[Front Cover]
State Street Research
EQUITY INVESTMENT FUND
ANNUAL REPORT
June 30, 1998
WHAT'S INSIDE
From the Chairman
The economy stars for
6th straight year
Portfolio Manager's Review
Large, stable growth companies
produce strong performance
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar Award Graphic]
- -----------------------------------
[Dalbar key in background]
Dalbar
Honors Commitment To:
Investors
1997
- -----------------------------------
[End Dalbar Award Graphic]
For Excellence
in
Shareholder Service State Street Research Funds
[End Front Cover]
<PAGE>
FROM THE CHAIRMAN
[Photo: Ralph F. Verni, Chairman]
Dear Shareholder:
If the U.S. economy were a summer movie, the marquee might read: steady growth,
low inflation, higher personal income, and confident consumers, starring for 6th
straight year. Once again, the financial markets turned good news into strong
gains for stocks and bonds here and in many foreign markets.
Stocks
Economic woes in Southeast Asia did not stunt profit growth in the U.S. in the
first half of 1998. Most companies continued to report prof- its in line with
expectations, and stock prices rose strongly. Large stocks were favored as
investors bought into blue-chip companies able to sustain earnings growth.
Small- and mid-cap companies have not done as well.
Bonds
The global economic environment remained bond-friendly. The Federal Reserve has
been satisfied to leave interest rates unchanged. News that the federal
government will report an estimated surplus of up to $100 billion for fiscal
1998 has helped attract bond investors at home and abroad. Although the U.S.
Treasury had less need to borrow, there has been a surge in corporate bond
issuance.
International
In Europe, 11 nations are getting ready to adopt a single currency next year.
Corporate restructuring, industry consolidation, and maximizing shareholder
value--all old themes in the U.S.--have driven European stock markets to strong
gains. That prosperity has not been shared by Japan or the emerging markets of
Asia, which continue to struggle with weak economies and dwindling capital
reserves. Currency problems have also threatened Russia and Brazil.
Looking Ahead
The outlook for U.S. and major European securities markets remains positive. We
believe the next major move for the Federal Reserve would be to lower interest
rates, not raise them. We also see significant potential for small- and mid-cap
domestic stocks to regain investors' support in the period ahead. The full
force of Southeast Asia's economic problems has probably not been absorbed, and
our managers remain alert to change.
As investors, we have been fortunate to enjoy such good times. We continue to
believe there are long-term opportunities for those who stay the course. That's
why it is so important to rely on the market perspective and advice of an
investment professional. And as always, we thank you for investing in State
Street Research.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
June 30, 1998
(1)The S&P 500 (officially the "Standard and Poor's 500 Stock Price Index") is
an unmanged index of 500 U.S. stocks. The index does not take transaction
charges into consideration. It is not possible to invest directly in the index.
(2)Investment results are based on an assumed $10,000 investment at A share
maximum sales charge of 4.5%; thus, the net amount invested was $9,550. Also
reflects reinvestment of capital gain distributions and income dividends. No
adjustment has been made for income taxes payable by shareholders on income
dividends or capital gain distributions.
(3)26.67% for Class B shares; 26.80% for Class C shares; 27.90% for Class S
shares.
(4)Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% A share front-end sales charge, or 5% B share or 1% C share
contingent deferred sales charge, where applicable. Performance for a specified
class includes periods prior to the adoption of class designations in 1993.
(5)S shares, offered without a sales charge, are available only through certain
employee benefit plans and special programs.
(6)Before November 1, 1997, Class C shares were designated Class D, and Class S
shares were designated Class C.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions,
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended June 30, 1998)
- --------------------------------------------------------------------------------
Total value of $10,000 invested on June 30, 1988(2)
(Class A shares, at maximum applicable sales charge)
[Mountain Chart]
<TABLE>
<S> <C>
6/88 9550
6/89 11065
6/90 12895
6/91 12109
6/92 14321
6/93 17238
6/94 17398
6/95 20589
6/96 25805
6/97 33782
6/98 43112
</TABLE>
[End Mountain Chart]
Average Annual Total Return
(at maximum applicable sales charge)(4,5,6)
<TABLE>
<CAPTION>
================================================================================
Life of Fund
(since 8/25/86) 10 Years 5 Years 1 Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 14.43% 15.73% 19.02% 21.88%
- --------------------------------------------------------------------------------
Class B 14.54% 15.87% 19.12% 21.67%
- --------------------------------------------------------------------------------
Class C 14.55% 15.87% 19.33% 25.80%
- --------------------------------------------------------------------------------
Class S 15.03% 16.45% 20.50% 27.90%
================================================================================
</TABLE>
Performance results for the Fund are increased by the voluntary reduction of
Fund fees and expenses; without subsidization, performance would have been
lower.
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Equity Investment Fund: Large, stable growth companies produce strong
performance
[Photo: John Wilson, Portfolio Manager]
John Wilson
Portfolio Manager
We spoke with John Wilson, portfolio manager of State Street Research Equity
Investment Fund about the Fund's performance for the year ended June 30, 1998
and his views on the period ahead.
Q: How did the Fund perform during the year?
A: It was a good year for the Fund relative to its peer group. Class A shares
returned 27.62% for the 12 months ended June 30, 1998 [does not reflect sales
charge].3 This was higher than the average growth and income fund, which
returned 22.86%, as reported by Lipper Analytical Services, Inc. The Fund
underperformed the Standard & Poor's 500 Stock Price Index (S&P 500), which
gained 30.17% for the same period.1 However, in the first six months of 1998,
Class A shares of the Fund outperformed the S&P Index (19.17% to 17.72%).
Q: What contributed to performance?
A: We focused on large, stable growth companies. These types of stocks were
favored by investors and for the fourth year in a row were market leaders. When
it looked as if Asia's economic troubles might have a negative impact on some
of our holdings, we trimmed those areas that we believed would be affected,
namely, technology and energy companies. We continue to think that high-quality
companies which meet earnings expectations will perform well.
Q: In what areas did you find the most potential?
A: The strong economy, low unemployment and relatively high wages have kept
consumer confidence high. As a result, we focused on companies that we believe
will benefit from strong consumer spending. These included retailers, such as
Home Depot, CVS, and Safeway. We also added to selected media and entertainment
companies, such as Viacom. In addition, we invested in pharmaceutical companies
that continue to profit from robust sales of new drugs.
Q: Did you invest overseas?
A: About 10% of the portfolio's assets were invested in European stocks, which
were strong performers. A combination of factors made European companies
appealing. Many are undergoing corporate restructuring, which is making them
more efficient, productive, and more responsive to shareholders. Strong
corporate earnings and Europeans' increasing appetite for stock investing
through mutual funds are adding to the momentum. All of these factors attracted
us to European stocks, and in the coming months we may increase our investments
there.
Q. Large-company investors have two main concerns: Asia's economic problems and
high prices of large-company stocks. How will these issues affect the Fund in
the future?
A: Regarding Asia (except Japan), most of the companies in the portfolio derive
relatively little revenue from these regions. Instead, these companies depend
on Europe for much larger percentages of their overseas business, and we
believe strong sales in Europe could offset weakness in Asia. We are more
concerned about Japan because it is the world's second largest economy and it
clearly is in a restructuring mode. We are watching economic developments in
Japan and the potential impact they may have on the Fund's holdings.
Many large-cap stocks have performed well as investors sought a combination of
quality, liquidity, and consistent earnings growth. For more than three years,
these large companies have led the market. Despite their lofty valuations, we
believe these companies will continue in favor as long as their fundamentals
and earnings prospects remain strong.
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Stock Positions
(by percentage of net assets)
<TABLE>
<S> <C> <C>
(1) General Electric Electrical equipment 3.2%
(2) Tyco International Diversified manufacturer 3.2%
(3) MediaOne Group Cable, telecommunications 2.7%
(4) Warner-Lambert Pharmaceuticals 2.5%
(5) Total Oil 2.3%
(6) Travelers Group Financial services 2.1%
(7) Chase Manhattan Banking 2.1%
(8) WorldCom Telephone services 2.0%
(9) UNUM Insurance 2.0%
(10) Ace Insurance 2.0%
</TABLE>
These securities represent an aggregate of 24.1% of the portfolio. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities or industries listed in this table
or in the text above.
[Bar Chart]
Top 5 Industries
(by percentage of net assets)
<TABLE>
<S> <C>
Retail Trade 10.9%
Recreation 9.3%
Oil 6.6%
Bank 6.5%
Insurance 6.1%
</TABLE>
Total: 39.4%
[End Bar Chart]
Best and Worst Contributors to Performance
(July 1, 1997 through June 30, 1998)
Best [Arrow Up]
- --------------------------------------------------------------------------------
Tyco International
Strong earnings growth from fundamentals, acquisitions.
MediaOne Group
Strong cash flow and corporate reorganization.
Warner-Lambert
Strong new product flow drives rapid earnings growth.
Worst [Arrow Down]
- --------------------------------------------------------------------------------
Lam Research
Asian impact hurts semiconductor equipment spending.
Columbia/HCA Healthcare
Government investigation, management change reduce confidence.
Republic Industries
Uncertain timing of auto retailing concept hurts stock P/E.
2
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 96.8%
Basic Industries 12.2%
Chemical 2.9%
E.I. Du Pont De Nemours & Co. ................ 36,800 $ 2,746,200
Rohm & Haas Co. .............................. 38,900 4,043,169
----------
6,789,369
----------
Electrical Equipment 3.2%
General Electric Co. ......................... 82,000 7,462,000
----------
Forest Product 1.6%
Fort James Corp. ............................. 46,700 2,078,150
Weyerhaeuser Co. ............................. 35,500 1,639,656
----------
3,717,806
----------
Machinery 3.2%
Tyco International Ltd. ...................... 117,000 7,371,000
----------
Metal & Mining 0.4%
British Steel PLC ADR ........................ 43,900 998,725
----------
Electrical 0.9%
Unicom Corp. ................................. 58,700 2,058,169
----------
Total Basic Industries ................................... 28,397,069
----------
Consumer Cyclical 24.1%
Automotive 2.0%
General Motors Corp. ......................... 28,300 1,890,794
Renault SA* .................................. 50,200 2,855,391
----------
4,746,185
----------
Building 1.2%
Boston Properties Inc.* ...................... 80,000 2,760,000
----------
Hotel & Restaurant 0.7%
Circus Circus Enterprises Inc.* .............. 98,100 1,661,569
----------
Recreation 9.3%
CBS Corp. .................................... 94,400 2,997,200
International Game Technology Inc. ........... 73,500 1,782,375
MediaOne Group Inc.* ......................... 145,000 6,370,937
News Corp. Ltd. ADR .......................... 117,300 3,768,263
Time Warner Inc. ............................. 25,200 2,153,025
Viacom Inc. Cl. B* ........................... 78,600 4,578,450
----------
21,650,250
----------
Retail Trade 10.9%
Cendant Corp.* ............................... 46,182 964,049
CVS Corp. .................................... 96,600 3,761,362
Dayton Hudson Corp. .......................... 90,800 4,403,800
Family Dollar Stores Inc. .................... 63,600 1,176,600
Fred Meyer Inc.* ............................. 6,800 $ 289,000
Home Depot Inc. .............................. 34,600 2,873,963
Kroger Co.* .................................. 80,600 3,455,725
Rite Aid Corp. ............................... 63,800 2,396,488
Safeway Inc. ................................. 93,400 3,800,212
Wal-Mart Stores, Inc. ........................ 39,100 2,375,325
----------
25,496,524
----------
Total Consumer Cyclical .................................. 56,314,528
----------
Consumer Staple 19.8%
Business Service 2.7%
HBO & Co. .................................... 30,400 1,071,600
Interpublic Group of Companies, Inc. ......... 36,450 2,212,059
Young & Rubicam Inc.* ........................ 91,600 2,931,200
----------
6,214,859
----------
Container 0.8%
Owens-Illinois Inc. .......................... 40,300 1,803,425
----------
Drug 5.5%
Bristol-Myers Squibb Co. ..................... 25,000 2,873,438
Pfizer Inc. .................................. 13,500 1,467,281
Rhodia SA ADR ................................ 95,500 2,602,375
Warner-Lambert Co. ........................... 83,700 5,806,687
----------
12,749,781
----------
Food & Beverage 5.2%
Coca-Cola Co. ................................ 34,900 2,983,950
H.J. Heinz Co. ............................... 54,800 3,075,650
PepsiCo Inc. ................................. 64,800 2,668,950
Sara Lee Corp. ............................... 61,400 3,434,562
----------
12,163,112
----------
Hospital Supply 3.5%
Boston Scientific Corp.* ..................... 33,900 2,428,088
Guidant Corp. ................................ 23,700 1,690,106
Johnson & Johnson ............................ 56,100 4,137,375
----------
8,255,569
----------
Personal Care 1.4%
Gillette Co. ................................. 14,800 838,975
Procter & Gamble Co. ......................... 28,200 2,567,963
----------
3,406,938
----------
Tobacco 0.7%
Philip Morris Companies, Inc. ................ 39,200 1,543,500
----------
Total Consumer Staple .................................... 46,137,184
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Energy 7.2%
Oil 6.6%
Amoco Corp. ................................. 42,900 $ 1,785,713
Anadarko Petroleum Corp. .................... 33,800 2,270,938
Exxon Corp. ................................. 49,600 3,537,100
Oryx Energy Co. ............................. 47,400 1,048,725
Seagull Energy Corp.* ....................... 80,400 1,331,625
Total SA Cl. B ADR .......................... 80,900 5,288,837
-----------
15,262,938
-----------
Oil Service 0.6%
Schlumberger Ltd. ........................... 21,600 1,475,550
-----------
Total Energy .............................................. 16,738,488
-----------
Finance 13.6%
Bank 6.5%
Banc One Corp. .............................. 61,810 3,449,770
BankAmerica Corp. ........................... 45,600 3,941,550
Chase Manhattan Corp. ....................... 63,500 4,794,250
H.F. Ahmanson & Co. ......................... 42,300 3,003,300
-----------
15,188,870
-----------
Financial Service 1.0%
Federal National Mortgage Association ....... 36,500 2,217,375
-----------
Insurance 6.1%
Ace Ltd. .................................... 117,600 4,586,400
Travelers Group Inc. ........................ 82,550 5,004,594
UNUM Corp. .................................. 83,300 4,623,150
-----------
14,214,144
-----------
Total Finance ............................................. 31,620,389
-----------
Science & Technology 12.4%
Aerospace 1.3%
Boeing Co. .................................. 17,600 784,300
Raytheon Co. Cl. A* ......................... 1,804 103,956
Raytheon Co. Cl. B* ......................... 35,800 2,116,675
-----------
3,004,931
-----------
Computer Software & Service 4.4%
America Online Inc.* ........................ 5,100 540,600
Cadence Design Systems Inc. ................. 32,100 1,003,125
Check Point Software Technologies Ltd.* ..... 70,900 2,321,975
Cisco Systems Inc.* ......................... 26,250 2,416,641
EMC Corp.* .................................. 26,300 1,178,569
Microsoft Corp.* ............................ 25,300 2,741,887
-----------
10,202,797
-----------
Electronic Components 2.1%
Analog Devices Inc.* ........................ 55,700 $ 1,368,131
Intel Corp.* ................................ 28,600 2,119,975
Texas Instruments Inc. ...................... 25,100 1,463,644
-----------
4,951,750
-----------
Electronic Equipment 1.5%
Lucent Technologies Inc. .................... 12,500 1,039,844
Philips Electronics NV ...................... 28,400 2,414,000
-----------
3,453,844
-----------
Office Equipment 3.1%
International Business Machines Corp. ....... 28,800 3,306,600
Xerox Corp. ................................. 39,300 3,993,862
-----------
7,300,462
-----------
Total Science & Technology .................. 28,913,784
-----------
Utility 7.5%
Electric 2.1%
FPL Group Inc. .............................. 26,100 1,644,300
Texas Utilities Co. ......................... 79,300 3,300,863
-----------
4,945,163
-----------
Natural Gas 1.0%
Enron Corp. ................................. 45,500 2,459,844
-----------
Telephone 4.4%
AT&T Corp. .................................. 23,100 1,319,587
Bell Atlantic Corp. ......................... 65,000 2,965,625
Qwest Communications International Inc.*..... 34,800 1,213,650
WorldCom Inc.* .............................. 96,400 4,669,375
-----------
10,168,237
-----------
Total Utility ............................................. 17,573,244
-----------
Total Common Stocks (Cost $165,362,698).................... 225,694,686
-----------
SHORT-TERM INVESTMENTS 6.3%
State Street Navigator Securities
Lending Prime Portfolio ................... 14,639,212 14,639,212
-----------
Total Short-Term Investments (Cost $14,639,212) ........... 14,639,212
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 1.8%
American Express Credit
Corp., 5.52% ........................ $ 264,000 7/01/1998 $ 264,000
American Express Credit
Corp., 5.65% ........................ 629,000 7/06/1998 629,000
Ford Motor Credit Co., 5.61% ......... 1,432,000 7/01/1998 1,432,000
Ford Motor Credit Co., 5.75% ......... 1,862,000 7/06/1998 1,862,000
------------
Total Commercial Paper (Cost $4,187,000)..................... 4,187,000
------------
Total Investments (Cost $184,188,910) - 104.9%............... 244,520,898
Cash and Other Assets, Less Liabilities - (4.9%) ............ (11,394,919)
------------
Net Assets - 100.0% ......................................... $233,125,979
============
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C>
Federal Income Tax Information:
At June 30, 1998, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $184,313,667 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost .......................................... $ 63,270,672
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ........................................ (3,063,441)
------------
$60,207,231
============
</TABLE>
- --------------------------------------------------------------------------------
* Nonincome-producing securities.
