a taxable distribution will then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
DISTRIBUTION OF SHARES OF THE FUND
State Street Research Equity Trust is currently comprised of the
following series: 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 Fund to be issued in four classes:
Class A, Class B, Class C and Class S shares. Prior to November 1, 1997, Class S
shares were designated as Class C shares and Class C shares were designated as
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
33
<PAGE>
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 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 C shares). The Distributor may reallow all or
portions of such sales charges as concessions to dealers. For the fiscal years
ended June 30, 1995, 1996 and 1997, total sales charges on Class A shares paid
to the Distributor amounted to approximately $76,485, $142,027 and $172,953,
respectively.
For the same periods, the Distributor retained $9,124, $17,387 and
$21,636, 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 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 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
34
<PAGE>
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 C shares of
the Funds and paid initial commissions to securities dealers for sales of such
Class A, Class B and Class C shares as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 1997 June 30, 1996 June 30, 1995
---------------------------- ------------------------ -----------------
Contingent Contingent Commissions Contingent
Deferred Commissions Deferred Paid to Deferred Commissions
Sales Charges Paid to Dealers Sales Charges Dealers Sales Charges Paid to Dealers
------------- --------------- ------------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Class A $ 0 $151,317 $ 0 $124,640 $ 0 $67,361
Class B $39,421 $297,680 $40,509 $220,242 $18,766 $57,654
Class C $ 0 $ 2,577 $ 39 $ 876 $ 260 $ 0
</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 C 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 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 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.
35
<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 C shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class C
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 C 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.
During the fiscal year ended June 30, 1997, 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 C
-------- -------- -------
Advertising $ 0 $ 5,318 $1,173
Printing and mailing
of prospectuses to
other than current
shareholders 0 2,151 475
Compensation to dealers 111,950 143,546 3,775
Compensation to sales
personnel 0 17,485 3,988
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses:
marketing; general 8,912 1,972
-------- -------- -------
Total fees $111,950 $177,412 $11,383
======== ======== =======
The Distributor may have also used additional resources of its own for
further expenses on behalf of the Fund.
36
<PAGE>
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 make alternative
arrangements for such services for shareholders who acquired shares through such
institutions.
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") of the Class
A, Class B, Class C and Class S 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, 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 reflected
0.25 thereafter
B 1.00% 0.50% until June 1, 1993; 1.00% 1- and 5-year periods reflect a 5%
June 1, 1993 to present; fee will reduce and a 2% contingent deferred sales
performance for periods after June 1, 1993 charge, respectively
C 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
S None 0.50% until June 1, 1993; None
0% thereafter
</TABLE>
All calculations of performance data in this section reflect the
voluntary measures, if any, by the Fund's affiliates to reduce fees or expenses
relating to the Fund; see "Accrued Expenses" later in this section.
37
<PAGE>
Total Return
Standard total return of each class of shares of the Fund was as
follows:
Commencement of
Operations Ten Years Five Years One Year
(August 25, 1986) Ended Ended Ended
Fund to June 30, 1997 June 30, 1997 June 30, 1997 June 30, 1997
- ---- ----------------- -------------- -------------- -------------
with with with with
subsidy subsidy subsidy subsidy
------- ------- ------- -------
Class A 13.29% 12.14% 17.64% 25.02%
Class B 13.48% 12.36% 17.88% 24.91%
Class C 13.48% 12.35% 18.07% 28.93%
Class S 13.91% 12.81% 19.05% 31.19%
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 highest
applicable 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.
38
<PAGE>
Accrued Expenses
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return results take sales charges, if applicable, into account,
although the results do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Funds 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 S 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 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, 1997, without taking sales charges into account, were as follows:
with subsidy
------------
Class A 18.75%
Class B 18.27%
Class C 18.28%
Class S 18.91%
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.
39
<PAGE>
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 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 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 through electronic or other media. Shareholders with
substantial holdings in one or more State Street Research Funds may also receive
reports and other information which reflect or analyze their positions in a
consolidated manner. For more information, call State Street Research
Shareholder Services.
The following financial statements for the Fund's fiscal year ended
June 30, 1997 reflect the Fund's class designations prior to November 1, 1997.
Information pertaining to Class C and Class D in the financial statements now
pertain to Class S and Class C, respectively.
DOCSC\557314.3
40
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
June 30, 1997
Value
Shares (Note 1)
-------- -------------
COMMON STOCKS 93.5%
Basic Industries 16.4%
Chemical 6.5%
Dow Chemical Co. ........................ 9,200 $ 801,550
E.I. Du Pont De Nemours & Co. ......... 83,800 5,268,925
Monsanto Co. ........................... 28,600 1,231,587
Rohm & Haas Co. ........................ 38,400 3,458,400
------------
10,760,462
------------
Electrical Equipment 2.7%
General Electric Co. .................. 69,000 4,510,875
------------
Forest Product 2.1%
James River Corp. ..................... 46,700 1,727,900
Weyerhaeuser Co. ........................ 33,900 1,762,800
------------
3,490,700
------------
Machinery 1.5%
Tyco International, Inc. ............... 37,300 2,594,681
------------
Metal & Mining 2.8%
Aluminum Co. of America ............... 20,900 1,575,338
Carpenter Technology Corp.* ............ 20,000 915,000
Reynolds Metals Co. ..................... 29,500 2,101,875
------------
4,592,213
------------
Railroad 0.8%
Canadian National Railway Co. ......... 30,900 1,351,875
------------
Total Basic Industries ........................ 27,300,806
------------
Consumer Cyclical 11.5%
Automotive 0.9%
General Motors Corp. .................. 28,300 1,575,956
------------
Hotel & Restaurant 1.0%
HFS Inc.* .............................. 7,600 440,800
Mirage Resorts Inc.* .................. 48,200 1,217,050
------------
1,657,850
------------
Recreation 3.2%
Time Warner Inc. ........................ 50,300 2,426,975
US West Inc.* ........................... 65,900 1,334,475
Walt Disney Co. ........................ 19,643 1,576,351
------------
5,337,801
------------
Retail Trade 6.4%
Circuit City Stores Inc. ............... 34,500 1,226,906
CVS Corp. .............................. 42,100 2,157,625
Kroger Co.* ........................... 80,600 2,337,400
Rite Aid Corp. ........................ 44,400 2,214,450
Value
Shares (Note 1)
-------- -------------
Retail Trade (cont'd)
Toys "R" Us Inc.* ..................... 76,500 $ 2,677,500
------------
10,613,881
------------
Total Consumer Cyclical ............... 19,185,488
------------
Consumer Staple 21.2%
Business Service 1.6%
HBO & Co. .............................. 10,100 695,638
Interpublic Group of Companies, Inc. ... 27,700 1,698,356
USA Waste Services Inc.* ............... 9,000 347,625
------------
2,741,619
------------
Drug 5.3%
Bristol-Myers Squibb Co. ............... 32,300 2,616,300
Eli Lilly & Co. ........................ 24,672 2,696,958
Novartis AG ADR* ........................ 25,266 2,026,807
Pfizer Inc. ........................... 11,700 1,398,150
------------
8,738,215
------------
Food & Beverage 3.9%
Coca-Cola Co. ........................... 59,000 3,982,500
H.J. Heinz Co. ........................ 54,800 2,527,650
------------
6,510,150
------------
Hospital Supply 6.3%
Aetna Inc. .............................. 11,800 1,208,025
Baxter International Inc. ............... 58,500 3,056,625
Boston Scientific Corp.* ............... 35,400 2,174,887
Columbia / HCA Healthcare Corp. ......... 64,850 2,549,416
Guidant Corp. ........................... 8,900 756,500
Pacificare Health Systems, Inc. Cl. B* 10,500 670,687
------------
10,416,140
------------
Personal Care 2.3%
Avon Products Inc. ..................... 27,200 1,919,300
Gillette Co. ........................... 20,800 1,970,800
------------
3,890,100
------------
Tobacco 1.8%
Philip Morris Companies, Inc. ......... 67,200 2,982,000
------------
Total Consumer Staple .................. 35,278,224
------------
Energy 11.8%
Oil 8.6%
ENI SPA ADR ........................... 16,900 954,850
Exxon Corp. ........................... 26,100 1,605,150
Oryx Energy Co. ........................ 57,700 1,218,913
Royal Dutch Petroleum Co. ............... 83,200 4,524,000
41
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
-------- -------------
Oil (cont'd)
Seagull Energy Corp.* ............... 43,700 $ 764,750
Total SA Cl. B ADR .................. 55,100 2,789,437
Unocal Corp. ........................ 61,900 2,402,494
-------------
14,259,594
-------------
Oil Service 3.2%
Ensco International Inc.* ............ 25,000 1,318,750
Schlumberger Ltd. ..................... 32,500 4,062,500
-------------
5,381,250
-------------
Total Energy ................................. 19,640,844
-------------
Finance 16.6%
Bank 9.8%
BankAmerica Corp. ..................... 85,400 5,513,637
Citicorp .............................. 35,500 4,279,969
H.F. Ahmanson & Co. .................. 51,300 2,205,900
NationsBank Corp. ..................... 47,400 3,057,300
Washington Mutual Inc.* ............... 20,300 1,212,925
-------------
16,269,731
-------------
Insurance 6.8%
Ace Ltd. .............................. 43,600 3,220,950
General Re Corp. ..................... 10,000 1,820,000
Mid Ocean Ltd. ........................ 42,900 2,249,569
Saint Paul Companies, Inc. ............ 20,400 1,555,500
Travelers Group Inc. .................. 40,400 2,547,725
-------------
11,393,744
-------------
Total Finance ................................. 27,663,475
-------------
Science & Technology 14.0%
Aerospace 2.7%
Boeing Co. ........................... 37,200 1,973,925
Raytheon Co. ........................ 15,500 790,500
United Technologies Corp. ............ 19,500 1,618,500
-------------
4,382,925
-------------
Computer Software & Service 1.2%
Cisco Systems Inc.* .................. 21,000 1,409,625
Microsoft Corp.* ..................... 4,100 518,138
-------------
1,927,763
-------------
Electronic Components 2.2%
Intel Corp. ........................... 13,400 1,900,288
LSI Logic Corp.* ..................... 21,100 675,200
Texas Instruments Inc. ............... 13,300 1,118,031
-------------
3,693,519
-------------
Value
Shares (Note 1)
-------- -------------
Electronic Equipment 4.3%
L.M. Ericsson Telephone Co. ADR Cl. B* 22,440 $ 883,575
Lucent Technologies Inc. ............ 11,600 835,925
Motorola Inc. ........................ 38,800 2,948,800
Perkin-Elmer Corp. .................. 10,400 827,450
Teradyne Inc.* ........................ 43,200 1,695,600
-------------
7,191,350
-------------
Office Equipment 3.6%
Compaq Computer Corp.* ............... 22,800 2,262,900
Diebold Inc. ........................ 14,000 546,000
Hewlett-Packard Co. .................. 31,900 1,786,400
International Business Machines Corp. 15,800 1,424,962
-------------
6,020,262
-------------
Total Science & Technology ............ 23,215,819
-------------
Utility 2.0%
Electric 0.9%
FPL Group Inc. ........................ 31,200 1,437,150
-------------
Natural Gas 0.6%
Calpine Corp.* ........................ 50,000 950,000
-------------
Telephone 0.5%
WorldCom Inc.* ........................ 26,200 838,400
-------------
Total Utility ........................ 3,225,550
-------------
Total Common Stocks (Cost $113,233,754) 155,510,206
-------------
Principal Maturity
Amount Date
------------ -----------
SHORT-TERM OBLIGATIONS 6.5%
American Express Credit
Corp., 5.25% ............... $6,277,000 7/01/1997 6,277,000
American Express Credit
Corp., 5.70% ............... 676,000 7/03/1997 676,000
Beneficial Corp., 5.53% ...... 1,174,000 7/03/1997 1,174,000
Ford Motor Credit Co., 5.51% . 1,439,000 7/03/1997 1,439,000
Household Finance Corp.,
5.46% ........................ 1,322,000 7/01/1997 1,322,000
-------------
Total Short-Term Obligations (Cost $10,888,000) ......... 10,888,000
-------------
Total Investments (Cost $124,121,754)--100.0% ......... 166,398,206
Cash and Other Assets, Less Liabilities-0.0% ......... (39,468)
-------------
Net Assets--100.0% .................................... $ 166,358,738
=============
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- -------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- -------------------------------------------------------------------------------
Federal Income Tax Information:
At June 30, 1997, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $124,121,754 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ................................................... $ 43,181,813
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ................................................ (905,361)
-------------
$ 42,276,452
=============
- -------------------------------------
* Nonincome-producing securities.
