[front cover]
STATE STREET RESEARCH
GOVERNMENT INCOME FUND
SEMIANNUAL REPORT
April 30, 1997
- -----------------------------------
WHAT'S INSIDE
- -----------------------------------
Investment Update
The Fund, economy
and markets
Fund Information
Facts and Figures
Plus, Complete Portfolio Holdings
and Financial Statements
[DALBAR box logo]
DALBAR KEY HONORS
COMMITMENT TO:
INVESTORS
1996
For Excellence
in
Shareholder Service
STATE STREET RESEARCH FUNDS
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
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INVESTMENT UPDATE
- --------------------------------------------------------------------------------
INVESTMENT ENVIRONMENT
The Economy
o Economic growth accelerated somewhat in the fourth quarter of 1996 and
continued to advance into the first few months of 1997, exceeding
expectations.
o Consumer spending and industrial output steadily advanced during the six
months ended April 30, 1997. Wages continued to rise during the period, but
consumer prices and inflation remained low.
o The Federal Reserve raised interest rates by one-quarter percent in March.
The Markets
o The Fed's tightening had a predictable effect on both the stock and bond
markets. The bond market anticipated and then reacted to the Fed's action by
experiencing negative returns for the first quarter of 1997 for most sectors.
The stock market, as measured by the Dow Jones Industrial Average,
experienced a sizable correction then resumed its ascent, setting a new high.
o Bond performance lost momentum late in the fourth quarter of 1996 and into
the first part of 1997, but rallied in April in most sectors. For the six
months ended April 30, 1997, the Merrill Lynch Government Master Bond Index
gained +1.70%; and the Salomon Brothers Non-U.S. Dollar World Government Bond
Index lost -7.30%.[1]
o The Standard & Poor's 500 Composite Index was up +14.71% for the six-month
period.[1]
THE FUND
Over the past six months
o For the six months ending April 30, 1997, Government Income Fund's Class A
shares generated a total return of +1.42% (does not reflect sales charge).[2]
The Fund outperformed the average total return of 1.11% provided by 186 fund
classes in Lipper Analytical Services' General U.S. Government Funds category
(does not reflect sales charge).
o As of April 30, 1997, the Fund's SEC yield was 6.16% (Class A shares).
o We reduced the Fund's holdings in mortgage-backed securities, foreign bonds
and cash equivalents. We increased our position in U.S. government securities
with long-intermediate and long-term maturities. We also increased the Fund's
duration during the period.
Current Strategy
o As of April 30, 1997, Government Income Fund was structured as follows: 43%
in U.S. Treasury securities, 33% in U.S. agency mortgage securities, 20% in
trust certificates and other and 3% in foreign government bonds.
o We think that interest rates could rise temporarily, as investors' concerns
regarding stronger-than-expected economic growth and future inflation push
interest rates higher. Further, the Federal Reserve Board may raise interest
rates again.
o Longer term, we believe that higher interest rates will slow economic growth
and lead to lower interest rates. We look for slower, but solid economic
growth and well-contained inflation, which should create a positive
environment for fixed-income investors.
April 30, 1997
[1] The Merrill Lynch Government Master Bond Index is a commonly used measure of
bond market performance. The Salomon Brothers Non- U.S. Dollar World Government
Bond Index is a commonly used measure of international bond performance. The
Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely traded
common stocks and is a commonly used measure of U.S. stock market performance.
The indices are unmanaged and do not take transaction charges into
consideration. Direct investment in the indices is not possible; results are for
illustrative purposes only.
[2] +0.97% for Class B shares; +1.55% for Class C shares; +0.97% for Class D
shares. Returns do not reflect sales charges.
[3] All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in the
Fund will fluctuate, and shares, when redeemed, may be worth more or less than
their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Investments in the Fund are not insured or
guaranteed by the U.S. government or any other entity. Performance for a class
may include periods prior to the adoption of class designations in 1993, which
resulted in new or increased 12b-1 fees of up to 1% per class thereafter, which
will reduce subsequent performance. "C" shares, offered without a sales charge,
are available only to certain employee benefit plans and large institutions.
[4] Performance reflects maximum 4.5% "A" share front-end sales charge or 5% "B"
share or 1% "D" share contingent deferred sales charges, where applicable.
[5] Cumulative total returns are not annualized and do not reflect sales
charges, which, if reflected, would reduce performance.
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 April 30, 1997, except where
otherwise noted)
- --------------------------------------------------------------------------------
SEC Average Annual Compound Rates of Return for periods ended 3/31/97 (at
maximum applicable sales charge)[3,4]
10 Years 5 Years 1 Year
---------- ---------- -----------
Class A +7.20% +5.90% -0.40%
- -------- -------- ------- --------
Class B +7.37% +5.92% -1.35%
- -------- -------- -------- --------
Class C +7.79% +7.07% +4.56%
- -------- -------- -------- --------
Class D +7.38% +6.25% +2.55%
Average Annual Compound Rates of Return
(do not reflect sales charge)[3]
10 Years 5 Years 1 Year
---------- ---------- ---------
Class A +8.06% +7.08% +6.13%
- -------- -------- ------- --------
Class B +7.72% +6.40% +5.36%
- -------- -------- -------- --------
Class C +8.16% +7.27% +6.40%
- -------- -------- -------- --------
Class D +7.72% +6.41% +5.36%
Cumulative Total Returns
(do not reflect sales charge)[3,5]
10 Years 5 Years 1 Year
-------------- ------------ ---------
Class A +117.07% +40.76% +6.13%
- -------- ----------- --------- --------
Class B +110.28% +36.35% +5.36%
- -------- ------------ ---------- --------
Class C +119.05% +42.04% +6.40%
- -------- ------------ ---------- --------
Class D +110.42% +36.44% +5.36%
SEC Yield
Class A 6.16%
- -------- ------
Class B 5.72%
- -------- ------
Class C 6.71%
- -------- ------
Class D 5.71%
SEC yield is based on the net investment income produced for the 30 days ended
April 30, 1997.
Asset Allocation
(by percentage of net assets
U.S. Treasury Securities 43%
U.S. Agency Mortgage Securities 33%
Trust Certificates/Other 20%
Foreign Government Bonds 3%
Cash 1%
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
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INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1997 (Unaudited)
Principal Maturity Value
Amount Date (Note 1)
------------- ------------ --------------
U.S. GOVERNMENT SECURITIES 75.6%
U.S. Treasury 42.6%
U.S. Treasury Bond, 13.75% ...... $10,000,000 8/15/2004 $ 14,012,500
U.S. Treasury Bond, 11.625% ...... 5,000,000 11/15/2004 6,434,350
U.S. Treasury Bond, 10.75% ...... 14,100,000 8/15/2005 17,631,627
U.S. Treasury Bond, 12.00% ...... 12,000,000 8/15/2013 16,721,280
U.S. Treasury Bond, 9.875% ...... 8,500,000 11/15/2015 10,999,510
U.S. Treasury Bond, 9.25% ......... 29,500,000 2/15/2016 36,294,145
U.S. Treasury Bond, 8.125% ...... 26,300,000 8/15/2021 29,529,903
U.S. Treasury Bond, 6.25% ......... 14,050,000 8/15/2023 12,726,209
U.S. Treasury Bond, 7.50% ......... 20,000,000 11/15/2024 21,128,200
U.S. Treasury Inflation Indexed
Note, 3.375% .................. 6,572,241 1/15/2007 6,467,480
U.S. Treasury Note, 6.625% ...... 27,850,000 7/31/2001 27,928,258
U.S. Treasury Note, 6.25% ......... 6,450,000 2/28/2002 6,363,312
U.S. Treasury Note, 7.25% ......... 25,825,000 5/15/2004 26,660,181
U.S. Treasury Note, 6.50% ......... 45,675,000 8/15/2005 44,997,183
-------------
277,894,138
-------------
U.S. Agency Mortgage 31.2%
Federal Home Loan Mortgage
Corp. Deb., 7.24% ............... 10,020,000 5/15/2002 9,969,900
Federal Home Loan Mortgage
Corp. FHA-VA, 9.00% ............ 5,769,040 12/01/2009 6,062,973
Federal Home Loan Mortgage
Corp. Gold, 7.50% ............... 14,936,663 1/01/2025 14,908,582
Federal Home Loan Mortgage
Corp. Series 29-H PAC, 6.50%..... 5,525,000 3/25/2023 5,272,894
Federal Housing Administration
Charles River Project, 9.625%..... 9,468,953 12/01/2033 10,066,680
Federal Housing Administration
Court Yard Project, 10.75% 6,485,874 8/01/2032 7,006,771
Federal Housing Administration
East Bay Manor Project, 10.00%.... 6,758,119 3/01/2033 7,205,845
Federal National Mortgage
Association, 7.50% ............... 12,016,204 6/01/2010 12,151,387
Federal National Mortgage
Association, 7.00%................ 42,241 2/01/2024 41,198
Federal National Mortgage
Association FHA-VA, 8.00%......... 4,532,153 4/01/2008 4,665,262
Federal National Mortgage
Association FHA-VA, 8.00%......... 6,432,169 6/01/2008 6,621,081
Federal National Mortgage
Association FHA-VA, 8.50%......... 8,415,498 2/01/2009 8,905,700
Federal National Mortgage
Association FHA-VA, 9.00%......... 7,857,719 5/01/2009 8,289,816
Principal Maturity Value
Amount Date (Note 1)
------------- ------------ --------------
U.S. Agency Mortgage (cont'd)
Federal National Mortgage
Association FHA-VA, 9.00%......... $ 1,815,276 4/01/2016 $ 1,915,098
Federal National Mortgage
Association TBA, 7.50% ......... 6,250,000 6/17/2012 6,287,109
Government National Mortgage
Association, 7.50% ............ 11,468,077 6/15/2009 11,640,099
Government National Mortgage
Association, 9.50% ............ 3,013,127 9/15/2009 3,236,454
Government National Mortgage
Association, 9.50% ............ 5,571,341 10/15/2009 5,988,914
Government National Mortgage
Association, 9.50% ............ 2,547,020 11/15/2009 2,735,754
Government National Mortgage
Association, 9.00% ............ 1,945,987 4/15/2017 2,073,060
Government National Mortgage
Association, 8.00% ............ 1,862,118 10/15/2017 1,912,265
Government National Mortgage
Association, 9.50% ............ 1,074,015 11/15/2017 1,160,054
Government National Mortgage
Association, 9.50% ............ 12,453,670 11/15/2017 12,789,048
Government National Mortgage
Association, 9.50% ............ 250,121 9/15/2019 269,908
Government National Mortgage
Association, 7.50% ............ 2,769,206 9/15/2021 2,767,129
Government National Mortgage
Association, 8.00% ............ 416,846 5/15/2022 425,308
Government National Mortgage
Association, 8.00% ............ 4,641,306 12/15/2022 4,735,524
Government National Mortgage
Association, 7.50% ............ 1,415,408 1/15/2023 1,411,431
Government National Mortgage
Association, 10.00% ............ 16,947,388 6/15/2023 18,101,844
Government National Mortgage
Association, 10.00% ............ 12,378,397 6/15/2023 12,343,614
Government National Mortgage
Association, 7.50% ............ 779,074 8/15/2023 776,885
Government National Mortgage
Association, 7.50% ............ 825,624 10/15/2023 823,304
Government National Mortgage
Association, 7.50% ............ 568,803 12/15/2023 567,204
Government National Mortgage
Association, 7.50% ............ 765,340 1/15/2024 762,233
Government National Mortgage
Association, 7.50% ............ 9,505,552 4/15/2024 9,466,959
-------------
203,357,287
-------------
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
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INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Maturity Value
Amount Date (Note 1)
------------------- ------------ ----------------
<S> <C> <C> <C>
U.S. Agency 1.8%
Guaranteed Export Trust Notes
Series 95-A, 6.28% ................................. $ 7,941,176 6/15/2004 $ 7,846,121
Guaranteed Export Trust Notes
Series 96-A, 6.55% ................................. 4,014,704 6/15/2004 3,988,688
------------
11,834,809
------------
Total U.S. Government Securities (Cost $489,609,319) .................................... 493,086,234
------------
OTHER INVESTMENTS 23.1%
Trust Certificates 13.5%
Cooperative Utility Trust
Certificates, 9.50% ................................. 25,499,000 2/15/2017 26,455,213
Cooperative Utility Trust
Certificates, 9.52% ................................. 24,525,000 3/15/2019 26,252,786
Government Backed Trust Class
T-3, 9.625% .......................................... 9,511,564 5/15/2002 10,036,983
Government Trust Certificates
Class 2-E, 9.40% .................................... 23,719,860 5/15/2002 25,047,935
------------
87,792,917
------------
Foreign Government 2.7% Australian Dollar
Government of Australia, 10.00% ........................ 11,975,000 2/15/2006 10,629,949
Canadian Dollar
Government of Canada, 0.00%............................. 4,000,000 10/16/1997 2,824,681
European Currency Unit
Government of France, 8.00% ........................... 3,225,000 4/25/2003 4,074,885
------------
17,529,515
============
Finance/Mortgage 6.9%
Chase Commercial Mortgage
Securities Corp. 1996-2 A-2, 6.90% ................... $ 5,175,000 9/19/2006 4,959,875
Chase Mortgage Finance Corp.
Series 93L-5, 6.25% ................................. 5,000,000 10/25/2024 4,825,000
Principal Maturity Value
Amount Date (Note 1)
------------------- ------------ ----------------
Finance/Mortgage (cont'd)
Countrywide Series 1994-9 A-2
PAC, 6.50% .......................................... $ 6,844,898 5/25/2024 $ 6,787,144
GE Capital Mortgage Services
Inc., 5.85% ....................................... 5,724,693 9/25/2023 5,687,081
Prudential Home Mortgage
Securities Co. Series 93-29
A-6 PAC, 6.75% .................................... 9,070,084 8/25/2008 9,027,545
Prudential Home Mortgage
Securities Co. Series 94-3
A-10 PAC-2, 6.50% ................................. 6,000,000 2/25/2024 5,630,580
Residential Funding Corp.
Series 93-S25 A-1, 6.50% ........................... 8,395,976 7/25/2008 8,327,717
------------
45,244,942
------------
Total Other Investments (Cost $152,213,353) ............ 150,567,374
------------
SHORT-TERM OBLIGATIONS 1.4%
Student Loan Marketing
Association, 5.28% ................................. 9,590,000 5/01/1997 9,590,000
------------
Total Short-Term Obligations (Cost $9,590,000) ......... 9,590,000
------------
Total Investments (Cost $651,412,672)--100.1% ......... 653,243,608
Cash and Other Assets, Less Liabilities--(0.1%) ...... (789,535)
------------
Net Assets--100.0% .................................... $652,454,073
============
Federal Income Tax Information:
AtApril 30, 1997, the net unrealized appreciation of investments based on cost
for Federal income tax purposes of $651,412,672 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ......................................................... $ 11,235,558
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value .................................... (9,404,622)
------------
$ 1,830,936
============
</TABLE>
- --------------------------------------------------------------------------------
TBA Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the principal
value has not been finalized and may vary by no more than 1%.
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Forward currency exchange contracts outstanding at April 30, 1997 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation
Total Value Contract Price (Depreciation) Delivery Date
-------------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Buy Australian dollars, Sell U.S. dollars 1,213,550 AUD .77567 AUD $ 4,944 5/14/97
Sell Australian dollars, Buy U.S. dollars 9,223,550 AUD .75560 AUD (222,694) 5/14/97
Sell Australian dollars, Buy U.S. dollars 4,700,000 AUD .77920 AUD (1,289) 5/14/97
Buy Canadian dollars, Sell U.S. dollars 2,470,000 CAD .74267 CAD (64,498) 5/14/97
Sell Canadian dollars, Buy U.S. dollars 2,470,000 CAD .74223 CAD 63,409 5/14/97
Sell Danish krone, Buy U.S. dollars 53,961,000 DKK .15684 DKK 269,029 5/14/97
Buy Danish krone, Sell U.S. dollars 26,341,000 DKK .15533 DKK (91,474) 5/14/97
Buy Danish krone, Sell U.S. dollars 27,620,000 DKK .15316 DKK (36,054) 5/14/97
Sell European currency units, Buy U.S. dollars 3,598,000 XEU 1.16180 XEU 120,784 5/14/97
-----------
$ 42,157
===========
</TABLE>
Written put option transactions during the six months ended April 30, 1997 were
as follows:
Principal
Amount Premiums
------------- ---------
Outstanding, beginning of period -- --
Options written $16,500,000 $101,876
Options expired -- --
Options closed -- --
------------ ---------
Outstanding, end of period $16,500,000 $101,876
============ =========
Written put options outstanding at April 30, 1997 are as follows:
Principal Exercise Expiration
Type Amount Price Date Value
- --------------------------- ------------- ---------- ---------------- -------
U.S. Treasury Bond Future $16,500,000 $106 June 17, 1997 $7,734
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1997 (Unaudited)
Assets
Investments, at value (Cost $651,412,672) (Note 1) ......... $653,243,608
Cash ....................................................... 2,761
Receivable for securities sold ............................. 15,796,141
Interest receivable ........................................ 10,563,471
Receivable for fund shares sold ............................ 1,183,006
Receivable for open forward contracts ...................... 458,166
Other assets ............................................... 11,822
-------------
681,258,975
Liabilities
Payable for securities purchased ........................... 24,181,218
Dividends payable .......................................... 2,141,215
Payable for fund shares redeemed ........................... 994,121
Payable for open forward contracts ......................... 416,009
Accrued transfer agent and shareholder services (Note 2) ... 357,261
Accrued management fee (Note 2) ............................ 347,193
Accrued distribution and service fees (Note 3) ............. 197,472
Accrued trustees' fees (Note 2) ............................ 9,202
Written options, at value (premiums $101,876)
(Note 1) ................................................. 7,734
Other accrued expenses ..................................... 153,477
-------------
28,804,902
-------------
Net Assets $652,454,073
=============
Net Assets consist of:
Distribution in excess of net investment income ........... $ (438,047)
Unrealized appreciation of investments .................... 1,830,936
Unrealized appreciation of forward contracts and
foreign currency ........................................ 22,932
Unrealized appreciation of written options ................ 94,142
Accumulated net realized loss ............................. (85,356,055)
Shares of beneficial interest ............................. 736,300,165
-------------
$652,454,073
=============
Net Asset Value and redemption price per share of
Class A shares ($537,703,883 [dividedby] 44,079,825 shares
of beneficial interest) .................................. $12.20
=============
Maximum Offering Price per share of Class A shares
($12.20 [dividedby] .955) ................................ $12.77
=============
Net Asset Value and offering price per share of Class B shares
($91,762,013 [dividedby] 7,544,444 shares of beneficial
interest)* ............................................... $12.16
=============
Net Asset Value, offering price and redemption price per
share of Class C shares ($7,382,631 [dividedby] 605,852
shares of beneficial interest) ........................... $12.19
=============
Net Asset Value and offering price per share of Class D
shares ($15,605,546 [dividedby] 1,282,089 shares of
beneficial interest)* .................................... $12.17
=============
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset value
less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the six months ended April 30, 1997 (Unaudited)
Investment Income
Interest, net of foreign taxes of $5,660 ........... $ 25,425,260
Expenses
Management fee (Note 2) ............................ 2,183,363
Transfer agent and shareholder services (Note 2) ... 400,175
Custodian fee ...................................... 120,205
Reports to shareholders ............................ 67,702
Service fee--Class A (Note 3) ...................... 694,934
Distribution and service fees--Class B (Note 3) .... 467,183
Distribution and service fees--Class D (Note 3) .... 73,221
Legal fees ......................................... 6,171
Registration fees .................................. 24,232
Audit fee .......................................... 21,115
Trustees' fees (Note 2) ............................ 13,750
Miscellaneous ...................................... 17,994
------------
4,090,045
------------
Net investment income .............................. 21,335,215
------------
Realized and Unrealized Gain (Loss) on
Investments, Options, Forward Contracts
and Foreign Currency
Net realized gain on investments (Notes 1 and 4) ... 1,229,337
Net realized gain on forward contracts and foreign
currency (Note 1) ................................ 63,291
------------
Total net realized gain ........................... 1,292,628
------------
Net unrealized depreciation of investments ......... (13,796,051)
Net unrealized depreciation of forward contracts and
foreign currency ................................. (22,191)
Net unrealized appreciation of written options ..... 94,142
------------
Total net unrealized depreciation ................. (13,724,100)
------------
Net loss on investments, forward contracts and
foreign currency ................................. (12,431,472)
------------
Net increase in net assets resulting from operations $ 8,903,743
============
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Six months ended
April 30, 1997 Year ended
(Unaudited) October 31, 1996
------------------ ---------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ............... $ 21,335,215 $ 46,482,643
Net realized gain (loss) on
investments, forward
contracts and foreign
currency* ......................... 1,292,628 (3,552,004)
Net unrealized depreciation of
investments, options,
forward contracts and
foreign currency .................. (13,724,100) (6,405,085)
------------- -------------
Net increase resulting from
operations ........................ 8,903,743 36,525,554
------------- -------------
Dividends from net investment income:
Class A ............................ (18,426,308) (39,055,243)
Class B ............................ (2,750,622) (5,188,785)
Class C ............................ (266,375) (404,930)
Class D ............................ (430,813) (773,463)
------------- -------------
(21,874,118) (45,422,421)
------------- -------------
Net decrease from fund share
transactions (Note 6) ............. (36,347,481) (50,352,743)
------------- -------------
Total decrease in net assets ........ (49,317,856) (59,249,610)
Net Assets
Beginning of period ................. 701,771,929 761,021,539
------------- -------------
End of period (including
undistributed
(overdistributed) net
investment income of
$(438,047) and $100,856,
respectively) ..................... $ 652,454,073 $ 701,771,929
============= =============
*Net realized gain (loss) for
Federal income tax
purposes (Note 1) ................. $ 279,612 $ (4,139,815)
============= =============
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1997
Note 1
State Street Research Government Income Fund (the "Fund") is a series of State
Street Research Financial Trust (the "Trust"), which was organized as a
Massachusetts business trust in November, 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, 1987. The Trust consists
presently of four separate funds: State Street Research Government Income Fund,
State Street Research Strategic Portfolios: Moderate, State Street Research
Strategic Portfolios: Conservative and State Street Research Strategic
Portfolios: Aggressive.