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $184,188,910) (Note 1)............ $244,520,898
Cash ......................................................... 32,481
Receivable for securities sold ............................... 3,984,402
Receivable for fund shares sold .............................. 256,925
Dividends and interest receivable ............................ 253,521
Receivable from Distributor (Note 3) ......................... 5,658
Other assets ................................................. 4,285
------------
249,058,170
Liabilities
Payable for collateral received on securities loaned ......... 14,639,212
Payable for securities purchased ............................. 721,672
Accrued transfer agent and shareholder services
(Note 2) ................................................... 184,024
Accrued management fee (Note 2) .............................. 126,746
Payable for fund shares redeemed ............................. 60,629
Accrued distribution and service fees (Note 5) ............... 60,468
Accrued trustees' fees (Note 2) .............................. 21,887
Other accrued expenses ....................................... 117,553
------------
15,932,191
------------
Net Assets $233,125,979
============
Net Assets consist of:
Unrealized appreciation of investments ...................... $ 60,331,988
Accumulated net realized gain ............................... 17,862,208
Paid-in capital ............................................. 154,931,783
------------
$233,125,979
============
Net Asset Value and redemption price per share of
Class A shares ($76,151,118 [divided by] 3,512,696 shares).......... $ 21.68
=======
Maximum Offering Price per share of Class A shares
($21.68 [divided by] .955).......................................... $ 22.70
=======
Net Asset Value and offering price per share of
Class B shares ($52,210,955 [divided by] 2,456,991 shares)*......... $ 21.25
=======
Net Asset Value and offering price per share of
Class C shares ($1,717,659 [divided by] 80,780 shares)*............. $ 21.26
=======
Net Asset Value, offering price and redemption price
per share of Class S shares ($103,046,247 [divided by]
4,758,730 shares) .................................................. $ 21.65
=======
- --------------------------------------------------------------------------------
</TABLE>
* Redemption price per share for Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended June 30, 1998
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $36,736................ $ 2,472,112
Interest (Note 1) ........................................ 584,522
-----------
3,056,634
Expenses
Management fee (Note 2) .................................. 1,286,894
Transfer agent and shareholder services (Note 2) ......... 443,863
Custodian fee ............................................ 131,364
Registration fees ........................................ 54,082
Trustees' fees (Note 2) .................................. 39,348
Reports to shareholders .................................. 37,107
Audit fee ................................................ 27,720
Service fee-Class A (Note 5) ............................. 162,810
Distribution and service fees-Class B (Note 5) ........... 374,450
Distribution and service fees-Class C (Note 5) ........... 15,836
Legal fees ............................................... 6,552
Miscellaneous ............................................ 5,658
-----------
2,585,684
Expenses borne by the Distributor (Note 3) ............... (54,400)
-----------
2,531,284
-----------
Net investment income .................................... 525,350
-----------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) ......... 29,310,326
Net unrealized appreciation of investments ............... 18,055,536
-----------
Net gain on investments .................................. 47,365,862
-----------
Net increase in net assets resulting from operations ..... $47,891,212
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended June 30
------------------------------
1997 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income ................ $ 743,016 $ 525,350
Net realized gain on investments 20,424,213 29,310,326
Net unrealized appreciation of
investments ........................ 15,781,474 18,055,536
------------ ------------
Net increase resulting from
operations ......................... 36,948,703 47,891,212
------------ ------------
Dividends from net investment income:
Class A ............................ (233,439) (164,598)
Class S ............................ (560,477) (478,254)
------------ ------------
(793,916) (642,852)
------------ ------------
Distributions from net realized gains:
Class A ............................ (4,782,504) (8,192,653)
Class B ............................ (1,764,902) (4,307,362)
Class C ............................ (116,740) (267,380)
Class S ............................ (7,753,956) (12,448,041)
------------ ------------
(14,418,102) (25,215,436)
------------ ------------
Net increase from fund share
transactions (Note 6) .............. 21,085,516 44,734,317
------------ ------------
Total increase in net assets ......... 42,822,201 66,767,241
Net Assets
Beginning of year .................... 123,536,537 166,358,738
------------ ------------
End of year (including
undistributed net investment
income of $117,502 and $0,
respectively) ...................... $166,358,738 $233,125,979
============ ============
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1998
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 Alpha Fund, State Street Research Global
Resources Fund and State Street Research Athletes 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. Before November 1, 1997, Class C shares
were designated Class D and Class S shares were designated Class C. 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 subject to a contingent deferred sales charge of 1.00% on
any shares redeemed within one year of their purchase. Class C shares also pay
annual distribution and service fees of 1.00%. Class S shares are only offered
through certain retirement accounts, advisory accounts of State Street Research
& Management Company (the "Adviser"), an indirect wholly owned subsidiary of
Metropolitan Life Insurance Company ("Metropolitan"), and special programs. 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. 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
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
asked quotations. Short-term securities maturing within sixty days are valued
at amortized cost. Other securities, if any, are valued at their fair value as
determined in accordance with established methods consistently applied.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered.
C. Net Investment Income
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to it,
while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested quarterly. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations. For the year ended June 30, 1998, the Fund has
designated its distributions from net realized gains as $9,820,380 from 20%
rate gains and $8,396,447 from 28% rate gains.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
F. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
G. Securities Lending
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. If the borrower fails to return the
securities and the value of the collateral has declined during the term of the
loan, the Fund will bear the loss. At June 30, 1998, the value of the
securities loaned and the value of collateral were $14,196,693 and $14,639,212,
respectively. During the year ended June 30, 1998, income from securities
lending amounted to $15,458 and is included in interest income.
Note 2
The Trust and the Adviser 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, 1998, the fees pursuant
to such agreement amounted to $1,286,894.
State Street Research Service Center, 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,
1998, the amount of such shareholder servicing and account maintenance expenses
was $211,375.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$39,348 during the year ended June 30, 1998.
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, 1998, the amount of such expenses assumed by the
Distributor and its affiliates was $54,400.
Note 4
For the year ended June 30, 1998, purchases and sales of securities, exclusive
of short-term obligations, aggregated $176,847,404 and $154,027,370,
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 C shares. In addition,
the Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class C 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, 1998, fees
pursuant to such plan amounted to $162,810, $374,450 and $15,836 for Class A,
Class B and Class C 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 $33,460 and $205,391, respectively, on sales of Class A shares of
the Fund during the year ended June 30, 1998, and that MetLife Securities, Inc.
earned commissions aggregating $566,730 on sales of Class B shares, and that
the Distributor collected contingent deferred sales charges aggregating $38,284
and $71 on redemptions of Class B and Class C shares, respectively, during the
same period.
8
<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.
Share transactions were as follows:
<TABLE>
<CAPTION>
Years ended June 30
--------------------------------------------------------------------
1997 1998
--------------------------------- --------------------------------
Class A Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .................................... 588,308 $ 10,233,943 804,843 $ 16,069,612
Issued upon reinvestment of:
Distributions from net realized gains ......... 289,030 4,652,507 436,011 7,978,243
Dividends from net investment income .......... 13,002 224,603 8,147 156,176
Shares repurchased ............................. (389,733) (6,723,255) (543,128) (10,895,290)
-------- ------------ -------- ------------
Net increase ................................... 500,607 $ 8,387,798 705,873 $ 13,308,741
======== ============ ======== ============
Class B Shares Amount Shares Amount
- ------------------------------------------------- --------- ------------ --------- ------------
Shares sold .................................... 598,345 $ 10,270,072 1,176,521 $ 22,985,589
Issued upon reinvestment of
distributions from net realized gains .......... 108,323 1,728,240 235,125 4,221,732
Shares repurchased ............................. (172,399) (2,918,908) (266,675) (5,250,654)
--------- ------------ --------- ------------
Net increase ................................... 534,269 $ 9,079,404 1,144,971 $ 21,956,667
========= ============ ========= ============
Class C (Formerly Class D) Shares Amount Shares Amount
- ------------------------------------------------- --------- ------------ --------- ------------
Shares sold .................................... 123,109 $ 2,168,941 123,388 $ 2,341,959
Issued upon reinvestment of
distributions from net realized gains .......... 7,066 112,590 14,256 256,153
Shares repurchased ............................. (100,734) (1,774,305) (141,471) (2,560,836)
--------- ------------ --------- ------------
Net increase (decrease) ........................ 29,441 $ 507,226 (3,827) $ 37,276
========= ============ ========= ============
Class S (Formerly Class C) Shares Amount Shares Amount
- ------------------------------------------------- --------- ------------ --------- ------------
Shares sold .................................... 1,943,280 $ 33,489,577 1,888,511 $ 37,815,205
Issued upon reinvestment of:
Distributions from net realized gains ......... 481,543 7,753,590 681,187 12,448,029
Dividends from net investment income .......... 32,449 560,098 24,360 475,782
Shares repurchased ............................. (2,305,882) (38,692,177) (2,108,363) (41,307,383)
---------- ------------ ---------- ------------
Net increase ................................... 151,390 $ 3,111,088 485,695 $ 9,431,633
========== ============ ========== ============
</TABLE>
9
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Years ended June 30
-----------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 14.52 12.44 14.28 17.04 19.68
----- ----- ----- ----- -----
Net investment income ($)* 0.01 0.08 0.12 0.09 0.06
Net realized and unrealized gain on investments ($) 0.18 2.14 3.38 4.63 4.74
----- ----- ----- ----- -----
Total from investment operations ($) 0.19 2.22 3.50 4.72 4.80
----- ----- ----- ----- -----
Dividends from net investment income ($) -- (0.05) (0.11) (0.09) (0.06)
Distributions from net realized gains ($) (2.27) (0.33) (0.63) (1.99) (2.74)
------ ------ ------ ------ ------
Total distributions ($) (2.27) (0.38) (0.74) (2.08) (2.80)
------ ------ ------ ------ ------
Net asset value, end of year ($) 12.44 14.28 17.04 19.68 21.68
====== ====== ====== ====== ======
Total return (2) (%) 0.93 18.34 25.33 30.91 27.62
Ratios/supplemental data:
Net assets at end of year ($ thousands) 29,821 31,174 39,300 55,239 76,151
Ratio of operating expenses to average net assets (%)* 1.50 1.42 1.25 1.25 1.25
Ratio of net investment income to average net assets (%)* 0.08 0.64 0.79 0.54 0.29
Portfolio turnover rate (%) 62.93 47.93 44.44 88.07 81.53
*Reflects voluntary reduction of expenses per share of these
amounts (Note 3) ($) 0.04 0.06 0.03 0.03 0.01
</TABLE>
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------
Years ended June 30
-----------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 14.51 12.36 14.16 16.88 19.42
----- ----- ----- ----- -----
Net investment income (loss) ($)* (0.02) 0.01 0.01 (0.03) (0.09)
Net realized and unrealized gain on investments ($) 0.14 2.12 3.34 4.56 4.66
------ ----- ----- ------ ------
Total from investment operations ($) 0.12 2.13 3.35 4.53 4.57
------ ----- ----- ------ ------
Distributions from net realized gains ($) (2.27) (0.33) (0.63) (1.99) (2.74)
------ ------ ------ ------ ------
Total distributions ($) (2.27) (0.33) (0.63) (1.99) (2.74)
------ ------ ------ ------ ------
Net asset value, end of year ($) 12.36 14.16 16.88 19.42 21.25
====== ====== ====== ====== ======
Total return (2) (%) 0.37 17.70 24.39 29.91 26.67
Ratios/supplemental data:
Net assets at end of year ($ thousands) 4,029 5,933 13,129 25,478 52,211
Ratio of operating expenses to average net assets (%)* 2.00 2.00 2.00 2.00 2.00
Ratio of net investment income (loss) to average
net assets (%)* (0.39) 0.08 0.05 (0.20) (0.46)
Portfolio turnover rate (%) 62.93 47.93 44.44 88.07 81.53
*Reflects voluntary reduction of expenses per share of these
amounts (Note 3) ($) 0.04 0.06 0.03 0.03 0.01
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share figures have been calculated using the average shares method.
(2) Does not not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
10
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C (Formerly Class D)
---------------------------------------------------------
Years ended June 30
---------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 14.51 12.36 14.15 16.87 19.41
----- ----- ----- ----- -----
Net investment income (loss) ($)* (0.05) 0.01 0.01 (0.03) (0.09)
Net realized and unrealized gain on investments ($) 0.17 2.11 3.34 4.56 4.68
------ ----- ----- ------ ------
Total from investment operations ($) 0.12 2.12 3.35 4.53 4.59
------ ----- ----- ------ ------
Distributions from net realized gains ($) (2.27) (0.33) (0.63) (1.99) (2.74)
------ ------ ------ ------ ------
Total distributions ($) (2.27) (0.33) (0.63) (1.99) (2.74)
------ ------ ------ ------ ------
Net asset value, end of year ($) 12.36 14.15 16.87 19.41 21.26
====== ====== ====== ====== ======
Total return (2) ($) 0.45 17.53 24.40 29.93 26.80
Ratios/supplemental data:
Net assets at end of year ($ thousands) 551 699 931 1,642 1,718
Ratio of operating expenses to average net assets (%)* 2.00 2.00 2.00 2.00 2.00
Ratio of net investment income (loss) to average net
assets (%)* (0.41) 0.08 0.04 (0.19) (0.43)
Portfolio turnover rate (%) 62.93 47.93 44.44 88.07 81.53
*Reflects voluntary reduction of expenses per share of these
amounts (Note 3) ($) 0.06 0.06 0.03 0.03 0.01
</TABLE>
<TABLE>
<CAPTION>
Class S (Formerly Class C)
-----------------------------------------------------------
Years ended June 30
-----------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 14.51 12.48 14.27 17.03 19.66
----- ----- ----- ----- -----
Net investment income ($)* 0.07 0.14 0.17 0.13 0.11
Net realized and unrealized gain on investments ($) 0.17 2.15 3.37 4.62 4.73
----- ----- ----- ----- -----
Total from investment operations ($) 0.24 2.29 3.54 4.75 4.84
----- ----- ----- ----- -----
Dividends from net investment income ($) -- (0.17) (0.15) (0.13) (0.11)
Distributions from net realized gains ($) (2.27) (0.33) (0.63) (1.99) (2.74)
------ ------ ------ ------ ------
Total distributions ($) (2.27) (0.50) (0.78) (2.12) (2.85)
------ ------ ------ ------ ------
Net asset value, end of year ($) 12.48 14.27 17.03 19.66 21.65
====== ====== ====== ====== ======
Total return (2) (%) 1.41 18.83 25.66 31.19 27.90
Ratios/supplemental data:
Net assets at end of year ($ thousands) 32,991 50,503 70,177 83,999 103,046
Ratio of operating expenses to average net assets (%)* 1.00 1.00 1.00 1.00 1.00
Ratio of net investment income to average net assets (%)* 0.59 1.09 1.06 0.77 0.55
Portfolio turnover rate (%) 62.93 47.93 44.44 88.07 81.53
*Reflects voluntary reduction of expenses per share of these
amounts (Note 3) ($) 0.06 0.06 0.03 0.03 0.01
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share figures have been calculated using the average shares method.
(2) Does not not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
11
<PAGE>
- --------------------------------------------------------------------------------
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, 1998, 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, 1998 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 7, 1998
12
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research Equity Investment Fund had a good year. The total return
for Class A shares was 27.62% for the 12 months ended June 30, 1998 (does not
reflect sales charge). The Fund outperformed the average growth and income fund
tracked by Lipper Analytical Services, which rose 22.86%. However,
it fell just short of the Standard & Poor's 500 Stock Price Index, which gained
30.17% for the same period.
During the period, the Fund benefited from its emphasis on large stable growth
companies, which were favored by investors for the fourth year in a row. By
investing in companies that we believed would benefit from strong consumer
spending, we were able to take advantage of the positive economic environment.
Plus, our investment in pharmaceutical companies paid off as new drugs
continued to drive profit growth in this sector. Finally, our investment in
European stocks contributed to performance.
The weak spots in the portfolio were in energy and technology. Although we cut
back on our exposure to both sectors on the concern that they would be affected
by the crisis in Asia, their presence in the portfolio held back performance.
Going forward, we believe that large company stocks continue to demonstrate
strong earnings prospects. Although prices are high, we believe they continue
to have upside potential as long as the economy remains strong and interest
rates remain low.
June 30, 1998
Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% A share front-end sales charge, or 5% B share or 1% C share
contingent deferred sales charge, where applicable. Performance for a specified
class includes periods prior to the creation of share classes, which resulted
in new or increased 12b-1 fees of up to 1% per class, and which will reduce
subsequent performance. S shares, offered without a sales charge, are available
only through certain employee benefit plans and special programs. The S&P 500
(officially the "Standard and Poor's 500 Stock Price Index") is an unmanaged
index of 500 U.S. stocks. The index does not take transaction changes into
consideration. It is not possible to invest directly in the index. Before
November 1, 1997, Class C shares were designated Class D, and Class S shares
were designated Class C.
Change in Value of
$10,000 Based on the S&P 500
Compared to Change in Value of $10,000
Invested in the Fund
[Line Charts]
Class A Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
21.88% 19.02% 15.73%
</TABLE>
<TABLE>
<CAPTION>
Equity
Investment
Fund S&P 500
---------- -------
<S> <C> <C>
6/88 9550 10000
6/89 11065 12052
6/90 12895 14034
6/91 12109 15068
6/92 14321 17086
6/93 17238 19411
6/94 17398 19683
6/95 20589 24806
6/96 25805 31250
6/97 33782 42088
6/98 43112 54787
</TABLE>
Class B Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
21.67% 19.12% 15.87%
</TABLE>
<TABLE>
<CAPTION>
Equity
Investment
Fund S&P 500
---------- -------
<S> <C> <C>
6/88 10000 10000
6/89 11587 12052
6/90 13503 14034
6/91 12680 15068
6/92 14996 17086
6/93 18037 19411
6/94 18103 19683
6/95 21307 24806
6/96 26504 31250
6/97 34433 42088
6/98 43616 54787
</TABLE>
Class C Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
25.80% 19.33% 15.87%
</TABLE>
<TABLE>
<CAPTION>
Equity
Investment
Fund S&P 500
---------- -------
<S> <C> <C>
6/88 10000 10000
6/89 11587 12052
6/90 13503 14034
6/91 12680 15068
6/92 14996 17086
6/93 18035 19411
6/94 18116 19683
6/95 21291 24806
6/96 26487 31250
6/97 34414 42088
6/98 43639 54787
</TABLE>
Class S Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
27.90% 20.50% 16.45%
</TABLE>
<TABLE>
<CAPTION>
Equity
Investment
Fund S&P 500
---------- -------
<S> <C> <C>
6/88 10000 10000
6/89 11587 12052
6/90 13503 14034
6/91 12680 15068
6/92 14996 17086
6/93 18050 19411
6/94 18304 19683
6/95 21751 24806
6/96 27332 31250
6/97 35856 42088
6/98 45860 54787
</TABLE>
[End Line Charts]
13
<PAGE>
STATE STREET RESEARCH EQUITY INVESTMENT FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH EQUITY TRUST
- --------------------------------------------------------------------------------
Fund Information
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
Service Center
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
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
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Bartlett R. Geer
Vice President
F. Gardner Jackson, Jr.
Vice President
Thomas P. Moore, Jr.
Vice President
Brian O'Dell
Vice President
Daniel J. Rice III
Vice President
James M. Weiss
Vice President
John T. Wilson
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Steve A. Garban
Retired; formerly Senior Vice
President for Finance and
Operations and Treasurer, The
Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial Officer,
St. Regis Corp.
Edward M. Lamont
Formerly in banking
(with an affiliate of J.P. Morgan
& Co. in New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Formerly Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
14
<PAGE>
[Back Cover]
State Street Research Equity Investment Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Permit #6
Hartford, CT
Questions? Comments?