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
- -------------------------------------------------------------------------------
Assets
Investments, at value (Cost $124,121,754) (Note 1) ... $166,398,206
Cash ................................................ 446
Receivable for securities sold ..................... 735,019
Receivable for fund shares sold ..................... 407,929
Dividends and interest receivable .................. 185,783
Receivable from Distributor (Note 3) ............... 22,645
Other assets ....................................... 12,738
-------------
167,762,766
Liabilities
Payable for securities purchased ..................... 954,850
Accrued transfer agent and shareholder services
(Note 2) .......................................... 115,033
Payable for fund shares redeemed ..................... 108,376
Accrued management fee (Note 2) ..................... 87,487
Accrued distribution and service fees (Note 5) ...... 32,987
Accrued trustees' fees (Note 2) ..................... 9,261
Dividends payable .................................... 2,780
Other accrued expenses .............................. 93,254
-------------
1,404,028
-------------
Net Assets $166,358,738
=============
Net Assets consist of:
Undistributed net investment income ............... $ 117,502
Unrealized appreciation of investments ............ 42,276,452
Accumulated net realized gain ..................... 13,828,882
Shares of beneficial interest ..................... 110,135,902
-------------
$166,358,738
=============
Net Asset Value and redemption price per share of
Class A shares ($55,239,393 [divided by] 2,806,823
shares of
beneficial interest) .............................. $19.68
=============
Maximum Offering Price per share of Class A shares
($19.68 [divided by] .955) ........................ $20.61
=============
Net Asset Value and offering price per share of
Class B shares ($25,477,975 [divided by] 1,312,020
shares of
beneficial interest)* .............................. $19.42
=============
Net Asset Value, offering price and redemption price
per share of Class C shares ($83,999,087 [divided by]
4,273,035 shares of beneficial interest) ......... $19.66
=============
Net Asset Value and offering price per share of
Class D shares ($1,642,283 [divided by] 84,607 shares
of beneficial interest)* .............................. $19.41
=============
- -------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the year ended June 30, 1997
Investment Income
Dividends, net of foreign taxes of $43,777 ............... $ 2,076,959
Interest ................................................ 304,735
------------
2,381,694
Expenses
Management fee (Note 2) ................................. 869,656
Transfer agent and shareholder services (Note 2) ...... 358,781
Custodian fee .......................................... 110,553
Reports to shareholders ................................. 105,596
Registration fees ....................................... 34,382
Audit fee ............................................. 27,896
Trustees' fees (Note 2) ................................. 15,109
Service fee--Class A (Note 5) ........................... 111,950
Distribution and service fees--Class B (Note 5) ......... 177,412
Distribution and service fees--Class D (Note 5) ......... 11,383
Legal fees ............................................. 7,873
Miscellaneous .......................................... 10,924
------------
1,841,515
Expenses borne by the Distributor (Note 3) ............ (202,837)
------------
1,638,678
------------
Net investment income ................................. 743,016
------------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) ...... 20,424,213
Net unrealized appreciation of investments ............ 15,781,474
------------
Net gain on investments ................................. 36,205,687
------------
Net increase in net assets resulting from operations ..... $ 36,948,703
============
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
Year ended June 30
---------------------------------
1997 1996
--------------- ---------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ......... $ 743,016 $ 907,504
Net realized gain on investments 20,424,213 10,187,786
Net unrealized appreciation of
investments .................. 15,781,474 11,825,753
------------- ------------
Net increase resulting from
operations .................. 36,948,703 22,921,043
------------- ------------
Dividends from net investment
income:
Class A ........................ (233,439) (248,210)
Class C ........................ (560,477) (571,956)
------------- ------------
(793,916) (820,166)
------------- ------------
Distributions from net realized
gains:
Class A ........................ (4,782,504) (1,371,017)
Class B ........................ (1,764,902) (315,045)
Class C ........................ (7,753,956) (2,286,228)
Class D ........................ (116,740) (31,975)
------------- ------------
(14,418,102) (4,004,265)
------------- ------------
Net increase from fund share
transactions (Note 6) ......... 21,085,516 17,130,921
------------- ------------
Total increase in net assets ... 42,822,201 35,227,533
Net Assets
Beginning of year ............... 123,536,537 88,309,004
------------- ------------
End of year (including
undistributed net investment
income of $117,502 and
$671,546, respectively) ...... $166,358,738 $123,536,537
============= ============
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1997
Note 1
State Street Research Equity Investment Fund (the "Fund"), is a series of State
Street Research 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.
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, 1997, the fees pursuant to such agreement
amounted to $869,656.
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,
1997, the amount of such shareholder servicing and account maintenance expenses
was $198,902.
45
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The fees of the Trustees not currently affiliated with the Adviser amounted to
$15,109 during the year ended June 30, 1997.
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, 1997, the amount of such expenses assumed by the
Distributor and its affiliates was $202,837.
Note 4
For the year ended June 30, 1997, purchases and sales of securities, exclusive
of short-term obligations, aggregated $114,974,321 and $115,375,182,
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, 1997, fees
pursuant to such plan amounted to $111,950, $177,412 and $11,383 for Class A,
Class B and Class D shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $21,636 and $126,763, respectively, on sales of Class A shares of
the Fund during the year ended June 30, 1997, and that MetLife Securities, Inc.
earned commissions aggregating $254,948 on sales of Class B shares, and that
the Distributor collected contingent deferred sales charges of $39,421 on
redemptions of Class B shares during the same period.
46
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At June 30, 1997, the
Distributor owned 3,603 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended June 30
-----------------------------------------------------------------------
1997 1996
---------------------------------- ----------------------------------
Class A Shares Amount Shares Amount
- ----------------------------------------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold ................................. 588,308 $ 10,233,943 405,624 $ 6,395,709
Issued upon reinvestment of:
Distributions from net realized gains ...... 289,030 4,652,507 89,924 1,331,731
Dividends from net investment income ...... 13,002 224,603 14,813 236,859
Shares repurchased ........................... (389,733) (6,723,255) (387,435) (6,071,101)
----------- ------------- ----------- -------------
Net increase ................................. 500,607 $ 8,387,798 122,926 $ 1,893,198
=========== ============= =========== =============
Class B Shares Amount Shares Amount
- ---------------------------------------------- ----------- ------------- ----------- -------------
Shares sold ................................. 598,345 $ 10,270,072 440,639 $ 6,927,207
Issued upon reinvestment of
distributions from net realized gains ...... 108,323 1,728,240 20,913 307,750
Shares repurchased ........................... (172,399) (2,918,908) (102,902) (1,616,965)
----------- ------------- ----------- -------------
Net increase ................................. 534,269 $ 9,079,404 358,650 $ 5,617,992
=========== ============= =========== =============
Class C Shares Amount Shares Amount
- ---------------------------------------------- ----------- ------------- ----------- -------------
Shares sold ................................. 1,943,280 $ 33,489,577 1,692,679 $ 26,954,407
Issued upon reinvestment of:
Distributions from net realized gains ...... 481,543 7,753,590 154,432 2,286,228
Dividends from net investment income ...... 32,449 560,098 36,260 571,723
Shares repurchased ........................... (2,305,882) (38,692,177) (1,302,028) (20,281,019)
----------- ------------- ----------- -------------
Net increase ................................. 151,390 $ 3,111,088 581,343 $ 9,531,339
=========== ============= =========== =============
Class D Shares Amount Shares Amount
- ---------------------------------------------- ----------- ------------- ----------- -------------
Shares sold ................................. 123,109 $ 2,168,941 5,582 $ 87,865
Issued upon reinvestment of
distributions from net realized gains ...... 7,066 112,590 2,081 30,561
Shares repurchased ........................... (100,734) (1,774,305) (1,906) (30,034)
----------- ------------- ----------- -------------
Net increase ................................. 29,441 $ 507,226 5,757 $ 88,392
=========== ============= =========== =============
</TABLE>
47
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------
Year ended June 30
-------------------------------------------------------------------
1997** 1996** 1995** 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 17.04 $ 14.28 $ 12.44 $ 14.52 $ 13.16
--------- --------- --------- --------- ---------
Net investment income* 0.09 0.12 0.08 0.01 0.04
Net realized and unrealized gain on investments 4.63 3.38 2.14 0.18 2.48
--------- --------- --------- --------- ---------
Total from investment operations 4.72 3.50 2.22 0.19 2.52
--------- --------- --------- --------- ---------
Dividends from net investment income (0.09) (0.11) (0.05) -- (0.04)
Distributions from net realized gains (1.99) (0.63) (0.33) (2.27) (1.12)
--------- --------- --------- --------- ---------
Total distributions (2.08) (0.74) (0.38) (2.27) (1.16)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 19.68 $ 17.04 $ 14.28 $ 12.44 $ 14.52
========= ========= ========= ========= =========
Total return 30.91%+ 25.33%+ 18.34%+ 0.93%+ 20.37%+
Net assets at end of year (000s) $55,239 $39,300 $31,174 $29,821 $26,933
Ratio of operating expenses to average net assets* 1.25% 1.25% 1.42% 1.50% 1.50%
Ratio of net investment income to average net assets* 0.54% 0.79% 0.64% 0.08% 0.23%
Portfolio turnover rate 88.07% 44.44% 47.93% 62.93% 92.35%
Average commission rate @ $0.0583 $0.0331 -- -- --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $ 0.03 $ 0.03 $ 0.06 $ 0.04 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
Class B
-----------------------------------
Year ended June 30
-----------------------------------
1997** 1996** 1995**
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of year $ 16.88 $ 14.16 $12.36
--------- --------- --------
Net investment income (loss)* (0.03) 0.01 0.01
Net realized and unrealized gain (loss) on investments 4.56 3.34 2.12
--------- --------- --------
Total from investment operations 4.53 3.35 2.13
--------- --------- --------
Dividend from net investment income -- -- --
Distributions from net realized gains (1.99) (0.63) (0.33)
--------- --------- --------
Total distributions (1.99) (0.63) (0.33)
--------- --------- --------
Net asset value, end of year $ 19.42 $ 16.88 $14.16
========= ========= ========
Total return 29.91%+ 24.39%+ 17.70%+
Net assets at end of year (000s) $25,478 $13,129 $5,933
Ratio of operating expenses to average net assets* 2.00% 2.00% 2.00%
Ratio of net investment income (loss) to average net assets* (0.20)% 0.05% 0.08%
Portfolio turnover rate 88.07% 44.44% 47.93%
Average commission rate @ $0.0583 $0.0331 --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $ 0.03 $ 0.03 $ 0.06
<CAPTION>
1994 1993***
-------- -------
<S> <C> <C>
Net asset value, beginning of year $14.51 $14.78
-------- -------
Net investment income (loss)* (0.02) 0.00
Net realized and unrealized gain (loss) on investments 0.14 (0.26)
-------- -------
Total from investment operations 0.12 (0.26)
-------- -------
Dividend from net investment income -- (0.01)
Distributions from net realized gains (2.27) --
-------- -------
Total distributions (2.27) (0.01)
-------- -------
Net asset value, end of year $12.36 $14.51
======== =======
Total return 0.37%+ (1.77)%++
Net assets at end of year (000s) $4,029 $ 663
Ratio of operating expenses to average net assets* 2.00% 2.00%[dbldag]
Ratio of net investment income (loss) to average net assets* (0.39)% 0.03%[dbldag]
Portfolio turnover rate 62.93% 92.35%
Average commission rate @ -- --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $ 0.04 $ 0.00
</TABLE>
- --------------------------------------------------------------------------------
** Per-share figures have been calculated using the average shares method.
*** June 1, 1993 (commencement of share class designations) to June 30, 1993.
[dbldag] 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.
@ Average commission rate per share paid for security trades beginning with
the fiscal year ended June 30, 1996.
48
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-----------------------------------
Year ended June 30
-----------------------------------
1997** 1996** 1995**
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of year $ 17.03 $ 14.27 $ 12.48
--------- --------- ---------
Net investment income (loss)* 0.13 0.17 0.14
Net realized and unrealized gain (loss) on investments 4.62 3.37 2.15
--------- --------- ---------
Total from investment operations 4.75 3.54 2.29
--------- --------- ---------
Dividends from net investment income (0.13) (0.15) (0.17)
Distributions from net realized gains (1.99) (0.63) (0.33)
--------- --------- ---------
Total distributions (2.12) (0.78) (0.50)
--------- --------- ---------
Net asset value, end of year $ 19.66 $ 17.03 $ 14.27
========= ========= =========
Total return 31.19%+ 25.66%+ 18.83%+
Net assets at end of year (000s) $83,999 $70,177 $50,503
Ratio of operating expenses to average net assets* 1.00% 1.00% 1.00%
Ratio of net investment income (loss) to average net assets* 0.77% 1.06% 1.09%
Portfolio turnover rate 88.07% 44.44% 47.93%
Average commission rate @ $0.0583 $0.0331 --
*Reflects voluntary assumption of fees or expenses per share
in each year (Note 3). $ 0.03 $ 0.03 $ 0.06
<CAPTION>
1994 1993***
----------- ----------------
<S> <C> <C>
Net asset value, beginning of year $ 14.51 $14.78
-------- --------
Net investment income (loss)* 0.07 (0.00)
Net realized and unrealized gain (loss) on investments 0.17 (0.25)
-------- --------
Total from investment operations 0.24 (0.25)
-------- --------
Dividends from net investment income -- (0.02)
Distributions from net realized gains (2.27) --
-------- --------
Total distributions (2.27) (0.02)
-------- --------
Net asset value, end of year $ 12.48 $14.51
======== ========
Total return 1.41%+ (1.69)%++
Net assets at end of year (000s) $32,991 $18,796
Ratio of operating expenses to average net assets* 1.00% 1.00%[dbldag]
Ratio of net investment income (loss) to average net assets* 0.59% (0.39)%[dbldag]
Portfolio turnover rate 62.93% 92.35%
Average commission rate @ -- --
*Reflects voluntary assumption of fees or expenses per share
in each year (Note 3). $ 0.06 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class D
-----------------------------------
Year ended June 30
-----------------------------------
1997** 1996** 1995**
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of year $ 16.87 $ 14.15 $12.36
--------- --------- --------
Net investment income (loss)* (0.03) 0.01 0.01
Net realized and unrealized gain (loss) on investments 4.56 3.34 2.11
--------- --------- --------
Total from investment operations 4.53 3.35 2.12
--------- --------- --------
Dividend from net investment income -- -- --
Distributions from net realized gains (1.99) (0.63) (0.33)
--------- --------- --------
Total distributions (1.99) (0.63) (0.33)
--------- --------- --------
Net asset value, end of year $ 19.41 $ 16.87 $14.15
========= ========= ========
Total return 29.93%+ 24.40%+ 17.53%+
Net assets at end of year (000s) $ 1,642 $ 931 $ 699
Ratio of operating expenses to average net assets* 2.00% 2.00% 2.00%
Ratio of net investment income (loss) to average net assets* (0.19)% 0.04% 0.08%
Portfolio turnover rate 88.07% 44.44% 47.93%
Average commission rate @ $0.0583 $0.0331 --
*Reflects voluntary assumption of fees or expenses per share
in each year (Note 3). $ 0.03 $ 0.03 $ 0.06
<CAPTION>
1994 1993***
--------- --------
<S> <C> <C>
Net asset value, beginning of year $14.51 $14.78
------- ------
Net investment income (loss)* (0.05) 0.00
Net realized and unrealized gain (loss) on investments 0.17 (0.26)
------- ------
Total from investment operations 0.12 (0.26)
------- ------
Dividend from net investment income -- (0.01)
Distributions from net realized gains (2.27) --
------- ------
Total distributions (2.27) (0.01)
------- ------
Net asset value, end of year $12.36 $14.51
======= ======
Total return 0.45%+ (1.77)%++
Net assets at end of year (000s) $ 551 $ 491
Ratio of operating expenses to average net assets* 2.00% 2.00%[dbldag]
Ratio of net investment income (loss) to average net assets* (0.41)% 0.12%[dbldag]
Portfolio turnover rate 62.93% 92.35%
Average commission rate @ -- --
*Reflects voluntary assumption of fees or expenses per share
in each year (Note 3). $ 0.06 $0.00
</TABLE>
- --------------------------------------------------------------------------------