The investment objective of the Fund is to seek high current income. In seeking
to achieve its investment objective, the Fund invests primarily in U.S.
Government securities.
The Fund offers four classes of shares. Class A shares are subject to an initial
sales charge of up to 4.50% and an annual service fee of 0.25% of average daily
net assets. Class B shares are subject to a contingent deferred sales charge on
certain redemptions made within five years of purchase and pay annual
distribution and service fees of 1.00%. Class B shares automatically convert
into Class A shares (which pay lower ongoing expenses) at the end of eight years
after the issuance of the Class B shares. Class C shares are only offered to
certain employee benefit plans and large institutions. No sales charge is
imposed at the time of purchase or redemption of Class C shares. Class C shares
do not pay any distribution or service fees. Class D shares are subject to a
contingent deferred sales charge of 1.00% on any shares redeemed within one year
of their purchase. Class D shares also pay annual distribution and service fees
of 1.00%. The Fund's expenses are borne pro-rata by each class, except that each
class bears expenses, and has exclusive voting rights with respect to provisions
of the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Securities are valued by a pricing service, which utilizes market transactions,
quotations from dealers, and various relationships among securities in
determining value. Securities for which there is no such valuation, if any, are
valued at their fair value as determined in accordance with established methods
consistently applied. Short-term securities maturing within sixty days are
valued at amortized cost. Securities quoted in foreign currencies are translated
into U.S. dollars at the current exchange rate.
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. 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.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
C. Net Investment Income
Net investment income is determined daily and consists of interest accrued and
discount earned, less the estimated daily expenses of the Fund. Interest income
is accrued daily as earned. Accretion of discount is computed under the
effective yield method. The Fund is charged for expenses directly attributable
to it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends are declared daily based upon projected net investment income and are
paid or reinvested monthly. 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. The difference is primarily due to differing treatments
for foreign currency transactions.
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, if
any, within the prescribed time periods. At October 31, 1996, the Fund had a
capital loss carryforward of $86,648,683 available, to the extent provided in
regulations, to offset future capital gains, if any, of which $46,959,196,
$18,353,379, $17,196,293 and $4,139,815 expires on October 31, 1997, 1998, 2002
and 2004, respectively. The Fund had a capital loss carryforward of $29,348,263
expire on October 31, 1996. In addition, as part of a merger that occurred on
May 12, 1995, the Fund acquired from MetLife-State Street Research Government
Securities Fund a capital loss carryforward of $5,100,777, of which $3,074,207
and $2,026,570 expires on October 31, 2001 and 2002, respectively. The Fund's
use of such capital loss carryforward may be limited under current tax laws.
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. Written Put Options
The Fund may write put options to enhance return and to hedge against
unfavorable market conditions. A written put option is a contract in which the
option writer grants the option buyer the right to sell back to the writer a
designated security at a specified price and time. The premium paid by the buyer
is recorded in the Fund's accounts as a liability and subsequently marked to the
current market value of the written option resulting in an unrealized gain or
loss. Exchange traded written options are valued at the last sale price, or if
no sales are reported, the last ask price. If the written option expires
unexercised, the Fund will realize a gain in the amount of the premium. If the
option is closed, the Fund will recognize a gain or loss based on the difference
between the cost of closing the option and the premium. If the option is
exercised, the Fund's cost basis of the acquired security will be the exercise
price decreased by the premium. The Fund accepts the risk of a decline in value
of the underlying security below the exercise price and the risk that an
illiquid secondary market will limit the Fund's ability to close the option
contract.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser earns
monthly fees at an annual rate of 0.65% of the Fund's average daily net assets.
In consideration of these fees, the Adviser furnishes the Fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the six months ended April 30, 1997, the fees pursuant to such agreement
amounted to $2,183,363.
State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Trust may be purchased. During the six months ended
April 30, 1997, the amount of such expenses was $130,715.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$13,750 during the six months ended April 30, 1997.
7
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 3
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 D shares. In addition, the Fund pays annual
distribution fees of 0.75% of average daily net assets for Class B and Class D
shares. The Distributor uses such payments for personal service 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 six months ended April 30, 1997, fees pursuant to such plan amounted to
$694,934, $467,183 and $73,221 for Class A, Class B and Class D shares,
respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $28,707 and $156,347, respectively, on sales of Class A shares of
the Fund during the six months ended April 30, 1997, and that MetLife
Securities, Inc. earned commissions aggregating $146,629 on sales of Class B
shares, and that the Distributor collected contingent deferred sales charges
aggregating $190,740 and $3,150 on redemptions of Class B and Class D shares,
respectively, during the same period.
Note 4
For the six months ended April 30, 1997, purchases and sales of securities,
exclusive of short-term obligations, aggregated $323,756,181 and $333,077,498
(including $273,000,551 and $293,876,771 of U.S. Government obligations),
respectively.
Note 5
At a meeting held on May 30, 1997, the shareholders of State Street Research
International Fixed Income Fund (the "Acquired Fund") approved a merger of the
Acquired Fund into the Fund. The closing date for the merger will be on or about
June 20, 1997. The acquisition will be accounted for as a tax-free exchange of
the Fund's shares for the net assets of the Acquired Fund.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At April 30, 1997, the
Distributor owned 12,241 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Six months ended
April 30, 1997 Year ended
(Unaudited) October 31, 1996
------------------------------------ ------------------------------------
Class A Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................. 981,914 $ 12,123,155 2,386,852 $ 29,601,645
Issued upon reinvestment of dividends ...... 847,335 10,435,635 1,707,616 21,188,423
Shares repurchased ........................ (4,739,944) (58,456,085) (9,183,464) (113,908,052)
------------ ------------- ------------ ---------------
Net decrease .............................. (2,910,695) $ (35,897,295) (5,088,996) $ (63,117,984)
============ ============= ============ ===============
Class B Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
Shares sold ................................. 778,343 $ 9,577,743 2,341,362 $ 29,026,329
Issued upon reinvestment of dividends ...... 147,252 1,807,555 275,775 3,412,679
Shares repurchased ........................ (1,060,407) (13,009,496) (1,940,555) (24,024,991)
------------ ------------- ------------ ---------------
Net increase (decrease) ..................... (134,812) $ (1,624,198) 676,582 $ 8,414,017
============ ============= ============ ===============
Class C Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
Shares sold ................................. 70,877 $ 872,080 518,980 $ 6,381,030
Issued upon reinvestment of dividends ...... 17,172 211,963 30,667 379,365
Shares repurchased ........................ (107,472) (1,314,782) (324,941) (4,001,721)
------------ ------------- ------------ ---------------
Net increase (decrease) ..................... (19,423) $ (230,739) 224,706 $ 2,758,674
============ ============= ============ ===============
Class D Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
Shares sold ................................. 283,893 $ 3,467,273 520,289 $ 6,453,505
Issued upon reinvestment of dividends ...... 25,820 317,192 43,660 539,841
Shares repurchased ........................... (193,909) (2,379,714) (435,567) (5,400,796)
------------ ------------- ------------ ---------------
Net increase .............................. 115,804 $ 1,404,751 128,382 $ 1,592,550
============ ============= ============ ===============
</TABLE>
8
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class A
----------------------------------------
Year ended
Six months ended October 31
April 30, 1997 --------------
(Unaudited)* 1996*
------------------------- --------------
<S> <C> <C>
Net asset value, beginning of period $12.43 $12.58
----------- -----------
Net investment income 0.40 0.81
Net realized and unrealized gain (loss) on investments,
options, forward contracts and foreign currency (0.22) (0.17)
----------- -----------
Total from investment operations 0.18 0.64
----------- -----------
Dividends from net investment income (0.41) (0.79)
Distributions from net realized gains -- --
----------- -----------
Total distributions (0.41) (0.79)
----------- -----------
Net asset value, end of period $12.20 $12.43
=========== ===========
Total return 1.42%++ 5.28%+
Net assets at end of period (000s) $537,704 $584,313
Ratio of operating expenses to average net assets 1.10%[dbldag] 1.09%
Ratio of net investment income to average net assets 6.47%[dbldag] 6.50%
Portfolio turnover rate 49.71% 88.79%
<CAPTION>
Year ended October 31
-------------------------------------------------------------------
1995* 1994* 1993 1992
----------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.68 $12.92 $12.38 $12.14
----------- ----------- ----------- -----------
Net investment income 0.83 0.81 0.84 0.90
Net realized and unrealized gain (loss) on investments,
options, forward contracts and foreign currency 0.88 (1.26) 0.56 0.26
----------- ----------- ----------- -----------
Total from investment operations 1.71 (0.45) 1.40 1.16
----------- ----------- ----------- -----------
Dividends from net investment income (0.81) (0.79) (0.84) (0.91)
Distributions from net realized gains -- -- (0.02) (0.01)
----------- ----------- ----------- -----------
Total distributions (0.81) (0.79) (0.86) (0.92)
----------- ----------- ----------- -----------
Net asset value, end of period $12.58 $11.68 $12.92 $12.38
=========== =========== =========== ===========
Total return 15.07%+ (3.58)%+ 11.63%+ 9.86%+
Net assets at end of period (000s) $655,045 $638,418 $868,556 $798,705
Ratio of operating expenses to average net assets 1.10% 1.07% 1.05% 1.05%
Ratio of net investment income to average net assets 6.83% 6.54% 6.59% 7.25%
Portfolio turnover rate 105.57% 134.41% 103.49% 97.33%
</TABLE>
<TABLE>
<CAPTION>
Class B
-------------------------------------
Year ended
Six months ended October 31
April 30, 1997 -----------
(Unaudited)* 1996*
--------------------- -----------
<S> <C> <C>
Net asset value, beginning of period $12.40 $12.55
------------- -------------
Net investment income 0.35 0.71
Net realized and unrealized gain (loss) on investments,
options, forward contracts and foreign currency (0.23) (0.16)
------------- -------------
Total from investment operations 0.12 0.55
------------- -------------
Dividends from net investment income (0.36) (0.70)
------------- -------------
Total distributions (0.36) (0.70)
------------- -------------
Net asset value, end of period $12.16 $12.40
============= =============
Total return 0.97%++ 4.51%+
Net assets at end of period (000s) $91,762 $95,218
Ratio of operating expenses to average net assets 1.85%[dbldag] 1.84%
Ratio of net investment income to average net assets 5.71%[dbldag] 5.75%
Portfolio turnover rate 49.71% 88.79%
<CAPTION>
Year ended October 31
-----------------------------------------------------
1995* 1994* 1993**
-------------- ----------------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.66 $ 12.91 $ 12.67
--------- -------- -------
Net investment income 0.73 0.72 0.30
Net realized and unrealized gain (loss) on investments,
options, forward contracts and foreign currency 0.87 (1.27) 0.24
--------- -------- -------
Total from investment operations 1.60 (0.55) 0.54
--------- -------- -------
Dividends from net investment income (0.71) (0.70) (0.30)
--------- -------- -------
Total distributions (0.71) (0.70) (0.30)
--------- -------- -------
Net asset value, end of period $ 12.55 $ 11.66 $ 12.91
========= ======== =======
Total return 14.15%+ (4.38)%+ 4.32%++
Net assets at end of period (000s) $87,908 $52,319 $26,578
Ratio of operating expenses to average net assets 1.85% 1.82% 1.81%[dbldag]
Ratio of net investment income to average net assets 6.01% 5.86% 5.67%[dbldag]
Portfolio turnover rate 105.57% 134.41% 103.49%
</TABLE>
- --------------------------------------------------------------------------------
[dbldag] Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges.
++ Represents aggregate return for the period without annualization and does not
reflect any front-end or contingent deferred sales charges.
* Per-share figures have been calculated using the average shares method.
** June 1, 1993 (commencement of share class designations) to October 31, 1993.
9
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-------------------------------------
Year ended
Six months ended October 31
April 30, 1997 -----------
(Unaudited)* 1996*
--------------------- -----------
<S> <C> <C>
Net asset value, beginning of period $12.42 $12.57
------------- -------------
Net investment income 0.42 0.84
Net realized and unrealized gain (loss) on investments,
options, forward contracts and foreign currency (0.23) (0.17)
------------- -------------
Total from investment operations 0.19 0.67
------------- -------------
Dividends from net investment income (0.42) (0.82)
------------- -------------
Total distributions (0.42) (0.82)
------------- -------------
Net asset value, end of period $12.19 $12.42
============= =============
Total return 1.55%++ 5.55%+
Net assets at end of period (000s) $7,383 $7,767
Ratio of operating expenses to average net assets 0.85%[dbldag] 0.84%
Ratio of net investment income to average net assets 6.72%[dbldag] 6.78%
Portfolio turnover rate 49.71% 88.79%
<CAPTION>
Year ended October 31
--------------------------------------------------
1995* 1994* 1993**
-------------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $11.67 $12.92 $12.67
--------- -------- -------
Net investment income 0.90 0.84 0.19
Net realized and unrealized gain (loss) on investments,
options, forward contracts and foreign currency 0.84 (1.27) 0.42
--------- -------- -------
Total from investment operations 1.74 (0.43) 0.61
--------- -------- -------
Dividends from net investment income (0.84) (0.82) (0.36)
--------- -------- -------
Total distributions (0.84) (0.82) (0.36)
--------- -------- -------
Net asset value, end of period $12.57 $11.67 $12.92
========= ======== =======
Total return 15.37%+ (3.42)%+ 4.82%++
Net assets at end of period (000s) $5,036 $203 $36
Ratio of operating expenses to average net assets 0.85% 0.82% 0.80%[dbldag]
Ratio of net investment income to average net assets 6.79% 8.01% 6.59%[dbldag]
Portfolio turnover rate 105.57% 134.41% 103.49%
</TABLE>
<TABLE>
<CAPTION>
Class D
-------------------------------------
Year ended
Six months ended October 31
April 30, 1997 -----------
(Unaudited)* 1996*
--------------------- -----------
<S> <C> <C>
Net asset value, beginning of period $12.41 $12.56
------------- -------------
Net investment income 0.35 0.71
Net realized and unrealized gain (loss) on investments,
options, forward contracts and foreign currency (0.23) (0.16)
------------- -------------
Total from investment operations 0.12 0.55
------------- -------------
Dividends from net investment income (0.36) (0.70)
------------- -------------
Total distributions (0.36) (0.70)
------------- -------------
Net asset value, end of period $12.17 $12.41
============= =============
Total return 0.97%++ 4.51%+
Net assets at end of period (000s) $15,606 $14,473
Ratio of operating expenses to average net assets 1.85%[dbldag] 1.84%
Ratio of net investment income to average net assets 5.72%[dbldag] 5.76%
Portfolio turnover rate 49.71% 88.79%
<CAPTION>
Year ended October 31
------------------------------------------------------
1995* 1994* 1993**
-------------- ----------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.66 $ 12.91 $ 12.67
--------- -------- -------
Net investment income 0.74 0.72 0.30
Net realized and unrealized gain (loss) on investments,
options, forward contracts and foreign currency 0.87 (1.27) 0.24
--------- -------- -------
Total from investment operations 1.61 (0.55) 0.54
--------- -------- -------
Dividends from net investment income (0.71) (0.70) (0.30)
--------- -------- -------
Total distributions (0.71) (0.70) (0.30)
--------- -------- -------
Net asset value, end of period $ 12.56 $ 11.66 $ 12.91
========= ======== =======
Total return 14.24%+ (4.38)%+ 4.32%++
Net assets at end of period (000s) $13,033 $13,425 $12,101
Ratio of operating expenses to average net assets 1.85% 1.82% 1.88%[dbldag]
Ratio of net investment income to average net assets 6.08% 5.84% 5.59%[dbldag]
Portfolio turnover rate 105.57% 134.41% 103.49%
</TABLE>
- --------------------------------------------------------------------------------
[dbldag] Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges.