Call us at 1-800-562-0032 or
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[State Street Research Logo]
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research Equity Investment
Fund prospectus. When used after September 30, 1998, this report must be
accompanied by a current Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: 5184-980819(exp0999)SSR-LD EIV-205F-0898
[End Back Cover]
<PAGE>
[Front Cover]
State Street Research
ALPHA FUND
ANNUAL REPORT
June 30, 1998
WHAT'S INSIDE
From the Chairman
The economy stars for
6th straight year
Portfolio Manager's Review
Stock selection, diversification
aid performance
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar Award Graphic]
- -----------------------------------
[Dalbar key in background]
Dalbar
Honors Commitment To:
Investors
1997
- -----------------------------------
[End Dalbar Award Graphic]
For Excellence
in
Shareholder Service State Street Research Funds
[End Front Cover]
<PAGE>
FROM THE CHAIRMAN
[Photo: Ralph F. Verni, Chairman]
Dear Shareholder:
If the U.S. economy were a summer movie, the marquee might read: steady growth,
low inflation, higher personal income, and confident consumers, starring for 6th
straight year. Once again, the financial markets turned good news into strong
gains for stocks and bonds here and in many foreign markets.
Stocks
Economic woes in Southeast Asia did not stunt profit growth in the U.S. in the
first half of 1998. Most companies continued to report profits in line with
expectations, and stock prices rose strongly. Large stocks were favored as
investors bought into blue-chip companies able to sustain earnings growth.
Small- and mid-cap companies have not done as well.
Bonds
The global economic environment remained bond-friendly. The Federal Reserve has
been satisfied to leave interest rates unchanged. News that the federal
government will report an estimated surplus of up to $100 billion for fiscal
1998 has helped attract bond investors at home and abroad. Although the U.S.
Treasury had less need to borrow, there has been a surge in corporate bond
issuance.
International
In Europe, 11 nations are getting ready to adopt a single currency next year.
Corporate restructuring, industry consolidation, and maximizing shareholder
value--all old themes in the U.S.--have driven European stock markets to strong
gains. That prosperity has not been shared by Japan or the emerging markets of
Asia, which continue to struggle with weak economies and dwindling capital
reserves. Currency problems have also threatened Russia and Brazil.
Looking Ahead
The outlook for U.S. and major European securities markets remains positive. We
believe the next major move for the Federal Reserve could be to lower interest
rates, not raise them. We also see significant potential for small- and mid-cap
domestic stocks to regain investors' support in the period ahead. The full
force of Southeast Asia's economic problems has probably not been absorbed, and
our managers remain alert to change.
As investors, we have been fortunate to enjoy such good times. We continue to
believe there are long-term opportunities for those who stay the course. That's
why it is so important to rely on the market perspective and advice of an
investment professional. And as always, we thank you for investing in State
Street Research.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
June 30, 1998
(1)The S&P 500 (officially the "Standard and Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The index does not take transaction
charges into consideration. It is not possible to invest directly in the index.
(2)Investment results are based on an assumed $10,000 investment at "A" share
maximum sales charge of 4.5%; thus, the net amount invested was $9,550. Also
reflects reinvestment of capital gain distributions and income dividends. No
adjustment has been made for income taxes payable by shareholders on income
dividends or capital gain distributions.
(3)27.23% for Class B shares; 27.23% for Class C shares; 28.45% for Class S
shares.
(4)Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% A share front-end sales charge, or 5% B share or 1% C share
contingent deferred sales charge, where applicable. Performance for a specified
class includes periods prior to the adoption of class designations in 1993.
(5)S shares, offered without a sales charge, are available only through certain
employee benefit plans and special programs.
(6)Before November 1, 1997, Class C shares were designated Class D, and Class S
shares were designated Class C.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions,
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended June 30, 1998)
- --------------------------------------------------------------------------------
Total value of $10,000 invested on June 30, 1988(2)
(Class A shares, at maximum applicable sales charge)
[Mountain Chart]
<TABLE>
<S> <C>
6/88 9550
6/89 11160
6/90 12441
6/91 11659
6/92 13386
6/93 16298
6/94 17001
6/95 19744
6/96 24169
6/97 30803
6/98 39475
</TABLE>
[End Mountain Chart]
Average Annual Total Return
(at maximum applicable sales charge)(4,5,6)
<TABLE>
<CAPTION>
Life of Fund
(since 8/25/86) 10 Years 5 Years 1 Year
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 13.24% 14.72% 18.26% 22.39%
- --------------------------------------------------------------------
Class B 13.34% 14.87% 18.37% 22.23%
- --------------------------------------------------------------------
Class C 13.34% 14.86% 18.56% 26.23%
- --------------------------------------------------------------------
Class S 13.83% 15.46% 19.77% 28.45%
- --------------------------------------------------------------------
</TABLE>
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Alpha Fund: Stock selection, diversification aid performance
[Photo: Bart Geer, Portfolio Manager]
Bart Geer
Portfolio Manager
We spoke with Bart Geer, portfolio manager of State Street Research Alpha Fund
about the Fund's performance for the year ended June 30, 1998 and his views on
the period ahead.
Q: How did the Fund perform during the fiscal year?
A: It was a strong year for the Fund relative to its peer group. Class A shares
returned 28.15% for the twelve months ended June 30, 1998 [does not reflect
sales charge].3 That was higher than the average equity income fund, which
returned 20.94%, as reported by Lipper Analytical Services, Inc. The Fund
slightly underperformed the Standard & Poor's 500 Stock Price Index (S&P 500),
which gained 30.17% for the same period.1
Q: What contributed to performance?
A: Stock selection was important to performance. We sought companies with
steady revenue growth prospects and which had profit margins that we felt could
be sustained over a long period. We found such companies in a variety of
industries, including insurance, publishing, utilities, health care and food.
Diversification among asset classes and geographic areas also aided
performance. We invested in common stocks, convertible and high-yield bonds. We
also held investments in Canada and Europe.
Q: Why were Canadian and European companies attractive?
A: At the end of the period, investments in Canada and Europe accounted for 15%
of portfolio assets. The strong U.S. dollar provided us with an opportunity to
buy stocks in these areas at very attractive prices. In addition, both Canada
and Europe lagged in recovering from the recession of the early 1990s. We found
several attractive companies in both regions that we believe are in the early
phase of economic turnaround. In contrast, we think U.S. companies are in the
later stage of economic recovery.
Q: How did your investment style affect performance?
A: Even though returns were relatively strong, we believe two factors held back
performance--our "value" approach to investing and our emphasis on mid-cap
company stocks. As value investors, we seek stocks that are selling at
relatively low prices compared to the intrinsic value of the assets of the
underlying companies. Typically, value stocks have low relative price/book
ratios (P/B) and relatively low price/earnings ratios (P/E). Also, we invested
in mid-cap companies, with the average equity market capitalization for the
Fund being around $3.5 billion. Both of these strategies were out of favor
during the period, as investors preferred large-company growth stocks. However,
the Fund's returns were favorable when measured against those of its peers.
Q: What is your outlook?
A: In calendar year 1998, we are in the fourth consecutive year of double-digit
returns on stocks. That has made stock prices high relative to earnings. In
addition, we believe the full impact of the economic problems in Asia has yet
to be felt by U.S. companies. Going forward, Asia's troubles could result in
lower profits for U.S. companies and a more volatile U.S. stock market.
Although the investments we hold in the Fund tend to lag other types of stocks
during strong market upturns, they provide yield and some downside protection
in less attractive markets. We believe that we have constructed a portfolio
that has the potential to provide shareholders with favorable, risk-adjusted
returns in both up and down markets.
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Stock Positions
(by percentage of net assets)
<TABLE>
<S> <C> <C>
1 Ball Containers 3.1%
2 Hollinger International Newspaper publishing 2.9%
3 Williams Companies Gas, petroleum,
telecommunications 2.7%
4 Cabot Carbon black, oil, gas 2.2%
5 Laidlaw Waste management 2.1%
6 National Bank of Canada Banking 2.1%
7 Mark IV Industries Power transfer equipment 2.0%
8 Abitibi Consolidated Newsprint 2.0%
9 RSL Communications Telecommunications 2.0%
10 A.C. Nielson Marketing, information analysis 1.9%
</TABLE>
These securities represent an aggregate of 23.0% of the portfolio. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities or industries listed in this table
or in the text above.
[Bar Chart]
Top 5 Equity Industries
(by percentage of net assets)
<TABLE>
<S> <C>
Printing & 7.2%
Publishing
Chemical 7.1%
Diversified 6.6%
Electric 6.5%
Insurance 5.5%
</TABLE>
Total: 32.9%
[End Bar Chart]
Best and Worst Contributors to Performance
(July 1, 1997 through June 30, 1998)
Best [Arrow Up]
================================================================================
Unisys
Benefited from continued growth of services segment.
Mapco
Bought out by Williams Cos. in a stock-for-stock deal.
America West
Benefited from growing capacity, improved pricing and decreased fuel costs.
Worst [Arrow Down]
================================================================================
Exide
Earnings have lagged, and under investigation for selling used batteries as
new.
Teradyne
Semi-conductor test equipment manufacturer has seen business slow in Asian
situation.
Abitibi Consolidated
Canadian newsprint manufacturer under pressure from a strike and weak pricing
for newsprint.
2
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 75.7%
Basic Industries 21.1%
Chemical 6.6%
Cabot Corp. .................................. 280,500 $ 9,063,657
Cordant Technologies Inc. .................... 95,200 4,391,100
Lyondell Petrochemical Co. ................... 179,900 5,475,707
Mississippi Chemical Corp. ................... 350,000 5,753,125
Rohm & Haas Co. .............................. 28,000 2,910,250
----------
27,593,839
----------
Diversified 6.5%
Johnson Controls Inc. ........................ 57,800 3,305,437
Mark IV Industries Inc. ...................... 390,095 8,435,805
Ogden Corp. .................................. 270,000 7,475,625
Tomkins PLC* ................................. 1,465,000 7,950,253
----------
27,167,120
----------
Forest Product 2.0%
Abitibi-Consolidated Inc. .................... 640,200 8,202,563
----------
Machinery 2.3%
Harsco Corp. ................................. 100,000 4,581,250
Howmet International Inc.* ................... 184,600 2,769,000
Sundstrand Corp. ............................. 38,400 2,198,400
----------
9,548,650
----------
Metal & Mining 1.0%
Kennametal Inc. .............................. 95,000 3,966,250
Sheffield Steel Corp.* ....................... 2,500 5,000
----------
3,971,250
----------
Truckers 2.7%
CNF Transportation Inc. ...................... 60,000 2,550,000
Laidlaw Inc. ................................. 720,000 8,775,000
----------
11,325,000
----------
Total Basic Industries ................................. 87,808,422
----------
Consumer Cyclical 11.9%
Airline 0.7%
America West Holdings Corp. Cl. B* ........... 100,000 2,856,250
----------
Automotive 3.9%
Exide Corp. .................................. 397,100 6,676,244
Gencorp Inc. ................................. 130,000 3,282,500
Renault SA* .................................. 112,500 6,399,035
----------
16,357,779
----------
Hotel & Restaurant 3.7%
Ameriking Inc.* .............................. 1,000 50,000
Harrah's Entertainment Inc.* ................. 310,800 7,226,100
MGM Grand Inc.* .............................. 142,000 4,481,875
Mirage Resorts Inc.* ......................... 178,300 $ 3,800,019
Motels of America Inc.*[dagger] .............. 500 5,000
----------
15,562,994
----------
Recreation 1.9%
GTech Holdings Corp.* ........................ 107,900 3,634,882
U.S.A. Networks Inc.* ........................ 166,900 4,193,363
----------
7,828,245
----------
Retail Trade 1.7%
Fred Meyer Inc.* ............................. 10,943 465,077
Hannaford Brothers Co. ....................... 119,500 5,258,000
Kroger Co.* .................................. 34,800 1,492,050
----------
7,215,127
----------
Total Consumer Cyclical ................................ 49,820,395
----------
Consumer Staple 15.9%
Business Service 3.3%
A.C. Nielson Corp.* .......................... 315,800 7,973,950
Hillenbrand Industries Inc. .................. 56,300 3,378,000
Pagemart Nationwide Inc.*[dagger] ............ 1,750 15,750
Protection One Inc.* ......................... 36,400 398,125
U.S.A. Waste Services Inc.* .................. 33,200 1,639,250
Viatel Inc.* ................................. 18,050 306,850
----------
13,711,925
----------
Container 3.2%
Ball Corp. ................................... 325,000 13,060,937
----------
Food & Beverage 1.7%
Hussmann International Inc.* ................. 57,000 1,058,063
Keebler Foods Co.* ........................... 125,000 3,437,500
Seven-Up / RC Bottling Co. of Southern
California* ............................... 8,750 105,000
Whitman Corp. ................................ 114,000 2,614,875
----------
7,215,438
----------
Hospital Supply 2.9%
Quorum Health Group Inc.* .................... 40,000 1,075,000
Tenet Healthcare Corp. ....................... 135,000 4,218,750
Trigon Healthcare Inc.* ...................... 65,000 2,352,187
U.S. Surgical Corp. .......................... 100,000 4,562,500
----------
12,208,437
----------
Printing & Publishing 4.8%
Hollinger International, Inc. Cl. A* ......... 118,900 2,021,300
Lagardere SCA* ............................... 106,400 4,429,499
Torstar Corp. Cl. B .......................... 177,000 5,657,098
Valassis Communications Inc. ................. 202,100 7,793,482
----------
19,901,379
----------
Total Consumer Staple .................................. 66,098,116
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Energy 2.0%
Oil 1.4%
Oryx Energy Co. ................................. 65,100 $ 1,440,338
Seagull Energy Corp.* ........................... 137,000 2,269,062
Tosco Corp. ..................................... 75,600 2,220,750
-----------
5,930,150
-----------
Oil Service 0.6%
British Steel PLC* .............................. 1,082,900 2,380,483
-----------
Total Energy .............................................. 8,310,633
-----------
Finance 9.6%
Bank 3.5%
Bank of New York Inc. ........................... 88,200 5,352,637
National Bank of Canada ......................... 442,300 8,647,237
Southtrust Corp. ................................ 15,000 652,500
-----------
14,652,374
-----------
Financial Service 0.6%
Financial Security Assurance Co.* ............... 25,800 1,515,750
Heller Financial Inc. Cl. A* .................... 30,000 900,000
-----------
2,415,750
-----------
Insurance 5.5%
Ace Ltd. ........................................ 150,000 5,850,000
AMBAC Inc. ...................................... 88,300 5,165,550
Mid Ocean Ltd. .................................. 90,000 7,065,000
UNUM Corp. ...................................... 85,000 4,717,500
-----------
22,798,050
-----------
Total Finance ............................................. 39,866,174
-----------
Science & Technology 3.6%
Electronic Equipment 0.8%
Teradyne Inc.* .................................. 131,300 3,512,275
-----------
Office Equipment 2.8%
Lexmark International Group Inc. Cl. A* ......... 72,500 4,422,500
Unisys Corp. .................................... 252,700 7,138,775
-----------
11,561,275
-----------
Total Science & Technology ................................ 15,073,550
-----------
Utility 11.6%
Electric 6.5%
Edison International Corp. ...................... 120,000 3,547,500
GPU Inc. ........................................ 100,700 3,807,719
Illinova Corp. .................................. 51,400 1,542,000
Interstate Energy Corp.* ........................ 60,000 1,950,000
Montana Power Co. ............................... 45,000 1,563,750
OGE Energy Corp. ................................ 140,000 3,780,000
Pinnacle West Capital Corp. ..................... 124,300 5,593,500
Western Resources Inc. .......................... 135,000 5,239,687
-----------
27,024,156
-----------
Natural Gas 2.8%
TransTexas Gas Corp.* ........................... 48,000 $ 426,000
Williams Companies Inc. ......................... 334,998 11,306,183
-----------
11,732,183
-----------
Telephone 2.3%
Celcaribe SA*[dagger] ........................... 69,918 279,672
Global Telesystems Group Inc.* .................. 24,400 1,189,500
RSL Communications Ltd. Cl. A* .................. 270,500 8,115,000
-----------
9,584,172
-----------
Total Utility ............................................. 48,340,511
-----------
Total Common Stocks (Cost $256,409,642).................... 315,317,801
-----------
</TABLE>
<TABLE>
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS & OTHER 9.1%
Advanced Radio Telecom Corp. Wts.* ................... 3,750 45,938
Ameriking Inc. Sr. Exch. Pfd.[diamond] ............... 48,425 1,307,475
Clark U.S.A. Inc. Sr. Exch. Pfd.[diamond] ............ 528 559,680
Clearnet Communications Inc. Wts.* ................... 3,300 29,700
Cluett American Corp. Sr. Exch. Pfd.[dagger][diamond]. 18,000 1,813,500
Concentric Network Corp. Wts.*[dagger] ............... 1,500 180,000
Cooper Industries Inc. Exch. Note* ................... 180,000 3,172,500
Crown Packaging Holdings Ltd. Wts.*[dagger] .......... 2,000 1,000
DECS Trust Exch. Pfd. ................................ 155,300 2,135,375
Econophone Inc. Wts.*[dagger] ........................ 1,500 45,000
Golden Ocean Group Ltd. Wts.* ........................ 2,000 18,000
Granite Broadcasting Corp. Cv. Pfd. .................. 10,000 602,500
Heartland Wireless Communications, Inc.
Wts.*[dagger] ..................................... 1,500 15
Hollinger International, Inc. Cv. Pfd. ............... 625,100 9,845,325
ICG Holdings Inc. Exch. Pfd.* ........................ 660 772,200
KTI Inc. Exch. Pfd.[dagger] .......................... 40,000 1,840,000
Laboratory Corp. Exch. Pfd.* ......................... 8,200 442,800
Loral Orion Network Systems Inc. Wts.* ............... 1,250 20,000
Nextel Communications Inc. Series D Exch.
Pfd.[diamond] ...................................... 1,097 1,196,004
North Atlantic Trading Inc. Sr. Pfd.[diamond] ......... 55,549 1,388,725
NS Group Inc. Wts.* .................................. 250 25,000
Pagemart Inc. Wts.*[dagger] .......................... 3,450 27,600
Primus Telecommunications Group Wts.* ................ 500 10,000
RSL Communications Ltd. Wts.*[dagger] ................ 500 50,000
Salomon Inc. Cv. Pfd.* ............................... 45,000 2,137,500
Supermarkets General Holdings Corp. Exch.