** Per-share figures have been calculated using the average shares method.
*** June 1, 1993 (commencement of share class designations) to June 30, 1993.
[dbldag] 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.
@ Average commission rate per share paid for security trades beginning with
the fiscal year ended June 30, 1996.
49
<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 (a series of State Street Research Equity Trust, hereafter
referred to as the "Trust") at June 30, 1997, 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 reason-able 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, 1997 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.
Price Waterhouse LLP
Boston, Massachusetts
August 8, 1997
50
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
Equity Investment Fund had an excellent year. Class A shares of the Fund gained
+30.91% for the 12 months ended June 30, 1997, outpacing the +28.07% return of
the average growth and income fund classes tracked by Lipper Analytical
Services (does not reflect sales charge).
This strong performance was achieved over a period of slowing economic growth,
low inflation, high consumer confidence, and rising common stock prices.
The Fund's diversified portfolio focuses on well-established companies that
dominate their industries around the globe with good earnings growth potential.
The stock market favored both large companies and growth stocks during the past
year.
Technology stocks, a staple of the portfolio, performed well over the year.
Corporate earnings were driven largely by a push by U.S. corporations to
increase productivity. However, with valuations very high, technology stocks
were trimmed by fiscal year-end, as were cyclical stocks, which generally do
not benefit from a slowing economy.
The portfolio maintained high allocations in the oil services industry, which
helped Fund performance as demand for offshore equipment and services grew. The
Fund maintains its overweightings in core drug stocks and medical technology
stocks, and has reduced positions in the financial services and oil industries
which had hurt performance.
June 30, 1997
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 transaction 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, which
resulted in new or increased 12b-1 fees of up to 1% per class thereafter and
which will reduce subsequent performance. Performance reflects maximum 4.5% "A"
share front-end sales charge or 5% "B" share or 1% "D" share contingent
deferred sales charge, where applicable. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and large
institutions. Performance results for the Fund are increased by the
Distributor's voluntary reduction of Fund fees and expenses; without
subsidization, performance would have been lower.
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 10 Years Life of Fund
- ---------------------------------------------------------
25.02% 17.64% 12.14% 13.29%
- ---------------------------------------------------------
Equity
Investment
Fund S&P 500
6/87 9550 10000
6/88 8894 9307
6/89 10305 11217
6/90 12010 13061
6/91 11277 14024
6/92 13337 15902
6/93 16054 18066
6/94 16204 18319
6/95 19175 23087
6/96 24033 29085
6/97 31462 39172
Class B Shares
- --------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------
1 Year 5 Years 10 Years Life of Fund
- --------------------------------------------------------
24.91% 17.88% 12.36% 13.48%
- --------------------------------------------------------
Equity
Investment
Fund S&P 500
6/87 10000 10000
6/88 9313 9307
6/89 10791 11217
6/90 12576 13061
6/91 11809 14024
6/92 13966 15902
6/93 16798 18066
6/94 16860 18319
6/95 19844 23087
6/96 24684 29085
6/97 32068 39172
Class C Shares
- --------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------
1 Year 5 Years 10 Years Life of Fund
- --------------------------------------------------------
31.19% 19.05% 12.81% 13.91%
- --------------------------------------------------------
Equity
Investment
Fund S&P 500
6/87 10000 10000
6/88 9313 9307
6/89 10791 11217
6/90 12576 13061
6/91 11809 14024
6/92 13966 15902
6/93 16811 18066
6/94 17047 18319
6/95 20257 23087
6/96 25455 29085
6/97 33394 39172
Class D Shares
- --------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------
1 Year 5 Years 10 Years Life of Fund
- --------------------------------------------------------
28.93% 18.07% 12.35% 13.48%
- --------------------------------------------------------
Equity
Investment
Fund S&P 500
6/87 10000 10000
6/88 9313 9307
6/89 10791 11217
6/90 12576 13061
6/91 11809 14024
6/92 13966 15902
6/93 16797 18066
6/94 16872 18319
6/95 19829 23087
6/96 24668 29085
6/97 32051 39172
____ Equity Investment Fund - - - S&P 500
51
<PAGE>
State Street Research Global Resources Fund
a series of
State Street Research Equity Trust
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1997
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS........................2
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES.................................5
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS.......................14
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...................................................35
DISTRIBUTION OF SHARES OF THE FUND....................................37
CALCULATION OF PERFORMANCE DATA.......................................41
CUSTODIAN.............................................................43
INDEPENDENT ACCOUNTANTS...............................................44
FINANCIAL STATEMENTS..................................................45
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, 1997, 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(1198) SSR-LD GR-879D-1197
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;
4
<PAGE>
(6) not to invest in warrants more than 5% of the value of its
total assets and not to invest in warrants that are not listed
on the New York or American Stock Exchange more than 2% of its
total assets, in each case taken at the lower of cost or
market value (warrants initially attached to securities and
acquired by the Fund upon original issuance thereof shall be
deemed to be without value);
(7) not to invest in companies for the purpose of exercising
control over their management, although the Fund may from time
to time present its views on various matters to the management
of issuers in which it holds investments; and
(8) not to purchase any security or enter into a repurchase
agreement if as a result more than 15% of its 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);
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,
permissible assets 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
6
<PAGE>
respect to each 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.
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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. 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.
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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.
Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including restricted securities sold in accordance with Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities") if, as a result, more
than 35% of the Fund's total assets are invested in restricted securities,
provided not more than 10% of the Fund's total assets are invested in restricted
securities other than 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
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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 subjective valuation
of such securities in the absence of a market for them. Restricted securities
that are not resalable under Rule 144A may be subject to risks of illiquidity
and subjective valuations to a greater degree than Rule 144A Securities.
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.
The Fund may enter credit protection swap arrangements involving the
sale by the Fund of a put option on a debt security which is exercisable by the
buyer upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
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, as noted above, 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
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swap arrangement, the Fund is dependent upon the creditworthiness and good faith
of the counterparty. The Fund attempts to reduce the risks of nonperformance by
the counterparty by dealing only with established, reputable institutions. The
swap market is still relatively new and emerging; positions in swap arrangements
may become illiquid to the extent that nonstandard arrangements with one
counterparty are not readily transferable to another counterparty or if a market
for the transfer of swap positions does not develop. The use of interest rate
swaps is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Investment Manager is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment performance
of the Fund would diminish compared with what it would have been if these
investment techniques were not used. Moreover, even if the Investment Manager is
correct in its forecasts, there is a risk that the swap position may correlate
imperfectly with the price of the asset or liability being hedged.
Currency Transactions
The Fund may engage in currency exchange transactions in order to
protect against the effect of uncertain future exchange rates on securities
denominated in foreign currencies. The 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
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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
may be classified according to the industries of their parent or sponsor
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.
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
Consumer Cyclical
Truckers Tobacco -----------------
Airline
Utility Energy 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.
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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:
[bullet] direct obligations of the U.S. Treasury, i.e., U.S. Treasury
bills, notes, certificates and bonds;
[bullet] obligations of U.S. Government agencies or instrumentalities
such as the Federal Home Loan Banks, the Federal Farm Credit
Banks, the Federal National Mortgage Association, the
Government National Mortgage Association and the Federal Home
Loan Mortgage Corporation; and
[bullet] obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a
variety of ways by the U.S. Government, its agencies or instrumentalities. Some
of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full faith and credit of the U.S.
Treasury. Other obligations, such as those of the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase certain obligations of agencies or instrumentalities, although the U.S.
Government has no legal obligation to do so. Obligations such as those of the
Federal Home Loan Banks, the Federal Farm Credit Bank, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation are backed
by the credit of the agency or instrumentality issuing the obligations. Certain
obligations of Resolution Funding Corporation, a mixed-ownership Government
corporation, are backed with respect to interest payments by the U.S. Treasury,
and with respect to principal payments by U.S. Treasury obligations held in a
segregated account with a Federal Reserve Bank. Except for certain
mortgage-related securities, the Fund will only invest in obligations issued by
mixed-ownership Government corporations where such securities are guaranteed as
to payment of principal or interest by the U.S. Government or a U.S. Government
agency or instrumentality, and any unguaranteed
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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 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
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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.
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 within the A category by S&P or within the "Prime"
category by Moody's, or, if not rated, issued by companies having an outstanding
long-term unsecured debt issue rated at least within the A category by S&P or
within the "Prime" category 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
within the "A" major rating category by S&P or by Moody's.
Commercial paper rated within the "A" major rating category (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 credits within the "BBB" category 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+.)
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The Prime category 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
in the Prime-1, Prime-2 or Prime-3 category.
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: An obligation rated within the AAA category has the highest rating
assigned by S&P. Capacity to meet the financial commitment on the obligation is
extremely strong.
AA: An obligation rated within the AA category differs from the highest
rated obligation only in small degree. Capacity to meet the financial obligation
is very strong.
A: An obligation rated within the A category is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. However, capacity to meet the
financial commitment on the obligation is still strong.
BBB: An obligation rated within the BBB category exhibits adequate
protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to meet the
financial commitment on the obligation.
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Obligations rated within the BB, B, CCC, CC and C categories are
regarded as having significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated within the BB category is less vulnerable to
nonpayment 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 the financial commitment on the
obligation. The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB rating.
B: An obligation rated within the B category is more vulnerable to
nonpayment than obligations rated within the BB category, but currently has the
capacity to meet the financial commitment on the obligation. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
meet the financial commitment on the obligation. 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: An obligation rated within the CCC category is vulnerable to
nonpayment and is dependent upon favorable business, financial and economic
conditions to meet the financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to meet the financial commitment on the obligation.
CC: An obligation rated within the CC category is currently highly
vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy
petition has been filed, but payments on this obligation are being continued.
D: An obligation rated within the D category is in payment default. The
D rating category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless S&P
believes
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that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation 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 the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayments risks-such as interest only (IO) and
principal only (PO) mortgage securities; and obligations with unusually risky
terms, such as inverse floaters.
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 within the Aaa category 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 within the Aa category 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 within the A category 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 within the Baa category 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.
20
<PAGE>
Ba: Bonds which are rated within the Ba category 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 within the B category 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 within the Caa category 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 within the Ca category 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 within the C category 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.
21
<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 59. 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.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 60. He is
retired and was formerly Senior Vice President for Finance and Operations and
Treasurer of The Pennsylvania State University.
+Bartlett R. Geer, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 42. 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.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forst, Asheville, NC
28803, serves as Trustee of the Trust. He is 69. He is engaged principally in
private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 70. 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 71. 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 46. 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
- ------------------
* or + see footnotes on page 24
22
<PAGE>
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 42. 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 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 59. 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 65. 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 73. 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 45. 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 59. 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
60. 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.
- ------------------
* or + see footnotes on page 24
23
<PAGE>
*+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 54. 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., and until
February, 1996, prior positions as President and Chief Executive Officer of that
company.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 72. 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 51. 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 34. 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/Director and/or officer of one or more of the
following investment companies, each of which has a direct or indirect advisory
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.
24
<PAGE>
As of September 30, 1997, the Trustees and principal officers of the
Trust as a group owned less than 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, 1997, 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 14.7
Class B Merrill Lynch 29.5
Class S The Chase Manhattan Bank 90.5
(National Association)
Class C Merrill Lynch 33.1
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
The Chase Manhattan Bank
(National Association)(b)
770 Broadway
New York, New York 10003
25
<PAGE>
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
- ------------------
(a) The Fund believes that such entity does not have beneficial ownership of
such shares.