++ Represents aggregate return for the period without annualization and does not
reflect any front-end or contingent deferred sales charges.
* Per-share figures have been calculated using the average shares method.
** June 1, 1993 (commencement of share class designations) to October 31, 1993.
10
<PAGE>
STATE STREET RESEARCH GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH FINANCIAL
TRUST
- --------------------------------------------------------------------------------
Fund Information
State Street Research
Government Income Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
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
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
John H. Kallis
Vice President
Thomas A. Shively
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
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Associate, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of
the Board and Chief Executive
Officer, Raytheon 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
Jeptha H. Wade
Retired; formerly Of Counsel,
Choate, Hall & Stewart
11
<PAGE>
<PAGE>
<PAGE>
<PAGE>
[back cover]
State Street Research Government Income Fund [indicia]
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Randolph, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[State Street Research Logo]
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective
investors.
The Dalbar award recognizes 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: 3980-970620(0798)SSR-LD GI-049E-697IBS
<PAGE>
[front cover]
STATE STREET RESEARCH
STRATEGIC PORTFOLIOS: MODERATE
SEMIANNUAL REPORT
April 30, 1997
- -----------------------------------
WHAT'S INSIDE
- -----------------------------------
Investment Update
The Fund, economy
and markets
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[DALBAR box logo]
DALBAR KEY HONORS
COMMITMENT TO:
INVESTORS
1996
For Excellence
in
Shareholder Service
STATE STREET RESEARCH FUNDS
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
INVESTMENT UPDATE
- --------------------------------------------------------------------------------
INVESTMENT ENVIRONMENT
The Economy
o Economic growth accelerated somewhat in the fourth quarter of 1996 and
continued to advance into the first few months of 1997, exceeding
expectations.
o Consumer spending and industrial output steadily advanced during the six
months ended April 30, 1997. Wages continued to rise during the period, but
consumer prices and inflation remained low.
o The Federal Reserve raised interest rates by one-quarter percent in March.
The Markets
o The Fed's tightening had a predictable effect on both the stock and bond
markets. The bond market anticipated and then reacted to the Fed's action by
experiencing negative returns for the first quarter of 1997 for most sectors.
The stock market, as measured by the Dow Jones Industrial Average,
experienced a sizable correction then resumed its ascent, setting a new high.
o The S&P 500 was up +14.71% for the six-month period. Small stocks severely
lagged the performance of larger stocks, as shown by the Russell 2000 Index,
which gained only +1.61%. [1]
o Bond performance lost momentum late in the fourth quarter of 1996 and into
the first part of 1997, but rallied in April. The Lehman Brothers Aggregate
Bond Index gained +1.70% during the period. [1]
THE FUND
Over the past six months
o For the six months ended April 30, 1997, Class C shares of Strategic
Portfolios: Moderate returned +4.40%. The Fund underperformed the average
six-month return for the 331 fund classes in Lipper Analytical Services'
Balanced Funds category, which was +6.22%.
o The large-cap, value, and international stock components offered strong
returns during the period, while small-cap stocks had disappointing
performance.
o A soft bond market caused the portfolio's bonds to underperform most of its
stocks.
Current strategy
o On April 30, 1997, the Fund held 51% of its assets in stocks, 42% in bonds,
and 7% in cash.
o We have increased high-grade bonds and reduced our exposure to international
bonds, believing high-grades offer better value relative to risk.
o We are adding to our holdings in mid-cap stocks, believing that the market
could broaden and benefit these equities.
April 30, 1997
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended April 30, 1997, except where
otherwise noted)
- --------------------------------------------------------------------------------
SEC Average Annual Compound Rates of Return
for periods ended 3/31/97 [2,3]
================================================================================
Life of Fund
(since 9/28/93) 1 Year
- --------------------------------------------------------------------------------
Class C +8.30%/+7.71% +9.20%/+8.70%
================================================================================
Average Annual Compound Rates of Return
for periods ended 4/30/97 [2,3]
================================================================================
Life of Fund
(since 9/28/93) 1 Year
- --------------------------------------------------------------------------------
Class C +8.73%/+8.14% +10.02%/+9.52%
================================================================================
Asset Allocation
(by percentage of net assets)
[PIE CHART]
Stocks 51%
Bonds 42%
Cash 7%
Performance results for the Fund are increased by the voluntary reduction of
fund fees and expenses. The first figure reflects expense reduction; the second
shows what results would have been without subsidization.
[1] The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
traded common stocks and is a commonly used measure of U.S. stock market
performance. The Russell 2000 Index is a commonly used measure of
small-company stock performance. The Lehman Brothers Aggregate Bond Index is
a commonly used measure of bond market performance. The indices are
unmanaged and do not take transaction charges into account. Direct
investment in the indices is not possible; results are for illustrative
purposes only.
[2] All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends.
[3] "C" shares, offered without a sales charge, are available only to certain
employee benefit plans and large institutions.
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.
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
EQUITY SECURITIES 50.7%
Basic Industries 8.1%
Chemical 2.4%
Agrium Inc.* ......................................... 17,300 $ 222,738
Cabot Corp. .......................................... 10,600 233,200
Cambrex Corp. ........................................ 1,350 45,731
Ciba Specialty Chemicals AG* ......................... 300 25,846
Monsanto Co. ......................................... 4,300 183,825
Nippon Chemical Industrial Co. Ltd.* ................. 2,000 11,187
OM Group Inc.* ....................................... 800 22,300
Thiokol Corp. ........................................ 5,200 339,300
----------
1,084,127
----------
Diversified 0.5%
Hoya Corp.* .......................................... 2,000 91,700
Tenma Corp.* ......................................... 8,000 126,049
----------
217,749
----------
Electrical Equipment 1.0%
Asia Pacific Wire & Cable Corp.* ..................... 6,800 80,750
General Electric Co. ................................. 2,100 232,837
Matsushita Electric Works* ........................... 13,000 132,115
Watsco Inc.* ......................................... 600 14,925
----------
460,627
----------
Forest Product 0.4%
Aracruz Celulose SA ADR .............................. 4,250 80,219
Stone Container Corp. ................................ 12,000 121,500
----------
201,719
----------
Machinery 1.1%
Amada Co.* ........................................... 18,000 134,573
Sundstrand Corp. ..................................... 5,800 282,750
US Filter Corp.* ..................................... 2,300 69,862
----------
487,185
----------
Metal & Mining 2.1%
Alumax Inc.* ......................................... 5,100 186,150
Aluminum Company of America .......................... 3,400 237,575
Kennametal Inc. ...................................... 5,900 212,400
RTZ Corp.* ........................................... 8,574 136,184
SGL Carbon AG* ....................................... 1,300 181,285
Wyman-Gordon Co.* .................................... 1,600 33,600
----------
987,194
----------
Railroad 0.6%
Canadian National Railway Co. ........................ 7,100 273,350
----------
Total Basic Industries ......................................... 3,711,951
----------
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
Consumer Cyclical 6.8%
Airline 0.1%
America West Holding Corp. Cl. B* .................... 2,700 $ 41,512
UNC Inc.* ............................................ 1,000 13,875
----------
55,387
----------
Automotive 1.7%
Exide Corp. .......................................... 14,600 235,425
Honda Motor Co.* ..................................... 8,000 248,316
Lear Corp.* .......................................... 4,200 150,150
NGK Spark Plug Co.* .................................. 14,000 140,072
----------
773,963
----------
Building 0.8%
Lafarge Corp. ........................................ 11,600 281,300
Shenzhen Expressway Co. Ltd.* ........................ 266,000 87,562
----------
368,862
----------
Hotel & Restaurant 1.3%
Fine Host Corp.* ..................................... 1,700 42,925
Harrah's Entertainment Inc.* ......................... 17,800 284,800
Mirage Resorts Inc.* ................................. 11,000 221,375
Motels of America Inc.*+ ............................. 75 900
Primadonna Resorts Inc.* ............................. 900 16,875
----------
566,875
----------
Recreation 0.4%
Amer Group Ltd. Cl. A* ............................... 8,700 148,892
American Radio Systems Corp.* ........................ 700 20,475
Evergreen Media Corp. Cl. A .......................... 700 22,663
----------
192,030
----------
Retail Trade 2.4%
Carson Pirie Scott & Co.* ............................ 800 23,800
Dominick's Supermarkets Inc.* ........................ 1,600 32,800
Filene's Basement Corp.* ............................. 2,000 11,750
Genesco Inc.* ........................................ 1,700 19,763
Global DirectMail Corp.* ............................. 2,100 37,012
Gucci Group NV* ...................................... 2,300 159,562
Kroger Co.* .......................................... 13,600 374,000
Rite-Aid Corp. ....................................... 3,700 170,200
Sears, Roebuck & Co. ................................. 4,700 225,600
Stride Rite Corp. .................................... 1,100 15,125
Sunglass Hut International Inc.* ..................... 3,700 26,825
----------
1,096,437
----------
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Textile & Apparel 0.1%
Kenneth Cole Productions Inc. Cl. A* ................. 1,700 $ 28,263
Samsonite Corp.* ..................................... 500 20,750
----------
49,013
----------
Total Consumer Cyclical ........................................ 3,102,567
----------
Consumer Staple 14.6%
Business Service 1.8%
ADT Ltd.* ............................................ 14,700 402,412
Allwaste Inc. ........................................ 2,000 17,750
Greenwich Air Services Inc.* ......................... 2,500 68,750
HBO & Co. ............................................ 1,800 96,300
Philip Environmental Inc.* ........................... 3,500 55,125
Republic Industries Inc.* ............................ 6,300 156,319
Shared Medical Systems Corp. ......................... 400 16,850
----------
813,506
----------
Drug 2.7%
Amgen Inc.* .......................................... 3,800 223,725
Axogen Ltd. ADR* ..................................... 2,900 73,950
Biora AB* ............................................ 13,400 126,404
BioVail Corp.* ....................................... 2,600 65,000
Novartis AG* ......................................... 300 395,224
Pfizer Inc. .......................................... 3,500 336,000
----------
1,220,303
----------
Food & Beverage 2.4%
Anheuser-Busch Companies, Inc. ....................... 5,700 244,388
Coca-Cola Co. ........................................ 5,300 337,212
Coca-Cola Enterprises Inc. ........................... 4,000 241,500
Whitman Corp. ........................................ 11,700 270,562
----------
1,093,662
----------
Hospital Supply 4.9%
Baxter International Inc. ............................ 11,400 545,775
Genesis Health Ventures Inc.* ........................ 600 17,925
Healthdyne Technologies Inc.* ........................ 3,900 57,525
Johnson & Johnson .................................... 6,000 367,500
Karrington Health Inc.* .............................. 2,500 27,500
Medtronic Inc. ....................................... 3,500 242,375
National Surgery Centers Inc.* ....................... 400 12,000
PacifiCare Health Systems, Inc. Cl. A* ............... 2,600 199,550
Roche Holdings AG* ................................... 35 295,604
Rural / Metro Corp.* ................................. 1,700 48,875
Tenet Healthcare Corp. ............................... 9,600 249,600
Terumo Corp. ......................................... 8,000 121,637
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Hospital Supply (cont'd)
Total Renal Care Holdings Inc.* ...................... 1,800 $ 57,825
Xomed Surgical Products Inc.* ........................ 1,500 23,438
----------
2,267,129
----------
Personal Care 0.6%
Avon Products Inc. ................................... 3,600 221,850
Wesley Jessen Visioncare Inc.* ....................... 2,800 38,500
----------
260,350
----------
Printing & Publishing 1.3%
A.H. Belo Corp. Cl. A ................................ 719 25,884
Hollinger International, Inc. Cl. A* ................. 30,200 302,000
Valassis Communications Inc. ......................... 11,100 271,950
----------
599,834
----------
Tobacco 0.9%
Imperial Tobacco Group PLC* .......................... 34,900 227,953
Philip Morris Companies, Inc. ........................ 4,500 177,188
----------
405,141
----------
Total Consumer Staple .......................................... 6,659,925
------------
Energy 5.0%
Oil 4.2%
Abacan Resource Corp.* ............................... 6,300 40,556
Arakis Energy Corp.* ................................. 7,300 27,375
Burlington Resources Inc. ............................ 5,500 233,063
ENI SPA ADR .......................................... 3,300 168,300
KCS Energy Inc. ...................................... 1,800 58,500
Nuevo Energy Co.* .................................... 900 30,938
Oryx Energy Co. ...................................... 16,500 330,000
Royal Dutch Petroleum Co. ............................ 600 108,150
Seagull Energy Corp.* ................................ 17,312 296,468
Tosco Corp. .......................................... 8,700 257,737
Total SA* ............................................ 2,049 169,916
Woodside Petroleum Ltd. ADR* ......................... 25,000 198,861
----------
1,919,864
----------
Oil Service 0.8%
Dreco Energy Services Ltd. Cl. A* .................... 1,000 31,750
Ensco International Inc.* ............................ 4,700 223,250
Schlumberger Ltd. .................................... 1,100 121,825
----------
376,825
----------
Total Energy ................................................... 2,296,689
----------
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Finance 7.4%
Bank 3.4%
BankAmerica Corp. .................................... 2,500 $ 292,187
Citicorp ............................................. 2,800 315,350
Commercial Federal Corp. ............................. 300 10,050
Fleet Financial Group Inc. ........................... 6,300 384,300
Glendale Federal Bank FSB ............................ 1,300 32,338
Mellon Bank Corp. .................................... 5,000 415,625
NationsBank Corp. .................................... 1,200 72,450
Sovereign Bancorp Inc.* .............................. 1,920 23,520
-----------
1,545,820
-----------
Financial Service 0.9%
Beacon Properties Corp. .............................. 600 18,525
CMAC Investment Corp. ................................ 700 26,600
CRIIMI MAE Inc.* ..................................... 800 12,500
Essex Property Trust, Inc.* .......................... 700 20,475
Federal Home Loan Mortgage Corp. ..................... 9,200 293,250
First Industrial Realty Trust Inc. ................... 700 20,650
Homeside Inc.* ....................................... 2,100 33,600
-----------
425,600
-----------
Insurance 3.1%
Ace Ltd. ............................................. 5,600 336,000
AMBAC Inc. ........................................... 2,700 174,825
Capital Re Corp.* .................................... 300 11,888
HCC Insurance Holdings Inc.* ......................... 1,000 25,125
Mid Ocean Ltd. ....................................... 6,400 293,600
Mutual Risk Management Ltd. .......................... 766 28,151
Penncorp Financial Group Inc.* ....................... 1,100 37,812
Saint Paul Companies, Inc. ........................... 3,500 234,500
Travelers Property Casualty Corp. Cl. A .............. 7,400 249,750
-----------
1,391,651
-----------
Total Finance .................................................. 3,363,071
-----------
Science & Technology 7.7%
Aerospace 0.4%
Boeing Co. ........................................... 1,759 173,482
First Aviation Services Inc.* ........................ 2,900 24,650
-----------
198,132
-----------
Computer Software & Service 2.7%
Boston Technology Inc.* .............................. 1,200 24,000
Check Point Software Technologies Ltd.* .............. 1,200 28,350
Cisco Systems Inc.* .................................. 4,200 217,350
Claremont Technology Group Inc.* ..................... 900 12,150
Complete Business Solutions Inc.* .................... 900 9,225
-----------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Computer Software & Service (cont'd)
Etec Systems Inc.* ................................... 400 $ 11,650
Manugistics Group Inc.* .............................. 500 26,875
Mastech Corp.* ....................................... 1,300 14,950
Microsoft Corp.* ..................................... 3,000 364,500
National Processing, Inc.* ........................... 3,300 23,100
Sema Group PLC* ...................................... 5,800 112,921
TriTeal Corp.* ....................................... 1,400 10,850
TT Tieto Oy Cl. B* ................................... 600 45,573
Veritas Software Co.* ................................ 900 30,263
Wang Laboratories Inc.* .............................. 2,800 48,650
Western Digital Corp.* ............................... 2,700 166,388
Wind River Systems Inc.* ............................. 1,200 27,600
WM-Data AB Cl. B* .................................... 600 43,596
Xylan Corp.* ......................................... 1,000 14,875
-----------
1,232,866
-----------
Electronic Components 1.8%
ABB AG* .............................................. 65 78,709
Hitachi Ltd.* ........................................ 15,000 135,896
Intel Corp.* ......................................... 1,500 229,688
Lernout & Hauspie Speech Products NV ADR* ............ 4,300 93,525
Microtouch Systems Inc.* ............................. 1,400 29,925
Remec Inc.* .......................................... 1,700 39,100
Rohm Co.* ............................................ 2,000 155,040
SBS Technologies Inc.* ............................... 1,500 22,500
Zebra Technologies Corp. Cl. A* ...................... 800 18,400
-----------
802,783
-----------
Electronic Equipment 2.2%
Berg Electronics Corp.* .............................. 900 27,000
Chicago Miniature Lamp, Inc.* ........................ 1,700 39,737
Integrated Process Equipment Corp.* .................. 1,000 13,625
L.M. Ericsson Telephone Co. ADR Cl. B* ............... 7,570 254,541
L.M. Ericsson Telephone Co. Cl. B* ................... 8,769 277,221
Lucent Technologies Inc.* ............................ 2,800 165,550
Motorola Inc. ........................................ 3,200 183,200
Network Equipment Technologies, Inc.* ................ 1,900 27,075
Spectrian Corp.* ..................................... 1,300 17,225
Telco Systems Inc.* .................................. 1,400 18,200
-----------
1,023,374
-----------
Office Equipment 0.6%
Hewlett-Packard Co. .................................. 1,900 99,750
International Business Machines Corp. ................ 1,100 176,825
-----------
276,575
-----------
Total Science & Technology ..................................... 3,533,730
-----------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Utility 1.1%
Electric 0.9%
Edison International Inc. ............................ 9,200 $ 193,200
OGE Energy Corp. ..................................... 5,300 219,950
-----------
413,150
-----------
Natural Gas 0.1%
TransTexas Gas Corp.* ................................ 4,500 63,000
-----------
Telephone 0.1%
Allen Telecom Inc. ................................... 1,900 32,775
Clearnet Communications Inc. Wts.* ................... 495 1,733
-----------
34,508
-----------
Total Utility .................................................. 510,658
-----------
Total Equity Securities (Cost $20,039,177) ..................... 23,178,591
-----------
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date
- --------------------------------------------------------------------------------
FIXED INCOME SECURITIES 42.2%
U.S. Treasury 19.2%
U.S. Treasury Bond, 12.00% .............. $ 400,000 8/15/2013 557,376
U.S. Treasury Bond, 9.875% .............. 200,000 11/15/2015 258,812
U.S. Treasury Bond, 8.125% .............. 525,000 8/15/2021 589,475
U.S. Treasury Bond, 6.25% ............... 725,000 8/15/2023 656,691
U.S. Treasury Note, 5.125% .............. 125,000 6/30/1998 123,750
U.S. Treasury Note, 6.75% ............... 400,000 5/31/1999 403,436
U.S. Treasury Note, 7.125% .............. 100,000 9/30/1999 101,703
U.S. Treasury Note, 6.875% .............. 550,000 3/31/2000 556,358
U.S. Treasury Note, 6.375% .............. 575,000 3/31/2001 571,947
U.S. Treasury Note, 6.625% .............. 550,000 7/31/2001 551,545
U.S. Treasury Note, 7.50% ............... 275,000 11/15/2001 284,925
U.S. Treasury Note, 6.25% ............... 1,475,000 2/28/2002 1,455,176
U.S. Treasury Note, 7.25% ............... 550,000 5/15/2004 567,787
U.S. Treasury Note, 7.875% .............. 1,175,000 11/15/2004 1,255,417
U.S. Treasury Note, 6.50% ............... 700,000 8/15/2005 689,612
U.S. Treasury Note Inflation
Indexed, 3.375% ....................... 151,086 1/15/2007 148,677
-----------
8,772,687
-----------
U.S. Agency Mortgage 9.5%
Federal Home Loan Mortgage
Corp., 7.00% .......................... 317,395 12/01/2024 310,253
Federal Home Loan Mortgage
Corp., 7.50% .......................... 81,118 7/01/2025 80,814
Federal Home Loan Mortgage
Corp., 7.50% .......................... 461,075 6/01/2026 459,346
Federal Home Loan Mortgage
Corp. Gold, 7.50% ..................... 142,216 1/01/2025 141,949
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date
- --------------------------------------------------------------------------------
U.S. Agency Mortgage (cont'd)
Federal Home Loan Mortgage
Corp. Series 29-H PAC,
6.50% ................................. $ 100,000 3/25/2023 $ 95,437
Federal National Mortgage
Association, 9.50% .................... 183,791 10/01/2003 193,957
Federal National Mortgage
Association, 7.00% .................... 167,786 12/01/2007 167,156
Federal National Mortgage
Association, 8.00% .................... 198,867 4/01/2008 204,708
Federal National Mortgage
Association, 7.00% .................... 221,71 10/01/2025 214,781
Government National Mortgage
Association, 6.50% .................... 107,979 2/15/2009 105,633
Government National Mortgage
Association, 6.50% .................... 238,723 5/15/2009 233,538
Government National Mortgage
Association, 8.00% .................... 46,526 9/15/2017 47,779
Government National Mortgage
Association, 9.00% .................... 122,522 2/15/2022 129,643
Government National Mortgage
Association, 8.00% .................... 642,427 7/15/2022 655,468
Government National Mortgage
Association, 6.50% .................... 86,489 12/15/2023 82,029
Government National Mortgage
Association, 6.50% .................... 288,907 7/15/2024 274,011
Government National Mortgage
Association, 7.00% .................... 142,586 1/15/2025 138,843
Government National Mortgage
Association, 7.00% .................... 66,988 10/15/2025 64,873
Government National Mortgage
Association, 7.50% .................... 305,233 11/15/2025 302,944
Government National Mortgage
Association, 7.00% .................... 146,989 12/15/2025 142,349
Government National Mortgage
Association, 7.50% .................... 147,559 4/15/2026 146,267
Government National Mortgage
Association, 8.00% .................... 133,116 9/15/2026 134,904
-----------
4,326,682
-----------
Foreign Government 1.8% Australian Dollar
Government of Australia, 10.00% ......... 550,000 2/15/2006 488,223
Canadian Dollar
Government of Canada, 0.00% ............. 225,000 10/16/1997 158,888
European Currency Unit
Government of France, 8.00% ............. 125,000 4/25/2003 157,941
-----------
805,052
-----------
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
Trust Certificates 0.3%
Cooperative Utility Trust
Certificates, 10.70% .................. $ 125,000 9/15/2017 $ 133,615
-----------
Finance/Mortgage 7.2%
Advanta Credit Card Master
Trust Series 95F-A1, 6.05% ............ 75,000 8/01/2003 73,382
ALLmerica Finance Corp. Capital
Trust, 8.21%+ ......................... 275,000 2/03/2027 275,338
Bank of New York Institutional
Capital Trust, 7.78%+ ................. 250,000 12/01/2026 237,195
BankAmerica Institutional
Capital Series B, 7.70%+ .............. 225,000 12/31/2026 212,652
Capital One Bank Note, 7.08% ............ 250,000 10/30/2001 248,700
Citicorp Capital Sec. Note, 7.93% ....... 225,000 2/15/2027 220,901
Countrywide Mortgage Inc.