Pfd.[diamond] ..................................... 80,000 2,480,000
Tesoro Petroleum Corp. Cv. Pfd.* ..................... 376,800 6,005,250
Winstar Communications Cv. Pfd.[diamond] ............. 41,209 1,912,355
Wireless One Inc. Wts.* .............................. 1,500 15
-----------
Total Convertible Preferred Stocks & Other
(Cost $32,839,545)................................................. 38,063,457
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
NON-CONVERTIBLE BONDS 11.2%
Advanstar Commerce Inc. Sr.
Note, 9.25%[dagger] .............. $ 500,000 5/01/2008 $ 503,125
American Pacific Corp. Sr. Note,
9.25%[dagger] .................... 250,000 3/01/2005 258,125
Ameristar Casinos Inc. Sr. Sub.
Note, 10.50% ..................... 850,000 8/01/2004 884,000
Archibald Candy Corp. Sr. Sec.
Note, 10.25% ..................... 1,250,000 7/01/2004 1,325,000
Celcaribe SA Sr. Sec. Note,
0.00% to 3/14/98, 13.50%
from 3/15/98 to maturity ......... 430,000 3/15/2004 442,900
Cellnet Data Systems Inc. Sr.
Note Series B, 0.00% to
9/30/2002, 14.00% from
10/1/2002 to maturity ............ 2,250,000 10/01/2007 1,226,250
Concentric Network Corp. Sr.
Note, 12.75% ..................... 1,500,000 12/15/2007 1,597,500
Dobson Communications Corp.
Sr. Note, 11.75% ................. 250,000 4/15/2007 271,250
Econophone Inc. Sr. Note,
13.50% ........................... 1,750,000 7/15/2007 1,960,000
Elgin National Industries Inc. Sr.
Note Series B, 11.00% ............ 500,000 11/01/2007 530,000
Empire Gas Corp. Sr. Sec. Note,
7.00% to 7/14/99, 12.875%
from 7/15/99 to maturity ......... 1,500,000 7/15/2004 1,387,500
Envirosource Inc. Note, 9.75% ...... 1,250,000 6/15/2003 1,262,500
Falcon Holding Group LP Sr.
Deb., 8.375%[dagger] ............. 500,000 4/15/2010 495,000
First Wave Marine Inc. Sr. Note,
11.00% ........................... 250,000 2/01/2008 260,000
Frontier Corp. Sr. Note, 9.125%..... 1,000,000 2/15/2006 1,010,000
General Binding Corp. Sr. Sub.
Note, 9.375%[dagger] ............. 750,000 6/01/2008 761,250
Golden Ocean Group Ltd. Sr.
Note, 10.00%[dagger] ............. 3,000,000 8/31/2001 2,235,000
Great Central Mines Ltd. Sr.
Note, 8.875%[dagger] ............. 1,250,000 4/01/2008 1,228,125
International Shipholding Corp.
Sr. Note Series B, 7.75% ......... 500,000 10/15/2007 488,750
Intertek Finance PLC Series B
Sr. Sub. Note, 10.25% ............ 1,000,000 11/01/2006 1,045,000
Ionica PLC Sr. Note, 13.50% ........ 500,000 8/15/2006 300,000
J. Crew Group Inc. Sr. Deb.
Note, 0.00% to 10/14/2002,
13.125% from 10/15/2002 to
maturity ......................... 250,000 10/15/2008 140,000
J. Crew Operating Corp. Sr. Sub.
Note, 10.375% .................... $1,000,000 10/15/2007 $ 955,000
J.B. Poindexter Inc. Sr. Note,
12.50% ........................... 1,750,000 5/15/2004 1,750,000
Johnstown America Industries
Inc. Sr. Sub. Note, 11.75% ....... 250,000 8/15/2005 276,875
Loehmanns Inc. Sr. Note,
11.875% .......................... 500,000 5/15/2003 492,500
Microcell Telecommunications
Sr. Note Series B, 0.00% to
10/14/2002, 11.125% from
10/15/2002 to maturity ........... 825,000 10/15/2007 353,441
North Atlantic Trading Inc. Sr.
Note, 11.00% ..................... 1,000,000 6/15/2004 1,000,000
Orion Network Systems Inc. Sr.
Note, 11.25% ..................... 1,250,000 1/15/2007 1,387,500
Owens-Illinois Inc. Sr. Deb.,
7.50% ............................ 2,000,000 5/15/2010 2,027,940
Packaging Resources Inc. Sr.
Sec. Note, 11.625% ............... 250,000 5/01/2003 245,000
Pagemart Nationwide Inc. Sr.
Note, 0.00% to 1/31/2000,
15.00% from 2/1/2000 to
maturity ......................... 825,000 2/01/2005 750,750
Phase Metrics Inc. Sr. Note,
10.75%[dagger] ................... 1,500,000 2/01/2005 1,110,000
Primus Telecommunications
Group Sr. Note, 11.75% ........... 250,000 8/01/2004 270,000
Real Time Data Inc. Note,
0.00% to 8/14/2001, 13.50%
from 8/15/2001 to maturity[dagger] 3,000,000 8/15/2006 1,710,000
RSL Communications Ltd. Sr.
Note, 12.25% ..................... 1,250,000 11/15/2006 1,412,500
Shop Vac Corp. Sr. Sec. Note,
10.625% .......................... 500,000 9/01/2003 546,250
Silgan Holdings Inc. Sub. Deb.,
13.25% ........................... 279,000 7/15/2006 315,270
Spanish Broadcasting Systems
Inc. Sr. Note, 12.50% ............ 500,000 6/15/2002 570,000
Startec Global Communications
Sr. Note, 12.00%[dagger] ......... 1,000,000 5/15/2008 972,500
Tenet Healthcare Corp. Sr. Note,
8.00% ............................ 1,000,000 1/15/2005 1,027,500
Transamerican Energy Corp. Sr.
Sec. Note Series B, 0.00% to
6/14/2000, 13.00% from
6/15/2000 to maturity ............ 500,000 6/15/2002 410,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Transamerican Energy Corp. Sr.
Sec. Note Series B, 11.50% ........ $1,500,000 6/15/2002 $ 1,380,000
U.S.A. Mobile Communications
Inc. Sr. Note, 9.50% .............. 1,250,000 2/01/2004 1,131,250
Unilab Corp. Sr. Note, 11.00% ....... 750,000 4/01/2006 791,250
Viatel Inc. Sr. Note Series A,
0.00% to 4/14/2003, 12.50%
from 4/15/2003 to maturity[dagger]. 2,050,000 4/15/2008 1,240,250
Viatel Inc. Sr. Note Series A,
11.25%[dagger] .................... 2,750,000 4/15/2008 2,887,500
Westpoint Stevens Inc. Sr. Note,
7.875%[dagger] .................... 1,750,000 6/15/2008 1,750,000
Wireless One Inc. Sr. Note,
13.00% ............................ 750,000 10/15/2003 176,250
----------
Total Non-Convertible Bonds (Cost $46,643,351)................ 46,550,801
----------
CONVERTIBLE BONDS 1.2%
Crown Resources Corp. Cv. Sub.
Deb., 5.75% ....................... 1,500,000 8/27/2001 1,200,000
Winstar Communications Inc. Sr.
Sub. Cv. Note, 0.00% to
10/14/2000, 14.00% from
10/15/2000 to maturity[dagger] .... 2,150,000 10/15/2005 3,225,000
Winstar Equipment Corp. Sr.
Sec. Exch. Note, 12.50% ........... 375,000 3/15/2004 427,500
----------
Total Convertible Bonds (Cost $2,971,614).................... 4,852,500
----------
COMMERCIAL PAPER 4.1%
American Express Credit Corp.,
5.66% ............................. 6,824,000 7/06/1998 6,824,000
Chevron Inc., 5.72% ................. 819,000 7/06/1998 819,000
Ford Motor Credit Co., 5.46% ........ 356,000 7/01/1998 356,000
Ford Motor Credit Co., 6.15% ........ 6,000,000 7/01/1998 6,000,000
Household Finance Corp.,
5.65% ............................. 2,918,000 7/07/1998 2,918,000
----------
Total Commercial Paper (Cost $16,917,000)..................... 16,917,000
----------
REPURCHASE AGREEMENTS 0.1%
State Street Bank and Trust Co.,
dated 6/30/98, repurchase
proceeds $579,068,
collateralized by $590,000
U.S. Treasury Note, 5.75%,
due 4/30/2003, market value
$599,656 .......................... 579,000 7/01/1998 579,000
----------
Total Repurchase Agreements (Cost $579,0000) .................. 579,000
----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS 6.5%
State Street Navigator Securities Lending
Prime Portfolio ...................... 26,829,511 $ 26,829,511
------------
Total Short-Term Investments (Cost $26,829,511) .... 26,829,511
------------
Total Investments (Cost $383,189,663)--107.9%....... 449,110,070
Cash and Other Assets, Less Liabilities--(7.9%) .... (32,750,552)
------------
Net Assets--100.0% ................................. $416,359,518
============
Federal Income Tax Information:
At June 30, 1998, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $383,391,913 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost .............................................. $ 77,181,276
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ............................................ (11,463,119)
------------
$65,718,157
============
</TABLE>
- --------------------------------------------------------------------------------
* Nonincome-producing securities.
ADR stands for American Depositary Receipt, representing ownership
of foreign securities.
[diamond] Payments of income may be made in cash or in the form of additional
securities.
[dagger] 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,
1998 was $19,970,685 and $22,633,412 (5.44% of net assets),
respectively.
Forward currency exchange contracts outstanding at June 30, 1998 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation Delivery
Total Value Contract Price (Depreciation) Date
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sell Canadian dollars,
Buy U.S. dollars 530,000 CAD 0.70033 CAD $ 10,814 7/23/98
Sell Canadian dollars,
Buy U.S. dollars 18,701,834 CAD 0.67912 CAD (26,881) 9/15/98
Sell French francs,
Buy U.S. dollars 48,890,427 FRF 0.16689 FRF 57,129 7/30/98
Sell French francs,
Buy U.S. dollars 12,148,000 FRF 0.16464 FRF (13,175) 7/30/98
Sell Pound Sterling,
Buy U.S. dollars 6,352,080 GBP 1.66194 GBP (31,507) 7/30/98
--------
$(3,620)
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $383,189,663) (Note 1).................... $449,110,070
Cash ................................................................. 671
Receivable for fund shares sold ...................................... 1,857,469
Dividends and interest receivable .................................... 1,763,398
Receivable for securities sold ....................................... 1,536,998
Receivable for open forward contracts ................................ 67,943
Receivable from Distributor (Note 3) ................................. 5,400
Other assets ......................................................... 70,322
------------
454,412,271
Liabilities
Payable for collateral received on securities loaned ................. 26,829,511
Payable for securities purchased ..................................... 9,591,768
Payable for fund shares redeemed ..................................... 441,980
Accrued transfer agent and shareholder services
(Note 2) ........................................................... 245,921
Accrued management fee (Note 2) ...................................... 228,636
Dividends payable .................................................... 212,977
Accrued distribution and service fees (Note 5) ....................... 196,417
Payable for open forward contracts ................................... 71,563
Accrued trustees' fees (Note 2) ...................................... 23,725
Other accrued expenses ............................................... 210,255
------------
38,052,753
------------
Net Assets $416,359,518
============
Net Assets consist of:
Undistributed net investment income ................................. $ 709,450
Unrealized appreciation of investments .............................. 65,920,407
Unrealized depreciation of foreign currency and
forward contracts ................................................. (4,274)
Accumulated net realized gain ....................................... 15,836,634
Paid-in capital ..................................................... 333,897,301
------------
$416,359,518
============
Net Asset Value and redemption price per share of
Class A shares ($125,401,955 [divided by] 7,463,083 shares)......... $16.80
======
Maximum Offering Price per share of Class A shares
($16.80 [divided by] .955).......................................... $17.59
======
Net Asset Value and offering price per share of
Class B shares ($174,835,070 [divided by] 10,445,474
shares)* ........................................................... $16.74
======
Net Asset Value and offering price per share of
Class C shares ($26,777,288 [divided by] 1,602,712 shares)*......... $16.71
======
Net Asset Value, offering price and redemption price
per share of Class S shares ($89,345,205 [divided by]
5,319,529 shares) .................................................. $16.80
======
- --------------------------------------------------------------------------------------
</TABLE>
* Redemption price per share for Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended June 30, 1998
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $142,126................... $ 5,453,423
Interest (Note 1) ............................................ 4,461,511
-----------
9,914,934
Expenses
Management fee (Note 2) ...................................... 1,949,340
Transfer agent and shareholder services (Note 2) ............. 617,665
Custodian fee ................................................ 189,816
Service fee-Class A (Note 5) ................................. 241,655
Distribution and service fees-Class B (Note 5) ............... 1,178,421
Distribution and service fees-Class C (Note 5) ............... 157,925
Registration fees ............................................ 119,363
Reports to shareholders ...................................... 54,091
Trustees' fees (Note 2) ...................................... 48,833
Audit fee .................................................... 30,782
Legal fees ................................................... 7,582
Miscellaneous ................................................ 4,892
-----------
4,600,365
Expenses borne by the Distributor (Note 3) ................... (51,193)
-----------
4,549,172
-----------
Net investment income ........................................ 5,365,762
-----------
Realized and Unrealized Gain (Loss) on Investments,
Foreign Currency and Forward Contracts
Net realized gain on investments (Notes 1 and 4) ............. 30,494,865
Net realized loss on foreign currency and forward
contracts (Note 1) ......................................... (423,568)
-----------
Total net realized gain .................................... 30,071,297
-----------
Net unrealized appreciation of investments ................... 32,462,280
Net unrealized appreciation of foreign currency and
forward contracts .......................................... 158,925
-----------
Total net unrealized appreciation .......................... 32,621,205
-----------
Net gain on investments, foreign currency and
forward contracts .......................................... 62,692,502
-----------
Net increase in net assets resulting from operations ......... $68,058,264
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
June 30, 1998
<TABLE>
<CAPTION>
Years ended June 30
-------------------------------
1997 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income ................ $ 3,408,908 $ 5,365,762
Net realized gain on
investments, foreign currency
and forward contracts .............. 12,970,640 30,071,297
Net unrealized appreciation
of investments, foreign
currency and forward contracts 20,158,095 32,621,205
------------ ------------
Net increase resulting from
operations ......................... 36,537,643 68,058,264
------------ ------------
Dividends from net investment
income:
Class A ............................. (1,175,982) (1,799,241)
Class B ............................. (613,879) (1,117,871)
Class C ............................. (66,794) (180,265)
Class S ............................. (1,191,787) (1,445,033)
------------ ------------
(3,048,442) (4,542,410)
------------ ------------
Distributions from net realized
gains:
Class A ............................. (6,343,780) (8,828,000)
Class B ............................. (3,837,994) (9,977,340)
Class C ............................. (219,488) (1,257,633)
Class S ............................. (5,623,211) (6,735,342)
------------ ------------
(16,024,473) (26,798,315)
------------ ------------
Net increase from fund share
transactions (Note 6) .............. 83,963,174 167,523,185
------------ ------------
Total increase in net assets ......... 101,427,902 204,240,724
Net Assets
Beginning of year .................... 110,690,892 212,118,794
------------ ------------
End of year (including
undistributed net investment
income of $296,672 and
$709,450, respectively) ............ $212,118,794 $416,359,518
============ ============
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1998
Note 1
State Street Research Alpha Fund, formerly State Street Research Equity Income
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 Alpha Fund, State Street Research Equity Investment Fund, State Street
Research Global Resources Fund and State Street Research Athletes Fund.
The Fund seeks to provide a high level of current income and, secondarily,
long-term growth of capital by investing primarily in common stocks offering
above-average dividend yields and in securities convertible into common stocks.
The Fund seeks to provide a higher income yield than that of the Standard &
Poor's 500 Stock Index. The Fund has authority to invest from time to time in
lower rated fixed income securities.
The Fund offers four classes of shares. Before November 1, 1997, Class C shares
were designated Class D and Class S shares were designated Class C. 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 subject to a contingent deferred sales charge of 1.00% on
any shares redeemed within one year of their purchase. Class C shares also pay
annual distribution and service fees of 1.00%. Class S shares are only offered
to certain retirement accounts, advisory accounts of State Street Research &
Management Company (the "Adviser"), an indirect wholly owned subsidiary of
Metropolitan Life Insurance Company ("Metropolitan"), and special programs. 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. The Fund's
expenses are borne pro-rata by each class, except that each class bears
expenses, and has exclusive voting rights with respect to provisions of the
Plan of Distribution, related specifically to that class. The Trustees declare
separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Values for listed securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securi-
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
ties Dealers Automated Quotation ("NASDAQ") system are valued at closing prices
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are at
the mean of the closing bid and asked quotations. Fixed income securities are
valued by a pricing service, approved by the Trustees, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. Short-term securities maturing within sixty
days are valued at their fair value as determined in accordance with
established methods consistently applied.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered.
C. Net Investment Income
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. Discount on debt obligations is amortized under the effective
yield method. Certain preferred securities held by the Fund pay dividends in
the form of additional securities (payment-in-kind securities). Dividend income
on payment-in-kind preferred securities is recorded at the market value of
securities received. Differences between the market value of securities
received and the corresponding amounts of income accrued are recorded as
adjustments to income. The Fund is charged for expenses directly attributable
to it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations. For the year ended June 30, 1998, the Fund has designated its
distributions from net realized gains as $6,336,383 from 20% rate gains and
$8,175,921 from 28% rate gains.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
F. Forward Contracts and Foreign Currencies
The Fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange contract
is an obligation by the Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the origination date of
the contract. Forward foreign currency exchange contracts establish an exchange
rate at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. Risks may arise from the potential inability of a
counterparty to meet the terms of a contract and from unanticipated movements
in the value of foreign currencies relative to the U.S. dollar. The aggregate
principal amount of forward currency exchange contracts is recorded in the
Fund's accounts. All commitments are marked-to-market at the applicable
transaction rates resulting in unrealized gains or losses. The Fund records
realized gains or losses at the time the forward contracts are extinguished by
entry into a closing contract or by delivery of the currency. Neither spot
transactions nor forward currency exchange contracts eliminate fluctuations in
the prices of the Fund's portfolio securities or in foreign exchange rates, or
prevent loss if the price of these securities should decline.
G. 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.
H. Securities Lending
The Fund may seek additional income by lending portfolio securities as
collateral in an amount equal to at least 100% of the current market value of
any loaned securities plus accrued interest. If the borrower fails to return
the securities and the value of the collateral has declined during the term of
the loan, the Fund will bear the loss. At June 30, 1998, the value of the
securities loaned and the value of collateral were $25,503,803 and $26,829,511,
respectively. During the year ended June 30, 1998, income from securities
lending amounted to $63,989 and is included in interest income.
Note 2
The Trust and the Adviser 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, 1998, the fees pursuant
to such agreement amounted to $1,949,340.