(b) The Chase Manhattan Bank (National Association) holds such shares as a
trustee under certain employee benefit plans serviced by Metropolitan
Life Insurance Company.
26
<PAGE>
The Trustees were compensated as follows:
- --------------------------------------------------------------------------------
Total
Compensation
Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Trust(a) to Trustees(b)
- --------------------------------------------------------------------------------
Steve A. Garban $ 4,443 $ 34,750
Malcolm T. Hopkins $ 5,043 $ 34,750
Edward M. Lamont $11,325 $ 59,375
Robert A. Lawrence $11,725 $ 92,125
Dean O. Morton $12,525 $ 96,125
Thomas L. Phillips $11,725 $ 59,375
Toby Rosenblatt $11,325 $ 59,375
Michael S. Scott Morton $13,725 $100,325
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $12,925 $ 63,375
(a) For the Fund's fiscal year ended June 30, 1997. Includes compensation from
multiple series of the Trust. See "Distribution of Shares" for a listing of
series.
(b) Includes compensation on behalf of all series of 12 investment companies,
for which the Investment Manager served directly or indirectly as
investment adviser or for which the Investment Manager served as
sub-investment adviser, and series of State Street Research Portfolios,
Inc. for which State Street Research Investment Services, Inc. serves as
distributor. "Total Compensation from Trust and Complex Paid to Trustees"
is for the 12 months ended December 31, 1996. The Trust does not provide
any pension or retirement benefits for the Trustees.
27
<PAGE>
INVESTMENT ADVISORY SERVICES
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Advisory
Agreement provides that the Investment Manager shall furnish the Fund with an
investment program, office facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of the
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly owned subsidiary of Metropolitan.
The advisory fee payable monthly by the Fund to the Investment Manager
is computed as a percentage of the average of the value of the net assets of the
Fund as determined at the close of the New York Stock Exchange (the "NYSE") on
each day the NYSE is open for trading, at the annual rate of 0.75% of the net
assets of the Fund. The 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, 1995, 1996, and 1997
the Fund's investment advisory fee prior to the assumption of fees or expenses
was $284,926, $307,977 and $940,108, respectively. For the same periods, the
voluntary reduction of fees or assumption of expenses amounted to $307,559,
$137,050 and $3,933, respectively.
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.
28
<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, and selected other persons elsewhere involved in investment management
operations, are only permitted to engage in personal securities transactions in
accordance with certain conditions relating to such person's position, the
identity of the security, the timing of the transaction, and similar factors.
Such persons 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 S 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
C 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.
29
<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 S 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 S shares may also be included in the combination
under certain circumstances. Investors must
30
<PAGE>
submit to the Distributor sufficient information to show that they qualify for
this Right of Accumulation.
Class B Shares - In certain cases, a dealer may elect to waive the 4%
commission on Class B shares and receive in lieu thereof a 1% annual fee with
respect to such outstanding shares until the shares convert to Class A shares.
Class S Shares - Class S 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, Martin Luther King, Jr.
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.
31
<PAGE>
In determining the values of portfolio assets as provided below, the
Trustees may utilize one or more pricing services in lieu of market quotations
for certain securities which are not readily available on a daily basis. Such
services may provide prices determined as of times prior to the close of the
NYSE.
In general, securities are valued as follows. Securities which are
listed or traded on the New York or American Stock Exchange are valued at the
price of the last quoted sale on the respective exchange for that day.
Securities which are listed or traded on a national securities exchange or
exchanges, but not on the New York or American Stock Exchange, 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,
1996 and 1997 were 92.33% and 51.67%, respectively.
32
<PAGE>
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended June 30, 1997 was significantly lower than that for the
previous fiscal year because in the prior year the Fund had significant
portfolio holdings which were subject to merger and acquisition activity which
resulted in changes in the holdings in the portfolio.
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
33
<PAGE>
databases (including those used for portfolio analysis and modeling and
including software providing investment personnel with efficient access to
current and historical data from a variety of internal and external sources);
and portfolio evaluation services and relative performance of accounts.
In the case of the Fund and other registered investment companies
advised by the Investment Manager, the above services may include data relating
to performance, expenses and fees of those investment companies and other
investment companies; this information is used by the Trustees or directors of
the investment companies to fulfill their responsibility to oversee the quality
of the Investment Manager's advisory services and to review the fees and other
provisions contained in the advisory contracts between the investment companies
and the Investment Manager. The Investment Manager considers these investment
company services only in connection with the execution of transactions on behalf
of its investment company clients and not its other clients.
Certain of the 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 in less
than ten percent of the outstanding equity of one such third party which is
engaged in the development and licensing of trading systems which include
portfolio analysis and modeling and other research and investment
decision-making capabilities. The Investment Manager may allocate brokerage to
broker-dealers who in turn pay this third party for the portion of the third
party's trading system provided to the Investment Manager which is estimated by
the Investment Manager to provide appropriate assistance in the investment
decision-making process. Because of its minority interest in the third party,
the Investment Manager could be said to benefit indirectly from such brokerage
allocation.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Among other measures, the Investment Manager's
investment personnel seek to evaluate the quality of research and other services
received, and the results of this effort are made available to the equity
trading department which sometimes uses this information as a consideration of
brokers in the selection to execute portfolio transactions.
Some services furnished by broker-dealers 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 the
Investment Manager pays for that portion directly from its
34
<PAGE>
own funds. 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, the Investment Manager 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,
1995, 1996, and 1997, amounted to $149,770, $207,690, and $539,481 respectively.
The Investment Manager believes the amount of brokerage commissions paid by the
Fund during the fiscal year ended June 30, 1997, was significantly higher than
during the previous year because of increased cash inflows for the Fund, from
the sale of Fund shares, which resulted in increased brokerage transactions and
commission in the course of investing the cash in securities for the portfolio.
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 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
35
<PAGE>
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, for each of the Fund's tax-years that
has begun on or prior to August 5, 1997, the Fund must, among other things, (a)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities; (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies); or (iii) foreign currencies
(or options, futures or forward contracts on foreign currencies) but only if
such currencies (or options, futures or forward contracts) are not directly
related to the Fund's principal business of investing in stocks or securities
(or options and futures with respect to stocks or securities); (c) satisfy
certain diversification requirements; and (d) in order to be entitled to utilize
the dividends paid deduction, distribute annually at least 90% of its investment
company taxable income (determined without regard to the deduction for dividends
paid). For any Fund tax year beginning after August 5, 1997, the Fund will have
to comply with each of those requirements except the 30% test in order to
qualify to be treated as a regulated investment company under Subchapter M.
36
<PAGE>
Beginning July 1, 1998 (the start of the Fund's first tax year that
begins after August 5, 1997), when the Fund no longer has to comply with the 30%
test in order to qualify under Subchapter M, the Fund will have greater
flexibility in buying and selling securities and in the use of futures and
options in managing risks. The 30% test has the effect of limiting 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.) The
30% test also may 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 (or deemed 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, or be deemed to have distributed 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. For this purpose, any
income or gain retained by the Fund that is subject to corporate tax will be
considered to have been distributed by year-end. 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
37
<PAGE>
income is actually received, and therefore is subject to the distribution
requirements of the Code. Generally, the amount of original issue discount is
determined on the basis of a constant yield to maturity which takes into account
the compounding of accrued interest. Under section 1286 of the Code, an
investment in a stripped bond or stripped coupon may result in original issue
discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for federal
income tax purposes. In the case of any debt security issued after July 18,
1984, having a fixed maturity date of more than one year from the date of issue
and having market discount, the gain realized on disposition will be treated as
interest to the extent it does not exceed the accrued market discount on the
security (unless the Fund 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
(until July 1, 1998), 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
38
<PAGE>
return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a taxable distribution. The
price of shares purchased at that time includes the amount of any forthcoming
distribution. Those investors purchasing shares just prior to a taxable
distribution will then receive a return of investment upon distribution which
will nevertheless be taxable to them.
DISTRIBUTION OF SHARES OF THE FUND
State Street Research Equity Trust is currently comprised of the
following series: 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 S shares. Prior to November 1, 1997, Class S shares
were designated as Class C shares and Class C shares were designated as 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 C shares). The Distributor may reallow all or
portions of such sales charges as concessions to dealers. For the fiscal years
ended June 30, 1995, 1996 and 1997, total sales charges on Class A shares paid
to the Distributor amounted to $93,586, $169,918 and $1,357,717, respectively.
For the same periods, the Distributor retained $10,670, $20,357 and $169,805,
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
39
<PAGE>
associated entities. Where shares of the Fund are offered at a reduced sales
charge or without a sales charge pursuant to sponsored arrangements and managed
fee-based programs, the amount of the sales charge reduction will similarly
reflect the anticipated reduction in sales expenses associated with such
arrangements. The reduction in sales expenses, and therefore the reduction in
sales charge, will vary depending on factors such as the size and other
characteristics of the organization or program, and the nature of its membership
or the participants. The Fund reserves the right to make variations in, or
eliminate, sales charges at any time or to revise the terms of or to suspend or
discontinue sales pursuant to sponsored arrangements at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission 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 C 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, 1997 June 30, 1996 June 30, 1995
------------------------------------------------------------------------------------------------------
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 $1,187,912 $0 $149,561 $21,450 $82,916
Class B $109,834 $2,384,944 $45,288 $207,595 $36,122 $29,957
Class C $33,827 $255,818 $100 $17,788 $1,185 $0
</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 C shares,
40
<PAGE>
including, but not limited to, (1) the payment of commissions and/or
reimbursement to underwriters, securities dealers and others engaged in the sale
of shares, including payments to the Distributor to be used to pay commissions
and/or reimbursement to securities dealers (which securities dealers may be
affiliates of the Distributor) engaged in the distribution and marketing of
shares and furnishing ongoing assistance to investors, (2) reimbursement of
direct out-of-pocket expenditures incurred by the Distributor in connection with
the distribution and marketing of shares and the servicing of investor accounts
including special promotional fees and cash and noncash incentives based upon
sales by securities dealers, expenses relating to the formulation and
implementation of marketing strategies and promotional activities such as direct
mail promotions and television, radio, newspaper, magazine and other mass media
advertising, the preparation, printing and distribution of Prospectuses of the
Fund and reports for recipients other than existing shareholders of the Fund,
and obtaining such information, analyses and reports with respect to marketing
and promotional activities and investor accounts as the Fund may, from time to
time, deem advisable, and (3) reimbursement of expenses incurred by the
Distributor in connection with the servicing of shareholder accounts including
payments to securities dealers and others in 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 C shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class C
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 C 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.
41
<PAGE>
During the fiscal year ended June 30, 1997, 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 C
------- ------- -------
Advertising $ 0 $ 11,853 $ 0
Printing and mailing
of prospectuses to
other than current
shareholders 0 4,783 0
Compensation to dealers 142,417 347,130 170,898
Compensation to sales
personnel 0 37,483 0
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing;
general 0 19,787 0
-------- -------- --------
Total fees $142,417 $421,036 $170,898
======== ======== ========
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.
42
<PAGE>
CALCULATION OF PERFORMANCE DATA
The average annual total return ("standard total return") of the Class
A, Class B, Class C and Class S 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 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
S None 0.50% until June 1, 1993; None
0% thereafter
</TABLE>
All calculations of performance data in this section reflect the
voluntary measures, if any, by the Fund's affiliates to reduce fees or expenses
relating to the Fund; see "Accrued Expenses" later in this section.
Total Return
Standard total return of each class of shares of the Fund was as
follows:
43
<PAGE>
Commencement of
Operations Five Years One Year
(March 2, 1990) Ended Ended
to June 30, 1997 June 30, 1997 June 30, 1997
---------------- ------------- -------------
With With With
Subsidy Subsidy Subsidy
Class A 8.88% 22.52% 26.98%
Class B 9.17% 22.84% 26.98%
Class C 9.77% 24.01% 33.33%
Class D 9.15% 22.97% 30.90%
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 highest
applicable 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.
44
<PAGE>
Accrued Expenses
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return results take sales charges, if applicable, into account,
although the results do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class S 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, 1997 without taking sales charges into account, were
as follows:
With
Subsidy
-------
Class A 3.42%
Class B 3.02%
Class C 3.03%
Class S 3.56%
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.
45
<PAGE>
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing professional services
including (1) audit of the Fund's annual financial statements, (2) assistance
and consultation in connection with Securities and Exchange Commission filings
and (3) review of the annual income tax returns filed on behalf of the Fund.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a
semiannual basis, other supplementary financial reports may be made available
from time to time through electronic or other media. Shareholders with
substantial holdings in one or more State Street Research Funds may also receive
reports and other information which reflect or analyze their positions in a
consolidated manner. For more information, call State Street Research
Shareholder Services.
The following financial statements for the Fund's fiscal year ended
June 30, 1997 reflect the Fund's class designations prior to November 1, 1997.
Information pertaining to Class C and Class D in the financial statements now
pertain to Class S and Class C, respectively.