Series 1994-2 Class A-7, 6.50% ........ 150,000 4/25/2008 149,484
DeBartolo Capital Partnership
A-2, 7.48%+ ........................... 225,000 5/01/2004 229,500
Discover Credit Card Trust
Series 1993 A, 6.25% .................. 125,000 8/16/2000 124,883
Ford Credit Auto Loan Master
Trust Series 95-1, 6.50% .............. 200,000 8/15/2002 198,686
GE Global Insurance Holding
Corp. Note, 7.00% ..................... 400,000 2/15/2026 370,676
General Motors Acceptance
Corp. Note, 8.375% .................... 200,000 5/01/1997 199,500
Household Finance Co. Sr. Note,
6.75% ................................. 100,000 6/01/2000 99,883
NationsBank Credit Card Master
Trust Series 1995-1A, 6.45% ........... 150,000 4/15/2003 149,156
Prudential Home Mortgage
Securities Co. Series 93-47
A-11 PAC-2, 6.10% ..................... 200,000 12/25/2023 181,250
Prudential Home Mortgage
Securities Co. Series 93-57
A-1 PAC, 6.50% ........................ 18,379 12/26/2023 18,304
Prudential Home Mortgage
Securities Co. Series 93-29
A-6 PAC, 6.75% ........................ 63,625 8/25/2008 63,327
Railcar Leasing LLC 1997-1 A1, 6.75%+ ... 167,867 7/15/2006 164,719
Sears Credit Account Master 8.10% ....... 100,000 6/15/2004 102,906
-----------
3,320,442
-----------
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
Corporate 2.9%
Chevron Corp. Profit Sharing
Note, 8.11% ........................... $ 100,000 12/01/2004 $ 104,104
Clearnet Communications Inc.
Sr. Disc. Note, 0.00% to
12/14/2000, 14.75% from
12/15/2000 to maturity ................ 50,000 12/15/2005 30,500
Coleman Worldwide Corp. Sr.
Sec. Liquid Yield Option
Note, 0.00% ........................... 1,000,000 5/27/2013 307,500
Edison Mission Energy Funding
Corp. Series A Note, 6.77%+ ........... 213,205 9/15/2003 210,981
Empire Gas Corp. Sr. Sec. Note,
7.00% to 7/14/99, 12.875%
from 7/15/99 to maturity .............. 250,000 7/15/2004 217,500
Envirosource Inc. Note, 9.75% ........... 125,000 6/15/2003 121,875
Norcal Waste Systems Inc. Sr.
Note, 13.00% to 5/14/97,
13.25% from 5/15/97 to
11/14/97, 13.50% from
11/15/97 to maturity .................. 200,000 5/16/1997 222,000
Spanish Broadcasting Systems
Inc. Sr. Note, 7.50% .................. 100,000 6/15/1997 107,000
-----------
1,321,460
-----------
Canadian-Yankee 1.3%
Hydro-Quebec Deb. Series HS, 9.40% ...... 225,000 2/01/2021 261,873
Talisman Energy Inc. Deb., 7.125% ....... 125,000 6/01/2007 122,074
Usinor Sacilor Note ADR, 7.25% .......... 225,000 8/01/2006 220,374
-----------
604,321
-----------
Total Fixed Income Securities (Cost $19,395,156) ................ 19,284,259
-----------
SHORT-TERM OBLIGATIONS 6.2%
American Express Credit Corp., 5.50% .... 1,752,000 5/02/1997 1,752,000
American Express Credit Corp., 5.50% .... 113,000 5/06/1997 113,000
General Electric Capital Corp., 5.49% ... 951,000 5/06/1997 951,000
-----------
Total Short-Term Obligations
(Cost $2,816,000) ............................................. 2,816,000
-----------
Total Investments (Cost $42,250,333)--99.1% ..................... 45,278,850
Cash and Other Assets, Less Liabilities--0.9% ................... 427,215
-----------
Net Assets--100.0% .............................................. $45,706,065
===========
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Federal Income Tax Information:
At April 30, 1997, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $42,390,959 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ................................................. $ 4,117,611
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value .................................................... (1,229,720)
-----------
$ 2,887,891
===========
- --------------------------------------------------------------------------------
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
* Nonincome-producing securities.
+ Security restricted in accordance with Rule 144A under the Securities Act of
1933, which allows for the resale of such securities among certain qualified
buyers. The total cost and market value of Rule 144A securities owned at
April 30, 1997 were $1,359,479 and $1,331,285 (2.91% of net assets),
respectively.
Forward currency exchange contracts outstanding at April 30, 1997, are as
follows:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Total Value Price (Depreciation) Date
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buy Australian dollars, Sell U.S. dollars 40,000 AUD .77567 AUD $ 163 5/14/97
Sell Australian dollars, Buy U.S. dollars 157,000 AUD .77900 AUD (74) 7/24/97
Sell Australian dollars, Buy U.S. dollars 250,000 AUD .75560 AUD (6,036) 5/14/97
Sell Australian dollars, Buy U.S. dollars 225,000 AUD .77920 AUD (62) 7/24/97
Buy Canadian dollars, Sell U.S. dollars 270,000 CAD .74267 CAD (7,050) 5/14/97
Buy Canadian dollars, Sell U.S. dollars 76,000 CAD .74228 CAD (1,955) 5/14/97
Sell Canadian dollars, Buy U.S. dollars 76,000 CAD .74247 CAD 1,970 5/14/97
Sell Canadian dollars, Buy U.S. dollars 270,000 CAD .74223 CAD 6,931 5/14/97
Buy Danish krone, Sell U.S. dollars 1,131,900 DKK .15553 DKK (4,155) 5/14/97
Sell Danish krone, Buy U.S. dollars 1,131,900 DKK .15680 DKK 5,590 5/14/97
Sell British pounds, Buy U.S. dollars 210,000 GBP 1.62070 GBP 166 5/30/97
Sell European currency units, Buy U.S. dollars 139,000 XEU 1.16180 XEU 4,666 5/14/97
--------
$ 154
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1997 (Unaudited)
Assets
Investments, at value (Cost $42,250,333) (Note 1) ............. $45,278,850
Cash .......................................................... 359
Receivable for securities sold ................................ 398,702
Interest and dividends receivable ............................. 318,149
Receivable from Distributor (Note 3) .......................... 46,304
Receivable for open forward contracts ......................... 19,486
Receivable for fund shares sold ............................... 354
Deferred organization costs and other assets (Note 1) ......... 44,833
-----------
46,107,037
Liabilities
Payable for securities purchased .............................. 220,144
Accrued transfer agent and shareholder services
(Note 2) .................................................... 50,851
Accrued management fee (Note 2) ............................... 23,988
Payable for open forward contracts ............................ 19,332
Accrued trustees' fees (Note 2) ............................... 5,487
Payable for fund shares redeemed .............................. 1,545
Other accrued expenses ........................................ 79,625
-----------
400,972
-----------
Net Assets .................................................... $45,706,065
===========
Net Assets consist of:
Undistributed net investment income .......................... $ 206,188
Unrealized appreciation of investments ....................... 3,028,517
Unrealized depreciation of forward contracts and
foreign currency ........................................... (1,390)
Accumulated net realized gain ................................ 1,854,860
Shares of beneficial interest ................................ 40,617,890
-----------
$45,706,065
===========
Net Asset Value, offering price and redemption price
per share of Class C shares ($45,706,065 [dividedby]
4,221,426 shares of beneficial interest) .................... $ 10.83
===========
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the six months ended April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income
Interest, net of foreign taxes of $1,011 ...................... $ 773,993
Dividends, net of foreign taxes of $3,373 ..................... 144,042
-----------
918,035
Expenses
Management fee (Note 2) ....................................... 147,275
Transfer agent and shareholder services (Note 2) .............. 88,056
Custodian fee ................................................. 69,475
Reports to shareholders ....................................... 19,418
Registration fees ............................................. 13,765
Audit fee ..................................................... 12,947
Amortization of organization costs (Note 1) ................... 8,250
Trustees' fees (Note 2) ....................................... 7,823
Legal fees .................................................... 5,295
Miscellaneous ................................................. 4,264
-----------
376,568
Expenses borne by the Distributor (Note 3) (148,626)
-----------
227,942
-----------
Net investment income ......................................... 690,093
-----------
Realized and Unrealized Gain (Loss) on
Investments, Foreign Currency and Forward
Contracts
Net realized gain on investments (Notes 1 and 4) .............. 1,938,545
Net realized gain on forward contracts and foreign
currency (Note 1) ........................................... 59,677
-----------
Total net realized gain ...................................... 1,998,222
-----------
Net unrealized depreciation of investments .................... (778,508)
Net unrealized appreciation of forward contracts and
foreign currency ............................................ 4,777
-----------
Total net unrealized depreciation ............................ (773,731)
-----------
Net gain on investments, foreign currency and
forward contracts ........................................... 1,224,491
-----------
Net increase in net assets resulting from operations .......... $ 1,914,584
===========
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Six months ended
April 30, 1997 Year ended
(Unaudited) October 31, 1996
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ...................... $ 690,093 $ 1,504,079
Net realized gain on investments,
foreign currency and forward
contracts* ............................... 1,998,222 3,151,150
Net unrealized appreciation
(depreciation) of investments,
foreign currency and forward
contracts ................................ (773,731) 1,101,514
------------ ------------
Net increase resulting from
operations ............................... 1,914,584 5,756,743
------------ ------------
Dividends from net investment
income--Class C .......................... (1,025,506) (1,633,976)
------------ ------------
Distribution from net realized
gains--Class C ........................... (2,787,815) --
------------ ------------
Class C share transactions (Note 6):
Proceeds from sale of shares .............. 5,126,053 14,756,256
Net asset value of shares issued
in payment of:
Dividends from net investment ............ 613,569 510,768
Distribution from net realized
gains .................................. 2,787,815 --
Cost of shares repurchased ................. (5,911,486) (14,221,849)
------------ ------------
Net increase from fund share
transactions ............................. 2,615,951 1,045,175
------------ ------------
Total increase in net assets ............... 717,214 5,167,942
Net Assets
Beginning of period ........................ 44,988,851 39,820,909
------------ ------------
End of period (including
undistributed net investment
income of $206,188 and $541,601,
respectively) ............................ $ 45,706,065 $ 44,988,851
============ ============
Number of Class C shares:
Sold ...................................... 463,933 1,373,024
Issued upon reinvestment of:
Dividends from net investment
income ................................. 57,124 47,952
Distribution from net realized
gains .................................. 258,131 --
Repurchased ............................... (544,425) (1,314,427)
------------ ------------
Net increase in fund shares ................ 234,763 106,549
============ ============
*Net realized gain for Federal
income tax purposes (Note 1) ............. $ 1,994,371 $ 2,790,310
============ ============
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1997
Note 1
State Street Research Strategic Portfolios: Moderate (the "Fund"), is a series
of State Street Research Financial Trust, (the "Trust"), which was organized as
a Massachusetts business trust in November, 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 September, 1993. The Trust
consists presently of four separate funds: State Street Research Strategic
Portfolios: Moderate, State Street Research Government Income Fund, State
Street Research Strategic Portfolios: Conservative and State Street Research
Strategic Portfolios: Aggressive.
The investment objective of the Fund is to provide both current income and
capital appreciation, consistent with the preservation of capital and
reasonable investment risk.
The Fund is authorized to issue four classes of shares. Only Class C shares are
presently available for purchase. Class A, Class B and Class D shares are not
being offered at this time. Class A shares will be 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 will be subject to a contingent deferred sales charge on
certain redemptions made within five years of purchase and pay annual
distribution and service fees of 1.00%. Class B shares automatically convert
into Class A shares (which pay lower ongoing expenses) at the end of eight
years after the issuance of the Class B shares. Class C shares are only offered
to certain employee benefit plans and large institutions. No sales charge is
imposed at the time of purchase or redemption of Class C shares. Class C shares
do not pay any distribution or service fees. Class D shares are subject to a
contingent deferred sales charge of 1.00% on any shares redeemed within one
year of their purchase. Class D shares also pay annual distribution and service
fees of 1.00%. The Fund's expenses are borne pro-rata by each class, except
that each class bears expenses, and has exclusive voting rights with respect to
provisions of the Plan of Distribution, related specifically to that class. The
Trustees declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Values for listed equity 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. If not quoted on the NASDAQ system, such
securities are valued at prices obtained from brokers. In the absence of
recorded sales, valuations are at the mean of the closing bid and asked
quotations. Fixed income securities are valued by a pricing service, which
utilizes market transactions, quotations from dealers, and various
relationships among securities in determining value. Short-term securities
maturing within sixty days are valued at amortized cost. Securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate.
9
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 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.
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of the
Fund. 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. The Fund is charged for expenses directly attributable
to it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for foreign currency transactions.
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.
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. 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 currency. 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.
H. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser earns
monthly fees at an annual rate of 0.65% of the Fund's average daily net assets.
In consideration of these fees, the Adviser furnishes the Fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the six months ended April 30, 1997, the fees pursuant to such agreement
amounted to $147,275.
State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the six months ended
April 30, 1997, the amount of such expenses was $80,859.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$7,823 during the six months ended April 30, 1997.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund.
During the six months ended April 30, 1997, the amount of such expenses assumed
by the Distributor and its affiliates was $148,626.
Note 4
For the six months ended April 30, 1997, purchases and sales of securities,
exclusive of short-term obligations, aggregated $25,671,461 and $25,492,768
(including $9,101,376 and $6,718,270 of U.S. Government securities),
respectively.
10
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund will
pay annual service fees to the Distributor at a rate of 0.25% of average daily
net assets for Class A, Class B and Class D shares. In addition, the Fund will
pay annual distribution fees of 0.75% of average daily net assets for Class B
and Class D shares. The Distributor uses such payments for personal service
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.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At April 30, 1997, Metropolitan owned 1,525,372 Class C shares of the Fund and
the Adviser owned one Class C share of the Fund.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Class C share outstanding throughout each period:
<TABLE>
<CAPTION>
Six months ended Year ended October 31
April 30, 1997 --------------------------------------------
(Unaudited)** 1996** 1995** 1994 1993***
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.28 $10.26 $ 9.18 $ 9.57 $ 9.55
------ -------- ------- ------- -------
Net investment income* 0.17 0.35 0.36 0.28 0.02
Net realized and unrealized gain
(loss) on investments, foreign currency
and forward contracts 0.32 1.07 1.01 (0.45) --
------ -------- ------- ------- -------
Total from investment operations 0.49 1.42 1.37 (0.17) 0.02
------ -------- ------- ------- -------
Dividends from net investment income (0.25) (0.40 (0.29) (0.22) --
Distribution from net realized gains (0.69) -- -- -- --
------ -------- ------- ------- -------
Total distributions (0.94) (0.40 (0.29) (0.22) --
------ -------- ------- ------- -------
Net asset value, end of period $10.83 $11.28 $10.26 $ 9.18 $ 9.57
====== ====== ======= ======= =======
Total return 4.40%++ 14.08%+ 15.24%+ (1.81)%+ 0.21%++
Net assets at end of period (000s) $45,706 $44,989 $39,821 $28,494 $25,040
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* 3.05%+++ 3.23% 3.68% 3.05% 2.32%+++
Portfolio turnover rate 60.33% 127.59% 120.62% 142.86% 0.00%
Average commission rate@ $0.0276 $0.0258 -- -- --
*Reflects voluntary assumption of fees or expenses per
share in each period (Note 3) $ 0.04 $ 0.05 $ 0.07 $ 0.05 $ 0.00
</TABLE>
- --------------------------------------------------------------------------------
+++ Annualized
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses
++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
** Per-share figures have been calculated using the average shares method.
*** September 28, 1993 (commencement of operations) to October 31, 1993.
@ For fiscal years beginning on or after November 1, 1995, the Fund is
required to disclose its average commission rate per share paid for
security trades.