State Street Research Service Center, 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,
9
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 2 (cont'd)
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, 1998, the amount of such
shareholder servicing and account maintenance expenses was $273,599.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$48,833 during the year ended June 30, 1998.
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, 1998, the amount of such expenses assumed by the
Distributor and its affiliates was $51,193.
Note 4
For the year ended June 30, 1998, purchases and sales of securities, exclusive
of short-term obligations, aggregated $296,892,135 and $156,230,104,
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 C shares. In addition,
the Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class C 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, 1998, fees
pursuant to such plan amounted to $241,655, $1,178,421 and $157,925 for Class
A, Class B and Class C 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 $105,756 and $429,745, respectively, on sales of Class A shares of
the Fund during the year ended June 30, 1998, and that MetLife Securities, Inc.
earned commissions aggregating $1,303,055 on sales of Class B shares, and that
the Distributor collected contingent deferred sales charges of $95,196 and
$1,122 on redemptions of Class B and Class C shares, respectively, during the
same period.
10
<PAGE>
STATE STREET RESEARCH ALPHA 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.
Share transactions were as follows:
<TABLE>
<CAPTION>
Years ended June 30
----------------------------------------------------------------
1997 1998
------------------------------ -------------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,551,622 $ 21,339,862 2,949,813 $ 47,114,911
Issued upon reinvestment of:
Distributions from net realized gains ......... 497,882 5,949,190 553,080 8,327,638
Dividends from net investment income .......... 78,757 1,077,039 102,726 1,649,472
Shares repurchased ............................. (554,634) (7,538,567) (925,964) (14,870,574)
--------- ------------- --------- -------------
Net increase ................................... 1,573,627 $ 20,827,524 2,679,655 $ 42,221,447
========= ============= ========= =============
Class B Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 3,152,047 $ 43,148,521 5,798,007 $ 92,300,816
Issued upon reinvestment of:
Distributions from net realized gains ......... 296,462 3,540,487 616,819 9,237,865
Dividends from net investment income .......... 32,330 444,756 62,427 894,047
Shares repurchased ............................. (469,237) (6,363,046) (892,024) (14,277,520)
---------- ------------- --------- -------------
Net increase ................................... 3,011,602 $ 40,770,718 5,585,229 $ 88,155,208
========== ============= ========= =============
Class C (Formerly Class D) Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 657,453 $ 9,099,018 1,104,564 $ 17,816,137
Issued upon reinvestment of:
Distributions from net realized gains ......... 17,516 208,976 77,469 1,158,998
Dividends from net investment income .......... 4,050 56,205 10,006 160,435
Shares repurchased ............................. (130,981) (1,774,765) (237,675) (3,760,763)
---------- ------------- --------- -------------
Net increase ................................... 548,038 $ 7,589,434 954,364 $ 15,374,807
========== ============= ========= =============
Class S (Formerly Class C) Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 1,772,262 $ 23,914,041 2,483,912 $ 40,481,661
Issued upon reinvestment of:
Distributions from net realized gains ......... 470,421 5,622,233 447,035 6,734,398
Dividends from net investment income .......... 87,937 1,191,070 90,030 1,443,084
Shares repurchased ............................. (1,167,373) (15,951,846) (1,702,870) (26,887,420)
---------- ------------- ---------- -------------
Net increase ................................... 1,163,247 $ 14,775,498 1,318,107 $ 21,771,723
========== ============= ========== =============
</TABLE>
11
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Years ended June 30
------------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.79 10.87 11.70 13.85 14.86
----- ----- ------ ----- -----
Net investment income ($)* 0.24 0.28 0.23 0.33 0.33
Net realized and unrealized gain on investments,
foreign currency and forward contracts ($) 0.25 1.37 2.36 2.90 3.56
----- ----- ------ ----- -----
Total from investment operations ($) 0.49 1.65 2.59 3.23 3.89
----- ----- ------ ----- -----
Dividends from net investment income ($) (0.26) (0.28) (0.28) (0.28) (0.28)
Distributions from net realized gains ($) (0.15) (0.54) (0.16) (1.94) (1.67)
------ ------ ------- ------ ------
Total distributions ($) (0.41) (0.82) (0.44) (2.22) (1.95)
------ ------ ------- ------ ------
Net asset value, end of year ($) 10.87 11.70 13.85 14.86 16.80
====== ====== ======= ====== ======
Total return(2) (%) 4.30 16.12 22.41 27.45 28.15
Ratios/supplemental data:
Net assets at end of year ($ thousands) 40,484 37,327 44,464 71,087 125,402
Ratio of operating expenses to average net
assets (%)* 1.50 1.42 1.25 1.25 1.24
Ratio of net investment income to average net
assets (%)* 2.42 2.55 1.78 2.43 2.06
Portfolio turnover rate (%) 73.96 67.50 111.13 63.33 52.99
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.05 0.05 0.03 0.02 0.00
</TABLE>
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------
Years ended June 30
------------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.79 10.86 11.68 13.82 14.81
----- ----- ------ ----- -----
Net investment income ($)* 0.21 0.21 0.13 0.22 0.21
Net realized and unrealized gain on investments,
foreign currency and forward contracts ($) 0.21 1.38 2.36 2.89 3.55
----- ----- ------ ----- -----
Total from investment operations ($) 0.42 1.59 2.49 3.11 3.76
----- ----- ------ ----- -----
Dividends from net investment income ($) (0.20) (0.23) (0.19) (0.18) (0.16)
Distributions from net realized gains ($) (0.15) (0.54) (0.16) (1.94) (1.67)
------ ------ ------- ------ ------
Total distributions ($) (0.35) (0.77) (0.35) (2.12) (1.83)
------ ------ ------- ------ ------
Net asset value, end of year ($) 10.86 11.68 13.82 14.81 16.74
====== ====== ======= ====== ======
Total return(2) (%) 3.79 15.43 21.60 26.45 27.23
Ratios/supplemental data:
Net assets at end of year ($ thousands) 10,752 16,130 25,543 71,986 174,835
Ratio of operating expenses to average net
assets (%)* 2.00 2.00 2.00 2.00 1.99
Ratio of net investment income to average net
assets (%)* 1.80 1.95 1.05 1.65 1.32
Portfolio turnover rate (%) 73.96 67.50 111.13 63.33 52.99
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.07 0.05 0.03 0.02 0.00
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per-share figures have been calculated using the average shares method.
(2) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
12
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C (Formerly Class D)
--------------------------------------------------------
Years ended June 30
--------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.79 10.86 11.67 13.82 14.79
----- ----- ------ ----- -----
Net investment income ($)* 0.21 0.22 0.13 0.21 0.21
Net realized and unrealized gain on investments,
foreign currency and forward contracts ($) 0.21 1.36 2.37 2.90 3.54
----- ----- ------ ----- -----
Total from investment operations ($) 0.42 1.58 2.50 3.11 3.75
----- ----- ------ ----- -----
Dividends from net investment income ($) (0.20) (0.23) (0.19) (0.20) (0.16)
Distributions from realized gains ($) (0.15) (0.54) (0.16) (1.94) (1.67)
------ ------ ------- ------ ------
Total distributions ($) (0.35) (0.77) (0.35) (2.14) (1.83)
------ ------ ------- ------ ------
Net asset value, end of year ($) 10.86 11.67 13.82 14.79 16.71
====== ====== ======= ====== ======
Total return(2) (%) 3.78 15.33 21.68 26.42 27.23
Ratios/supplemental data:
Net assets at end of year ($ thousands) 1,280 1,366 1,386 9,592 26,777
Ratio of operating expenses to average net
assets (%)* 2.00 2.00 2.00 2.00 1.99
Ratio of net investment income to average net
assets (%)* 1.88 1.96 1.03 1.59 1.32
Portfolio turnover rate (%) 73.96 67.50 111.13 63.33 52.99
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.06 0.05 0.03 0.01 0.00
</TABLE>
<TABLE>
<CAPTION>
Class S (Formerly Class C)
-----------------------------------------------------------
Years ended June 30
-----------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.79 10.86 11.70 13.85 14.86
----- ----- ------ ----- -----
Net investment income ($)* 0.33 0.32 0.26 0.36 0.37
Net realized and unrealized gain on investments,
foreign currency and forward contracts ($) 0.21 1.39 2.36 2.90 3.56
----- ----- ------ ----- -----
Total from investment operations ($) 0.54 1.71 2.62 3.26 3.93
----- ----- ------ ----- -----
Dividends from net investment income ($) (0.32) (0.33) (0.31) (0.31) (0.32)
Distributions from net realized gains ($) (0.15) (0.54) (0.16) (1.94) (1.67)
------ ------ ------- ------ ------
Total distributions ($) (0.47) (0.87) (0.47) (2.25) (1.99)
------ ------ ------- ------ ------
Net asset value, end of year ($) 10.86 11.70 13.85 14.86 16.80
====== ====== ======= ====== ======
Total return(2) (%) 4.84 16.64 22.82 27.75 28.45
Ratios/supplemental data:
Net assets at end of year ($ thousands) 20,266 34,827 39,298 59,453 89,345
Ratio of operating expenses to average net
assets (%)* 1.00 1.00 1.00 1.00 0.99
Ratio of net investment income to average net
assets (%)* 2.92 2.93 2.03 2.68 2.30
Portfolio turnover rate (%) 73.96 67.50 111.13 63.33 52.99
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.06 0.05 0.03 0.02 0.00
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per-share figures have been calculated using the average shares method.
(2) 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.
13
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research
Equity Trust and the Shareholders of
State Street Research Alpha 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 Alpha Fund
(formerly State Street Research Equity Income Fund) (a series of State Street
Research Equity Trust, hereafter referred to as the "Trust") at June 30, 1998,
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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 7, 1998
14
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research Alpha Fund had a strong year. The total return for the
Fund's Class A shares was 28.15% for the 12 months ended June 30, 1998 (does
not reflect sales charge). The Fund outperformed the average equity income fund
tracked by Lipper Analytical Services, Inc. which rose 20.94%. However, it
underperformed the Standard & Poor's 500 Stock Price Index, which gained 30.17%
for the same period.
During the period, the Fund benefited from stock selection. The manager sought
companies with reasonable profit margins. Diversification among asset classes
and geographic areas also aided performance. In addition to common stocks, the
portfolio invested in convertible and high-yield bonds as well as investments
in Canada and Europe. A strong U.S. dollar provided an opportunity to buy
stocks in these areas at attractive prices.
The Fund was hurt by the market's preference for large-cap growth stocks during
most of the period. However, the portfolio's emphasis on medium-sized "value"
stocks put the Fund in a good position to benefit if investment sentiment turns
in the period ahead.
The profit margins of many companies are high, and we think it will be
difficult for companies to maintain these levels in the future. Going forward,
we believe that the full impact of Asia's economic problems could result in
lower profits for U.S. companies and create a more volatile environment for
stocks. We believe the portfolio has the potential to provide favorable risk-
adjusted returns in both up and down markets.
June 30, 1998
Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% A share front-end sales charge, or 5% B share or 1% C share
contingent deferred sales charge, where applicable. Performance for a specified
class includes periods prior to the creation of share classes, which resulted
in new or increased 12b-1 fees of up to 1% per class, and which will reduce
subsequent performance. S shares, offered without a sales charge, are available
only through certain employee benefit plans and special programs. The S&P 500
(officially the "Standard and Poor's 500 Stock Price Index") is an unmanaged
index of 500 U.S. stocks. The index does not take transaction changes into
consideration. It is not possible to invest directly in the index. Before
November 1, 1997, Class C shares were designated Class D, and Class S shares
were designated Class C.
Change in Value of
$10,000 Based on the S&P 500
Compared to Change in Value of $10,000
Invested in the Fund
[Line Charts]
Class A Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
22.39% 18.26% 14.72%
</TABLE>
<TABLE>
<CAPTION>
Alpha
Fund S&P 500
---------- -------
<S> <C> <C>
6/88 9550 10000
6/89 11160 12052
6/90 12441 14034
6/91 11659 15068
6/92 13386 17086
6/93 16298 19411
6/94 17001 19683
6/95 19744 24806
6/96 24169 31250
6/97 30308 42088
6/98 39475 54787
</TABLE>
Class B Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
22.23% 18.37% 14.87%
</TABLE>
<TABLE>
<CAPTION>
Alpha
Fund S&P 500
---------- -------
<S> <C> <C>
6/88 10000 10000
6/89 11698 12052
6/90 13042 14034
6/91 12216 15068
6/92 14027 17086
6/93 17063 19411
6/94 17709 19683
6/95 20441 24806
6/96 24856 31250
6/97 31431 42088
6/98 39991 54787
</TABLE>
Class C Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
26.23% 18.56% 14.86%
</TABLE>
<TABLE>
<CAPTION>
Alpha
Fund S&P 500
---------- -------
<S> <C> <C>
6/88 10000 10000
6/89 11698 12052
6/90 13042 14034
6/91 12216 15068
6/92 14027 17086
6/93 17062 19411
6/94 17707 19683
6/95 20422 24806
6/96 24850 31250
6/97 31416 42088
6/98 39972 54787
</TABLE>
Class S Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
28.45% 19.77% 15.46%
</TABLE>
<TABLE>
<CAPTION>
Alpha
Fund S&P 500
---------- -------
<S> <C> <C>
6/88 10000 10000
6/89 11698 12052
6/90 13042 14034
6/91 12216 15068
6/92 14027 17086
6/93 17078 19411
6/94 17904 19683
6/95 20883 24806
6/96 25648 31250
6/97 32766 42088
6/98 42089 54787
</TABLE>
[End Line Charts]
15
<PAGE>
STATE STREET RESEARCH ALPHA FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH EQUITY TRUST
- --------------------------------------------------------------------------------
Fund Information
State Street Research
Alpha 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
Service Center
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
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
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Bartlett R. Geer
Vice President
F. Gardner Jackson, Jr.
Vice President
Thomas P. Moore, Jr.
Vice President
Brian O'Dell
Vice President
Daniel J. Rice III
Vice President
James M. Weiss
Vice President
John T. Wilson
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Steve A. Garban
Retired; formerly Senior Vice
President for Finance and
Operations and Treasurer, The
Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial Officer,
St. Regis Corp.
Edward M. Lamont
Formerly in banking
(with an affiliate of J.P. Morgan
& Co. in New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Formerly Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts Institute of Technology
16
<PAGE>
[Back Cover]
State Street Research Alpha Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Permit #6
Hartford, CT
Questions? Comments?
Call us at 1-800-562-0032 or
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[State Street Research Logo]
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research Equity Investment
Fund prospectus. When used after September 30, 1998, this report must be
accompanied by a current Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: 5182-980819(exp0999)SSR-LD AL-190F-0898
[End Back Cover]
<PAGE>
[Front Cover]
State Street Research
GLOBAL RESOURCES FUND
ANNUAL REPORT
June 30, 1998
WHAT'S INSIDE
From the Chairman
The economy stars for
6th straight year
Portfolio Manager's Review
Structured for a turnaround
in oil stock prices
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar Award Graphic]
- -----------------------------------
[Dalbar key in background]
Dalbar
Honors Commitment To:
Investors
1997
- -----------------------------------
[End Dalbar Award Graphic]
For Excellence
in
Shareholder Service State Street Research Funds
[End Front Cover]
<PAGE>
FROM THE CHAIRMAN
[Photo: Ralph F. Verni, Chairman]
Dear Shareholder:
If the U.S. economy were a summer movie, the marquee might read: steady growth,
low inflation, higher personal income, and confident consumers, starring for 6th
straight year. Once again, the financial markets turned good news into strong
gains for stocks and bonds here and in many foreign markets.
Stocks
Economic woes in Southeast Asia did not stunt profit growth in the U.S. in the
first half of 1998. Most companies continued to report profits in line with
expectations, and stock prices rose strongly. Large stocks were favored as
investors bought into blue-chip companies able to sustain earnings growth.
Small- and mid-cap companies have not done as well.
Bonds
The global economic environment remained bond-friendly. The Federal Reserve has
been satisfied to leave interest rates unchanged. News that the federal
government will report an estimated surplus of up to $100 billion for fiscal
1998 has helped attract bond investors at home and abroad. Although the U.S.
Treasury had less need to borrow, there has been a surge in corporate bond
issuance.
International
In Europe, 11 nations are getting ready to adopt a single currency next year.
Corporate restructuring, industry consolidation, and maximizing shareholder
value--all old themes in the U.S.--have driven European stock markets to strong
gains. That prosperity has not been shared by Japan or the emerging markets of
Asia, which continue to struggle with weak economies and dwindling capital
reserves. Currency problems have also threatened Russia and Brazil.
Looking Ahead
The outlook for U.S. and major European securities markets remains positive. We
believe the next major move for the Federal Reserve could be to lower interest
rates, not raise them. We also see significant potential for small- and mid-cap
domestic stocks to regain investors' support in the period ahead. The full
force of Southeast Asia's economic problems has probably not been absorbed, and
our managers remain alert to change.
As investors, we have been fortunate to enjoy such good times. We continue to
believe there are long-term opportunities for those who stay the course. That's
why it is so important to rely on the market perspective and advice of an
investment professional. And as always, we thank you for investing in State
Street Research.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
June 30, 1998
(1)The S&P 500 (officially the "Standard and Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The index does not take transaction
charges into consideration. It is not possible to invest directly in the index.
(2)Investment results are based on an assumed $10,000 investment at A share
maximum sales charge of 4.5%; thus, the net amount invested was $9,550. Also
reflects reinvestment of capital gain distributions and income dividends. No
adjustment has been made for income taxes payable by shareholders on income
dividends or capital gain distributions.
(3)-14.94% for Class B shares; -14.97% for Class C shares; -14.11% for Class S
shares.
(4)Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% A share front-end sales charge, or 5% B share or 1% C share
contingent deferred sales charge, where applicable. Performance for a specified
class includes periods prior to the adoption of class designations in 1993.
(5)S shares, offered without a sales charge, are available only through certain
employee benefit plans and special programs.
(6)Before November 1, 1997, Class C shares were designated Class D, and Class S
shares were designated Class C.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions,
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended June 30, 1998)
- --------------------------------------------------------------------------------
Total value of $10,000 invested at Fund's inception(2)
(Class A shares, at maximum applicable sales charge)
[Mountain Chart]
<TABLE>
<S> <C>
3/90 9550
6/90 8982
6/91 7340
6/92 6454
6/93 10873
6/94 9529
6/95 9786
6/96 14036
6/97 18662
6/98 15997
</TABLE>
[End Mountain Chart]
Average Annual Total Return
(at maximum applicable sales charge)(4,5,6)
<TABLE>
<CAPTION>
=====================================================
Life of Fund
(since 3/2/90) 5 Years 1 Year
- -----------------------------------------------------
<S> <C> <C> <C>
Class A 5.80% 7.04% -18.14%
- -----------------------------------------------------
Class B 5.96% 7.00% -18.77%
- -----------------------------------------------------
Class C 5.93% 7.26% -15.73%
- -----------------------------------------------------
Class S 6.59% 8.36% -14.11%
=====================================================
</TABLE>
Performance results for the Fund are increased by the voluntary reduction of
Fund fees and expenses. Without subsidization, performance would have been
lower.