DOCSC\555820.3
10/20/97
46
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
June 30, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 1)
----------- --------------
<S> <C> <C>
EQUITY SECURITIES 96.8%
Basic Industries 16.1%
Chemical 0.4%
Agrium Inc. ........................... 70,000 $ 805,000
-------------
Machinery 0.2%
Hanover Compressor Co.* ............... 19,200 374,400
-------------
Metal & Mining 13.3%
Ashanti Goldfields Co. Ltd. GDR ......... 100,000 1,168,750
Battle Mountain Gold Co. ............... 150,000 853,125
Bema Gold Corp.* ........................ 120,000 720,000
Boliden Ltd.* ........................... 380,000 2,022,521
Cameco Corp. ........................... 40,000 1,491,727
Corriente Resources Inc.* ............... 150,000 358,449
Crown Resources Corp.* .................. 120,000 765,000
Crystallex International Corp.* ......... 150,000 760,346
Delta Gold NL* ........................ 300,000 501,062
Denison Mines Ltd.* ..................... 1,500,000 418,190
Great Central Mines Ltd.* ............... 400,000 762,400
Homestake Mining Co. .................. 60,000 783,750
Impala Platinum Holdings ADR* ......... 50,000 559,465
Menzies Gold NL* ........................ 1,000,000 302,300
Newcrest Mining Ltd.* .................. 300,000 829,587
Newmont Mining Corp. .................. 20,000 780,000
Normandy Mining Ltd.* .................. 700,000 788,247
Orogen Minerals Inc.* .................. 1,250,000 3,580,365
Pan African Resources Corp* ............ 287,400 54,111
Pangea Goldfields Inc.* ............... 100,000 289,656
Placer Dome Inc. ........................ 50,000 818,750
Randgold Resources Inc. GDR*+ ......... 55,000 907,500
South Pacific Resources Inc.* ......... 350,000 149,535
Southernera Resources Ltd.* ............ 100,000 564,828
Southwestern Gold Corp.* ............... 80,000 544,553
Special Metals Corp.* .................. 26,100 508,950
Stelco Inc. Cl. A ..................... 35,000 261,052
Stillwater Mining Co.* .................. 70,000 1,557,500
Sutton Resources Ltd.* .................. 125,000 1,011,719
TVX Gold Inc.* ........................ 70,000 371,875
Vaal Reefs Exploration & Mining Ltd. ADR 125,000 601,562
Valerie Gold Resources Ltd.* ............ 100,000 102,828
Viceroy Resource Corp.* ............... 150,000 488,794
X-Cal Resources Ltd.* .................. 840,000 395,380
-------------
26,073,877
-------------
Railroad 2.2%
Mosvold Shipping Ltd.* .................. 2,000,000 2,578,726
OMI Corp. .............................. 183,500 1,754,719
-------------
4,333,445
-------------
Total Basic Industries ........................... 31,586,722
-------------
<CAPTION>
Value
Shares (Note 1)
----------- --------------
<S> <C> <C>
Energy 76.7%
Oil 53.1%
3DX Technologies Inc.* .................. 100,000 $ 975,000
Abacan Resource Corp.* .................. 545,900 1,740,056
Apache Corp. ........................... 50,025 1,625,812
Arakis Energy Corp.* .................. 1,000,000 3,781,250
Barrett Resources Corp.* ............... 150,100 4,493,619
Barrington Petroleum Ltd.* ............ 120,000 477,932
Basin Exploration Inc.* ............... 200,000 1,550,000
Brigham Exploration Co.* ............... 91,700 767,988
Cabot Oil & Gas Corp. .................. 100,000 1,762,500
Cairn Energy USA Inc.* .................. 150,000 1,968,750
Callon Petroleum Co.* .................. 100,000 1,600,000
Canadian 88 Energy Corp.* ............... 166,600 675,593
Canadian Conquest Exploration Inc.* ... 165,000 162,497
Chesapeake Energy Corp.* ............... 75,000 735,938
Clayton Williams Energy Inc.* ......... 24,930 283,579
COHO Energy Inc.* ..................... 85,700 910,562
Crystal Oil Co.* ........................ 41,600 1,476,800
Elk Point Resources Inc. Cl. A* ......... 300,000 1,890,003
Forcenergy, Inc.* ..................... 60,000 1,822,500
KCS Energy Inc. ........................ 490,000 9,983,750
Kelley Oil & Gas Corp.* ............... 300,000 918,750
Maxx Petroleum Ltd.* .................. 400,000 680,691
Mercantile International Inc.* ......... 72,500 79,750
Morrison Middlefield Ltd. ............... 240,000 2,476,556
New Cache Petroleum Ltd.* ............... 80,000 521,380
Novus Petroleum Ltd.* .................. 892,600 3,069,350
Nuevo Energy Co.* ..................... 210,000 8,610,000
Ocean Energy Inc.* ..................... 98,600 4,560,250
Oil Search Ltd.* ........................ 2,139,100 5,819,849
Pan East Petroleum Inc.* ............... 135,800 354,017
Pendaries Petroleum Ltd.* ............... 141,200 1,610,413
Plains Resources Inc.* .................. 250,000 3,687,500
Ranger Oil Ltd.* ........................ 400,000 3,725,000
Seagull Energy Corp.* .................. 500,000 8,750,000
Seven Seas Petroleum Inc.* ............... 150,000 1,770,000
Southern Mineral Corp.* .................. 150,000 750,000
Southwestern Energy Co.* ............... 100,000 1,300,000
Stampeder Exploration Ltd.* ............ 249,950 984,178
Stone Energy Corp.* ..................... 117,500 3,216,562
Tarragon Oil & Gas Ltd.* ............... 250,052 2,933,374
Thunder Energy Inc.* .................. 300,000 358,449
Titan Exploration Inc.* ............... 124,600 1,510,775
Tom Brown, Inc.* ........................ 200,000 4,250,000
Triton Energy Ltd. Cl. A ............... 46,400 2,125,700
Ulster Petroleum Ltd.* .................. 200,000 1,810,348
-------------
104,557,021
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
--------- -------------
<S> <C> <C>
Oil Service 23.6%
Atwood Oceanics Inc.* ............... 69,800 $ 4,676,600
Cliffs Drilling Co.* ............... 100,000 3,650,000
Dailey Petroleum Services Corp.* ... 200,000 1,350,000
Daniel Industries Inc. ............ 200,000 3,087,500
Dreco Energy Services Ltd. Cl. A* ... 45,000 2,362,500
Ensco International Inc.* ......... 59,975 3,163,681
Global Marine Inc.* ............... 62,700 1,457,775
Grant Geophysical Inc.* ............ 100,000 3,500
J. Ray McDermott SA* ............... 150,700 4,068,900
Noble Drilling Corp.* ............... 350,000 7,896,875
Oceaneering International Inc.* ... 53,000 980,500
Offshore Energy Development Corp.* 40,000 185,000
Patterson Energy, Inc.* ............ 21,254 964,400
Pool Energy Services Co.* ......... 74,200 1,344,875
Post Energy Corp.* .................. 369,000 1,002,028
Precision Drilling Corp.* ......... 44,200 2,138,175
Reading & Bates Corp.* ............ 10,000 267,500
Rowan Companies, Inc.* ............ 70,700 1,992,856
Solid State Geophysical Inc. Cl. A 47,300 119,881
TMBR/Sharp Drilling Inc.* ......... 136,800 1,846,800
Unit Corp.* ........................ 200,000 2,087,500
Weatherford Enterra Inc.* ......... 50,000 1,925,000
-------------
46,571,846
-------------
Total Energy ................................. 151,128,867
-------------
Utility 4.0%
Natural Gas 4.0%
Markwest Hydrocarbon Inc.* ......... 37,500 567,188
Questar Corp. ..................... 50,000 2,018,750
TransTexas Gas Corp.* ............... 330,600 5,289,600
-------------
7,875,538
-------------
Total Utility .............................. 7,875,538
-------------
Total Equity Securities (Cost $163,177,350) ... 190,591,127
-------------
</TABLE>
<TABLE>
<CAPTION>
Principal Maturity Value
Amount Date (Note 1)
------------ ----------- ----------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 3.8%
American Express Credit Corp.,
5.70% ..................... $ 993,000 7/03/1997 $ 993,000
Ford Motor Credit Co., 5.50% . 6,538,000 7/01/1997 6,538,000
------------
Total Short-Term Obligations (Cost $7,531,000) ......... 7,531,000
------------
Total Investments (Cost $170,708,350)--100.6% ............ 198,122,127
Cash and Other Assets, Less Liabilities--(0.6%) ......... (1,117,243)
------------
Net Assets--100.0% ....................................... $197,004,884
============
</TABLE>
<TABLE>
<CAPTION>
Federal Income Tax Information:
<S> <C>
At June 30, 1997, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $170,925,485 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ............................................... $ 36,175,097
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ............................................ (8,978,455)
-------------
$ 27,196,642
=============
</TABLE>
- -------------------------------------
* Nonincome-producing securities.
ADR and GDR stand for American Depositary Receipt and Global Depositary Receipt,
respectively, representing ownership of foreign securities.
[dag]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, 1997 were $907,500 and $907,500 (0.46% of net assets),
respectively.
Diversification of Equity Securities at June 30, 1997 (as a percentage of net
assets) was United States 66.8%, Canada 22.8%, Australia 6.1%, Papua New Guinea
1.8%, Norway 1.3%, South Africa 0.6%, Ghana 0.6%, and British Virgin Islands
0.0%.
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- -------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------
June 30, 1997
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $170,708,350) (Note 1) ... $198,122,127
Cash ................................................ 22,916
Receivable for fund shares sold ..................... 790,749
Receivable for securities sold ........................ 267,339
Dividends and interest receivable ..................... 24,016
Other assets .......................................... 2,034
-------------
199,229,181
Liabilities
Payable for securities purchased ..................... 1,366,621
Payable for fund shares redeemed ..................... 453,620
Accrued management fee (Note 2) ..................... 122,363
Accrued distribution and service fees (Note 5) ...... 104,003
Accrued transfer agent and shareholder services
(Note 2) .......................................... 77,279
Accrued trustees' fees (Note 2) ..................... 7,587
Other accrued expenses .............................. 92,824
-------------
2,224,297
-------------
Net Assets $197,004,884
=============
Net Assets consist of:
Unrealized appreciation of investments ............... $ 27,413,777
Accumulated net realized gain ........................ 7,125,672
Shares of beneficial interest ........................ 162,465,435
-------------
$197,004,884
=============
Net Asset Value and redemption price per share of
Class A shares ($80,028,888[divided by]3,574,507 shares of
beneficial interest) ................................. $22.39
=============
Maximum Offering Price per share of Class A shares
($22.39 [divided by] .955) ........................... $23.45
=============
Net Asset Value and offering price per share of Class
B shares ($78,701,053 [divided by] 3,610,815 shares of
beneficial interest)* .............................. $21.80
=============
Net Asset Value, offering price and redemption price
per share of Class C shares ($10,746,753 [divided by]
473,002 shares of beneficial interest) ............... $22.72
=============
Net Asset Value and offering price per share of Class
D shares ($27,528,190 [divided by] 1,265,314 shares of
beneficial interest)* .............................. $21.76
=============
</TABLE>
- -------------------------------------
*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, 1997
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $20,985 ............... $ 407,643
Interest ................................................ 459,027
------------
866,670
Expenses
Management fee (Note 2) ................................. 940,108
Transfer agent and shareholder services (Note 2) ...... 226,295
Service fee--Class A (Note 5) ........................... 142,417
Distribution and service fees--Class B (Note 5) ......... 421,036
Distribution and service fees--Class D (Note 5) ......... 170,898
Custodian fee .......................................... 128,281
Registration fees ....................................... 75,418
Reports to shareholders ................................. 41,085
Audit fee ............................................. 26,983
Trustees' fees (Note 2) ................................. 14,061
Miscellaneous .......................................... 8,126
------------
2,194,708
Expenses borne by the Distributor (Note 3) ............ (3,933)
------------
2,190,775
------------
Net investment loss .................................... (1,324,105)
------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments (Notes 1 and 4) ...... 12,486,164
Net realized loss on foreign currency .................. (27,759)
------------
Total net realized gain .............................. 12,458,405
Net unrealized appreciation of investments ............ 13,310,514
------------
Net gain on investments ................................. 25,768,919
------------
Net increase in net assets resulting from operations . $24,444,814
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- -------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------
<TABLE>
<CAPTION>
Year ended June 30
-----------------------------------
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss ......... $ (1,324,105) $ (679,747)
Net realized gain on
investments ............... 12,458,405 4,871,429
Net unrealized appreciation of
investments ............... 13,310,514 11,106,956
------------- -----------
Net increase resulting from
operations .................. 24,444,814 15,298,638
------------- -----------
Distribution from net realized
gains:
Class A ..................... (1,857,796) --
Class B ..................... (1,170,575) --
Class C ..................... (352,673) --
Class D ..................... (581,660) --
------------- -----------
(3,962,704) --
------------- -----------
Net increase from fund share
transactions (Note 7) ...... 121,964,798 900,350
------------- -----------
Total increase in net assets 142,446,908 16,198,988
Net Assets
Beginning of year ............ 54,557,976 38,358,988
------------- -----------
End of year .................. $ 197,004,884 $54,557,976
============= ===========
</TABLE>
- -------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------
June 30, 1997
Note 1
State Street Research Global Resources Fund (the "Fund"), is a series of State
Street Research 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.
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
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.
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 0.75% 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, 1997, the fees pursuant to such agreement
amounted to $940,108.
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,
1997, the amount of such shareholder servicing and account maintenance expenses
was $112,253.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$14,061 during the year ended June 30, 1997.
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, 1997, the amount of such expenses assumed by the
Distributor and its affiliates was $3,933.