11
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: MODERATE
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF
STATE STREET RESEARCH FINANCIAL TRUST
- --------------------------------------------------------------------------------
Fund Information
State Street Research
Strategic Portfolios: Moderate
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
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
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
John H. Kallis
Vice President
Thomas A. Shively
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
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Associate, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of the Board and Chief Executive
Officer, Raytheon 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
Jeptha H. Wade
Retired; formerly Of Counsel, Choate, Hall & Stewart
12
<PAGE>
[back cover]
State Street Research Strategic Portfolios: Moderate [indicia]
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Randolph, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[State Street Research Logo]
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective
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: 3986-970623(0798)SSR-LD SP-029E-697IBS
<PAGE>
[front cover]
STATE STREET RESEARCH
STRATEGIC PORTFOLIOS: CONSERVATIVE
SEMIANNUAL REPORT
April 30, 1997
- -----------------------------------
WHAT'S INSIDE
- -----------------------------------
Investment Update
The Fund, economy
and markets
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[DALBAR box logo]
DALBAR KEY HONORS
COMMITMENT TO:
INVESTORS
1996
For Excellence
in
Shareholder Service
STATE STREET RESEARCH FUNDS
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- --------------------------------------------------------------------------------
INVESTMENT UPDATE
- --------------------------------------------------------------------------------
INVESTMENT ENVIRONMENT
The Economy
o Economic growth accelerated somewhat in the fourth quarter of 1996 and
continued to advance into the first few months of 1997, exceeding
expectations.
o Consumer spending and industrial output steadily advanced during the six
months ended April 30, 1997. Wages continued to rise during the period, but
consumer prices and inflation remained low.
o The Federal Reserve raised interest rates by one-quarter percent in March.
The Markets
o The Fed's tightening had a predictable effect on both the stock and bond
markets. The bond market anticipated and then reacted to the Fed's action by
experiencing negative returns for the first quarter of 1997 for most sectors.
The stock market, as measured by the Dow Jones Industrial Average,
experienced a sizable correction then resumed its ascent, setting a new high.
o Bond performance lost momentum late in the fourth quarter of 1996 and into
the first part of 1997, but rallied in April. The Lehman Brothers Aggregate
Bond Index gained +1.70% during the period. [1]
o The S&P 500 was up +14.71% for the six-month period. [1]
THE FUND
Over the past six months
o For the six months ended April 30, 1997, Class C shares of Strategic
Portfolios: Conservative returned +4.06%. The Fund outperformed the average
six-month return for the 16 fund classes in Lipper Analytical Services'
Flexible Income Funds category, which was +2.11%.
o Bonds offered positive returns but underperformed stocks for the period.
o The Fund's large-cap, value, and international stock components helped boost
fund performance.
Current strategy
o On April 30, 1997, the Fund held 71% of its assets in bonds, 25% in stocks,
and 4% in cash.
o We have reduced our exposure to equities and increased our position in bonds,
as we see bonds becoming increasingly attractive versus stocks, but having
less risk.
o We have increased high-grade bonds and reduced our exposure to international
bonds, believing high-grades offer better value relative to risk.
April 30, 1997
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended April 30, 1997, except where
otherwise noted)
- --------------------------------------------------------------------------------
SEC Average Annual Compound Rates
of Return for periods ended 3/31/97 [2,3]
================================================================================
================================================================================
Life of Fund
(since 5/16/94) 1 Year
- --------------------------------------------------------------------------------
Class C +10.37%/+9.75% +8.37%/+7.76%
- --------------------------------------------------------------------------------
Average Annual Compound Rates
of Return for periods ended 4/30/97 [2,3]
================================================================================
Life of Fund
(since 5/16/94) 1 Year
- --------------------------------------------------------------------------------
Class C +10.82%/+10.20% +10.37%/+9.74%
- --------------------------------------------------------------------------------
Performance results for the Fund are increased by the voluntary reduction of
fund fees and expenses. The first figure reflects expense reduction; the second
shows what results would have been without subsidization.
Asset Allocation
(by percentage of net assets)
[PIE CHART]
Bonds 71%
Stocks 25%
Cash 4%
[1] The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
traded common stocks and is a commonly used measure of U.S. stock market
performance. The Lehman Brothers Aggregate Bond Index is a commonly used measure
of bond market performance. The indices are unmanaged and do not take
transaction charges into account. Direct investment in the indices is not
possible; results are for illustrative purposes only.
[2] All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in the
Fund will fluctuate and shares, when redeemed, may be worth more or less than
their original cost. All returns assume reinvestment of capital gain
distributions and income dividends.
[3] "C" shares, offered without a sales charge, are available only to certain
employee benefit plans and large institutions.
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.
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
FIXED INCOME SECURITIES 70.8%
U.S. Treasury 35.0%
U.S. Treasury Bond, 12.00% .............. $ 200,000 8/15/2013 $ 278,688
U.S. Treasury Bond, 9.875% .............. 250,000 11/15/2015 323,515
U.S. Treasury Bond, 8.125% .............. 1,025,000 8/15/2021 1,150,880
U.S. Treasury Bond, 6.25% ............... 1,000,000 8/15/2023 905,780
U.S. Treasury Note, 6.75% ............... 550,000 5/31/1999 554,725
U.S. Treasury Note, 7.125% .............. 1,325,000 9/30/1999 1,347,565
U.S. Treasury Note, 6.875% .............. 350,000 3/31/2000 354,046
U.S. Treasury Note, 6.25% ............... 175,000 8/31/2000 173,906
U.S. Treasury Note, 6.625% .............. 1,125,000 7/31/2001 1,128,161
U.S. Treasury Note, 7.50% ............... 300,000 11/15/2001 310,827
U.S. Treasury Note, 6.25% ............... 1,325,000 2/28/2002 1,307,192
U.S. Treasury Note, 7.25% ............... 600,000 5/15/2004 619,404
U.S. Treasury Note, 7.875% .............. 1,900,000 11/15/2004 2,030,036
U.S. Treasury Note, 6.50% ............... 1,275,000 8/15/2005 1,256,079
U.S. Treasury Note Inflation
Indexed, 3.375% ....................... 226,629 1/15/2007 223,017
-----------
11,963,821
-----------
U.S. Agency Mortgage 16.0%
Federal Home Loan Mortgage
Corp. Gold, 7.00% ..................... 842,525 6/01/2024 823,568
Federal Home Loan Mortgage
Corp. Gold, 7.50% ..................... 523,109 8/01/2024 522,125
Federal Home Loan Mortgage
Corp. Gold, 7.50% ..................... 350,636 4/01/2026 349,321
Federal Home Loan Mortgage
Corp. Gold, 7.50% ..................... 281,296 6/01/2026 280,241
Federal Home Loan Mortgage
Corp. Series 29-H PAC, 6.50% .......... 125,000 3/25/2023 119,296
Government National Mortgage
Association, 6.50% .................... 129,575 2/15/2009 126,760
Government National Mortgage
Association, 6.50% .................... 64,739 6/15/2009 63,333
Government National Mortgage
Association, 6.50% .................... 292,779 7/15/2009 286,420
Government National Mortgage
Association, 8.00% .................... 126,977 10/15/2017 130,396
Government National Mortgage
Association, 8.00% .................... 64,183 11/15/2017 65,912
Government National Mortgage
Association, 8.00% .................... 825,834 5/15/2022 842,598
Government National Mortgage
Association, 6.50% .................... 86,463 12/15/2023 82,005
Government National Mortgage
Association, 6.50% .................... 444,475 7/15/2024 421,558
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
U.S. Agency Mortgage (cont'd)
Government National Mortgage
Association, 7.00% .................... $ 312,471 1/15/2025 $ 304,269
Government National Mortgage
Association, 7.00% .................... 47,729 10/15/2025 46,222
Government National Mortgage
Association, 7.50% .................... 375,672 11/15/2025 372,854
Government National Mortgage
Association, 7.50% .................... 196,746 4/15/2026 195,025
Government National Mortgage
Association, 8.00% .................... 118,985 9/15/2026 120,583
Government National Mortgage
Association TBA, 7.50% ................ 300,000 5/15/2012 303,281
-----------
5,455,767
-----------
Canadian-Yankee 2.1%
Hydro-Quebec Deb. Series HS, 9.40% ...... 325,000 2/01/2021 378,261
Usinor Sacilor Note ADR, 7.25% .......... 350,000 8/01/2006 342,804
-----------
721,065
-----------
Foreign Government 2.0% Australian Dollar
Government of Australia, 10.00% ......... 400,000 2/15/2006 355,071
Canadian Dollar
Government of Canada, 0.00% ............. 125,000 10/16/1997 88,271
European
Currency Unit
Government of France, 8.00% ............. 175,000 4/25/2003 221,118
-----------
664,460
-----------
Trust Certificates 1.3%
Cooperative Utility Trust
Certificates, 10.70% .................. $ 225,000 9/15/2017 240,507
Rural Electric Cooperative Grantor
Trust Certificates, 10.11% ............ 200,000 12/15/2017 214,038
-----------
454,545
-----------
Finance/Mortgage 11.9%
Bank of New York Institutional
Capital Trust, 7.78%+ ................. 175,000 12/01/2026 166,037
BankAmerica Institutional
Capital Series B, 7.70%+ .............. 350,000 12/31/2026 330,792
Capital One Bank Note, 7.08% ............ 175,000 10/30/2001 174,090
Chase Manhattan Master Trust
96-3A, 7.04% .......................... 275,000 2/15/2005 277,577
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
Finance/Mortgage (cont'd)
Citicorp Capital Security Note,
7.933% ................................ $ 175,000 2/15/2027 171,812
Countrywide Funding Corp.
Note, 6.28% ........................... 200,000 1/15/2003 192,150
CWMBS Inc. Series 1994-3
A-7, 6.75% ............................ 225,000 3/25/2024 213,889
DeBartolo Capital Partnership
A-2, 7.48%+ ........................... 225,000 5/01/2004 229,500
Discover Credit Card Trust
Series 1993 A, 6.25% .................. 250,000 8/16/2000 249,765
Ford Credit Auto Loan Master
Trust Series 95-1, 6.50% .............. 375,000 8/15/2002 372,536
GE Global Insurance Holding
Corp. Note, 7.00% ..................... 350,000 2/15/2026 324,341
General Motors Acceptance
Corp. Note, 7.85% ..................... 325,000 11/17/1997 327,795
Household Affinity Master Trust
Series 1994-1A, 5.84% ................. 175,000 5/15/2001 175,219
Household Finance Co. Note,
6.75% ................................. 125,000 6/01/2000 124,854
Prudential Home Mortgage
Securities Co. Series 93-29
A-6 PAC, 6.75% ........................ 211,121 8/25/2008 210,130
Prudential Home Mortgage
Securities Co. Series 93-47
1-11 PAC, 6.10% ....................... 275,000 12/25/2023 249,219
Railcar Leasing LLC Sr. Sec
Note, 6.75%+ .......................... 119,905 7/15/2006 117,657
Travelers Property Casualty
Corp. Sr. Note, 7.75% ................. 175,000 4/15/2026 173,115
-----------
4,080,478
-----------
Corporate 2.5%
Chevron Corp. Note, 8.11% ............... 175,000 12/01/2004 182,182
Columbia/HCA Healthcare Corp.
Note, 6.87% ........................... 150,000 9/15/2003 148,502
Edison Mission Energy Funding
Corp. Series A Note, 6.77%+ ........... 165,826 9/15/2003 164,096
Electronic Data Systems Corp.
Note, 6.85%+ .......................... 250,000 5/15/2000 250,530
Loews Corp. Sr. Note, 7.00% ............. 125,000 10/15/2023 111,171
-----------
856,481
-----------
Total Fixed Income Securities (Cost $24,269,958) ................. 24,196,617
-----------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
EQUITY SECURITIES 24.7%
Basic Industries 4.3%
Chemical 1.3%
Agrium Inc. .......................................... 8,600 $ 110,725
Cabot Corp. .......................................... 4,000 88,000
Ciba Specialty Chemicals AG* ......................... 70 6,031
Monsanto Co. ......................................... 1,600 68,400
Thiokol Corp. ........................................ 2,700 176,175
-----------
449,331
-----------
Diversified 0.2%
Hoya Corp.* .......................................... 1,000 45,850
Tenma Corp.* ......................................... 1,000 15,756
-----------
61,606
-----------
Electrical Equipment 0.4%
Asia Pacific Wire & Cable Corp.* ..................... 1,900 22,562
General Electric Co. ................................. 800 88,700
Matsushita Electric Works* ........................... 4,000 40,651
-----------
151,913
-----------
Forest Product 0.3%
Aracruz Celulose SA ADR .............................. 1,650 31,144
Stone Container Corp. ................................ 5,900 59,737
-----------
90,881
-----------
Machinery 0.4%
Amada Co.* ........................................... 5,000 37,382
Sundstrand Corp. ..................................... 2,000 97,500
-----------
134,882
-----------
Metal & Mining 1.3%
Alumax Inc.* ......................................... 3,200 116,800
Aluminum Company of America .......................... 1,200 83,850
Kennametal Inc. ...................................... 3,500 126,000
RTZ Corp.* ........................................... 2,521 40,042
SGL Carbon AG* ....................................... 500 69,725
-----------
436,417
-----------
Railroad 0.4%
Canadian National Railway Co. ........................ 3,700 142,450
-----------
Total Basic Industries .......................................... 1,467,480
-----------
Consumer Cyclical 3.1%
Automotive 0.8%
Exide Corp. .......................................... 7,200 116,100
Honda Motor Co.* ..................................... 2,000 62,079
Lear Corp.* .......................................... 1,700 60,775
NGK Spark Plug Co.* .................................. 4,000 40,020
-----------
278,974
-----------
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Building 0.5%
Lafarge Corp. ........................................ 6,000 $ 145,500
Shenzhen Expressway Co. Ltd.* ........................ 74,000 24,359
-----------
169,859
-----------
Hotel & Restaurant 0.6%
Harrah's Entertainment Inc.* ......................... 8,800 140,800
Mirage Resorts Inc.* ................................. 3,900 78,488
-----------
219,288
-----------
Recreation 0.1%
Amer Group Ltd. Cl. A* ............................... 2,200 37,651
-----------
Retail Trade 1.1%
Gucci Group NV* ...................................... 800 55,500
Kroger Co.* .......................................... 5,000 137,500
Rite-Aid Corp. ....................................... 1,700 78,200
Sears, Roebuck & Co. ................................. 1,800 86,400
-----------
357,600
-----------
Total Consumer Cyclical ......................................... 1,063,372
-----------
Consumer Staple 6.7%
Business Service 0.8%
ADT Ltd.* ............................................ 6,000 164,250
HBO & Co. ............................................ 700 37,450
Republic Industries Inc.* ............................ 2,300 57,069
-----------
258,769
-----------
Drug 1.0%
Amgen Inc.* .......................................... 1,300 76,538
Biora AB* ............................................ 3,600 33,959
Novartis AG* ......................................... 70 92,219
Pfizer Inc. .......................................... 1,300 124,800
-----------
327,516
-----------
Food & Beverage 1.3%
Anheuser-Busch Companies, Inc. ....................... 2,200 94,325
Coca-Cola Co. ........................................ 1,900 120,887
Coca-Cola Enterprises Inc. ........................... 1,700 102,638
Whitman Corp. ........................................ 5,800 134,125
-----------
451,975
-----------
Hospital Supply 2.0%
Baxter International Inc. ............................ 5,200 248,950
Johnson & Johnson .................................... 2,200 134,750
Medtronic Inc. ....................................... 1,200 83,100
PacifiCare Health Systems, Inc. Cl. A* ............... 1,200 92,100
Tenet Healthcare Corp. ............................... 4,000 104,000
Terumo Corp.* ........................................ 2,000 30,409
-----------
693,309
-----------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Personal Care 0.2%
Avon Products Inc. ................................... 1,300 $ 80,112
-----------
Printing & Publishing 0.8%
Hollinger International, Inc. Cl. A* ................. 14,900 149,000
Valassis Communications Inc. ......................... 5,500 134,750
-----------
283,750
-----------
Tobacco 0.6%
Imperial Tobacco Group PLC* .......................... 18,400 120,182
Philip Morris Companies, Inc. ........................ 1,800 70,875
-----------
191,057
-----------
Total Consumer Staple .......................................... 2,286,488
-----------
Energy 2.6%
Oil 2.2%
Burlington Resources Inc. ............................ 1,800 76,275
ENI SPA ADR .......................................... 900 45,900
Oryx Energy Co. ...................................... 8,700 174,000
Royal Dutch Petroleum Co. ............................ 300 54,075
Seagull Energy Corp.* ................................ 8,000 137,000
Tosco Corp. .......................................... 5,200 154,050
Total SA Cl. B* ...................................... 717 59,458
Woodside Petroleum Ltd. ADR* ......................... 7,700 61,250
-----------
762,008
-----------
Oil Service 0.4%
Ensco International Inc.* ............................ 1,700 80,750
Schlumberger Ltd. .................................... 400 44,300
-----------
125,050
-----------
Total Energy ................................................... 887,058
-----------
Finance 3.9%
Bank 1.7%
BankAmerica Corp. .................................... 900 105,187
Citicorp ............................................. 1,000 112,625
Fleet Financial Group Inc. ........................... 2,500 152,500
Mellon Bank Corp. .................................... 2,200 182,875
NationsBank Corp. .................................... 300 18,113
-----------
571,300
-----------
Financial Service 0.4%
Federal Home Loan Mortgage Corp. ..................... 4,200 133,875
-----------
Insurance 1.8%
Ace Ltd. ............................................. 3,300 198,000
AMBAC Inc. ........................................... 1,600 103,600
Mid Ocean Ltd. ....................................... 3,200 146,800
Saint Paul Companies, Inc. ........................... 1,000 67,000
-----------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Insurance (cont'd)
Travelers Property Casualty Corp. Cl. A .............. 3,300 $ 111,375
-----------
626,775
-----------
Total Finance .................................................. 1,331,950
-----------
Science & Technology 3.4%
Aerospace 0.3%
Boeing Co. ........................................... 1,013 99,907
-----------
Computer Software & Service 1.0%
Cisco Systems Inc.* .................................. 1,500 77,625
Microsoft Corp.* ..................................... 1,100 133,650
Sema Group PLC* ...................................... 1,600 31,151
TT Tieto Oy Cl. B* ................................... 200 15,191
Western Digital Corp.* ............................... 1,300 80,113
WM-Data AB Cl. B* .................................... 200 14,532
-----------
352,262
-----------
Electronic Components 0.8%
ABB AG* .............................................. 30 36,327
Hitachi Ltd.* ........................................ 4,000 36,239
Intel Corp.* ......................................... 600 91,875
Lernout & Hauspie Speech Products NV ADR* ............ 1,200 26,100
Rohm Co.* ............................................ 1,000 77,520
-----------
268,061
-----------
Electronic Equipment 1.0%
L.M. Ericsson Telephone Co. ADR Cl. B* ............... 2,790 93,814
L.M. Ericsson Telephone Co. Cl. B* ................... 3,568 112,797
Lucent Technologies Inc.* ............................ 1,200 70,950
Motorola Inc. ........................................ 1,200 68,700
-----------
346,261
-----------
Office Equipment 0.3%
Hewlett-Packard Co. .................................. 700 36,750
International Business Machines Corp. ................ 500 80,375
-----------
117,125
-----------
Total Science & Technology ..................................... 1,183,616
-----------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Utility 0.7%
Electric 0.6%
Edison International ................................. 4,600 $ 96,600
OGE Energy Corp. ..................................... 2,700 112,050
-----------
208,650
-----------
Natural Gas 0.1%
TransTexas Gas Corp.* ................................ 1,800 25,200
-----------
Total Utility ................................................... 233,850
-----------
Total Equity Securities (Cost $7,171,487) ....................... 8,453,814
-----------
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS 4.0%
American Express Credit Corp.,
5.50% ................................. $1,366,000 5/02/1997 1,366,000
-----------
Total Short-Term Obligations (Cost $1,366,000) ................. 1,366,000
-----------
Total Investments (Cost $32,807,445)--99.5% ..................... 34,016,431
Cash and Other Assets, Less Liabilities--0.5% ................... 171,121
-----------
Net Assets--100.0% .............................................. $34,187,552
===========
Federal Income Tax Information:
At April 30, 1997, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $32,867,910 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ...................................................... $ 1,714,128
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value .................................................... (565,607)
-----------
$ 1,148,521
===========
- --------------------------------------------------------------------------------
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
* Nonincome-producing securities.