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Global Resources Fund: Structured for a turnaround in oil stock prices
[Photo: Daniel J. Rice III, Portfolio Manager]
Daniel J. Rice III
Portfolio Manager
We spoke with Dan Rice, portfolio manager of State Street Research Global
Resources Fund about the Fund's performance for the year ended June 30, 1998 and
his views on the period ahead.
Q: How did the Fund perform during the year?
A: The Fund's performance suffered in the latter months of the fiscal year--
which its peer group did at the end of 1997--and finished in the middle of the
pack. Class A shares lost 14.28% for the 12 months ended June 30, 1998 (does not
reflect sales charge3). The average natural resources fund lost 10.98%, as
reported by Lipper Analytical Services, Inc. The S&P 500 Index gained 30.17%
over the 12-month period.1
Q: What has caused negative performance in the sector and the Fund?
A: Energy stocks performed poorly in the face of continued excess oil capacity
and oil price declines. This persistent weakness in oil prices has dominated
market sentiment for energy stocks and created a "today market" focused
exclusively on current events. Since the Fund was positioned to reflect
relatively "bullish" 3-6 month fundamentals, performance suffered.
Q: How did these changes come about?
A: In the first half of the fiscal year, our emphasis on energy aided
performance. The Asian economic crisis had a negative impact on most of the
sector. We expected oil prices to drop and eliminated most of our positions in
oil service stocks. At the end of 1997, we had solidly outperformed other
natural resources funds. Then, at the end of the first quarter of
1998--following the OPEC agreement to cut production--we became bullish on oil
markets again. We put a significant por-tion of our cash to work. The market,
however, contin-ued to focus day-to-day on short-term oil prices. Stocks failed
to rebound as we anticipated.
Q: What factors hurt the Fund's year-end results?
A: During the final quarter of the Fund's fiscal year, performance lagged the
benchmark for two reasons: 1) Stock selection, in which a number of our larger
exploration holdings experienced disappointing drilling results. 2) Relative
weightings, in which our defensive pipeline and utility investments were under
the benchmark average. Pipelines were the best performing sector.
Q: What is your view of the oil service sector now?
A: Oil service has been the industry's worst performing stock sector thus far
in 1998. The market finally recognized the slowing rig activity worldwide,
which we anticipated months earlier. As a result, the Fund's oil service
emphasis was too high. The market is factoring today's environment into stock
prices, rather than discounting improvements in oil pricing and service which
appear on the horizon.
Q: What is your outlook for the Fund?
A: We feel positive that key oil producing nations will get oil prices under
control, through further production cuts if necessary. Oil prices then should
begin rising to profitable levels. At the same time, Southeast Asia problems
are not improving, and oil demand there is declining. In the natural gas
sector, prices should continue strong, given the record heat waves in the
nation. With this positive outlook for pricing, and our confidence in oil
service fundamentals, we plan to maintain our present portfolio structure to
anticipate a turnaround in stock prices of companies in these respective
sectors.
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Stock Positions
(by percentage of net assets)
<TABLE>
<S> <C> <C>
1 Ranger Oil Oil/gas exploration 6.1%
2 Seagull Energy Natural gas exploration 4.7%
3 Seven Seas Petroleum Oil/gas company 4.2%
4 KCS Energy Oil/gas exploration 2.9%
5 Diamond Offshore Drilling Oil/gas well drilling 2.6%
6 Transocean Offshore Oil/gas drilling 2.6%
7 Nuevo Energy Oil/gas exploration 2.5%
8 Probe Exploration Oil/gas exploration 2.4%
9 Noble Drilling Oil/gas drilling 2.2%
10 Basin Exploration Oil/gas exploration 2.2%
</TABLE>
These securities represent an aggregate of 32.4% of the portfolio. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities listed in this table or in the text
above.
Best and Worst Contributors to Performance
(July 1, 1997 through June 30, 1998)
Best [Arrow Up]
- --------------------------------------------------------------------------------
Probe Exploration
Good results in exploitation of oil properties.
Seven Seas Petroleum
Good oil exploration results.
Basin Exploration
Good oil exploration results.
Worst [Arrow Down]
- --------------------------------------------------------------------------------
KCS Energy
Commodity price decline.
Abacan Resource
Poor exploration results.
Ranger Oil
Commodity price decline.
2
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
EQUITY SECURITIES 97.7%
Basic Industries 15.8%
Chemical 0.2%
Cabot Corp. ................................. 11,700 $ 378,056
-----------
Metal & Mining 12.3%
Aber Resources Ltd.* ........................ 100,000 875,000
Anglogold Ltd. ADR* ......................... 40,000 811,540
Ashanti Goldfields Co. Ltd. GDR ............. 400,000 3,250,000
Boliden Ltd.*[dagger] ....................... 200,000 1,087,289
Cameco Corp. ................................ 40,000 1,125,000
Canyon Resources Corp.* ..................... 1,250,000 937,500
Corriente Resources Inc.* ................... 323,200 208,651
Crown Resources Corp.* ...................... 150,000 656,250
Delta Gold NL* .............................. 750,000 921,813
Denison Mines Ltd.* ......................... 1,500,000 254,833
Freeport-McMoRan Copper &
Gold, Inc. Cl. B* ......................... 50,000 759,375
Golden Star Resources Ltd.* ................. 5,748 12,215
Great Central Mines Ltd.* ................... 400,000 382,382
Homestake Mining Co. ........................ 88,000 913,000
Impala Platinum Holdings ADR* ............... 50,000 428,690
Menzies Gold NL* ............................ 1,000,000 117,942
Nevsun Resources Ltd.* ...................... 400,000 516,462
Newcrest Mining Ltd.* ....................... 500,000 614,542
Normandy Mining Ltd.* ....................... 1,772,841 1,452,648
Orogen Minerals Ltd.* ....................... 625,000 834,133
Pangea Goldfields Inc.* ..................... 100,000 97,856
Placer Dome Inc. ............................ 100,000 1,175,000
Randgold Resources Inc. GDR*[dagger] ........ 55,000 295,625
Romarco Minerals Inc.* ...................... 300,000 387,347
Samax Gold Inc.* ............................ 125,000 454,453
Shaw Group Inc.* ............................ 15,800 410,800
South Pacific Resources Inc.* ............... 500,000 42,472
Southernera Resources Ltd.* ................. 302,400 1,304,910
Southwestern Gold Corp.* .................... 400,000 924,196
Stillwater Mining Co.* ...................... 70,000 1,898,750
Sutton Resources Ltd.* ...................... 207,500 1,167,187
Tombstone Exploration Co. Ltd.* ............. 350,000 57,083
Trillion Resources Ltd.* .................... 200,000 123,679
Valerie Gold Resources Ltd.* ................ 300,000 138,629
Viceroy Resource Corp.* ..................... 500,000 781,489
Virginia Gold Mines Inc.* ................... 550,000 392,443
X-Cal Resources Ltd.* ....................... 2,000,000 679,556
----------
26,490,740
----------
Railroad 3.3%
Marine Transport Corp. ...................... 55,950 $ 227,297
Mosvold Shipping Ltd.* ...................... 2,000,000 1,748,320
Mosvold Shipping Ltd.*[dagger]@ ............. 200,000 167,122
OMI Corp.* .................................. 559,500 4,476,000
Overseas Shipholding Group Inc. ............. 27,200 554,200
----------
7,172,939
----------
Total Basic Industries .................................. 34,041,735
----------
Energy 79.3%
Oil 60.5%
3DX Technologies Inc.* ...................... 100,000 162,500
Abacan Resource Corp.* ...................... 1,861,200 1,163,250
Arakis Energy Corp.* ........................ 1,350,000 1,940,625
Barrington Petroleum Ltd.*[dagger] .......... 313,900 810,587
Basin Exploration Inc.* ..................... 263,700 4,647,713
Baytex Energy Ltd. Cl. A* ................... 95,300 556,950
Bellator Exploration Inc.* .................. 1,770,000 841,969
Benton Oil & Gas Co.* ....................... 57,800 614,125
Brigham Exploration Co.* .................... 68,800 610,600
Cabot Oil & Gas Corp. Cl. A ................. 146,400 2,928,000
Callon Petroleum Co.* ....................... 95,500 1,366,844
Canadian 88 Energy Corp.* ................... 969,500 4,059,781
Canadian Conquest Exploration Inc.* ......... 165,000 106,520
Carmanah Resources Ltd.* .................... 299,000 599,402
Carmanah Resources Ltd.*[dagger]@ ........... 80,000 152,356
Clayton Williams Energy Inc.* ............... 17,530 179,683
COHO Energy Inc.* ........................... 89,400 603,450
Crystal Oil Co.* ............................ 41,600 1,747,200
Cultus Petroleum NL ......................... 877,500 450,473
Elk Point Resources Inc. Cl. A* ............. 300,000 1,019,333
Forcenergy Inc.* ............................ 38,500 685,781
Forest Oil Corp.* ........................... 174,300 2,494,669
FX Energy Inc.* ............................. 100,000 900,000
Gulfstream Resources Ltd. ................... 347,000 1,120,077
Interoil Corp.* ............................. 156,500 821,625
KCS Energy Inc. ............................. 540,000 6,176,250
Kelley Oil & Gas Corp.* ..................... 400,000 925,000
Maxx Petroleum Ltd.* ........................ 300,975 1,128,656
Meridian Resource Corp.* .................... 281,700 1,989,506
Merit Energy Ltd.* .......................... 119,700 406,714
Miller Exploration Co.* ..................... 113,300 878,075
Morrison Middlefield Ltd. ................... 240,000 1,141,653
New Cache Petroleum Ltd.* ................... 80,000 353,369
Nuevo Energy Co.* ........................... 167,900 5,393,788
Oil Search Ltd.* ............................ 1,604,300 2,429,920
Oxbow Exploration Inc.*[dagger] ............. 400,000 190,276
Patina Oil & Gas Corp. ...................... 94,700 662,900
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Oil (cont'd)
Pease Oil & Gas Co.* ..................... 200,000 $ 150,000
Pease Oil & Gas Co.*[dbldag]@ ............ 87,500 51,680
Pendaries Petroleum Ltd.*[dagger] ........ 167,000 595,800
Petromet Resources Ltd.* ................. 250,000 562,500
Plains Resources Inc.* ................... 250,000 4,468,750
Post Energy Corp.* ....................... 400,000 1,413,476
Probe Exploration Inc.*[dagger] .......... 1,500,000 5,147,633
Purcell Energy Ltd.* ..................... 229,000 124,495
Ranger Oil Ltd.* ......................... 1,784,200 13,046,962
Santa Fe Energy Resources Inc.* .......... 195,900 2,105,925
Seagull Energy Corp.* .................... 608,600 10,079,938
Seven Seas Petroleum Inc.* ............... 449,600 9,104,400
Snyder Oil Corp. ......................... 156,600 3,122,213
Southern Mineral Corp.* .................. 213,500 733,906
Southwestern Energy Co. .................. 296,300 2,722,256
St. Mary Land & Exploration Co.* ......... 58,400 1,408,900
Stone Energy Corp.* ...................... 100,000 3,556,250
Tap Oil NL* .............................. 1,926,400 1,040,357
Thunder Energy Inc.* ..................... 300,000 399,579
Tipperary Corp.* ......................... 100,000 287,500
Titan Exploration Inc.* .................. 446,723 3,964,667
Tom Brown, Inc.* ......................... 205,900 3,873,494
Tri-Link Resources Ltd. Cl. A* ........... 175,100 1,576,620
Triton Energy Ltd. Cl. A ................. 64,200 2,291,138
Ulster Petroleum Ltd.* ................... 473,500 3,619,908
Ultra Petroleum Corp.* ................... 586,100 1,501,544
Vermilion Resources Ltd.* ................ 200,000 910,604
Wolverine Energy Corp.* .................. 165,000 79,610
-----------
130,199,725
-----------
Oil Service 18.8%
Atwood Oceanics Inc.* .................... 100,500 4,001,156
BJ Services Co.* ......................... 100,000 2,906,250
Cliffs Drilling Co.* ..................... 51,200 1,680,000
Cooper Cameron Corp.* .................... 57,200 2,917,200
Diamond Offshore Drilling Inc. ........... 140,000 5,600,000
EVI Weatherford Inc.* .................... 100,000 3,712,500
J. Ray McDermott SA* ..................... 100,000 4,150,000
NewPark Resources Inc.* .................. 133,000 1,479,625
Noble Drilling Corp.* .................... 200,000 4,812,500
Pride International Inc.* ................ 100,000 1,693,750
Stellarton Energy Corp. Cl. A*[dagger] ... 150,000 249,737
TMBR/Sharp Drilling Inc.* ................ 136,800 1,316,700
Transocean Offshore Inc. ................. 125,000 5,562,500
Willbros Group Inc.* ..................... 29,100 454,687
-----------
40,536,605
-----------
Total Energy ......................................... 170,736,330
-----------
Utility 2.6%
Natural Gas 2.6%
Markwest Hydrocarbon Inc.* ............... 37,500 $ 581,250
TransTexas Gas Corp.* .................... 442,000 3,922,750
Valero Energy Corp. ...................... 36,900 1,226,925
-----------
5,730,925
-----------
Total Utility ........................................ 5,730,925
-----------
Total Equity Securities (Cost $256,252,466)........... 210,508,990
-----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 2.6%
American Express Credit Corp.,
6.02% ..................... $1,143,000 7/02/1998 1,143,000
Merrill Lynch & Company Inc.,
6.12% ..................... 4,393,000 7/01/1998 4,393,000
---------
Total Short-Term Obligations (Cost $5,536,000)....... 5,536,000
---------
Total Investments (Cost $261,788,466)--100.3%........ 216,044,990
Cash and Other Assets, Less Liabilities--(0.3%) ..... (669,576)
-----------
Net Assets--100.0% .................................. $215,375,414
============
</TABLE>
<TABLE>
<S> <C>
Federal Income Tax Information:
At June 30, 1998, the net unrealized depreciation of
investments based on cost for Federal income tax
purposes of $261,806,696 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ........................................... $ 15,514,467
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ...... (61,276,173)
------------
$(45,761,706)
============
</TABLE>
- --------------------------------------------------------------------------------
* Nonincome-producing securities.
ADR and GDR stand for American Depositary Receipt and Global Depositary
Receipt, respectively, representing ownership of foreign securities.
[dagger] 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, 1998 were $9,756,044 and
$8,696,425 (4.04% of net assets), respectively.
[dbldag] Security restricted as to public resale. The total cost and market
value of restricted securities owned at June 30, 1998 were $218,750 and
$51,680 (0.02% of net assets), respectively. Diversification of Equity
Securities at June 30, 1998 (as a percentage of net assets) was United
States 59.4%, Canada 33.7%, Australia 3.4%, Ghana 1.5%, Norway 0.9%,
South Africa 0.6%, Papua New Guinea 0.4% and United Kingdom 0.1%.
@ Security valued under consistently applied procedures established by
the Trustees.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $261,788,466) (Note 1)................... $216,044,990
Receivable for fund shares sold ..................................... 1,584,766
Receivable for securities sold ...................................... 416,999
Dividends and interest receivable ................................... 8,746
Other assets ........................................................ 547
------------
218,056,048
Liabilities
Payable for securities purchased .................................... 1,741,237
Accrued transfer agent and shareholder services
(Note 2) .......................................................... 235,168
Payable for fund shares redeemed .................................... 231,213
Accrued management fee (Note 2) ..................................... 138,104
Accrued distribution and service fees (Note 4) ...................... 126,163
Accrued trustees' fees (Note 2) ..................................... 23,732
Payable to custodian ................................................ 1,398
Other accrued expenses .............................................. 183,619
------------
2,680,634
------------
Net Assets $215,375,414
============
Net Assets consist of:
Unrealized depreciation of investments ............................. $(45,743,476)
Accumulated net realized gain ...................................... 9,199,004
Paid-in capital .................................................... 251,919,886
------------
$215,375,414
============
Net Asset Value and redemption price per share of
Class A shares ($82,375,817 [divided by] 4,746,916 shares)......... $17.35
======
Maximum Offering Price per share of Class A shares
($17.35 [divided by] .955)......................................... $18.17
======
Net Asset Value and offering price per share of Class
B shares ($89,688,691 [divided by] 5,368,907 shares)*.............. $16.71
======
Net Asset Value and offering price per share of Class
C shares ($37,566,302 [divided by] 2,253,597 shares)*.............. $16.67
======
Net Asset Value, offering price and redemption price
per share of Class S shares ($5,744,604 [divided by] 325,028
shares) ........................................................... $17.67
======
</TABLE>
- --------------------------------------------------------------------------------
*Redemption price per share for Class B and Class C is equal to net asset value
less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended June 30, 1998
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $18,272............... $ 673,490
Interest (Note 1) ....................................... 873,934
------------
1,547,424
Expenses
Management fee (Note 2) ................................. 1,812,714
Transfer agent and shareholder services (Note 2) ........ 633,336
Service fee--Class A (Note 4) ........................... 239,096
Distribution and service fees--Class B (Note 4) ......... 970,775
Distribution and service fees--Class C (Note 4) ......... 392,245
Custodian fee ........................................... 173,566
Registration fees ....................................... 158,606
Reports to shareholders ................................. 53,624
Trustees' fees (Note 2) ................................. 48,576
Audit fee ............................................... 26,652
Legal fees .............................................. 6,444
Miscellaneous ........................................... 7,951
------------
4,523,585
------------
Net investment loss ..................................... (2,976,161)
------------
Realized and Unrealized Gain (Loss) on
Investments, Foreign Currency
and Forward Contracts
Net realized gain on investments (Notes 1 and 3) ........ 28,947,929
Net realized gain on foreign currency and forward
contracts (Note 1) .................................... 1,080,947
------------
Total net realized gain ................................ 30,028,876
Net unrealized depreciation of investments .............. (73,157,253)
------------
Net loss on investments, foreign currency and
forward contracts ..................................... (43,128,377)
------------
Net decrease in net assets resulting from operations..... $(46,104,538)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended June 30
-------------------------------
1997 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss .................. $ (1,324,105) $ (2,976,161)
Net realized gain on
investments, foreign
currency and forward
contracts .......................... 12,458,405 30,028,876
Net unrealized appreciation
(depreciation) of
investments ........................ 13,310,514 (73,157,253)
------------ ------------
Net increase (decrease)
resulting from operations .......... 24,444,814 (46,104,538)
------------ ------------
Distributions from net realized
gains:
Class A ............................ (1,857,796) (9,874,227)
Class B ............................ (1,170,575) (10,098,016)
Class C ............................ (581,660) (3,889,057)
Class S ............................ (352,673) (1,118,083)
------------ ------------
(3,962,704) (24,979,383)
------------ ------------
Net increase from fund share
transactions (Note 6) .............. 121,964,798 89,454,451
------------ ------------
Total increase in net assets ......... 142,446,908 18,370,530
Net Assets
Beginning of year .................... 54,557,976 197,004,884
------------ ------------
End of year .......................... $197,004,884 $215,375,414
============ ============
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1998
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 Alpha Fund, State Street Research Equity
Investment Fund and State Street Research Athletes 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. Before November 1, 1997, Class C shares
were designated Class D and Class S shares were designated Class C. 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 subject to a contingent deferred sales charge of 1.00% on
any shares redeemed within one year of their purchase. Class C shares also pay
annual distribution and service fees of 1.00%. Class S shares are only offered
to certain retirement accounts, advisory accounts of State Street Research &
Management Company (the "Adviser"), an indirect wholly owned subsidiary of
Metropolitan Life Insurance Company ("Metropolitan"), and special programs. 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. 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
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
into dollars at the current exchange rate. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments. Short-term securities maturing
within sixty days are valued at amortized cost. Other securities, if any, are
valued at their fair value as determined in accordance with established methods
consistently applied.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered.