Note 4
For the year ended June 30, 1997, purchases and sales of securities, exclusive
of short-term obligations, aggregated $172,476,754 and $61,225,861,
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, 1997, fees pursuant to such plan amounted to
$142,417, $421,036 and $170,898 for Class A, Class B and Class D shares,
respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $169,805 and $114,790, respectively, on sales of Class A shares of
the Fund during the year ended June 30, 1997, and that MetLife Securities, Inc.
earned commissions aggregating $217,475 on sales of Class B shares, and that the
Distributor collected contingent deferred sales charges of $109,834 and $33,827
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.
51
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At June 30, 1997, the
Distributor owned one Class A share of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended June 30
-----------------------------------------------------------------------
1997 1996
------------------------------------ --------------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .................................... 3,660,723 $ 77,832,076 723,940 $ 10,571,034
Issued upon reinvestment of distribution from net
realized gains .............................. 82,889 1,767,355 -- --
Shares repurchased ........................... (1,943,823) (40,902,436) (1,062,091) (14,571,296)
------------ ------------ ------------ ------------
Net increase (decrease) ........................ 1,799,789 $ 38,696,995 (338,151) $ (4,000,262)
============ ============ ============ ============
Class B Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 3,312,555 $ 69,477,881 438,451 $ 6,509,210
Issued upon reinvestment of distribution from net
realized gains .............................. 51,654 1,077,181 -- --
Shares repurchased ........................... (502,773) (10,470,845) (273,265) (3,881,920)
------------ ------------ ------------ ------------
Net increase ................................. 2,861,436 $ 60,084,217 165,186 $ 2,627,290
============ ============ ============ ============
Class C Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 736,188 $ 15,558,855 354,475 $ 5,359,929
Issued upon reinvestment of distribution from net
realized gains .............................. 14,897 321,658 -- --
Shares repurchased ........................... (597,301) (12,708,131) (303,110) (4,509,482)
------------ ------------ ------------ ------------
Net increase ................................. 153,784 $ 3,172,382 51,365 $ 850,447
============ ============ ============ ============
Class D Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 1,676,809 $ 34,986,489 210,219 $ 2,813,802
Issued upon reinvestment of distribution from net
realized gains .............................. 25,665 534,412 -- --
Shares repurchased ........................... (738,597) (15,509,697) (104,262) (1,390,927)
------------ ------------ ------------ ------------
Net increase ................................. 963,877 $ 20,011,204 105,957 $ 1,422,875
============ ============ ============ ============
</TABLE>
52
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
Year ended June 30
---------------------------------------------------------------
1997** 1996** 1995** 1994** 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 17.44 $ 12.16 $ 11.84 $ 13.51 $ 8.02
---------- ---------- ---------- ----------- ----------
Net investment loss* (0.15) (0.20) (0.16) (0.17) (0.13)
Net realized and unrealized gain (loss) on investments 5.86 5.48 0.48 (1.50) 5.62
---------- ---------- ---------- ----------- ----------
Total from investment operations 5.71 5.28 0.32 (1.67) 5.49
---------- ---------- ---------- ----------- ----------
Distribution from net realized gains (0.76) -- -- -- --
---------- ---------- ---------- ----------- ----------
Total distributions (0.76) -- -- -- --
---------- ---------- ---------- ----------- ----------
Net asset value, end of year $ 22.39 $ 17.44 $ 12.16 $ 11.84 $ 13.51
========== ========== ========== =========== ==========
Total return 32.96%[dag] 43.42%[dag] 2.70%[dag] (12.36)%[dag] 68.45%[dag]
Net assets at end of year (000s) $ 80,029 $ 30,943 $ 25,692 $ 30,679 $ 33,513
Ratio of operating expenses to average net assets* 1.42% 1.75% 1.75% 1.75% 1.75%
Ratio of net investment loss to average net assets* (0.73)% (1.47)% (1.41)% (1.46)% (1.44)%
Portfolio turnover rate 51.67% 92.33% 62.94% 30.98% 61.00%
Average commission rate@ $ 0.0233 $ 0.0237 -- -- --
*Reflects voluntary assumption of fees or expenses per share in
each year (Note 3). $ 0.00 $ 0.05 $ 0.09 $ 0.11 $ 0.03
</TABLE>
<TABLE>
<CAPTION>
Class B
-----------------------------------
Year ended June 30
-----------------------------------
1997** 1996** 1995** 1994** 1993***
- -------------------------------------------------------------------------------------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 17.12 $ 12.03 $ 11.78 $ 13.51 $ 12.99
---------- ----------- ----------- ------------ -----------
Net investment loss* (0.30) (0.30) (0.23) (0.23) (0.02)
Net realized and unrealized gain (loss) on investments 5.74 5.39 0.48 (1.50) 0.54
---------- ----------- ----------- ------------ -----------
Total from investment operations 5.44 5.09 0.25 (1.73) 0.52
---------- ----------- ----------- ------------ -----------
Distribution from net realized gains (0.76) -- -- -- --
---------- ----------- ----------- ------------ -----------
Total distributions (0.76) -- -- -- --
---------- ----------- ----------- ------------ -----------
Net asset value, end of year $ 21.80 $ 17.12 $ 12.03 $ 11.78 $ 13.51
========== =========== =========== ============ ===========
Total return 31.98%[dag] 42.31%[dag] 2.12%[dag] (12.81)%[dag] 4.00%++
Net assets at end of year (000s) $ 78,701 $ 12,828 $ 7,030 $ 6,333 $ 1,048
Ratio of operating expenses to average net assets* 2.17% 2.50% 2.33% 2.25% 2.25%[dbldag]
Ratio of net investment loss to average net assets* (1.47)% (2.20)% (1.98)% (1.93)% (1.98)%[dbldag]
Portfolio turnover rate 51.67% 92.33% 62.94% 30.98% 61.00%
Average commission rate@ $ 0.0233 $ 0.0237 -- -- --
*Reflects voluntary assumption of fees or expenses per
share in each year (Note 3). $ 0.00 $ 0.04 $ 0.09 $ 0.14 $ 0.00
</TABLE>
- --------------------------------------------------------------------------------
** Per-share figures have been calculated using the average shares method.
*** June 1, 1993 (commencement of share class designations) to June 30, 1993.
[dbldag] Annualized.
[dag]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.
@ Average commission rate per share paid for security trades beginning with the
fiscal year ended June 30, 1996.
53
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
----------------------------------
Year ended June 30
----------------------------------
1997** 1996** 1995**
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 17.64 $ 12.27 $ 11.90
----------- ----------- ----------
Net investment loss* (0.10) (0.17) (0.11)
Net realized and unrealized gain (loss) on investments 5.94 5.54 0.48
----------- ----------- ----------
Total from investment operations 5.84 5.37 0.37
----------- ----------- ----------
Distribution from net realized gains (0.76) -- --
----------- ----------- ----------
Total distributions (0.76) -- --
----------- ----------- ----------
Net asset value, end of year $ 22.72 $ 17.64 $ 12.27
=========== =========== ==========
Total return 33.33%[dag] 43.77%[dag] 3.11%[dag]
Net assets at end of year (000s) $ 10,747 $ 5,632 $ 3,288
Ratio of operating expenses to average net assets* 1.17% 1.50% 1.33%
Ratio of net investment loss to average net assets* (0.48)% (1.20)% (1.01)%
Portfolio turnover rate 51.67% 92.33% 62.94%
Average commission rate@ $ 0.0233 $ 0.0237 --
*Reflects voluntary assumption of fees or expenses per share in
each year (Note 3). $ 0.00 $ 0.05 $ 0.08
<CAPTION>
1994** 1993***
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year $ 13.52 $12.99
-------- -------
Net investment loss* (0.15) (0.00)
Net realized and unrealized gain (loss) on investments (1.47) 0.53
-------- -------
Total from investment operations (1.62) 0.53
-------- -------
Distribution from net realized gains -- --
-------- -------
Total distributions -- --
-------- -------
Net asset value, end of year $ 11.90 $ 13.52
======== =======
Total return (11.98)%[dag] 4.08%++
Net assets at end of year (000s) $ 960 $ 146
Ratio of operating expenses to average net assets* 1.25% 1.25%[dbldag]
Ratio of net investment loss to average net assets* (0.95)% (1.05)%[dbldag]
Portfolio turnover rate 30.98% 61.00%
Average commission rate@ -- --
*Reflects voluntary assumption of fees or expenses per share in
each year (Note 3). $ 0.16 $ 0.00
</TABLE>
<TABLE>
<CAPTION>
Class D
-----------------------------------
Year ended June 30
-----------------------------------
1997** 1996** 1995**
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of year $ 17.10 $12.02 $11.77
--------- -------- --------
Net investment loss* (0.30) (0.30) (0.23)
Net realized and unrealized gain (loss) on investments 5.72 5.38 0.48
--------- -------- --------
Total from investment operations 5.42 5.08 0.25
--------- -------- --------
Distribution from net realized gains (0.76) -- --
--------- -------- --------
Total distributions (0.76) -- --
--------- -------- --------
Net asset value, end of year $ 21.76 $17.10 $12.02
========= ======== ========
Total return 31.90%[dag] 42.26%[dag] 2.12%[dag]
Net assets at end of year (000s) $27,528 $5,154 $2,350
Ratio of operating expenses to average net assets* 2.17% 2.50% 2.33%
Ratio of net investment loss to average net assets* (1.45)% (2.20)% (1.99)%
Portfolio turnover rate 51.67% 92.33% 62.94%
Average commission rate@ $0.0233 $0.0237 --
*Reflects voluntary assumption of fees or expenses per share in
each year (Note 3). $ 0.00 $ 0.05 $ 0.09
<CAPTION>
1994** 1993***
---------- --------
<S> <C> <C>
Net asset value, beginning of year $ 13.51 $12.99
-------- -------
Net investment loss* (0.23) (0.02)
Net realized and unrealized gain (loss) on investments (1.51) 0.54
-------- -------
Total from investment operations (1.74) 0.52
-------- -------
Distribution from net realized gains -- --
-------- -------
Total distributions -- --
-------- -------
Net asset value, end of year $ 11.77 $13.51
======== =======
Total return (12.88)%[dag] 4.00%++
Net assets at end of year (000s) $ 1,931 $ 588
Ratio of operating expenses to average net assets* 2.25% 2.25%[dbldag]
Ratio of net investment loss to average net assets* (1.94)% (2.00)%[dbldag]
Portfolio turnover rate 30.98% 61.00%
Average commission rate@ -- --
*Reflects voluntary assumption of fees or expenses per share in
each year (Note 3). $ 0.13 $ 0.00
</TABLE>
- --------------------------------------------------------------------------------
** Per-share figures have been calculated using the average shares method.
*** June 1, 1993 (commencement of share class designations) to June 30, 1993.
[dbldag] Annualized.
[dag]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.
@ Average commission rate per share paid for security trades beginning with
the fiscal year ended June 30, 1996.
54
<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, 1997, 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, 1997 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.
Price Waterhouse LLP
Boston, Massachusetts
August 8, 1997
55
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
Global Resources Fund was among the top performers in its category for the year
ended June 30, 1997. The Fund's total return was +32.96%, double the average of
the 42 natural resources fund classes tracked by Lipper Analytical Services.
Rising oil and gas prices, increased output among exploration and production
companies, and an emphasis on smaller capitalization stocks all contributed to
the Fund's successful year.
Portfolio strategy changed little over the period. Approximately 70% of the
portfolio was held in energy exploration and production stocks, of which 24% was
oil service stocks. Oil service stocks have substantially outperformed the
broader exploration and production indices year-to-date. The Fund held a 13%
position in metals and mining shares at year-end.
Industry consolidations continued to be prevalent in the natural resources
sector. The portfolio benefited from consolidations among two of its mid-cap
holdings, CS Resources and Dreco Energy Services. Two of last year's top-ten
holdings, Nowsco and Global Natural Resources, were also subjects of takeover.
Less positively, Abacan Resources lost nearly two-thirds of its value, as their
key oil field in Nigeria experienced a sudden short-term decline in production.
Abacan had been a top-ten holding.
June 30, 1997
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, which resulted in new or
increased 12b-1 fees of up to 1% per class thereafter and which will reduce
subsequent performance. 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 results for the Fund
are increased by the Distributor's voluntary reduction of Fund fees and
expenses; without subsidization, performance would have been lower.
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
26.98% 22.52% 8.88%
3/2/90 95 10000
6/30/90 8982 10901
6/30/91 734 11704
6/30/92 645 13271
6/30/93 10873 15076
6/30/94 952 15287
6/30/95 978 19267
6/30/96 14036 24272
6/30/97 18662 32689
Class B Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
26.98% 22.84% 9.17%
3/2/90 10000 10000
6/30/90 9405 10901
6/30/91 7686 11704
6/30/92 6759 13271
6/30/93 11385 15076
6/30/94 9927 15287
6/30/95 10138 19267
6/30/96 14427 24272
6/30/97 19042 32689
Class C Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
33.33% 24.01% 9.77%
3/2/90 10000 10000
6/30/90 9405 10901
6/30/91 7686 11704
6/30/92 6759 13271
6/30/93 11394 15076
6/30/94 10028 15287
6/30/95 10340 19267
6/30/96 14866 24272
6/30/97 19820 32689
Class D Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
30.90% 22.97% 9.15%
3/2/90 10000 10000
6/30/90 9405 10901
6/30/91 7686 11704
6/30/92 6759 13271
6/30/93 11385 15076
6/30/94 9919 15287
6/30/95 10130 19267
6/30/96 14411 24272
6/30/97 19008 32689
_____ Global Resources Fund - - - - S&P 500
56
<PAGE>
STATE STREET RESEARCH EQUITY TRUST
PART C
OTHER INFORMATION
Item 24: Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements included in PART A (Prospectus) of
this Registration Statement:
Financial Highlights for State Street Research Equity
Investment Fund for the fiscal years ended June 30, 1988
through 1997 and for State Street Research Global
Resources Fund for the period March 2, 1990 (commencement
of operations) through June 30, 1997.