+ Security restricted in accordance with Rule 144A under the Securities Act of
1933, which allows for the resale of such securities among certain
qualified institutional buyers. The total cost and market value of Rule
144A securities owned at April 30, 1997 were $1,285,033 and $1,258,612
(3.68% of net assets), respectively.
TBA Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the
principal value has not been finalized and may vary by no more than 1%.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Forward currency exchange contracts outstanding at April 30, 1997, are as
follows:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Total Value Price (Depreciation) Date
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sell Australian dollars, Buy U.S. dollars 224,000 AUD .77900 AUD $ (106) 7/24/97
Sell Australian dollars, Buy U.S. dollars 66,000 AUD .69499 AUD (5,594) 5/14/97
Sell Australian dollars, Buy U.S. dollars 135,000 AUD .77920 AUD (37) 7/24/97
Sell British pounds, Buy U.S. dollars 135,000 GBP 1.62070 GBP 107 5/30/97
Sell Canadian dollars, Buy U.S. dollars 177,000 CAD .74247 CAD 4,588 5/14/97
Buy Canadian dollars, Sell U.S. dollars 177,000 CAD .74228 CAD (4,554) 5/14/97
Buy Canadian dollars, Sell U.S. dollars 15,000 CAD .74267 CAD (392) 5/14/97
Sell Canadian dollars, Buy U.S. dollars 15,000 CAD .74223 CAD 385 5/14/97
Buy Danish krone, Sell U.S. dollars 715,000 DKK .15553 DKK (2,626) 5/14/97
Sell Danish krone, Buy U.S. dollars 715,500 DKK .15680 DKK 3,534 5/14/97
Sell European currency units, Buy U.S. dollars 195,000 XEU 1.16180 XEU 6,546 5/14/97
--------
$ 1,851
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1997 (Unaudited)
Assets
Investments, at value (Cost $32,807,445) (Note 1) ............. $34,016,431
Cash .......................................................... 61,383
Interest and dividends receivable ............................. 373,223
Receivable for securities sold ................................ 342,449
Receivable from Distributor (Note 3) .......................... 31,742
Receivable for open forward contracts ......................... 15,160
Receivable for fund shares sold ............................... 1,865
Deferred organization costs and other assets (Note 1) ......... 46,693
-----------
34,888,946
Liabilities
Payable for securities purchased .............................. 554,186
Accrued transfer agent and shareholder services
(Note 2) .................................................... 32,566
Accrued management fee (Note 2) ............................... 16,557
Payable for fund shares redeemed .............................. 16,187
Payable for open forward contracts ............................ 13,309
Accrued trustees' fees (Note 2) ............................... 4,192
Other accrued expenses ........................................ 64,397
-----------
701,394
-----------
Net Assets .................................................... $34,187,552
===========
Net Assets consist of:
Undistributed net investment income .......................... $ 223,114
Unrealized appreciation of investments ....................... 1,208,986
Unrealized appreciation of forward contracts and
foreign currency ........................................... 363
Accumulated net realized gain ................................ 1,198,638
Shares of beneficial interest ................................ 31,556,451
-----------
$34,187,552
===========
Net Asset Value, offering price and redemption price
per share of Class C shares ($34,187,552 [divided by]
3,253,755 shares of beneficial interest) .................... $10.51
======
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the six months ended April 30, 1997 (Unaudited)
Investment Income
Interest, net of foreign taxes of $1,750 ...................... $ 842,092
Dividends, net of foreign taxes of $1,241 ..................... 70,832
-----------
912,924
Expenses
Management fee (Note 2) ....................................... 101,664
Custodian fee ................................................. 56,597
Transfer agent and shareholder services (Note 2) .............. 37,877
Audit fee ..................................................... 12,229
Reports to shareholders ....................................... 11,429
Registration fees ............................................. 7,283
Trustees' fees (Note 2) ....................................... 6,949
Legal fees .................................................... 4,934
Amortization of organization costs (Note 1) ................... 3,710
Service fee-Class A (Note 5) .................................. 212
Miscellaneous ................................................. 3,736
-----------
246,620
Expenses borne by the Distributor (Note 3) .................... (93,569)
-----------
153,051
-----------
Net investment income ......................................... 759,873
-----------
Realized and Unrealized Gain (Loss) on
Investments, Foreign Currency and Forward
Contracts
Net realized gain on investments (Notes 1 and 4) .............. 1,201,246
Net realized gain on forward contracts and foreign
currency (Note 1) ........................................... 55,358
-----------
Total net realized gain ...................................... 1,256,604
-----------
Net unrealized depreciation of investments .................... (691,889)
Net unrealized appreciation of forward contracts and
foreign currency ............................................ 3,771
-----------
Total net unrealized depreciation ............................ (688,118)
-----------
Net gain on investments, foreign currency and
forward contracts ........................................... 568,486
-----------
Net increase in net assets resulting from operations .......... $ 1,328,359
===========
The accompanying notes are an integral part of the financial statements
7
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- ------------------------------------- -------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Six months ended Year ended
April 30, 1997 October 31,
(Unaudited) 1996
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ...................... $ 759,873 $ 1,497,872
Net realized gain on investments,
foreign currency and forward
contracts ................................ 1,256,604 1,710,843
Net unrealized appreciation
(depreciation) of investments, foreign
currency and forward contracts ........... (688,118) 90,149
------------ ------------
Net increase resulting from operations ..... 1,328,359 3,298,864
------------ ------------
Dividends from net investment income:
Class A ................................... (9,655) (454,334)
Class C ................................... (938,066) (970,526)
------------ ------------
(947,721) (1,424,860)
------------ ------------
Distributions from net realized gains:
Class A ................................... (27,562) (651,838)
Class C ................................... (1,688,429) (42,210)
------------ ------------
(1,715,991) (694,048)
------------ ------------
Net increase from fund share
transactions (Note 6) .................... 1,735,455 3,537,654
------------ ------------
Total increase in net assets ............... 400,102 4,717,610
Net Assets
Beginning of period ........................ 33,787,450 29,069,840
------------ ------------
End of period (including undistributed
net investment income of $223,114
and $410,962, respectively) .............. $ 34,187,552 $ 33,787,450
============ ============
*Net realized gain for Federal income
tax purposes (Note 1) .................... $ 1,220,174 $ 1,717,406
============ ============
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1997
Note 1
State Street Research Strategic Portfolios: Conservative (the "Fund") is a
series of State Street Research Financial Trust (the "Trust"), which was
organized as a Massachusetts business trust in November, 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 May, 1994. The Trust
consists presently of four separate funds: State Street Research Strategic
Portfolios: Conservative, State Street Research Government Income Fund, State
Street Research Strategic Portfolios: Moderate and State Street Research
Strategic Portfolios: Aggressive.
The investment objective of the Fund is to provide, primarily, a high level of
current income and, secondarily, long term growth of capital, consistent with
the preservation of capital and reasonable investment risk.
The Fund is authorized to issue four classes of shares. Only Class C shares are
presently available for purchase. Class A, Class B and Class D shares are not
being offered at this time. Effective March 27, 1997, the Fund discontinued
offering Class A shares. Class A shares were 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 will be subject to a contingent deferred sales charge on certain
redemptions made within five years of purchase and pay annual distribution and
service fees of 1.00%. Class B shares automatically convert into Class A shares
(which pay lower ongoing expenses) at the end of eight years after the issuance
of the Class B shares. Class C shares are only offered to certain employee
benefit plans and large institutions. No sales charge is imposed at the time of
purchase or redemption of Class C shares. Class C shares do not pay any
distribution or service fees. Class D shares are subject to a contingent
deferred sales charge of 1.00% on any shares redeemed within one year of their
purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class bears
expenses, and has exclusive voting rights with respect to provisions of the
Plan of Distribution, related specifically to that class. The Trustees declare
separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Values for listed equity 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. If not quoted on the NASDAQ system, such
securities are valued at prices obtained from brokers. In the absence of
recorded sales, valuations are at the mean of the closing bid and asked
quotations. Fixed income securities are valued by a pricing service, which
utilizes market transactions, quotations from dealers, and various
relationships among securities in determining value. Short-term securities
maturing within sixty days are valued at amortized cost. Securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate.
8
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered. 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.
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of the
Fund. 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. The Fund is charged for expenses directly attributable
to it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for foreign currency transactions.
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.
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. 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.
H. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser earns
monthly fees at an annual rate of 0.60% 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 six months ended April 30, 1997, the fees pursuant to such agreement
amounted to $101,664.
State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the six months ended
April 30, 1997, the amount of such expenses was $27,198.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$6,949 during the six months ended April 30, 1997.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund.
During the six months ended April 30, 1997, the amount of such expenses assumed
by the Distributor and its affiliates was $93,569.
Note 4
For the six months ended April 30, 1997, purchases and sales of securities,
exclusive of short-term obligations, aggregated $15,796,325 and $13,731,293
(including $9,121,863 and $10,486,439 of U.S. Government securities),
respectively.
9
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 will
pay annual service fees to the Distributor at a rate of 0.25% of average daily
net assets for Class A, Class B and Class D shares. In addition, the Fund will
pay annual distribution fees of 0.75% of average daily net assets for Class B
and Class D shares. The Distributor uses such payments for personal service
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 period November 1, 1996 to March 27, 1997, fees
pursuant to such plan amounted to $212 for Class A shares.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At April 30, 1997, Metropolitan
owned 2,223,045 Class C shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Six months ended
April 30, 1997 Year ended
(Unaudited October 31, 1996
----------------------------- ----------------------------------
Class A Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issued upon reinvestment of distribution
from net realized gains ............................... -- $ -- 62,677 $ 651,777
Shares repurchased ..................................... (50,023) (528,933) (2,630,477) (28,093,497)
--------- ----------- ---------- -------------
Net decrease ........................................... (50,023) $ (528,933) (2,567,800) $(27,441,720
========= =========== ========== =============
Class C Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold ............................................ 204,673 $ 2,185,574 3,511,159 $ 37,399,443
Issued upon reinvestment of:
Dividends from net investment income .................. 25,830 268,672 21,689 229,456
Distributions from net realized gains ................. 161,263 1,688,429 4,058 42,210
Shares repurchased ..................................... (177,833) (1,878,287) (632,775) (6,691,735)
--------- ----------- ---------- ------------
Net increase ........................................... 213,933 $ 2,264,388 2,904,131 $ 30,979,374
========= =========== ========== ============
</TABLE>
10
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------
November 1, 1996 Year ended October 31
to March 27, 1997 ------------------------------------------------
(Unaudited)** 1996** 1995** 1994***
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ... $ 11.03 $ 10.56 $ 9.56 $ 9.55
------- ------- ------- -------
Net investment income* ................. 0.21 0.42 0.47 0.20
Net realized and unrealized gain (loss) on
investments, foreign currency and
forward contracts ..................... 0.08 0.66 1.00 (0.09)
------- ------- ------- -------
Total from investment operations ..... 0.29 1.08 1.47 0.11
------- ------- ------- -------
Dividends from net investment income ... (0.19) (0.36) (0.47) (0.10)
Distributions from net realized gains .. (0.55) (0.25) -- --
------- ------- ------- -------
Total distributions .................. (0.74) (0.61) (0.47) (0.10)
------- ------- ------- -------
Net asset value, end of period ......... $ 10.58 $ 11.03 $ 10.56 $ 9.56
======= ======= ======= =======
Total return ........................... 2.67%++ 10.55%+ 15.84%+ 1.15%++
Net assets at end of period (000s) ..... -- $ 552 $27,637 $25,014
Ratio of operating expenses to average
net assets* ........................... 1.15%+++ 1.15% 1.15% 1.15%+++
Ratio of net investment income to average
net assets* ........................... 4.18%+++ 4.35% 4.74% 4.48%+++
Portfolio turnover rate ................ 42.51% 126.41% 132.50% 70.35%
Average commission rate@ ............... $0.0339 $0.0436 -- --
*Reflects voluntary assumption of fees or
expenses per share in each period
(Note 3) .............................. $ 0.03 $ 0.07 $ 0.05 $ 0.03
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------------
Six months ended Year ended October 31
April 30, 1997 ------------------------------------------------
(Unaudited)** 1996** 1995** 1994***
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ... $ 10.93 $ 10.56 $ 9.56 $ 9.55
------- ------- ------- -------
Net investment income* ................. 0.24 0.50 0.52 0.21
Net realized and unrealized gain (loss) on
investments, foreign currency and
forward contracts ..................... 0.19 0.60 0.97 (0.09)
------- ------- ------- -------
Total from investment operations ..... 0.43 1.10 1.49 0.12
------- ------- ------- -------
Dividends from net investment income ... (0.30) (0.48) (0.49) (0.11)
Distributions from net realized gains .. (0.55) (0.25) -- --
------- ------- ------- -------
Total distributions .................. (0.85) (0.73) (0.49) (0.11)
------- ------- ------- -------
Net asset value, end of period ......... $ 10.51 $ 10.93 $ 10.56 $ 9.56
======= ======= ======= =======
Total return ........................... 4.06%++ 10.82%+ 16.11%+ 1.25%++
Net assets at end of period (000s) ..... $34,188 $33,236 $ 1,433 $ 100
Ratio of operating expenses to average
net assets* ........................... 0.90%+++ 0.90% 0.90% 0.90%+++
Ratio of net investment income to average
net assets* ........................... 4.49%+++ 4.50% 4.91% 4.73%+++
Portfolio turnover rate ................ 42.51% 126.41% 132.50% 70.35%
Average commission rate@ ............... $0.0339 $0.0436 -- --
*Reflects voluntary assumption of fees or
expenses per share in each period
(Note 3) .............................. $ 0.03 $ 0.06 $ 0.05 $ 0.03
</TABLE>
- --------------------------------------------------------------------------------
+++ Annualized
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
* Reflects voluntary assumption of fees or expenses per share in each period
(Note 3).
** Per-share figures have been calculated using the average shares method.
*** May 16, 1994 (commencement of operations) to October 31, 1994.
@ For fiscal years beginning on or after November 1, 1995, the Fund is
required to disclose its average commission rate per share paid for
security trades.
11
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: CONSERVATIVE
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF
STATE STREET RESEARCH FINANCIAL TRUST
- --------------------------------------------------------------------------------
Fund Information
State Street Research
Strategic Portfolios: Conservative
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
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
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
John H. Kallis
Vice President
Thomas A. Shively
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
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Associate, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of
the Board and Chief Executive
Officer, Raytheon 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
Jeptha H. Wade
Retired; formerly Of Counsel, Choate, Hall & Stewart
12
<PAGE>
[back cover]
State Street Research Strategic Portfolios: Conservative [indicia]
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Randolph, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[State Street Research Logo]
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective
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: 3987-970623(0798)SSR-LD SP-125E-697IBS
<PAGE>
[front cover]
STATE STREET RESEARCH
STRATEGIC PORTFOLIOS: AGGRESSIVE
SEMIANNUAL REPORT
April 30, 1997
- -----------------------------------
WHAT'S INSIDE
- -----------------------------------
Investment Update
The Fund, economy
and markets
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[DALBAR box logo]
DALBAR KEY HONORS
COMMITMENT TO:
INVESTORS
1996
For Excellence
in
Shareholder Service
STATE STREET RESEARCH FUNDS
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
INVESTMENT UPDATE
- --------------------------------------------------------------------------------
INVESTMENT ENVIRONMENT
The Economy
o Economic growth accelerated somewhat in the fourth quarter of 1996 and
continued to advance into the first few months of 1997, exceeding
expectations.
o Consumer spending and industrial output steadily advanced during the six
months ended April 30, 1997. Wages continued to rise during the period, but
consumer prices and inflation remained low.
o The Federal Reserve raised interest rates by one-quarter percent in March.
The Markets
o The Fed's tightening had a predictable effect on both the stock and bond
markets. The bond market anticipated and then reacted to the Fed's action by
experiencing negative returns for the first quarter of 1997 for most sectors.