C. Net Investment Income
Investment income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to it,
while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested semiannually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations. For the year ended June 30, 1998, the Fund has
designated its distributions from net realized gains as $4,902,093 from 20%
rate gains and $8,324,662 from 28% rate gains.
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. Forward Contracts and Foreign Currencies
The Fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange contract
is an obligation by the Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the origination date of
the contract. Forward foreign currency exchange contracts establish an exchange
rate at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. Risks may arise from the potential inability of a
counterparty to meet the terms of a contract and from unanticipated movements
in the value of foreign currencies relative to the U.S. dollar. The aggregate
principal amount of forward currency exchange contracts is recorded in the
Fund's accounts. All commitments are marked-to-market at the applicable
transaction rates resulting in unrealized gains or losses. The Fund records
realized gains or losses at the time the forward contracts are extinguished by
entry into a closing contract or by delivery of the currency. Neither spot
transactions nor forward currency exchange contracts eliminate fluctuations in
the prices of the Fund's portfolio securities or in foreign exchange rates, or
prevent loss if the price of these securities should decline.
G. 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.
H. Securities Lending
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. If the borrower fails to return the
securities and the value of the collateral has declined during the term of the
loan, the Fund will bear the loss. At June 30, 1998, the value of the
securities loaned and the value of collateral were $7,764,256 and $8,283,183,
respectively. During the year ended June 30, 1998, income from securities
lending amounted to $37,584 and is included in interest income.
Note 2
The Trust and the Adviser 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, 1998, the fees pursuant
to such agreement amounted to $1,812,714
State Street Research Service Center, 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,
1998, the amount of such shareholder servicing and account maintenance expenses
was $183,565.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$48,576 during the year ended June 30, 1998.
Note 3
For the year ended June 30, 1998, purchases and sales of securities, exclusive
of short-term obligations, aggregated $221,036,260 and $156,909,074,
respectively.
7
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 4
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940, as amended. Under the Plan,
the Fund pays annual service fees to the Distributor at a rate of 0.25% of
average daily net assets for Class A, Class B and Class C shares. In addition,
the Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class C 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, 1998, fees
pursuant to such plan amounted to $239,096, $970,775 and $392,245 for Class A,
Class B and Class C 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 $157,465 and $97,526, respectively, on sales of Class A shares of
the Fund during the year ended June 30, 1998, and that MetLife Securities, Inc.
earned commissions aggregating $253,289 on sales of Class B shares, and that
the Distributor collected contingent deferred sales charges of $204,258 and
$16,639 on redemptions of Class B and Class C shares, respectively, during the
same period.
Note 5
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.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
Share transactions were as follows:
<TABLE>
<CAPTION>
Years ended June 30
--------------------------------------------------------
1997 1998
-------------------------- --------------------------
Class A Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ........................................................ 3,660,723 $ 77,832,076 3,760,941 $ 87,083,305
Issued upon reinvestment of distributions from net realized gains .. 82,889 1,767,355 408,880 9,169,116
Shares repurchased ................................................. (1,943,823) (40,902,436) (2,997,412) (66,376,129)
---------- ------------ ---------- ------------
Net increase ....................................................... 1,799,789 $ 38,696,995 1,172,409 $ 29,876,292
========== ============ ========== ============
Class B Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------- ---------- ------------
Shares sold ........................................................ 3,312,555 $ 69,477,881 2,966,308 $ 63,952,013
Issued upon reinvestment of distributions from net realized gains .. 51,654 1,077,181 437,810 9,510,796
Shares repurchased ................................................. (502,773) (10,470,845) (1,646,026) (33,380,085)
---------- ------------ ---------- ------------
Net increase ....................................................... 2,861,436 $ 60,084,217 1,758,092 $ 40,082,724
========== ============ ========== ============
Class C (Formerly Class D) Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------- ---------- ------------
Shares sold ........................................................ 1,676,809 $ 34,986,489 1,640,285 $ 35,555,627
Issued upon reinvestment of distributions from net realized gains .. 25,665 534,412 167,922 3,639,263
Shares repurchased ................................................. (738,597) (15,509,697) (819,924) (16,782,276)
---------- ------------ ---------- ------------
Net increase ....................................................... 963,877 $ 20,011,204 988,283 $ 22,412,614
========== ============ ========== ============
Class S (Formerly Class C) Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------- ---------- ------------
Shares sold ........................................................ 736,188 $ 15,558,855 529,650 $ 12,184,343
Issued upon reinvestment of distributions from net realized gains .. 14,897 321,658 48,358 1,107,030
Shares repurchased ................................................. (597,301) (12,708,131) (725,982) (16,208,552)
---------- ------------ ---------- ------------
Net increase (decrease) ............................................ 153,784 $ 3,172,382 (147,974) $ (2,917,179)
========== ============ ========== ============
</TABLE>
8
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------
Years ended June 30
---------------------------------------------------------
1994(1) 1995(1) 1996(1) 1997(1) 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 13.51 11.84 12.16 17.44 22.39
------ ----- ----- ----- ------
Net investment loss ($)* (0.17) (0.16) (0.20) (0.15) (0.18)
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) (1.50) 0.48 5.48 5.86 (2.52)
------- ------ ------ ------ -------
Total from investment operations ($) (1.67) 0.32 5.28 5.71 (2.70)
------- ------ ------ ------ -------
Distributions from net realized gains ($) -- -- -- (0.76) (2.34)
------- ------ ------ ------ -------
Total distributions ($) -- -- -- (0.76) (2.34)
------- ------ ------ ------ -------
Net asset value, end of year ($) 11.84 12.16 17.44 22.39 17.35
======= ====== ====== ====== =======
Total return(2) (%) (12.36) 2.70 43.42 32.96 (14.28)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 30,679 25,692 30,943 80,029 82,376
Ratio of operating expenses to average net assets (%)* 1.75 1.75 1.75 1.42 1.46
Ratio of net investment loss to average net assets (%)* (1.46) (1.41) (1.47) (0.73) (0.82)
Portfolio turnover rate (%) 30.98 62.94 92.33 51.67 68.69
*Reflects voluntary reduction of expenses per share of these
amounts ($) 0.11 0.09 0.05 0.00 --
</TABLE>
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------
Years ended June 30
-----------------------------------------------------------
1994(1) 1995(1) 1996(1) 1997(1) 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 13.51 11.78 12.03 17.12 21.80
------ ----- ----- ----- ------
Net investment loss ($)* (0.23) (0.23) (0.30) (0.30) (0.33)
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) (1.50) 0.48 5.39 5.74 (2.42)
------- ------ ------ ------ -------
Total from investment operations ($) (1.73) 0.25 5.09 5.44 (2.75)
------- ------ ------ ------ -------
Distributions from net realized gains ($) -- -- -- (0.76) (2.34)
------- ------ ------ ------ -------
Total distributions ($) -- -- -- (0.76) (2.34)
------- ------ ------ ------ -------
Net asset value, end of year ($) 11.78 12.03 17.12 21.80 16.71
======= ====== ====== ====== =======
Total return(2) (%) (12.81) 2.12 42.31 31.98 (14.94)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 6,333 7,030 12,828 78,701 89,689
Ratio of operating expenses to average net assets (%)* 2.25 2.33 2.50 2.17 2.21
Ratio of net investment loss to average net assets (%)* (1.93) (1.98) (2.20) (1.47) (1.57)
Portfolio turnover rate (%) 30.98 62.94 92.33 51.67 68.69
*Reflects voluntary reduction of expenses per share of these
amounts ($) 0.14 0.09 0.04 0.00 --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per-share figures have been calculated using the average shares method.
(2) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
9
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C (Formerly Class D)
--------------------------------------------------------
Years ended June 30
--------------------------------------------------------
1994(1) 1995(1) 1996(1) 1997(1) 1998(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 13.51 11.77 12.02 17.10 21.76
------ ----- ----- ----- ------
Net investment loss ($)* (0.23) (0.23) (0.30) (0.30) (0.33)
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) (1.51) 0.48 5.38 5.72 (2.42)
------- ------ ------ ------ -------
Total from investment operations ($) (1.74) 0.25 5.08 5.42 (2.75)
------- ------ ------ ------ -------
Distributions from net realized gains ($) -- -- -- (0.76) (2.34)
------- ------ ------ ------ -------
Total distributions ($) -- -- -- (0.76) (2.34)
------- ------ ------ ------ -------
Net asset value, end of year ($) 11.77 12.02 17.10 21.76 16.67
======= ====== ====== ====== =======
Total return(2) (%) (12.88) 2.12 42.26 31.90 (14.97)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 1,931 2,350 5,154 27,528 37,566
Ratio of operating expenses to average net assets (%)* 2.25 2.33 2.50 2.17 2.21
Ratio of net investment loss to average net assets (%)* (1.94) (1.99) (2.20) (1.45) (1.57)
Portfolio turnover rate (%) 30.98 62.94 92.33 51.67 68.69
*Reflects voluntary reduction of expenses per share of these
amounts ($) 0.13 0.09 0.05 0.00 --
</TABLE>
<TABLE>
<CAPTION>
Class S (Formerly Class C)
----------------------------------------------------------
Years ended June 30
----------------------------------------------------------
1994(1) 1995(1) 1996(1) 1997(1) 1998(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 13.52 11.90 12.27 17.64 22.72
------ ----- ----- ----- ------
Net investment loss ($)* (0.15) (0.11) (0.17) (0.10) (0.13)
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) (1.47) 0.48 5.54 5.94 (2.58)
------- ------ ------ ------ -------
Total from investment operations ($) (1.62) 0.37 5.37 5.84 (2.71)
------- ------ ------ ------ -------
Distributions from net realized gains ($) -- -- -- (0.76) (2.34)
------- ------ ------ ------ -------
Total distributions ($) -- -- -- (0.76) (2.34)
------- ------ ------ ------ -------
Net asset value, end of year ($) 11.90 12.27 17.64 22.72 17.67
======= ====== ====== ====== =======
Total return(2) (%) (11.98) 3.11 43.77 33.33 (14.11)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 960 3,288 5,632 10,747 5,745
Ratio of operating expenses to average net assets (%)* 1.25 1.33 1.50 1.17 1.21
Ratio of net investment loss to average net assets (%)* (0.95) (1.01) (1.20) (0.48) (0.55)
Portfolio turnover rate (%) 30.98 62.94 92.33 51.67 68.69
*Reflects voluntary reduction of expenses per share of these
amounts ($) 0.16 0.08 0.05 0.00 --
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per-share figures have been calculated using the average shares method.
(2) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
10
<PAGE>
- --------------------------------------------------------------------------------
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, 1998, 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, 1998 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 7, 1998
11
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
Performance of State Street Research Global Resources Fund declined in the
final months of the fiscal year after a positive first half. Class A shares
lost 14.28% for the 12 months ended June 30, 1998 (does not include sales
charge).
During the first six months of the fiscal year, the Fund's emphasis on energy
outperformed other natural resources funds. The Asian economic crises had a
negative impact on most of the sector. At the end of the first half, we
anticipated a decline in oil prices and eliminated positions in oil service
stocks that were vulnerable.
The Fund declined in the latter half of the fiscal year as energy stocks
performed poorly amid continued excess oil capacity and oil price declines. At
the end of the third quarter, we sensed a buying opportunity and invested a
significant portion of portfolio cash, believing the market would rebound after
OPEC agreements to cut oil production. The weakness in oil prices persisted,
dominating market sentiment for energy stocks.
Oil service has been the industry's worst performing stock sector in 1998.
Stock selection also was responsible for lagging performance, as a number of
exploration holdings had disappointing drilling results. Relative weighting of
defensive pipeline and utility stocks was low and caused losses because
pipelines were the best performing industry segment.
We expect oil prices to rise to profitable levels in the near future in the
light of planned production cuts by key producing nations. Demand continues to
decline in Southeast Asian markets. Natural gas prices should continue strong,
based on record heat across the U.S. and limited inventories. With this
positive outlook for pricing, and confidence that oil service fundamentals are
correct, we plan to maintain the present portfolio structure.
June 30, 1998
Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% A share front-end sales charge, or 5% B share or 1% C share
contingent deferred sales charge, where applicable. Performance for a class
includes periods prior to the adoption of class designations in 1993. S shares,
offered without a sales charge, are available only through certain employee
benefit plans and special programs. The S&P 500 (officially the "Standard and
Poor's 500 Stock Price Index") is an unmanaged index of 500 U.S. stocks. The
index does not take transaction charges into consideration. It is not possible
to invest directly in the index. Before November 1, 1997, Class C shares were
designated Class D, and Class S shares were designated Class C.
Change in Value of $10,000 Based on
the S&P 500 Compared to Change in Value
of $10,000 Invested in the Fund
[Line Charts]
Class A Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
-18.14% 7.04% 5.80%
</TABLE>
<TABLE>
<CAPTION>
Global
Resources
Fund S&P 500
---------- -------
<S> <C> <C>
3/90 9550 10000
6/90 8992 10901
6/91 7340 11704
6/92 6454 13271
6/93 10873 15076
6/94 9529 15287
6/95 9786 19267
6/96 14036 24272
6/97 18662 32689
6/98 15997 42553
</TABLE>
Class B Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
-18.77% 7.00% 5.96%
</TABLE>
<TABLE>
<CAPTION>
Global
Resources
Fund S&P 500
---------- -------
<S> <C> <C>
3/90 10000 10000
6/90 9405 10901
6/91 7686 11704
6/92 6759 13271
6/93 11385 15076
6/94 9927 15287
6/95 10138 19267
6/96 14427 24272
6/97 19042 32689
6/98 16197 42553
</TABLE>
Class C Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
-15.73% 7.26% 5.93%
</TABLE>
<TABLE>
<CAPTION>
Global
Resources
Fund S&P 500
---------- -------
<S> <C> <C>
3/90 10000 10000
6/90 9405 10901
6/91 7686 11704
6/92 6759 13271
6/93 11385 15076
6/94 9919 15287
6/95 10130 19267
6/96 14411 24272
6/97 19008 32689
6/98 16163 42553
</TABLE>
Class S Shares
--------------
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
-14.11% 8.36% 6.59%
</TABLE>
<TABLE>
<CAPTION>
Global
Resources
Fund S&P 500
---------- -------
<S> <C> <C>
3/90 10000 10000
6/90 9405 10901
6/91 7686 11704
6/92 6759 13271
6/93 11394 15076
6/94 10028 15287
6/95 10340 19267
6/96 14866 24272
6/97 19820 32689
6/98 17024 42553
</TABLE>
[End Line Charts]
12
<PAGE>
STATE STREET RESEARCH GLOBAL RESOURCES FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH EQUITY TRUST
- --------------------------------------------------------------------------------
Fund Information
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
Service Center
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02110
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Bartlett R. Geer
Vice President
F. Gardner Jackson, Jr.
Vice President
Thomas P. Moore, Jr.
Vice President
Brian P. O'Dell
Vice President
Daniel J. Rice III
Vice President
James M. Weiss
Vice President
John T. Wilson
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Steve A. Garban
Retired; formerly Senior Vice President for Finance and Operations and
Treasurer, The Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial Officer,
St. Regis Corp.
Edward M. Lamont
Formerly in banking
(with an affiliate of J.P. Morgan & Co. in New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Formerly Partner,
Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
13
<PAGE>
[Back Cover]
State Street Research Global Resources Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Permit #6
Hartford, CT
Questions? Comments?
Call us at 1-800-562-0032 or
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[State Street Research Logo]
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research Equity Investment
Fund prospectus. When used after September 30, 1998, this report must be
accompanied by a current Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: 5185-980819(exp0999)SSR-LD GR-212F-0898
[End Back Cover]
<PAGE>
[Front Cover]
State Street Research
ATHLETES FUND
ANNUAL REPORT
June 30, 1998
WHAT'S INSIDE
Investment Update
About the Fund,
economy and markets
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar Award Graphic]
- -----------------------------------
[Dalbar key in background]
Dalbar
Honors Commitment To:
Investors
1997
- -----------------------------------
[End Dalbar Award Graphic]
For Excellence
in
Shareholder Service State Street Research Funds
[End Front Cover]
<PAGE>
STATE STREET RESEARCH ATHLETES FUND
- --------------------------------------------------------------------------------
INVESTMENT UPDATE
- --------------------------------------------------------------------------------
INVESTMENT ENVIRONMENT
The Economy
[bullet] The first six months of 1998 provided solid economic growth, marked by
low inflation and good investment returns. Consumer confidence was
high, personal income rose, and interest rates remained stable.
[bullet] Favorable economic factors stimulated a boom in the housing market and
strong retail sales. Lower energy costs helped keep inflation in
check.
[bullet] The economic crisis in Southeast Asia raised concerns about U.S.
exports and profits at companies with sizeable foreign markets.
The Markets
[bullet] The S&P 500, a broad measure of common stock performance, gained
17.72% for the six months ended June 30, 1998.1 Investors preferred
large-cap stocks and were willing to pay a premium for potential
earnings stability. Small-cap stocks delivered modest gains. The
Russell 2000 Index, a common measure of small company stock
performance, was up 4.38% over the six-month period.
[bullet] U.S. Treasury bonds rallied as the yield on the 30-year benchmark fell
to 5.6%. High-yield bonds continued to deliver relatively strong
gains.