Financial Highlights for State Street Research Equity
Income Fund are incorporated by reference from
Post-Effective Amendment No. 19.
(2) Financial Statements included in PART B (Statement of
Additional Information) of this Registration Statement:
For State Street Research Equity Investment Fund and for
State Street Research Global Resources Fund for the
fiscal year ended June 30, 1997 (except as provided
below):
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets (Fiscal years
ended June 30, 1997 and June 30, 1996)
Notes to Financial Statements (including financial
highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
For State Street Research Equity Income Fund for the
fiscal year ended June 30, 1997 (except as provided below)
incorporated by reference from Post-Effective Amendment
No. 19:
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets (Fiscal years
ended June 30, 1997 and June 30, 1996)
Notes to Financial Statements (including financial
highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
C-1
<PAGE>
(b) Exhibits
(1)(a) First Amended and Restated Master Trust Agreement, Amendment No.
1, Amendment No. 2 and Amendment No. 3(17)
(1)(b) Amendment No. 4 to First Amended and Restated Master Trust
Agreement(18)
(1)(c) Amendment No. 5 to First Amended and Restated Master Trust
Agreement(18)
(2)(a) By-Laws of the Registrant(1)
(2)(b) Amendment No. 1 to By-Laws effective September 30, 1992(13)
(3) Not Applicable
(4)(a) Deleted
(4)(b) Deleted
(4)(c) Deleted
(5)(a) Advisory Agreement with MetLife - State Street Investment
Services, Inc.(2)**
(5)(c) Letter Agreement with respect to the Advisory Agreement relating
to MetLife - State Street Energy Fund(11)*
(5)(e) Transfer and Assumption of Responsibilities and Rights relating
to the Advisory Agreement between State Street Financial
Services, Inc. and State Street Research & Management
Company(12)**
(6)(a) Distribution Agreement with MetLife - State Street Investment
Services, Inc.(2)**
(6)(b) Form of Selected Dealer Agreement(17)
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement(16)
(6)(d) Letter Agreement with respect to the Distribution Agreement
relating to MetLife - State Street Energy Fund(11)*
(6)(e) Form of Supplement No. 1 to Selected Dealer Agreement(18)
(7) Not applicable
C-2
<PAGE>
(8)(a) Custodian Contract with State Street Bank and Trust Company(2)
(8)(b) Amendment to Custodian Contract with State Street Bank and Trust
Company(6)
(8)(e) Letter Agreement with respect to the Custodian Contract relating
to MetLife - State Street Energy Fund(11)*
(9) Not applicable
(10)(a) Opinion and Consent of Goodwin, Procter & Hoar with respect to
the MetLife - State Street Equity Income, MetLife - State Street
Equity Investment and MetLife - State Street Capital Appreciation
Funds(2)*
(10)(b) Opinion and Consent of Goodwin, Procter & Hoar with respect to
MetLife - State Street Energy Fund(7)*
(11) Consent of Price Waterhouse LLP
(12) Not applicable
(13)(a) Purchase Agreement and Investment Letter(2)
(13)(b) Purchase Agreement and Investment Letter(2)
(13)(c) Subscription and Investment Letter -- MetLife - State Street
Energy Fund(11)*
(14)(a) State Street Research IRA: Disclosure Statement, Forms Booklet
and Transfer of Assets/Direct Rollover Form(17)
(14)(b) State Street Research 403(b): Brochure, Maximum Salary
Reduction Worksheet, Account Application, Salary
Reduction Agreement and Transfer of 403(b) Assets Form(19)
(14)(c) State Street Research SIMPLE IRA: Application, Terms &
Conditions and Disclosure Statement(19)
(15)(a) First Amended and Restated Plan of Distribution Pursuant to
Rule 12b-1(14)
(15)(b) Amendment No. 1 to First Amended and Restated Plan of
Distribution Pursuant to Rule 12b-1(16)
(16)(a) Calculation of Performance Data(5)
(16)(b) Calculation of Performance Data with respect to MetLife -
State Street Energy Fund(8)*
(16)(c) Calculation of Distribution Rate and Yield with respect to
MetLife - State Street Energy Fund(9)*
(16)(d) Calculation of Distribution Rate and Yield with respect to
MetLife - State Street Capital Appreciation Fund, MetLife -
State Street Equity Investment Fund and MetLife - State Street
Equity Income Fund(10)*
(17) First Amended and Restated Multiple Class Expense Allocation Plan
(18)
(18) Powers of Attorney(19)
(19) Certificate of Board Resolution respecting Powers of Attorney(19)
(20) Application Forms(19)
(27) Financial Data Schedules
C-3
<PAGE>
- -----------------
* The Series of the Registrant have changed their names at various times.
Documents in this listing of Financial Statements and Exhibits which
were effective prior to the most recent name change accordingly refer to
a former name of such Series.
** MetLife - State Street Investment Services, Inc. changed its name to
State Street Financial Services, Inc. effective as of June 18, 1992, and
subsequently changed its name to State Street Research Investment
Services, Inc. effective October 28, 1992. Documents in this listing of
Exhibits which were effective prior to the relevant name change
accordingly refer to MetLife - State Street Investment Services, Inc. or
State Street Financial Services, Inc.
C-4
<PAGE>
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote Securities Act of 1933
Reference Registration/Amendment Date Filed
1 Initial Registration March 25, 1986
2 Pre-Effective Amendment No. 1 July 18, 1986
3 Post-Effective Amendment No. 1 August 12, 1986
4 Post-Effective Amendment No. 3 October 29, 1987
5 Post-Effective Amendment No. 5 October 25, 1988
6 Post-Effective Amendment No. 6 October 30, 1989
7 Post-Effective Amendment No. 7 November 27, 1989
8 Post-Effective Amendment No. 8 July 24, 1990
9 Post-Effective Amendment No. 9 August 31, 1990
10 Post-Effective Amendment No. 10 October 30, 1990
11 Post-Effective Amendment No. 11 October 31, 1991
12 Post-Effective Amendment No. 12 October 30, 1992
13 Post-Effective Amendment No. 13 April 2, 1993
14 Post-Effective Amendment No. 14 October 27, 1993
15 Post-Effective Amendment No. 15 September 1, 1994
16 Post-Effective Amendment No. 16 April 28, 1995
17 Post-Effective Amendment No. 17 August 29, 1995
18 Post-Effective Amendment No. 18 October 16, 1996
19 Post-Effective Amendment No. 19 August 22, 1997
Item 25. Persons Controlled by or Under Common Control with Registrant
Inapplicable.
C-5
<PAGE>
Item 26. Number of Holders of Securities
As of September 30, 1997, the number of record holders of the
Registrant's Funds were as follows:
(1) (2)
Number of
Title of Class Record Holders
Shares of Beneficial Interest
State Street Research
Equity Investment Fund
Class A 4,982
Class B 2,694
Class C 66
Class D 49
State Street Research
Equity Income Fund
Class A 5,221
Class B 4,622
Class C 71
Class D 283
State Street Research
Global Resources Fund
Class A 7,980
Class B 6,345
Class C 141
Class D 1,379
C-6
<PAGE>
Item 27. Indemnification
Under Article VI of the Registrant's First Amended and Restated Master
Trust Agreement, as further amended ("Master Trust Agreement") each of its
Trustees and officers or persons serving in such capacity with another entity at
the request of the Registrant ("Covered Person") shall be indemnified against
all liabilities, including, but not limited to, amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, director or trustee, except with respect to any
matter as to which it has been determined that such Covered Person had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office (such conduct
being referred to hereafter as "Disabling Conduct"). A determination that the
Covered Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before which the proceeding was
brought that the person to be indemnified was not liable by reason of Disabling
Conduct, (ii) dismissal of a court action or an administrative proceeding
against a Covered Person for insufficiency of evidence of Disabling Conduct, or
(iii) a reasonable determination, based upon a review of the facts, that the
indemnitee was not liable by reason of Disabling Conduct by (a) a vote of a
majority of a quorum of Trustees who are neither "interested persons" of the
Registrant as defined in section 2(a)(19) of the 1940 Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion.
Under the Distribution Agreement between the Registrant and State Street
Research Investment Services, Inc., the Registrant's distributor, the Registrant
has agreed to indemnify and hold harmless State Street Research Investment
Services, Inc. and each person who has been, is, or may hereafter be an officer,
director, employee or agent of State Street Research Investment Services, Inc.
against any loss, damage or expense reasonably incurred by any of them in
connection with any claim or in connection with any action, suit or proceeding
to which any of them may be a party, which arises out of or is alleged to arise
out of or is based upon a violation of any of its covenants herein contained or
any untrue or alleged untrue statement of material fact, or the omission or
alleged omission to state a material fact necessary to make the statements made
not misleading, in a Registration Statement or Prospectus of the Registrant, or
any amendment or supplement thereto, unless such statement or omission was made
in reliance upon written information furnished by State Street Research
Investment Services, Inc.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act of 1933 may be permitted to trustees, officers,
underwriters and controlling persons of the Registrant, pursuant to Article VI
of the Registrant's Master Trust Agreement, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission
C-7
<PAGE>
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
C-8
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
State Street Investment Adviser Various investment Boston, MA
Research & advisory clients
Management
Company
Arpiarian, Tanya None
Vice President
Bangs, Linda L. None
Vice President
Bennett, Peter C. Executive Vice GFM International Investors
Director and President Limited London, England
Executive Vice Vice President State Street Research Capital Trust Boston, MA
President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Financial Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Director State Street Research Investment Services, Inc Boston, MA
Director Boston Private Bank & Trust Co. Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Bochman, Kathleen None
Vice President
Borzilleri, John Vice President Montgomery Securities San Francisco, CA
Vice President (until 6/97)
Bray, Michael J. Employee Merrill Lynch & Co. Boston, MA
Vice President (until 7/96)
Brooks, David None
Vice President
Brown, Susan H. None
Vice President
Buffum, Andrea Project Manager BankBoston Boston, MA
Vice President (until 12/96)
Managing Director State Street Global Advisors Boston, MA
(until 12/95)
Burbank, John F. None
Senior Vice President
(Vice President until
7/96)
Cabrera, Jesus A. Vice President First Chicago Investment Management Co. Chicago, IL
Vice President (until 5/96)
Vice President State Street Research Capital Trust Boston, MA
Canavan, Joseph W. Vice President GFM International Investors Limited London, England
Vice President Assistant Treasurer State Street Research Equity Trust Boston, MA
Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust Boston, MA
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
C-9
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Carstens, Linda C. None
Vice President
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President
Coleman, Thomas J. Account Manager MetLife Investment New York, NY
Vice President (until 9/96) Management
D'Vari, Ronald None
Vice President
Depp, Maureen G. Vice President Wellington Management Company Boston, MA
Vice President (until 9/97)
DeVeuve, Donald None
Vice President
DiFazio, Susan M.W. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Dillman, Thomas J None
Senior Vice President
Drake, Susan W. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President (until 2/96)
Duggan, Peter J. None
Senior Vice
President
Even, Karen None
Vice President
Federoff, Alex G. None
Vice President
Fee, Richard E. CIGNA Retirement and Hartford, CT
Vice President Investment Services
Feliciano, Rosalina None
Vice President
Gardner, Michael D. Partner Prism Group Seattle, WA
Senior Vice President
Geer, Bartlett R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Giroux, June M. None
Vice President
Govoni, Electra None
Vice President
C-10
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Granger, Allison None
Vice President
Hamilton, Jr., William A. Treasurer and Director Ellis Memorial and Eldredge House Boston, MA
Senior Vice President Treasurer and Director Nautical and Aviation Publishing Company, Inc. Baltimore, MD
Treasurer and Director North Conway Institute Boston, MA
Hanson, Phyllis None
Vice President
Haverty, Jr., Lawrence J. None
Senior Vice President
Heineke, George R. None
Vice President
Jackson, Jr., Trustee Certain trusts of related and
F. Gardner non-related individuals
Senior Vice President Trustee and Chairman Vincent Memorial Hospital Boston, MA
of the Board
Jamieson, Frederick H. Vice President and Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Senior Vice President Vice President and Asst. Treasurer SSRM Holdings, Inc. Boston, MA
Vice President and Controller MetLife Securities, Inc. New York, NY
Senior Vice President GFM International Investors Limited London, England
Kallis, John H. Vice President State Street Research Financial Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Money Market Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Director and President K&G Enterprises Washington, D.C.