The stock market, as measured by the Dow Jones Industrial Average,
experienced a sizable correction then resumed its ascent, setting a new high.
o The S&P 500 was up +14.71% for the six-month period. Small stocks severely
lagged the performance of larger stocks, as shown by the Russell 2000 Index,
which gained only +1.61%. [1]
o Bond performance lost momentum late in the fourth quarter of 1996 and into
the first part of 1997, but rallied in April. The Lehman Brothers Aggregate
Bond Index gained +1.70% during the period. [1]
THE FUND
Over the past six months
o For the six months ended April 30, 1997, Class C shares of Strategic
Portfolios: Aggressive returned +4.62%. The Fund underperformed the average
six-month return for the 214 fund classes in Lipper Analytical Services'
Flexible Portfolio Funds category, which was +5.95%.
o The large-cap, value, and international stock components offered strong
returns during the period, while small-cap stocks had disappointing
performance.
o A soft bond market caused the portfolio's bonds to underperform most of its
stocks.
Current strategy
o On April 30, 1997, the Fund held 72% of its assets in stocks, 20% in bonds,
and 8% in cash.
o We are de-emphasizing small-cap growth stocks while emphasizing international
stocks, believing foreign markets currently offer more attractive valuations
relative to the U.S. market.
o We continue to maintain a lighter position in large-cap growth stocks. We see
them as currently somewhat overvalued.
April 30, 1997
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended April 30, 1997, except where
otherwise noted)
- --------------------------------------------------------------------------------
SEC Average Annual Compound Rates of Return
for periods ended 3/31/97 [2,3]
================================================================================
Life of Fund
(since 5/16/94) 1 Year
- --------------------------------------------------------------------------------
Class C +13.25%/+12.99% +11.13%/+10.85%
================================================================================
Average Annual Compound Rates of Return
for periods ended 4/30/97 [2,3]
================================================================================
Life of Fund
(since 5/16/94) 1 Year
- --------------------------------------------------------------------------------
Class C +13.57%/+13.31% +10.09%/+9.81%
================================================================================
Performance results for the Fund are increased by the voluntary reduction of
fund fees and expenses. The first figure reflects expense reduction; the second
shows what results would have been without subsidization.
Asset Allocation
(by percentage of net assets)
[PIE CHART]
Stocks 72%
Bonds 20%
Cash 8%
[1] The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
traded common stocks and is a commonly used measure of U.S. stock market
performance. The Russell 2000 Index is a commonly used measure of
small-company stock performance. The Lehman Brothers Aggregate Bond Index is
a commonly used measure of bond market performance. The indices are
unmanaged and do not take transaction charges into account. Direct
investment in the indices is not possible; results are for illustrative
purposes only.
[2] All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends.
[3] "C" shares, offered without a sales charge, are available only to certain
employee benefit plans and large institutions.
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.
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
EQUITY SECURITIES 71.9%
Basic Industries 12.7%
Chemical 3.1%
Agrium Inc.* ......................................... 29,300 $ 377,238
Cabot Corp. .......................................... 18,000 396,000
Cambrex Corp. ........................................ 5,550 188,006
Ciba Specialty Chemicals AG .......................... 300 25,846
Monsanto Co. ......................................... 7,300 312,075
Nippon Chemical Industrial Co. Ltd.* ................. 3,000 16,780
OM Group Inc.* ....................................... 3,000 83,625
Thiokol Corp. ........................................ 8,900 580,725
-----------
1,980,295
-----------
Diversified 1.7%
Hoya Corp.* .......................................... 20,000 917,005
Tenma Corp.* ......................................... 12,000 189,073
-----------
1,106,078
-----------
Electrical Equipment 1.4%
Asia Pacific Wire & Cable Corp.* ..................... 14,700 174,563
General Electric Co. ................................. 3,500 388,062
Matsushita Electric Works* ........................... 28,000 284,555
Watsco Inc.* ......................................... 2,600 64,675
-----------
911,855
-----------
Forest Product 0.6%
Aracruz Celulose SA ADR .............................. 10,000 188,750
Stone Container Corp. ................................ 20,300 205,538
-----------
394,288
-----------
Machinery 2.1%
Amada Co.* ........................................... 72,000 538,291
NSK Ltd.* ............................................ 5,000 30,173
Sundstrand Corp. ..................................... 9,700 472,875
US Filter Corp.* ..................................... 9,400 285,525
-----------
1,326,864
-----------
Metal & Mining 3.1%
Alumax Inc.* ......................................... 12,000 438,000
Aluminum Company of America .......................... 5,300 370,337
Kennametal Inc. ...................................... 9,900 356,400
RTZ Corp.* ........................................... 17,653 280,388
SGL Carbon AG* ....................................... 3,000 418,351
Wyman-Gordon Co.* .................................... 6,400 134,400
-----------
1,997,876
-----------
Railroad 0.7%
Canadian National Railway Co. ........................ 12,000 462,000
-----------
Total Basic Industries .......................................... 8,179,256
-----------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Consumer Cyclical 9.4%
Airline 0.3%
America West Holding Corp. Cl. B* .................... 11,000 $ 169,125
UNC Inc.* ............................................ 4,000 55,500
-----------
224,625
-----------
Automotive 1.8%
Exide Corp. .......................................... 24,800 399,900
Lear Corp.* .......................................... 8,700 311,025
NGK Spark Plug Co.* .................................. 46,000 460,236
-----------
1,171,161
-----------
Building 1.0%
Lafarge Corp. ........................................ 17,500 424,375
Shenzhen Expressway Co. Ltd.* ........................ 570,000 187,633
-----------
612,008
-----------
Hotel & Restaurant 1.7%
Fine Host Corp.* ..................................... 7,100 179,275
Harrah's Entertainment Inc.* ......................... 30,200 483,200
Mirage Resorts Inc.* ................................. 18,400 370,300
Motels of America Inc.*+ ............................. 175 2,100
Primadonna Resorts Inc.* ............................. 3,500 65,625
-----------
1,100,500
-----------
Recreation 0.8%
Amer Group Ltd. Cl. A* ............................... 17,700 302,919
American Radio Systems Corp. Cl. A* .................. 3,000 87,750
Evergreen Media Corp. Cl. A .......................... 2,800 90,650
-----------
481,319
-----------
Retail Trade 3.5%
Carson Pirie Scott & Co.* ............................ 3,400 101,150
Dominick's Supermarkets Inc.* ........................ 6,500 133,250
Filene's Basement Corp.* ............................. 8,300 48,763
Genesco Inc.* ........................................ 4,700 54,637
Global DirectMail Corp.* ............................. 8,800 155,100
Gucci Group NV* ...................................... 3,800 263,625
Kroger Co.* .......................................... 24,600 676,500
Rite-Aid Corp. ....................................... 6,100 280,600
Sears, Roebuck & Co. ................................. 7,800 374,400
Stride Rite Corp. .................................... 4,500 61,875
Sunglass Hut International Inc.* ..................... 15,000 108,750
-----------
2,258,650
-----------
Textile & Apparel 0.3%
Kenneth Cole Productions Inc. Cl. A* ................. 7,200 119,700
Samsonite Corp.* ..................................... 2,100 87,150
-----------
206,850
-----------
Total Consumer Cyclical ......................................... 6,055,113
-----------
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Consumer Staple 18.6%
Business Service 2.7%
ADT Ltd.* ............................................ 24,800 $ 678,900
Allwaste Inc.* ....................................... 7,700 68,337
Greenwich Air Services Inc.* ......................... 9,800 269,500
HBO & Co. ............................................ 3,000 160,500
Philip Environmental Inc.* ........................... 14,000 220,500
Republic Industries Inc.* ............................ 10,500 260,531
Shared Medical Systems Corp. ......................... 1,500 63,188
-----------
1,721,456
-----------
Drug 3.3%
Amgen Inc.* .......................................... 6,400 376,800
Axogen Ltd. ADR* ..................................... 12,000 306,000
Biora AB* ............................................ 21,400 201,869
BioVail Corp.* ....................................... 10,400 260,000
Novartis AG* ......................................... 300 395,224
Pfizer Inc. .......................................... 6,000 576,000
-----------
2,115,893
-----------
Food & Beverage 2.9%
Anheuser-Busch Companies, Inc. ....................... 9,400 403,025
Coca-Cola Co. ........................................ 9,000 572,625
Coca-Cola Enterprises Inc. ........................... 7,000 422,625
Whitman Corp. ........................................ 19,800 457,875
-----------
1,856,150
-----------
Hospital Supply 6.1%
Baxter International Inc. ............................ 18,300 876,113
Genesis Health Ventures Inc.* ........................ 2,600 77,675
Healthdyne Technologies Inc.* ........................ 15,900 234,525
Johnson & Johnson .................................... 10,200 624,750
Karrington Health Inc.* .............................. 9,600 105,600
Medtronic Inc. ....................................... 5,900 408,575
National Surgery Centers Inc.* ....................... 1,000 30,000
PacifiCare Health Systems, Inc. Cl. A* ............... 4,300 330,025
Rural/Metro Corp.* ................................... 7,000 201,250
Tenet Healthcare Corp. ............................... 16,300 423,800
Terumo Corp. ......................................... 18,000 273,683
Total Renal Care Holdings Inc.* ...................... 7,400 237,725
Xomed Surgical Products Inc.* ........................ 6,100 95,313
-----------
3,919,034
-----------
Personal Care 0.8%
Avon Products Inc. ................................... 6,000 369,750
Wesley Jessen Visioncare Inc.* ....................... 11,400 156,750
-----------
526,500
-----------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Printing & Publishing 1.7%
A.H. Belo Corp. Cl. A ................................ 3,359 $ 120,924
Hollinger International, Inc. Cl. A* ................. 51,000 510,000
Valassis Communications Inc. ......................... 18,800 460,600
-----------
1,091,524
-----------
Tobacco 1.1%
Imperial Tobacco Group PLC* .......................... 62,100 405,613
Philip Morris Companies, Inc. ........................ 7,500 295,312
-----------
700,925
-----------
Total Consumer Staple ........................................... 11,931,482
-----------
Energy 7.2%
Oil 6.1%
Abacan Resource Corp.* ............................... 27,900 179,606
Arakis Energy Corp.* ................................. 29,600 111,000
Burlington Resources Inc. ............................ 9,100 385,612
ENI SPA ADR .......................................... 5,300 270,300
KCS Energy Inc. ...................................... 7,300 237,250
Nuevo Energy Co.* .................................... 3,500 120,313
Oryx Energy Co. ...................................... 27,900 558,000
Royal Dutch Petroleum Co. ............................ 1,000 180,250
Seagull Energy Corp.* ................................ 31,624 541,561
Tosco Corp. .......................................... 17,600 521,400
Total SA Cl. B* ...................................... 4,610 382,291
Woodside Petroleum Ltd. ADR* ......................... 51,300 408,064
-----------
3,895,647
-----------
Oil Service 1.1%
Dreco Energy Services Ltd. Cl. A* .................... 4,100 130,175
Ensco International Inc.* ............................ 7,700 365,750
Schlumberger Ltd. .................................... 1,800 199,350
-----------
695,275
-----------
Total Energy .................................................... 4,590,922
-----------
Finance 9.6%
Bank 4.1%
BankAmerica Corp. .................................... 4,200 490,875
Citicorp ............................................. 4,800 540,600
Commercial Federal Corp. ............................. 1,200 40,200
Fleet Financial Group Inc. ........................... 9,900 603,900
Glendale Federal Bank FSB ............................ 5,300 131,837
Mellon Bank Corp. .................................... 7,500 623,437
NationsBank Corp. .................................... 1,500 90,563
Sovereign Bancorp Inc.* .............................. 7,720 94,570
-----------
2,615,982
-----------
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Financial Service 1.6%
Beacon Properties Corp. .............................. 2,500 $ 77,188
CMAC Investment Corp. ................................ 2,600 98,800
CRIIMI MAE Inc.* ..................................... 3,200 50,000
Essex Property Trust, Inc.* .......................... 2,800 81,900
Federal Home Loan Mortgage Corp. ..................... 14,500 462,187
First Industrial Realty Trust Inc. ................... 2,800 82,600
Homeside Inc.* ....................................... 8,800 140,800
-----------
993,475
-----------
Insurance 3.9%
Ace Ltd. ............................................. 9,700 582,000
AMBAC Inc. ........................................... 4,600 297,850
Capital Re Corp.* .................................... 1,300 51,513
HCC Insurance Holdings Inc.* ......................... 4,000 100,500
Mid Ocean Ltd. ....................................... 9,500 435,812
Mutual Risk Management Ltd. .......................... 3,066 112,676
Penncorp Financial Group Inc.* ....................... 4,700 161,562
Saint Paul Companies, Inc. ........................... 5,800 388,600
Travelers Property Casualty Corp. Cl. A .............. 11,500 388,125
-----------
2,518,638
-----------
Total Finance ................................................... 6,128,095
-----------
Science & Technology 12.9%
Aerospace 0.6%
Boeing Co. ........................................... 3,077 303,469
First Aviation Services Inc.* ........................ 11,800 100,300
-----------
403,769
-----------
Computer Software & Service 4.3%
Boston Technology Inc.* .............................. 4,900 98,000
Check Point Software Technologies Ltd.* .............. 5,000 118,125
Cisco Systems Inc.* .................................. 7,000 362,250
Claremont Technology Group Inc. ...................... 3,800 51,300
Complete Business Solutions Inc.* .................... 3,700 37,925
Etec Systems Inc.* ................................... 1,600 46,600
Manugistics Group Inc.* .............................. 1,900 102,125
Mastech Corp.* ....................................... 5,500 63,250
Microsoft Corp.* ..................................... 4,900 595,350
National Processing, Inc.* ........................... 13,700 95,900
Sema Group PLC* ...................................... 9,300 181,064
TriTeal Corp.* ....................................... 5,900 45,725
TT Tieto Oy Cl. B* ................................... 1,000 75,956
Veritas Software Co.* ................................ 3,700 124,412
Wang Laboratories Inc.* .............................. 10,800 187,650
Western Digital Corp.* ............................... 5,000 308,125
Wind River Systems Inc.* ............................. 4,900 112,700
WM-Data AB Cl. B* .................................... 1,000 72,660
Xylan Corp.* ......................................... 4,200 62,475
-----------
2,741,592
-----------
- --------------------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------------------
Electronic Components 3.6%
ABB AG* .............................................. 165 $ 199,800
Hitachi Ltd.* ........................................ 32,000 289,912
Intel Corp.* ......................................... 2,500 382,813
Lernout & Hauspie Speech Products
NV ADR* ........................................... 9,300 202,275
Microtouch Systems Inc.* ............................. 5,600 119,700
Remec Inc.* .......................................... 6,900 158,700
Rohm Co. ............................................. 10,000 775,200
SBS Technologies Inc.* ............................... 6,000 90,000
Zebra Technologies Corp. Cl. A* ...................... 3,700 85,100
-----------
2,303,500
-----------
Electronic Equipment 3.6%
Berg Electronics Corp.* .............................. 3,800 114,000
Chicago Miniature Lamp, Inc.* ........................ 7,100 165,963
Integrated Process Equipment Corp. ................... 4,000 54,500
L.M. Ericsson Telephone Co. ADR Cl. B* ............... 13,130 441,496
L.M. Ericsson Telephone Co. Cl. B* ................... 21,920 692,972
Lucent Technologies Inc.* ............................ 5,200 307,450
Motorola Inc. ........................................ 5,300 303,425
Network Equipment Technologies, Inc.* ................ 7,700 109,725
Spectrian Corp. ...................................... 5,100 67,575
Telco Systems Inc.* .................................. 5,600 72,800
-----------
2,329,906
-----------
Office Equipment 0.8%
Hewlett-Packard Co. .................................. 3,200 168,000
International Business Machines Corp. ................ 2,100 337,575
-----------
505,575
-----------
Total Science & Technology ..................................... 8,284,342
-----------
Utility 1.5%
Electric 1.1%
Edison International ................................. 15,500 325,500
OGE Energy Corp. ..................................... 9,000 373,500
-----------
699,000
-----------
Natural Gas 0.2%
TransTexas Gas Corp.* ................................ 7,900 110,600
-----------
Telephone 0.2%
Allen Telecom Inc. ................................... 8,600 148,350
Clearnet Communications Inc. Wts.* ................... 990 3,465
-----------
151,815
-----------
Total Utility .................................................. 961,415
-----------
Total Equity Securities (Cost $40,311,137) ..................... 46,130,625
-----------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
FIXED INCOME SECURITIES 19.7%
U.S. Treasury 7.0%
U.S. Treasury Bond, 12.00% .............. $ 225,000 8/15/2013 $ 313,524
U.S. Treasury Bond, 9.875% .............. 100,000 11/15/2015 129,406
U.S. Treasury Bond, 8.125% .............. 550,000 8/15/2021 617,545
U.S. Treasury Bond, 6.25% ............... 175,000 8/15/2023 158,512
U.S. Treasury Note, 6.75% ............... 275,000 5/31/1999 277,362
U.S. Treasury Note, 7.125% .............. 50,000 9/30/1999 50,852
U.S. Treasury Note, 6.625% .............. 125,000 7/31/2001 125,351
U.S. Treasury Note, 6.25% ............... 1,350,000 2/28/2002 1,331,856
U.S. Treasury Note, 7.875% .............. 1,025,000 11/15/2004 1,095,151
U.S. Treasury Note, 6.50% ............... 300,000 8/15/2005 295,548
U.S. Treasury Note Inflation
Indexed, 3.375% ....................... 75,543 1/15/2007 74,339
-----------
4,469,446
-----------
U.S. Agency Mortgage 2.0%
Federal Home Loan Mortgage
Corp. Gold, 7.00% ..................... 174,211 12/01/2024 170,291
Federal Home Loan Mortgage
Corp. Gold, 7.50% ..................... 145,453 1/01/2025 145,179
Federal Home Loan Mortgage
Corp. Gold, 7.50% ..................... 31,114 11/01/2025 30,998
Federal Home Loan Mortgage
Corp. Series 29-H PAC, 6.50% .......... 50,000 3/25/2023 47,719
Government National Mortgage
Association, 6.50% .................... 43,192 2/15/2009 42,253
Government National Mortgage
Association, 6.50% .................... 104,564 7/15/2009 102,293
Government National Mortgage
Association TBA, 7.50% ................ 100,000 5/15/2012 101,094
Government National Mortgage
Association, 8.00% .................... 216,487 12/15/2022 220,881
Government National Mortgage
Association, 7.00% .................... 24,658 1/15/2025 24,010
Government National Mortgage
Association, 8.00% .................... 160,981 5/15/2025 163,372
Government National Mortgage
Association, 7.50% .................... 117,398 11/15/2025 116,518
Government National Mortgage
Association, 7.50% .................... 73,780 4/15/2026 73,134
Government National Mortgage
Association, 8.00% .................... 48,625 9/15/2026 49,278
-----------
1,287,020
-----------
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
Canadian-Yankee 1.1%
Government National Mortgage
Association, 6.50% ..................... $ 122,612 11/15/2010 $ 119,470
Government National Mortgage
Association, 7.00% ..................... 220,483 12/15/2025 213,523
Usinor Sacilor Note ADR, 7.25% .......... 350,000 8/01/2006 342,804
-----------
675,797
-----------
Trust Certificates 0.2%
Cooperative Utility Trust
Certificates, 10.70% ................... 75,000 9/15/2017 80,169
Deseret Generation Cooperative
Trust Certificates, 10.11% ............. 75,000 12/15/2017 80,264
-----------
160,433
-----------
Foreign Government 1.7%
Australian Dollar
Government of Australia, 10.00% ........ 725,000 2/15/2006 643,567
Canadian Dollar
Government of Canada, 0.00% ............ 200,000 10/16/1997 141,234
European Currency Unit
Government of France, 8.00% ............ 225,000 4/25/2003 284,294
-----------
1,069,095
-----------
Finance/Mortgage 3.3%
Bank of New York Institutional
Capital Trust, 7.78%+ ................... $ 350,000 12/01/2026 332,073
BankAmerica Institutional
Capital Series B, 7.70% + .............. 325,000 12/31/2026 307,164
Capital One Bank Sr. Note, 7.08% ........ 325,000 10/30/2001 323,310
CWMBS Inc. Series 94-3 A-7, 6.75% ....... 325,000 3/25/2024 308,951
DeBartolo Capital Partnership
A-2, 7.48%+ ............................ 325,000 5/01/2004 331,500
Discover Credit Card Trust
Series 1993 A, 6.25% ................... 75,000 8/16/2000 74,929
Ford Credit Auto Loan Master
Trust Series 95-1, 6.50% ............... 125,000 8/15/2002 124,179
GE Global Insurance Holding
Corp. Note, 7.00% ...................... 100,000 2/15/2026 92,669
Household Affinity Credit Card
Master Trust Series 1994-1A,
5.572% ................................. 50,000 3/15/1997 50,063
Sears Credit Trust Series
1995-2A, 8.10% ......................... 200,000 6/15/2004 205,812
-----------
2,150,650
-----------
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
Corporate 4.4%
Chevron Corp. Profit Sharing
Note, 8.11% ............................ $ 75,000 12/01/2004 $ 78,078
Clearnet Communications Inc.