THE FUND
Since the Fund's Inception
[bullet] Since the Fund's inception on March 27, 1998, Class A shares of
Athletes Fund returned 5.14% [does not reflect sales charge]2. In the
three-month period ended June 30, 1998, Class A shares of the Fund
returned 6.05% [does not reflect sales charge]3 versus the Lipper
growth funds average, which returned 1.85% over the same period.
[bullet] Investments in well-known, larger-size companies such as Home Depot,
General Electric, Microsoft and Cisco Systems, contributed to the
Fund's strong performance.
[bullet] Research helped us uncover opportunities among less well-known
companies, such as J.D. Edwards, which makes software that helps
medium-sized companies run more efficiently.
Current Strategy
[bullet] The Fund will continue to invest in larger size companies that we
believe have the potential for above-average earnings growth.
[bullet] The Fund's largest investments are in consumer, health care, financial
services and technology stocks.
June 30, 1998
(1)The S&P 500 (officially the "Standard and Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The index does not take transaction
charges into consideration. It is not possible to invest directly in the index.
(2)4.86% for Class B shares; 4.86% for Class C shares; 5.14% for Class S shares.
(3)5.76% for Class B shares; 5.76% for Class C shares; 6.05% for Class S shares.
(4)Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. S shares, offered
without a sales charge, are available through certain employee benefit plans
and special programs.
(5)Performance reflects maximum 4.5% A share front-end sales charge or 5% B
share or 1% C share contingent deferred, sales charges, where applicable.
(6)Aggregate total returns; not annualized.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended June 30, 1998)
- --------------------------------------------------------------------------------
Aggregate Total Return
(at maximum applicable sales charge)(4,5,6)
<TABLE>
<CAPTION>
====================================
Life of Fund
(since 3/27/98)
- ------------------------------------
<S> <C>
Class A 0.41%
- ------------------------------------
Class B -0.14%
- ------------------------------------
Class C 3.86%
- ------------------------------------
Class S 5.14%
====================================
</TABLE>
Performance results for the Fund are increased by the voluntary reduction of
Fund fees and expenses; without subsidization, performance would have been
lower.
Top 10 Stock Positions
(by percentage of net assets)
<TABLE>
<S> <C> <C>
1 Cisco Systems Computer network products 3.3%
2 Lucent Technologies Telecommunications 3.2%
3 General Electric Consumer/industrial products 2.8%
4 WorldCom Telephone services 2.8%
5 Tyco International Fire protection systems 2.7%
6 Xerox Copiers 2.6%
7 Microsoft Software 2.5%
8 Home Depot Home improvement stores 2.5%
9 Rite Aid Discount drugstores 2.5%
10 Schering-Plough Pharmaceuticals,
consumer products 2.3%
</TABLE>
These securities represent an aggregate of 27.2% of the portfolio. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities listed in this table or in the text
above.
Top 5 Industries
(by percentage of net assets)
<TABLE>
<S> <C>
Retail Trade 13.7%
Computer
Software & 11.0%
Service
Drug 8.2%
Bank 7.0%
Telephone 6.5%
</TABLE>
Total: 46.4%
<PAGE>
STATE STREET RESEARCH ATHLETES FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
June 30, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 88.8%
Basic Industries 6.4%
Chemical 0.8%
E.I. Du Pont De Nemours & Co. ................. 1,100 $ 82,088
---------
Electrical Equipment 2.9%
General Electric Co. .......................... 3,100 282,100
---------
Machinery 2.7%
Tyco International Ltd. ....................... 4,300 270,900
---------
Total Basic Industries ................................ 635,088
---------
Consumer Cyclical 18.5%
Recreation 4.8%
Chancellor Media Corp. ........................ 2,900 144,003
Cox Communications Inc. Cl. A* ................ 2,500 121,094
MediaOne Group Inc.* .......................... 4,800 210,900
---------
475,997
---------
Retail Trade 13.7%
Cendant Corp.* ................................ 4,000 83,500
Dayton Hudson Corp. ........................... 3,200 155,200
Home Depot Inc. ............................... 3,000 249,187
Kroger Co.* ................................... 5,200 222,950
Rite Aid Corp. ................................ 6,500 244,156
Staples Inc.* ................................. 6,900 199,669
Wal-Mart Stores, Inc. ......................... 3,300 200,475
---------
1,355,137
---------
Total Consumer Cyclical ............................... 1,831,134
---------
Consumer Staple 20.5%
Business Service 3.5%
Apollo Group Inc. Cl. A* ...................... 4,500 148,781
HBO & Co. ..................................... 5,600 197,400
---------
346,181
---------
Drug 8.2%
Bristol-Myers Squibb Co. ...................... 1,400 160,913
Pfizer Inc. ................................... 2,100 228,244
Schering-Plough Corp. ......................... 2,500 229,062
Warner-Lambert Co. ............................ 2,800 194,250
---------
812,469
---------
Food & Beverage 6.1%
Coca-Cola Co. ................................. 2,300 196,650
H.J. Heinz Co. ................................ 2,500 140,312
PepsiCo Inc. .................................. 2,100 86,494
Sara Lee Corp. ................................ 3,200 179,000
---------
602,456
---------
Hospital Supply 1.0%
Guidant Corp. ................................. 1,400 $ 99,838
---------
Personal Care 1.7%
Unilever N V .................................. 2,200 173,662
---------
Total Consumer Staple ................................. 2,034,606
---------
Energy 3.7%
Oil 3.7%
Mobil Corp. ................................... 2,100 160,913
Total SA Cl. B ADR ............................ 3,200 209,200
---------
Total Energy .......................................... 370,113
---------
Finance 14.3%
Bank 7.0%
Banc One Corp. ................................ 3,200 178,600
BankAmerica Corp. ............................. 1,900 164,231
Chase Manhattan Corp. ......................... 2,400 181,200
U.S. Bancorp .................................. 3,900 167,700
---------
691,731
---------
Financial Service 1.4%
Federal National Mortgage Association ......... 2,300 139,725
---------
Insurance 5.9%
Ace Ltd. ...................................... 5,000 195,000
Travelers Group Inc. .......................... 2,800 169,750
UNUM Corp. .................................... 4,000 222,000
---------
586,750
---------
Total Finance ......................................... 1,418,206
---------
Science & Technology 17.6%
Computer Software & Service 11.0%
America Online Inc.* .......................... 500 53,000
Automatic Data Processing Inc. ................ 2,700 196,763
Cisco Systems Inc.* ........................... 3,600 331,425
EMC Corp.* .................................... 2,300 103,069
J.D. Edwards & Co.* ........................... 3,600 154,575
Microsoft Corp.* .............................. 2,300 249,262
---------
1,088,094
---------
Electronic Components 0.9%
Texas Instruments Inc. ........................ 1,600 93,300
---------
Electronic Equipment 3.2%
Lucent Technologies Inc. ...................... 3,800 316,112
---------
Office Equipment 2.5%
Xerox Corp. ................................... 2,500 254,063
---------
Total Science & Technology ............................ 1,751,569
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH ATHLETES FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------
<S> <C> <C>
Utility 7.8%
Electric 1.3%
Unicom Corp. ..................................... 3,800 $ 133,238
---------
Telephone 6.5%
AirTouch Communications Inc.* .................... 2,800 163,625
AT&T Corp. ....................................... 1,600 91,400
Qwest Communications International Inc.* ......... 3,000 104,625
WorldCom Inc.* ................................... 5,800 280,937
---------
640,587
---------
Total Utility ............................................. 773,825
---------
Total Common Stocks (Cost $8,213,983) ..................... 8,814,541
---------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 5.1%
American Express Credit Corp.,
5.65% ............................... $250,000 7/06/1998 250,000
Merrill Lynch & Company Inc.,
6.12% ............................... 256,000 7/01/1998 256,000
--------
Total Short-Term Obligations (Cost $506,000) ................ 506,000
--------
Total Investments (Cost $8,719,983)--93.9% .................. 9,320,541
Cash and Other Assets, Less Liabilities--6.1% ............... 601,204
----------
Net Assets--100.0% ......................................... $9,921,745
==========
Federal Income Tax Information:
At June 30, 1998, the net unrealized
appreciation of investments based on
cost for Federal income tax purposes of
$8,729,377 was as follows:
Aggregate gross unrealized appreciation
for all investments in which there is an
excess of value over tax cost ............................ $ 763,944
Aggregate gross unrealized depreciation
for all investments in which there is an
excess of tax cost over value ............................ (172,780)
----------
$ 591,164
==========
</TABLE>
- --------------------------------------------------------------------------------
*Nonincome-producing securities
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $8,719,983) (Note 1) ................ $9,320,541
Cash ............................................................ 261
Receivable for fund shares sold ................................. 610,464
Receivable from Distributor (Note 3) ............................ 42,092
Receivable for securities sold .................................. 17,083
Dividends and interest receivable ............................... 7,229
Deferred organization costs (Note 1) ............................ 85,502
-----------
10,083,172
Liabilities
Accrued organization expense .................................... 90,000
Accrued trustees' fees (Note 2) ................................. 9,534
Accrued transfer agent and shareholder services
(Note 2) ...................................................... 6,676
Accrued management fee (Note 2) ................................. 5,059
Accrued distribution and service fees (Note 5) .................. 974
Other accrued expenses .......................................... 49,184
-----------
161,427
-----------
Net Assets $9,921,745
===========
Net Assets consist of:
Undistributed net investment income ............................ $ 14,798
Unrealized appreciation of investments ......................... 600,558
Accumulated net realized loss .................................. (100,932)
Paid-in capital ................................................ 9,407,321
-----------
$9,921,745
===========
Net Asset Value and redemption price per share of
Class A shares ($797,436 [divided by] 108,371 shares) ......... $7.36
======
Maximum Offering Price per share of Class A shares
($7.36 [divided by] .955) ..................................... $7.71
======
Net Asset Value and offering price per share of
Class B shares ($529,840 [divided by] 72,159 shares)* ......... $7.34
======
Net Asset Value and offering price per share of
Class C shares ($524,715 [divided by] 71,441 shares)* ......... $7.34
======
Net Asset Value, offering price and redemption
price per share of Class S shares
($8,069,754 [divided by] 1,095,874 shares) .................... $7.36
======
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH ATHLETES FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the period March 27, 1998
(commencement of operations) to June 30, 1998
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $460 .................. $ 20,829
Interest ................................................. 12,029
--------
32,858
Expenses
Custodian fee ............................................ 30,048
Audit fee ................................................ 15,586
Management fee (Note 2) .................................. 14,588
Registration fees ........................................ 10,664
Reports to shareholders .................................. 9,756
Trustees' fees (Note 2) .................................. 9,534
Transfer agent and shareholder services (Note 2) ......... 6,676
Amortization of organization costs (Note 1) .............. 4,498
Legal fees ............................................... 1,650
Service fee-Class A (Note 5) ............................. 387
Distribution and service fees--Class B (Note 5) .......... 1,291
Distribution and service fees--Class C (Note 5) .......... 1,285
Miscellaneous ............................................ 1,598
--------
107,561
Expenses borne by the Distributor (Note 3) ............... (82,369)
--------
25,192
--------
Net investment income .................................... 7,666
--------
Realized and Unrealized Gain (Loss) on Investments
Net realized loss on investments (Notes 1 and 4) ......... (100,932)
Net unrealized appreciation of investments ............... 600,558
--------
Net gain on investments .................................. 499,626
--------
Net increase in net assets resulting from operations ..... $507,292
========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period March 27, 1998
(commencement of operations) to June 30, 1998
<TABLE>
<S> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income ...................................... $ 7,666
Net realized loss on investments ........................... (100,932)
Net unrealized appreciation of investments ................. 600,558
----------
Net increase resulting from operations ..................... 507,292
----------
Net increase from fund share transactions (Note 6) ......... 9,414,453
----------
Total increase in net assets ............................... 9,921,745
Net Assets
Beginning of period ........................................ --
----------
End of period (including undistributed net investment
income of $14,798) ....................................... $9,921,745
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH ATHLETES FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1998
Note 1
State Street Research Athletes 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, 1998. The Trust presently consists of four
separate funds: State Street Research Athletes Fund, State Street Research
Alpha Fund, State Street Research Global Resources 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 at least 65%
of total assets in stocks and convertible securities of large-size companies.
The Fund is intended primarily for professional athletes and associated
persons.
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
subject to a contingent deferred sales charge of 1.00% on any shares redeemed
within one year of their purchase. Class C shares also pay annual distribution
and service fees of 1.00%. Class S shares are only offered through certain
retirement accounts, advisory accounts of State Street Research & Management
Company (the "Adviser"), an indirect wholly owned subsidiary of Metropolitan
Life Insurance Company ("Metropolitan"), and special programs. 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. The Fund's expenses are
borne pro-rata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the Plan of Distribution,
related specifically to that class. The Trustees declare separate dividends on
each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Values for listed securities represent final sales on national securities ex-
changes 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 the closing price supplied
through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ sys-tem, 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 annually. 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 intends to
qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From March 27, 1998
(commencement of operations) to June 30, 1998, the Fund incurred net capital
losses of approximately $92,000 and intends to defer and treat such losses as
arising in the fiscal year ended June 30, 1999.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a
period of five years.
G. 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.
H. Securities Lending
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting
5
<PAGE>
STATE STREET RESEARCH ATHLETES FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
any cash collateral it receives in these transactions, the Fund could realize
additional gains and losses. If the borrower fails to return the securities and
the value of the collateral has declined during the term of the loan, the Fund
will bear the loss. During the period March 27, 1998 (commencement of
operations) to June 30, 1998, there were no loaned securities.
Note 2
The Trust and the Adviser 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 period March 27, 1998 (commencement of
operations) to June 30, 1998, the fees pursuant to such agreement amounted to
$14,588.
State Street Research Service Center, 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. During the period March 27, 1998 (commencement of
operations) to June 30, 1998, the amount of such expenses was $2,774.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$9,534 during the period March 27, 1998 (commencement of operations) to June
30, 1998.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund.
During the period March 27, 1998 (commencement of operations) to June 30, 1998,
the amount of such expenses assumed by the Distributor and its affiliates was
$82,369.
Note 4
For the period March 27, 1998 (commencement of operations) to June 30, 1998,
purchases and sales of securities, exclusive of short-term obligations,
aggregated $10,149,910 and $1,834,995, 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. 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 C shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B and
Class C shares. The Distributor uses such payments for personal service and/or
the maintenance or servicing of shareholder accounts, to compensate or
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 period March 27, 1998
(commencement of operations) to June 30, 1998, fees pursuant to such plan
amounted to $387, $1,291 and $1,285 for Class A, Class B and Class C 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 $920 and $5,100, respectively, on sales of Class A shares of the
Fund during the period March 27, 1998 (commencement of operations) to June 30,
1998, and that MetLife Securities, Inc. earned commissions aggregating $200 on
sales of Class B shares during the same period.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At June 30, 1998, Metropolitan
owned 71,428 shares of each of Class A, Class B and Class C and 500,000 Class S
shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
March 27, 1998
(Commencement of
Operations) to
June 30, 1998
----------------------------
Class A Shares Amount
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold ................ 108,371 $ 765,934
------- ----------
Net increase ............... 108,371 $ 765,934
======= ==========
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold ................ 72,159 $ 505,082
-------- ----------
Net increase ............... 72,159 $ 505,082
======== ==========
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold ................ 71,441 $ 500,082
-------- ----------
Net increase ............... 71,441 $ 500,082
======== ==========
Class S Shares Amount
- ----------------------------------------------------------------
Shares sold ................ 1,121,958 $7,824,978
Shares repurchased ......... (26,084) (181,623)
--------- ----------
Net increase ............... 1,095,874 $7,643,355
========= ==========
</TABLE>
6
<PAGE>
STATE STREET RESEARCH ATHLETES FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding from March 27, 1998 (commencement of operations) to
June 30, 1998(1)
<TABLE>
<CAPTION>
Class A Class B Class C Class S
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period ($) 7.00 <C> <C> <C>
---- 7.00 7.00 7.00
Net investment income (loss) ($)* 0.00 ---- -- ----
Net realized and unrealized gain on investments ($) 0.36 (0.01) (0.01) 0.01
---- 0.35 0.35 0.35
Total from investment operations ($) 0.36 ---- -- ----
---- 0.34 0.34 0.36
Net asset value, end of period ($) 7.36 ---- -- ----
---- 7.34 7.34 7.36
---- ---- -- ----
Total return(2) (%) 5.14(3) 4.86(3) 4.86(3) ----
Ratios/supplemental data: 5.14(3)
Net assets at end of period ($ thousands) 797 530 525
Ratio of operating expenses to average net assets (%)* 1.25(4) 2.00(4) 2.00(4) 8,070
Ratio of net investment income (loss) to average net assets (%)* 0.25(4) (0.44)(4) (0.43)(4) 1.00(4)
Portfolio turnover rate (%) 30.76 30.76 30.76 0.46(4)
*Reflects voluntary reduction of expenses per share of these 0.07 0.07 30.76
amounts (Note 3) ($) 0.07 0.06
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share figures have been calculated using the average shares method.
(2) 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.
(3) Not annualized
(4) Annualized
7
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research
Equity Trust and the Shareholders of
State Street Research Athletes 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 Athletes
Fund (a series of State Street Research Equity Trust, hereafter referred to as
the "Trust") at June 30, 1998, and the results of its operations, the changes
in its net assets and the financial highlights for the period from March 27,
1998 (commencement of operations) to June 30, 1998, 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 audit. We conducted our
audit 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 audit, which included confirmation of securities at June 30, 1998 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 7, 1998
8
<PAGE>
STATE STREET RESEARCH ATHLETES FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH EQUITY TRUST
- --------------------------------------------------------------------------------
Fund Information
State Street Research
Athletes 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
Service Center
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
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
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Bartlett R. Geer
Vice President
F. Gardner Jackson, Jr.
Vice President
Thomas P. Moore, Jr.
Vice President
Brian P. O'Dell
Vice President
Daniel J. Rice III
Vice President
James M. Weiss
Vice President
John T. Wilson
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Steve A. Garban
Retired; formerly Senior Vice
President for Finance and
Operations and Treasurer, The
Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial Officer, St. Regis Corp.
Edward M. Lamont
Formerly in banking
(with an affiliate of J.P. Morgan
& Co. in New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Formerly Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts Institute of Technology
9
<PAGE>
[Back Cover]
State Street Research Athletes Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Permit #6
Hartford, CT
Questions? Comments?
Call us at 1-800-562-0032 or
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[State Street Research Logo]
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research Equity Investment
Fund prospectus. When used after September 30, 1998, this report must be
accompanied by a current Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: 5183-980814(exp0899)SSR-LD AT-191F-0898
[End Back Cover]