Kasper, M. Katherine None
Vice President
C-11
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Vice President
Langholm, Knut Director State Street Research SICAV Luxembourg
Vice President
Leary, Eileen M. None
Vice President
Maisonneuve, Virginie Portfolio Manager Batterymarch Financial Management Boston, MA
Vice President (until 6/97)
Vice President GFM International Investors, Ltd. London, England
McNamara, III, Francis J. Director and Executive GFM International Investors
Executive Vice Vice President Limited London, England
President, Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Secretary and Clerk and General Counsel
General Counsel Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
(Senior Vice President, Secretary and General Counsel State Street Research Capital Trust Boston, MA
Secretary and General Secretary and General Counsel State Street Research Exchange Trust Boston, MA
Counsel until 7/96) Secretary and General Counsel State Street Research Growth Trust Boston, MA
Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel State Street Research Equity Trust Boston, MA
Secretary and General Counsel State Street Research Financial Trust Boston, MA
Secretary and General Counsel State Street Research Income Trust Boston, MA
Secretary and General Counsel State Street Research Money Market Trust Boston, MA
Secretary and General Counsel State Street Research Portfolios, Inc. Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
C-12
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Maus, Gerard P. Executive Vice President GFM International Investors
Director, Executive and Director Limited London, England
Vice President, Treasurer State Street Research Equity Trust Boston, MA
Treasurer, Chief Treasurer State Street Research Financial Trust Boston, MA
Financial Officer and Treasurer State Street Research Income Trust Boston, MA
Chief Administrative Treasurer State Street Research Money Market Trust Boston, MA
Officer Treasurer State Street Research Tax-Exempt Trust Boston, MA
Treasurer State Street Research Capital Trust Boston, MA
Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Portfolios, Inc. Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Treasurer and Chief
Financial Officer
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Treasurer and Chief Financial SSRM Holdings, Inc. Boston, MA
Officer
Treasurer (until 1/97) MetLife Securities, Inc. New York, NY
Director State Street Research SICAV Luxembourg
Milder, Judith J. None
Senior Vice President
Miles, Deborah C. Vice President Scudder, Stevens & Clark Boston, MA
Vice President (until 9/97) L.L. Bean, Inc. Freeport, ME
Employee
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
(Vice President
until 7/96)
Moore, Jr., Thomas P. Vice President State Street Research Capital Trust Boston, MA
Senior Vice (until 11/96)
President Vice President State Street Research Exchange Trust Boston, MA
(until 2/97)
Vice President State Street Research Growth Trust Boston, MA
(until 2/97)
Vice President State Street Research Master Investment Trust Boston, MA
(until 2/97)
Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Energy, Inc. Boston, MA
Director Hibernia Savings Bank Quincy, MA
Governor on the Association for Investment Management
Board of Governors and Research Charlottesville, VA
Morey, Andrew
Vice President None
Mulligan, JoAnne C. Vice President State Street Research Money Market Trust Boston, MA
Senior Vice President
(Vice President
until 7/96)
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
C-13
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Paddon, Steven W. Employee Metropolitan Life Insurance Company New York, NY
Vice President (until 10/96)
Pannell, James C. None
Senior Vice President
(Vice President
until 4/97)
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Poritzky, Dean E. Portfolio Manager Fidelity Investments Boston, MA
Vice President (until 4/97)
Pyle, David J. Analyst Oak Value Capital Management Durham, NC
Vice President (until 4/97)
Ragsdale, E.K. Easton Senior Vice President GFM International Investors, Limited London, England
Senior Vice President
(Vice President
until 7/96)
Rawlins, Jeffrey A. None
Senior Vice President
(Vice President
until 7/96)
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Richards, Scott None
Vice President
Romich, Douglas A. Vice President GFM International Investors Limited London, England
Vice President Assistant Treasurer State Street Research Equity Trust Boston, MA
Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
Saperstone, Paul None
Vice President
C-14
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Schrage, Michael None
Vice President
Schultz, David C. Director and Treasurer Mafraq Hospital Association Mafraq, Jordan
Executive Vice Member Association of Investment
President Management Sales Executives Atlanta, GA
Member, Investment Committee Lexington Christian Academy Lexington, MA
Shaver, Jr. C. Troy President, Chief Executive Officer State Street Research Investment Services, Inc. Boston, MA
Executive Vice and Executive Vice President
President President and Chief Executive John Hancock Funds, Inc. Boston, MA
Officer (until 1/96)
Shean, William G. None
Vice President
Shively, Thomas A. Vice President State Street Research Financial Trust Boston, MA
Director and Vice President State Street Research Money Market Trust Boston, MA
Executive Vice Vice President State Street Research Tax-Exempt Trust
President Director State Street Research Investment Services, Inc Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Shoemaker, Richard D. Senior Vice President GFM International Investors Limited London, England
Senior Vice President
Stambaugh, Kenneth None
Vice President
(Assistant Vice
President until 9/97)
Strelow, Dan R. None
Senior Vice President
C-15
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Swanson, Amy McDermott None
Senior Vice President
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
Verni, Ralph F. Chairman, President, GFM International Investors
Chairman, President, CEO and Director Limited London, England
Chief Executive Chairman, President, Chief State Street Research Capital Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Growth Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Master Investment Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Securities Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Equity Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Financial Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Income Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Money Market Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Portfolios, Inc. Boston, MA
Executive Officer and Director
Chairman, President, Chief State Street Research Tax-Exempt Trust Boston, MA
Executive Officer and Trustee
Chairman and Director State Street Research Investment Services, Inc. Boston, MA
(President and Chief Executive
Officer until 2/96)
Chairman and Director Metric Holdings, Inc. San Francisco, CA
Director and Officer Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Chairman of the Board and Director MetLife Securities, Inc. New York, NY
(until 1/97)
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director CML Group, Inc. Boston, MA
Director Colgate University Hamilton, NY
Director State Street Research SICAV Luxembourg
C-16
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wade, Dudley Vice President State Street Research Growth Trust Boston, MA
Freeman Vice President State Street Research Master Investment Trust Boston, MA
Senior Vice
President
Wallace, Julie K. None
Vice President
Weiss, James M. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Capital Trust Boston, MA
President and Chief Investment IDS Equity Advisors Minneapolis, MN
Officer (until 12/95)
Westvold, Vice President State Street Research Securities Trust Boston, MA
Elizabeth McCombs
Senior Vice President
(Vice President
until 7/96)
Wilkins, Kevin Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President Vice President Fidelity Investments Boston, MA
(until 7/97)
Various positions Fidelity Investments Boston, MA
(until 10/96)
Wilson, John T. Vice President State Street Research Equity Trust Boston, MA
Vice President Vice President State Street Research Master Investment Trust Boston, MA
Vice President Phoenix Investment Counsel, Inc. Hartford, CT
(until 6/96)
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Vice President, Asst. Clerk
Assistant Secretary Assistant Secretary State Street Research Capital Trust Boston, MA
and Assistant Assistant Secretary State Street Research Exchange Trust Boston, MA
General Counsel Assistant Secretary State Street Research Growth Trust Boston, MA
Assistant Secretary State Street Research Master Investment Trust Boston, MA
Assistant Secretary State Street Research Securities Trust Boston, MA
Assistant Secretary State Street Research Equity Trust Boston, MA
Assistant Secretary State Street Research Financial Trust Boston, MA
Assistant Secretary State Street Research Income Trust Boston, MA
Assistant Secretary State Street Research Money Market Trust Boston, MA
Assistant Secretary State Street Research Tax-Exempt Trust Boston, MA
Assistant Secretary SSRM Holdings, Inc. Boston, MA
Woodbury, Robert S. Employee Metropolitan Life Insurance Company New York, NY
Vice President
Woodworth, Jr., Kennard Vice President State Street Research Exchange Trust Boston, MA
Senior Vice Vice President State Street Research Growth Trust Boston, MA
President (until 2/96)
C-17
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
</TABLE>
C-18
<PAGE>
Item 29: Principal Underwriters
(a) State Street Research Investment Services, Inc., serves as principal
underwriter for 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 Growth Trust, State Street
Research Master Investment Trust, State Street Research Securities Trust, and
State Street Research Portfolios, Inc.
(b) Directors and Officers of State Street Research Investment Services,
Inc. are as follows:
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
Ralph F. Verni Chairman of Chairman of the
One Financial Center the Board and Board, President,
Boston, MA 02111 Director Chief Executive Officer
and Trustee
Peter C. Bennett Director None
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice President Treasurer
One Financial Center Treasurer, Chief
Boston, MA 02111 Financial Officer and
Director
Thomas A. Shively Director Vice President
One Financial Center
Boston, MA 02111
C. Troy Shaver, Jr. President and Chief None
One Financial Center Executive Officer
Boston, MA 02111
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
Paul V. Daly Senior Vice President None
One Financial Center
Boston, MA 02111
C-19
<PAGE>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
Susan M.W. DiFazio Senior Vice President None
One Financial Center
Boston, MA 02111
Gordon Evans Senior Vice President None
One Financial Center
Boston, MA 02111
Gregory R. McMahan Senior Vice President None
One Financial Center
Boston, MA 02111
Francis J. McNamara, III Senior Vice President, Secretary
One Financial Center General Counsel
Boston, MA 02111 and Clerk
Joan D. Miller Senior Vice President None
One Financial Center
Boston, MA 02111
Deborah C. Miles Vice President None
One Financial Center
Boston, MA 02111
Darman A. Wing Senior Vice President, Assistant Secretary
One Financial Center Assistant General Counsel
Boston, MA 02111 and Assistant Clerk
Donald Doherty Vice President None
One Financial Center
Boston, MA 02111
Linda Grasso Vice President None
One Financial Center
Boston, MA 02111
Robert M. Gunville Vice President None
One Financial Center
Boston, MA 02111
Frederick H. Jamieson Vice President None
One Financial Center and Assistant
Boston, MA 02111 Treasurer
Susan Volpe Martin Vice President None
One Financial Center
Boston, MA 02111
Amy L. Simmons Vice President Assistant Secretary
One Financial Center
Boston, MA 02111
Kevin Wilkins Vice President None
One Financial Center
Boston, MA 02111
C-20
<PAGE>
Item 30. Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
(a) Inapplicable.
(b) Deleted.
(c) Deleted.
(d) The Registrant undertakes to hold a special meeting of shareholders
of State Street Research Equity Trust for the purpose of voting upon the
question of removal of any trustee or trustees when requested in writing so to
do by the record holders of not less than 10 per centum of the outstanding
shares of State Street Research Equity Trust and, in connection with such
meeting, to comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 relating to shareholder communications.
(e) The Registrant has elected to include the information required by
Item 5A of Form N-1A in its annual report to shareholders. The Registrant
undertakes to furnish each person to whom a prospectus is delivered with a copy
of the applicable fund's latest annual report to shareholders, upon request and
without charge.
C-21
<PAGE>
Notice
A copy of the First Amended and Restated Master Trust Agreement, as
further amended ("Master Trust Agreement") of the Registrant is on file with
the Secretary of State of the Commonwealth of Massachusetts and notice is hereby
given that the obligations of the Registrant hereunder, and the authorization,
execution and delivery of this amendment to the Registrant's Registration
Statement, shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Registrant as individuals or
personally, but shall bind only the property of the Funds of the Registrant, as
provided in the Master Trust Agreement. Each Fund of the Registrant shall be
solely and exclusively responsible for all of its direct or indirect debts,
liabilities and obligations, and no other Fund shall be responsible for the
same.
C-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 20 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Boston and The Commonwealth of Massachusetts on the 30th day of October, 1997.
STATE STREET RESEARCH EQUITY TRUST
By *
-------------------------------------
Ralph F. Verni
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed on the
above date by the following persons in the capacities indicated:
Signature Capacity
* Trustee & Chief
_________________________________ Executive Officer
Ralph F. Verni (principal executive
officer)
* Treasurer (principal
_________________________________ financial and
Gerard P. Maus accounting officer)
*
_________________________________
Steve A. Garban Trustee
*
_________________________________
Malcolm T. Hopkins Trustee
*
_________________________________ Trustee
Edward M. Lamont
*
_________________________________ Trustee
Robert A. Lawrence
<PAGE>
*
_________________________________ Trustee
Dean O. Morton
*
_________________________________ Trustee
Thomas L. Phillips
*
_________________________________ Trustee
Toby Rosenblatt
*
_________________________________ Trustee
Michael S. Scott Morton
*
_________________________________ Trustee
Jeptha H. Wade
*By: /s/ Francis J. McNamara, III
__________________________________
Francis J. McNamara, III,
Attorney-in-Fact under
Powers of Attorney dated
August 22, 1997, incorporated
by reference from Post-Effective
Amendment No. 19.
<PAGE>
1933 Act Registration No. 33-4296
1940 Act File No. 811-4624
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 20 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 21 [X]
____________________
STATE STREET RESEARCH EQUITY TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
____________________
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(11) Consent of Price Waterhouse LLP
(27) Financial Data Schedules
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statements of Additional Information
constituting part of this Post-Effective Amendment No. 20 to the registration
statement (No. 33-4296) on Form N-1A (the "Registration Statement") of our
reports dated August 8, 1997 relating to the financial statements and financial
highlights of State Street Research Equity Investment Fund and State Street
Research Global Resources Fund (each a series of State Street Research Equity
Trust), which appear in such Statements of Additional Information and to the
incorporation by reference of our reports into the Prospectuses which constitute
part of this Registration Statement. We also consent to the reference to us
under the heading "Independent Accountants" in such Statements of Additional
Information and to the reference to us under the heading "Financial Highlights"
in such Prospectuses.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
October 30, 1997
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 110,135,902
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<SHARES-COMMON-PRIOR> 55,166
<ACCUMULATED-NII-CURRENT> 117,502
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 166,358,738
<DIVIDEND-INCOME> 2,076,959
<INTEREST-INCOME> 304,735
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