Sr. Disc. Note, 0.00% to
12/14/2000, 14.75% from
12/15/2000 to maturity ................. 150,000 12/15/2005 91,500
Coleman Worlwide Corp. Sr.
Sec. Liquid Yield Option
Note, 0.00% ............................ 1,000,000 5/27/2013 307,500
Edison Mission Energy Funding
Corp. Series A Note, 6.77%+ ............ 331,652 9/15/2003 328,193
Empire Gas Corp. Sr. Sec. Note,
7.00% to 7/14/99, 12.875%
from 7/15/99 to maturity ............... 250,000 7/15/2004 217,500
Envirosource Inc. Sr. Note, 9.75% ....... 500,000 6/15/2003 487,500
La Petite Holdings Corp. Sr.
Sec. Notes, 9.625% ..................... 250,000 8/01/2001 242,500
Norcal Waste Systems Inc. Sr.
Note, 13.00% to 5/14/97,
13.25% from 5/15/97 to
11/14/97, 13.50% from
11/15/97 to maturity ................... 250,000 5/16/1997 277,500
Packaging Resources Inc. Sr.
Sec. Note, 11.625% ..................... 250,000 5/01/2003 257,500
Rose Hills Acquisition Corp. Sr.
Note, 9.50%+ ........................... 250,000 11/15/2004 254,375
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
Corporate (cont'd)
Spanish Broadcasting Systems
Inc. Sr. Note, 7.50% ................... $ 250,000 6/15/1997 $ 267,500
-----------
2,809,646
-----------
Total Fixed Income Securities (Cost $12,653) .................... 12,622,087
-----------
SHORT-TERM OBLIGATIONS 7.6%
Chevron Oil Finance Co., 5.47% .......... 3,000,000 5/01/1997 3,000,000
Deere & Co., 5.49% ...................... 1,867,000 5/06/1997 1,867,000
-----------
Total Short-Term Obligations (Cost $4,867,000) .................. 4,867,000
-----------
Total Investments (Cost $57,831,836)--99.2% ..................... 63,619,712
Cash and Other Assets, Less Liabilities--0.8% ................... 521,020
-----------
Net Assets--100.0% .............................................. $64,140,732
===========
Federal Income Tax Information:
At April 30, 1997, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $57,934,702 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ................................................ $ 7,778,686
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ................................................... (2,093,676)
-----------
$ 5,685,010
===========
- --------------------------------------------------------------------------------
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
* Nonincome-producing securities.
TBA Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the
principal value has not been finalized and may vary by no more than 1%.
+ Security restricted in accordance with Rule 144A under the Securities Act of
1933, which allows for the resale of such securities among certain
qualified buyers. The total cost and market value of Rule 144A securities
owned at April 30, 1997 were $1,594,961 and $1,555,405 (2.42% of net
assets), respectively.
Forward currency exchange contracts outstanding at April 30, 1997, are as
follows:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Total Value Price (Depreciation) Date
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sell Australian dollars, Buy U.S. dollars 474,300 AUD .77900 AUD $ (225) 7/24/97
Buy Australian dollars, Sell U.S. dollars 20,000 AUD .77567 AUD 81 5/14/97
Sell Australian dollars, Buy U.S. dollars 20,000 AUD .75556 AUD (483) 5/14/97
Sell Australian dollars, Buy U.S. dollars 300,000 AUD .77920 AUD (82) 7/24/97
Sell British pounds, Buy U.S. dollars 375,000 GBP 1.62070 GBP 296 5/30/97
Sell Canadian dollars, Buy U.S. dollars 155,000 CAD .74247 CAD 4,018 5/14/97
Buy Canadian dollars, Sell U.S. dollars 155,000 CAD .74228 CAD (3,988) 5/14/97
Buy Danish krone, Sell U.S. dollars 369,200 DKK .15553 DKK (1,355) 5/14/97
Sell Danish krone, Buy U.S. dollars 369,200 DKK .15680 DKK 1,823 5/14/97
Sell European currency units, Buy U.S. dollars 251,000 XEU 1.16180 XEU 8,426 5/14/97
--------
$ 8,511
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1997 (Unaudited)
Assets
Investments, at value (Cost $57,831,836) (Note 1) ............. $63,619,712
Cash .......................................................... 80,642
Receivable for securities sold ................................ 493,831
Interest and dividends receivable ............................. 284,329
Receivable from Distributor (Note 3) .......................... 21,266
Receivable for open forward contracts ......................... 14,644
Receivable for fund shares sold ............................... 522
Deferred organization costs and other assets (Note 1) ......... 71,098
-----------
64,586,044
Liabilities
Payable for securities purchased .............................. 258,469
Accrued transfer agent and shareholder services
(Note 2) ...................................................... 40,553
Accrued management fee (Note 2) ............................... 38,548
Payable for fund shares redeemed .............................. 11,845
Accrued trustees' fees (Note 2) ............................... 5,209
Payable for open forward contracts ............................ 6,133
Other accrued expenses ........................................ 84,555
-----------
445,312
-----------
Net Assets .................................................... $64,140,732
===========
Net Assets consist of:
Undistributed net investment income ........................... $ 266,953
Unrealized appreciation of investments ........................ 5,787,876
Unrealized appreciation of forward contracts and
foreign currency .............................................. 5,196
Accumulated net realized gain ................................. 3,984,019
Shares of beneficial interest ................................. 54,096,688
-----------
$64,140,732
===========
Net Asset Value, offering price and redemption price
per share of Class C shares ($64,140,732 [divided by]
5,662,158 shares of beneficial interest) .................... $11.33
======
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the six months ended April 30, 1997 (Unaudited)
Investment Income
Interest, net of foreign taxes of $764 ........................ $ 709,185
Dividends, net of foreign taxes of $6,343 ..................... 265,054
-----------
974,239
Expenses
Management fee (Note 2) ....................................... 239,709
Custodian fee ................................................. 83,998
Transfer agent and shareholder services (Note 2) .............. 51,039
Audit fee ..................................................... 14,385
Reports to shareholders ....................................... 13,611
Trustees' fees (Note 2) ....................................... 7,356
Registration fees ............................................. 6,646
Legal fees .................................................... 4,048
Amortization of organization costs (Note 1) ................... 3,711
Service fee-Class A (Note 5) .................................. 266
Miscellaneous ................................................. 4,486
-----------
429,255
Expenses borne by the Distributor (Note 3) .................... (77,502)
-----------
351,753
-----------
Net investment income ......................................... 622,486
-----------
Realized and Unrealized Gain (Loss) on
Investments, Foreign Currency and Forward Contracts
Net realized gain on investments (Notes 1 and 4) .............. 4,147,285
Net realized loss on forward contracts and foreign
currency (Note 1) ........................................... (45,661)
-----------
Total net realized gain ....................................... 4,101,624
-----------
Net unrealized depreciation of investments .................... (1,873,118)
Net unrealized appreciation of forward contracts and
foreign currency ............................................ 13,940
-----------
Total net unrealized depreciation ............................. (1,859,178)
-----------
Net gain on investments, foreign currency and
forward contracts ........................................... 2,242,446
-----------
Net increase in net assets resulting from operations .......... $ 2,864,932
===========
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Six months ended
April 30, 1997 Year ended
(Unaudited) October 31, 1996
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ............................ $ 622,486 $ 1,192,012
Net realized gain on investments, foreign
currency and forward contracts ................ 4,101,624 7,998,701
Net unrealized appreciation (depreciation)
of investments, foreign currency and
forward contracts .............................. (1,859,178) 1,718,152
----------- -----------
Net increase resulting from operations ........... 2,864,932 10,908,865
----------- -----------
Dividends from net investment
income:
Class A ........................................ (7,266) (365,226)
Class C ........................................ (954,300) (910,584)
----------- -----------
(961,566) (1,275,810)
----------- -----------
Distributions from net realized gains:
Class A ........................................ (80,854) (850,522)
Class C ........................................ (7,708,753) (463,669)
----------- -----------
(7,789,607) (1,314,191)
----------- -----------
Net increase (decrease) from fund
share transactions (Note 6) .................... 6,132,274 (4,788,166)
----------- -----------
Total increase in net assets ..................... 246,033 3,530,698
Net Assets
Beginning of period .............................. 63,894,699 60,364,001
----------- -----------
End of period (including
undistributed net investment
income of $266,953 and $606,033,
respectively) .................................. $64,140,732 $63,894,699
=========== ===========
*Net realized gain for Federal
income tax purposes (Note 1) ................... $ 4,071,384 $ 7,791,106
=========== ===========
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1997
Note 1
State Street Research Strategic Portfolios: Aggressive (the "Fund"), is a
series of State Street Research Financial Trust (the "Trust"), which was
organized as a Massachusetts business trust in November, 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 May, 1994. The Trust
consists presently of four separate funds: State Street Research Strategic
Portfolios: Aggressive, State Street Research Government Income Fund, State
Street Research Strategic Portfolios: Moderate and State Street Research
Strategic Portfolios: Conservative.
The investment objective of the Fund is to provide high total return from,
primarily, growth of capital and secondarily, current income, consistent with
reasonable investment risk.
The Fund is authorized to issue four classes of shares. Only Class C shares are
presently available for purchase. Class A, Class B and Class D shares are not
being offered at this time. Effective March 27, 1997, the Fund discontinued
offering Class A shares. Class A shares were 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 will be subject to a contingent deferred sales charge on certain
redemptions made within five years of purchase and pay annual distribution and
service fees of 1.00%. Class B shares automatically convert into Class A shares
(which pay lower ongoing expenses) at the end of eight years after the issuance
of the Class B shares. Class C shares are only offered to certain employee
benefit plans and large institutions. No sales charge is imposed at the time of
purchase or redemption of Class C shares. Class C shares do not pay any
distribution or service fees. Class D shares are subject to a contingent
deferred sales charge of 1.00% on any shares redeemed within one year of their
purchase. Class D shares also pay annual distribution and service fees of
1.00%. The Fund's expenses are borne pro-rata by each class, except that each
class bears expenses, and has exclusive voting rights with respect to
provisions of the Plan of Distribution, related specifically to that class. The
Trustees declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Values for listed equity 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. If not quoted on the NASDAQ system, such
securities are valued at prices obtained from brokers. In the absence of
recorded sales, valuations are at the mean of the closing bid and asked
quotations. Fixed income securities are valued by a pricing service, which
utilizes market transactions, quotations from dealers, and various
relationships
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
among securities in determining value. Short-term securities maturing within
sixty days are valued at amortized cost. Securities quoted in foreign
currencies are translated into U.S. dollars at the current exchange rate.
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. 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.
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of the
Fund. 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. The Fund is charged for expenses directly attributable
to it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for foreign currency transactions.
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.
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. 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.
H. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser earns
monthly fees at an annual rate of 0.75% of the Fund's average daily net assets.
In consideration of these fees, the Adviser furnishes the Fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the six months ended April 30, 1997, the fees pursuant to such agreement
amounted to $239,709.
State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the six months ended
April 30, 1997, the amount of such expenses was $45,449.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$7,356 during the six months ended April 30, 1997.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund.
During the six months ended April 30, 1997, the amount of such expenses assumed
by the Distributor and its affiliates was $77,502.
Note 4
For the six months ended April 30, 1997, purchases and sales of securities,
exclusive of short-term obligations, aggregated $39,631,685 and $40,603,329
(including $7,676,589 and $6,850,934 of U.S. Government securities),
respectively.
9
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 will
pay annual service fees to the Distributor at a rate of 0.25% of average daily
net assets for Class A, Class B and Class D shares. In addition, the Fund will
pay annual distribution fees of 0.75% of average daily net assets for Class B
and Class D shares. The Distributor uses such payments for personal service
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 period November 1, 1996 to March 27, 1997, fees
pursuant to such plan amounted to $266 for Class A shares.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At April 30, 1997, Metropolitan
owned 3,605,965 Class C shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Six months ended
April 30, 1997 Year ended
(Unaudited) October 31, 1996
------------------------ ---------------------------
Class A Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .................................. 8,328 $ 101,499 -- $ --
Issued upon reinvestment of:
Dividend from net investment income ......... 54 615 -- --
Distributions from net realized gains ....... 606 6,845 78,245 850,522
Shares repurchased ........................... (59,010) (669,014) (3,647,468) (42,310,619)
-------- ----------- ---------- ------------
Net decrease ................................. (50,022) $ (560,055) (3,569,223) $(41,460,097)
======== =========== ========== ============
Class C Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
Shares sold .................................. 529,047 $ 6,267,000 5,031,860 $ 58,556,573
Issued upon reinvestment of:
Dividends from net investment income ........ 27,067 304,149 14,250 168,031
Distributions from net realized gains ....... 683,399 7,708,745 42,616 463,669
Shares repurchased ........................... (667,157) (7,587,565) (1,901,217) (22,516,342)
-------- ----------- ---------- ------------
Net increase ................................. 572,356 $ 6,692,329 3,187,509 $ 36,671,931
======== =========== ========== ============
</TABLE>
10
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------
November 1, 1996 Year ended October 31
to March 27, 1997 ------------------------------------------
(Unaudited)** 1996** 1995** 1994***
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $12.45 $10.93 $ 9.74 $9.55
---------- ----------- ---------- ------------
Net investment income* 0.10 0.14 0.20 0.09
Net realized and unrealized gain on
investments, foreign currency
and forward contracts 0.41 1.79 1.19 0.14
---------- ----------- ---------- ------------
Total from investment operations 0.51 1.93 1.39 0.23
---------- ----------- ---------- ------------
Dividends from net investment
income (0.13) (0.17) (0.20) (0.04)
Distributions from net realized
gains (1.48) (0.24) -- --
---------- ----------- ---------- ------------
Total distributions (1.61) (0.41) (0.20) (0.04)
---------- ----------- ---------- ------------
Net asset value, end of period $11.35 $12.45 $10.93 $9.74
========== =========== ========== ============
Total return 4.18%++ 18.05%+ 14.49%+ 2.41%++
Net assets at end of period (000s) -- $623 $39,555 $50,999
Ratio of operating expenses to
average net assets* 1.35%+++ 1.35% 1.35% 1.35%+++
Ratio of net investment income to
average net assets* 1.69%+++ 1.43% 1.98% 2.01%+++
Portfolio turnover rate 67.70% 145.59% 127.44% 37.75%
Average commission rate@ $0.0273 $0.0251 -- --
*Reflects voluntary assumption of
fees or expenses per share in
each period (Note 3) $ 0.02 $ 0.01 $ 0.02 $ 0.01
<CAPTION>
Class C
------------------------------------------------------------------
Six months ended Year ended October 31
April 30, 1997 ----------------------------------------
(Unaudited)** 1996** 1995** 1994***
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $12.43 $10.94 $ 9.74 $9.55
---------- ----------- ---------- ------------
Net investment income* 0.11 0.22 0.22 0.10
Net realized and unrealized gain on
investments, foreign currency
and forward contracts 0.45 1.74 1.20 0.14
---------- ----------- ---------- ------------
Total from investment operations 0.56 1.96 1.42 0.24
---------- ----------- ---------- ------------
Dividends from net investment
income (0.18) (0.23) (0.22) (0.05)
Distributions from net realized
gains (1.48) (0.24) -- --
---------- ----------- ---------- ------------
Total distributions (1.66) (0.47) (0.22) (0.05)
---------- ----------- ---------- ------------
Net asset value, end of period $11.33 $12.43 $10.94 $9.74
====== ====== ====== =====
Total return 4.62%++ 18.37%+ 14.85%+ 2.50%++
Net assets at end of period (000s) $64,141 $63,272 $20,809 $102
Ratio of operating expenses to
average net assets* 1.10%+++ 1.10% 1.10% 1.10%+++
Ratio of net investment income to
average net assets* 1.95%+++ 1.78% 2.13% 2.26%+++
Portfolio turnover rate 67.70% 145.59% 127.44% 37.75%
Average commission rate@ $0.0273 $0.0251 -- --
*Reflects voluntary assumption of
fees or expenses per share in
each period (Note 3) $ 0.01 $ 0.03 $ 0.02 $0.01
</TABLE>
- --------------------------------------------------------------------------------
+++ Annualized
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
** Per-share figures have been calculated using the average shares method.
*** May 16, 1994 (commencement of operations) to October 31, 1994
@ For fiscal years beginning on or after November 1, 1995, the Fund is required
to disclose its average commission rate per share paid for security trades.
11
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF
STATE STREET RESEARCH FINANCIAL TRUST
- --------------------------------------------------------------------------------
Fund Information
State Street Research
Strategic Portfolios: Aggressive
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
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
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
John H. Kallis
Vice President
Thomas A. Shively
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 (Morgan Guaranty Trust Company of New York); presently
engaged in private investments and civic affairs
Robert A. Lawrence
Associate, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive Vice President, Chief Operating Officer and
Director, Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of the Board and Chief Executive Officer, Raytheon
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
Jeptha H. Wade
Retired; formerly Of Counsel, Choate, Hall & Stewart
12
<PAGE>
[BLANK PAGE]
<PAGE>
[BLANK PAGE]
<PAGE>
[back cover]
State Street Research Strategic Portfolios: Aggressive [indicia]
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Randolph, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[State Street Research Logo]
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective
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: 3985-970623(0798)SSR-LD SP-237E-697IBS
